1. © 2008 Hogan & Hartson LLP. All rights reserved. Bob Kyle, Partner Candi Wolff, Partner October 7, 2009 Procedural Rules of the Road For Health Care Reform

2. 2 © 2008 Hogan & Hartson LLP. All rights reserved. Why Do We Care About Procedure? “You take the policy and I’ll take the process — and I’ll beat you every time.” - Rosty’s Rule

3. 3 © 2008 Hogan & Hartson LLP. All rights reserved. Key Conclusions Regular Order Preferred: Regular Order is the preferred option for consideration of health care legislation, especially in the Senate, but a number of hurdles must be overcome to get 60 votes to end debate and possibly 60 votes to waive any points of order against the bill. Key Votes to Watch:  House: Look for scheduling of House vote. Leadership will bring bill to the floor only when votes exist to pass it. Only majority vote required.  Senate: Look for passage of vote to end debate (cloture vote). Requires support of 60 Senators. Key issue is whether the vote will be viewed as a substantive vote (i.e., you can’t both be against the bill and for cloture). Reconciliation As Fallback: Reconciliation is a fall-back procedure if Regular Order is unsuccessful in the Senate. Key Votes to Watch:  House: Scheduling of House vote. (Reconciliation not meaningful in House.  Senate: Democratic leadership defeats Byrd Rule points of order.

4. 4 © 2008 Hogan & Hartson LLP. All rights reserved. Procedural Roadmap

5. 5 © 2008 Hogan & Hartson LLP. All rights reserved. Regular Order

6. 6 © 2008 Hogan & Hartson LLP. All rights reserved. What Is Regular Order and Why Use It? What Is Regular Order?: Regular Order is the use of the regular rules of the House and Senate for consideration of health care legislation. Passage would require a majority of votes in the House and a 3/5 vote (60) in the Senate to end debate and bring the bill to a vote (which could then pass with a simple majority vote). Why Use It?:  Reduces partisanship to the extent it protects minority rights  Provides an opportunity for full debate and amendment process  Provides an opportunity for Republican support

7. 7 © 2008 Hogan & Hartson LLP. All rights reserved. House of Representatives

8. 8 © 2008 Hogan & Hartson LLP. All rights reserved. House Roadmap: Committees Three Committees Have Jurisdiction: H.R. 3200, America’s Affordable Health Choices Act of 2009, was introduced in the House and sent to three main committees for consideration (Ways & Means, Energy & Commerce, and Education & Labor). All Three Committees Have Reported Legislation: The three committees have reported their versions of H.R. 3200 and sent the bills to the Rules Committee to be put together and brought to the floor as a single bill.  Energy & Commerce: Reported 7/31 by a vote of 31-28  Ways & Means: Reported 7/17 by a vote of 23-18  Education & Labor: Reported 7/17 by a vote of 26-22 Leadership Is Drafting the “House” Bill: Practically speaking, the House leaders are drafting the bill to be brought to the House floor and they won’t bring it up until they are confident they have the necessary votes.

9. 9 © 2008 Hogan & Hartson LLP. All rights reserved. House Roadmap: Rules Committee Rule Needed to Debate Health Care Legislation: Major pieces of legislation generally require a “special rule” to be adopted before a bill can be considered on the floor of the House. Such a rule is reported by the Rules Committee. Rule Determines Base Text: One of the most important features of a rule is what it designates as the base text for purposes of amendment. Options include 1) compiling the text of the committee amendments; 2) completely new text; 3) some version of 1 and 2. Rule Controls Debate and Amendments: The Special Rule controls what the House can and can’t do with respect to a bill. It sets the length of debate and what, if any, amendments will be offered.

