1 Health Care Reform Town Hall Update What Does It Mean For You As An Employer? Thursday, May 20 2:00 – 3:00 p.m. ET

Speakers Barbara Gay, Director of Advocacy Information, AAHSA Dave Sanders, National Tax & Erisa Practice, Aon Consulting Thora Johnson, Partner, Employee Benefits and Executive Compensation, Venable, LLP 2

Structure of Today’s Program Introduction: Barbara Gay Key Employer Provisions Overview: Dave Sanders Timeline Implementation: Thora Johnson Questions and Closing: Barbara Gay 3

Implementation of Health Reform Implementation Challenges  Complex and challenging law to implement  2,400 pages plus 153 page reconciliation bill  HHS (Health and Human Services) on point for implementation  Date of enactment was 3/23/10, with 6 month effective date for some provisions (9/23/2010)  Plans in existence on 3/23/10 are exempt from many rules, if remain unchanged ("grandfathered" plan) 4

Key Employer Issues – Market Reforms  Coverage of adult children up to age 26, regardless of marital or student status –If not eligible for other group plan (this condition expires 12/31/13) –Applies even if the child is not a tax dependent  Effective 6 months after enactment (1/1/11 for CY plans) Dependent Coverage  No lifetime maximums permitted for overall benefits (annual/ lifetime limits on specific benefits permitted) –Effective 6 months after enactment (1/1/11 for CY plans)  Complete elimination of annual limits beginning January 1, 2014  Restrictions on annual limits prior to 2014 TBD by regulation –Effective 6 months after enactment (1/1/11 for CY plans) Annual and Lifetime Maximums 5

Key Employer Issues – Market Reforms  Not permitted for children under age 19 –Effective 6 months after enactment (1/1/11 for CY plans)  Not permitted for all plan enrollees –Effective 1/1/2014 Pre-existing Conditions Exclusions  Waiting periods greater than 90 days are not permitted  Effective 1/1/2014  Must provide first dollar coverage for evidence based preventative care  Effective 6 months after enactment (1/1/11 for CY plans)  Grandfathered plans exempt Waiting Periods Preventive Benefits 6

Key Employer Issues – Impactful Provisions  Applies to employees working 30+ hours/week  Employer pays $3,000 for each EE with coverage 9.5% of their household income for health coverage  Employers not offering health coverage pay $2,000 per EE  First 30 employees not included in calculation of assessment  Effective 1/1/2014 Free Rider Provision  Applies to employees working 30+ hours per week  Employers would convert health coverage subsidy to cash for any employees who would pay between 8% and 9.8% of their household income for health coverage and opts out of employer sponsored coverage for coverage in an Exchange based plan  Effective 1/1/2014 Employee Voucher 7

8 Key Employer Issues  Applies to new hires  Employees can opt-out  Employer can choose plan for auto enrollment  Effective 1/1/11 or issuance of regulations by DOL, if later  Employers must notify employees at time of hire of the availability of Exchanges and their potential eligibility for a subsidy  Effective 3/1/2013  No requirement to offer same coverage as Exchange plans Auto Enrollment  OTC drugs no longer reimbursable under FSA, HRA or HSA, unless prescribed by physician –Effective 1/1/2011  Penalty on withdrawal of HSA funds for non-medical expenses increased to 20% –Effective 1/1/2011  Annual contributions to health FSAs limited to $2,500 annually –Effective 1/1/2013 –Indexed to CPI as of 1/1/2014 Health Accounts Employee Notification

Key Employer Issues  Employers required to report the “value” of health benefits provided to each employee –Value defined as COBRA cost  Effective 1/1/2011  Same HHS transparency requirements as Exchange based plans  Claims payment policies and data  Information on cost sharing and payment for OON  Information on rating policies  Effective 1/1/2014 W-2 Reporting  Annual distribution of summary of benefits and coverage –Not to exceed 4 pages  Uniform Explanation is in addition to the SPD required by ERISA  Effective 3/23/2012  Employers with <25 employees earning < $50,000 each are eligible for tax credit  Applies to employer contributions toward cost of health insurance  Available for tax years Uniform Explanation of Coverage Transparency Requirements Small Employer Tax Credit 9

