1. ©SHRM 2010 Health Care Reform October 2010

2. ©SHRM 2010 Note to SHRM Members This sample presentation is a broad overview of the major provisions of the health care reform legislation. It is designed to help you convey to senior management the key provisions of the health care reform law. It is not intended to cover every aspect of the sweeping legislation. You will need to carefully review this presentation and customize it to reflect the impact on your company and its benefit plans. To assist you in preparing for your presentation and leading subsequent discussions, we’ve included at the end of this presentation links to in-depth resources on the topics covered. This presentation was developed in October 2010. New guidance is issued frequently and may not be reflected in this presentation. Nothing in this document is intended to be, nor should be, construed as legal advice. Contact your legal counsel if you have legal questions regarding the subject matter in this document. 2

3. ©SHRM 2010 Introduction Federal health care reform is the result of the March 2010 enactment of the Patient Protection and Affordable Care Act (PPACA) as amended by the Health Care and Education Reconciliation Act. These two laws are commonly referred to together as PPACA or health care reform. Mandates become effective over the next several years. While health care reform is now law, many implementation details remain unanswered and will be clarified by future regulations and guidance. While effective dates of many provisions are several years down the road, some significant reforms are effective almost immediately. Even provisions that do not go into effect in the immediate future require planning. 3

4. ©SHRM 2010 201020112012201320142018  Restrictions on Lifetime Limits*  Preexisting Condition Exclusions Prohibited for Children Under 19*  Only Restricted Annual Limits Permitted (HHS guidance needed)*  Extension of Adult Child Coverage to Age 26*  Prohibition on Rescissions*  No Cost Sharing and Coverage for Certain Preventive Health Services**  Effective Appeals Process**  Nondiscrimination Rules Apply to Fully Insured Plans**  Certain Retiree Medical Claims Reimbursable (Retiree Reinsurance)  Employer Reporting of Health Insurance Information**  Nursing Mother Breaks and Accommodations  Patient Protections**  Over-the-Counter Medicines Not Reimbursable Under Health FSA or From HSA Without a Prescription, Except Insulin  HSA Excise Tax Increase  Employer Reporting of Health Coverage on Form W-2  Public Long-Term Care Option (CLASS Act)  Medicare Part D Discounts for Certain Drugs in “Donut Hole”  Employer/Insurer Distribution of Uniform Summary of Benefits to Participants*  Employer Quality of Care Report**  1099 Reporting for Payment of Property and Other Gross Proceeds  Comparative Effectiveness Fee  Large Employer Notice to Inform Employees of Coverage Options in Exchange  Limit of Health Care FSA Contributions to $2,500 (Indexed)  Elimination of Deduction for Expenses Allocable to Retiree Drug Subsidy (RDS)  Medicare Tax on High Income  Individual Mandate  State Insurance Exchanges Available  Large Employer Responsibility to Provide Affordable Minimum Essential Health Coverage  Free Choice Vouchers  Preexisting Conditions Exclusions Prohibited*  Annual Limits Prohibited*  Automatic Enrollment (employers with more than 200 employees)  Maximum 90-Day Waiting Period for Plan Coverage*  Increased Cap on Rewards for Participation in Wellness Program**  Coverage of Clinical Trials**  Excise Tax on High-Cost Coverage *Denotes group/insurance market reforms applicable to grandfathered health plans. **Denotes group/insurance market reforms not applicable to grandfathered health plans.. Health Care Reform Timeline

5. ©SHRM 2010 Grandfathered vs. Non-Grandfathered Plans Understanding and interpreting the sweeping 2010 health care reform law begins with an understanding of the law’s “grandfathering” provisions. A “grandfathered” plan is one that was in existence on March 23, 2010 (the day PPACA was enacted). A grandfathered health plan is required to comply only with a subset of the group market reforms under PPACA. The benefit of maintaining grandfathered health plan status is that an employer-sponsored plan will not have to comply with some of the more expansive group market reforms. A “non-grandfathered” plan is a plan that was not in existence on the date the law was enacted OR one that loses its grandfathered status due to certain changes to the plan. Interim regulations issued in June 2010 outline what plan design changes would cause a plan to lose its grandfathered status. Our plan for the current or imminent plan year is [SHRM Member: fill in your plan status here.] 5

