1. Broad Overview Impacts on Employees Employers and Insurers Tools to Get Involved Hilarie Aitken and Tina Shozen In-House Counsel & Compliance Officer Flex-Plan Services © 2009

2. The Administration believes that comprehensive health reform should:Administration Reduce long-term growth of health care costs for businesses and government Protect families from bankruptcy or debt because of health care costs Guarantee choice of doctors and health plans Invest in prevention and wellness (see Newsletter)prevention and wellnessNewsletter Improve patient safety and quality of care Assure affordable, quality health coverage for all Americans Maintain coverage when you change or lose your job End barriers to coverage for people with pre-existing medical conditions

5. HR 3962 HR 3962 the Affordable Health Care for America Act November 7, 2009 Procedural Update House needed 218 votes to pass its bill, final tally 220 Rep Joe Cao (R-Louisiana) the only Republican voting in favor If the Senate passes its bill, the House and Senate bills will be reconciled into one document and voted on again.

6. The House bill requires employers to provide coverage; the Senate does not The House would pay for the coverage expansion by raising taxes on upper-income earners; the Senate uses a variety of taxes and “fees” including a tax on health care benefits. The House bill costs about $1.2 trillion over 10 years; the Senate version is under $900 billion.

7. Overall Approach Requires individuals to have health insurance Creates a Health Insurance Exchange (individuals and smaller employers can purchase health coverage) Requires employers to provide coverage to employees or pay into the Health Insurance Exchange Trust Fund Small employer exclusion Credit to offset the costs Expand Medicaid to 150% of the poverty level

8. Individual Mandate All individuals must have “acceptable health coverage” Those without coverage must pay a penalty of 2.5% of their adjusted income up to the cost of the average national premium for self-only or family coverage under a basic plan Exceptions for those with incomes below the filing threshold (for 2009 the threshold is $9,350 for those under age 65, $18,700 for couples). Exception for religious objections Exception for financial hardship Effective January 1, 2013

9. Employer Mandate Requires employers to offer coverage and contribute at least 72.5% of the premium cost for single coverage and 65% of the premium for family coverage or pay 8% of payroll into the Health Insurance Exchange Trust Fund Exempt Annual payroll less than $500K Annual payroll between $500K and $585K; 2% of payroll Annual payroll between $585K and $670K; 4% of payroll Annual payroll between $670K and $750K; 6% of payroll If employers offer coverage they must auto enroll anyone who has not elected or has not formally opted out. Effective January 1, 2013

10. Expansion of public programs Expand Medicaid to all individuals under age 65 (children, pregnant women, parents, and adults without dependent children) with incomes up to 150% Federal Poverty Level. Expansion will be financed with 100% federal funds through 2014 and 91% (9% state) federal financing beginning 2015 Effective January 1, 2013

11. Expansion of public programs What about CHIP (Children Health Insurance Program)? Repeal and require CHIP enrollees with incomes above 150% of FPL to obtain coverage through the Health Insurance Exchange beginning 2014. CHIP enrollees with income between 100% and 150% will be transitioned to Medicaid. States will have to come up with a plan to transfer enrollees (Report due 2011)

12. Premium credits for individuals Individuals must have coverage Premium “credits” will be offered to those with incomes up to 400% of the FPL 133-150% FPL: 1.5 - 3% of income 150-200% FPL: 3 - 5.5% of income 200-250% FPL: 5.5 - 8% of income 250-300% FPL: 8 - 10% of income 300-350% FPL: 10 - 11% of income 350-400% FPL: 11 - 12% of income Effective January 1, 2013

13. Employer Credits Employers with 10 or fewer employees and an average of $20K or less can receive a 50% premium cost credit (full credit). Credit phases out as employer size increases--Employers with fewer than 25 employees and an average wage of less than $40K can receive a credit for up to two years. Effective January 1, 2013

14. Tax changes Impose a tax on individuals without coverage 2.5% of adjusted income above (Effective January 1, 2013) OTC Provisions - Permit only prescribed drugs to be reimbursable through a health savings account, Archer medical savings account, health reimbursement arrangement, or flexible spending arrangement for medical expenses. (Effective January 1, 2011) Increase the tax on distributions from a health savings account that are not used for qualified medical expenses to 20% (from 10%) of the disbursed amount. (Effective January 1, 2011) Limit the amount of contributions to a flexible spending arrangement for medical expenses to $2,500 per year. (Effective January 1, 2013) Impose a tax of 5.4% on individuals with modified adjusted gross income exceeding $500,000 and families with modified adjusted gross income exceeding $1,000,000. (Effective January 1, 2011)