Key Employer Issues  Employers permitted to increase employee reward for participation in wellness programs to 30% of total plan cost –HHS may increase to 50%  Effective 1/1/2014  Grandfathered plans exempt  Insured plans are subject to same nondiscrimination rules as self- funded plans  Effective 1/1/2011  Grandfathered plans exempt Wellness Incentives  Employer plans must have HHS approved external review process  Effective 1/1/2011  Grandfathered plans exempt  Out of pocket expense cannot exceed HSA related coverage  Deductibles cannot exceed $2,000 single & $4,000 family as indexed  Effective 1/1/2014  Grandfathered plans exempt Appeals Process Cost Sharing Limitations Nondiscrimination 10

Key Employer Issues  Voluntary federal LTC insurance program  EEs can purchase via payroll deductions  All auto enrolled EEs can opt-out  Lifetime benefit payments  5-year vesting period  Eligible for benefit if at least 2 ADLs for 90 days  Estimated revenue: $71 billion  Effective 1/1/2011 CLASS Act 11

Other Key Provisions 2010 Adoption assistance plan dollar limit increased from $12,170 to $13,170 Nursing mothers entitled to unpaid breaks and private lactation room 2014 Medicaid expansion to 133% of FPL Individual Mandate begins with penalties in 2015 State-based Insurance Exchanges are operational 2017 Employer plans of any size can participate in Exchanges (state approval) 2018 High cost excise tax with revised thresholds of $10,200/individual and $27,500/family 12

Other Key Provisions  Adjusted gross income >$200k for individuals and >$250k for couples  Additional Medicare payroll tax on wages of 0.9% (employee-share only)  New surtax on investment income of 3.8%  New taxes on higher income individuals replaces lost revenue from delayed enactment of high cost plan excise tax (estimated $210 billion)  Effective 1/1/2013 New Taxes on High Income Individuals 13

Impact on Post-Retirement Health Plans  Taxation of Medicare Part D retiree drug subsidy  Temporary reinsurance program for pre-Medicare retirees (at least age 55) –Re-insurance for claims covering 80% of costs between $15,000- $90,000 for pre-65 retirees –Only funded up to $5 billion  Cutbacks to Medicare FFS providers and Medicare Advantage plan funding  Closure of Medicare Part D “donut hole” 14

Timeline for Next Steps Effective DateAction Items Applies to Grandfathered Plans? Now If you have 25 or fewer FTEs, work with your Finance Department to evaluate whether you are eligible for the small employer tax credit and if so, apply for credit If you offer retiree coverage and apply for the Medicare Part D subsidy, work with your Finance Department and auditors to evaluate the current impact on your financial statements under the FASB rules because the Medicare Part D subsidy will effectively become taxable in /23/2010 If you offer retiree coverage for retirees ages who are not eligible for Medicare, apply for the retiree reinsurance program, work with your Finance Department and obtain claims data from your insurance company/TPA and consider appropriate plan design changes 14

Effective DateAction Items Applies to Grandfathered Plans? 1/1/2011 for calendar year plans Evaluate what plans you are going to offer, and determine whether any plans need to be restructured Determine what grandfathered plans you have Determine whether you have any dental and vision coverage that you want to convert to “stand-alone” plans so that they are exempt from the new rules on annual and lifetime limits Determine whether you have any fully-insured plans that need to be restructured to comply with the nondiscrimination coverage rules, such as executive-only plans CLASS Act (voluntary long-term care program) New wellness programs (grants available for small employers). 15

Effective DateAction Items Applies to Grandfathered Plans? 1/1/2011 for calendar year plans Amend medical plan documents Remove lifetime maximum limits for essential health benefits (and define what those are) Revise annual limits for essential health benefits to reflect HHS standards Remove pre-existing condition limits for children under age 19 Limit right to rescind coverage only to fraud or intentional misrepresentation of a material fact Expand dependent eligibility to cover adult children up to age 26 (applicable to grandfathered plans only if the dependents are not eligible for coverage under another employment-based plan) Remove cost sharing, and implement first-dollar coverage, for preventive care (deductibles, copays, and co-insurance can't apply) Permit designation of any participating primary care provider Remove restrictions on emergency care Update internal and external appeals procedures 16

