2018 IS NOT THAT FAR AWAY LOOMING EXCISE TAX ALREADY CHANGING EMPLOYER HEALTH INSURANCE & ACA REPORTING 2016 SEPTEMBER 24, 2015.

2018 IS NOT THAT FAR AWAY LOOMING EXCISE TAX ALREADY CHANGING EMPLOYER HEALTH INSURANCE & ACA REPORTING 2016 SEPTEMBER 24, 2015

© Marsh & McLennan Agency 2015 2 This is for informational purposes only - not intended to be used as legal advice. WHAT WE’LL COVER TODAY THE 2018 EXCISE TAX It’s a big deal to employers Strategic considerations and mitigation Reducing plan costs Health accounts Other insurance coverage Have you thought about… 2018 is not that far away – Let’s build a strategy! ACA reporting Overview

© Marsh & McLennan Agency 2015 5 This is for informational purposes only - not intended to be used as legal advice. EXCISE TAX ON HIGH-COST PLANS AT A GLANCE ($35,600 − 27,500) × 40% = $3,240 per covered family Effective in 2018, a 40% excise tax (non-deductible) will apply to the total cost of an active or former employee’s health-related coverage exceeding the following dollar levels: Single: $10,200; Family: $27,500 Includes medical coverage (employer and employee contributions), health FSAs, HRAs, HSAs (both employer and employee pre-tax contributions) and many on-site clinics Thresholds are indexed beyond 2018 (CPI + 1% in 2019; CPI thereafter) There are many further details and regulatory uncertainties that impact the determination of the excise tax

© Marsh & McLennan Agency 2015 6 This is for informational purposes only - not intended to be used as legal advice. EXCISE TAX STRATEGY – OPTIMIZING The ACA essentially establishes a “floor” and “ceiling” relative to employer ‑ sponsored health coverage. At a high level: –The floor is the Bronze-level 60% actuarial value -To avoid potential employers shared responsibility assessments –The ceiling is the statutory excise tax threshold for high-cost health plans -$10,200/single coverage and $27,500/family coverage, in 2018 The overriding employer goal of managing the excise tax on high-cost health plans is to: –Avoid the 40% tax –Permit the employer plan sponsor and plan participants to optimize tax-protected benefits under the applicable statutory threshold

© Marsh & McLennan Agency 2015 7 This is for informational purposes only - not intended to be used as legal advice. IS IT A BIG DEAL TO EMPLOYERS? SURVEY’S RECENT ESTIMATE… ESTIMATES BASED ON DATA FROM MERCER’S NATIONAL SURVEY OF EMPLOYER ‑ SPONSORED HEALTH PLANS 2014; PREMIUM TRENDED AT 6%, TAX THRESHOLD TRENDED AT 3% FOR 2019 AND 2% FOR FUTURE YEARS PERCENT OF EMPLOYERS THAT WILL BE SUBJECT TO TAX IF THEY MAKE NO CHANGES TO CURRENT PLANS – EXCLUDING EMPLOYEE CONTRIBUTIONS TO FSA/HSA RESULTS ARE WORSE WHEN HEALTH ACCOUNTS ARE ADDED TO THE EQUATION!

© Marsh & McLennan Agency 2015 8 This is for informational purposes only - not intended to be used as legal advice. WHAT ARE EMPLOYERS DOING, OR CONSIDERING, TO MINIMIZE THE IMPACT OF THE EXCISE TAX ON HIGH-COST PLANS? Source: Preliminary results from Mercer’s National Survey of Employer-Sponsored Health Plans, 2015 BUT ARE THESE EMPLOYERS OPTIMIZING THEIR HSA STRUCTURES TO MAXIMIZE TAX-EFFECTIVENESS?

