1. National Health Care Reform: Issues and Outlook James C. Capretta Fellow, Ethics and Public Policy Center email: jcapretta@eppc.org Worldwide Employee Benefits Network Cleveland, OH April 16, 2009

2. 2 Content Issues driving reform agenda Outline of the emerging Congressional plan Issues for job-based coverage: – Potential “pay or play” dynamic – Minimum benefit structure – Potential changes in the federal tax preference Issues to watch: – Paygo: support for offsets? – “Budget reconciliation”? – Sufficient cost-side agenda?

3. 33 Source: Income, Poverty, and Health Insurance Coverage in the United States: 2007, Census Bureau, Table C-1. Employer- Sponsored 177 million Other Private 27 million Medicare 41 million Medicaid 40 million Military 11 million 4% Uninsured 45 million 59% 15% 9% 14% 13% The Census Data

4. 44 Additional Data Sources Source:“A Primer on the CPS Estimate of America’s Uninsured,” National Institute for Health Care Management, August 2006.

5. 55 Cost Pressure Sources: Income, Poverty, and Health Insurance Coverage in the United States: 2006, Census Bureau, Table A-1, and CMS National Health Expenditure Data (www.cms.gov).

6. 66 Firm Size, Public Insurance, and the Uninsured Source: Notes, Employee Benefit Research Institute, Vol. 26, No. 10, October 2005, Figure 3.

7. 77 Reform Prototype and Issues “Universal Coverage” Coverage “Pay or play” employer mandate “Individual Mandate” (at some point) New insurance subsidies (to 300 to 350% of poverty) Medicaid/SCHIP expansion Regulatory Structure Stabilize risk pools with national/or state-based insurance exchange system which merges individual and small group market New public insurance option for working age people not enrolled in a job-based plan Cost Escalation Remedy Health information technology Emphasis on chronic disease prevention and treatment “Comparative effectiveness” research Medicare-driven “pay for performance” changes Some Key Issues Minimum benefit package? How determined? Enforcement of an individual mandate? National or state exchange? Will cost remedies make a sizeable dent? Political support for financing sources? Will a public plan option crowd out private coverage?

8. 88 The Massachusetts Connector Eligible Enrollees Insurers Non- Working Individuals The Connector Some Key Features Merges individual and small group markets. Takes premiums and pays insurers on behalf of eligible enrollees. Full federal tax preference retained for workers in small businesses. Annual open enrollment. Will receive premium subsidies from state for 100%-300% of poverty enrollees. Young enrollee products. Sole Proprietors Small Business Employees (under 50) Non-Offered Individuals BC/BS Harvard Pilgrim Tufts Fallon New Entrants, Others

9. 99 Federal Tax Preference for Job-Based Plans Federal Income Taxes Federal Payroll Taxes 2007 Total = $246.1 (billions) Source: “Tax Expenditures for Health Care,” Joint Committee on Taxation, JCX-66-08, July 30, 2008.

10. 10 Source: Tax Expenditures for Health Care, Joint Committee on Taxation, JCX-66-08, July 30 2008, p. 5. The Income Distribution of the Tax Preference

11. 11 Average Wage Per Employee $ Spent on Health Coverage Per Worker Employer-Sponsored Insurance (ESI) Premium Per Worker “Pay or Play” Employer Tax Pay or Play Tax < ESI Cost Pay or Play Tax > ESI Cost Potential “Pay or Play” Dynamic

12. 12 Budget Reconciliation Process for “reconciling” program spending within a Committee’s jurisdiction with the spending allocation assumed in the budget resolution. Typically, committees are given to a date certain to report legislation meeting their target The “Byrd Rule” allows removal of “extraneous” provisions from a “reconciliation” measure. Can a coherent health-care reform bill work with the Byrd Rule in effect? The bottom line: budget reconciliation process allows bills to pass in the U.S. Senate with 51, instead of 60, votes. Laws Enacted Via Reconciliation 1981 spending reduction plan (Reagan). 1993 tax and budget plan (Clinton) 1997 Balanced Budget Act (Clinton-Gingrich) 2001 tax cut (Bush)

13. 13 Pay-As-You-Go Entitlement Cuts + Tax Increases = > Entitlement Increases + Tax Cuts (Ten-Year Test) Per Year Premium Discounts for Households Below 300/350% of Poverty~$150 B Limit Tax Deductions for Charitable Contribution and Home Mortgage Interest for High Earners- $30-40 B Cuts for Medicare Advantage Plans- $20-30 B Other Medicare Changes-$10-20 B “Tax Cap” for Employer-Paid Premiums-$30-40 B

14. 14 Longer Range Federal Cost Projections Medicare Medicaid Source: The Long-Term Budget Outlook, CBO, December 2007 (extended baseline scenario).

15. 15 The Cost-Side Agenda Per Capita Spending Growth 1975 to 2005 Real Per Capita Cost Growth Excess Cost Growth* Medicare4.6%2.4% Medicaid4.4%2.2% Other Health Care4.1%2.0% *Source: The Long-Term Outlook for Health Spending, CBO, November 2007. *Excess Cost Growth is per capita spending growth rate in excess of per capita GDP growth. “Engineering” a More Cost- Effective Delivery System: – Health Information Technology – Comparative Effectiveness Research – Reimbursement Reform (Pay for Performance, Value- Based Purchasing) The Issue The Remedies Sufficient?