Preparing for 2014

1. Preparing for 2014 HCR Updates and Proposed Rules

2. Health Care Reform UpdateProposed Rules for 2014 • State Updates • Essential Benefits and Actuarial Value • Essential health benefits and benchmark plans • Cost-sharing standards • Actuarial value • Market Reforms and Wellness Incentives • Rating methodologies • Availability, renewability, and risk pooling • Wellness incentives • Employer Sharing Responsibility • Review of current provisions • Discussion of proposed amendments • Q & A

3. State UpdatesPatient Protection and Affordable Care Act of 2010 (PPACA)

4. State Exchange ActivityInformation from: CIAB - January 31, 2013 Marketplace WA NH VT ME MT ND OR MN MA ID NY WI SD MI WY PA RI IA CT NE NV OH NJ IN IL UT WV CO CA DE VA MO KS KY MD NC DC TN AZ OK AR SC NM Operational Exchanges (2) GA AL MS LA State Exchange Established (17+DC) TX AK FL Federally -Facilitated Exchange (25) HI State Partnership Exchange (6)

5. Medicaid ExpansionInformation from The Advisory Board Company - January 15, 2013, Moving Eligibility from 100% FPL to 133% FPL WA NH VT ME MT ND OR MN MA ID NY WI SD MI WY PA RI IA CT NE NV OH NJ IN IL UT WV CO CA DE VA MO KS KY MD NC DC TN AZ OK AR SC NM Participating (19) GA AL MS Leaning toward participating (4) LA TX AK FL Undecided (12) Leaning toward not participating (6) HI Not Participating (10)

6. Proposed Rules – Essential Benefits and Actuarial ValuePatient Protection and Affordable Care Act of 2010 (PPACA)

7. Essential Health Benefits (EHB)(HHS Pre-rule bulletin 12/16/11 and PPACA; Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation – 11/26/12 proposed rule) • Definitions • EHB package – scope of covered benefits and associated limits of a health plan offered by an issuer. It includes: • Ten statutory categories of benefits • Limits cost-sharing • Offers catastrophic plans • Provides benefits in a certain manner • Actuarial value – “a general summary measure of health plan generosity” or the total allowable costs of benefits paid by the health plan • Base benchmark plan - plan selected by a state from the options provided or a default benchmark plan • EHB-benchmark plan - Standardized set of EHB that must be met by a QHP or other issuer.

8. Essential Health Benefits(HHS Pre-rule bulletin 12/16/11 and PPACA; Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation – 11/26/12 proposed rule)) • Applicability • Effective Date: • First plan year, for individual and small group market, starting on or after January 1, 2014 • Plan types that won’t meet the criteria: • Mini-meds • Specified disease or illness • Accident only coverage • Other types of “excepted benefits” • Definition • Applies to: • Individual plans • Small employer group plans • Offered in and out of the Exchange • Plan requirements: • Specific categories of benefits • Certain cost-sharing standards • Provide certain levels of coverage Items and Services Must include: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder Prescription drugs Rehabilitative and habilitativeservices Laboratory Preventive and wellness Pediatric services

9. Essential Health BenefitsBenchmark Plan SelectionInformation from Kaiser Family Foundation - January 4, 2013, WA NH VT ME MT ND OR MN MA ID NY WI SD MI WY PA RI IA CT NE NV OH Plan recommended selected by state (26) NJ IN IL UT WV CO CA DE VA MO KS KY MD Default plan – no plan selected (25) NC DC TN AZ OK AR SC NM GA AL MS LA TX AK FL HI

10. Benchmark Plans http://www.statereforum.org/analyses/ • State-specific benchmark plans • Each state selects a benchmark plan • One of the three largest small-group plans, in the state, by enrollment (21 + 22 default) • One of the three largest state employee health plans, by enrollment (2) • One of the three largest federal employee health plan options, by enrollment (1) • The largest HMO plan offered in the state’s commercial market, by enrollment (5)