© Marsh & McLennan Agency 2015 9 This is for informational purposes only - not intended to be used as legal advice. © Marsh & McLennan Agency 2015 9 THE 2018 EXCISE TAX STRATEGIC CONSIDERATIONS AND MITIGATION

© Marsh & McLennan Agency 2015 10 This is for informational purposes only - not intended to be used as legal advice. WHAT TYPES OF COVERAGES ARE INCLUDED/EXCLUDED FROM THE EXCISE TAX? 1 1.This description is largely based on Mercer's current interpretation, as official regulatory guidance is not yet available 2.While ACA’s statutory language appears to include self-insured dental/vision plans and EAPs, the IRS is considering excluding such plans if they qualify as excepted benefits [IRS Notice 2015–2016] INCLUDE Employee and employer share of major medical cost/premium (e.g. PPO, HMO, HDHP, Rx) –Including executive medical/physical benefits and some expatriate coverage Health FSA, including employee pre-tax salary reduction contributions HRA “Employer contributions” to an HSA, including employee pre ‑ tax contributions made through a cafeteria plan On-site medical clinics offering more than “de minimis” medical care Medigap, TRICARE supplemental insurance, and other “similar supplemental coverage” Specified disease or illness coverage, or hospital or other fixed indemnity insurance, if payment for coverage is excluded from employee’s gross income (e.g. employee pays for coverage with pre-tax salary reduction contributions and/or employer paid without imputed income) EXCLUDE  Employee HSA contributions made on an after ‑ tax basis  Insured limited-scope dental and vision plans  Specified disease or illness coverage, or hospital or other fixed indemnity insurance, if payment for coverage is included in employee’s gross income (e.g. employee-pay-all on an after ‑ tax basis and/or employer paid with imputed income)  Long-term care insurance  Some expatriate coverage  Certain non-medical “excepted benefits” including: –Accident-only (including AD&D) –Disability income insurance –Liability insurance, including any automobile or supplemental liability insurance –Workers’ compensation –Automobile medical payment insurance –Credit-only insurance –Other “similar” insurance coverage ? Limited-purpose dental/vision only FSAs ? Employee Assistance Programs, if excepted benefit 1 ? Self-insured limited-scope dental and vision plans, if excepted benefit 2

© Marsh & McLennan Agency 2015 11 This is for informational purposes only - not intended to be used as legal advice. EXCISE TAX CONSIDERATIONS AND MITIGATION ENROLLED EMPLOYEES/ MEMBERS PLAN COSTTHRESHOLD TAX ×–=×40% Who is covered? Underlying Cost of Care How Cost is Measured Plan Design Accounts Age/Gender adjustments High risk adjustments Retiree adjustments

© Marsh & McLennan Agency 2015 13 This is for informational purposes only - not intended to be used as legal advice. REDUCING PLAN COST HEALTH ACCOUNTS The cost of the plan for excise tax purposes will include the value of health accounts, including FSAs, HRAs and HSAs (both employer and pre-tax employee contributions) As the cost of the underlying comprehensive medical plan approaches the excise tax thresholds, employers will need to manage these accounts to avoid unnecessary taxes, as well as to fully utilize tax advantages that remain in place The next several pages look more closely at how to optimize account usage as plan costs approach, hit and exceed the excise tax thresholds –Account limits are based on illustrative indexing to 2018

© Marsh & McLennan Agency 2015 14 This is for informational purposes only - not intended to be used as legal advice. STAGE 1: “ALL CLEAR” (FOR NOW) EMPLOYEE-ONLY COVERAGE 2018 excise tax threshold $10,200

© Marsh & McLennan Agency 2015 15 This is for informational purposes only - not intended to be used as legal advice. STAGE 2: ACCOUNTS TRIGGER EXCISE TAX EMPLOYEE-ONLY COVERAGE 2018 excise tax threshold $10,200 Excise tax potential Reduce FSA contribution limit Eliminate FSA Convert FSA to dental/vision only (?) Reduce or eliminate pre ‑ tax HSA contributions Employee can independently fund tax ‑ preferred HSA Both sets of approaches can help Convert Limited purpose FSA to dental/vision only?

© Marsh & McLennan Agency 2015 16 This is for informational purposes only - not intended to be used as legal advice. STAGE 3: UNDERLYING PLAN TRIGGERS EXCISE TAX EMPLOYEE-ONLY COVERAGE 2018 excise tax threshold $10,200 Excise tax potential Additional tax savings created After-tax or independent employee funded HSA contributions can drive tax effective value over the threshold Reduce plan cost, or Convert to HDHP and reduce contributions or increase taxable compensation

© Marsh & McLennan Agency 2015 17 This is for informational purposes only - not intended to be used as legal advice. THE EXCISE TAX ON HIGH-COST HEALTH PLANS AND RISING MARGINAL TAX RATES WILL ACCELERATE HSA ADOPTION CONSIDERATIONS Post-tax HSA contributions may be made by participant Participants may take a federal tax deduction for post-tax HSA contributions; state income tax laws vary, but most states with income tax parallel the federal HSA contribution rules (except AL, CA and NJ) This effectively increases the 2018 tax-protected benefit threshold to approximately: –$13,950/single (+37%) –$35,000/family (+27%) Future increases in HSA contribution limits may further alleviate excise tax pressure COMPENSATION CHANGES ARE NOT SIMPLE !

