THE AFFORDABLE SUMMARY OF BENEFITS & COVERAGE & HHS CARE - - PDF document

SLIDE 1

AFFORDABLE CARE ACT TIMELINE & FEATURES Pages 2 - 5 CHECK –LIST SMALL EMPLOYERS LESS THAN 50 EMPLOYEES Pages 6 + 7 CHECK-LIST LARGE EMPLOYERS WITH MORE THAN 50 EMPLOYEES Pages 8 + 9 SUMMARY OF BENEFITS & COVERAGE & HHS GLOSSARY OF TERMS Pages 10 - 21 ARE YOU SUBJECT TO MANDATE? DO YOU HAVE 50+ EMPLOYEES? Pages 22 + 23 MANDATED HEALTH BENEFITS Page 24 “COVERED CALIFORNIA” STATE OF CALIFORIA EXCHANGE Pages 25 - 33 NON-DISCRIMINATION Page 34 - 39 ACA FEES & TAXES ADJUSTED COMMUNITY RATING Page 40 MEDICAL LOSS RATIOS Page 41

THE AFFORDABLE CARE ACT (ACA) WHAT AN EMPLOYER NEEDS TO KNOW

The following information is not intended to be a comprehensive and thorough guide of all the topics under the ACA. This guide is for informational and discussion purposes only. Employers may wish to contact their CPA or attorney for additional information and/or guidance. The information in this presentation is as of April 1,

• 2013. Additional guidance and

regulations will be forthcoming from the IRS, HHS and DOL as we approach January 1, 2014. We will make every effort to forward

• updates. Feel free to call us for

questions, details or information

• n other topics.

Kenneth F. Stamey, Broker CA License #0679857 125 No. Lincoln Street, Ste. E Dixon, CA 95620 800-427-7074 www.prjinsurance.com

1 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 2

AFFORDABLE CARE ACT OF 2010

2010

→ ACA passed March 23, 2010 and was effective September 23, 2010 → Plans existing before March 23, 2010 had the option to choose a “grandfathered” status when reform was enacted. → Certain provisions were applied to plans whether or not a plan held grandfathered status. → Select small businesses became eligible for phase one of the small business premium tax credit. → Employers that provided a Medicare Part D subsidy to retirees had to account for the future loss of the deductibility of this subsidy beginning in 2010 on liability and income statements. → The Pre-Existing Condition Insurance Plan (PCIP) or temporary high-risk pool program, for people who could not obtain individual health insurance coverage due to pre-existing conditions began. This program ends January 1, 2014. → The federal web health insurance information portage www.healthcare.gov was created. → Non-grandfathered insured groups were required to comply with IRS Section 105(h) that prohibits discrimination in favor of highly compensated individuals. However, the IRS announced it would not enforce this provision until release or further guidance about how these provisions would apply to insured groups. Guidance has still not been issued. → Lifetime limits on the dollar value of benefits for fully insurance and self-funded groups were prohibited. → Annual limits are only allowed through plan years beginning prior to January 1, 2014 and only on the HHS defined non-essential benefits. → All plans had to begin coverage for dependents to age 26 (can be married and also be eligible for group health insurance). However, through 2014, grandfathered plans will only have to provide coverage to those dependents that do not have another source of employer-sponsored coverage. → All plans had to begin covering pre-existing conditions for children 19 and under. → Health coverage rescissions were prohibited for all health insurance except for fraud or intentional misrepresentation. → Plans covering emergency services in a hospital must also cover out-of-network emergency services as if they were in-network services. Plans must also allow enrollees to designate any in-network doctor as their PCP and have a coverage appeal process. → All plans without grandfathering had to begin covering specific preventive care services with no cost-sharing.

2011

→ Fully insured plans were subject to the medical loss ratio requirements. Individual & small groups must adhere to an 80% MLR and large groups to an 85% MLR. If plans do not meet this requirement, each year insurers have to pay policyholders rebates by August of the following year. Effective January 2013, the rebate is due by September. → Tax penalty on distributions from Health Savings Accounts (H.S.A.’s) that are not used for qualified medical expenses increase from 10% to 20%. → Reimbursement for over-the-counter drugs under H.S.A.’s, medical F.S.A.’s, H.R.A.’s and Archer M.S.A.’s were prohibited without a prescription. → Small employers were allowed to adopt new “simple cafeteria plans”. → The Class Act public long term care program was found to be fiscally unsustainable and repealed December 2012. → HSS & DOL began a study on the large group market by collecting data from Form 5500.

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SLIDE 3

2012

→ Employers filing 250 or more W-2 forms in 2012 are required to report the cost of the employer-sponsored health coverage. → Health insurers are required to provide a Summary of Benefits & Coverage to employers. Employers are required to provide all enrollees and applicants with a copy at Initial Enrollment, Open Enrollment or when a material change is made to the coverage → Group insurers and self-funded plans have to begin submitting quality reports to HHS. Report must state whether or not the benefits provided under the plan meets criteria established by HHS. → All non-grandfathered plans and individual health insurance must provide coverage for specified women’s preventive care service without cost-sharing requirements including contraceptives.

2013

→ Premium tax on fully insured and self-funded group health plans to fund comparative effectiveness research program begins. → FSA contributions for medical expenses are limited to $2,500 per year (cap to be annually indexed for inflation). → Medicare payroll tax increase of 0.9% (total 2.35%) goes into effect for individual filers with incomes over $200,000 and joint filers with incomes over $250,000. In addition, there is a new 3.8% Medicare contribution on certain unearned income from high-income individuals. → For those itemizing their federal income taxes, the threshold for deducting unreimbursed medical expenses increases from 7.5% of AGI to 10% of AGI. The increase is waived for those 65 years or older through 2016. → All employers are required to provide notices to their employees of the upcoming state exchange. This was to be done by March 31, 2013 however the DOL has not released a template letter and so has been delayed pending further guidance from the DOL.

2014

→ Individual Mandate tax penalties take effect. → States are required to have health benefit exchanges up and running to service individuals and small-

• employers. California’s exchange called “Covered California” is in full swing and has been approved by the

HHS. → For individual and fully insured groups, all plans must be offered on a guaranteed issue basis, preexisting condition limitations will be prohibited, annual and lifetime limits will be fully prohibited (including grandfathered plans). → Size of small-employer group will be redefined as 1 to 100 employees (although states may elect to keep the size of a small group at 50 employees until 2016) California defines small group at 50 for now. → Individual and small group plans will have to abide by strict modified community rating standards with premium variations only allowed for age (3:1), tobacco use (1:5.1), family composition and geographic

• region. Experience rating will be prohibited.

→ Individual and small group plans (in and out of the exchange) must include the Essential Health Benefits and must cover mandated benefits, cost sharing requirements, out-of-pocket limits and minimum actuarial value

• f 60%.

→ Premium assistance tax credits for individuals and families making between 100% to 400% of the federal poverty level (FPL) begin. This is available only to those who qualify and purchase individual coverage through the state exchange. → Expansion of the Medicaid program for all individuals, including childless adults who make up to 133% of the FPL begin. States can also create a separate non-Medicaid plan, called the Basic Health Plan, for those with incomes between 133% and 200% FPL that do not have access to employer-sponsored coverage. Basic Health Plan rules have not been issued as yet.

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SLIDE 4

2014 cont.

→ Employer responsibility requirements take effect for companies that employ more than 50 full-time

• equivalents. Calculation of the number of full-time equivalent employees is complicated. Coverage must

meet a minimum value standard in order to be considered compliant. Employers who do not offer coverage to full-time employees and their dependent children or do not offer them coverage that meets the minimum requirements or have employees that are subsidized by the exchange will be fined. → Employers with waiting periods for coverage for new employees will be prohibited from having a waiting period that is more than 90-days. → Employers with 200+ employees have to auto-enroll all new employees into any available employer- sponsored health plan. This was to be effective January 1, 2014 however the DOL will not enforce until regulations are issued and this is not expected until after 2014

→ A national premium tax on most private health insurers based on premium volume takes effect, which can be passed directly to fully insured plan consumers (employers). → Employer-sponsored wellness program rules for all employer group plans under HIPAA improve and employers can increase the value of workplace wellness incentives.

2015

→ The federal Children’s Health Insurance Program must be reauthorized.

2017/2018

→ States may elect to allow large employers to purchase coverage through exchanges. If so, the same market place reform regulations will apply (community rating etc). → The Cadillac tax, a 40% excise tax on high-cost plans, goes into effect for all group plans. The tax is paid by the insurer in the case of a fully insured group or the TPA in a self-funded arrangement but is passed on directly to the employer. The value of stand-alone vision and dental are excluded and the tax does not apply to accident, disability, long-term care, and after-tax indemnity or specified disease coverage. The excise tax will apply to plans with values that exceed $10,200 for individual coverage and $27,500 for family coverage with higher thresholds for retirees over age 55 and employees in certain high-risk professions.

2020

→ Part D “donut hole” is filled.

What should employers be doing now, early 2013?

Every employer should determine whether they are a group with fewer than 50 full-time and full-time equivalent employees or a group with 50 or more full-time and full-time equivalent employees. Full-time employees are those that work 30 or more hours a week. (130 hours for a calendar month) To determine the number of full-time equivalent employees, count the total hours worked per week (plus paid time off) b non full-time employees (not more than 120 hours for any one employee) then divide by 120 to come up with a number of full-time equivalent employees (FTE) round the result down if a fraction. Adding full-time and full-time equivalents determines an employer’s group size. More is written on this subject in Section 5 of this booklet.

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SLIDE 5

Health Care Reform Timeline – 2012 and Beyond

• Rev. 7/6/2012

2012 2013 2014 2015 2016 2017 2018 2019 2020

40% excise tax on high-cost insurance (Cadillac tax) established Part D “donut hole” filled

• Health Care FSA contributions capped at $2,500
• Retiree drug subsidy deduction ends
• Additional preventive services for women must be covered at 100%
• Comparative effectiveness research tax fees must be paid
• Medicare Hospital Insurance tax increased for high income filers
• Medicare tax applies to investment income of high income filers
• Excise tax on medical device manufacturers
• Employer notice of state insurance exchanges and premium credits
• 60-day advance notice of mid-year changes (Notice of Material Modification) required
• Annual dollar limits prohibited on essential health benefits
• Pre-existing condition exclusions prohibited for all enrollees
• Child coverage to 26 even if eligible for other coverage
• Waiting periods over 90 days no longer permitted
• Coverage of routine patient costs in connection with clinical trials
• Limitations on maximum deductibles and out of pocket limits
• Plans may not discriminate against providers with respect to plan participation
• Auto enrollment required (effective date delayed)
• Individual/employer “shared responsibility” provisions effective
• State health insurance exchanges established
• Low income premium subsidy available for Exchange coverage
• HIPAA wellness incentives limits increased to 30%

Provisions in blue italics only apply to new plans or plans that have lost grandfathered status.

• Uniform summary of benefits and coverage (SBC) - effective for open enrollment periods beginning on/after

September 23, 2012

• Form W-2 reporting of health coverage for 2012 tax year begins
• Self-funded plans must have external appeal contracts with 3 or more independent review organizations
• ERRP funds exhausted
• Plans may begin to receive medical loss ratio (MLR) rebates

Employer reporting of health insurance coverage States may open insurance exchanges to large employers For information regarding 2010 and 2011 Health Care Reform provisions see Buck Consultants timeline. Note that plans losing grandfathered status will need to satisfy some of these provisions. Selected provisions for calendar-year plans – note effective dates may vary for non-calendar year plans 5/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 6

CHECK-LIST FOR SMALL GROUPS

(defined as fewer than 50 full-time equivalent employees)

2013

DOES YOUR GROUP HAVE FEWER THAN 50 EMPLOYEES – Now is the time to determine if you fall in this category.

