Healthcare Reform – Are you Ready? A Discussion of Readiness Strategies

1. Healthcare Reform – Are you Ready?A Discussion of Readiness Strategies Southeast Employee Benefit Conference April 23, 2013

2. Discussion Content • Overview of 2013 and 2014 preparations • Who Must be Offered Coverage and Why? • Definitions • Timelines and Measurement Periods • Transitional Relief • Additional Rules • Employer Shared Responsibility • Cost Effective Strategies • Critical Success Factors

3. PPACA…..Are We Ready for 2014? Hopefully, we have all stopped crying by now!

4. Health insurance exchanges • Individual coverage mandate • Financial assistance for exchange coverage of low-income individuals • Medicaid expansion (not all states) • New health plan regulations • HIPAA wellness limit increases • Shared responsibility penalties • Additional reporting and disclosure • Reporting for FTE/Affordability req. • Dependent coverage to age 26 for any covered employee’s child** • No annual dollar limits** • No pre-existing condition limits** • Waiting periods limited to 90 days • Additional new standards for new or “non-grandfathered” health plans, including limited cost-sharing, WPC&S • Health insurance industry fees begin (reinsurance pool) • Dependent coverage to 26 (no other employer coverage available)* • Lifetime dollar limits prohibited and annual dollar limits restricted* • No pre-existing condition limitations for children up to age 19* • Rescissions prohibited* • Additional standards for new or “non-grandfathered” health plans, including non-discrimination provisions for insured plans and mandatory preventive care with no cost-sharing • No health FSA/HRA/HSA reimbursement for OTC drugs • Penalties increased to 20% for non-qualified HSA distributions • Voluntary Form W-2 reporting for 2011 health coverage • Pharmaceutical manufacturers’ fees start • Medicare, Medicare Advantage benefit and payment reform • Insurers subject to medical loss ratio rules (MLR)* Timeline: Key Changes for Employers (Defined as Employers who employed at least 50 FTE’s during the previous calendar year) • Employers must distribute uniform benefit summaries to participants (SBC) • Employers must provide 60-day advance notice of material modifications (ex: AE) • Voluntary Form W-2 reporting for 2011 health coverage • Auto-enrollment of full-time employees (awaiting guidance) • Change in tax treatment for over-age dependent coverage • Change Medicare retiree drug subsidy tax treatment • Early retiree medical reinsurance • Medicare prescription drug “donut hole” beneficiary rebate • Break time/private room for nursing moms 2010 2011 2012 2013 2014 2018 • Health FSA maximum limited to $2,500 (indexed) • Exchange Notice due to EE: Deferred • Increased Medicare payroll tax on wages exceeding $200,000/ individual; $250,000/couples, 0.9% • New Medicare tax on net investment income for taxpayers with incomes exceeding $200,000/ individual; $250,000/couples • Research fees due 7/1/2013 for 2012 • Change in Medicare retiree drug subsidy tax treatment takes effect • Mandatory Form W-2 reporting for 2012 health coverage • Excise tax on “high cost” or Cadillac plans * Applies to all plans, including “grandfathered” plans, effective for plan years beginning on or after Sept. 23, 2010 (Jan. 1, 2011, for calendar year plans). Collectively bargained plans may have a delayed effective date. ** Applies to all plans, including grandfathered plans, effective for plan years beginning on or after Jan. 1, 2014. 4

5. 2013 and 2014 Overview Things you should have already done, or have a plan to complete soon • 2013 deliverables • W-2 reporting for 2012 tax year • Distribution of Uniform Summary of Coverage (SBC) • Anniversary dates & enrollment effective 9/23/2012 and thereafter • Flexible Spending Account cap ($2,500) • Comparative Research Tax (2012 due July 2013) • Women’s preventive care & screening

6. 2013 and 2014 Overview Things you should be making plans to do now! • Final guidance on many items is forthcoming or proposed • Automatic Enrollment • Transitional Reinsurance Fees • Notices to employees about Exchanges and coverage subsidies (Delayed) • FTE determination and tracking methodology

7. When Must Coverage Be Offered • Generally based on hours worked or amount of hours reasonably expected to work as of hire date • Employee reasonably expected to work full-time • Employee reasonably expected to work part-time (less than 30 hours) • Variable hour and seasonal employees not reasonably expected to work full-time

8. Tracking FTE’s for Eligibility • Full Time Employee = at least 30 hours or more per week • Initial Measurement Period (IMP) • Standard Measurement Period (SMP) • Stability Period (SP) • Considerations for determining and administrating Safe Harbor FTE eligibility tracking

