This document summarizes key aspects of the Affordable Care Act and its implications for the pharmaceutical industry. It discusses how the ACA expands health insurance coverage but does not create a public option or directly set prices. It also explores the ACA's goals of expanding coverage, improving quality, and reducing costs. The document notes the ACA leads to evolution in the healthcare marketplace by bringing in new insured consumers and focusing on quality, outcomes, and cost. It identifies several drivers that will impact the pharmaceutical industry, including enrollment in new plans, potential erosion of commercial benefits, and growth of delivery and payment reforms.

1. Affordable Care Act: Implications for
the Pharmaceutical Industry
February 2014
Kirsten Axelsen, Vice President Worldwide Policy Pfizer
kirsten.axelsen@pfizer.com

2. Affordable Care Act: Does and Doesn’t
Does
Doesn’t
Reduce the number of uninsured Provide universal coverage
Expand coverage in private
plans and Medicaid
Operate a government run public
plan
Raise taxes and fees to pay for
expanding coverage
Set prices directly
Experiments with how the health Lower the cost of healthcare
care system is organized
Encourage prevention through
grants and reimbursement
Increase the number of primary
care physicians
Fund research on comparative
effectiveness
Set formulary directly
Expand access to medicines
Create a financial windfall for
pharmaceutical companies
2

3. Goals of The Affordable Care Act, Implications
Expand
Coverage
• Minimal near term for
pharma
Improve
Quality
• Depends on what is
measured and reimbursed
Reduce
Cost
• Depends on balance of cost
vs. quality & value
3

4. Healthcare Marketplace Evolution
Payer
Provider
Consumer
• New people getting covered
• Oversight of rates
• Focus on quality & outcomes
• Requirement to use technology
• Increased exposure to cost
• More choices
4

5. Key drivers
Enrollment in Insurance Coverage
• Health plans leverage
• Risk pool
Commercial benefit erosion
• Spillover of restrictive benefits
• Employers continue or drop coverage
Delivery/payment reform
• Cost vs. quality
5

6. Key drivers
Enrollment in Insurance Coverage
• Health plans leverage
• Risk pool
Commercial benefit erosion
• Spillover of restrictive benefits
• Employers continue or drop coverage
Delivery/payment reform
• Cost vs. quality
6

7. Benefit Design Parameters For Exchanges, Small
and Individual Group Markets
Deductible
Limits
Out of
Pocket
Limits
Actuarial
Value
Essential
Health
Benefits
7

8. Health Plans Leverage Tools to Constrain Costs
Networks
Access restricted certain physicians and hospitals
Formulary
Utilization management and tight controls
Cost-Sharing
High patient responsibility, particularly for
specialty
8

9. Tools are Available to Help Use Exchanges
Calculator Tool
Available
Link to Formulary/
Formulary Tool
Available
Link to Provider
Network Tool Available
FFE
ü
ü
ü
California
ü
Colorado
ü
ü
ü
Connecticut
ü
ü
ü
DC
ü
Hawaii
ü
Kentucky
ü
Exchange
ü
ü
ü
ü
Maryland
ü
ü
Massachusetts
ü
ü
ü
ü
ü
ü
ü
ü
Minnesota
ü
Nevada
New York
ü
Oregon
Rhode Island
ü
Vermont
ü
Washington
ü
Source: Avalere State Reform Insights, December 16, 2013.
ü
ü
ü

10. On Average, Silver Deductibles are More Than
$2,500
Average Deductibles by Metal Level
$5,000
$4,500
$4,343
Medical Deductible
$4,000
$3,500
$3,000
$2,567
$2,500
$2,000
$1,500
$932
Avg. Employer-Sponsored
Plan Deductible = $1,135*
$1,000
$500
$167
$Bronze
N=175
Silver
N=207
Gold
N=160
Platinum
N=61
Source: Avalere PlanScape, updated November 1, 2013. Avalere collected plan information from both federally-facilitated and state-based exchanges.
Average deductibles represent the medical-only deductible for plans with separate medical and drug deductibles and the total deductible for those plans with
integrated deductibles.
*Among covered workers with a general annual deductible, the average deductible amount for single coverage is $1,135.
Source: Kaiser Family Foundation Employer Health Benefits 2013 Annual Survey.

11. State Standardized Benefit Designs
Tier 4
Inpatient
Specialist
OOP Max
for Drugs2
Standard Silver
Tier 3
CT
Tier 2
Silver
Coinsurance3
Tier 1
CA
Drug
Deductible
Silver Copay3
Overall
Deductible
State Plan Type
Drug Formulary
Emergency
Room
Primary
Care
Physician
Benefit Cost-Sharing Parameters1
Medical:
$2,000
$2504
$19
$50
$70
20%
20%
$250
$45
$65
N/A
$2504
$19
$50
$70
20%
20%
$250
$45
$65
N/A
$400
$10
$25
$40
40%
$5005
$150
$30
$45
N/A
Medical:
$2,000
Medical:
$3,000
MA6 Silver
$2,000
N/A
$20
$40
$70
N/A
$1,000 $350
$30
$50
N/A
NY6 Silver
$2,000
N/A
$10
$35
$70
N/A
$1,500 $150
$30
$50
N/A
$0
$15
$50
50%
50%
30%
30%
$35
$70
N/A
$1004
$12
$50
50%
N/A
40%
$250
$20
$40
$1,250
$1,2507
$10
$40
50%
N/A
20%
20%
10%
20%
$1,250
OR
VT
Silver
Silver
Silver- HDHP
Medical:
$2,500
Medical:
$1,900
$1,550
Source: State Reform Insights, September 16, 2013
1. Benefit cost-sharing parameters are specific to individuals. Deductibles and OOP max may be higher for family coverage.
2. All exchange plans must comply with the annual limitation on OOP maximums for medical and drug benefits ($6,350 in 2014).
3. California’s silver copay and coinsurance plan designs vary in cost sharing for advanced imaging and home health care services as well as in the
accumulation of certain cost sharing towards the deductible.
4. For brand drugs only.
5. Per day to a maximum of $2,000 per admission.
6. Drug formulary tiers 1-3 cost-sharing parameters vary for mail-order pharmacies.
7. Integrated with overall deductible; of the overall deductible, up to $1,250 of drug spending may count as the drug deductible.
11