10. 10 © 2008 Hogan & Hartson LLP. All rights reserved. Types of Rules Specific Types of Rules Include:  Open Rule: Permits general debate and allows any member to offer an amendment as long as it compiles with the Rules of the House  Modified Open Rule: Permits general debate and allows any member to offer a germane amendment as long as the amendment is pre-printed in the Congressional Record  Structured Rule: Permits general debate for a set period of time and limits amendments to only those designated in the Rule or reported by the Rules Committee  Closed Rule: Permits debate for a period of time but does not allow amendments

11. 11 © 2008 Hogan & Hartson LLP. All rights reserved. House Roadmap: Floor and Final Passage Amendments Must Meet PAYGO requirements: If amendments are offered, they will need to meet PAYGO requirements and must be deficit neutral in years 1, 5 and 10. Key Vote is Passage of the Rule: The Rule must be adopted by majority vote before the House can begin to debate the health care legislation. These votes are generally always party line and will indicate if the votes exist to pass health care legislation. Final Passage: A majority vote is required to pass a health bill. Once passed, the House bill is sent to the Senate to await Senate action.

12. 12 © 2008 Hogan & Hartson LLP. All rights reserved. Senate

13. 13 © 2008 Hogan & Hartson LLP. All rights reserved. Senate Roadmap: Committees Two Committees Have Jurisdiction: Senate Finance and Senate Health, Education, Labor, and Pension Committees have jurisdiction over health care reform. Leadership Will Meld the Two Bills Into One: As in the House, the Senate Democratic leaders will combine the bills to bring them to the floor for debate.

14. 14 © 2008 Hogan & Hartson LLP. All rights reserved. Senate Roadmap: Floor Debate Practical Effects of the Senate Rules on Floor Debate:  Non-germane Amendments Are in Order: Senators can offer amendments unrelated to the text of the health care legislation (called “non-germane” amendments).  Unlimited Debate: While the House can limited debate and amendments by a Rule, the Senate can only do so by getting unanimous agreement or by a so-called “cloture vote” which shuts off debate.  60 Votes Required to End Debate and Move to a Vote: 60 out of 100 Senators must vote to end debate and move to a vote on the bill or amendment.  60 Votes Required to Waive Budget Act Violations: Amendments that violate the budget act and increase the deficit will require 60 votes to waive the budget rules in order to pass an amendment.

15. 15 © 2008 Hogan & Hartson LLP. All rights reserved. Cloture Votes What Is the Benefit of Cloture?: If 60 Senators agree to invoke cloture and end debate on an amendment or a bill, there is now a defined period of time for debate and amendments must be germane to the health care legislation and made publicly available. When Might Cloture Be Needed?: To begin debating health care legislation (motion to proceed); on individual amendments related to the health care legislation; and to end debate on the health care bill. Key Vote Will be Cloture on the Health Care Bill: The key vote will be whether 60 Senators agree to end debate to vote on the legislation: one side will argue that a vote for cloture is simply a procedural vote; the other side will argue that the procedural vote is a substantive vote.

16. 16 © 2008 Hogan & Hartson LLP. All rights reserved. Budget Rules Budget Act Points of Order May Be More Difficult: 60 votes are required to waive the budget act if amendments or the bill violate budget rules and increase the deficit. Long-term Deficits: A budget act point of order applies to health care legislation that causes a net increase in the deficit in excess of $5 billion in any of the 4 consecutive 10-year periods (2020-2029, 2030-2039, 2040-2049, or 2050-2059). 60 votes are needed to waive the point of order. As currently drafted, the Senate Finance Committee bill does not violate the long-term deficit point of order. PAYGO Rules Impact Amendments: A budget act point of order requires legislation affecting direct spending or revenues be deficit neutral over 6-year and 11-year windows. 60 votes are required to waive the point of order.

17. 17 © 2008 Hogan & Hartson LLP. All rights reserved. Regular Order: “Conference” Formal Conference Could Occur: To reconcile differences in the House and Senate bills, Congress could form a Conference Committee to work out the differences. Possible to Avoid a Formal Conference: It is possible to avoid a formal conference and vote on changes as “amendments in disagreement.” Either Way Leadership Will Write the Final Bill Final Passage: Either process requires a simple majority vote in the House and 60 votes in the Senate.