Under ACA, full-time employees are defined as working 30+ hours per week. However, under ACA, you must also count part-time and seasonal employees by converting them to a “full-time equivalent”. Note that 2 or more companies with common ownership are combined for this purpose. More on this in a later chapter.

SMALL BUSINESS TAX CREDIT – Employers with fewer than 25 employees and average annual wages of less than

$50,000 may claim a tax credit for the cost of providing insurance. Check to see if you qualify using the IRS Tax Credit Worksheet in this chapter for 2012. Beginning in 2014 this tax credit is only available to small businesses that purchase health coverage through a Health Benefit Exchange.

LIMITS ON FLEXIBLE SPENDING ACCOUNTS (FSA’s) – FSA’s, which allow employees to save tax-free dollars that can be

sued to pay medical expenses not covered by insurance plans, will have a plan year limit of $2,500 beginning 1/2013 and will be indexed for cost of living adjustments after 2013. Amend your Flexible Spending Plan to reflect this lower the limit. Dependent care remains at $5,000.

STATE EXCHANGE EMPLOYER REQUIREMENT – Employers must provide each employee with written information

regarding “Covered California” State of California Exchange, available subsidies for insurance and guidelines on how to purchase insurance. Further guidance is scheduled for release in late summer, early fall of 2013. (this was postponed from the original March 2013 deadline). In subsequent years, new employees must also receive this information.

SUMMARY OF BENEFITS & COVERAGE (SBC) – Insurers are required to use standards in compiling and providing

accurate benefits and coverage description in a simple uniform format. A Glossary of Terms also needs to be included. Employers must provide these SBC’s to their employees at upon their application (new hire); at Open Enrollment, within a specified time if Plan Changes are made and upon the employee’s request.

MEDICARE PAYROLL TAX – This will increase for employees over a certain income level.

2014

Small employers under 50 employees are NOT mandated to offer health insurance to their employees.

However, you will probably continue to offer coverage and so it is a good idea to understand some of the ACA regs that will affect the rates of the insurance you do offer in 2014. And by the way, the ACA regs will not apply to your current plan until your anniversary in 2014. For example, you renew in June, your 2013 plan will apply until June 2014. Then the ACA regs will apply. So what are the changes?

ACTUARIAL VALUES (AV) – if a small employer does offer health coverage, the ACA requires that the plans match the AV

• f the plans in the exchange. Called the “Metal Levels” Bronze = 60% AV Silver = 70% AV Gold = 80% AV and Platinum =

90% AV. Actuarial value is with respect to how much is covered in the plan. An AV calculator can be found on our website at www.prjinsurance.com.

ESSENTIAL HEALTH BENEFITS – all plans will be updated to include 10 fundamental features, including extended

preventive services; limit deductibles to a maximum of $2,000 for an individual / $4,000 for a family and limit maximum

• ut-of-pocket to $6,250 for an individual / $12,500 for a family. More info on this in a later chapter.

TAXES & FEES – to subsidize the ACA taxes and fees will be levied towards the insurers which will likely be passed onto via

the premiums. Some of these fees are PCORI fee (Patient-Centered Outcomes Research Institute); Insurer Fee; Transitional Reinsurance Fee and Risk Adjustment Fee. More info on this in a later chapter. More info on this in a later chapter.

ACA RATING IMPACT – The Risk Adjustment Factor for small groups under AB1672 will disappear and groups will be

community risk rated with an annual index rate adjustment. Rates will be based on the following factors: Age (3:1 ratio); Geography; Wellness; Family Size & Tobacco use (individual). More info on this in a later chapter.

As the weeks and months go by the IRS, HHS and DOL will issue additional guidance and regulations about provisions in effect January 1, 2014. Links to these websites are located at our website: www.prjinsurance.com or call us as you have questions at 800-427-7074. If you have a “grand-fathered” health plan, parts of the ACA do not apply.

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SLIDE 7

3 SIMPLE STEPS

3

If you are a small employer (business or tax-exempt) that provides health insurance coverage to your employees, determine if you may qualify for the Small Business Health Care Tax Credit by following these three simple steps:

Determine the total number of your employees (not counting owners or family members): Full-time employees: (enter the number of employees who work at least 40 hours per week) + Full-time equivalent of part-time employees: (Calculate the number of full-time equivalents by dividing the total annual hours of part-time employees by 2080.) = total employees If the total number of employees is fewer than 25 GO TO STEP 2 Calculate the average annual wages

• f employees (not counting owners
• r family members):

Take the total annual wages paid to employees: ÷ Divide it by the number of employees from STEP 1: (total wages ÷ number of employees) = average wages If the result is less than $50,000, AND

1 2

You pay at least half of the insurance premiums for your employees at the single (employee-only) coverage rate, then

you may be able to claim the Small Business Health Care Tax Credit. Find out more information at IRS.gov

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SLIDE 8

CHECK-LIST FOR LARGE GROUPS

(defined as over 50 full-time equivalent employees)

2013

DOES YOUR GROUP HAVE OVER 50 EMPLOYEES – Now is the time to determine if you fall in this category. Under ACA, full- time employees are defined as working 30+ hours per week. However, under ACA, you must also count part-time and seasonal employees by converting them to a “full-time equivalent”. Note that 2 or more companies with common

• wnership are combined for this purpose. More on this in a later chapter.

W2 REPORTING – Employers who file 250 or more W-2 forms will be required to report the cost of employee’s health benefit coverage on the employee’s 2012 W-2. This requirement is informational only and does not mean that the employees will be taxed on these dollars. LIMITS ON FLEXIBLE SPENDING ACCOUNTS (FSA’s) – FSA’s, which allow employees to save tax-free dollars that can be used to pay medical expenses not covered by insurance plans, will have a plan year limit of $2,500 beginning 1/2013 and will be indexed for cost of living adjustments after 2013. Amend your Flexible Spending Plan to reflect this lower the limit. Dependent care remains at $5,000. STATE EXCHANGE EMPLOYER REQUIREMENT – Employers must provide each employee with written information regarding “Covered California” State of California Exchange, available subsidies for insurance and guidelines on how to purchase

• insurance. Further guidance is scheduled for release in late summer, early fall of 2013. (this was postponed from the
• riginal March 2013 deadline). In subsequent years, new employees must also receive this information.

SUMMARY OF BENEFITS & COVERAGE (SBC) – Insurers are required to use standards in compiling and providing accurate benefits and coverage description in a simple uniform format. A Glossary of Terms also needs to be included. Employers must provide these SBC’s to their employees at upon their application (new hire); at Open Enrollment, within a specified time if Plan Changes are made and upon the employee’s request. MEDICARE PAYROLL TAX – This will increase for employees over a certain income level.

2014

EMPLOYER SHARED RESPONSIBILITY PROVISION – Effective January 1, 2014 this provision requires employers with 50 or more full-time equivalent employees to offer a “minimum level” of affordable coverage to all full-time (30+ hrs/week) employees (and their dependent children up to age 26) or possibly pay a penalty (called play or pay). The coverage must cover 60% of the cost of the benefits (known as the Minimum Actuarial Value (MV)) and the premium cannot be more than 9.5% of the employees W-2 wages, otherwise the employer is to the following fine(s). The penalty is $2,000 annually times the number of full-time employees minus 30. The penalty is increased each year by growth in insurance premiums. If the employer does not offer affordable health coverage and an employee chooses to obtain coverage through “Covered California” state exchange AND receives a premium tax credit the penalty is $3,000 annually for each full-time employee receiving a subsidy/tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30. The penalty is increased each year by growth in insurance premiums. More on the Exchange in a later chapter. NOTE: The Employer Shared Responsibility Provisions are not final, they are “proposed” and the IRS is seeking public comment (deadline 3/18). The Final regulations will be issued sometime after April 23. Employers who feel they are subject to this provision should be prepared to categorize and count their employees prior to 7/1/13 in anticipation of Open Enrollment in 2014. AUTOMATIC ENROLLMENT – Effective January 1, 2014, employers with more than 200 full-time employees must automatically enroll a new full-time employee into one of the employer’s health plans. The DOL has not yet issued regs for Automatic Enrollment. Until regs are issued, employers are not required to comply.

As the weeks and months go by the IRS, HHS and DOL will issue additional guidance and regulations about provisions in effect January 1, 2014. Links to these websites are located at our website: www.prjinsurance.com or call us as you have questions at 800-427-7074. A Minimum Value calculator can be found at our website.

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SLIDE 9

Penalties for Employers Not Offering Affordable Coverage Under the Affordable Care Act Beginning in 2014

Start here.

Does the employer

• ffer coverage to

its workers? Does the employer have at least 50 full-time equivalent employees? Does the insurance pay for at least 60% of covered health care expenses for a typical population? Do any employees have to pay more than 9.5% of family income for the employer coverage? Did at least one employee receive a premium tax credit or cost sharing subsidy in an Exchange? The employer must pay a penalty for not offering coverage. Employees can choose to buy coverage in an Exchange and receive a premium tax credit. The employer must pay a penalty for not offering affordable coverage. healthreform.kff.org Those employees can choose to buy coverage in an Exchange and receive a premium tax credit. Penalties do not apply to small employers. No Yes No Yes If the employer has 25 or fewer employees and average wage up to $50,000, it may be eligible for a health insurance tax credit. The penalty is $2,000 annually times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums. Yes No The penalty is $3,000 annually for each full- time employee receiving a tax credit, up to a maximum of $2,000 times the number of full- time employees minus

• 30. The penalty is

increased each year by the growth in insurance premiums. Yes Yes No There is no penalty payment required of the employer since it

• ffers affordable

coverage. 9/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 10

This is only a summary. If you want more detail about your coverage and costs, you can get the complete terms in the policy or plan

document at www.[insert] or by calling 1-800-[insert]. Important Questions Answers Why this Matters: What is the overall deductible? $500 person / $1,000 family Doesn’t apply to preventive care You must pay all the costs up to the deductible amount before this plan begins to pay for covered services you use. Check your policy or plan document to see when the deductible starts over (usually, but not always, January 1st). See the chart starting on page 2 for how much you pay for covered services after you meet the deductible. Are there other deductibles for specific services?

• Yes. $300 for prescription drug
• coverage. There are no other

specific deductibles. You must pay all of the costs for these services up to the specific deductible amount before this plan begins to pay for these services. Is there an out–of– pocket limit on my expenses?

• Yes. For participating providers

$2,500 person / $5,000 family For non-participating providers $4,000 person / $8,000 family The out-of-pocket limit is the most you could pay during a coverage period (usually one year) for your share of the cost of covered services. This limit helps you plan for health care expenses. What is not included in the out–of–pocket limit? Premiums, balance-billed charges, and health care this plan doesn’t cover. Even though you pay these expenses, they don’t count toward the out-of-pocket limit. Is there an overall annual limit on what the plan pays? No. The chart starting on page 2 describes any limits on what the plan will pay for specific covered services, such as office visits. Does this plan use a network of providers?

• Yes. See www.[insert].com or

call 1-800-[insert] for a list of participating providers. If you use an in-network doctor or other health care provider, this plan will pay some or all

• f the costs of covered services. Be aware, your in-network doctor or hospital may use an
• ut-of-network provider for some services. Plans use the term in-network, preferred, or

participating for providers in their network. See the chart starting on page 2 for how this plan pays different kinds of providers. Do I need a referral to see a specialist?

• No. You don’t need a referral to

see a specialist. You can see the specialist you choose without permission from this plan. Are there services this plan doesn’t cover? Yes. Some of the services this plan doesn’t cover are listed on page 4. See your policy or plan document for additional information about excluded services.

OMB Control Numbers 1545-2229, 1210-0147, and 0938-1146 Corrected on May 11, 2012 10/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 11

• Copayments are fixed dollar amounts (for example, $15) you pay for covered health care, usually when you receive the service.
• Coinsurance is your share of the costs of a covered service, calculated as a percent of the allowed amount for the service. For example, if

the plan’s allowed amount for an overnight hospital stay is $1,000, your coinsurance payment of 20% would be $200. This may change if you haven’t met your deductible.