© Marsh & McLennan Agency 2015 18 This is for informational purposes only - not intended to be used as legal advice. WHEN WILL A 60% PLAN HIT THE THRESHOLD? ESTIMATES BASED ON DATA FROM MERCER’S NATIONAL SURVEY OF EMPLOYER ‑ SPONSORED HEALTH PLANS 2013; PREMIUM TRENDED AT 6%, TAX THRESHOLD TRENDED AT 3% FOR 2019; 2% THEREAFTER. AVERAGE PPO PLAN – 60% PLAN VALUE

© Marsh & McLennan Agency 2015 22 This is for informational purposes only - not intended to be used as legal advice. OTHER INSURANCE COVERAGE APPROACH As employer re-design their health plans to reduce plan cost to avoid or help mitigate their excise tax obligations, employers might consider supplementing their benefit plans by offering……. Voluntary benefits (employee or employer paid plans) on an after-tax basis. These approach could include: Critical illness insurance Accident Insurance Disability income insurance Hospital confinement indemnity insurance This approach would help their employees cover their higher deductible and out-of- pockets maximums and these post-tax expenses would not be included in the total plan cost for excise tax purposes.

© Marsh & McLennan Agency 2015 23 This is for informational purposes only - not intended to be used as legal advice. © Marsh & McLennan Agency 2015 23 THE 2018 EXCISE TAX STRATEGIES HAVE YOU THOUGHT ABOUT…

© Marsh & McLennan Agency 2015 24 This is for informational purposes only - not intended to be used as legal advice. PRIVATE EXCHANGES Private exchanges provide a platform to efficiently execute the strategies we’ve discussed 80%75% AVERAGE VALUE OF MEDICAL PLANS PRE-MARKETPLACE AVERAGE VALUE OF MEDICAL PLANS POST-MARKETPLACE Expanded use of supplemental medical plans (generally not subject to excise tax) with voluntary benefits programs is expected

© Marsh & McLennan Agency 2015 25 This is for informational purposes only - not intended to be used as legal advice. THE BROADER IMPACT OF THE 2018 EXCISE TAX Would a reduction in medical benefits impact your total rewards competitiveness? What are the potential impacts of changes in medical benefits on employment and business outcomes? What is your strategy for maintaining your employment value proposition if benefits are reduced?

© Marsh & McLennan Agency 2015 27 This is for informational purposes only - not intended to be used as legal advice. WE NEED TO PLAN FOR WHEN – NOT IF IT HAPPENS… A LOT CAN HAPPEN BETWEEN NOW AND 2018, BUT HOPING FOR A REPEAL OF THE TAX IS NOT A PRUDENT STRATEGY IRS REQUESTS FOR INFORMATION PROVIDE INSIGHT, BUT NO FORMAL GUIDANCE HAS BEEN RELEASED ADVANCE PLANNING IS REQUIRED, ESPECIALLY WITH RESPECT TO HEALTH ACCOUNTS, FOR PLANS EXPECTED TO TRIGGER THE TAX IN 2018 AND UNION PLANS WHERE COMMITMENTS EXTEND INTO 2018. THERE ARE STRATEGIES THAT NEED TO BE ASSESSED AND IMPLEMENTED DUE TO BOTH ACA EXCISE TAX AND GENERAL COST REDUCTION 2018 IS NOT THAT FAR AWAY

© Marsh & McLennan Agency 2015 29 This is for informational purposes only - not intended to be used as legal advice. ACA REPORTING BEGINS IN 2016 (FOR 2015 DATA) Minimum Essential Coverage (§6055) Employer Shared Responsibility (§6056) 2016 Due Dates PurposeEnforce individual mandateEnforce employer mandate Validate public exchange premium subsidy eligibility Who Reports Every entity providing MEC to an individual. Every large employer with 50 or more full-time or equivalent employees. IRS Reporting Include all covered individuals enrolled in MEC. Include each full-time employee. E-file: March 31 Paper: Feb. 29 If filing at least 250 Forms 1095-C, must E-file. Individual Reporting To each “responsible individual” who enrolls self or others in MEC. Each employee who was full time for at least one month during reporting year. February 1 PenaltiesFailure to report – $250 per report, up to $3 million