18. 18 © 2008 Hogan & Hartson LLP. All rights reserved. Reconciliation

19. 19 © 2008 Hogan & Hartson LLP. All rights reserved. Why Would They Use Reconciliation? Procedural Advantages:  Only 51 votes required for final passage  Limited debate (20 hours)  Amendments must be “germane” However…:  Provisions must not be “extraneous” to reconciliation bill (Byrd Rule).

20. 20 © 2008 Hogan & Hartson LLP. All rights reserved. What Is Reconciliation? Starts with Budget Resolution: Annual budget resolution passed by Congress establishes targets for total revenues/ outlays to reach an overall deficit/surplus for that year. Typically, the Appropriations Committees, other committees, and existing law decide the bulk of the revenues/outlays. Direction to “Reconcile” Differences/Shortfalls: Sometimes the Budget Committee directs specific committees to “reconcile” a revenue/outlay difference between the House and Senate budget resolutions — or simply make up a difference necessary to reach the overall targets. Original Rationale/Motivation: Reconciliation originally created to permit spending cuts/tax increases (e.g., Medicare cuts) that might not survive the procedural hurdles faced by normal legislation (e.g., 60 votes). Expansion in Recent Years: Both Republicans and Democrats have used it increasingly to move controversial legislation with only 51-vote support. Reconciliation in House: No meaningful effect, because House Rules Committee sets terms of debate, amendments, etc. However, House must pass the reconciliation bill first, since it is a revenue measure.

21. 21 © 2008 Hogan & Hartson LLP. All rights reserved. How Does Reconciliation Work This Year? Budget Resolution Direction: This year’s budget resolution directed the Senate Finance Committee (“Finance”) and Senate Health, Education, and Labor Committee (“HELP”) each to report out legislation “not later than October 15” to reduce the budget deficit by $1 billion over the 2009-2014 period. Flexibility in Reaching Amount: Committees may change revenues or outlays by as much as they want so long as they achieve a net reduction of $1 billion. Thus a $900 billion health care spending package is acceptable, so long as there is at least $901 billion in savings. October 15 Date Is Fluid: “There’s not a budget prison that we send people to when they miss that date.” (Jim Nussle, former Chairman of the House Budget Committee)

22. 22 © 2008 Hogan & Hartson LLP. All rights reserved. How Does the Committee Process Work? Consistency Not Required: The Committee bills need not be consistent with each other. Two very different health care bills are likely to emerge. Senate HELP Committee likely to use student loan program reforms as offsets to fund health care spending increases. Referral to Budget Committee: Both bills (Finance and HELP) are referred to the Senate Budget Committee, which simply bundles them into one bill “as is” and reports the consolidated bill to the Senate floor. Senate Budget Committee cannot change the substance of either bill. Reid to Reconcile?: Incompatible bills likely to be reconciled by Senate Majority Leader Reid into a substitute amendment, probably during regular order effort. Composite bill may need to go through committee process again.

23. 23 © 2008 Hogan & Hartson LLP. All rights reserved. How Does the Senate Floor Process Work? Procedural Protections:  Only 51 votes required for final passage  Debate limited to 20 hours  Amendments must be germane But … Byrd Rule Applies

24. 24 © 2008 Hogan & Hartson LLP. All rights reserved. What is the Byrd Rule? Byrd Rule Defined: Provision in reconciliation bill cannot have provisions that are “extraneous.” If extraneous, point of order can be raised by any one Senator and provision must be removed from bill unless Byrd Rule “waived” by 60 Senators (back to cloture threshold). Rationale: Purpose is to ensure favored reconciliation process used only for original purpose, deficit reduction. “Extraneous” Defined: A provision is “extraneous” if:  It does not change spending or revenues  Unless it is a necessary term or condition of another provision that does affect spending or revenues  If spending/revenue change is merely incidental to the non- budgetary components of the provision  It would increase the deficit for a fiscal year beyond those covered by the reconciliation measure

25. 25 © 2008 Hogan & Hartson LLP. All rights reserved. What is the Byrd Rule? (cont’d) Parliamentarian Critical: Points of order referred to Senate Parliamentarian, who rules whether provisions are “extraneous.” Critical role. Byrdisms:  Byrd Bath: When a bill has been subject to multiple points of order  Byrd Droppings: Provisions removed from the bill under a Byrd Rule point of order

