HRA 101 A guide to Health Reimbursement Accounts at Kaiser Permanente JANUARY, 2011

Overview Effective January 1, 2010 Offered to eligible employees represented by Coalition Unions Tax-free reimbursement for out-of-pocket eligible medical, dental and vision care expenses Funded with 80% of value of unused sick leave as of employee’s termination date Retiree medical eligibility, medical plan and benefit levels are not affected by the HRA As of January 1, 2010, Kaiser Permanente and the Labor Management Partnership are providing a new medical reimbursement account called the Health Reimbursement Account (HRA). HRA is an innovative benefit, never before offered at KP. The benefit is offered to employees in selected employee groups in the LMP. The HRA rewards long-term commitment to the organization, preserves sick leave, and provides an additional health care resource at retirement or termination. The HRA is a type of medical reimbursement account that allows participants and their eligible dependents to get reimbursement on a tax-free basis for certain out-of-pocket medical, dental and vision care expenses. You do not pay federal income or employment taxes on the amounts Kaiser Permanente contributes to your HRA. HRA contributions are not included in your income. Reimbursements from HRA account are not taxable. Kaiser Permanente makes deposits into eligible participants’ HRA accounts based on their unused sick leave as of their termination date. Ceridian, our third party administrator of the HRA, will send you a Notification of Enrollment letter when you become eligible for an HRA, and an HRA account will be opened for you. Your retiree medical plan eligibility, medical plan and benefit levels are not affected by the HRA.

What is the HRA? The Health Reimbursement Account allows retirees to pay for out-of-pocket qualified medical, dental, vision, and hearing care expenses. The HRA also covers: Expenses of eligible dependents Premiums paid to a Kaiser Permanente medical plan The HRA works like a checking account. When you become eligible, Kaiser Permanente will open an HRA account for you and “deposit” qualified unused sick leave (which has been converted into dollar amounts at 80% of value) into your account. Once an account has been established, you make “withdrawals” by submitting claims for reimbursement. Premiums you pay for a non-Kaiser Permanente medical plan are not reimbursable through the HRA, unless you live in an area where a KP medical plan is not available.

Participants must meet these requirements:* Who can participate? Employees represented by LMP Unions participating in: Earned Time-Off program, or Work/Life Balance Time-Off program Participants must meet these requirements:* 55 or older 15 years of service or more** Eligible for KP medical coverage on last day of employment Must be in employee groups that participate in the HRA Alternate Compensation program included Employees represented by a Labor Management Partnership union who participate in either the Earned Time Off program or the Work/Life Balance Time Off program are eligible for the HRA when they terminate or retire from Kaiser Permanente. To be eligible for the HRA when you terminate employment with Kaiser Permanente, you must be at least age 55, and have at least 15 years of service as defined under a KP-sponsored Defined Benefit pension plan, or the pension plan under the Union Trust, as applicable. Please note that the age and years of service eligibility requirements for the HRA are independent from retirement eligibility requirements. If you qualify for a disability retirement under the defined benefit pension plan, the age and service requirements are waived. Remember, eligibility requirements for the HRA may differ from eligibility requirements for the pension or retiree medical plan. And, not all Kaiser Permanente defined benefit plans include a disability retirement provision. Refer to your Summary Plan Description for specific information about your Defined Benefit pension plan. (Available on the LMP website, www.LMPartnership.org, or My HR website). If you are on an approved unpaid leave of absence at the time of termination or retirement, you must be eligible for Kaiser Permanente medical coverage on the last day prior to the start of the unpaid leave of absence. You must be eligible for medical benefits even if you are not enrolled in the plan. If you participate in the Alternate Compensation program, you will be eligible to participate in the HRA, as long as you meet the eligibility requirements for the HRA program and have sick leave hours that are eligible for conversion to the HRA. * Age and years of service waived for Disability Retirement ** As defined under the KP-sponsored defined benefit plan, or the pension plan under the union trust as applicable.

