Benefits Administration Update Tennessee Association of School Business Officials November 14, 2013

Today’s Discussion Working for a Healthier Tennessee New 2014 Plan Option Health Care Reform Compliance Going Forward Questions & Answers 2

Working for a Healthier Tennessee  Companion to the Governor’s wellness initiative, Healthier Tennessee  Focuses on improving health of our plan members  Three key areas: Physical activity Healthy eating Tobacco cessation  Have asked each school district to choose a Site Champion 3

Working for a Healthier Tennessee All but three School Systems have Site Champions Site Champions:  Participate in monthly Site Champion conference calls  Promote wellness activities in your organization  Serve as screening site coordinator (if applicable) for the Partnership Promise Site Champions on Social Media Twitter: Facebook: Flickr: YouTube: SchoolTube:  Weakley and Fentress County have set up their own “Working” websites 4

LEA 2014 Affordable Coverage 2012 Affordability Survey A small number also did not comply for instructional staff  Requests from Fiscal Directors and others at LEAs to offer a lower cost option Limited PPO Option  Limited PPO priced ~64% of the Partnership PPO –$195/month less for employee-only coverage in 2014  Lower cost plan option results in coverage being deemed affordable for more employees  To receive the insurance component of the BEP funding, LEAs can offer a lower cost option of the same or better value as the Limited PPO; however, must also offer plan option of same or better value as the Partnership PPO  Fewer than 2,000 LEA heads of contract enrolled in this option 5

6 Current Plan Values PlanActuarial ValueMetal Level Limited76%Silver Standard79%Silver/Gold Partnership84%Gold

Affordable Care Act—Compliance Timeline 2011 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”  Distribution of Summary of Benefits and Coverage to Participants (Ongoing)  PCORI (Comparative Effectiveness) Fee  Quality of Care Report (delayed)  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)  Addition of women’s preventive health requirements to No Cost Sharing and Coverage for Certain In-Network Preventive Health Services  Elimination of Deduction for Expenses Allocable to Retiree Drug Subsidy (RDS)  Medicare Tax on High Income  Individual Mandate to Purchase Insurance or Pay Penalty  State Insurance Exchanges  Employer Responsibility to Provide Affordable Minimum Essential Health Coverage***(DELAYED)  Preexisting Conditions Exclusions Prohibited  Annual Dollar Limits on EHB Prohibited  Automatic Enrollment (DELAYED)  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)  Coverage of routine patient costs for participants in approved clinical trials  Transitional reinsurance contributions  Excise Tax on High-Cost Coverage *** 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. LEA Responsibility noted in RED above 7

Compliance to Date ( ) Plan updates: Women’s preventive services Extension of adult child coverage to age % coverage for preventive services Elimination of pre-ex for children Mental health parity Summary of Benefits & Coverage Final appeals with Independent Review Organizations Patient Centered Outcomes Research Institute (PCORI) fee Benefits Administration Responsibility Marketplace exchange notification Notify all employees about Exchanges by 10/1/13 Beginning 10/1/13, notify new hires within 14 days of start date Sample letter provided to LEA’s W2 reporting of the value of coverage Local Education Agency Responsibility 8

Compliance for 2014—Group Market Insurance Reforms No annual dollar limits on essential health benefits Preexisting condition exclusions prohibited Transitional Reinsurance Fee; $63 PMPY; Included in premium Limit of 90-Day Waiting Period for Coverage Increased Cap on Rewards for Participation in Wellness Program Cost-sharing limits for all group health plans (deductibles and OOP maximum) Benefits Administration Responsibility Maximum 90-day waiting period for coverage Increased Cap on Rewards for Participation in Wellness Program Local Education Agency Responsibility 9 Individual Mandate Individuals must buy health insurance or pay shared responsibility tax

Delayed Items or Awaiting Additional Guidance Quality of Care reporting Employer reporting of Health Insurance Information 2018 – Cadillac Tax Benefits Administration Responsibility Employer Mandate: Employers with 50 or more “full time employees” must offer “affordable health coverage” that provides a “minimum actuarial value” and “minimum essential coverage” to at least 95% of their full- time employees and their eligible dependents, or else face a penalty Automatic enrollment of new full-time employees for employers with more than 200 employees Employer Reporting of Health Insurance Information Local Education Agency Responsibility 10

Employer Mandate Penalties (Delayed to 1/1/2015)  “No Coverage Penalty” –For each month on and after January 1, 2015: 1.Employer does not offer coverage to at least 95% of its full-time employees (FTEs) and eligible dependents and 2.At least one full-time employee enrolls in Exchange and receives Federal subsidy –Penalty = $2,000 per year multiplied by all FTEs of the employer (minus the first 30) OR  “Inadequate Coverage Penalty” –For each month on and after January 1, 2015: 1.Employer offers coverage to at least 95% of its FTEs (and eligible dependents) but coverage is either: a.“Unaffordable” or b.Does not provide “minimum actuarial value” –Penalty = lesser of $3,000 for each full-time employee who enrolls in the Exchange and receives a premium tax credit or cost-sharing reduction, or $2,000 for each full- time employee, excluding the first 30 full-time employees.$3,000 per year per for each FTE who enrolls in an Exchange and receives a Federal subsidy Local Education Agencies are potentially liable for either 11

