DRAFT BRIEFING MEMO _y Aprti 21, zoos Nancy-Arm lDeParle -- SUBJECT: Health Reform Decisions The purpose of this memorandum to is provide you with an on health reform efforts and to you to meet with your principal advisors,. during which we seek your guidance direction about a number of key issues. We will also- your authority to discuss with Congressional the offsets the Administration creep: in a health care reform as well as the options that the Administration would encourage Congress to include. Bing it und Youradvisors have regularly to various aspects ofyour health reform plan, including its costs and financing. We engaging actively with Congress and technical nssistanceto as they prepare for of bills. Your Budget included a payment of about $630 billion over 10 and explicitly that additional resources would neededg so this is ea natural outgrowth ofyour Budget We have developing an set of savings and revenue options to prepare to engage with Congress on hnaneing health reform over next few These options presented to your senior staff} we have developed a package could plausibly offset the cost of health reform, consistent thelizadrniraiismoneis commitment to frnance health reform without increasing the deileit. The following the current of play Congress on the major policy o.i lndividg g__u Both the Senate and House include an individual requirementr Your included a mandate foriparents to cover their children, but not for adults; the end of you expressed a willingness to an requirement if necessary to achieve universal coveragethe ?Senateand ere i?XPi?t'i?z. this, fcrrevenue. The Senate is likely to include a small business tax'credit. 1 Both the Senate and l?louse include a national exchange allow; States to opt out. The Scmte limits participation to individuals and small employer groups; the House is considering allowing large employers others to participate.; Both include a public plan, although the Senate version is likely to be weaker. - The House wants beneilt package at FEHBP Blue CtosSfB1ue Shield level, but realizes this not be affordable; the Senate benefit package is less generous. oi and Senate support iincorneerclated subsidies for of insurance exchange. o' The House wants to expand Medicaid eligibility for adults to 100 percentelof -fi1lly?Feder?lly the Senate discussed States to pay a of o- Financingza Senate is considering a cap or elimination of exclusion for employensponsorcd insurance; as well as other revenue options such as a high--incomc and a on beverages or "junk*' food. House is likely to Medicarecuts and is exploring other revenue options (though not currently discussing the tax exclusion cap; a step that Rangel among others been skeptical of). . Options gnding and Imp Coverage We have modeled elements of your health reform plan using diflerent assumptions to determine the and of who obtain coverage. the lower end ofthe ie conservative. plan that covers half ofthe could cost billion. over`1;0 At the other ends ofthespectrum,a generous that covers virtually all ofthe uninsuredcould cost nearly $2 trillion.; This section outlines the keyipolicye that will have asigvifleentiriimpact on cost of any health reform plan: (1.) inclusion of an requirement; (2) of choice of (3) generosity of subsidies and benefits; ?of costs assumed by States; and (5) phase-in schedule for implementation. While other issues (e.g..*designr ofthe public plan) be substantively and politically important;. they I- unlikely to have ra impact on cost of a plan. Below, we describe each its policy and cost; implications Individual Requirement for Health Insurance Your campaign a for Patents to cover children but not an individual requirement for adults, in you expressed concern affordability of premiums 2 DRAFT for families, on Gul" policy analysis, we believe that a weak requirement for all Americans to have insurance come close to achieving maximum-coverage that can be achieved through aggressive outreach and auto-enrollment. Unfortunately, however, ceagressiossli Budget Office will likely take the ipositiqntbat without anrindividuala responsibility requireinent, of be leil This reduces. federal costs -- by roughly $270 billion over 10 years -- but also reduces only 28: of `the projected 56 million in 2014). left tend to either low eosin young adults) orliave high income. - Because ofiooncerns about irnpaet ofthe individual mequirementcon middle income families, we have explored coupling an individual requirement with an exemption for those for- whom .cove1?age?r?mainS unaifordable. In Massachusetts, taxpayers are exempt from the mandate-associated penalties if the available to a certain iiaction of income (for example at $60,000 of family income, families are excused fromypenalties premiums exceed $$400 about 7 of There is additional waiver process that allows people to claim a hardship exemption from penalty on a case-by--case basis ifithey have special circumstances. 2.5 0fadu1t>>tax--iilers from the mandate requ1'? ?"remeut*via. these Choice of Providers One way to drive down and increase equality isi selective contracting, whereby target their coverage policies cost in azdesignated. network; This could achieve up to 10 percent savings in the system, equivalent of roughly $100 billion over 10 However, na more limited provider would be viewed as more restrictive than that of provides some coverage for providers. This raises a concem in that mostjpublie opinion. has rfound that ghly value ia choice of doctors. enserusify vi Subsidies and Benefits I Most of the Federal cost ofhealrli reform is ecnceuuated among lowdneome people who could health insurance To date, have assumed thatpeoplewith income below the poverty level woul'd placed pay no premiums, and those with somewhat higher income would receive a slidinpwale?tax credit; Specifically, credits would ensure other premiums would be limited to a of2,5 percent to 12.5 Minoome; The level of the subsidies. movingsto amore generous sca- dramatically increases costs. However, sea1ing'back;the subsidies a risk of creating a. large "'tax" on low-income individuals if i coverage is required for all. The generosity of the benefits package affects costs, as well, both for Federal government and Your advisors have looked at several benefit packages available in the employer-based market. Because;0f01n? eoncem. about affordability, we are focusingon bene?iits;packages? commonly available in the small group market. Such. cover hospital physician services and prescription drugs as well as offer preventive- servieesn