Effective DateAction Items Applies to Grandfathered Plans? 1/1/2011 for calendar year plans Amend medical plan documents (cont’d) Any additional design changes that may be made to offset some of the anticipated increases in costs due to limits on annual and lifetime maximums, removal of pre-existing conditions, etc. Amend medical FSA plan documents Eliminate reimbursement for OTC drugs If small employer, consider establishing “Simple” cafeteria plan Provide notice of changes to participants (by 11/1/2010) Give at least 60 days’ advance notice of changes (SMMs or new SPDs) Negotiate insurance costs or stop-loss coverage, as applicable Removal of annual, lifetime, and pre-existing condition limits, and cost sharing, the addition of other restrictions, and expansion of dependent eligibility could create more expense to employers, in terms of premiums for fully- insured plans and stop-loss 17

Effective DateAction Items Applies to Grandfathered Plans? 1/1/2011 for calendar year plans Update contracts with TPAs/claims administrators Compliance with new internal and external claims processes ● Determine who will prepare HHS reporting on medical loss ratios ● Determine who will handle transparency disclosures to HHS (and public) Implement auto enrollment (depending on effective date) Work with payroll to implement changes ● Payroll withholding to implement any “Simple” employer cafeteria plan; voluntary CLASS Act plan ● W-2 reporting of employer-provided health coverage 18

Effective Date Action Items Applies to Grandfathered Plans? 1/1/2011 for calendar year plans Provide required notices to HHS ● Reporting to HHS on medical loss ratios Reporting to HHS (and public) to comply with transparency provisions Apply for available grants for small employer wellness program 1/1/2012 for calendar year plans Amend medical plan documents Coordination with Medicare Provide new required (uniform) plan summaries Update contracts with TPAs/claims administrators Put systems in place to enable quality of care reports to HHS 19

Effective Date Action Items Applies to Grandfathered Plans? 1/1/2013 for calendar year plans Amend Medical FSA plan documents Impose cap on contributions Work with payroll to implement changes Medical FSA caps Increased Medicare taxes on earned income Work with Finance Taxation of Medicare Part D subsidy Payment of per-participant fee (premium tax) Provide required notices by 3/1/2013 to employees regarding availability of insurance exchanges 20

Effective DateAction Items Applies to Grandfathered Plans? 1/1/2014 for calendar year plans Evaluate what plans you are going to offer Small employers have access to state insurance exchanges Large employers are subject to play or pay penalties, opt-out penalties, and “free choice” vouchers Permitted increase in employee reward to 30% for participation in wellness program Amend medical plan documents Grandfathered plans must expand dependent eligibility for adult children, even if eligible for other employer-provided coverage 21

Effective Date Action Items Applies to Grandfathered Plans? 1/1/2014 for calendar year plans Amend medical plan documents (cont’d) Remove waiting periods exceeding 90 days Remove all annual limits on essential benefits Remove all pre-existing conditions (can no longer impose on individuals age 19 and over) Mandated cost-sharing limits Add coverage for clinical trials for cancer or life threatening diseases Any additional design changes that may be made to offset some of the anticipated increases in costs due to changes on annual limits, removal of pre-existing conditions, and limits on cost-sharing Negotiate insurance costs or stop-loss coverage, as applicable Removal of annual and pre-existing condition limits, cost sharing and other restrictions, and expansion of dependent eligibility could create more expense to employers, in terms of premiums for fully-insured plan and stop-loss Reporting to IRS on employer-provided coverage 22

Effective Date Action Items Applies to Grandfathered Plans? 1/1/2014 for calendar year plans Provide required notices regarding employer-provided coverage and wellness programs 1/1/2017 for calendar year plans Evaluate what plans you are going to offer Large employers have access to state insurance exchanges 1/1/2018 for calendar year plans Evaluate what plans you are going to offer Work with Finance and with insurance company or actuarial firm to determine if you offer a "Cadillac" plan subject to penalty tax, or whether you can restructure your plans to minimize or avoid penalty 24

Questions? Questions will be addressed by ing: If we cannot get to your question we will respond via or by providing information on the AAHSA Health Reform Hub located on aahsa.org: 25

Resources AAHSA Health Reform Information Hub AON Consulting Microsite Venable, LLP 26

Speaker Contact Information Barbara Gay, Advocacy, AAHSA (202) Dave Sanders, National Tax & Erisa Practice, AON Consulting (410) Thora Johnson, Employee Benefits and Executive Compensation, Venable, LLP (410)