Health Care Reform Update Early Treatment for HIV Summit

1. Health Care Reform UpdateEarly Treatment for HIV Summit Greg White Johnson & Johnson July 21, 2009

2. Agenda • Background on Health Reform • Obama Budget Proposals • Current State of Play • Key Provisions of the House Tri-Committee and Senate HELP Bills • Senate Finance Committee Proposal • J&J Positions on HCR • Outlook

4. Obama Budget Projects Large Deficits Throughout the Next 10 Years 2009 Deficit Projected to be 12.9% of GDP Surplus Source: Office of Management and Budget, Updated Summary Tables, FY 2010 Budget, May 2009

5. President Obama -- FY2010 Budget:Eight Principles of Health Care Reform 1. Guarantee Choice 2. Make Health Coverage Affordable 3. Protect Families’ Financial Health 4. Invest in Prevention & Wellness 5. Provide Portability of Coverage 6. Aim for Universality 7. Improve Patient Safety & Quality Care 8. Maintain Long-Term Fiscal Sustainability

6. Obama Health Care Reserve Fund FY 2010 - 2019 Major Financing Components of the Proposed Fund Competitive bidding for Medicare Advantage Lowering tax deductions in the highest income-tax bracket and other tax changes Other healthcare spending reductions $132 billion Total: $635 billion over 10 years * $177 billion $326 billion Medicare & Medicaid Savings $309 billion Tax Increases $326 billion The Budget describes the $635 billion fund as a “down payment” on health care reform. Most experts believe that $1 trillion or more may be required over 10 years to fully finance coverage expansions for the uninsured. * Additional Resources to be Identified withCongress

7. Breakdown of the Health Reform Reserve Fund By Source

8. State of Play • House Tri Committee bill -- Passed Ways & Means Committee -- Passed Education & Labor Committee -- Energy and Commerce. Not yet passed. Chaired by Waxman, largest group of “Blue Dog” Democrats could stall or Waxman may bypass his own committee • Senate HELP (Health, Education, Labor, Pensions) Committee passed bill in Committee • Senate Finance Committee has not marked up a bill – still working on financing, since cap on health benefits exclusion taken off the table.

9. House Tri-Committee Bill: Key Coverage Provisions • Cost: $1.04T. By 2019, # of uninsured would be reduced by 37M, leaving 17M uninsured (half of whom would be unauthorized immigrants) • Key Coverage Provisions: -- Individual mandate -- Employer “Pay-or-Play” Payments: Savings: $163B -- Medicaid eligibility expansion (including childless adults) to 133% FPL, effective 2013. Cost: $438B -- Insurance Exchanges: subsidies to those between 133% to 400% of FPL to purchase insurance through an exchange. Cost: $773B -- Tax credits to small employers. Cost: $53B -- Public plan: Medicare Rates plus 5% (allows HHS Sec. to negotiate drug prices)

10. House Tri-Committee Bill: Other Key Coverage Provisions • Insurance reforms: prohibits pre-existing condition exclusions, requires guaranteed issue and renewal, prohibits medical underwriting, and requires modified community rating (insurers can only vary rates by age, geography, family composition) • Out-of-Pocket Maximum of $5K and lower limits for low-income in the exchange. No annual or lifetime limits allowed • ADAP TROOP: Allows costs incurred by ADAP programs to count against Medicare Part D TROOP • Medicaid: Optional Medicaid coverage of low-income HIV-infected individuals with incomes below eligibility levels for individuals with disabilities. Sunsets 2013.

11. House Tri-Committee Bill: Key Financing Proposals • Reductions in Medicare FFS annual updates. Savings: $196B • Medicare Advantage: Set at Medicare FFS. Savings: $156B • Part D: Medicaid Rebates Applied to Dual Eligibles and PhRMA 50% discounts in the donut hole. Net Savings: $30B • Obama Budget Medicaid Rebate Expansions: Savings $18B • Income sur-tax on families and individuals with incomes above $350K and $280K respectively. $544B in new revenue • Fixing the physician SGR not offset. ($220B)

12. Senate HELP Legislation • Significantly less expensive: $615B over 10 yrs • Does not include Medicaid eligibility expansions or financing proposals (SFC jurisdiction) • Has similarities with the House bill on coverage expansion (individual mandate, employer pay-or-play, insurance reforms, state exchanges, public plan) • Positive Biosimilar or Follow-On Biologics Provisions (12 yrs of Data Exclusivity) • 340B Drug Pricing Expansions (also in House) • Positive wellness and prevention incentives

13. Senate Finance Committee Legislation • Not yet introduced • Most likely to be representative of what can be enacted into law. • Will include similar coverage expansion proposals as HELP and House. Likely less generous subsidies, benefit packages and overall lower cost. • Likely a “cooperative” for a public plan. • Will include financing proposals consistent with agreements negotiated with PhRMA, the hospitals and other organizations • Positive Comparative Effectiveness Research authority

14. PhRMA Agreement

15. Johnson & Johnson Positions on HCR We oppose… We support… • Universal access to coverage • Maintaining private-public mix • Prevention, chronic disease management benefits • Reimbursement that rewards outcomes • Comparative effectiveness focused on clinical not cost • Insurance reforms • Positive Biosimilar legislation in the HELP and Eshoo Bills. • Government plan, with Medicare rates • Non-interference repeal, price controls • Erosion of employer coverage • Budget and financing that undercut access and innovation, harm global competitiveness

16. Prospects for Reform • Ambitious Goals: Senate & House bills completed by August Congressional recess; bill sent to President by October. • Overall financing issues and impact on the Federal Budget becoming more of a focus • Comprehensive vs. incremental reform? • Fast-track “reconciliation” process could be adopted in the Fall if bi-partisan negotiations falter in the House • Key Issues for debate: financing; public plan option

17. Questions?