11. Type of Benchmark Plans SelectedKaiser Family Foundation February 1, 2013 WA NH VT ME MT ND OR MN MA ID NY WI SD MI WY PA RI IA CT NE NV OH NJ IN IL UT WV CO CA DE VA MO KS KY MD NC DC TN AZ OK AR SC NM HMO GA AL MS LA POS TX AK FL PPO HI EPO

12. EHB – Cost-sharing standards(HHS -11/26/12 proposed rule) Definition: any expenditure required by or on behalf of an enrollee with respect to essential health benefits Includes: deductibles, coinsurance, copayments, etc. Excludes: premiums, non-network balance billings, non-covered services, etc. • Annual cost-sharing limit: • Based on out-of-pocket limit for high deductible health plan (HDHP) • Non-self-only is 2x self-only limit • 100% for EHBs once limit is reached • Deductible limit for 2014: • Applies to all non-grandfathered plans in the small group market only • Limit = $2,000 self-only and $4,000 non-self-only • Proposing that these cannot be offset by FSA, HSA or HRA

13. Actuarial Value(IRS Notice 2012-31 of 4/26/12 and HHS Pre-rule bulletin 12/16/11 and PPACA; Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation – 11/26/12 proposed rule) Actuarial Value (AV) = total allowable costs of benefits paid by health plan Minimum Value (MV) = AV of no less than 60% (fully insured individual and small group market plans). TBD based on standard population of large self-insured group health plans. • Methods • HHS and Treasury develop an actuarial value calculator (AV) or a minimum value calculator (MV) • Checklists to determine minimum value • Certification by a certified actuary utilizing approved methods • Proposed Rules • De minimis variation = ± 2% • Value includes integration of employer contributions to HRA and HSA in the small group market

14. Proposed Rules – Market ReformsPatient Protection and Affordable Care Act of 2010 (PPACA)

15. Current State Markets(HHS and CMS: PPACA; Health Insurance Market Rules; Rate Review 11/26/12 proposed rule) “Health insurance premiums will no longer be based on enrollees’ pre-existing conditions or gender and health insurance issuers no longer will be able to divide up their risk pools (blocks of business) in order to discriminate against health individuals” * for HIPAA-eligible employees

16. Major Provisions(HHS and CMS: PPACA; Health Insurance Market Rules; Rate Review 11/26/12 proposed rule)

17. Major Provisions(HHS and CMS: PPACA; Health Insurance Market Rules; Rate Review 11/26/12 proposed rule)

18. Major Provisions(HHS and CMS: PPACA; Health Insurance Market Rules; Rate Review 11/26/12 proposed rule)

19. Rating Rules and Methodologies(HHS and CMS: PPACA; Health Insurance Market Rules; Rate Review 11/26/12 proposed rule) • Issuers = individual member ratings Employers = individual or composite rating • Age rating – limited to 3:1 • Tobacco rating – limited to 1.5:1 • Family size – individual v family • Maximum of 3 oldest family members under age 21 • No cap for family members over age 21 • Geographic region • States or CMS can establish one or more rating areas • Maximum of 7 rating areas • One rating area for state, county-based or 3-digit zip codes, or metropolitan statistical areas (MSAs) and non-MSAs • Re-underwriting is prohibited Apportioned to each family member Applies to non-grandfathered health insurers (not self-funded) Will apply to non-grandfathered large group if state permits coverage to be offered through an Exchange in 2017

21. Rating Rules and Methodologies(HHS and CMS: PPACA; Health Insurance Market Rules; Rate Review 11/26/12 proposed rule) Annual rate changes at the time of renewal

22. Catastrophic Plans(HHS and CMS: PPACA; Health Insurance Market Rules; Rate Review 11/26/12 proposed rule) • Must contain all applicable requirements and only be offered in the individual market • Provides essential health benefits after the enrolled individual reaches the annual limitation in cost-sharing • Covers three primary care visits and preventive care with no cost-sharing • Eligibility: • Only individuals under age 30 before the beginning of the plan year • Those certified as exempt from the individual responsibility payment because they cannot afford minimum essential coverage • Those eligible for a hardship exemption