Who can participate? HRA-convertible sick leave hours vary according to your collective bargaining agreements. Different groups of employees: Employees in the Attendance program Employees with an “annual refresh’’ provision to their sick leave program Employees in the Extended Sick Leave program Georgia region employees, who follow a unique system of sick leave accrual HRA-convertible sick leave hours vary according to your collective bargaining agreements. Check with your union or HR representative for details. You must be eligible for medical benefits even if you are not enrolled in the plan. Employees represented by the UFCW, Pharmacy, in Southern California must be eligible for the union-sponsored medical plan. For information, please contact the Union Trust at 323-666-8910. Employees represented by UFCW Pharmacy must be eligible for the union-sponsored medical plan.

Your children under age 26 Eligible dependents Your legal spouse Your children under age 26 An individual who is a tax dependent as defined in the Internal Revenue Code and who would be eligible to be covered as a dependent under a KP medical plan or medical benefits through your union trust. Domestic partners, same-sex spouses and their children are eligible dependents for the HRA plan if they qualify as your tax dependent as defined under the Internal Revenue Code. You may use the funds in your HRA to be reimbursed for certain health care expenses for you and your eligible dependents. The definition of dependents for the HRA may differ from what is used for your medical and dental coverage, or when determining your personal income taxes. You may want to contact your tax advisor if you have questions about an individual’s qualification as your dependent. For purposes of the HRA, the definition of eligible dependents is: - Your legal spouse - Your children under the age of 26, including natural children, step-children, legally adopted children, children placed for adoption, regardless of marital or dependent status, residence or financial support. - If not your spouse or child, someone who is a tax dependent as defined in the Internal Revenue Code, and who would be eligible to be covered as a dependent under a Kaiser Permanente medical plan or medical benefits through your union trust. - Domestic partners, same-sex spouses and their children are eligible dependents for the HRA plan only if they qualify as your tax dependent as defined under the Internal Revenue Code.

Eligible expenses IRS determines which expenses are eligible (qualified) for reimbursement. May not also claim the expense through your health care plan, insurance program or as an income tax deduction. Consult a tax advisor for tax implications. Of course, if an expense was covered by your Kaiser Permanente medical plan, you would not have an expense or receipt to submit to the HRA for reimbursement. And, you cannot also claim an expense under your tax return for an expense for which you were reimbursed under HRA. You may want to consult with a tax advisor to determine any tax implications and details.

Eligible expenses: examples Premiums Dental insurance premiums and co-payments Long-term care insurance premiums Medicare COBRA Equipment and Supplies Dental implants, supplies Wheelchair Care and Treatment Acupuncture Chiropractic care Hearing exams and treatment Eligible healthcare expenses are defined by the Internal Revenue Code. Common eligible expenses include medical, dental and vision plan premiums, deductibles and co-payments; prescription drugs; and amounts over the maximum allowed by your plan that treat a medical condition. NOTE: Reimbursement for medical premiums is limited to Kaiser Permanente-sponsored medical plans, unless you live in an area where a Kaiser Permanente medical plan is not offered. In the Northwest Region, reimbursement for dental premiums is limited to the Northwest Permanente Dental Plan. You may want to contact your tax advisor if you have questions about an individual’s qualifications as your dependent under the HRA. Plan coverage for an eligible dependent ends on the first day he or she loses eligible dependent status.

Ineligible expenses: examples Baldness treatments or hair transplants Dancing lessons, swimming lessons Exercise equipment Herbal and holistic drugs or remedies Special diet foods Vacation expenses (even if recommended by a doctor) Here are some of the expenses not reimbursable through the HRA. Keep in mind that this is a sample list only. If you have questions about whether or not an expense is eligible for reimbursement under the HRA, contact Ceridian, our third-party administrator.

How is the HRA established? On termination or retirement: HRA-convertible sick leave hours converted at 80% of value Kaiser Permanente deposits into HRA No employee contributions allowed $100 minimum required to establish account No cost for this new benefit Automatic participation, if eligible No opt-out option Accrued, unused sick leave hours are used to establish your HRA, as follows: Your HRA-convertible sick leave hours are converted at 80% of value, and Kaiser Permanente uses these funds to establish an HRA account for you. Please note that only Kaiser Permanente can make contributions to your Health Reimbursement Account. Employee contributions are not allowed. There is a $100 minimum required to establish an HRA account for you. Once you become eligible for the HRA, your participation is automatic. There is no opt-out option.

