Health Care Reform s Impact on Pharmacy Benefits Midwest Business Group on Health Pharmacy Benefits Academy Steve Wojc

1. 1 Health Care Reform�s Impact on Pharmacy Benefits Midwest Business Group on Health Pharmacy Benefits Academy Steve Wojcik Vice President, Public Policy National Business Group on Health Chicago August 20, 2010

2. 2 About the National Business Group on Health Representing About 300 Mostly Large Employers 61 of the Fortune 100 NBGH Is the Nation�s Only Non-Profit Organization Devoted Exclusively to: Finding Innovative and Forward-thinking Solutions to Large Employers Most Important Health Care and Related Benefits Issues Speaking for Large Employers on National and State Health Issues Members Provide Health Care Coverage to over 50 Million U.S. Workers, Retirees and Their Families

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4. 4 About the Annual National Business Group on Health/Towers Watson Survey Tracks Health Plan Strategies and Practices of U.S. Employers with at Least 1,000 Employees Surveyed between November 2009 and January 2010 507 Respondents Who Collectively Employ 11.5 Million Employees In 2009, Respondents Spent Average of $7,700 Per Active Employee/ Totaling $62 Billion In Annual Health Care Expenditures.

5. 5 Employer Health Care Cost Increases Ease, But Still Significantly above CPI

6. 6 Use of Financial Incentives to Change Employee Decisions Related to Use of Health Care Services

7. 7 How to Meet Spend Reduction Challenge Identify Changes Most Likely to Achieve Shorter Term Savings � Monitor Closely, Plan Additional Changes, If Needed CDHP � Depending On Design, Should Have Early Impact Other Plan Design? Coinsurance Increases? Contribution Increase? Rx Changes? All Can Save Quite a Lot When Behavior Is Changed Identify Changes That Should �Bend The Curve� � Though Actual Spend Reduction May Not Occur Immediately Smoking Cessation Support, Monitor Closely, Increase $ And Live Resources Aggressively Promote EAP to Reduce Stressors, Access Short-term Therapy Focus on Messages That Most of The Need For Health Care Is Driven By Choices that Employee and Family Members Make

8. 8 How to Meet Spend Reduction Challenge (continued) Publicize Widely, Low Cost Drugs, Alternative to Costly Visits, Including ER, Such as Primary Care, Retail Clinics, Urgent Care. Keep Publicizing Cost and Safety Differences. In Communities With Substantial Penetration, Take Data to Hospitals and Ask Them to Work with Your and Your Administering Health Plan to Reduce Costs, Eliminate Health Care-Acquired Infections and Preventable Serious Adverse Events � Offer Lean Manufacturing and Share Savings. Pick Hospitals Willing to Use Electronic Records and Link to Doctors, Outpatient Providers. Use Location-Specific Data to Drive Special Programs and Negotiations with Providers. Support Palliative Care Programs in Serious Advanced Illness

9. 9 Patient Protection and Affordable Care Act of 2010 President Signed Law at End of March 2010 Law Is Complicated, Unclear in Some Parts Plans in Existence as of March 30, 2010 Are Initially Exempt from Some Requirements Regulations Start to Clarify Unclear Provisions Will Raise Plan Administration Costs Plans Expect Overall Health Care Costs to Continue to Outpace Economic Growth

10. 10 Employers Believe Law Will Increase Costs, Reduce Benefits

11. 11 Key Employer Provisions that Take Effect Now and in 2011 Lose Tax Exemption for Retiree Drug Subsidies (Immediate Accounting Reporting Requirement, Takes Effect 2013) Apply for Temporary Government Early Retiree Reinsurance Program (2010-2014) Comply with Plan Mandates (2011) Cover Dependents Up to Age 26 No Lifetime Dollar Limits on Overall Benefits Restrictions on Annual Dollar Limits on Overall Benefits No Pre-Existing Condition Exclusions for Children under 19 No Use of FSA, HSA, or HRA for OTC Medicines (2011) Increase Penalty for Use of HSA for Non-Medical Expenses (2011) May Offer Voluntary Employee-Funded New Community Living Assistance Benefit (2011) Freeze and Cut Private Medicare Plan (Medicare Advantage) Payments (2011-2018)

12. 12 Key Employer Provisions that Take Effect in 2012-2013 Report Value of Health Benefits on W-2s (2012) Tax Plans for Comparative Effectiveness Research (2012-2018) Auto-Enroll New Hires in Health Plan (Likely Effective in 2013) Limit Maximum FSA Amount to $2,500 (2013) Notify Employees of Availability of and Potential Eligibility for Health Insurance Exchanges/Tax Credits (March 1, 2013) Begin Medicare Surtax for High Income Earners (2013)