and no cost benefit package covers same as FHBP, but with To eompensate for theirmore limited means, low- income individuals would have lower obligations. A question subsidies benefits relates to; people income is below the level (ie, $24,0ss for a family of four). While we have assumed they would be enrolled. in Medicaid, could either in {he- exchange orlimit the benefit package in Meemie as an means ofredueing costs. Compared topxivategplans, payment rates are about 5 percent lower and benefits the same pe1?c.entYhigher. As such, there only ia small effect of enrolling poor people in exchange. Savings could also be by limiting States' ability to access matching P?Ym?rits for optional services like or?1ong--term care. However, this would be een versial since these individuals likely would eitherforegc or cost to providers. - i' State Share of Costs Currently, spend nearly $140 billion, and the government $1 81 billion annually, on Medicaid. If our policy expands Medicaid to cover the 13; million people below the poverty level, the Federal 100 percent ofthe expansion, or states eould E- asked to pay some If, for example, CHIP rate formula were applied to the new1y--eligible poor people enrolled Federal costs would decline by nearly billion over 10 years. However, may object to this as an unfunded mandate, depending on its design, the policy could results as many and losers. We are exploring options to minimize the on States other policy changes that eouldsmeduee- Medicaid costs. . 'Plme--I? A Que ares for exploration credits, Medicaid and/or . individual responsibility should be phased--in. Phssing-in sense on a number ofidimensions, beyond cost. It would limit disruption allow time for States and other actors to adjust to new system. It would also reduce Federal costs budget window -- although it not affect the ultimate, cost of health Without a coverage health. reform ?0 iS"m?e' alwtiys higherthan expected the people to- enter- any vc>1unts.ryn are it and thus have the highest cost. This could cause selection in health exchange new system off As such, Sin healtherefonn is tricky. Ogtiuus fo1?'Financings Health Reform 4 The table below shows how a or proposal could be offset. In me Budget, the .Asmi?isoaio? proposes reserve fund or about $630 billion over 1.0- years in savings and revenue options. Over the- weeks, have- identified approximately $300 billion in additional over 10 (primarily in Medicare), and . about $500 billion over 10 additional revenue options oonsistentwith your .principles.' We believe thatthigs package represents- a eredibleset of proposals to discuss Congress, although dways ehallenges in Medicare savings revmues of this . Sintrillions- il li ics im- Possible Cost-of Health Reform i i . . . $1-4 . Reserve Fund in Bmget it i a Federal savings [mm-add] -30.3 . a Newrevenue .. lt tt - . -30;.3 g_ Potential `Savin . . . n. . +50.3 i i Potential Revenues . . . . .. . . t. . li P0f??ii?lFl l. . l. ongg . . Thepotential additional offsets beyond your budget;-proposals -- fall into one of categories: savings options,. '?game ebange1?s," and revenue options. - Savings Options following proposals outlays the but do it. options may not-improve the delivery of care or efficiency ofthe system as much as game might. but they provide- sociable - savings and solid policy. os= i 1 0 - ?l1lSl Productivity the U.S. economy been improving no over payments have been to reflect the system-wide improvement. This would reduce payment updates by a factor to reflect. gmnomy-Wide productivity. This could produce savings in the range of $.134 billionover. 10 '>>All savings estimates- are prelimindfy estimates. 5 Extend dj rg pricing tj dual-elim 'ble beneiiciarig under Medicare ni Pg QD. This proposal could produce savings in the range of $3 billion over 10 years generated interest Chairmen and Corribineand uce; Me ie 'lg Di_s_proppg 'onate Share Hospital (hos refl - if o_ increase cov@go to health reform. proposal couldiproduee savings in the range ;of$85 billion over 19 Optioneto Reduce Long-Term Cost Growth The ofproposals we have come to refer to as "game changers? are proposals your advisors believe have the to reduce the longterm cost, of health care. Unforttmately, these proposals may not be seoredby XCBG as producing savings the- etreets of thepoliey to and/or been with the intervention. Proposals of this sort? include the following: Reduce ets i' ent rate fg igls with gf elective admissiog Hospitals that have Thigh utilization rates would areduetion in payments to encourage them to seduce hg ote Hicient `User1gffTechn_gr yi Diffusion. Technology is one of largest cost drivers of long-term costs. This proposal would promote a range of options from certificate of need regulations,. research for'high--value -- technology, linking technology to payments, and `interactions with Comparative Effectiveness to encourage adoption of-efficient technology whilelimiting - of technology that does nottprovide sufficient value. HHS would be to takesteps necessary to establish_1egisn?ies. for and drugs follow with products. would post-FDA approval patient with and devices to continue evaluation of safety and efticacy over time, as well as potentially compare products. Revenue Options Options generating revenue complement to reduce Federal In- developing proposds, have sought to new revenues. >increasing?taxes on the middle class. Require cmp] t_ nsibility_,r. Employers annual payroll above Sl million that do not offer health insurance and contrihute to quality health care the House is considering aminimum employer contribution equal to 75 of the . DRAFT premium) would. be pay 6. percent of their payroll to the Federal government to help defray the costs of subsidies for their employees to obtain coverage via. the . insurance exchange. Initial. this. option eouldp provide revenue of $20 billion over 10 years. miagse a IQ -c_ent excise tg on wg up t-sw@ gy beverages. This would a Federal. tax on most soda end other sugarsweetened beverages. It is to generate revenue of about $1 70 over10 years. i fe some e" i for hcalg i ge refgm with annual income over $500,000 and families with tneornes 0veri$.l million would pay a 3 percent surcharge. This option. revenue in range of $220 billion over 10 In addition, Beueus is incorporating some version of the proposal. to cap the exclusion of benefits taxation the s.en?te.r1m?e bills. - Conclusion We will be discussing these issues- in detail at the meeing withyour senior advisors and will be looking. for guidance from you. 7 .