Presentation Overview

1. The Patient Protection and Affordable Care Act: Implications for Self-Funded PlansPresented by Mike FergusonChief Operating OfficerSelf-Insurance Institute of America, inc.www.siia.org

2. Presentation Overview How Health Care Reform Passed Health Care Reform Legislation “At-a-Glance” Key Legislative Provisions Legal Challenges to PPACA SIIA Lobbying Victories Industry Threats Industry Opportunities Outlook Conclusion – Q&A

3. How Health Care Reform Passed “Straw Poll” Question Conventional Wisdom Often Wrong “Negotiating Terms of Surrender” Keeping Your “Seat at the Table” Conference Committee vs. Reconcilation

4. PPACA – “At-a-Glance” • State-Based Insurance Exchanges • Individual Insurance Mandate • Employer Mandates – “Play or Pay” • Insurance Market Reforms • Fees/Taxes/Studies • Oversight of Insurance Company Financial Operations

5. “Grandfathered” Plans Plans in Existence as of 3/23/10 Can Be Deemed “Grandfathered” Exempt From Some New Regulations “If You Like Your Health Plan You Can Keep Your Health Plan” Legislative Intent/History Regulatory Reality Value of Grandfathered Status Debatable

6. Grandfathered PlansRestricted Changes Change in insurance carriers (except CBA plans) Elimination of benefits to treat or diagnose a condition ANY increase in % of cost savings (e.g. coinsurance) – Trended Certain increases in fixed amount cost sharing – not trended Change in contribution structure (2 tier to 4 tier) A decrease in the employer contribution rate of more than 5 percentile points below the rate of on 3/23/10 for any tier of coverage for similarly situated individuals Certain changes in lifetime/annual limits

7. Requirements for NonGrandfathered Plans Requiring first dollar coverage of preventative care (2010) A new appeals process that includes both internal and external reviews for appeals of coverage (2010) Prohibiting discrimination in favor of highly compensated employees by fully-insured plans Requiring coverage of emergency services without prior authorization and in-network requirements (2010) Prohibiting required authorization or referral for an OB-GYN (2010)

8. Requirements for NonGrandfathered Plans – Cont. Quality of care reporting regarding plan benefits and reimbursement structures (3/23/12 est.) Prohibiting annual cost-sharing limits that exceed the thresholds applicable to health savings accounts (2014) Requiring coverage for participation in clinical trials for life-threatening diseases (2014)

9. Grandfathered PlansIf You Lose Status… You will not have to, among other things: - Maintain documentation of your plan as it existed on 3/23/10 in perpetuity - Calculate the impact of certain benefit changes - Freeze plan design indefinitely - Postpone or rework plan changes for the coming year

10. Grandfathered StatusWhat Will Employers Do? 47% of employers expect that one or more of their health plans to lose grandfather status (Mercer survey) The reasons are: - More cost effective to make plan changes (63%) - Long-term costs associated exceed value (35%) - Complying with non-grandfathered plan rules will not be onerous (26%) - Making changes to be competitive with competitors (17%) - Want to comply with health care reform requirements as soon as possible (11%)

11. External Claims Review Requirements Applies to non-grandfathered self-insured plans with policy years beginning on or after 9/23/10 Plans must contract with at least three accredited independent review organizations – claims must be rotated. Claimants have four months to file a request for an external review Preliminary review must be completed within 45 business days – expedited 72 hour reviews for critical situations

12. Lifetime & Annual Limits No lifetime limits and only “restricted annual limit” on the value of essential benefits are allowed. - Restricted annual maximum for plans that renew on and after 9/23/10 $750,000 9/23/11 $1,250,000 9/23/12 $2,00,000 1/1/14 Unlimited ● Some brokers/consultants too quick to push for unlimited limits immediately

13. Commercial Plans & Non-Grandfathered Plans • Provisions applying to Commercial Insurers: • Prohibiting Discrimination Based on Salary • Minimum Loss Ratio • Rating Rules • Provisions applying to Non-Grandfathered Plans • Coverage of Preventive Health Services Without Cost-Share • Must Cover Clinical Trials for Certain Diseases •  Implementation of External Appeals Process • Transparency Disclosure – Claims and Rating Policies

14. Reporting, Disclosure & Admin • Explanation of Coverage • Models Developed in 3/2011 – Implementation 2012 • Plans must use Fed Explanation of Coverage Docs • Uniform definitions of standard insurance and medical terms • Cost-sharing exceptions, reductions and limitations on coverage • Provide common benefits scenarios • Notice Requirements for Employees • March 2013 • Info on State Exchanges and Free Choice Vouchers • If –er Coverage is Below 60% • Availability of Tax Credits