• The amount the plan pays for covered services is based on the allowed amount. If an out-of-network provider charges more than the

allowed amount, you may have to pay the difference. For example, if an out-of-network hospital charges $1,500 for an overnight stay and the allowed amount is $1,000, you may have to pay the $500 difference. (This is called balance billing.)

• This plan may encourage you to use participating providers by charging you lower deductibles, copayments and coinsurance amounts.

Common Medical Event Services You May Need Your Cost If You Use a Participating Provider Your Cost If You Use a Non- Participating Provider Limitations & Exceptions If you visit a health care provider’s office

• r clinic

Primary care visit to treat an injury or illness $35 copay/visit 40% coinsurance –––––––––––none––––––––––– Specialist visit $50 copay/visit 40% coinsurance –––––––––––none––––––––––– Other practitioner office visit 20% coinsurance for chiropractor and acupuncture 40% coinsurance for chiropractor and acupuncture –––––––––––none––––––––––– Preventive care/screening/immunization No charge 40% coinsurance If you have a test Diagnostic test (x-ray, blood work) $10 copay/test 40% coinsurance –––––––––––none––––––––––– Imaging (CT/PET scans, MRIs) $50 copay/test 40% coinsurance –––––––––––none–––––––––––

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SLIDE 12

Common Medical Event Services You May Need Your Cost If You Use a Participating Provider Your Cost If You Use a Non- Participating Provider Limitations & Exceptions If you need drugs to treat your illness or condition More information about prescription drug coverage is available at www. [insert]. Generic drugs $10 copay/ prescription (retail and mail order) 40% coinsurance Covers up to a 30-day supply (retail prescription); 31-90 day supply (mail

• rder prescription)

Preferred brand drugs 20% coinsurance (retail and mail

• rder)

40% coinsurance –––––––––––none––––––––––– Non-preferred brand drugs 40% coinsurance (retail and mail

• rder)

60% coinsurance –––––––––––none––––––––––– Specialty drugs 50% coinsurance 70% coinsurance –––––––––––none––––––––––– If you have

• utpatient surgery

Facility fee (e.g., ambulatory surgery center) 20% coinsurance 40% coinsurance –––––––––––none––––––––––– Physician/surgeon fees 20% coinsurance 40% coinsurance –––––––––––none––––––––––– If you need immediate medical attention Emergency room services 20% coinsurance 20% coinsurance –––––––––––none––––––––––– Emergency medical transportation 20% coinsurance 20% coinsurance –––––––––––none––––––––––– Urgent care 20% coinsurance 40% coinsurance –––––––––––none––––––––––– If you have a hospital stay Facility fee (e.g., hospital room) 20% coinsurance 40% coinsurance –––––––––––none––––––––––– Physician/surgeon fee 20% coinsurance 40% coinsurance –––––––––––none–––––––––––

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SLIDE 13

Common Medical Event Services You May Need Your Cost If You Use a Participating Provider Your Cost If You Use a Non- Participating Provider Limitations & Exceptions If you have mental health, behavioral health, or substance abuse needs Mental/Behavioral health outpatient services $35 copay/office visit and 20% coinsurance other

• utpatient services

40% coinsurance –––––––––––none––––––––––– Mental/Behavioral health inpatient services 20% coinsurance 40% coinsurance –––––––––––none––––––––––– Substance use disorder outpatient services $35 copay/office visit and 20% coinsurance other

• utpatient services

40% coinsurance –––––––––––none––––––––––– Substance use disorder inpatient services 20% coinsurance 40% coinsurance –––––––––––none––––––––––– If you are pregnant Prenatal and postnatal care 20% coinsurance 40% coinsurance –––––––––––none––––––––––– Delivery and all inpatient services 20% coinsurance 40% coinsurance –––––––––––none––––––––––– If you need help recovering or have

• ther special health

needs Home health care 20% coinsurance 40% coinsurance –––––––––––none––––––––––– Rehabilitation services 20% coinsurance 40% coinsurance –––––––––––none––––––––––– Habilitation services 20% coinsurance 40% coinsurance –––––––––––none––––––––––– Skilled nursing care 20% coinsurance 40% coinsurance –––––––––––none––––––––––– Durable medical equipment 20% coinsurance 40% coinsurance –––––––––––none––––––––––– Hospice service 20% coinsurance 40% coinsurance –––––––––––none––––––––––– If your child needs dental or eye care Eye exam $35 copay/ visit Not Covered Limited to one exam per year Glasses 20% coinsurance Not Covered Limited to one pair of glasses per year Dental check-up No Charge Not Covered Covers up to $50 per year

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SLIDE 14

Excluded Services & Other Covered Services:

Services Your Plan Does NOT Cover (This isn’t a complete list. Check your policy or plan document for other excluded services.)

• Cosmetic surgery
• Dental care (Adult)
• Infertility treatment
• Long-term care
• Non-emergency care when traveling outside

the U.S.

• Private-duty nursing
• Routine eye care (Adult)
• Routine foot care

Other Covered Services (This isn’t a complete list. Check your policy or plan document for other covered services and your costs for these services.)

• Acupuncture (if prescribed for rehabilitation

purposes)

• Bariatric surgery
• Chiropractic care
• Hearing aids
• Most coverage provided outside the United
• States. See www.[insert]
• Weight loss programs

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SLIDE 15

Your Rights to Continue Coverage:

** Individual health insurance sample –

Federal and State laws may provide protections that allow you to keep this health insurance coverage as long as you pay your

• premium. There are exceptions, however, such as if:
• You commit fraud
• The insurer stops offering services in the State
• You move outside the coverage area

For more information on your rights to continue coverage, contact the insurer at [contact number]. You may also contact your state insurance department at [insert applicable State Department of Insurance contact information].

OR

** Group health coverage sample –

If you lose coverage under the plan, then, depending upon the circumstances, Federal and State laws may provide protections that allow you to keep health coverage. Any such rights may be limited in duration and will require you to pay a premium, which may be significantly higher than the premium you pay while covered under the plan. Other limitations on your rights to continue coverage may also apply. For more information on your rights to continue coverage, contact the plan at [contact number]. You may also contact your state insurance department, the U.S. Department of Labor, Employee Benefits Security Administration at 1-866-444-3272

• r www.dol.gov/ebsa, or the U.S. Department of Health and

Human Services at 1-877-267-2323 x61565 or www.cciio.cms.gov.

Your Grievance and Appeals Rights:

If you have a complaint or are dissatisfied with a denial of coverage for claims under your plan, you may be able to appeal or file a grievance. For questions about your rights, this notice, or assistance, you can contact: [insert applicable contact information from instructions]. ––––––––––––––––––––––To see examples of how this plan might cover costs for a sample medical situation, see the next page.––––––––––––––––––––––

15/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 16

Having a baby

(normal delivery)

Managing type 2 diabetes

(routine maintenance of a well-controlled condition)

About these Coverage Examples:

These examples show how this plan might cover medical care in given situations. Use these examples to see, in general, how much financial protection a sample patient might get if they are covered under different plans.  Amount owed to providers: $7,540  Plan pays $5,490  Patient pays $2,050 Sample care costs: Hospital charges (mother) $2,700 Routine obstetric care $2,100 Hospital charges (baby) $900 Anesthesia $900 Laboratory tests $500 Prescriptions $200 Radiology $200 Vaccines, other preventive $40 Total $7,540 Patient pays: Deductibles $700 Copays $30 Coinsurance $1320 Limits or exclusions $0 Total $2,050  Amount owed to providers: $5,400  Plan pays $3,520  Patient pays $1,880 Sample care costs: Prescriptions $2,900 Medical Equipment and Supplies $1,300 Office Visits and Procedures $700 Education $300 Laboratory tests $100 Vaccines, other preventive $100 Total $5,400 Patient pays: Deductibles $800 Copays $500 Coinsurance $500 Limits or exclusions $80 Total $1,880

This is not a cost estimator.

Don’t use these examples to estimate your actual costs under this plan. The actual care you receive will be different from these examples, and the cost of that care will also be different. See the next page for important information about these examples. Note: These numbers assume the patient is participating in our diabetes wellness

• program. If you have diabetes and do not

participate in the wellness program, your costs may be higher. For more information about the diabetes wellness program, please contact: [insert].

16/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 17

Questions and answers about the Coverage Examples:

What are some of the assumptions behind the Coverage Examples?

• Costs don’t include premiums.
• Sample care costs are based on national

averages supplied by the U.S. Department of Health and Human Services, and aren’t specific to a particular geographic area or health plan.

• The patient’s condition was not an

excluded or preexisting condition.

• All services and treatments started and

ended in the same coverage period.

• There are no other medical expenses for

any member covered under this plan.

• Out-of-pocket expenses are based only
• n treating the condition in the example.
• The patient received all care from in-

network providers. If the patient had received care from out-of-network providers, costs would have been higher.

What does a Coverage Example show?

For each treatment situation, the Coverage Example helps you see how deductibles, copayments, and coinsurance can add up. It also helps you see what expenses might be left up to you to pay because the service or treatment isn’t covered or payment is limited.

Does the Coverage Example predict my own care needs?

 No. Treatments shown are just examples.

The care you would receive for this condition could be different based on your doctor’s advice, your age, how serious your condition is, and many other factors.

Does the Coverage Example predict my future expenses?

 No. Coverage Examples are not cost

• estimators. You can’t use the examples to

estimate costs for an actual condition. They are for comparative purposes only. Your

• wn costs will be different depending on

the care you receive, the prices your providers charge, and the reimbursement your health plan allows.

Can I use Coverage Examples to compare plans?

Yes. When you look at the Summary of

Benefits and Coverage for other plans, you’ll find the same Coverage Examples. When you compare plans, check the “Patient Pays” box in each example. The smaller that number, the more coverage the plan provides.

Are there other costs I should consider when comparing plans?

Yes. An important cost is the premium

you pay. Generally, the lower your premium, the more you’ll pay in out-of- pocket costs, such as copayments, deductibles, and coinsurance. You should also consider contributions to accounts such as health savings accounts (HSAs), flexible spending arrangements (FSAs) or health reimbursement accounts (HRAs) that help you pay out-of-pocket expenses.

17/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 18

Glossary of Health Coverage and Medical Terms

• This glossary has many commonly used terms, but isn’t a full list. These glossary terms and definitions are intended

to be educational and may be different from the terms and definitions in your plan. Some of these terms also might not have exactly the same meaning when used in your policy or plan, and in any such case, the policy or plan

• governs. (See your Summary of Benefits and Coverage for information on how to get a copy of your policy or plan

document.)

• Bo

Bold bl d blue text indicates a term defined in this Glossary.

• See page 4 for an example showing how de

dedu ductibl bles, co co-insu sura rance and ou

• ut-of
• f-pocket lim

limit its work together in a real life situation.

Allo Allowed Am Amount

Maximum amount on which payment is based for covered health care services. This may be called “eligible expense,” “payment allowance" or "negotiated rate." If your pr prov

• vide

der charges more than the allowed amount, you may have to pay the difference. (See Ba Bala lance Billin Billing.)

Appe ppeal

A request for your health insurer or pla lan to review a decision or a griev evan ance again.

Bala lance B Billin illing

When a prov

• vide

der bills you for the difference between the provider’s charge and the allow

• wed a

d amou

• unt
• nt. For example,

if the provider’s charge is $100 and the allowed amount is $70, the provider may bill you for the remaining $30. A pr preferred pr d prov

• vide

der may no not balance bill you for covered services.

