Wells Fargo Insurance Services Los Angeles Community College District Presented by: Liliana Salazar, Esq., Vice President of Compliance Gary Delaney, CEBS, Senior Vice President Kristin Yokoyama, Account Director March 17, 2009 Wells Fargo Insurance Services Confidential. © 2008 Wells Fargo Insurance Services. All rights reserved.

Wells Fargo Insurance Services 2 Agenda I. Health Reimbursement Arrangements (HRAs) ● Overview ● Funding II. Questions

Wells Fargo Insurance Services 3 Health Reimbursement Arrangements (HRAs) HRAs are a benefit plan funded exclusively with employer contributions for the purpose of reimbursing employees’ present and/or future qualified health care expenses.  General Provisions  Eligible Participants are defined as active and former employees and their dependents (IRS Section 152)  HRAs cannot be funded with employee contributions  Contributions are usually made on an annual basis and are available to employees as of the 1 st day of the plan year  Rollover Features  Unused amounts can be rolled over from one year to the next.  HRA funds do not accrue interest.  HRA funds are not portable, they are part of the employer’s general assets.  HRAs can become available to an employee once they retire

Wells Fargo Insurance Services 4 Contributions to HRAs  Contributions are made solely by an employer.  The employer must contribute the same amount to employees eligible for the HRA (same contribution for all employees participating in CalPERS Plans)  Employer contributions into HRAs are not treated as gross income.  Catch-up contributions are not available (regardless of employee’s age)  No cash disbursements are allowed Distributions (Reimbursement) from a HRA  For Active Employees: HRA will reimburse medical, dental, and vision deductibles and out-of-pocket expenses  For Retired Employees: HRA will reimburse medical, dental and vision deductibles and out-of-pocket expenses in addition to:  Qualified Long Term Care Premiums  Medicare Premiums (Parts A, B, D) Health Reimbursement Arrangements (HRAs)

Wells Fargo Insurance Services 5 Example of Annual HRA Funding Amount*:  Annual PPO out-of-pocket maximum with PERS Choice is $3000 Individual and $6000 Family  Annual Deductible $500 Individual and $1000 Family  District funds same amount for all active and early retiree enrollees (PPO or HMO)  Using $5,000,000 of $15,000,000 projected annual savings to fund HRA  Hypothetical HRA contribution funded by the District-$1,000 for each active and early retiree enrolled regardless of their tier of coverage  Account “funded” at beginning of each plan year by LACCD  Unused amounts rollover from one year to the next – can be used by employees upon retirement to pay for out-of-pocket healthcare expenses *Based on CalPERS financial analysis Health Reimbursement Arrangements (HRAs)

Wells Fargo Insurance Services 6 Hypothetical Hospital Claim with PERS Choice PPO Plan  PERS Choice Max. Annual Out-of-Pocket $ 3,000 PPO Annual Deductible$ 500  Hospital Retail Charges$50,000  Hospital charges after PPO discount$15,000  Deductible Applied to Charges $ 500 Balance$14,500  Employee’s copayment responsibility $ 2,900 20% of allowable amount until max. copayment is met  Total paid by insurance carrier$11,500  Total paid by member $ 3,400 Health Reimbursement Arrangements (HRAs)

Wells Fargo Insurance Services 7 Recommendations for HRA Design  Equal contribution for employees in HMO and PPO plans (including PERS Care)  Equal contribution for all tiers of coverage (single/family)  Employees retiring from the District would be allowed to access the amounts in their HRA to pay for their out-of-pocket medical expenses as well as long term care and Medicare premiums.  No additional contributions would be made by the District to a retiree’s HRA once the retiree becomes eligible for Medicare  A third party administrator should be assigned to administer the HRA Health Reimbursement Arrangements (HRAs)

Wells Fargo Insurance Services 8 QUESTIONS