1. National Legislative Update: Health Care Reform Presented by Alicia Scalzo Wilmoth March 2011 © USI Insurance Services LLC 2011. All rights reserved.

2. Disclaimer This presentation is intended to convey general information and is not an exhaustive analysis. Information contained in this presentation may change as guidance develops. Kibble & Prentice and USI do not provide legal or tax advice. For advice specific to your situation, please consult an attorney or other professional. These materials are produced by Kibble & Prentice and USI for educational purposes only. Certain information contained in these materials is considered proprietary information created by Kibble & Prentice and USI. Such information shall not be used in any way, directly or indirectly, detrimental to Kibble & Prentice, USI and/or their affiliates. Neither Kibble & Prentice and USI, nor any of its respective representatives or advisors has made or makes any representation or warranty, expressed or implied, as to the accuracy or completeness of these materials. Neither Kibble & Prentice, USI nor their respective representatives or advisors shall have any liability resulting from the use of these Materials or any errors or omission therein. These materials provide general information for the use of our clients, potential clients, or that of our clients’ legal and tax advisors. IRS Circular 230 Disclosure: Kibble & Prentice Holding Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with Kibble & Prentice Holding Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax- related penalties. Also, the information contained in this document should not be construed as medical or legal advice.

3. Today’s Agenda  Overview  Political and legal landscape  Market reforms 2010-2011  On the horizon 3

4. Overview  Patient Protection and Affordable Care Act  Overhaul of U.S. health care system  Provide coverage to 32 million uninsured by 2019  Cost of $938 billion over 10 years  Significant changes to all facets of the current health care system  Focus on private sector coverage (employer-sponsored health plans and insurance reform)  No discussion of Medicare and Medicaid changes 4

5. Overview The Basics  Require most Americans to have health insurance coverage by 2014  Individuals without access to affordable employer coverage may be eligible to purchase insurance through a new marketplace, the Exchange  Government assistance available to lower income individuals (100-400% FPL)  Penalties on certain large employers who don’t provide affordable coverage if employees receive government assistance  New market reforms that impose requirements on individual and group health plans 5

6. Overview Paying for Reform  Billions of dollars in fees on pharmaceutical sector and insurance industry  New Taxes  10% tax on tanning services (2010)  2.3% medical device sales tax (2013)  Medicare hospital tax increase on high income earners (2013)  40% high cost plan excise tax (2018)  Penalties on individuals and employers who don’t have or provide health insurance  Reduce or eliminate certain tax breaks  Changes in Medicare and Medicaid 6

7. Political Challenges Repeal health care reform?  House voted in favor of a repeal, Senate opposed  Insufficient majority to override a veto Where does it go from here?  Delay funding of certain provisions  Additional hearings  Delay in regulations  2012 elections 7

8. Legal Challenges Finds HCR ConstitutionalFinds HCR Unconstitutional Eastern District of Michigan: Thomas More Law Center v. Obama, Oct 7, 2010  Dismissed claims that individual mandate is unconstitutional Eastern District of Virginia: Commonwealth of Virginia v. Sebelius, Dec 13, 2010  Ruled that individual mandate is unconstitutional  On appeal to 4 th Circuit Court of Appeals Western District of Virginia: Liberty University v. Geithner, Nov 30, 2010  Dismissed case, finding that the individual mandate is constitutional  On appeal to 4 th Circuit Court of Appeals Northern District of Florida: Florida v. Sebelius, Jan 31, 2011  Attorneys general of Florida and 25 other states  Ruled that individual mandate is unconstitutional, but due to lack of severability clause, entire act “must be declared void”  Medicaid expansion is constitutional Source: http://www.washingtonpost.com/wp-srv/special/health-care-overhaul-lawsuits/http://www.washingtonpost.com/wp-srv/special/health-care-overhaul-lawsuits/ 8

9. Market Reforms 2010 – 2011

10. Market Reforms All group health plans are required to comply with specific market reforms effective the first plan year* that begins on or after September 23, 2010 (January 1, 2011 for calendar-year plan)  Significant design changes for group health plans  Limited exceptions apply to “grandfathered” plans  Most of these reforms also apply in the individual market * For employer-based group health plans, this is the ERISA Plan Year which may (or may not) be the same as the policy year 10

11. Grandfathered Plans  Built from the premise that “you can keep the health plan coverage you have”  Estimated 40-70% of all group health plans will lose grandfathered status by 2014  A group health plan that is in existence on March 23, 2010 is considered grandfathered  Certain changes will cause a plan to lose this status  Subject to most market reforms, with some exceptions  Many insurance carriers “deeming” their plans non-grandfathered 11