Co Co-ins nsuranc ance

Your share of the costs

• f a covered health care

service, calculated as a percent (for example, 20%) of the al allowed wed amou

• unt

nt for the service. You pay co-insurance plu lus any de dedu ductibl bles you owe. For example, if the he health i h ins nsuranc nce or pl plan’ n’s allowed amount for an

• ffice visit is $100 and you’ve met your deductible, your

co-insurance payment of 20% would be $20. The health insurance or plan pays the rest of the allowed amount.

Comp

• mplicat

cations

• ns of
• f Pregnancy

ancy

Conditions due to pregnancy, labor and delivery that require medical care to prevent serious harm to the health

• f the mother or the fetus. Morning sickness and a non-

emergency caesarean section aren’t complications of pregnancy.

Co Co-pay ayme ment nt

A fixed amount (for example, $15) you pay for a covered health care service, usually when you receive the service. The amount can vary by the type of covered health care service.

De Deductib tible le

The amount you owe for health care services your heal ealth insu sura rance or pla lan covers before your health insurance or plan begins to pay. For example, if your deductible is $1000, your plan won’t pay anything until you’ve met your $1000 deductible for covered health care services subject to the deductible. The deductible may not apply to all services.

Durabl able M Medical cal Eq Equipme ment nt (DME ME)

Equipment and supplies ordered by a health care pr prov

• vide

der for everyday or extended use. Coverage for DME may include: oxygen equipment, wheelchairs, crutches or blood testing strips for diabetics.

Eme Emergency ncy M Medical cal C Cond ndition

• n

An illness, injury, symptom or condition so serious that a reasonable person would seek care right away to avoid severe harm.

Eme Emergency ncy M Medical cal T Trans anspor

• rtat

ation

Ambulance services for an emergenc ncy m medi dical c con

• ndi

dition

• n.

Eme Emergency ncy Room C

• om Car

are

Emer ergen ency cy ser ervices es you get in an emergency room.

Eme Emergency ncy S Service ces

Evaluation of an em emer ergen ency cy med edical al condi

• ndition
• n and

treatment to keep the condition from getting worse. (See page 4 for a detailed example.)

Jane pays

100 100%

Her plan pays

0% 0% (See page 4 for a detailed example.)

Jane pays

20 20%

Her plan pays

80 80%

OMB Control Numbers 1545-2229, 1210-0147, and 0938-1146 18/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 19

Exclude ded d Services es

Health care services that your heal ealth i insuran ance ce or pla lan doesn’t pay for or cover.

Grievance ance

A complaint that you communicate to your health insurer

• r pla

lan.

Habilita ilitatio tion S Servic ices

Health care services that help a person keep, learn or improve skills and functioning for daily living. Examples include therapy for a child who isn’t walking or talking at the expected age. These services may include physical and

• ccupational therapy, speech-language pathology and
• ther services for people with disabilities in a variety of

inpatient and/or outpatient settings.

Heal alth I h Insuranc ance

A contract that requires your health insurer to pay some

• r all of your health care costs in exchange for a

premi mium um.

Home

• me H

Heal alth C h Care

Health care services a person receives at home.

Ho Hospice ce S Service ces

Services to provide comfort and support for persons in the last stages of a terminal illness and their families.

Hospita italiz lizatio tion

Care in a hospital that requires admission as an inpatient and usually requires an overnight stay. An overnight stay for observation could be outpatient care.

Hospita ital O l Outp tpatie tient t Care

Care in a hospital that usually doesn’t require an

• vernight stay.

In In-ne network Co-insu suranc nce

The percent (for example, 20%) you pay of the al allowed wed amou

• unt

nt for covered health care services to pr prov

• vide

ders who contract with your he health i h insuranc nce or pla

• lan. In-network

co-insurance usually costs you less than ou

• ut-of
• f-ne

networ

• rk

co co-insu sura rance.

In In-netw twork Co Co-pay ayme ment

A fixed amount (for example, $15) you pay for covered health care services to pro roviders rs who contract with your he health i h ins nsuranc nce or pla

• lan. In-network co-payments usually

are less than ou

• ut-of
• f-net

etwo work co co-pa payment nts.

Medical cally N Nece cessar ary

Health care services or supplies needed to prevent, diagnose or treat an illness, injury, condition, disease or its symptoms and that meet accepted standards of medicine.

Ne Network

The facilities, pro roviders rs and suppliers your health insurer

• r pla

lan has contracted with to provide health care services.

No Non-Pref efer erred P Provider er

A pr prov

• vide

der who doesn’t have a contract with your health insurer or pla lan to provide services to you. You’ll pay more to see a non-preferred provider. Check your policy to see if you can go to all providers who have contracted with your he health i h ins nsuranc nce or plan, or if your health insurance or plan has a “tiered” ne networ

• rk and you must

pay extra to see some providers.

Out ut-of

• f-networ
• rk C

Co-ins nsuran ance ce

The percent (for example, 40%) you pay of the al allowed wed amou

• unt

nt for covered health care services to providers who do no not contract with your he health i h ins nsuranc nce or pla

• lan. Out-
• f-network co-insurance usually costs you more than in

in- net etwo work co co-insu sura rance.

Out ut-of

• f-networ
• rk C

Co-payme ment nt

A fixed amount (for example, $30) you pay for covered health care services from providers who do no not contract with your heal ealth insu sura rance or pla

• lan. Out-of-network co-

payments usually are more than in in-net etwo work co co-pa payment nts.

Out ut-of-Pocket Lim imit

The most you pay during a policy period (usually a year) before your he health h insu sura rance or pla lan begins to pay 100% of the al allowed wed amou

• unt
• nt. This limit never

includes your premi mium um, ba balanc nce-bille illed charges or health care your health insurance or plan doesn’t cover. Some health insurance

• r plans don’t count all of your co

co-pa payment nts, de dedu ductibl bles, co co-insu sura rance payments, out-of-network payments or

• ther expenses toward this limit.

Phy hysici cian an Ser ervices

Health care services a licensed medical physician (M.D. – Medical Doctor or D.O. – Doctor of Osteopathic Medicine) provides or coordinates. (See page 4 for a detailed example.)

Jane pays

0% 0%

Her plan pays

100 100%

19/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 20

Pla Plan

A benefit your employer, union or other group sponsor provides to you to pay for your health care services.

Preau author horizat ation

• n

A decision by your health insurer or pla lan that a health care service, treatment plan, pr prescript ption dr

• n drug or du

durabl ble med edical cal eq equipmen ent is med edical ally n neces ecessar

• ary. Sometimes

called prior authorization, prior approval or

• precertification. Your he

health i h ins nsuranc nce or plan may require preauthorization for certain services before you receive them, except in an emergency. Preauthorization isn’t a promise your health insurance or plan will cover the cost.

Prefer erred ed P Provider er

A pr prov

• vide

der who has a contract with your health insurer or pla lan to provide services to you at a discount. Check your policy to see if you can see all preferred providers or if your heal ealth insu sura rance or plan has a “tiered” ne networ

• rk and

you must pay extra to see some providers. Your health insurance or plan may have preferred providers who are also “participating” providers. Participating providers also contract with your health insurer or plan, but the discount may not be as great, and you may have to pay more.

Premiu ium

The amount that must be paid for your heal ealth insu sura rance

• r pla
• lan. You and/or your employer usually pay it

monthly, quarterly or yearly.

Pr Prescrip iptio tion D Drug Co Coverage

Heal ealth insu sura rance or pla lan that helps pay for pre resc scri ription dru rugs and medications.

Pr Prescrip iptio tion D Drugs

Drugs and medications that by law require a prescription.

Pr Prim imary Ca Care Ph Physic icia ian

A physician (M.D. – Medical Doctor or D.O. – Doctor

• f Osteopathic Medicine) who directly provides or

coordinates a range of health care services for a patient.

Pr Prim imary Ca Care Pr Provid ider

A physician (M.D. – Medical Doctor or D.O. – Doctor

• f Osteopathic Medicine), nurse practitioner, clinical

nurse specialist or physician assistant, as allowed under state law, who provides, coordinates or helps a patient access a range of health care services.

Pr Provid ider

A physician (M.D. – Medical Doctor or D.O. – Doctor

• f Osteopathic Medicine), health care professional or

health care facility licensed, certified or accredited as required by state law.

Recons construct ctive Su Surgery

Surgery and follow-up treatment needed to correct or improve a part of the body because of birth defects, accidents, injuries or medical conditions.

Rehabi habilitat ation Se

• n Service

ces

Health care services that help a person keep, get back or improve skills and functioning for daily living that have been lost or impaired because a person was sick, hurt or

• disabled. These services may include physical and
• ccupational therapy, speech-language pathology and

psychiatric rehabilitation services in a variety of inpatient and/or outpatient settings.

Skille illed Nursi sing g Care

Services from licensed nurses in your own home or in a nursing home. Skilled care services are from technicians and therapists in your own home or in a nursing home.

Specia ialis list

A physician specialist focuses on a specific area of medicine or a group of patients to diagnose, manage, prevent or treat certain types of symptoms and

• conditions. A non-physician specialist is a prov
• vide

der who has more training in a specific area of health care.

UCR UCR (Usual al, C Customar mary and and R Reasonabl

• nable)

The amount paid for a medical service in a geographic area based on what pr prov

• vide

ders in the area usually charge for the same or similar medical service. The UCR amount sometimes is used to determine the al allowed wed amou

• unt

nt.

Ur Urgent C t Car are

Care for an illness, injury or condition serious enough that a reasonable person would seek care right away, but not so severe as to require emer ergen ency room

• om care

re.

20/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 21

How You and Your Insurer Share Costs - Example

Jane’s Plan Deductible: $1,500 Co-insurance: 20% Out-of-Pocket Limit: $5,000 Jane reaches her $1,500 deductible, co-insurance begins Jane has seen a doctor several times and paid $1,500 in total. Her plan pays some

• f the costs for her next visit.

Of Offic ice v vis isit it c costs: $75 Ja Jane p pays: s: 20% of $75 = $15 Her er p plan an p pay ays: 80% of $75 = $60 Jane hasn’t reached her $1,500 deductible yet Her plan doesn’t pay any of the costs. Of Offic ice v vis isit it c costs: $125 Ja Jane p pays: s: $125 Her er p plan an p pay ays: $0

January 1st Beginning of Coverage Period December 31st End of Coverage Period

more costs more costs

Jane reaches her $5,000

• ut-of-pocket limit

Jane has seen the doctor often and paid $5,000 in total. Her plan pays the full cost of her covered health care services for the rest of the year. Of Offic ice v vis isit it c costs: $200 Ja Jane p pays: s: $0 Her er p plan an p pay ays: $200 Jane pays

100% 00%

Her plan pays

0% 0%

Jane pays

20% 0%

Her plan pays

80% 0%

Jane pays

0% 0%

Her plan pays

100% 00%

21/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 22

IS YOUR COMPANY SUBJECT TO THE MANDATE

Log onto www.prjinsurance.com for “calculators” 1) Group size calculator 2) Permanent Part-time Hourly calculator & 3) Seasonal calculator

DETERMINING TOTAL NUMBER OF EMPLOYEES

Employed an average of at least 50 full-time employees on business days during the preceding calendar year. A “full-time” employee for any month is an employee who is employed for an average of at least 30 hours of service per week. To determine the full-time equivalents of part-time and seasonal workers, the employer must add up the total number of hours worked in a month by part-time employees and divide by 120. To determine the average number of employees for the preceding calendar year, the employer must calculate the number of full-time and full-time equivalent employees per month for the year and then divide by 12. The IRS uses the Common Law Standard to define an employee – someone that is under your control at work. Hours of Service can be determined by three different methods for non-hourly employees – 1) count actual hours worked 2) days-worked equivalency – credit an employee working at least one hour of service in a day with 8 hours of service for that day and 3) weeks-worked equivalency – credit an employee working at least one hour of service in a week with 40 hours of service that week. Employer can choose method. Hours of Service include: paid leave such as vacations; holidays; leave for illness, disability or other incapacity; layoffs; jury duty or military duty.

