A 2013 REPORT CARD ON HEALTHCARE REFORM ACCOMPLISHMENTS Healthcare Landscape before Affordable Care Act (PPACA) Summation of initial accomplishments of PPACA Summation of looming challenges to be confronted by PPACA Main Provisions of law become effective January 1, 2014 & January 1,

BEFORE THE AFFORDABLE CARE ACT BENEFITS BEGAN PHASE IN 60 million uninsured persons for a minimum of three months 48 million of the 60 million were uninsured for the entire year Persons with preexisting conditions were particularly hard hit More bankruptcies in America due to uncovered healthcare costs than any other cause(s) of insolvency 55% of employers providing health insurance in 2011 v 91% in

TYPICAL HEALTH BENEFIT PAYMENTS UNDER EMPLOYER BASED SYSTEM Total benefit payments accounted for 70-90% of premiums Claims Breakdown for a typical insured group – 500 of 1,000 insureds=no claims/policy year – 375 of 1,000 insureds=payments of up to $500/yr – 2 of 1,000 insureds=payments of >$10,000/yr – Overall Average Cost of Claims per insured = $560 per policy year (not including shock losses) 3

OPERATIONAL EXAMPLE OF EMPLOYER BASED GROUP COVERAGE 1,000 FOLLOWING PREMIUMS – Employee only lives= $48,000/month – Employee + 1 or more lives=$210,000/month – Total premium/month=$258,000 x 12 months= $3,096,000 annualized – Average of claims= $560 x 1,000 employees= $560,000/year before shock losses – Two shock losses of $1,000,000 + $500,000=$1.5m 4

OPERATIONAL EXAMPLE EMPLOYER BASED GROUP COVERAGE (2/2) Sub total = $3,096,000 minus $560,000 minus $1,500,000= $1,036,000 surplus to cover other operating expenses such as cost of reinsurance (stop loss coverage), admin overhead, acquisition costs (commissions + marketing fees + bonuses for executives & producers) Operating Expenses = 20% of total premiums =$619,200 $1,036,000 – $619,200=$416,800 pre tax surplus =13.5% After tax profit=$416,800 x.61=$254,248 Return on total premium to insurance co.=8% 5

(1) Expanded Coverage (2) Preventive Care Since 2010 family coverage now includes dependent children up to age 26 – 6.6 million children ages are on parents’ plans Free Preventive Care w/o deductibles or co-pays – 71 million Americans have received at least one preventive service – 34 million Senior Citizens have received at least one preventive services 6

(3) Children with Preexisting Conditions (4) Adults with Preexisting Conditions 17 million children have been protected against being uninsured More than 107,000 adults have joined a federally run insurance plan for people with pre-existing conditions – Law precludes cancelling policies for preexisting conditions – Previously at least 10,000 people per year lost coverage 7

(5) Law Requires & Funds Additional Community Health Centers PPACA appropriated $11B over 5 years to build & operate community health centers – This shall increase patients served from 18 million per year to 21 million per year PPACA also placed $5B in a reinsurance program that encourages employers to retain coverage for retirees & families – 19 million people have benefited with reduced premiums or cost sharing 8

(6) Private Insurers Must spend 80-85% of Premium Revenues on Medical Claims or Quality Improvements In 2012 $1.1B was returned to policy holders in rebates – Average of $151 rebate per family Rate Increases of 10% or more for people buying their own policies must receive Federal approval – Proportion of rate increase filings decreased from 75% in 2010 to 34% in 2012 – Average premium increase 30% lower in

(7) Prescription Drug Discounts to Medicare Beneficiaries (8) Reigning in Health Care Costs More than 6.3 million older and disabled Americans have saved money – More than $6.1B saved on prescription medications Sharp declines annual growth of healthcare spending – Providers may be acting more frugally – Reduction in overpayments to Medicare advantage programs – Medicare Advantage premiums have decreased by 10% & enrollments have risen by 28% since passage of PPACA 10

(9) Open Enrollment in Health Insurance Marketplace; (10) Increased Medicaid Payments for Primary Care Physicians Open Enrollment in Marketplace is making coverage available to previously difficult to place risks, despite enrollment difficulties Requires States to pay Medicaid Providers 100% of Medicare Rates for Evaluation & Management + Vaccine Administration Services for Medicaid recipients, thereby increasing the incentive of availability of more primary care providers 11

Focus of PPACA Clearly is on Improving Quality Percentage of Medicare Patients requiring re- admission to hospitals within 30 days of discharge dropped from 19% over past five years to 17.8% during first half of 2012 ($650B x.012=$78,000,000) – Due to penalties imposed by Medicare for poor performance (Present on Admission Standards) – Also due to financial incentives encouraging better coordination of care during transition period (Present on Admission Standards) – ACO Experiment could transform healthcare in U.S. Encourages coordination of care + lowering of costs 12

LOOMING CHALLENGES (1)Implementation of Insurance Exchanges -not all states on-board -36 states using Federal Exchange -14 states have insurance exchange (2) Inauguration of the Individual Mandate -oversight by IRS (3) Delayed Implementation of Employer Mandate -oversight by IRS (4) Politics -delay of employer mandate opened door to efforts to reverse program 13

GRADING PPACA PARTS OF LEGISLATION IMPLEMENTED THROUGH 2012= GRADE OF A INSURANCE EXCHANGES CONCEPTUALLY MERITS GRADE OF B; Roll out merits mid term grade of F thus far ON SOON TO BE IMPLEMENTED EMPLOYEE MANDATE= GRADE OF C+ ; Roll out merits a midterm grade of F – PENALTY FOR NOT ENROLLING LAUDABLE BUT TOO MODEST DELAY OF EMPLOYER MANDATE MERITS GRADE OF F – OPENED DOOR FOR CONGRESSIONAL GAMESMANSHIP – THREAT TO DEFUND ACA ENCOURAGED BY THE ADMINISTRATION’S TIMIDITY ON EMPLOYER MANDATE IMPLEMENTATION 14

Grading PPACA (continued) Roll Out of the Insurance Exchanges for first grading period = grade of F – Remains to be seen if ship can be righted – President has been portrayed as disengaged & uninformed – Congress has been portrayed as obstreperous – President & Congress awarded mid term grades of F for their intransigence & damaging behavior 15

WHAT ABOUT THE FUTURE? Administration cannot rely on Contractors to do the right thing Must ‘get hands dirty’ & take charge of the roll out process Must hold contractors, HHS leadership, & CMS Leadership accountable Changes in top level Federal executives will be necessary if current corrections to roll out do not result in material progress 16

What about the future? High Stakes-a failure to show firm leadership now could result in a loss of confidence in the workability of the new law Fortunately, despite a majority of Americans opposing what they call ‘Obamacare’ a large majority support all but one of the elements of the Patient Protection & Affordable Care Act— one in the same! Only element of ACA not supported = Individual Mandate 17

CONFOUNDING AMERCAN OPINIONS REGARDING PPACA Health Insurance Exchanges=79%+ Subsidy to those in need=71%+ Medicaid Expansion=69%+ Employer Mandate=61%+ (includes penalty for non-compliance) Individual Mandate=67%- (with penalty for non-compliance) + = favorable - = unfavorable 18