12. Grandfathered Plans: Requirements & Exceptions Must comply with the following requirements:  Lifetime limits  Annual limits  Cannot cancel coverage  Extension of dependent coverage to age 26  Uniform explanation of coverage  No pre-existing condition exclusions  No waiting periods over 90 days  Notice to employees about Exchange  Automatic enrollment for large employers  Vouchers  Employer coverage penalties  Reporting of employer-sponsored health insurance coverage  High cost plan tax Do not have to comply with the following requirements:  Preventive care  Nondiscrimination in favor of HCIs  New appeals process  Clinical trials  HHS reporting  Comprehensive health insurance coverage for small groups and Exchange plans 12

13. Market Reforms – All Plans Effective the first plan year on or after September 23, 2010 (January 1, 2011 for calendar year plans)  No lifetime limitations on essential benefits  No annual limitations on essential benefits, except as allowed by HHS until 2014  Cover children to age 26 (special exception applies for grandfathered plans)  No pre-existing condition exclusions on individuals under age 19  No rescission of coverage 13

14. Lifetime Limitations  What is an essential benefit? No clear guidance – good faith standard based on the following categories:  Ambulatory patient services, hospitalization, ER, Rx  Maternity & newborn care, pediatric services (incl. oral & vision)  Mental health & substance use disorder services, including behavioral health treatment  Rehabilitative and habilitative services and devices  Preventive care & wellness services  Chronic disease management  Laboratory services  Plans/carriers are removing limits on transplants, preventive and rehab services 14

15. Annual Limitations  Permitted annual limitations on essential benefits until 2014  9/23/2010-9/23/2011: $750,000  9/23/2011-9/23/2012: $1.25 million  9/23/2012-1/1/2014: $2 million  Waivers  HHS waiver program available to plans in existence on September 23, 2010 if compliance with the required limits would result in a significant decrease in access to benefits or a significant increase in premiums for affected individuals 15

16. Other Market Reforms – All Plans  Children up to age 26 are eligible under a parent’s health plan  Generally cannot condition eligibility on student status, residing with parent, tax dependent status, marital status or employment  Grandfathered plans may exclude children who have employer- based group health plan coverage that is not provided by a parent  No rescission of coverage except in the case of fraud or intentional misrepresentation of material fact  Prospective cancellation of coverage and cancellation for nonpayment of premiums are not rescissions  No pre-existing condition exclusions on individuals under age 19 16

17. Market Reforms – Non-Grandfathered Plans Effective the first plan year on or after September 23, 2010 (January 1, 2011 for calendar year plans)  Cover preventive care at 100% in-network  If a PCP designation is required, allow enrollees to designate any in-network doctor (including OB/GYN and pediatrician)  Emergency services covered as in-network and no required preauthorization  New claims, appeals and external review processes  105(h) nondiscrimination rules apply to insured plans – prohibit discrimination in favor of HCIs as to eligibility or benefits 17

18. 2011

19. Medical Loss Ratios  Insurance companies will be required to satisfy certain medical loss ratios (MLR)  80% in the small market  85% in the large market  Requires $0.80/0.85 of every premium dollar that the carrier receives be spent on medical care and activities to improve health care quality  Failure to maintain these thresholds results in rebates 19

20. More 2011 Requirements  Optional W-2 Reporting  Mandatory 2012  OTC & Tax Favored Accounts  Requires a prescription for reimbursement through a health FSA, HRA or HSA  HSA Penalty Increase  From 10% to 20% penalty  Small Employer Wellness Grants  Grants become available to certain eligible employers that establish Comprehensive Workplace Wellness Programs  CLASS Act  Government-run long-term care program  Employers may elect to enroll employees and withhold premium amounts  Appears to be delayed 20

21. On the Horizon

22. 2012/2013  Uniform summary of benefits (2012)  HHS reporting (2012)  New fees in pharmaceutical manufacturing sector (2012-2013)  $2,500 health FSA cap (2013)  Medicare tax on high income earners (2013)  Fee on health plans for Patient Centered Outcome Research program (2013)  Excise tax (2.3%) on medical device sales (2013) 22

23. 2014 Market Reforms – All Plans Effective the first plan year on or after January 1, 2014  No pre-existing condition exclusion clauses on any individuals  No waiting periods in excess of 90 days  All annual limits are prohibited  Cover children to age 26 23

24. 2014 Market Reforms – Non- Grandfathered Plans Effective the first plan year on or after January 1, 2014  Coverage for individuals participating in approved clinical trials  Includes approved clinical trials for cancer treatment  Cannot deny (or limit or impose additional conditions on) coverage of routine patient costs for items and services furnished in connection with the clinical trial  Mandated coverage in the small market and through the Exchange 24

25. On the Horizon  New fees on insurance companies ($8 billion in 2014)  Exchange established (2014)  New marketplace for individuals and small employers to purchase health insurance coverage  Individual mandate (2014)  Individuals must have insurance coverage or pay a penalty  Large employer penalties and additional compliance burdens (vouchers and automatic enrollment) (2014)  Cadillac plan tax (2018) 25

26. Thank you! ALICIA SCALZO WILMOTH, JD Kibble & Prentice, a USI Company alicia.scalzo@kpcom.com p. 206.441.6300 www.kpcom.com