9. Treatment of Variable Hour Employees • Variable hour employee • An employee working 30 hours/week during a measurement period is “full-time” for purposes of subsequent “stability period,” regardless of hours of service during stability period. • Measurement period: 3 - 12 consecutive months • Stability period • If “full-time” during measurement period: stability period must be at least 6 consecutive calendar months following measurement period and no shorter than the measurement period • If not “full-time” during measurement period, stability must be no longer than the measurement period • Transition relief for 2014 only

10. Ongoing Employee 12 month measurement period 2 month administration period 11/1/2012 – 10/31/2013 measurement period 11/1/2013 – 10/31/2014 measurement period 11/1/2014 – 10/31/2015 measurement period 1 2 3 11/1 – 12/31/2013 admin. period 1 11/1 – 12/31/2014 Admin period 2 11/1 – 12/31/2015 Admin period 3 1 2 3 1/1/2014 – 12/31/2014 stability period 1/1/2015 – 12/31/2015 stability period 1/1/2016 – 12/31/2016 stability period 2013 2014 2015 2016

11. New Variable Hour & Seasonal Employee Initial 12 month measurement period 1+ month administration period Employee 3/15/2014 DOH Initial Measurement Period 3/15/14 – 3/14/15 Initial Stability Period 5/1/2015 -4/30/2016 1 + Month administration period (AP begins the day following the end of the IMP through the next calendar month – May 1) 2014 2015 2016

12. New Variable Hour & Seasonal Employee 12 month measurement period 1+ month administration period Initial Employee 3/15/2014 DOH Minimum Coverage Period Even if employee determined NOT to be 30+ hours during first standard measurement period Initial Measurement Period 3/15/14 – 3/14/15 Initial Stability Period 5/1/2015 -4/30/2016 1 + Month administration period Standard Measurement Period 11/1/2014 – 10/31/2015 Standard Stability Period 1/1/2016 – 12/31/2016 2 Month administration period 12 month measurement period 2 month administration period Standard 2014 2015 2016

13. New Variable Hour & Seasonal Employee 12 month measurement period 1+ month administration period Initial Employee 3/15/2014 DOH Minimum Coverage Period Even if employee determined NOT to be 30+ hours during first standard measurement period Initial Measurement 3/15/14 – 3/14/15 Initial Stability 5/1/2015 -4/30/2016 1 + Month administration period 12 month measurement period 2 month administration period SMP 11/1/2014 –10/31/2015 Stability Period 1/1 – 12/31/2016 Standard 2 Month admin period SMP 11/1/2015 – 10/31/2016 Stability Period 1/1 – 12/31/2017 SMP 11/1/2016 – 10/31/2017 Stability Period 1/1 – 12/31/2018 2014 2015 2016 2017 2018

14. Employer Shared Responsibility Have at least 50 FTEs? No penalty applies! NO YES $2,000 penalty per FT employee (minus first 30) if at least one FT employee receives the tax credit Offer Coverage? NO YES Plan provides minimum required value? NO • Lesser of: • $3,000 per FT employee receiving tax credit* • Or • $2,000 per FT employee (minus first 30) YES NO Is coverage affordable? YES No penalty applies! • Only applies to FTEs with household incomes of 400% of FPL or less

15. Cost Effective Strategies • Fully Insured vs. Self Insured • Technology and Reporting • Outsource vs. Insource • Tool assessment • Benefit Administration • Actuarial value of current and future plans • Re-allocating compensation • Wellness and health risk improvement strategies • Outcome based • On-site clinics

16. Cost Effective Strategies • Communication strategies must be re-defined • Salary banding of payroll contributions • Actuarial value of current and future plans • Defined Contribution with a base HDHP • buy-up options for better plan choices • Re-allocating compensation • Re-define dependent contributions • Dependent Verification • Eliminate spouses eligible for insurance elsewhere • Charge for each family member that participates in the plan

17. Transitional Relief Can you defer compliance? • Transitional Relief for Plans whose Fiscal Year fall other than on a calendar year basis • In English – if your plan year begins other than January 1, you may be able to defer compliance with PPACA until the policy year start.

18. Critical Success Factors #1 – Senior management involvement early and often #2 – Re-invent your employee communication process #3 - Run an actuary-supported financial impact study of the available options #4 - Assess, and if necessary amend your hiring practices and use of full & part-time workforce #5 - Amend your business model to reflect incremental costs #6 - Take action sooner rather than later

19. Healthcare Reform – Are you Ready? Questions?