DETERMINING WHICH PART-TIME AND SEASONAL EMPLOYEES ARE ELIGIBLE FOR BENEFITS

As a Mandated Employer with part-time and seasonal employees the ACA requires the employer determine which part-time and seasonal employees will be eligible for benefits. To do so the employer must choose a Measurement Period. Employers may select a fixed 3 to 12 month measurement period for determining whether an employee has averaged at least 30 hours per week. Be careful! The Measurement Period will then determine the groups Stability Period or the period of time the newly determined eligible employee must be treated as a full-time employee eligible for benefits. So for example, if the employer uses a Measurement Period of 12 months, then those part-time or seasonal employees that average 30+ hours per week will be eligible for benefits for 12 months. Optional Administrative Period – employers may need time after the Measurement Period ends to decide which employees must be offered coverage during the ensuing Stability Period. The safe harbor allows for an optional Administrative Period between the Measurement Period and the Stability Period. This period cannot exceed 90 days or be applied in any way that imposes a gap in the employee’s coverage. Uniform Periods for all employees – except between certain employee groups – collectively bargained versus non-collectively bargained; salaried versus hourly and employees located in different U.S. states. Waiting period for new hires expected to work full-time cannot be longer than 90-days. Groups will have the initial Measurement and Stability periods and then must recalculate an employee’s eligibility at the next Measurement Period for the next Stability Period – this is ongoing. This means that an employee not employed during the initial Measurement Period may have an overlap in the next period.

22/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 23

TRANSITION PERIOD RELIEF & SAFE HARBORS TIME PERIOD

Solely for purposes of stability periods beginning in 2014, employers may adopt a transition measurement period that is shorter than 12 months but that is no less than 6 months long and that begins no later than July 1, 2013 and ends no earlier than 90-days before the first day of the plan year beginning on or after January 1, 2014 (90 days being the maximum permissible administrative period). Employer Mandate is effective on January 1, 2014 but the IRS has provided three transition rules for non- calendar plan years: Relief for employees eligible on Dec. 27, 2012. An employer will not face penalties for full-time employees who were eligible for coverage as of 12/27/2012, as long as the employer offers them affordable coverage with a minimum 60% value by the first day of the plan year that starts in 2014. Relief if coverage offered to at least one-third of employees. For employees not eligible for the above plan as of 12//27/2012, the same penalty relief applies if the employer offered at least one-third or more of its employees coverage during the most recent open enrollment period before 12/27/2012. Relief if at least one-quarter of employees covered. The penalty relief also would apply if at least one-quarter of employees were covered under one or more non-calendar year plans that had the same plan year on 12/27/2012. When to start measuring hours worked. Some employers may want to impose a 12-month measurement period followed by an administrative period, with a stability period matching the calendar year. To do so, employers need to begin tracking hours of service by 10/15/2012 to set the first stability period equal to calendar year 2014. For employers that currently record hours of service, this may simply involve sharing already-captured payroll or workforce management date with benefit staff and vendors. For other employers, however, settling on a strategy and beginning to track needed data this early is daunting. For employers with large numbers of short-term employees, shorter measurement and stability periods may be

• ptimal, at least for certain permitted categories of employees.

But when designing a health benefit strategy to minimize shared-responsibility penalties, a 12-month stability period generally should be considered before alternative approaches to determine eligibility.

EMPLOYER NEXT STEPS

Decide whether or how to adjust plan waiting periods. Gather data to determine whether or how the safe harbors are relevant. Consider safe-harbor approaches for offering 2014 health coverage. If using safe harbors, determine optimal measurement, administrative and stability periods. Amend Employee Handbooks and other documents and communicate to your employees. This information is extremely simplified and was obtained via a webinar by BASIC HR Solutions (Larry Grudzien, Attorney at Law) and is for discussion purposes only. The entire detailed PowerPoint presentation can be obtained from PRJ Insurance Marketing Inc. by calling 800-427-7074. As the weeks and months go by the IRS, HHS and DOL will issue additional guidance and regulations about provisions in effect January 1, 2014. Links to these websites are located at

• ur website: www.prjinsurance.com.

23/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 24

HEALTH PLAN BENEFIT CHANGES 2014

SMALL GROUP

The Essential Health Benefits provision of ACA created 10 general categories of benefits: Ambulatory Patient Services Emergency Services Hospitalization Laboratory Services Maternity and Newborn Care Mental Health & Substance Abuse Services, including Behavioral Health Treatment Prescription Drugs Rehabilitative & Habilitative Services & Devices Preventive & Wellness Services & Chronic Disease Management Pediatric Services, including oral and vision care Actuarial Values of coverage – under the law, actual levels of benefits are not defined by deductibles, copays and coinsurance. Levels of coverage are defined by actuarial value (AV). This applies to individual, small group and the state exchange plans. Bronze – 60% AV Silver – 70% AV Gold – 80% AV Platinum – 90% AV Catastrophic only Limit on Deductibles – cannot exceed $2,000 single / $4,000 family Limit on Maximum Out-of-Pocket – cannot exceed $6,250 single / $12,500 family

LARGE GROUPS

Minimum Value plans are plans that cover at least 60% of of the total allowed cost of benefits that are expected to be incurred under the plan. A calculator is available which allows an employer to input deductibles; copays and coinsurance to determine if the large group plan complies with Minimum Value. A calculator is available from the www.dol.gov and and also at www.prjinsurance.com.

PREVENTIVE

Preventive Provisions Expanded under ACA Well-Woman visits Screening for gestational diabetes for all pregnant women Human Papillomavirus DNA testing for all women 30 years and older Annual sexually transmitted infection counseling for all sexually active women Annual counseling and screening for HIV for all sexually active women FDA-approved contraception methods, sterilization procedures and contraceptive counseling Breastfeeding support, supplies, and counseling, including costs for renting breastfeeding equipment Domestic Violence screening and counseling

24/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 25

Version: March 2013 Page 1

Covered California

FACT SHEET

Affordable insurance is a national priority

In 2010, the federal government enacted the Patient Protection and Affordable Care Act, which aims to increase the number of Americans with insurance and cut the overall costs of health care.

The new law created a number of ways to help reduce the cost of insurance and encourage uninsured people to get

• covered. The federal law is important to

Californians because it provides fjnancial assistance to help individuals and small business pay for health insurance. The law also requires that most people over the age of 18 have health insurance

• r pay a penalty starting in 2014. If

you already have afgordable health insurance, you don’t need to take any action, unless your health coverage status changes. To help those without health insurance get covered, the Afgordable Care Act also requires that the states either set up their own marketplace to ofger health insurance or have one set up by the federal government. These marketplaces will provide an accessible place where you can compare health plans and buy health insurance that works best for you, your family and your budget. California chose to set up its own marketplace — Covered California — as your doorway to health coverage.

Getting California covered

California was the fjrst state in the nation to enact legislation under the Afgordable Care Act. Covered California™ was created to develop an organized marketplace where legal residents of California can buy health coverage that cannot be denied or canceled if you are sick or have pre-existing health conditions. As of 2014, about 2.6 million Californians will qualify for federal fjnancial assistance and an additional 2.7 million who do not qualify for assistance will benefjt from guaranteed coverage through Covered California or from an insurance company in the individual

• market. An estimated 2.3 million

California residents will enroll in a health plan through Covered California by 2017. All health plans purchased through Covered California must cover a range of services called Essential Health Benefjts. These include services like doctor visits, hospitalization, emergency care, maternity care, pediatrics, prescriptions, medical tests, mental health care and

• thers. Plans must cover preventive

care services like mammograms and colonoscopies with no out-of-pocket cost to consumers. All newly sold health plans, whether ofgered by Covered California or in the private marketplace, will be required to meet these basic requirements.

25/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 26

Version: March 2013 Page 2

A short history, an ambitious future

As the fjrst state in the nation to enact legislation under the Afgordable Care Act, California has an important role to play in ensuring that Covered California is successful. Working together with federal, state and community partners, Covered California will ensure that millions of Californians have an equal opportunity to obtain afgordable high-quality health care coverage. With more Californians covered, the state, our neighbors and our families will all be able to make healthy choices that benefjt us all.

A commitment to Californians

You will be able to buy the same high- quality health insurance from Covered California that is available on the private market today. The advantage

• f purchasing insurance from Covered

California is that you can easily compare difgerent plans. For the fjrst time ever, you can make “apples-to- apples” comparisons across difgerent health plans, thanks to new standard benefjts that were designed to work for consumers – not for insurance

• companies. Also, Covered California is

the only place where you can use tax credits or cost-sharing subsidies from the federal government to lower your health care costs. Covered California also will help small businesses provide afgordable health coverage to their employees. Through Covered California, businesses with 50 or fewer full-time equivalent employees will be able to purchase health insurance. Businesses with 25 or fewer full-time employees can learn about possibility eligibility for tax credits. Starting in October 2015, Covered California will be

• pen for larger employers with 100 or

fewer full-time equivalent employees. Covered California is committed to ensuring that you are aware of your health coverage options and can easily compare health plans and choose the right one. We know that choosing health insurance can be confusing and we are here to help. We will be providing support services in person, by phone and online. We are training people in local communities across the state who will help you learn about the new health options available. These trained professionals will be able to ofger help in many difgerent languages.

The health insurance marketplace

Later this year, Covered California will open the marketplace and begin enrolling eligible Californians for health coverage that will begin January 2014. Legal residents of the state of California who do not have health insurance from their employer or another government program can purchase health insurance through Covered California.

Page 2

CoveredCA.com

Covered California is the new online marketplace that will make it simple and afgordable to purchase high- quality health insurance and get fjnancial assistance.

26/41 KENNETH STAMEY CA LICENSE 0679857 FOR DISCUSSION PURPOSES ONLY

SLIDE 27

Version: March 2013 Page 1

Small business

FACT SHEET

The federal Patient Protection and Affordable Care Act was passed in 2010 to increase the number of Americans covered by insurance.

With almost half of all Americans receiving their health insurance from their employer, small businesses play an important role in fulfjlling the goals of the Afgordable Care Act. Most business owners recognize the competitive advantages

• f providing high-quality health insurance to their employees.

Ofgering health coverage helps recruit and retain the best talent and keeps employees healthier, happier and more productive. The Afgordable Care Act created a number of provisions to encourage more employers to cover their employees. Those provisions include making insurance more afgordable and easier to purchase. To help small businesses gain greater access to new health plan options, Covered California™ will

• pen a new health insurance marketplace later this year.

Small businesses will have unprecedented access to a range of health plan choices, including group plans you might think are

• fgered only to large companies.

New options for health coverage

Covered California is developing a marketplace specifically designed for small businesses with 50 or fewer full-time equivalent employees.

This marketplace will make it easier to compare a variety of qualifjed, competing health plans from private insurance

• companies. Through Covered California,

small businesses will be able to ofger multiple plans to their employees, something that few small employers have been able to do easily until now. For businesses with 50 or fewer full- time equivalent employees, Covered California is scheduled to conduct

• pen enrollment later this year for

coverage that will begin on January 1, 2014. In 2015, Covered California will begin ofgering health plans to employers with 100 or fewer full-time equivalent employees. You can enroll in health plans ofgered by Covered California throughout the year. Unlike the individual marketplace, there is no designated open-enrollment period, giving you the option to either enroll according to your policy’s renewal date

• r whenever you choose.

