HEALTH CARE REFORM Steady guidance for the path ahead. Steve Peebles Staff VP, National Accounts

What does it all mean? For plan designs For cost For employees It’s been more than two years since the Affordable Care Act was enacted, and collectively, the industry is still not sure. We’re still awaiting guidance from the federal and state governments on some 1,200 “undetermined” items. A lot of the questions I hear focus on what is coming up through 2013 and preparing for 2014. For large employers, there are a number of changes, and to simplify I’ve grouped them by three categories: Changes that impact plan design changes that impact cost in terms of taxes and fees Changes that impact how employers offer coverage to employees and things they need to communicate to employees   Let’s begin with the biggest change for 2014 – the requirement to offer coverage or pay a penalty

The Employer Mandate PLAY: Companies with 50 or more full-time employees will be required to offer affordable, minimum coverage. OR PAY: $2,000 penalty per employee (after the first 30) if any employee buys subsidized coverage through an exchange because minimum coverage wasn’t offered. $2,000 penalty per employee (after the first 30)—or $3,000 per subsidized employee, whichever is less—if coverage isn’t considered affordable.* Which brings us to the Employer Mandate, also known as the “Pay or Play” rule. Employers who have 50 or more full-time employees will be required to offer affordable, minimum coverage to their employees.   If they don’t, and at least one of those employees gets subsidized coverage from an exchange, the employer will pay a $2,000 penalty for each employee (after the first 30), regardless of how many are getting subsidized coverage. If that’s confusing, here’s an example. Let’s say an employer has 60 full-time employees. If just one of those employees gets subsidized coverage through an exchange, the employer pays a penalty of $2,000 times 30 employees, or $60,000. Now, let’s say the employer does offer coverage, but it’s not considered affordable for an employee—in other words, the premium exceeds 9.5 percent of their income. If that employee gets subsidized coverage through an exchange, the employer will either pay the $2,000-per-employee penalty (over the first 30, just like above), OR $3,000 for each employee who is getting subsidized coverage, whichever is less. Keep in mind that the employer mandate does not require employers to contribute to the premium (although not doing so would probably make the plan “unaffordable,” thus putting the employer at risk for penalties). Also, it does not require the employers to offer dependent coverage. And again, it only applies to companies with over 50 full-time employees. *Currently, “affordable” is defined as not exceeding more than 9.5% of an employee’s income.

Plan design impacts Remove dollar maximums from essential health benefits Meet minimum coverage requirement: 60% actuarial value Over the past few years many of the health care reform provisions have focused on plan design changes, such as covering preventive care at 100%, removing lifetime and annual maximums and removing dollar limits from “essential health benefits.” There are a few key plan design impacts that go into effect for 2014: Removing dollar maximums from essential health benefits – although this step was already taken in 2010 for many benefits that fell under the high-level list that was included in the ACA, there will now be more specific guidance on what is considered “essential health benefits” based on each state’s selection of an essential health benefit package for the exchanges. While large groups do not have to cover everything included in the essential health benefit package, they do have to remove annual and lifetime dollar maximums on the benefits they do offer that are included in the “essential health benefit” package – NEED TO MAKE SURE THIS IS CORRECT Minimum coverage: Plan coverage must provide minimum value (MV) by covering at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan HHS/IRS will provide an MV calculator, similar to the AV calculator, to be used to determine whether the plan provides minimum value Plan must be affordable, defined as an employee-only plan premium less than 9.5% of employee’s household income (may look only at employee’s income from employer) Three safe harbors Calculation of “affordability” based on employee’s household income Employee Form W-2 safe harbor Rate of Pay safe harbor Federal Poverty Level safe harbor Coverage for routine patient costs for people who are in clinical trials – can no longer exclude health coverage if a person is in a clinical trial, applies to non-grandfathered plans Coverage for routine patient costs for people in clinical trials* * Applies to non-grandfathered plans

Reform-related taxes and fees WHAT WHEN WHO PAYS HOW MUCH Comparative Effectiveness Research Fee (CER) Plan/policy years ending 10/1/12 Insurers of fully insured plans; sponsors/administrators of self-insured plans $1 per person per year; adjusted for subsequent years Reinsurance Assessment 1/1/2014 Insurers of fully-insured plans; sponsors/administrators of $5.25 per participant per month Insurer fees Tax year beginning 1/1/2014 Insurers of fully-insured plans Based on percentage of premiums written High-cost insurance tax Tax year beginning 1/1/2018 Insurers of fully-insured plans; sponsors/administrators of self-insured plans 40% on plan costs exceeding “Cadillac” thresholds Depending on whether they have fully insured coverage or self-insured, employers may be responsible for several reform-related taxes and fees.   Like the Comparative Effectiveness Research Fee, which helps fund the Patient-Centered Outcomes Research Trust Fund, established by the Patient-Centered Outcomes Research Institute. Anthem will pay this fee for our fully insured customers and will include it in the total renewal amount. We will not pay the fee for our ASO customers, since they often have multiple carriers. Then there’s the Reinsurance Assessment, which will be collected from employers—both fully insured and self-insured—and will be administered by the exchange. This assessment is to help stabilize premiums for coverage in the individual market and lower the effects of adverse selection. Anthem will pay these contributions on behalf of our fully insured groups beginning January 1, 2014. For ASO customers, Anthem will collect these contributions. For 2014 the fee is $5.25 per participant per month. The Insurer fee is assessed to issuers of fully-insured plans only. In an Oliver Wyman study commissioned by AHIP, analysis estimates that the insurer fee will increase the cost of fully insured coverage by an average of 1.9 percent to 2.3 percent in 2014, further increasing over time so that by 2023, fees will ultimately increase costs on coverage by at least 2.8%, and possibly as much as 3.7%. This implies an increased cost of fully insured coverage by several thousand dollars over a 10-year period, beginning in 2014. And there’s the high-cost insurance tax—otherwise known as the “Cadillac Plan” tax, which is assessed on the issuer of fully insured plans and on the sponsor or administrator of self-insured plans. It will apply to any plan that costs the employer more than $10,200 for single coverage or $27,500 for family coverage, including worker and employer contributions to flexible spending or health savings accounts. The cost does not include stand-alone vision or dental benefits. For retirees and workers in high-risk professions, such as firefighters and longshoremen, the bill is anticipated to set higher thresholds -- $11,850 for an individual plan and $30,950 for a family plan.

Employee coverage impacts There are a few new requirements for who employers cover and what employers need to communicate to employees coverage must be offered to those who work 30 hours or more Also, group health plans cannot require waiting periods for coverage of more than 90 days, and they cannot have waiting periods for covering pre-existing conditions you’ll need to notify employees about the exchanges, though the timing for this has been delayed from the original date in March 2013 until a later date that has not been announced yet Although there originally was a requirement to auto-enroll employees for 2014 plan years, that requirement has been delayed and the new implementation date has not been announced. Coverage for those working 30+ hours Coverage waiting period <91 days No pre-existing waiting periods Notify employees about exchanges* Auto-enrollment delayed* * timing TBD

Questions? For more information, visit anthem.com/HealthCareReform