23. Risk Pooling(HHS and CMS: PPACA; Health Insurance Market Rules; Rate Review 11/26/12 proposed rule) Proposal requires health insurance issuers to treat all non-grandfathered business in the individual and small group market, respectively, as a single risk pool • States may choose to merge individual and small group market pools • Applies to plans in and out of the Exchange • Does not apply to excepted benefit or short-term limited duration policies or plans with fewer than 2 participants who are current employees Beginning in 2014 - an issuer estimates total combined claims experience of all non-grandfathered plans within a state market to establish an index rate. Index rate would be used to set the rates for all non-grandfathered plans of the issuer in the market.

24. Proposed Rules – Wellness IncentivesPatient Protection and Affordable Care Act of 2010 (PPACA)

25. Wellness Incentives(Departments joint final regulations issued 12/13/06 - 71FR75014 • *Consumer-protection conditions: • Total reward does not exceed 20% of the total cost of coverage • Reasonably designed to promote health or prevent disease • Gives eligible individuals an opportunity to qualify at least once per year • Reward available to all similarly situated individuals • Plan materials must highlight reasonable alternative standard • Types of wellness programs • Participatory • No required standard related to a health factor OR • No reward offered • Health-contingent* • Requires individuals to satisfy standard related to a health factor AND • Offers a reward

26. Wellness Incentives(Proposed Rule – HHS 11/26/12) • ACA: • Reflects the 2006 regulations • Extends nondiscrimination provisions to individual market • Proposed Rules • Applicability: • Grandfathered and non-grandfathered plans • Plan years on or after January 1, 2014 • Extension to individual market • Increase in incentives: • 30% maximum program reward • 50% maximum tobacco prevention or reduction reward

27. Propose Rules – Employer Sharing ResponsibilityPatient Protection and Affordable Care Act of 2010 (PPACA)

28. Large Employer DeterminationIRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H Employers who employed at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year Employee Type

29. “Applicable Large Employer”IRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H Who is an applicable large employer? 50 or more full-time equivalents UNLESS… Seasonal exception applies: 50 or more for no more than 4 calendar months due to seasonal Less than 50 full-time equivalents

30. Employer Mandate ToolIRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H • 1 - Full-time employees = total number of employees who work, on average, 30 hours per week • 2 – Add all actual hours worked, in each month, by seasonal employees • 3 - Add all actual hours worked in the month for those employees who are not accounted for as full-time or seasonal employees

31. Employer Sharing Responsibility(Proposed amendments to REG-138006-12; pub. 1.2.13) • Proposed rules for determining: • Status as a large employer and large employer member • Full-time employees • Assessment of a nondeductible excise taxes under IRC §4980H(a) and IRC §4980H(b): • (a) not offering coverage to full-time employees and their dependents • (b) offering coverage to full-time employees and their dependents that does not meet the ACA’s standards for affordability and minimum value • Administration and assessment of nondeductible excise taxes

32. Applicable Large Employer(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) • Review of prior rules: • All employees, including seasonal, are counted for purposes of determining status as an applicable large employer • An employee is an individual who is an employee under common law standard • Leased employees are not cross-referenced under §4980H so are not counted by the service recipient • A sole proprietor or 2% S-corp. shareholder is typically not an employee • All full-time and full-time equivalent employees are counted • IRC §4980H applies to all common law employers, including governmental entities, churches, tax exempt organizations and foreign companies with at least 50 full-time equivalent employees performing work in the US with US source compensation