Covered California’s small business health

• ptions program

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SLIDE 28

Version: March 2013 Page 2

Tax credits for small businesses

As a small business owner, you may qualify for a tax credit to help ofgset your contribution to your employees’ premium payment. There are two phases of tax credits. Starting in 2010 and lasting through tax year 2013, there is a tax credit for businesses with 25 or fewer full-time equivalent employees who are paid an average annual salary of less than $50,000 a year. During this fjrst phase, qualifying employers can receive a tax credit of up to 35 percent of premium expenses (24 percent for nonprofjts). Starting in 2014, the maximum tax credit increases to 50 percent (35 percent for nonprofjts) and is available for a total

• f two consecutive years. Generally, businesses with fewer than 10 full-time equivalent

employees and wages averaging less than $25,000 a year will qualify for the highest credits. To qualify for any tax credit, employers must pay at least 50 percent of employee premium costs. To learn more about tax credits, please consult our Tax Credits for Small Businesses Fact Sheet, which is also available at www.CoveredCA.com. Beauty Shop with 10 Employees Restaurant with 40 Part-Time Employees Business Main Street Hair Downtown Café Employees 10 full-time equivalent employees 40 half-time employees (equivalent to 20 full-time workers) Wages $250,000 total, or an average of $25,000 per employee $500,000 total, an average of $25,000 per full-time equivalent worker Employee Health Insurance Cost $70,000 $140,000 2013 Tax Credit $24,500 (35%) $28,000 (12% credit) 2014 Tax Credit $35,000 (50%) $40,000 (17% credit)

Examples of small businesses receiving tax credit for health insurance

Employer-sponsored health insurance is valuable for a number of reasons. People who are insured are protected against uncertain and high medical

• expenses. They are more likely to receive

needed and appropriate health care. Health insurance also improves health

• utcomes and lowers mortality, so

employees with health insurance are more likely to be productive workers. Many small businesses choose to ofger health insurance as an additional benefjt to attract employees. It is an attractive

• ption to ofger because of the favorable

tax treatment to both employer and employee. For these reasons and others, many small employers already ofger health

• coverage. Employers with 50 or more

full-time equivalent employees that do not ofger afgordable insurance or ofger coverage that does not meet minimum standards will be subject to penalties starting in January 2014. Businesses with fewer than 50 full-time equivalent employees that do not provide health coverage will not face a penalty but will have new options that make providing insurance to employees even more attractive.

Advantages of employer-sponsored health plans

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SLIDE 29

Version: March 2013 Page 3

Simplified solutions, greater choice

Covered California will help you provide afgordable insurance to your employees and make it easy to manage.

• Easy comparisons. Covered California lets you easily compare and contrast

a variety of health plans ofgered by private insurers that will be rated and underwritten by a new set of consumer-friendly rules. Everything you need is available online, by phone or in person.

• Expanded and afgordable choices. Covered California levels the playing fjeld

by giving you access to more plans that are part of an insurance pool made up

• f all small businesses in California, ofgering many of the advantages of large-

business insurance pools. Those advantages include purchasing power, lower costs, reduced premiums and more health plan choices. Covered California also will provide expert counsel to help small businesses identify the plans that work best for them and be a resource for private insurance agents.

• Predictable costs. Regardless of which plans your employees choose, your costs

will remain constant because you control the amount of your contribution. Your employees might choose a higher-cost or higher-coverage plan, but your costs will stay the same, giving you a highly predictable health insurance budget.

• Simple administration. Covered California will make it easy to pay for
• insurance. Even if your employees choose difgerent plans, you will only need to

issue a single payment. Covered California will distribute the payment to cover your employees. We are also making it easy for you to keep working with your current insurance agent, who is welcome to provide counsel and enrollment support just as in the past. If you aren’t working with an agent, Covered California can also provide expert advice.

• Employer control. You will be able to decide whether and when to participate in

Covered California. You will be able to choose the level of coverage, the amount

• f your contribution toward your employees’ coverage and any amount you may

want to contribute to family or dependent care. Once you make these decisions, your employees then choose the plan that best meets their needs.

Health plans for your employees

Your employees will have access to a range of health plans based on the decisions you make and the criteria you establish.

One of the decisions you will make is the level of coverage, or how much a health plan will cover for medical expenses. To help you make that determination, all health plans starting in 2014 will be classifjed into one of four categories: bronze, silver, gold and platinum. The rankings are designed so that as the category increases in value, so does the percent of medical expenses that a health plan will cover. This means that the platinum-level plans will cover the highest percentage of health care expenses incurred at the time of medical

• care. The health plans that cover the

greatest percentage of health care expenses also usually have higher premium payments. You can choose a plan with a higher premium but lower costs at the time of medical care. Or you can choose a plan with a lower premium but higher costs at the time of medical care. These new rankings allow you to easily compare difgerent plans within each category. Plans will be available through Covered California that provide coverage for employees’ dependents although these will cost more. You can decide to contribute toward such a plan, or you can encourage your employees to contact Covered California to buy individual coverage for their family members. There are many new and exciting health coverage options for small

• businesses. Covered California can help

you discover the right ones for you and your employees.

Page 3

CoveredCA.com

Covered California is the new online “marketplace” that will make it simple and afgordable to purchase high-quality health insurance and get fjnancial assistance to help pay for insurance.

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SLIDE 30

Platinum Gold Silver

(Lower Cost Sharing Available

• n Sliding Scale)

Bronze

MAXIMUM OUT-OF-POCKET FOR ONE $4,000 $6,400 $6,400 $6,400 MAXIMUM OUT-OF-POCKET FOR FAMILY $8,000 $12,800 $12,800 $12,800

Covered California’s 2014 standard plans for individuals — Key benefits

COPAYS IN THE GREEN SECTIONS ARE NOT SUBJECT TO ANY DEDUCTIBLE AND COUNT TOWARD THE ANNUAL OUT-OF-POCKET MAXIMUM BENEFITS IN BLUE ARE SUBJECT TO DEDUCTIBLES Deductible (if any) No Deductible No Deductible $2,000 Medical Deductible $5,000 Deductible for Medical and Drugs Preventive Care Copay No Cost — 1 annual visit No Cost — 1 annual visit No Cost — 1 annual visit No Cost — 1 annual visit $60 for 3 visits per year $70 $120 $25 30% 30% $300 $50 $45 $65 $90 $25 $45 $65 $250 $50 $30 $50 $60 $20 $30 $50 $250 No Deductible $50 $20 $40 $40 $5 $20 $40 $150 No Deductible $15 Primary Care Visit Copay Specialty Care Visit Copay Urgent Care Visit Copay Generic Medication Copay Lab Testing Copay X-Ray Copay Emergency Room Copay High cost and infrequent services like Hospital Care, Outpatient Surgery Brand medications may be subject to Annual Drug Deductible before you pay the copay Preferred brand copay after Drug Deductible (if any) HMO Outpatient Surgery — $250; Hospital — $250 per day up to 5 days PPO 10% HMO Outpatient Surgery — $600; Hospital — $600 per day up to 5 days PPO 20% $250 deductible then pay the Copay amount $50 - $75 after meeting deductible $250 $250 40% of your plan’s negotiated rate $150 Imaging (MRI, CT, PET Scans) 40% of your plan’s negotiated rate 20% of your plan’s negotiated rate

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SLIDE 31

Platinum Gold Silver

(Lower Cost Sharing Available

• n Sliding Scale)

Bronze

MAXIMUM OUT-OF-POCKET FOR ONE $4,000 $6,400 $6,400 $6,400 MAXIMUM OUT-OF-POCKET FOR FAMILY $8,000 $12,800 $12,800 $12,800

Covered California’s 2014 standard plans for individuals — Key benefits

COPAYS IN THE GREEN SECTIONS ARE NOT SUBJECT TO ANY DEDUCTIBLE AND COUNT TOWARD THE ANNUAL OUT-OF-POCKET MAXIMUM BENEFITS IN BLUE ARE SUBJECT TO DEDUCTIBLES Deductible (if any) No Deductible No Deductible $2,000 Medical Deductible $5,000 Deductible for Medical and Drugs Preventive Care Copay No Cost — 1 annual visit No Cost — 1 annual visit No Cost — 1 annual visit No Cost — 1 annual visit $60 for 3 visits per year $70 $120 $25 30% 30% $300 $50 $45 $65 $90 $25 $45 $65 $250 $50 $30 $50 $60 $20 $30 $50 $250 No Deductible $50 $20 $40 $40 $5 $20 $40 $150 No Deductible $15 Primary Care Visit Copay Specialty Care Visit Copay Urgent Care Visit Copay Generic Medication Copay Lab Testing Copay X-Ray Copay Emergency Room Copay High cost and infrequent services like Hospital Care, Outpatient Surgery Brand medications may be subject to Annual Drug Deductible before you pay the copay Preferred brand copay after Drug Deductible (if any) HMO Outpatient Surgery — $250; Hospital — $250 per day up to 5 days PPO 10% HMO Outpatient Surgery — $600; Hospital — $600 per day up to 5 days PPO 20% $250 deductible then pay the Copay amount $50 - $75 after meeting deductible $250 $250 40% of your plan’s negotiated rate $150 Imaging (MRI, CT, PET Scans) 40% of your plan’s negotiated rate 20% of your plan’s negotiated rate

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Version: March 2013 Page 1

Getting financial help

FACT SHEET

Qualifying for tax credits

Tax credits are available for individuals and families who meet certain income requirements and do not have access to afgordable health insurance that meets minimum coverage standards ofgered through their employer or another government program. Eligibility for tax credits is based on a standard, called the “federal poverty level,” based on family income and size. The size of the tax credit is based on a sliding scale, with those who make less money getting larger fjnancial support to lower the cost of their insurance

• coverage. Individuals and families who

make between 138 percent and 400 percent of the federal poverty level — an individual making up to $44,680 and family of four earning up to $92,200 — may be eligible for subsidies and tax credits. Here are some key facts about tax credits.

• Tax credits lower the cost of your
• premium. Tax credits reduce the

amount you will pay for insurance.

• Tax credits help low- and middle-

income individuals and families. Tax credits are available to individuals and families who meet certain income requirements.

• Tax credits can be used when you
• enroll. Tax credits can be applied to

the cost of your health plan when you

• enroll. You do not need to wait until you

fjle a tax return at the end of the year.

• Tax credits are only available

through Covered California. You must enroll in a health plan through Covered California if you want to use your tax credits.

• Tax credits are paid to your health
• plan. These tax credits are paid by

the federal government each month directly to the health plan you choose through Covered California.

Covered California™ will make it simple and more affordable for you and millions of other Californians to get high-quality health insurance.

Making insurance affordable

Legal residents of the state of California will be eligible to buy health coverage through a new marketplace established by Covered California. Starting in 2014, there will be several new government programs that ofger fjnancial assistance to lower the cost of health insurance.

• 1. Tax credits: Tax credits will be available to help lower

the cost of your monthly health insurance premium.

• 2. Cost-sharing subsidies: Cost-sharing subsidies reduce the

amount of health care expenses an individual or family has to pay at the time of medical care.

• 3. Medi-Cal assistance: Starting in 2014, Medi-Cal will

cover more people under age 65, including people with disabilities and those with income of less than $15,000 for a single individual and $31,180 for a family of four. The coverage is free for those who qualify and is part of the provisions of the Afgordable Care Act.

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Version: March 2013 Page 2

Qualifying for cost- sharing subsidies

While tax credits can help lower monthly premium payments, cost-sharing subsidies protect lower-income people with health insurance from high out-of-pocket costs at the time of service. You may be eligible for subsidies if your income is less than about $27,936 for a single person and less than about $57,636 for a family of four in 2012. If you qualify for cost-sharing subsidies, you will pay less for health care expenses, including costs incurred when you receive medical care. These government fjnancial assistance programs are ofgered on a sliding scale, based

• n your annual household income. In other

words, the higher your income, the lower the amount of your fjnancial assistance. Whether

• nline, in person or by phone, Covered

California can help you learn if you qualify for these programs later this year, when open enrollment begins.

Estimating your tax credit

The amount of your tax credit depends on household income and family

• size. Below are some examples of potential costs to families in California.