26. 26 © 2008 Hogan & Hartson LLP. All rights reserved. How Would the Byrd Rule Apply to Health Care Legislation? Chief Question: Could all health care provisions survive a Byrd Rule challenge? Would many end up as Byrd Droppings, destroying a coherent package? Examples:  Likely Surviving: Medicare cuts or expansions, because they would affect revenues or outlays  Likely Not Surviving: A provision requiring private insurance company coverage regardless of pre-existing conditions Manipulation Possible: Survivability may depend on how provision structured. A cooperative established through annual appropriations would itself have no budget effect and would fall to the Byrd Rule. If established with mandatory spending (no annual appropriations required), it might survive.

27. 27 © 2008 Hogan & Hartson LLP. All rights reserved. What Types of Provisions Might Survive/Not Survive? Likely to Survive Byrd Rule Challenge:  Medicaid cuts/expansions  New taxes (e.g., tax on “Cadillac” plans)  Subsidies for health insurance for lower income citizens  Individual mandates (e.g., penalties for failure to buy health insurance)  Employer mandates (e.g., requirements to provide insurance) Likely Byrd Droppings:  Exchanges/gateways (e.g., mere establishment of market/terms)  Health insurance consumer protections (e.g., pre-Existing conditions, appeal rights, prohibit medical underwriting)  The public option? (depends on how structured)

28. 28 © 2008 Hogan & Hartson LLP. All rights reserved. What Types of Provisions Might Survive/Not Survive? (cont’d) “Sidecar” Possible:  Provisions not meeting Byrd standard might be bundled in a legislative “sidecar” and moved as separate legislation.  Sidecar is subject to normal Senate process (e.g., 60 votes required). Many Amendments Possible  Amendments require only 51 votes, but subject to strict germaneness and non-extraneous rules.  Because debate time is limited, many amendments may receive no debate, but still be voted in stacked votes at the end of debate period (the “vote-a-rama”).

29. 29 © 2008 Hogan & Hartson LLP. All rights reserved. Reconciliation in Senate — Conclusions Reconciliation as Fallback: Democrats may need to try “normal” legislative process before resorting to reconciliation. Try bipartisan approach first. Uncertainty About Byrd Rulings: There are still substantial uncertainties about what provisions the Parliamentarian would rule survives. Depends on Creativity in Structuring: Can creative structuring keep a coherent package insulated from Byrd Rule attacks? Sidecar Acceptable?: Unclear whether sidecar could receive 60 votes. Could depend on content and outright Republican opposition at that point. Heightens Partisan Atmosphere: Reconciliation much more partisan approach.Taints success if ultimately need 60 votes? Broader political downsides?

30. 30 © 2008 Hogan & Hartson LLP. All rights reserved. Conference: Reconciliation Getting To Conference:  Senate: Motion to go to conference is governed by reconciliation rules.  House: A reconciliation bill may be sent to conference by a rule requesting a conference; one motion to instruct conferees is in order for the minority. 10 hours of debate Motions to instruct conferees are allowed Motions do not bind the Senate conferees

31. 31 © 2008 Hogan & Hartson LLP. All rights reserved. Conference: Reconciliation (cont’d) Passing Conference Report:  House: Consideration of the conference report is governed by a rule; simple majority required for passage.  Senate: Reconciliation Rules govern debate and passage: 10 hours of debate Simple majority Byrd Rule and budget act still apply which may require 3/5 vote to waive Any changes requires the House to re-pass the Senate bill

32. 32 © 2008 Hogan & Hartson LLP. All rights reserved. Abu Dhabi Baltimore Beijing Berlin Boulder Brussels Caracas Colorado Springs Denver Geneva Hong Kong Houston London Los Angeles Miami Moscow Munich New York Northern Virginia Paris Philadelphia San Francisco Shanghai Silicon Valley Tokyo Warsaw Washington, DC For more information, please visit us at www.hhlaw.com