May 6 th, 2013 Jefferson Chamber Post-Election Health Care Reform Mapping a Strategy Consulting | U.S. Health & Benefits Proprietary & Confidential | April 2013

1 The Future of U.S. Health Care Coverage Health Insurance Exchanges with Reformed Rules Expanding/Improving Coverage Paying for Expanded Coverage Optional State Expansion of Medicaid Employer Mandate “Individual Mandate”—now a “Shared Responsibility Payment” Federal Subsidies To Buy Health Insurance In Exchanges Medicare/Medicaid Payment Changes Taxation of High-Cost Employer Health Care Coverage Increase in Other Taxes = Direct impact to employers = Indirect impact to employers = Direct and indirect impact to employers Increased Medicare Taxes on High- Income Individuals ACA Penalties on Employer 1 Supreme Court ruled states could decline to expand Medicaid eligibility without losing existing Medicaid funding 2 Supreme Court ruled “mandate” is a tax on not having health insurance

Major ACA Provisions—Fees  Direct Employer Fees –Patient Centered Outcomes Research Institute (PCORI) per member annual fee of $1 in 2012, $2 in 2013 –Transitional Reinsurance Fee -cover reinsurance programs in state exchanges $12B in 2014 $8B in 2015 $5B in 2016  Indirect Employer Impacts –Fees on pharmaceutical companies and medical device manufacturers, effective 2011 and –Fees on health insurers, effective 2014 Consulting | U.S. Health & Benefits Proprietary & Confidential | January 2013

ACA Timeline—2011 to Plan Year  Lifetime dollar limits on Essential Health Benefits (EHB) prohibited*  Preexisting Condition Exclusions Prohibited for Children under 19*  Overly restrictive annual dollar limits on EHB prohibited*  Extension of Adult Child Coverage to Age 26*  Prohibition on Rescissions*  No Cost Sharing and Coverage for Certain In-Network Preventive Health Services**  Effective Appeals Process**  Consumer/patient protections**  Nondiscrimination requirements on fully insured plans** (DELAYED)  Certain Retiree Medical Claims Reimbursable (ERRP)  Retiree Drug Plan FAS Liability Recognition  Over-the-Counter Medicines Not Reimbursable Under Health FSA, HRAs, or from HSAs Without a Prescription, Except Insulin  HSA Excise Tax Increase  Public Long-Term Care Option (CLASS Act) –No Longer Supported by HHS  Medicare Part D Discounts for Certain Drugs in “Donut Hole”  Employer Distribution of Summary of Benefits and Coverage to Participants*  Comparative Effectiveness Fee  Employer Quality of Care Report**  Medical Loss Ratio rebates (insured plans only)*  Employer Reporting of Health Coverage on Form W-2 (due January 31, 2013)  Notice to Inform Employees of Coverage Options in Exchange  Limit of Health Care FSA Contributions to $2,500 (Indexed)  Elimination of Deduction for Expenses Allocable to Retiree Drug Subsidy (RDS)  Medicare Tax on High Income  Addition of women’s preventive health requirements to No Cost Sharing and Coverage for Certain In-Network Preventive Health Services **  Individual Mandate to Purchase Insurance or Pay Penalty  State Insurance Exchanges  Employer Responsibility to Provide Affordable Minimum Essential Health Coverage***  Preexisting Conditions Exclusions Prohibited*  Annual Dollar Limits on EHB Prohibited*  Automatic Enrollment  Limit of 90-Day Waiting Period for Coverage*  Employer Reporting of Health Insurance Information to Government and Participants  Increased Cap on Rewards for Participation in Wellness Program**  Cost-sharing limits for all group health plans, not just HDHPs/HSA (deductibles and OOP maximum)**  Transitional reinsurance fees  Excise Tax on High-Cost Coverage *Denotes group/insurance market reforms applicable to all group health plans. **Denotes group/insurance market reforms not applicable to grandfathered health plans. *** This requirement applies to full time employees (e.g., 30 hours per week) and will require coverage that is affordable and satisfies a certain actuarial value to avoid the penalty. Guidance forthcoming. 3 Aon Hewitt | Health & Benefits Consulting Proprietary & Confidential | January 2013