Later this year, Covered California will make available the exact premium and plan choices, so you can know exactly what your insurance will cost. Annual Income Monthly Premium after federal subsidy $23,550 - $35,325 $39 - $118 $35,326 - $47,100 $119 - $247 $47,101 - $58,875 $248 - $395 $58,876 - $94,200 $396 - $746 The tax credits are available when you buy insurance so you do not have to pay all of the premium costs up front and wait for reimbursement. The tax credits will be available to everyone who is eligible for them, whether they fjle taxes or not. Covered California has a cost-estimate calculator that can help you estimate about how much you will pay per year for insurance coverage and the size of any fjnancial support. Please visit our website at www.CoveredCA.com.

Page 2

CoveredCA.com

Covered California is the new online “marketplace” that will make it simple and afgordable to purchase high-quality health insurance and get fjnancial assistance to help pay for insurance.

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SLIDE 34

NON-DISCRIMINATION UNDER ACA

TESTING & PENALTIES

Group health plans (other than grandfathered plans) are required to satisfy the nondiscrimination rules of IRS CODE 105(h) (2) which prohibit discrimination in favor of highly compensated individuals and previously applied

• nly to self-insured plans.

Compliance with the rules will not be required until the agencies have issued regulations or other guidance. The agencies expect that when these regulations and other guidance are issued, its effective date will be delayed to allow for time to implement any required changes. Nondiscrimination rules will continue to apply to self-insured plans including those that are grandfathered. Highly compensated per the IRS means: The five highest paid officers of the company A shareholder who owns 10% in value of stock of the employer An employee among the highest paid 25% of employees An employee, for purposes of the discrimination test excludes: Employees who have not completed 3 years of services Employees who have not attained the age of 25 Employees that are part-time or seasonal Employees that are non-resident aliens Employees that are part of a collective bargaining unit

ELIGIBILITY TESTS – Designed to determine who is actually benefiting from the plan (if a large number of

employees waive coverage, then the plan may struggle to pass the eligibility test). A plan needs to pass just one

• f the following eligibility test types:

70% Test – At least 70% of employees must benefit from the plan. Calculated by taking the number of employees participating in the plan and dividing by the number of employees less any excludable employees. 70%/80% Test – A plan that is unable to pass the 70% test may be able to pass the 70%/80% test. Group needs to demonstrate that 70% of employees are eligible to participate in the plan, AND at least 80% of the eligible employees actually elect coverage. Classification Test – For some employers, this may be the easiest test to pass, but it will likely be the most difficult to conduct. Group needs to demonstrate that the plan benefits employees who qualify for coverage under a classification set up by the employer which is found to be non-discriminatory in regard to Highly Compensated Individuals (HCI’s). It is complicated and should be done by a testing professional or an attorney. It incorporates non-discrimination rules normally applied to retirement plans and may be conducted in two ways: the “fair cross-section test” or the “nondiscriminatory classification test”.

BENEFIT TESTS – Designed to determine if all participants eligible for the same benefits. Two tests must be

passed: 1) benefits cannot discriminate on the face of the plan and 2) benefits cannot discriminate in the

• peration of the plan. (see following article for more details)

PENALTIES - Non-discrimination rules are enforced through the imposition of an excise tax of $100 per day per

individual discriminated against. And under the ACA, non-compliance can result in penalties up to $100 per day per failure. There are also penalties for failure to pass the Eligibility Test and Benefit Test. As the weeks and months go by the IRS, HHS and DOL will issue additional guidance and regulations about provisions in effect January 1, 2014. Links to these websites are located at our website: www.prjinsurance.com or call us as you have questions at 800-427-7074.

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SLIDE 35

Issue

Continued on Page 2

In this second issue of the entworth Benefit we review Section 105(h) nondiscrimina- tion requirements. Historically, Section 105(h) has applied only to self-funded medical plans. The general premise is that health plans cannot discrimi- nate in favor of highly compen- Health care reform shined a new light on these nondiscrimina- tion rules. Health care reform extended similar nondiscrimi- nation rules to fully insured

• plans. The effective date of ex-

tending nondiscrimination rules to fully insured plans has been delayed until the govern- ment issues administrative e welcome your comments and suggestions regarding this issue

• f our technical bulletin. For

more information on this , please contact your Account Manager or visit entworth web site www.mcgrawwentworth.com.

Volume Fourteen, Issue Two March 2011

“Section 105(h) Nondiscrimination Rules”

Section 105(h) of the Internal Rev- enue Code contains nondiscrimina- tion rules that apply to self-funded health plans. The general premise under Section 105(h) is that if a self-funded health plan offers tax-free health benefits to employ- ees, then the plan may not discrimi- nate in favor of highly compensated individuals (HCIs). Prior to health care re- form, these non- discrimination rules did not apply to insured health plans. The Affordable Care Act (ACA), part of last year’s health care re- form, changed

• that. Under the

ACA, insured – non-grandfathered – health plans must satisfy Section 105(h)’s general nondiscrimination requirements under “rules similar to” the detailed nondiscrimination rules found in Section 105(h). For an employer with an insured health plan, the ACA’s extension of the nondiscrimination requirements makes it vitally important to en- sure that the plan does not discrimi- nate in favor of HCIs. This is be- cause the penalty for noncompli- ance is imposed on the employer (and not on an HCI, as is the case for a self-funded plan), and the penalty is $100 per day for each employee against whom the plan

• discriminates. Also, under the ACA,

a civil action may be brought against the employer by the Department of Labor (and, perhaps, plan partici- pants) to enforce the nondiscrimi- nation rules. The ACA’s extension of the nondis- crimination rules to insured health plans was originally supposed to be effective on the first day of the first plan year fol- lowing Septem- ber 23, 2010. However, the government re- ceived a signifi- cant number of comments on the rules, with many commen- tators request- ing a delay in the effective date until administra- tive guidance was issued. The gov- ernment agreed to this request, and, the rules will not become effective until the government issues regula- tions or other official guidance ex- plaining how the ACA’s nondiscrimi- nation requirements apply to insured health plans, and a grace period will be provided for transitioning to the new requirements. It is important to remember that the ACA’s nondiscrimination require- ments for insured health plans will use “rules similar to” the Section 105(h) nondiscrimination rules that currently exists for self-funded

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Volume Fourteen, Issue Two March 2011, Page 2

Continued on Page 3

• plans. “Similar to” provides sig-

nificant space for government in- terpretation in the rulemaking pro-

• cess. As such, it may be the case

that when regulations or other

• fficial guidance is issued for the

new requirements, there will be some significant differences between the nondiscrimination rules for insured health plans as compared to the rules for self- funded health plans. That said, given that any such rules may be in the ballpark of the current Sec- tion 105(h) regime, it is a good idea to review the current Section 105(h) rules as they apply to self- funded plans. Historically, the IRS has not focused on the 105(h) nondis- crimination re- quirements for s e l f - f u n d e d plans, except in very egregious and rare situa-

• tions. However, with the spotlight
• n these requirements due to the

changes made by the ACA, the IRS may pay more attention to these rules in the future. Accordingly, an employer sponsoring a self- funded health plan should revisit the Section 105(h) rules and ap- ply those rules to its plan to make sure the plan does not discrimi- nate in favor of HCIs. This Advisor will revisit the Sec- tion 105(h) nondiscrimination rules by addressing the following:  Review of Section 105(h)  Eligibility Tests  Benefits Tests  Penalties for Failing 105(h) Nondiscrimination Require- ments

Review of Section 105(h)

The basic premise of Section 105(h) is that in order for employers to

• ffer tax-favored health benefits to

HCIs, the plan cannot discriminate in favor of the highly compensated in terms of eligibility and benefits. Specific tests must be performed and passed for both eligibility and benefits, and are discussed in de- tail in the next two sections. Before you start the testing process, it is critical to identify which company employees are con- sidered HCIs, and which can be excluded from the plan’s eligibil- ity testing. (And, “company” for this purpose in- cludes closely-

• wned compa-

nies, such as parent and sub- sidiary compa- nies that are considered part

• f a “controlled

group”.) The HCI group will include:  The five highest paid officers

• f the company

 A 10% or more shareholder and  An individual who is among the highest-paid 25% of all employees (including the five highest paid officers) The 105(h) rules indicate that em- ployers should use current year

• compensation. This can be an is-

sue if an employee earns variable

• compensation. Until the rules are

clarified, employers should make the best effort to anticipate cur- rent-year income for the testing process. The 105(h) rules also allow certain employees to be excluded from the eligibility testing process. These employees include:  Employees who have not completed three years of service  Part-time employees who customarily work fewer than 35 hours per week  Seasonal employees  Employees subject to a collective bargaining agree- ment  Employees who have not attained age 25  Non-resident aliens who receive no U.S.-based income Although it is not clear from the regulations, an employer should in- clude any of these employees in the testing process if they are actually eligible for benefits under the health plan (with the exception of the collectively bargained employ- ees).

Eligibility Tests

The eligibility tests are designed to determine who is actually ben- efiting from the plan. If a large number of employees waive cover- age, then the plan may struggle to pass the eligibility test. A self- funded plan needs to pass just one

• f the following eligibility test

types:  70% Test  70%/80% Test  Classification Test

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Volume Fourteen, Issue Two March 2011, Page 3

Continued on Page 4

70% Test The 70% test is a simple math ex- ercise, and looks at the number

• f employees that elect coverage

and participate in the plan. At least 70% of employees must ben- efit from the plan. For this test, an employer is defined by the con- trolled group rules (so, closely-

• wned parent, subsidiary, and

“brother-sister” companies are in- cluded in the mix). The 70% is calculated by taking the number of employees par- ticipating in the plan, dividing by number of employees less any excludible employees (see previous section). For this example, assume an em- ployer has 600 employees, with 20 excludible from the testing pro- cess and 560 participating in the

• plan. The plan would pass this

test because 560 divided by 580 equals 96.5%, which exceeds 70%. 70%/80% Test A plan that is unable to pass the 70% test may be able to pass the 70%/80% test. For this test, you need to demonstrate that 70% of employees are eligible to partici- pate in the plan, and at least 80%

• f the eligible employees actually

elect coverage. There are two steps to this test: Step 1: Take the number of em- ployees eligible to participate in the plan and divide by the num- ber of employees less any exclud- ible employees (see previous sec- tion). Step 2: Take the number of em- ployees electing coverage and di- vide by the number of employees eligible for coverage. For this example, assume an em- ployer has 600 employees, 20 of which can be excluded from the testing process. Of the remaining 580 employees, 430 are eligible for benefits and 400 of those elect benefits under the plan. In this case, divide the 430 ben- efits-eligible employees by the 580 non-excludible employees. The result is 74%, which means the em- ployer passed the first threshold, requiring that at least 70% of em- ployees be eli- gible to partici-

• pate. The second

step divides the 400 employees electing coverage by the 430 em- ployees eligible for coverage. The result of this step is 93%, which ex- ceeds the 80% re-

• quired. This company would thus

pass the 70%/80% test. Classification Test For some employers, this may be the easiest test to pass, but it will likely be the most difficult to con-

• duct. This test is designed to dem-
• nstrate that the plan benefits em-

ployees who qualify for coverage under a classification set up by the employer, which is found to be non-discriminatory in regard to

• HCIs. The test is quite complicated,

with many gray areas, so it may make sense to hire an attorney or a testing professional to perform the nondiscrimination classifica- tion tests on behalf of your health plans. The test, which incorporates non- discrimination rules that normally apply to retirement plans, may be conducted in two different ways: (1) the “fair cross-section test”, or (2) the “nondiscriminatory classi- fication test.” Passing either one of these tests will result in a plan passing the classification test. Fair Cross-Section Test This test compares the compensa- tion of employees, to determine if the compensation of non-partici- pants is similar to those who are participating in the plan. In addi- tion, the employer must determine if the plan discriminates on its face in favor of officers, shareholders

• r other HCIs.