33. Controlled Groups(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) IRC §414 For purposes of IRC §414 , all employees under the following categories are considered as employed by a single employer IRC §414 (b) – Employees of controlled group of corporations IRC §414 (c) – Employees of partnerships, proprietorships, etc. which are under common control IRC §414 (m) – Employees of an affiliated service group IRC §414 (o) – Regulations as prescribed by the Secretary • Aggregation rules: • Determination is based on controlled group rules under IRC §§414(b), (c), (m), or (o). • Penalties are only assessable to the individual entities • In calculating liability under §4980H, an applicable large employer is only allowed one reduction of 30 full-time employees – this should be allocated based on each member’s number of full-time employees • Each large employer member is liable for its own tax penalties and is not liable for the penalties of any other member

34. Employee Definitions(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) • Employees included in calculations: • All full-time employees with, on average, 30 hours or more of service per week; 130 hours if using a monthly standard • Part-time, variable, or seasonal employees • Hours for services performed outside the U.S. for which an individual receives U.S. source income • Special rules: • Teachers and employees of educational organizations – traditional breaks in academic school year will often be periods of paid leave so would be counted as hours of service • Commission-based employees, transportation employees, adjunct faculty and analogous employment positions – non-standard employees paid on commission or subject to safety regulations, e.g. airline pilots – under review. In interim consider all hours necessary to perform work

35. Employee Definitions - continued(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) Standard Definition Definition: “[l]abor is performed on a seasonal basis where, ordinarily, the employment pertains to or is of the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year. A worker who moves from one seasonal activity to another, while employed in agriculture or performing agricultural labor, is employed on a seasonal basis even though he may continue to be employed during a major portion of the year” • Definition of seasonal employee: • The 120-day period referred to is relevant only for determining status as an applicable large employer and not for determining whether an employee is a seasonal employee • DOL, Treasury and IRS have determined that seasonal worker is not limited to agricultural and retail workers. • Until further notice, employers may use a good faith interpretation of the statutory definition of a seasonal worker.

36. Variable hour/seasonal rulesIRS Notice 2012-58 • Full-time status of on-going* employees • * On-going = employee who has been employed by employer for at least one complete standard measurement period

37. Variable hour/seasonal rulesIRS Notice 2012-58 Full-time status of newly hired variable hour and seasonal employees *IMP and administrative period cannot extend beyond, at most, 13 months and a fraction of a month from the employee’s start date

38. Variable Hour Determination ToolIRS Notice 2012-58 Validation messaging provided for each eligibility rule OR

39. Look-back measurement period(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) • Standard measurement and stability periods must be uniform for all employees except the following: • Each group of collectively bargained employees covered by a separate collective bargaining agreement; • Collectively bargained and non-collectively bargained; • Salaried and hourly employees • Employees whose primary places of employment are in different states • Standard measurement and stability periods can be changed in subsequent years as long as they are done prior to the date they begin. • A new variable or seasonal employee with change in status during initial measurement period (IMP): • treated as a full-time employee as of the first day of the 4th month following the change in status , OR • If averaging more than 30 hours of service during IMP, the first day of the month following IMP

40. Look-back measurement period(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) • Re-hired Employees • If an employee goes with no hours of service for at least 26 consecutive weeks, they are treated as a new hire • Employer may apply a rule of parity (less than 26 weeks) • Must be at least four weeks • Must be longer than the employee’s period of employment immediately preceding that period with no service hours • Resuming Employees • If an employee goes with no hours of service for less than 26 consecutive weeks, they are treated as a resuming employee • The measurement and stability period that would have applied to the employee had they not been gone will resume • Can use an averaging method for periods of special unpaid leave, e.g. FMLA, USERRA or jury duty

41. Temporary and staffing firms(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) • Comments solicited regarding the categorization and rules for the following scenarios: • Employees on long-term assignments • The ability of employees to accept or reject assignments • Employees participating with more than one leasing or temp agency/firm • Appearance of employee on active roster when there is no intent to accept assignments • Situations where the temporary agency is not the common law employer