State vs. Federal Exchange: A State-by-State Look Source: Kaiser Family Foundation 4 Consulting | U.S. Health & Benefits Proprietary & Confidential | January 2013

5 Compliance Issues—2013 and  Employer must determine FTEs to avoid ACA penalties for not offering health care coverage  Notice informing employees of coverage options in exchange  Limit health care FSA contributions to $2,500 (Indexed)  Elimination of deduction for expenses allocable to retiree drug subsidy (RDS)  Additional 0.9% Medicare tax on high income earners  3.8% Medicare tax on investment income of high income earners  Addition of women’s preventive health requirements of no cost sharing and coverage for certain in-network preventive health services  PCORI Fee ($2 PMPY) 2014  Employer must provide affordable health care coverage to FTEs or risk penalty  Individuals must buy health care or pay tax  State insurance exchanges begin  Preexisting condition exclusions prohibited  Annual dollar limits on EHB prohibited  Automatic enrollment (guidance delayed)  Maximum 90-Day Waiting Period for Coverage  Employer Reporting of Health Insurance Information to Government and Participants  Increased Cap on Rewards for Participation in Wellness Program  Cost-sharing limits for all group health plans, not just HDHPs/HSA (deductibles and OOP maximum)  PCORI Fee ($2 PMPY)  Transitional reinsurance fees ($63 PMPY) Consulting | U.S. Health & Benefits Proprietary & Confidential | January 2013

6 How the ACA Penalties Works Employer can be liable for either a “Doomsday Penalty” or a “Targeted Penalty”  “Doomsday Penalty” –Employer does not offer Minimum Essential Coverage to all FTEs (and their eligible dependents) and at least one FTE enrolls in an Exchange and receives a Federal subsidy NEW: “All FTEs” changed to “95% of FTEs” NEW: dependent coverage must be offered but does not have to meet affordability rules (dependent defined as children up to age 26, no spouses) –“Doomsday Penalty” applies $2,000 per year per each FTE (minus first 30 FTEs)  Regardless of whether the FTE elected employer-provided health care coverage NEW: penalty not assessed on Control Group, only on the offending subsidiary/entity Consulting | U.S. Health & Benefits Proprietary & Confidential | January 2013

Consulting | U.S. Health & Benefits Proprietary & Confidential 77 Determining Full Time Employees Under the ACA  Establish measurement period –Period of time over which employer tracks employee’s hours of service Cannot be less than three months or more than twelve months in duration –Initial measurement period for new employees will be based on each employee’s start date –Standard measurement period for ongoing employees will be a uniform period of time set by employer  Establish administrative period—optional (up to 90 days in duration) –Employer looks back at employee’s hours of service in measurement period Did employee work an average of 30 hours per week during measurement period?  If yes, then employee is a FTE  If no, then employee is not a FTE and employer has to keep tracking hours of service in next measurement period  Establish stability period –Period of time for which employer must offer coverage to FTE to avoid ACA penalties Stability period must be at least as long as measurement period, but not less than six months –If not an FTE in measurement period, stability period cannot exceed measurement period NEW*: Exception for transition measurement period in 2013 which can be as short as six months * Proposed regulations released 12/28/12