The fair cross- section test is a “facts and cir- cumstances” type of test, so there is no bright line pass

• r fail standard.

The IRS pro- vided an ex- ample of the fair cross-section test in guidance issued all the way back in 1983. In general, if an employer’s par- ticipation rate is consistent across salary ranges, then the plan could pass the test. The guidance surrounding this test is not very clear. Using a profes- sional to conduct this test on be- half of your plan is recommended. Nondiscriminatory Classification Test The second option is the nondis- criminatory classification test. This test option is designed to measure the ratio of non-highly compen- sated employees (NHCEs) to highly compensated employees (HCEs) benefiting under the plan. Employ- ers may offer different benefits to

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Volume Fourteen, Issue Two March 2011, Page 4

Continued on Page 5

different employee classifications, but the classifications must, at a minimum, be established by bona fide business criteria, such as geo- graphic region, job descriptions, nature of compensation (for ex- ample, salaried vs. hourly), or na- ture of the business (for example, in a complex company group, manufacturing vs. non-manufac- turing businesses). In addition, the classifications must be found to be nondiscriminatory. The test involves several compli- cated steps in which a plan must calculate the concentration of em- ployees that are considered “non- highly compensated employees”. Based upon that concentration, the employer needs to refer- ence IRS tables to determine if the participation of their non-highly compensated em- ployees and par- ticipation of their highly compen- sated employees meet the IRS safe harbors percentages (included in the IRS tables). Even though the fair cross-section test and the classification tests are complex, they do allow employ- ers some flexibility in designing their plans. However, the details

• n conducting these tests are not

as straightforward as the 70% or 70%/80% tests, so it makes sense to consult a professional to ensure assumptions made during the test- ing process are reasonable assump- tions based upon the limited in- formation available.

Benefits Tests

The benefits tests are designed to answer one basic question – are all participants eligible for the same benefits? Two tests must be passed:  Benefits cannot discriminate

• n the face of the plan

 Benefits cannot discriminate in the operation of the plan There is not much detail address- ing how to conduct either of these benefits tests. Benefits on the Face of the Plan This test requires employers to look at the benefits provided by the plan, as well as the contribu- tions charged for those ben-

• efits. The em-

ployer makes a facts and cir- cumstances de- termination if the plan dis- criminates in favor of HCEs. Key is- sues to consider are:  Employee contributions  New hire waiting periods  Variance in the level of benefits (such as different deductibles, coinsurance, copays, etc.)  Procedures or treatments covered (for example, HCIs have coverage for cutting edge treatments, but other em- ployee do not) Note that maximum benefits should not vary based on compen- sation, age or years of service. Based on the limited available guid- ance, it appears that any benefit differential will be a problem. The rules, however, allow an employer to aggregate or disaggregate ben- efit plans if it assists them in pass- ing the tests. An employer will not have to create a separate ERISA plan to disaggregate plans, but it will need to designate that the plans are to be considered together

• r separately for the purposes of

Section 105(h) nondiscrimination testing. For example, an employer could designate the plan for salaried em- ployees separately from the plan for hourly employees. In this situ- ation, as long as the classification is based on objective business cri- teria, it appears the classes could be considered separately for the benefits tests. In addition, to be safe (as the guidance is not clear

• n this point) these classifications

would likely need to be tested separately for the eligibility test. Benefits in the Operation

• f the Plan

The benefits in operation test speaks to actual plan operations. It does not look to specific usage under the plan, but it is more of a facts and circumstances determina-

• tion. For example, assume a health

plan historically excludes coverage for in-vitro fertilization and infer- tility treatment. Three executives question the exclusion and then de- cide to amend the plan to cover these services. While the plan of- fers these benefits to all plan par- ticipants, all three executives use the benefits and successfully have

• children. Once the executives no

longer see a need to cover these services, they decide to amend the plan again to exclude coverage for in-vitro fertilization and infertil- ity treatment. This situation would clearly violate the “benefits in op- eration” test.

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SLIDE 39

Volume Fourteen, Issue Two March 2011, Page 5

Penalties for Failing the Nondiscrimination Requirements As noted at the beginning of this Advisor, until the government is- sues regulations or other guidance

• n how the ACA’s nondiscrimina-

tion requirements apply to a fully insured health plan, no penalties currently apply for this type of plan if it discriminates in favor of

• HCIs. Once the rules do apply for

insured plans, the penalties are sig- nificant – i.e., $100 per day for each individual discriminated against (i.e., all non-HCI employ- ees who benefit under the plan, and, possibly, all non-exclud- able non-HCI employees at the company) and, perhaps, depending on how the govern- ment guidance plays out, a tax- able income in- clusion for HCIs. For a self-funded health plan, no penalty applies against the em- ployer sponsoring the plan. In- stead, the penalty applies to the HCIs covered by/receiving benefits under the plan. An HCI must in- clude in his or her taxable income for the year the excess reimburse- ment received under the plan. The definition of “excess reimburse- ment” differs, depending on which nondiscrimination test was failed:  Failure of the Eligibility Test: The plan calculates the excess reimbursement by taking the benefits paid for the HCI and multiplying that number by the amount of benefits paid to all HCIs. The result is then be divided by the amount of benefits paid to all employees under the

• plan. For example, assume a

discriminatory plan pays $5,000 in benefits for an HCI named Joe. The benefits paid to all HCIs under the plan is $500,000, and the total benefits paid by the plan is $1,500,000. The taxable excess reimbursement for Joe is $1,667, determined as follows: $5,000 × ($500,000 ÷$1,500,000) = $1,667  Failure of the Benefits Test: The plan calculates the excess reimbursement by determin- ing the benefit available to HCIs that is not available to non-HCIs. For example, assume a plan has a new hire waiting period

• f 90 days for

most employees, but coverage for executives is effective on the date of hire. The excess reimbursement in this ex- ample is the 90 days of coverage provided to execu- tives that is not provided to all other employees. HCIs would thus be taxed on the value of three months of

• coverage. For a plan that is

self-funded, that amount is likely to be the amount charged by the plan for monthly COBRA coverage.

Concluding Thoughts

As it stands today, only sponsors

• f self-funded health plans need

to be concerned about the Section 105(h) nondiscrimination require-

• ments. In light of the ACA’s apply-

ing nondiscrimination require- ments “similar to” to those under Section 105(h) to insured health plan health plans need to start think- ing about whether their plans will have to contend with similar dis- crimination issues. The new attention paid to the Sec- tion 105(h) nondiscrimination re- quir hav impact on self-funded health plans. By focusing renewed attention on Section 105(h), th the IRS to pay more attention to whether such plans do, in design and/or operation, meet those re-

• quirements. Sponsors of self-

funded health plans should there- fore conduct Section 105(h) non- discrimination tests on their plan at l are complicated, it may be prudent to hire a professional to conduct these tests. Plan sponsors should also review their plan documents for potential discrimination issues, and should consult with third party administrators regarding their ad- ministrative practices in this regard. If y Section 105(h) nondiscrimination requirements, and the changes ma M to

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SLIDE 40

TAXES AND FEES

It is estimated that the financial impact for fully-insured customers of the health reform fees in 2014, based on the government rules and industry analysis, shows an increase in premium of about 3.8%. For self-funded plan sponsors, it is about $6 per member per month.

TAXES & FEES

PCORI Fee – Patient Centered Outcomes Research Institute Fee will be paid by the health insurance carrier on fully-insured plans and will generate a nominal fee rolled into the premium. For self-funded plans this fee is about $1 per member per year. Health Insurer Fee – applies to health insurance carriers and subsidies for low-income individuals and families who purchase health insurance the Exchange. It is an annual, permanent fee beginning in 2014 and the amount is determined by the market share of the health insurance issuer. It is estimated that the fee during the first year to be about 2.3% of the total premium or approximately $8 billion in 2014 from affected insurers. Transitional Reinsurance Fee – applies to health insurance carriers and is intended to spread the financial risk across all insurers to provider great financial stability. The fee is temporary and is collected from 2014-2016. The fee is assessed on a per capita basis and is collected through premium rates. Estimates are $12 billion in 2014. Risk Adjustment Fee – applies to health insurance carriers and is intended to help fund the administrative costs

• f running the Risk Adjustment Program. This program is intended to protect health insurance insurers of risk-

adjusted plans against adverse selection by redistributing premiums from plans with low-risk populations to plans with high-risk populations or in essence, to level the playing field. Estimates are about $1 per member per year and this fee will be rolled into the insurance premium and listed separately on the premium billing. This fee is permanent and begins in 2014. High-Value Plan Tax (Cadillac Tax) – assessed on high-premium health plans that annual cost more than $10,200 (single) or $27,500 (family) and subject to a 40% excise tax on the amount over those costs. The amounts are adjusted for cost of living, age and gender, and increases in 2019 and beyond by CPI+1%. This will begin in 2018. On November 20, 2012, the Centers for Medicare and Medicaid Services proposed a rule to implement the ACA fair health insurance premium (adjusted community rating), guaranteed availability (issue), guaranteed renewability, and rate review

• provisions. These rules are still proposed and subject to change before becoming final law. The proposed rule would require:

ADJUSTED COMMUNITY RATING & OTHER PROVISIONS

Single Risk Pool – each carrier must establish a single risk pool in each state where they offer coverage. Index Rate – each carrier is required to establish an index rate for each state risk pool based on the total combined claims costs for providing essential health benefits within the pool. The index rate must be adjusted

• n a market-wide basis with additional adjustments made related to risk adjustment and reinsurance programs.

Fair Health Insurance Premiums – insurers are limited to using age, tobacco use, and geographic area. No other rating will be allowed including health status, claims experience and gender. Guaranteed Availability of Coverage – insurers must accept any individual or employer that applies for products. Guaranteed Renewability of Coverage – insurers will renew coverage at the option of the plan sponsor. Catastrophic Plans – to provide young adults, who cannot otherwise afford health care, to have available a lower premium plan that protects against high out-of-pocket costs and cover recommended preventive services without cost sharing. Rate Increase Review and Notice Provisions – modifies existing rate review requirements in three ways: 1) reduces the reporting thresholds to zero from 10% 2) modifies data collection requirements and 3) modifies state requirements to maintain an effective new rate review program.

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SLIDE 41

MEDICAL LOSS RATIO

Under the ACA health carriers are required to spend a minimum percentage of premium revenue on medical expenses. The percentage of premium spend on medical expenses is called the Medical Loss Ratio.

MLR – DEFINED

MLR applies only to fully-insured group businesses and uses average total number of employees (ATNE) as the size indicator instead of eligible employees. Employers are placed in an aggregation set based on size and state in order for the rebate percentage calculation to be done on the entire set, not on the just the policyholder. For individual and small groups the carriers must spend no less than 80% of premium revenue on medical expenses. For large groups the carriers must spend no less than 85% of premium revenue on medical expenses. If carriers do not meet the required MLR for a calendar year, they will be required to pay rebates to employers and individuals by August 1st of the year following the calendar year to comply with the federally mandated deadline. The basic calculation for determining MLR is to divide the medical expenses of the plan by the earned premiums. This will determine the percentage of revenue spend on claims costs. MEDICAL EXPENSES are payments for clinical services (incurred claims) and expenditures for activities to improve healthcare quality. EARNED PREMIUMS is revenue generated from plan premiums, minus state and federal taxes, licensing fees, and regulatory fees. If a plan expends more than the allowed amount on administrative expenses as compared to medical claims, a rebate will be required. The difference is rebated to the employer for group plans and to the individual for individual plans. As the weeks and months go by the IRS, HHS and DOL will issue additional guidance and regulations about provisions in effect January 1, 2014. Links to these websites are located at our website: www.prjinsurance.com or call us as you have questions at 800-427-7074.

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