This document summarizes key provisions of the recently passed US healthcare reform legislation. It outlines major changes occurring between 2010-2014, such as dependent coverage until age 26, elimination of lifetime limits, creation of health insurance exchanges in 2014, and employer penalties for not providing coverage. Administrative impacts are also discussed, such as increased workload from additional required notices and forms. Specific provisions like tax changes, Medicare discounts, and essential health benefits are reviewed.

1. Healthcare Reform Patient Protection & Affordable Care Act Healthcare & Education Affordability Reconciliation Act April 21, 2010

3. Our History and Approach

4. Healthcare Reform

5. Overview, Major Provisions and Administration

6. Details by Effective Year

7. 2010 - 2014

8. The Next Steps

10. Global Service Provider, headquartered in Newport Beach, CA

11. Dedicated Benefits Administration team with 20+ years experienceOur Mission: To help employers control and drive down the cost of delivering Human Resources & Employee Benefit Services.

12. About Secova Workshop Agenda Presenter Bruce Borgos Mr. Borgos is the Director of Healthcare audit services at Secova. With over 20 years of experience in risk management and benefits management for public sector employers, Mr. Borgos has developed and managed innovative solutions designed to reduce health care costs and improve employee health and productivity. Before joining Secova, Mr. Borgos served as Director of Sales and Marketing for a division of Sierra Health Services, Product Manager for GatesMcDonald, and Vice President of Operations for W.R. Gibbens. Karen Kerns Karen Kerns is the Internal Compliance Director at Secova. Miss Kerns has advised the public and private sector on all aspects of benefit administration including optimal operational and administrative design, as well as advising companies of the due diligence necessary for employee benefit issues. Karen has presented at the National Retail Federation’s Human Resources Executives Summit helping employers understand how to implement new administrative procedures to meet the new requirements from recently passed legislative measures for COBRA. With a focus on process improvements, her experience provides insight to enhancing current processes to accommodate future business needs while ensuring client needs and requirements are represented.

13. Healthcare Reform

14. 2010 Impact 2011 Impact Overview Senate Passed Patient Protection & Affordable Care Act (PPACA) December 24, 2009 House Passed the Health Care and Education Reconciliation Act (HCERA) March 21, 2010 Senate Enacted Changes & Passed the HCERA March 25, 2010 Passage of Healthcare Reform PPACA Signed Into Law By President Obama March 23, 2010 HCERA Signed Into Lay by President Obama March 30, 2010

16. Congressional Budget Office estimates that the legislation will cost $950 billion over a ten-year period.

17. Healthcare reform measures will go into effect six months from the enactment date through 2018.

18. Significant changes occur in 2010-11 with the majority of the provisions taking place in 2014.

19. Comprehensive nature of this recently passed reform includes benefit re-design, increased administrative and compliance costs, eligibility rules restructuring, increased taxes and health insurance exchanges.

20. All provisions should be carefully reviewed with legal council, actuaries and plan design consultants.

22. Next plan year after enactment, waiting period or effective date

23. First renewal date after enactment or effective date

24. The regulations are written to ensure:

25. More individuals are covered with fewer restrictions on coverage or eligibility.

26. Future regulations will provide guidance by:

27. Internal Revenue Service (IRS)

28. Department of Labor (DOL)

29. Health and Human Services (HHS)

30. Health Resources and Services Administration (HRSA)

31. State Departments/Division of Insurance

33. Dependents are eligible to receive health insurance until their 26th birthday

34. 2010 - Elimination of lifetime and most annual dollar limits on coverage. (Grandfathered Plans)

35. 2010 - Internal and External Appeals Process: Must be established

36. 2010 - Prohibition of Pre-existing Conditions and Recissions. (Grandfathered Plans)

37. Eliminating exclusions of pre-existing conditions excluded for all others in 2014

39. 2011 - Automatic Enrollment: 1st national long-term care insurance program for U.S. workers. Few employers will enroll their employees when it officially launches.

41. 2013 - Additional Tax for High Wage Workers

42. 2014 - Automatic Enrollment: Employers with more than 200 employees are required to automatically enroll new-full time employees in their healthcare plans

43. 2014 - Expansion of eligibility for Medicaid and subsidized care

44. 2014 - Insurance Exchanges: Created to assist individuals and small businesses with fewer than 100 employees to purchase medical insurance

45. 2014 - Individual Coverage Mandate: Requires all individuals to qualify to receive affordable health insurance or pay a penalty

46. 2014 - Employer Pay or Play Mandate: Employers must offer affordable coverage to full time employees (30 hours a week), or pay a penalty

47. Employers with 50 or fewer employees are exempt from penalties

48. 2018 – High Cost Insurance Excise Tax: Is established

52. Claims activity levels will increase.

53. Potential increased premium costs through:

54. Removal of lifetime and annual limits

55. Insurer tax increases

56. Mandatory preventative service provisions with no cost sharingIncrease In Administrative Workload and Costs

60. Plans in existence on March 23, 2010 are grandfathered plans.

61. Grandfathered plans will be subject to the following insurance reforms. Expansion of child coverage for children until age 26. Prohibition of waiting periods for over 90 days. Prohibition of lifetime limits. Restrictions on annual limits from 2010 through 2013 and prohibit annual limits 2014 onward. Standard uniform explanation of coverage. Prohibition of pre-existing conditions on dependents under age 19 (2011 through 2013) and prohibition of pre-existing condition limitations entirely by 2014.

