1. Health Care Reform Provision
Health Care Reform – Timeline Implementation Impact to Baker Hughes (Disclaimer: The costs represented below are through 2011)
Year
Health Care Reform Provision
Impact to Baker Hughes
2010
Accounting recognition of change in taxability of RDS payments
Reinsurance for retiree medical coverage
$250 rebate for seniors who hit Medicare Part D coverage gap
Immediate coverage and consumer protection requirements for non-calendar year plans starting 6 months after effective date
No financial impact to Baker Hughes (BHI)
2011
Immediate coverage reforms (calendar year plans)
Extended dependent coverage
No lifetime and restricted annual limits
No preexisting condition exclusions for individuals 18 and younger
W-2 reporting of aggregate value of employees’ health coverage
HSA withdrawal penalty increased
No reimbursement of OTC medicines from account-based health plans
CLASS* Act long-term care benefit enrollment
Begin phasing out Medicare Part D donut hole
Increased costs of roughly $776,000
Additional administration associated with W-2 reporting
2012
Presidential election
No financial impact
2013
Deduction for employer Part D retiree drug subsidy Medicare payroll tax increased for high-wage employees and new tax on unearned income
Cap on salary-reduction contributions to health FSAs
$1.6M Part D retiree drug subsidy eliminated
$12,400 cost increase from additional FICA taxes resulting from FSA cap
© 2010 Baker Hughes Incorporated. All Rights Reserved.

2. Health Care Reform Provision
Health Care Reform – Timeline Implementation Impact to Baker Hughes (Disclaimer: The costs represented below are through 2011)
Year
Health Care Reform Provision
Impact to Baker Hughes
2014
Employer mandates: play-or-pay, automatic enrollment, free-choice vouchers
Individual health coverage mandate
Health Benefit Exchanges operational
Premium and cost-sharing subsidies for low- and middle-income individuals
Medicaid eligibility expanded
Additional consumer protections and market reforms, such as guaranteed issue, premium rating restrictions, prohibition on excessive waiting periods, prohibition on annual dollar limits, etc.
BHI health care costs in 2014 are projected to be $256 million before accounting for health care reform
Should BHI continue to offer health coverage:
Additional mandates will increase costs by $2.4 million
These costs could potentially be offset by as much as $52 million through reductions in plan design
Should BHI opt to exit employer sponsored health care coverage:
BHI would owe a federal penalty of $50 million
An additional cost of $316 million would be necessary to make employees whole, but is not required
2016
Cross-border sales of health insurance
Presidential election
No financial impact
Excise tax on high-cost group health plans
BHI is projected to exceed the cost threshold in 2018, resulting in an excise tax of $1.9 million. Aggregate excise tax total $37 million
Total
Total costs assumes no change to Health Care Reform provisions as outlined.
Blue = Health Care Reform costs factored
$41.78M
© 2010 Baker Hughes Incorporated. All Rights Reserved.

3. U.S. Health Care Reform: High Level Timeline
PPACA signed into law (March 23, 2010)
Some immediate health plan mandates and insurance market reforms
Reinsurance program for early retiree medical coverage
Accounting recognition of change in taxability of Medicare D RDS payments
$250 rebate for seniors who hit Medicare Part D coverage gap
Individual health coverage mandate
Employer mandates: play-or-pay, automatic enrollment
Health Benefit Exchanges operational
Premium and cost-sharing subsidies for low- and middle-income individuals
Medicaid eligibility expanded in all states to 133% of FPL
Additional group health plan mandates, such as prohibition on excessive waiting periods, coverage for clinical trials, and limits on annual OOP maximums and annual deductibles
W-2 reporting of aggregate value of employees’ health coverage
Comparative effectiveness research tax begins
HHS required 4-page health plan summary of benefits disclosure
Presidential election
Supreme Court ruling on individual mandate (likely)
Sales of health insurance across state borders permitted
2010
2011
2012
2013
2014
2015
2016
2017
W-2 issued using 2012 health plan data
Medicare payroll tax increased for high-wage employees and separate new tax on unearned income
$2,500 cap on salary-reduction contributions to health FSAs
Change employer tax treatment for Medicare Part D RDS payments
HHS approves/conditionally approves state Exchanges
States may open Exchanges to large employers
Health Care Reform is forcing employers to address the following aspects:
Minimum coverage: Effective 2014, 60% actuarial value plan offered to full-time employees and their dependents
Affordability: Effective 2014, employee only cost must be less than 9.5% of household income for one plan to avoid tax penalties
The excise tax: Effective 2018, 40% nondeductible tax on high-cost employer sponsored health coverage
All these factors have led Baker Hughes to have an excise-tax friendly approach with managing the active health plan.
Strategic Considerations going forward: Excise Tax, Affordability, Minimum Coverage, Competitive, Choice, and Wellness.
40% nondeductible excise tax on high-cost employer-sponsored health coverage
(“Cadillac” plan tax)
Adult child coverage to age 26, no lifetime dollar limits/’restricted’ annual dollar limits on essential health benefits, no preexisting condition exclusions for children under age 19, etc. (calendar-year plans)
HSA withdrawal penalty increased to 20%
No reimbursement of over-the-counter (OTC) medicines from account-based health plans, unless prescribed
Evolving interpretations, proposed regulations, (interim) final regulations, technical corrections, legislative amendments, judicial decisions, elections, preparation for major changes, unpredictability
© 2011 Baker Hughes Incorporated. All Rights Reserved.