HRA transfers: Work/Life Balance time-off program Banked Sick Leave (BSL) Unused hours accrued in 2006 and thereafter converted at 80% of value Deposited into HRA No conversion to credited service for post-2005 BSL hours If you participated in the Work/Life Balance Time Off Program as an active employee, upon termination, all accrued, unused Annual Sick Leave hours will be transferred to your post-2006 Banked Sick Leave. All your unused Banked Sick Leave accrued in 2006 and thereafter will be converted at 80% of value and deposited into your HRA. Please note that with the establishment of the HRA, effective January 1, 2010, post-2005 Banked Sick Leave hours will not be converted to Credited Service. There is no change to the treatment of pre-2006 unused BSL hours. Refer to your collective bargaining agreement or Summary Plan Description, as applicable, for additional information regarding Credited Service under your defined benefit pension plan.

HRA transfers: Earned time-off program Extended Sick Leave (ESL) Effective first pay period of 2010, employees have two ESL banks: Current ESL bank Pre-2010 ESL bank ESL hours beginning first pay period 2010 go into current ESL bank. Unused ESL hours last pay period 2009 go into pre-2010 ESL bank. Accrued, unused ESL in current ESL account converted at 80% of value and deposited into HRA. No credited service for unused post-2009 ESL hours If you participate in the Earned Time-Off program, effective on the first pay period of 2010, you will have two Extended Sick Leave (ESL) banks: a current ESL bank and a pre-2010 ESL bank. Your ESL hours beginning the first pay period of 2010 will continue to go into your current ESL bank. All unused ESL hours as of the end of the last pay period in 2009 will be used to establish a pre-2010 ESL bank for you. Upon termination, the accrued, unused ESL in your current ESL account will be converted at 80% of value and deposited into your HRA. There is no pension service credit for any unused post-2009 ESL hours. Provisions regarding pre-2010 ESL have not changed. Refer to your current bargaining agreement or Summary Plan Description for information regarding Credited Service under your defined benefit pension plan.

Claims guidelines Claims processed weekly Submit claims within 60 days No limit on number of claims No minimum/maximum dollar amount for claims Submit claims within 60 days Unused funds carry over each year There is no limit to the number of claims you may submit in a month or week, etc., nor is there a minimum or maximum dollar amount. Claims are processed every Friday. It takes approximately three business days to process a claim. For example, if you submit a claim on Tuesday, Ceridian will process your reimbursement on Friday of the same week. If your claim reaches Ceridian on Thursday, your reimbursement will not be processed until the following Friday. Claims must be submitted within 60 days of the date on which the expense was incurred. The funds in your HRA carry over from one year to the next, as long as you remain eligible for the HRA, and are available for submitting eligible out-of-pocket expenses.

Account closures HRA account closes if: Account balance is $0 Account is abandoned Death of employee, with no surviving eligible dependents Death of surviving eligible dependents If during the termination or retirement process, you are deemed ineligible for the HRA Your HRA account will be closed if: The balance in your account reaches $0. Your account is abandoned. “Abandoned” means that Ceridian has not been able to make contact with you during a three-year period at your last known address, and no distributions were made during the immediate prior three years. (Your account is not considered abandoned if you, as a termed employee, become re-employed by Kaiser Permanente.) Upon your death, and you have no surviving eligible dependents Upon the death of your surviving eligible dependents Or, if during the termination or retirement process, it is determined that you are no longer eligible for the HRA.

Account suspension or reactivation Account suspended If you are rehired and return to work at Kaiser Permanente in any capacity Account reactivated When you terminate again: No minimum balance required Your account will be suspended if you return to work at Kaiser Permanente in any capacity. For example, if you return to work as an on-call or temporary employee, or if you participate in the Alternate Compensation Program. Your account will be reactivated when you terminate again. NOTE: There is no HRA minimum balance required for reactivating HRA accounts. The $100 HRA minimum funding requirement must be met only when an HRA is initially established.

Contact information For HRA detailed questions, covered expenses and claims: Ceridian Customer Service Monday-Friday, 5 a.m.-5 p.m. Pacific Time 1-866-370-2534 www.ceridian-benefits.com For HRA general questions: My HR Web site http://insidekp.kp.org/myhr Human Resources Service Center (HRSC) 1-877-4KP-HRSC (1-877-457-4772) For detailed information about the HRA, contact Ceridian as noted in the slide. You may also sign on to the My HR Web site or contact the HRSC via phone.