12. To Date, 26 States & DC Plan to Expand Medicaid
Eligibility in 2014
State Commitment to Expand Medicaid Eligibility in 2014
WA
ME
MT
ND
VT
NH
MA
CT
MN
OR
ID
WI
SD
NY
MI**
WY
PA*
IA*
NE
IL
IN***
WV
UT*
CA
CO
KS
MO
OK
NM
NC
SC
AR*
MS
TX
AK
VA
DE
MD
DC
KY
TN*
AZ
NJ
OH
NV
RI
AL
Will Expand (26 + DC)
GA
Leaning Yes (1)
Leaning No (2)
LA
FL
Will Not Expand (21)
HI
Source: Avalere State Reform Insights, Updated January 23, 2014
*Denotes states pursuing premium assistance models using exchange plans for part of their expansion populations: AR and IA have received waiver
approval; PA released a draft waiver for a plan using premium assistance that would likely not take effect until mid/late 2014;TN’s governor continues
to voice support for a premium assistance approach; if UT expands, it is likely to pursue a premium assistance approach
**MI’s expansion will begin in April 2014
***IN’s expansion would require CMS approval to leverage the state’s Healthy Indiana Program
12

13. Key drivers
Enrollment in Insurance Coverage
• Health plans leverage
• Risk pool
Commercial benefit erosion
• Spillover of restrictive benefits
• Employers continue or drop coverage
Delivery/payment reform
• Cost vs. quality
13

14. New Lives = New Market Pressures
Benefit Design
Less Generous
More Generous
Medicaid
Commercial
Exchange
Individual /
Catastrophic
Lives Served by Market Today
Anticipated Future Market
Medicare part D not included, it is not an integrated health but a stand-alone drug benefit
14

15. Newly Insured Entering Markets With More
Government Oversight and Subsidy
EXPECTED COVERAGE NON ELDERLY (MILLIONS)
300
0
250 36
25
200
7
43
13
23
23
46
22
24
25
25
24
45
45
45
45
47
22
22
22
22
22
Government
Responsible
for Growing
Share of the
Marketplace
Exchanges
150
158
157
100
Medicaid & CHIP
157
155
158
158
159
160 Non-Group
Employer
Uninsured
50
55
43
37
0
2013
31
31
30
30
31
2014
2015
2016
2017
2018
2019
2020
Source: Congressional Budget Office May 2013 Projection of Coverage Effects
15

16. Key drivers
Enrollment in Insurance Coverage
• Health plans leverage
• Risk pool
Commercial benefit erosion
• Spillover of restrictive benefits
• Employers continue or drop coverage
Delivery/payment reform
• Cost vs. quality
16

17. Healthcare System Challenges Impetus for
Payment and Delivery Reform
Siloed Payment Systems
Lack of Care Coordination and Transition
Management
Poor Outcomes, Such as Re-hospitalizations
Increased Costs
17

18. Care and Delivery Reforms
Delivery
Reform
• Accountable Care
Organizations
Payment
Reform
• No payment for
avoidable
conditions
• Quality Measures
Encourage
Innovation
• Center for
Medicare and
Medicaid
Innovation
18

19. Provider Marketplace Transformation
Alignment
Consolidation
• Integrated delivery
networks
Payment and • Payment for quality
Delivery Reform
outcomes
Provider
Accountability
• Physicians taking on risk
19

20. What is Next?
20

21. Health Expenditure Growth Continues
Health Expenditure Relative to 2009
2.5
2.0
1.5
National Health
Expenditure
Out of Pocket
1.0
Private Insurance
0.5
Medicare
0.0
National Health Expenditure Projection, accessed October 2013 Center for Medicare and Medicaid Services
21

22. Statins Save Lives and Money
Adapted from: Grabowski, David C., et al. (2012); Gotto Jr., AM., et. al. (2000)

23. Cancer Treatments Increase Life Expectancy
Share of Life-Expectancy Gain Attributable to Improved Treatment vs. Improved
Detection, 1980–2000*
Asterisk (*) indicates Life Expectancy gains from 1990–2000 because 1980 data was not available for these conditions.
Table adapted from: E. Sun et al. (May 2008) “The Determinants of Recent Gains in Cancer Survival: An Analysis of the
Surveillance, Epidemiology, and End Results (SEER) Database,” Journal of Clinical Oncology.

24. Vaccines Avoid Costs to Treat Disease

25. Prescription Drug Spending Growth is Low
Year over year change in spending
12%
10%
8%
6%
4%
2%
Prescription Drugs
Hospitals
Physicians
National Health
Spending
0%
-2%
National Health Expenditures, accessed October 2013 Center for Medicare and Medicaid Services

26. Realize the Value of the Investment in the
Coverage Expansion
• Easily comparable benefits with clear information
• Clearly defined exception and appeals processes
• Limit excessive cost sharing for or exclusion of specialty
treatments and providers
• Broaden access to data, and link it
• Payment for value rewards attributes important to patients
26