© Marsh & McLennan Agency 2015 30 This is for informational purposes only - not intended to be used as legal advice. ACA REPORTING BEGINS IN 2016 REFERENCE CHART Fully Insured PlanHRA’s/Self Funding Plan Insurance CarrierForms 1094-B and 1095-BNot Applicable Non – ALE (Average fewer than 50 full-time equivalents in prior calendar year) Not required to fileForms 1094-B and 1095-B ALE (Average fewer than 50 full-time equivalents in prior calendar year) Forms 1094-C and 1095-C Forms 1094-C and 1095-C Parts I and II onlyParts I, II, and III ALE REFERS TO “APPLICABLE LARGE EMPLOYER”

© Marsh & McLennan Agency 2015 31 This is for informational purposes only - not intended to be used as legal advice. 1094-C Transmittal Form 1095-C Employee Statement Employer IRS Information Return HOW LARGE EMPLOYERS WILL REPORT (MEC AND ESR) 1094-C Transmittal Form 1095-C Employee Statement Employer IRS Information Return 1094-B Transmittal Form 1095-B Employee Statement Insurer IRS Information Return Self-Insured Employers Fully-Insured Employers Employer reports both MEC (6055) and ESR (6056) information on combined forms.* Insurer will provide MEC (6055) information on Form 1094-B and 1095-B. Employer will provide ESR (6056) information on Form 1094-C and 1095-C. * Large employers with self-funded plans have the option to use the same forms as insurers — Forms 1094-B and 1095-B — to report MEC for persons who weren’t employees at any time during the reporting year, such as retirees who terminated in previous years or covered non-employee director. Small employers exempt from ESR reporting that have self-funded plans will use 1094-B and 1095-B to report MEC for all enrollees. Due Dates Employee statement: Feb 1, 2016 for 2015 coverage year (annually on Jan 31 thereafter). IRS: Annually by Mar. 31 for e-filers or Feb. 28 for paper filers (Monday, Feb. 29, 2016 for 2015 coverage year for paper filers).

© Marsh & McLennan Agency 2015 36 This is for informational purposes only - not intended to be used as legal advice. Marsh McLennan Agency (MMA) has prepared these projections exclusively for ASA to estimate the range of the impact of federal Health Care Reform. These estimates may not be used or relied upon by any other party or for any other purpose than for which they were issued by MMA. MMA is not responsible for the consequences of any unauthorized use. All projections are based on the information and data available at a point in time and the projections are not a guarantee of results which might be achieved. The projections are subject to unforeseen and random events and so must be interpreted as having a potentially wide range of variability from the estimates. Further, the estimates set forth in this report have been prepared before all regulations needed to implement the Patient Protection and Affordable Care Act (PPACA) and Health Care Education and Reconciliation Act (HCERA) have been issued, including clarifications and technical corrections, and without guidance on complex financial calculations that may be required. (For example, some Health Care Reform provisions will likely involve calculations at the individual employee level.) Accordingly, these estimates are not Actuarial Opinions. ASA is responsible for all financial and design decisions regarding PPACA and HCERA. Such decisions should be made only after ASA careful consideration of alternative future financial conditions and legislative scenarios, and not solely on the basis of the estimates illustrated here. ASA understands that MMA is not engaged in the practice of law and this report, which may include commenting on legal issues or regulations, does not constitute and is not a substitute for legal advice. Accordingly, MMA recommends that ASA secures the advice of competent legal counsel with respect to any legal matters related to this report or otherwise. The information contained in this document and in any attachments is not intended by MMA to be used, and it cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or imposed by any legislative body on the taxpayer or plan sponsor.

2018 IS NOT THAT FAR AWAY LOOMING EXCISE TAX ALREADY CHANGING EMPLOYER HEALTH INSURANCE & ACA REPORTING 2016 SEPTEMBER 24, 2015.

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2018 IS NOT THAT FAR AWAY LOOMING EXCISE TAX ALREADY CHANGING EMPLOYER HEALTH INSURANCE & ACA REPORTING 2016 SEPTEMBER 24, 2015.

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