National Legislative Update Health Care Reform Presented by

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Today’s Agenda § Overview § Political and legal landscape § Market reforms 2010 -2011 § On the horizon 3

Overview § Patient Protection and Affordable Care Act § Overhaul of U. S. health care system § Provide coverage to 32 million uninsured by 2019 § Cost of $938 billion over 10 years § Significant changes to all facets of the current health care system § Focus on private sector coverage (employer-sponsored health plans and insurance reform) § No discussion of Medicare and Medicaid changes 4

Overview The Basics § Require most Americans to have health insurance coverage by 2014 § Individuals without access to affordable employer coverage may be eligible to purchase insurance through a new marketplace, the Exchange § Government assistance available to lower income individuals (100 -400% FPL) § Penalties on certain large employers who don’t provide affordable coverage if employees receive government assistance § New market reforms that impose requirements on individual and group health plans 5

Overview Paying for Reform § Billions of dollars in fees on pharmaceutical sector and insurance industry § New Taxes § 10% tax on tanning services (2010) § 2. 3% medical device sales tax (2013) § Medicare hospital tax increase on high income earners (2013) § 40% high cost plan excise tax (2018) § Penalties on individuals and employers who don’t have or provide health insurance § Reduce or eliminate certain tax breaks § Changes in Medicare and Medicaid 6

Political Challenges Repeal health care reform? § House voted in favor of a repeal, Senate opposed § Insufficient majority to override a veto Where does it go from here? § Delay funding of certain provisions § Additional hearings § Delay in regulations § 2012 elections 7

Legal Challenges Finds HCR Constitutional Finds HCR Unconstitutional Eastern District of Michigan: Thomas Eastern District of Virginia: Commonwealth More Law Center v. Obama, Oct 7, 2010 of Virginia v. Sebelius, Dec 13, 2010 §Dismissed claims that individual mandate is unconstitutional §Ruled Western District of Virginia: Liberty University v. Geithner, Nov 30, 2010 Northern District of Florida: Florida v. Sebelius, Jan 31, 2011 §Dismissed case, finding that the individual mandate is constitutional §On appeal to 4 th Circuit Court of Appeals that individual mandate is unconstitutional §On appeal to 4 th Circuit Court of Appeals §Attorneys general of Florida and 25 other states §Ruled that individual mandate is unconstitutional, but due to lack of severability clause, entire act “must be declared void” §Medicaid expansion is constitutional Source: http: //www. washingtonpost. com/wp-srv/special/health-care-overhaul-lawsuits/ 8

Market Reforms 2010 – 2011

Market Reforms All group health plans are required to comply with specific market reforms effective the first plan year* that begins on or after September 23, 2010 (January 1, 2011 for calendar-year plan) § Significant design changes for group health plans § Limited exceptions apply to “grandfathered” plans § Most of these reforms also apply in the individual market * For employer-based group health plans, this is the ERISA Plan Year which may (or may not) be the same as the policy year 10

Grandfathered Plans § Built from the premise that “you can keep the health plan coverage you have” § § A group health plan that is in existence on March 23, 2010 is considered grandfathered § § § Estimated 40 -70% of all group health plans will lose grandfathered status by 2014 Certain changes will cause a plan to lose this status Subject to most market reforms, with some exceptions Many insurance carriers “deeming” their plans non-grandfathered 11

Grandfathered Plans: Requirements & Exceptions Must comply with the following requirements: § § § § Lifetime limits Annual limits Cannot cancel coverage Extension of dependent coverage to age 26 Uniform explanation of coverage No pre-existing condition exclusions No waiting periods over 90 days Notice to employees about Exchange Automatic enrollment for large employers Vouchers Employer coverage penalties Reporting of employer-sponsored health insurance coverage High cost plan tax Do not have to comply with the following requirements: § § § Preventive care Nondiscrimination in favor of HCIs New appeals process Clinical trials HHS reporting Comprehensive health insurance coverage for small groups and Exchange plans 12

Market Reforms – All Plans Effective the first plan year on or after September 23, 2010 (January 1, 2011 for calendar year plans) § § § No lifetime limitations on essential benefits No annual limitations on essential benefits, except as allowed by HHS until 2014 Cover children to age 26 (special exception applies for grandfathered plans) No pre-existing condition exclusions on individuals under age 19 No rescission of coverage 13