6. ©SHRM 2010 SHRM Member: If your plan is grandfathered, the following slides apply. 6

7. ©SHRM 2010 Grandfathered Plans Grandfathered plans are not required to implement the following provisions: > 100% preventive care coverage > No prior authorization for obstetric/gynecological care > Emergency care benefits same in and out of network > Nondiscrimination for insured plans under tax code > Financial and quality data reporting to government > Appeal process rules > Cover children to age 26 who have other employer coverage (only until 2014) > Rules on deductible and out-of-pocket maximums > Coverage of clinical trials 7

8. ©SHRM 2010 Requirements for Grandfathered Plans An employer sponsoring a grandfathered health plan must: Include in plan materials that describe plan benefits a statement indicating that the employer believes the health plan is grandfathered. Provide contact information for questions and complaints. Maintain records documenting the coverage in effect on March 23, 2010, as well as documents to verify, explain or clarify grandfathered status. Make these records available upon request. 8

9. ©SHRM 2010 Maintaining Grandfathered Status Each employer has to weigh the cost of losing grandfathered health plan status against the cost reductions from the proposed plan changes that would cause loss of grandfathered health plan status. Savings derived from adopting plan changes need to be assessed relative to the additional cost and administrative burden required to be in compliance as a non-grandfathered plan; based on the cost/benefit analysis you must determine if design/contribution changes should be made. A September 2010 poll conducted by SHRM found that 30% of HR professionals say they are attempting to maintain their organization’s grandfathered status, whereas 11% have decided not to maintain their organization’s grandfathered status. Note to SHRM Member: If you have completed an analysis, you can add that information to this slide. 9

10. ©SHRM 2010 Losing Grandfathered Status Actions that cause a plan to lose grandfathered status are complex, but below are examples: Change in insurance carriers (for non-union plans) Elimination of benefits Increase in percentage cost-sharing Increase in a fixed-amount cost-sharing other than a co-payment Increase in a fixed-amount co-payment Decrease in contribution rate by employer Changes in (or addition of) annual limits Decrease in limit for a plan or coverage with only a lifetime limit or with an annual limit “Anti-abuse rule” –Mergers and acquisitions –Change in plan eligibility SHRM Member: refer to regulations for specifics on above; add explanations for why your plan may or will lose grandfathered status 10

11. ©SHRM 2010 Small Businesses SHRM Member: If you are a small business, these slides are available for you to customize as applicable to your organization. 11

12. ©SHRM 2010 Small Business Employer size affects which provisions of the law are applicable. Employers with fewer than 25 full-time employees: > Eligible for a tax credit if the employer’s average annual wages are below $50,000 and the employer contributes at least 50% of total premium costs Employers with fewer than 50 full-time employees: > Exempt from Nursing Mother Break and Accommodations Provisions > Exempt from the free rider penalty if they do not provide health coverage in 2014 > Employers with up to 50 employees (or up to 100 employees at the discretion of the state) will have access to state-based Small Business Health Options Program (SHOP) Exchanges (starting in 2014) Employers with fewer than 100 full-time employees: > Grants available for workplace wellness programs for employers with fewer than 100 workers who work 25 or more hours a week > Health plans offered in the small group market (group plans for employers with 100 or fewer employees) will be required to comply with maximum deductible limits (starting in 2014) > Cafeteria plans considered simple cafeteria plans that are exempt from non- discrimination requirements of Code section 125(b) 12

13. ©SHRM 2010 End Small Business Slides 13

14. ©SHRM 2010 Key Coverage Provisions Key coverage provisions include: Preexisting condition exclusions prohibited for children under 19 Lifetime limits prohibited on essential health benefits Restricted annual limits > No 2011 annual dollar limits less than $750,000 on “essential health benefits” Essential health benefits are not defined in the law, but good faith compliance is expected until regulations are released 100% coverage for preventive health services Patient protections > No restrictions on patient’s designation of PCP or pediatrician > Unrestricted access to coverage for emergency treatment > No prior authorization for obstetric/gynecological care Extension of dependent coverage to age 26 Prohibition on rescissions Nondiscrimination rules apply to fully-insured plans 14