Consulting | U.S. Health & Benefits Proprietary & Confidential 88 Defining FTE Status of Ongoing Employees Measurement Period (MP)Administrative Period (AP)Stability Period (SP) 3 – 12 monthsUp to 90 days At least 6 months but no shorter than MP (exception allowed for transition)  Determines offer of health care coverage for stability period  Average hours worked  Buffer between MP and SP  Allows for measuring and enrolling full-timers  Eligibility period for employees averaging 30 hours or more during MP Sample Periods for January 1, 2014 Plan Year using transition relief Measurement Period: April 1 – September 30, 2013 (6 months) Administrative Period: October 1 – December 31, 2013 (90 days) Stability Period: January 1, 2014 – December 31, 2014 Measurement Period Considerations  Longer period reduces number of full-timers given high turnover  Shorter period provides more time to make workforce adjustments to mitigate cost Stability Period Considerations  Shorter period reduces coverage commitment but creates administrative complexity  Longer period that aligns with calendar years is most practical administratively

Consulting | U.S. Health & Benefits Proprietary & Confidential 99 Is a New Hire an FTE?  Is the New Hire Reasonably Expected to Work Full-Time at Start Date? –If a new hire is reasonably expected to work full-time, then the employer can avoid free rider penalty by offering coverage at or before FTE’s first 3 months of employment  Is the New Hire a Variable Hour Employee at Start Date? –Look at the “facts and circumstances” –A new employee is a variable hour employee if It cannot be determined that the employee is reasonably expected to work on average at least 30 hours/week or The initial period of 30 hours/week employment is reasonably expected to be of limited duration and it cannot be determined that the employee is reasonably expected to work on average at least 30 hours/week over the initial measurement period; e.g.:  Retail worker hired at more than 30 hours/week for the holiday season but who is reasonably expected to work fewer than 30 hours/week after the holiday season  Part-time worker hired for 20 hours per week but who could work more  Is the New Hire a Seasonal Employee? –Reasonable, good faith interpretation of the term “seasonal employee” through at least 2014

Consulting | U.S. Health & Benefits Proprietary & Confidential 10 Defining FTE Status of Newly Hired Employees New Variable Hour and Seasonal Employees Initial Measurement Period (IMP)Administrative Period (AP)Stability Period (SP) 3 – 12 monthsUp to 90 daysSame length as ongoing employees Considerations  IMP plus AP must not last beyond last day of 1 st calendar month following employee’s one-year anniversary –No more than 13 months plus a partial month  Transition to ongoing allows for extension of coverage for balance of overlapping ongoing stability period  Administrative capabilities/limitations will weigh heavily on length of MP/AP decision

Employer Penalty Issues  Who is a “full-time employee”? –Employee who works 30 hours or more per week, measured monthly –130 hours of service in a calendar month is treated as monthly equivalent of 30 hours of service per week  What is “unaffordable coverage?” –Employer plan is unaffordable if the FTE’s required contribution exceeds 9.5% of taxpayer’s household income for the taxable year Employer may calculate affordability using FTE’s W-2 wages (Box 1) NEW: Two additional safe harbors for affordability determination:  Lowest rate of pay  9.5% of Federal poverty line (about $90 per month for single coverage) –Affordability is based on cost of self-only coverage, even if employee elects family coverage  What is “minimum actuarial value?” –Plan must pay at least 60% of covered expenses –Guidance recently provided from IRS on minimum actuarial value 11 Consulting | U.S. Health & Benefits Proprietary & Confidential | January 2013

Consulting | U.S. Health & Benefits Proprietary & Confidential 12 Safe Harbor for New Hire—FTE in Initial Measurement Period  New hire on February 1, 2013 works 30 hours per week in initial measurement period and is entitled to health care coverage during initial stability period  Employer then tracks hours during standard measurement period to determine whether he is entitled to coverage in ongoing stability period Initial Measurement Period (IMP)* 2/1/2013 to 1/31/2014 *IMP must be between 3 and 12 months Admin Period* 2/1 to 2/ *IMP+ AP < 13 months Initial Stability Period (ISP)* 3/1/2014 to 2/28/2015 *must be same duration as for ongoing employees Standard Measurement Period 10/15/2013 to 10/14/2014 (overlaps with ISP) Admin Period 10/15 to 12/ Stability Period (1/1/15 to 12/31/15) If FTE in SMP, FTE is entitled to coverage for this stability period Stability Period (1/1/15 to 12/31/15) If not FTE in SMP, then continue coverage for ISP, but no coverage for Stability Period