63. Applies to married children. Excluded from this provision are married children’s spouse and their children.

66. The coverage gap falls between the $2,830 and $6,440 in total drug spending.

67. Makes Participation in Medicare Part D more attractive to retirees.

68. Program to Reduce the Cost of Covering Early Retirees - A program will be implemented to temporarily support employer retiree plans until the exchange is fully running.

69. Plan sponsors will be reimbursed for 80% of claims between $15,000 and $90,000 for pre-Medicare retirees age 55-64.

70. Program does not apply to retirees on Medicare and retirees that are not actively working for an employer.

72. No lifetime dollar amount maximums on benefits are allowed.

74. Ambulatory patient services

75. Emergency services

76. Hospitalization

77. Maternity and newborn care

78. Mental health and substance use disorder services

79. Prescription drugs

80. Rehabilitative services and devices

82. Access to Insurance for Uninsured Individuals with Pre-Existing Conditions - Through a new program of high-risk insurance pools, people who have been denied coverage on the basis of pre-existing conditions and have been uninsured for at least six months will be extended subsidized coverage.

83. The program will end when the health insurance exchanges roll out in 2014.

85. Adoption credit is refundable and is extended through 2011.

86. Tax on Indoor Tanning Services -The act imposes a 10% tax on amounts paid for indoor tanning services (new IRC § 5000B).

87. Like a sales tax, the tax will be collected from the person tanning when payment for the tanning services is made. The provision applies to services performed on or after July 1, 2010.

89. Medicare Part D Discounts - Seniors who have fallen into the "donut hole" of Medicare Part D prescription coverage in 2010 will receive a 50% discount on name brand drugs. Pharmaceutical manufacturers that don’t comply with the discount program will be subject to fines.

90. The legislation aims to close the donut hole by 2020 by offering a 75% discount on generic drugs.

94. Under 2003 law, employers are eligible for tax-free government reimbursement of 28% of prescription drug expenses. With the elimination of this deduction some companies are reporting a $150 million dollar loss in earnings.

96. There is no annual limit under current law. Currently employers impose limits between $4,000 and $5,000 a year.

97. Administrative Note: Employers that provide FSAs will need to amend their plan documentation and enrollment materials. Restrictions must be placed on automatic reimbursement procedures, such as the use of debit cards.

98. Required Employee Redesign of FSA’s - Employers will have to narrow allowed spending from flexible spending accounts to bar reimbursement for non-prescription and over-the-counter drugs. This is an FSA feature that the Internal Revenue Service sanctioned in 2003.

100. Beginning 2013, individuals over 65 will be able to claim the itemized deduction for medical expenses at 7.5 percent of adjusted gross income through 2016.

101. Excise Tax on Medical Device - Medical device manufacturers will face a 2.9 percent national sales tax. Excepted are eyeglasses, contact lenses, hearing aids or other items for individuals.

103. Individuals and small businesses can utilize

104. Analysts and insurers are uncertain how state insurance exchanges will operate until after final regulations are issued.

105. In 2017 states may opt to allow businesses with more than 100 employees to participate in these exchanges.

107. The first 30 employees are not counted in calculation of the penalty. Example: an employer with 75 employees would pay the penalty for 45 workers, or $90,000 (45* $2,000).

108. Applies to full-time employees (defined as at least 30 hours per week).

109. Employer Pay or Play Mandate for Employees Receiving Coverage through the Exchange - Employers who offer coverage, and has at least one employee that receives a tax credit, will be assessed a pay or play fine of $3,000 for each worker receiving the tax credit, up to an aggregate cap of $2,000 per full-time employee.

110. Employers are required to report to the federal government on health coverage they provide.

111. Employers can provide a voucher to eliminate penalty.

113. Employee household income is 400% of the Federal Poverty Level, and

114. The required contribution for employer-sponsored single coverage in the least expensive plan is between 8% and 9.8% of AGI and

115. The employee is a full time employee and

116. The employee opts out of your employer sponsored coverage and

118. Applies to retirees.

119. Employer plan participation will increase.

120. Healthcare Tax Credits

121. Premium tax credits will be available to individuals up to 400% of the Federal Poverty Level (FPL) through the “exchanges” for those not eligible/offered “affordable” employer coverage.

122. Employers are required to educate employees about their insurance options outside of employment

124. Generous subsidies are offered to the low income. For this reason employers may not want to duplicate these offerings with salary-based cost sharing.

126. Employers must provide notice of employee’s right to opt out of automatic enrollment.

128. Contact Information 2015 - 2018 Questions Comprehensive nature of this recently passed reform includes benefit re-design, increased administrative and compliance costs, eligibility rules restructuring, increased taxes and health insurance exchanges. Note: All provisions should be carefully reviewed with legal council, actuaries and plan design consultants.

130. Communicateto all HR ongoing processes which will be implemented to manage the healthcare reform provisions.

131. EducateHR about the healthcare reform legislation to reduce any mistakes that can lead to unwanted costs.

132. Provideongoing review and training to all HR for benefits improvements and the healthcare reform legislative updates.Whether you administer your benefits in house or utilize an outsourced vendor, here are suggestions regarding achieving success within your benefits department and administration:

133. Questions Questions

134. Thank You Secova, Inc. 5000 Birch Street Suite 300, East Tower Newport Beach, CA 92660 1.800.257.0011 www.secova.com Sarah Soss 714-384-0590 Sarah.soss@secova.com 2009 Secova, Inc. All Rights Reserved.