15. Reporting, Disclosure & Admin • Individual Mandates • W-2 Reporting in 2011 • Beginning in 2014 – Reporting to Enforce Mandate • Availability of Coverage for Employees • Length of Waiting Periods • Lowest Cost Option • Auto Enrollment • Effective Date Unclear • Employers over 200 ees must Auto Enroll • Must Provide Adequate Notice to Opt Out

16. Employer Fees & Compliance • Large Employers Offering Coverage • Effective 2014 • $3,000 for Each Employee Receiving “Premium Assistance” • Large That Does Not Offer Coverage • $2,000 Per Full-time Employee • Can Deduct First 30 Employees from Calculation • Free Choice Vouchers • Voucher Equal to Employer Contribution • Purchase Coverage in Exchange • Employee Pockets Difference • Eligibility: <400% FPL & Contributes 8% < X < 9.5%

17. Tax and Fees on Self-Insured Plans • Fees on Self-Insured Plans • Plans Ending 9/30/12 • $1 Per Covered Live in 2013 ($2 per Life in 2014) • 2015 – 2019: Previous Fee + (Previous x % Change in National Health Expenditure) • Excise Tax on Generous Plans • Effective in 2018 • 40% Tax on Coverage Above the Following Thresholds: • $10,200 for single coverage; $27,500 for family coverage • TPA and Stop-Loss Assessments • Temp Reinsurance Program: 2014 – 2016 – TPAs TBD • High Risk Pools: June 2010 - 2014

18. Incentives and Opportunities • Prevention and Wellness • Beginning in 2014 • Employer Premium Discount or Cost-Sharing Increased to 30% • HHS Discretion to Raise to 50% • Formation of Co-Ops • Beginning in 2014 • Fed Loans and Grants Available to Form Co-Ops (July 2013) • Organized Under State Law as Non-Profit, Member-Run • Encouraged to Enter into Collective Purchasing Agreements • Other Opportunities

19. Annual Reports on Self-Insured Plans • DOL Report on Self-Insured Plans • Report Due March 2011 • Info From IRS/DOL Form 5500 • Plan Type, Benefit Arrangement, Financial Filings • Sent to Relevant Committees • Study on Large Group Market • Compare Characteristics of Employer Health Plans • Analysis of Adverse Selection • Why Self-Insurance Can Offer Cheaper Coverage • Efficient Admin or Denial of Claims • Claim Denials and Coverage Changes in Relation to Economy

20. SIIA’s Lobbying Victories • Elimination of Government-Run Health Plan Proposal • Removal of Prohibition on Self-Insuring Based on Group Size • Removal of Assessments on TPAs • Continuation of the Employer-Based System: • ERISA Waivers • Creation of Cooperatives • Protecting Self-Insured Plans from Some Regulations Meant for Insurance Companies

21. Legal Challenges to PPACA State of Virginia vs. U.S. Dept. of HHS Virginia is challenging the individual mandate provision Virginia is unique in that it passed a law prior to passage of PPACA restricting mandated health insurance purchase Federal District Court Denied HHS Motion for Summary Judgment Oral Arguments Scheduled for Next Month PPACA does not contain “severability” clause, so this case is significant

22. Legal Arguments --State of Virginia Requiring an otherwise unwilling individual to purchase a good or service from a private vendor is “beyond the outer limits” of the Commerce Clause Declining to buy health insurance is not “economic activity” and therefore not subject to federal regulation under the Commerce Clause Congress cannot invoke either the Necessary and Proper Clause or its taxation powers to regulate economic inactivity

23. Legal Arguments - HHS Virginia lacks standing to challenge the individual mandate The issues are not ripe for resolution because individual mandate does not take into effect until 2014 The individual mandate is amply supported by the Commerce Clause and the Necessary and Proper Clause Congress has independent authority to create the individual mandate using its taxing and spending power under the general welfare clause.

24. Industry Outlook -- Concerns Removal of Annual and Lifetime Coverage Limits New Administrative Burdens Employers Discontinue Plans Results of DOL/HHS Market Studies Affect on Traditional Health Insurance Carriers Future Legislation Regulatory Developments Election Results (Tea Party)

25. Industry Outlook - Opportunities Self-Insurance Study – Possible “Seal of Approval” Fully Insured vs. Self-Insured Plan Cost Trends Increased Interest in Self-Insurance (In Anticipation of Future Cost Sharing by Health Insurers) Self-Insured Programs Become More Favorable to Brokers Additional Legislative Action New Product/Service Offerings Election Results (Tea Party)

26. Questions/Contact Info Mike Ferguson Chief Operating Officer SIIA 800/851-7789 mferguson@siia.org