42. Assessments - §4980H(a), (b)(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) What are the penalties associated with non-compliance? Employers may be assessed fees for any month they: • Fail to offer employer-sponsored minimum essential coverage to FTEs and their dependents • AND at least one person enrolls for coverage, from the Exchange, and receives a subsidy • Assessment = 1/12 of $2,000, or $166.67 per month, for each FTE, less the first 30 employees • Offer employer-sponsored minimum essential coverage to FTEs and their dependents but the employee contribution is deemed unaffordable • AND 1 or more employees enroll for coverage, from the Exchange, and receive a subsidy • Assessment = the lesser of: • 1/12 of $3,000, or $250 per month, for FTE receiving a subsidy OR • 1/12 of $2,000, or $166.67 per month, for each FTE, less the first 30 employees Deign Your Essential Benefits Keep Informed Understand Needs Stay Compliant Educate and Engage Control Costs

43. Compliance with §4980H(a), (b)(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) Assessment penalties can be avoided if the employer offers minimum essential coverage under an employer-sponsored plan to its full-time employees and their dependents. Deign Your Essential Benefits Keep Informed • Minimum Essential Coverage (MEC): to be defined in a future regulation • Definition of dependent: An employee’s child under age 26 – does not include spouse • Employers will not face a tax penalty if not offering coverage to spouses, who will be able to seek a federal premium tax credit to purchase health insurance in an Exchange if other minimum essential coverage is not available. • Offer of coverage in case of non-payment: Employer will not be deemed as not offering coverage if employee fails to pay their portion of the premium – this regulation adopts the COBRA 30-day grace period rule • Offer of coverage: Employer will satisfy requirement as having offered if they offer to 95% of their employees • Assessment payments:These are not tax deductible Understand Needs Stay Compliant Educate and Engage Control Costs

44. Compliance with §4980H(b)(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) Affordability Safe Harbors – applies only for purposes of whether the employer satisfies the 9.5% affordability test Deign Your Essential Benefits • Form W2 safe harbor – wages to be reported in Box 1 of Form W2 • Must offer its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; AND • The required employee contribution toward self-only premium for the employer’s lowest cost coverage that provides minimum value (the employee contribution) not exceed 9.5% of the employee’s Form W2 wages for that calendar year. • Rate of pay safe harbor • Take the hourly rate of pay for each hourly employee who is eligible to participate in the health plan as of the beginning of the plan year • Multiply that rate by 130 hours/month (benchmark for FT status under 4980H) • Determine affordability based on the resulting monthly wage amount • Federal poverty line safe harbor • Commenters suggested the employees whose income qualifies them for Medicaid be disqualified (since they are ineligible for a tax credit), i.e. <100% of FPL • Employer can use FPL for a single to set premium contribution, i.e. set employee contribution for self-only coverage of the lowest cost plan to ≤9.5%. • Can use the most recently published FPL guidelines as of the first day of the plan year. Keep Informed Understand Needs Stay Compliant Educate and Engage Control Costs

45. Transition Relief(Proposed amendments to Employer Sharing Responsibility REG-138006-12; pub. 1.2.13) • No assessments will be made in 2014, if an employer has a fiscal plan year as of 12/27/12 and an employee is offered affordable, minimum value coverage IF: • The mandate and look-back starts on the first day of the plan year on or after January 1, 2014 (applies to eligible employees as of 12/27/12) • At least 25% of all employees were enrolled in the fiscal year plan or 1/3 of all employees were offered coverage under the fiscal year plan at the last open enrollment (applies to employees who were not eligible on 12/27/12) • Transition relief will allow employers, with fiscal plan years beginning in 2013, to update their plan documents to grant one or both of the following: • The right for an employee to revoke or change elections once during the plan year without regard to a change in status • An employee who did not make the salary reduction election would be permitted to make a prospective election on or after the first day of the 2013 plan year without regard to a change in status • Can use any six consecutive months to determine of applicable large employer

46. Health Care Reform Q&A