15. Changes to Private Insurance Prohibit coverage purchased through the individual market from qualifying as acceptable coverage unless it is grandfathered coverage. Individuals can purchase a qualifying health benefit plan through the Health Insurance Exchange. (Effective January 1, 2013) Impose the same insurance market regulations relating to guarantee issue, premium rating, and prohibitions on pre-existing condition exclusions in the insured group market and in the Exchange. (See creation of insurance pooling mechanisms) (Effective January 1, 2013) Improve consumer protections by establishing uniform marketing standards, requiring fair grievance and appeals mechanisms and accurate and timely disclosure of plan information. (Effective January 1, 2013) Create the Health Choices Administration to establish the qualifying health benefits standards, establish the Exchange, administer the affordability credits, and enforce the requirements for qualified health benefit plan offering entities, including those participating in the Exchange or outside the Exchange. Permit states to form Health Care Choice Compacts to facilitate the purchase of individual insurance across state lines. (Effective January 1, 2015) Remove the anti-trust exemption for health insurers and medical malpractice insurers. (Effective upon enactment)

16. Cost Containment Simplify health insurance administration by adopting standards for financial and administrative Transactions Reduce Medicare payments for potentially preventable hospital readmissions. Restructure payments to Medicare Advantage plans Increase the Medicaid drug rebate percentage to 23.1% and extend the prescription drug rebate to Medicaid managed care plans. Require the Secretary to negotiate drug prices directly with pharmaceutical manufacturers for Medicare Part D plans. Authorize the Food and Drug Administration to approve generic versions of biologic drugs and grant biologics manufacturers 12 years of exclusive use before generics can be developed. Enhance competition in the pharmaceutical market by stopping agreements between brand name and generic drug manufacturers that limit, delay, or otherwise prevent competition from generic drug Require hospitals and ambulatory surgical centers to report on health care-associated infections to the Centers for Disease Control and Preventions Reduce waste, fraud, and abuse in public programs by allowing provider screening, enhanced oversight periods, and enrollment moratoria in areas identified as being at elevated risk of fraud.

17. Saturday November 21, 2009 Senate received 60 votes necessary to proceed to debate Bill merges element of the SFC Bill and the Senate Health, Education, Labor and Pensions Committee Debate begins after Thanksgiving break Final Consideration of the bill mid to late December. House bill passed November 7 th, if Senate Bill passes both will be combined

18. Key Provisions that will affect Employers Senate Bill establishes a health insurance exchange Individuals can purchase beginning 2014 Senate bill also creates a public option (option within any state based exchange) Beginning in 2017 states may allow all employers to offer coverage through the exchange Prior to 2017 only small employers (<100) may participate

19. Key Provisions that will affect Employers Senate Bill establishes a health insurance exchange Individuals can purchase beginning 2014 Senate bill also creates a public option (option within any state based exchange) Beginning in 2017 states may allow all employers to offer coverage through the exchange Prior to 2017 only small employers (<100) may participate Employers who offer coverage through the exchange may permit employees pay through cafeteria plan.

20. Reforms for Group Health Plans and Insurers No lifetime limits No unreasonable annual limits No rescission of coverage unless fraud or intentional misrepresentation First dollar coverage for preventive and immunizations Dependents covered up to 26

21. Reforms continued… Fully insured plans may not establish rules of eligibility based on hourly or annual salary (favoring higher wage employees) Insured plan must report to HHS and employees that improve health (management, disease, wellness, promoting health activities) No preexisting condition exclusions No discrimination based on health (similar to HIPAA) Out of pocket cannot exceed limits applicable to HSA HDHPs and deductable cannot exceed $2000 for singles and $4000 for family. Effective January 1, 2014 individuals must have coverage or pay a maximum of $750/year.