15. ©SHRM 2010 Impact on Welfare Plans Insurance and group market reforms applicable to health insurance coverage do not directly apply to stand-alone dental and vision coverage A dental or vision plan is a stand-alone plan if it is: > A fully insured plan under a separate contract > A self-insured plan with a separate election right and employee contribution 15

16. ©SHRM 2010 Other Key Provisions As stated earlier, health care reform is complex and changing. The following slides highlight key provisions of the law that affect employers. Breaks for Nursing Mothers: PPACA amended the Fair Labor Standards Act (FLSA) to require employers to provide reasonable break time and a suitable location for a nonexempt employee to express breast milk for her nursing child (effective March 23, 2010) Adoption Assistance: PPACA increased the tax credit and tax exclusion to $13,170 for all adoptions (effective retroactively to January 1, 2010) CLASS Act: PPACA created a voluntary national social insurance program providing limited long-term-care (LTC) coverage via payroll deductions for employees. (The PPACA indicates that CLASS is effective on January 1, 2011. However, HHS is expected to define the CLASS benefit by October 2012, with enrollment beginning thereafter. As a result, there is some uncertainty about implementation of this provision.) 16

17. ©SHRM 2010 Other Key Provisions Tax Years Beginning After December 31, 2010: OTC Products: Over-the-counter medicines or products are no longer eligible for reimbursement under a health FSA, HRA, HSA or Archer MSA without a doctor's prescription. Insulin remains reimbursable. HSA Excise Tax: The excise tax for nonmedical HSA and Archer MSA distributions increases from 10 percent to 20 percent. W-2 Reporting: Beginning with the tax year 2011 Form W-2, employers must calculate and report the aggregate cost of applicable employer-sponsored health insurance coverage on employees' Form W-2s. (Note: On Oct. 12, 2010, the IRS delayed implementation of the requirement to report the value of health insurance on employees' IRS Form W-2 for one year. ) 17

18. ©SHRM 2010 Other Key Provisions On or Before March 23, 2012: Uniform Explanation of Coverage: Employers must provide to all participants and applicants a summary of benefits stating whether the plan provides minimum essential coverage and whether ensures the plan's share of costs is at least 60% of actuarial value. The Secretary of Health and Human Services is required to develop uniform standards for this disclosure by March 23, 2011. 18

19. ©SHRM 2010 Other Key Provisions Tax Years Beginning After December 31, 2012: Cap on Health Flexible Spending Accounts: Contributions are capped at $2,500 each year, indexed for the Consumer Price Index starting in 2014. Notification of State Exchanges: Employers must provide new and existing employees with information about state insurance exchange, including information on employee eligibility if the employer’s coverage is not affordable and information on free choice vouchers and premium credits. 19

20. ©SHRM 2010 Other Key Provisions Plan Years Beginning After December 31, 2013: Play-or-Pay Penalty: Nothing in the health care reform law says an employer must offer health coverage to employees. However, the law imposes penalties under certain circumstances: > An organization that has more than 50 full-time equivalent (FTE) employees and does not offer minimum essential coverage to full-time employees will be fined $2,000 per full-time employee per year if any full-time employee receives a premium tax credit from the federal government for use in a state exchange. When counting full-time employees, the first 30 are subtracted. > An employer that has more than 50 FTE employees, offers health benefits and has at least one full-time employee receiving a premium tax credit from the federal government will be fined either $3,000 for each employee receiving a credit or $2,000 for each full-time employee, whichever fine is smaller. > For employers with 50 FTE employees or fewer, there is no penalty for not offering health care coverage. > The hours worked by part-time employees (i.e., those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120. 20