Consulting | U.S. Health & Benefits Proprietary & Confidential 13 Safe Harbor for New Hire—Not an FTE in Initial Measurement Period  New hire on February 1, 2013 does not work 30 hours per week in initial measurement period and is not entitled to health care coverage during initial stability period  Employer then tracks hours during standard measurement period to determine whether he is entitled to coverage in ongoing stability period Initial Measurement Period 2/1/2013 to 1/31/2014 Does not work 30 hrs/wk Admin Period for IMP 2/1 to 2/ Initial Stability Period (ISP) 3/1/2014 to 2/28/2015 Not FTE no coverage—but see below* Standard Measurement Period (SMP) 10/15/2013 to 10/14/2014 (overlaps ISP) Admin Period for SMP 10/15 to 12/ Stability Period (1/1 to 12/31/2015) *If FTE in SMP, FTE is entitled to coverage for this stability period Stability Period (1/1 to 12/31/2015) No coverage for ISP; if not FTE in SMP, no coverage in Stability Period

Consulting | U.S. Health & Benefits Proprietary & Confidential 14 Other FTE Determination Rules  Employers may vary Measurement Periods and Stability Periods for following categories of employees –Union and Non-Union –Salaried and Non-Salaried –Employees of different entities –Employees located in different states Employer is not required to offer coverage to any particular employee or class of employees, including part-time employees –However, an otherwise eligible employee (or dependent) cannot be required to wait more than 90 days before coverage becomes effective  Eligibility conditions based solely on the lapse of time cannot be longer than 90 days –the employer cannot impose a waiting period that conditions enrollment on the first day of the month after completing 90 days  Employer may condition eligibility on an employee regularly working a specified number of hours per period (or working full time) –the employer may take a reasonable period of time to determine whether the employee meets the plan’s eligibility condition

What is an Exchange? An exchange is a competitive marketplace that consists of suppliers and buyers Exchange Expedia Amazon iTunes Consulting | U.S. Health & Benefits Proprietary & Confidential | January 2013

How Corporate Exchanges Work 16 Consulting | U.S. Health & Benefits Proprietary & Confidential | January 2013

Aon Hewitt | Health & Benefits Proprietary & Confidential | Plan Design Highlights 17 BronzeBronze PlusSilverGoldPlatinum Medical Plan Design INN Deductible (single/family) $2,750 / $5,500$2,000 / $4,000$1,500 / $3,000$600 / $1,200None INN Coinsurance20% 10%0% INN OOP max (inc ded)$5,950 / $11,900$5,000 / $10,000$3,750 / $7,500$3,000 / $6,000$1,500 / $3,000 Hospital Inpatient Per Admission 20% 2010%$250 Copayment Primary Care / Specialist20% $20 / $35 Copayment $20 / $35 Copayment Emergency Room20% 10%$100 Copayment Rx Plan Design Deductible & OOP Maximum Included w/ medical N/A Retail Generic20% $5 Copay$4 Copay Retail Brand Formulary20% 20% (up to $50 maximum) $20 Copay Retail Brand Non- Formulary 20% 40% (up to $100 maximum) $40 Copay Actuarial Value66%71%75%81%92%

Which Path to Take? Health Improvement Consumerism Consulting | U.S. Health & Benefits Proprietary & Confidential | January 2013

19 Still About An Evolving Health Care System US Health Care System Health PlansInsuredsExchanges Government programs EmployersTechnologyProviders Individual Solutions System Overload More Strategic Options Expanded Coverage New Normal Broad Adoption Rapid Consolidation Consulting | U.S. Health & Benefits Proprietary & Confidential | January 2013

Speakers Denny Ebersole O: C: Consulting | U.S. Health & Benefits Proprietary & Confidential 20