22. Impacts on Employers Employer with >200 employees must auto enroll Employers must notify all employees upon hiring Existence of the exchange Eligibility for the subsidy of employer pays <60% If employee purchase through the exchange, not employer contribution

23. Impacts on Employers continued… No requirement to offer coverage However the follow apply If employers fail to offer full-time employees coverage then pay a penalty for each employee that receives a subsidy in the exchange If you impose a waiting period > 30 days – pay a penalty for full-time employees waiting $400 for waiting periods 31-60 day $600 for waiting periods 61-90 Waiting period can be no longer than 90 days If you offer coverage and an employee enrolls in the exchange and receives a subsidy – employer pays $750 times each full time employee/month Applies to employers with more than 50 employees Full time means > 30 hours/week Employers must report to Secretary of Treasury each year 1) coverage offered, 2) waiting period, 3) number of full time employees, 4) name/address and TIN of each employee

24. Excise Tax on High Cost Coverage 40% excise tax coverage providers OVERALL CAP OF $8,500 per calendar year for individuals OVERALL CAP $23,000 per calendar year for families High risk groups $8,850 and $26,000 17 High cost states get an increased limit Cap to include group medical, dental, vision, cancer, FSAs, HRAs, HSAs Effective 2013

25. Excise Tax on High Cost Coverage Taxed to Coverage Provider Fully Insured Plans– Insurer HSA or MSA – Employer Self-insured plans (medical, HRA, FSA)– The Administrator i.e. Employer or TPA

26. Employer will need to calculate the total benefits received by each employee Under the employers plan Under a spouses plan Under any state plan Under a previous employers plan

27. Employee receives $25,000 in benefits That’s $2,000 over the cap Calculate the Excise tax 40% x $2000 = $800 in excise tax Calculate the % of each benefit to assess the excise tax % Medical % Dental % Vision % FSA % Cancer % HRA 72% 8.4% 3.6% 10% 1.2% 4.8% $25,000

28. Multiply the percent each benefit represents beneath the cap by by the excise tax: 40% excise tax on $2,000 overage of benefits = $800 Medical 72% x $800 = $576 excise tax Dental 8.4% x $800 = $67.20 excise tax Vision 3.6% x $800 = $28.80 excise tax FSA 10% x 800 = $80 Cancer 1.2% x $800 = $9.60 HRA 4.8% x $800 = $38.40 The employer will somehow have to report these amounts to the individual insurers for each employee. The employer will pay the excise tax on self-insured plans (HRA and other self-insured plans) and likely the FSA. The insurer will pay a 40% tax on the insured plans

29. Administrative burden on employers ERs must report on WA “value of health benefits” received on W-2 effective 2010. Gathering data on all employees, spouses, dependents Calculating & reporting overage to assess excise tax Costs of providing FSAs and HRAs will increase Employers will ratchet back benefits Less administrative burden (less to calculate) First to go will be FSAs/HRAs, self-insured plans (tax applies to employers) Inconsistent with increased “choice” intent of reform Cost to insurers? Definitely, these costs will increase all premiums Also inconsistent with “lowered costs” intent of reform

30. Currently Employers choose their maximum based on their needs Capping FSAs will constrain employers ability to tailor benefits Increased taxes on the employer Employer pays FICA and FUTA on amounts over $2500 Example: Employee would have set aside $3500 but can’t—now employer pays FICA and FUTA on $1000

31. Increased taxes on all employees who would have set aside more than $2,500 Capping FSAs is a tax on middle class paid for by chronically ill and families Cap will disproportionally affect families and the chronically ill Families have higher medical costs Child birth can cost up to $5,000 Out of Pocket (OOP) Chronic ill Americans always have high OOP cost Reduced ability to tailor their own benefits and make health care choices Even under a reformed health care system there will be OOP costs. OOP expose the patient to the realities/costs of health care and can drive down utilization. FSAs help to shoulder those costs (pre-funded) FSAs increase patients’ awareness to costs & encourage smart choices

32. No cap on employee benefits No cap on FSAs/HRAs Don’t take away OTC tax benefits

33. Call or Email Senate Finance Committee Members Call or Email Ask for: No overall cap on health care benefits No cap on FSAs Talking points or body of letter/emailTalking points body of letter/email Also visit http://www.savemyflexplan.org/ to write/call/email members of congresshttp://www.savemyflexplan.org/

34. GET INVOLVED 1. Request a meeting with your Senators and Representatives in their State/District offices.SenatorsRepresentatives 3. Invite your Senator and Representative to visit your offices. 4. Encourage your clients to contact their Senators and Representatives (sample letter).sample letter 5. Write a letter to the editor/opinion piece for your local newspapers. 6. Contact television and radio stations to inform them of the issue. STAY INFORMED http://www.kff.org/healthreform/sidebyside.cfm http://www.flex-plan.com/news.aspx http://www.ecfc.org/legislative/effective-lobbying/member-provided- resources/ http://www.ecfc.org/legislative/effective-lobbying/member-provided- resources/

35. Finally Support over all principles Pay-fors need some attention Need to look at unintended consequences Need to protect those mechanisms in the current system that promote the overall principles Questions?