Lifetime Limitations § What is an essential benefit? No clear guidance – good faith standard based on the following categories: § § Maternity & newborn care, pediatric services (incl. oral & vision) § Mental health & substance use disorder services, including behavioral health treatment § Rehabilitative and habilitative services and devices § Preventive care & wellness services § Chronic disease management § § Ambulatory patient services, hospitalization, ER, Rx Laboratory services Plans/carriers are removing limits on transplants, preventive and rehab services 14

Annual Limitations § Permitted annual limitations on essential benefits until 2014 § § 9/23/2011 -9/23/2012: $1. 25 million § § 9/23/2010 -9/23/2011: $750, 000 9/23/2012 -1/1/2014: $2 million Waivers § HHS waiver program available to plans in existence on September 23, 2010 if compliance with the required limits would result in a significant decrease in access to benefits or a significant increase in premiums for affected individuals 15

Other Market Reforms – All Plans § Children up to age 26 are eligible under a parent’s health plan § § § Generally cannot condition eligibility on student status, residing with parent, tax dependent status, marital status or employment Grandfathered plans may exclude children who have employerbased group health plan coverage that is not provided by a parent No rescission of coverage except in the case of fraud or intentional misrepresentation of material fact § § Prospective cancellation of coverage and cancellation for nonpayment of premiums are not rescissions No pre-existing condition exclusions on individuals under age 19 16

Market Reforms – Non-Grandfathered Plans Effective the first plan year on or after September 23, 2010 (January 1, 2011 for calendar year plans) § § § Cover preventive care at 100% in-network If a PCP designation is required, allow enrollees to designate any in-network doctor (including OB/GYN and pediatrician) Emergency services covered as in-network and no required preauthorization New claims, appeals and external review processes 105(h) nondiscrimination rules apply to insured plans – prohibit discrimination in favor of HCIs as to eligibility or benefits 17

2011

Medical Loss Ratios § Insurance companies will be required to satisfy certain medical loss ratios (MLR) § § 80% in the small market 85% in the large market Requires $0. 80/0. 85 of every premium dollar that the carrier receives be spent on medical care and activities to improve health care quality Failure to maintain these thresholds results in rebates 19

More 2011 Requirements § Optional W-2 Reporting § § OTC & Tax Favored Accounts § § From 10% to 20% penalty Small Employer Wellness Grants § § Requires a prescription for reimbursement through a health FSA, HRA or HSA Penalty Increase § § Mandatory 2012 Grants become available to certain eligible employers that establish Comprehensive Workplace Wellness Programs CLASS Act § Government-run long-term care program § Employers may elect to enroll employees and withhold premium amounts § Appears to be delayed 20

On the Horizon

2012/2013 § § § § Uniform summary of benefits (2012) HHS reporting (2012) New fees in pharmaceutical manufacturing sector (2012 -2013) $2, 500 health FSA cap (2013) Medicare tax on high income earners (2013) Fee on health plans for Patient Centered Outcome Research program (2013) Excise tax (2. 3%) on medical device sales (2013) 22

2014 Market Reforms – All Plans Effective the first plan year on or after January 1, 2014 § § No pre-existing condition exclusion clauses on any individuals No waiting periods in excess of 90 days All annual limits are prohibited Cover children to age 26 23

2014 Market Reforms – Non. Grandfathered Plans Effective the first plan year on or after January 1, 2014 §Coverage for individuals participating in approved clinical trials § Includes approved clinical trials for cancer treatment § Cannot deny (or limit or impose additional conditions on) coverage of routine patient costs for items and services furnished in connection with the clinical trial §Mandated coverage in the small market and through the Exchange 24

On the Horizon § § New fees on insurance companies ($8 billion in 2014) Exchange established (2014) § § Individual mandate (2014) § § § New marketplace for individuals and small employers to purchase health insurance coverage Individuals must have insurance coverage or pay a penalty Large employer penalties and additional compliance burdens (vouchers and automatic enrollment) (2014) Cadillac plan tax (2018) 25

Thank you! ALICIA SCALZO WILMOTH, JD Kibble & Prentice, a USI Company alicia. scalzo@kpcom. com p. 206. 441. 6300 www. kpcom. com