13. 13 Key Employer Provisions that Take Effect in 2014 Free Rider Assessment (2014) Employer Subsidy Vouchers for Certain Employees Whose Coverage Approaches Unaffordability (2014) Additional Employer Plan Requirements (2014) No Annual or Lifetime Limits on Essential Benefits Bans Waiting Periods Longer than 90 Days Bans Pre-Existing Conditions Exclusion Clauses for Adults HIPAA-Allowed Wellness Incentives Increase to 30% of Total Plan Costs (2014) Medicaid Assistance to Medicaid-Eligible People in Employer Plans (2014)

14. 14 Key Employer Provisions Beyond 2014 States May Allow Large Employer Plans to Join Exchange (2017) Begin �Cadillac� Tax on Higher Cost Plans (2018)

15. 15 Other Provisions Indirectly Affecting Employer Plans Beginning in 2011, Health Industry Surtaxes on Pharmaceutical, Insurance, and Medical Device Industry Individual Mandate Beginning in 2014, Penalties Set Initially at $95 or 1% of Household Income and Increased to $695 or Up to 2.5% of Income in 2016, Dollar Amount of Penalty Adjusted by COLA Thereafter or 2.5% of Income

16. 16 Law Expands Alternatives to Large Employer Coverage For Employees: Reforms of Individual and Small Group Insurance Markets (Some Take Effect Immediately, Others in 2014) Tax Credits for Small Employer Coverage (2010) Tax Credits for Exchange Coverage for Middle Income People (Up to 400% of Poverty) (2013) Medicaid Expansion to 133% of Poverty in All States (2013) State-Level Insurance Exchanges (Each Exchange Must Have at Least 2 Multistate Plans) (2014) For Medicare-Eligible Retirees: Phase-Out of Medicare Prescription Drug Benefit �Donut Hole� (2010-2020) 50% Discount on Brand Rx Purchased in �Donut Hole�

17. 17 Medicare Changes May Have + Spillover Effect on Private Plans Payment Changes: Ban Self-Referral to Additional Physician-Owned Specialty Hospitals (2011) Reduce Payments for Imaging in Medicare (2011) Boost Primary Care/General Surgery Payments in Medicare (2011) Center for Medicare/Medicaid Payment Innovation (2011) Move Faster Toward Paying for Performance in Medicare (2013) Independent Medicare Payment Advisory Board (2015) Delivery Changes: Expand Primary Care Medical Home Pilots (2011) Shared Savings/Accountable Care Organizations in Medicare (2012) Bundled Payments to Coordinate Care (2013 Pilots, 2016 Expanded)

18. 18 Other Positive Changes Improving Delivery of Care Increases Provider Price and Quality Transparency (2010) Boosts Primary Care Workforce (2011) Expands Health Information Technology Support (2012)

19. 19 Specific Impact on Employer-Sponsored Pharmacy Benefits Provisions Raising Cost of Pharmacy Benefits Taxation of Retiree Drug Subsidy (Immediate Impact, 2014) Closing of Medicare Part D �Doughnut Hole� (2010) Pharmaceutical Industry Surtax (2011)

20. 20 Specific Impact on Employer-Sponsored Pharmacy Benefits Provisions Reducing Cost of Pharmacy Benefits FDA Fast-Track Approval Process for Biologics (Immediate) Higher Medicaid Rebates (2010) Reduced Delays in Generic Approvals Due to Brand Label Changes (2011) Pharmaceutical Firm Gift Disclose Requirements (2013) PBM Transparency Requirements (2014)

21. 21 Specific Impact on Employer-Sponsored Pharmacy Benefits Provisions Improving Value of Pharmacy Benefits Comparative Effectiveness Research (2012) Provisions Encouraging Pharmaceutical Innovation Therapeutic Discovery Research Credits for Small Pharmaceutical Firms (2010) NIH Cures Acceleration Network (2010) Pain Research Initiatives (2010) Non-Grandfathered Plans Must Pay for Routine Costs of Clinical Trials (2011)

22. 22 What Will Impact Employers� Health Care Strategy in the Future? How Long Will Employers Maintain Grandfathered Plan Status? What Is the Future of Employer-Sponsored Retiree Health? Will Pressure Grow to Increase Employer Taxes/Health Industry Surtaxes/Free Rider Assessment to Pay for Expensive Medicaid Expansion/Federal Tax Credits? Will Providers Cost Shift to Private Sector if Government Carries Out Medicare Cuts in the New Law? Will Medicare Payment/Delivery Reforms Reduce Costs/Improve Quality? Will Government Expand Employee �Cash Out� Voucher? Do Large Employers Move to Exchange in 2017? Will Government Move to Fully Tax Benefits in Future in Wake of W-2 Reporting Requirement?