Employer Mandate and Eligibility for Exchange Subsidies  Individual is not eligible for a subsidy from an Exchange if individual has been offered affordable health care coverage of minimum value from an employer –Employer must offer dependent coverage (but not spousal coverage) to avoid penalty  What happens if an employed individual is offered “affordable” employee-only coverage, but family coverage is “unaffordable”? –Employee and family will not be eligible for subsidy in the exchange If spousal coverage is not offered, spouse can purchase coverage in exchange and receive subsidy If spouse is offered coverage, even if spousal coverage is not affordable, spouse is not entitled to subsidy in Exchange, as long as employee-only coverage is affordable and minimum value 12

Hours of Service  Determining an employee’s hours of service –An employee’s hours of service include: Each hour for which employee is paid, or entitled to payment, for the performance of duties for employer; and Each hour for which employee is paid, entitled to payment by employer even if no work is performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence Workers’ compensation—Employer should discuss with legal counsel before making a final determination on whether or not to credit an employee with hours of service for workers’ compensation time  Under the proposed rules, if an employee is being paid from the employer’s workers’ compensation plan maintained pursuant to state law on account of a period of time during which the employee performed no duties for the employer, the employer may not be required to credit the employee with any hours of service All periods of paid leave (e.g., maternity or paternity leave) are considered hours of service  Where a traditional academic year break (e.g., winter, spring, or summer break) is a period of paid leave, employees will be required to be credited with hours of service All hours of service performed for all entities treated as a single employer under the controlled group and affiliated service group rules of the Internal Revenue Code 13

Variable Hour and Seasonal Employees “Look-back” Measurement Period  Period 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 – based on each employee’s hire date But does not have to begin on employee’s hire date –Standard measurement period for ongoing employees – uniform period set by employer Administrative Period  Calculations, communications, enrollment  Optional (up to 90 days in duration) –Begins immediately after end of standard measurement period –Ends immediately before associated stability period Stability Period –Period for which employer must offer health care coverage to Full-Time Employee to avoid No Coverage Penalty or Inadequate Coverage Penalty –Stability period must be at least as long as measurement period, but not less than six months 14

Defining Full-Time Employee 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  Determines offer of health care coverage for stability period  Average hours worked  Determine whether an ongoing employee is a Full-Time Employee  Buffer between MP and SP  Allows for measuring and enrolling full-timers  Eligibility period for employees averaging 30 hours or more during MP Measurement Period Considerations  Longer period may reduce number of FTEs due to turnover Stability Period Considerations  Shorter period reduces coverage commitment but creates administrative complexity  Longer period that aligns with calendar years is most practical administratively 15

Determining Full-Time Employees Under ACA  New Non-Variable Hour Employee –If employee is reasonably expected to be a Full-Time Employee upon hire, the employer must offer group health plan coverage before the expiration of the employee’s initial three (3) full calendar months of employment or will be at risk for a shared responsibility payment New Employees 16

Determining Full-Time Employees Under ACA  Is a New Hire a Variable-Hour Employee at Start Date? –Look at the “facts and circumstances” at the employee’s start date –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 of service/week or 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.:  Part-time worker hired for 20 hours per week but who could work more  Substitute teacher whose hours may vary greatly from week to week, but may average over 30 hours per week.  Is a New Hire a Seasonal Employee? –Reasonable, good faith interpretation of the term “seasonal employee” through at least 2014 New Variable-Hour and New Seasonal Employees 17

Look-Back Measurement Method  Other Special Issues and Rules –Employees Rehired After Termination of Employment or Resuming Service After Other Absence Employment Break Periods of Educational Organizations—when calculating hours of service for continuing employees (not employees treated as terminated and rehired) during a measurement period that includes an Employment Break Period, educational organizations can use one of two methods for averaging hours:  Employment Break Period (EBP): a period of at least four (4) consecutive weeks (disregarding special unpaid leave) during which an employee of an educational organization is not credited with hours of service  Option 1—determine the average hours of service per week for the employee during the measurement period excluding the EBP and use that average as the average for the entire measurement period; or  Option 2—treat employees as credited with hours of service for EBPs at a rate equal to the average weekly rate at which the employee was credited with hours of service during the weeks in the measurement period that are not an EBP These methods of averaging hours for EBPs apply only to employees treated as continuing employees and NOT to employees treated as terminated and rehired Educational organizations are not required to exclude (Option 1) or credit (Option 2) an employee in any calendar year with more than 501 hours of service for any EBP (although the 501-hour limit does not apply to, or take into account, hours of service required to be credited for Special Unpaid Leave) 18

19 Preparing for the Future  Continue to evolve the Partnership Promise and Wellness Program effectiveness –Track clinical improvement over time  Next steps in Value Based Insurance Design –Focus on quality, evidence based care  Increased price/quality transparency –Provide members tools to be better consumers  Payment reform initiative Questions?

Appendix 20

The ACA Penalties—Definitions  Who is an “applicable large employer”? –Employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year  Who is an “employee”? –IRS will define employee based on IRS’s “common law” test  Who is a “full-time employee”? –Employed on average at least 30 hours of service per week, measured monthly –130 hours of service in a calendar month is treated as monthly equivalent of 30 hours of service per week –Special rule for schools – any employee expected to work 30 hours or more for 9 months during the school year should be considered a full-time employee.  What is “minimum essential coverage”? –An employer group health plan qualifies as minimum essential coverage for purposes of the shared responsibility payment. Note “minimum essential coverage” is different than “essential health benefits.”  What is “unaffordable coverage?” –FTE’s required contribution exceeds 9.5% of taxpayer’s household income for the taxable year –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 –State plans exceed this threshold 21