21. ©SHRM 2010 Other Key Provisions Plan Years Beginning After December 31, 2013 (continued): Employer-Provided Free Choice Vouchers: Employers that offer minimum essential coverage will be required to provide qualified, low-paid employees a "free-choice voucher.” This voucher must be in an amount equal to what the employer would have contributed toward the employee's health coverage. Minimum Essential Coverage: Large employers who offer health insurance must provide “minimum essential coverage” or face a tax penalty. Limits on Waiting Periods: Enrollment waiting periods may not exceed 90 days. (Applies to all plans.) Prohibition of Preexisting Condition Exclusions: Preexisting condition exclusions are eliminated completely. (Applies to all plans.) Cost-Sharing Limits: A health plan providing the essential health benefits package must have limits on cost-sharing provisions (tied to HSA limits). (Applies to non-grandfathered plans.) Wellness Programs: Employers are permitted to offer employees wellness incentive rewards of up to 30 percent of health plan premiums. 21

22. ©SHRM 2010 Other Key Provisions Tax Years Beginning After December 31, 2017: Excise Tax on High-Cost Health Plans: Health care plans that are valued at more than $10,200 for individual coverage and $27,500 for family coverage,often-called “Cadillac plans,” will be subject to a nondeductible excise tax. The initial cost thresholds for Cadillac plans will be adjusted annually for inflation. The excise tax will be 40 percent of a health plan’s annual cost that exceeds the threshold. For example, an individual plan that is valued at $12,200 would be $2,000 above the threshold, and the issuer of the health policy would be taxed 40 percent of $2,000, or $800 for the high-cost plan. 22

23. ©SHRM 2010 What Actions Should Employers Take? Stay abreast of new developments related to health care reform. For coverage provisions, review and evaluate grandfathered protections; measure the financial impact of plan design changes; evaluate changes to offset cost increases; update systems, plan documents, HIPAA certificates; provide required notices. For health-related account changes, communicate new rules before and during annual enrollment; update plan documents and materials. For new W-2 reporting requirements, calculate value of health benefits; establish procedures for payroll; communicate so employees understand that W-2 reporting does not add to their taxable income. For effective appeals process, review current appeals process with legal counsel and update, if needed, to comply with law and guidance; communicate new procedures to employees. 23

24. ©SHRM 2010 Further Reading For more detailed information on the strategic aspects of health care reform, please see the following resources: Health Care Costs Reform Predicted to Drive Increase in Health Care Consumption Increased Health Care Cost Shifting Expected in 2011 Group Health Insurance Rates on the Rise for 2011 Employers Brace for Health Care Cost Increases, Remain Committed to Subsidizing Employee Coverage Health Reform's Coverage Requirements Expected to Drive Premiums Higher Grandfathered Status ‘Grandfathered’ Plans Spared Some Reform Mandates Special 'Grandfathered' Rules for Collectively Bargained Plans Nine of 10 Big Companies Expect to Lose Grandfathered Status Salary Nondiscrimination Some Executive Health Care Benefits Might Become Obsolete Reform Predicted to Drive Increase in Health Care Consumption Increased Health Care Cost Shifting Expected in 2011 Group Health Insurance Rates on the Rise for 2011 Employers Brace for Health Care Cost Increases, Remain Committed to Subsidizing Employee Coverage Health Reform's Coverage Requirements Expected to Drive Premiums Higher ‘Grandfathered’ Plans Spared Some Reform Mandates Special 'Grandfathered' Rules for Collectively Bargained Plans Nine of 10 Big Companies Expect to Lose Grandfathered Status Some Executive Health Care Benefits Might Become Obsolete 24

25. ©SHRM 2010 Further Reading Play-or-Pay Penalty Now It's Employers' Turn Employer-Sponsored Health Benefits: ‘Reformed’ into Obsolescence? Now It's Employers' Turn Employer-Sponsored Health Benefits: ‘Reformed’ into Obsolescence? Cadillac Plan Excise Tax Tax on ‘Cadillac’ Health Plans Could Have a Major Impact Total Rewards Strategy Now It's Employers' Turn Employers Consider Their Health Care Reform Options Wellness Incentives Wellness Programs Get a Boost in Health Reform Law Tax on ‘Cadillac’ Health Plans Could Have a Major Impact Now It's Employers' Turn Employers Consider Their Health Care Reform Options Wellness Programs Get a Boost in Health Reform Law 25