CEBS Meeting Discussion Outline

1. Prepared by Gallagher Benefit Services. CEBS MeetingDiscussion Outline February 17, 2011

2. The Elephant in the Room

3. Topics - 2011 • Health Care Reform • Coverage of Adult Children • Preventive Care Services • Coverage of OTC Drugs under “Prescription Programs” • Disclosure Rules for Mini-Meds • W-2 Reporting • HIPAA Regulations for Wellness • Early Retiree Reinsurance Program • Mental Health Parity and Addiction Equity Act • Round Table Discussion

4. Overview of Guidance Issued Since May 2010 Agency guidance • Guidance issued in 21 areas of Title I of PPACA • 36 discrete agency (DOL, HHS, IRS) publications • Proposed or interim final regulations; notices; facts sheets, FAQs, etc • Guidance anticipated in 8 areas of Title I of PPACA • And yet, the answer to so many questions remains: we are waiting for guidance

5. OTC drug reimbursements • HSA penalties • W-2 Reporting (voluntary) • Employee notification requirements HCR: Timeline of Key Employer Changes • Early retire reinsurance • High-risk pools • FSA limits • Medicare tax • Part D drug subsidy eliminated • Employer and individual mandates • Insurance exchanges • Patient protections • “Cadillac” excise tax (2018) • Coverage expansion mandates • Patient protections

6. Health Care Reform and Renewals after 9/23/10 • For non-grandfathered plans, the following required changes are effective on the first date of the plan following September 23, 2010: • Provide coverage to all children up to age 26 • Eliminate lifetime maximums on essential benefits • Eliminate pre-existing conditions limitations for children under the age of 19 • Offer preventive coverage in-network without cost sharing • Provide emergency room services without pre-authorization and with the same benefit in and out of network • No pre-authorization or referral for OB-GYN • Allow designation of any available provider as PCP • Include new appeal procedures • For fully-insured plans: compliance with the nondiscrimination tests detailed in IRC Section 105 (h) (delayed until further guidance comes out)

7. Changes that Negate Grandfather Status • The following adjustments will cause the plan to lose its grandfathered status: • Reduce or eliminate coverage for a specific health condition or disease • Increase the participant coinsurance level (e.g., increase from 20% to 30%) • Increase copays by more than the greater of: • $5, or • Medical inflation plus 15 percentage points • Increase deductibles by more than the cost of medical inflation plus 15 percentage points • Reduce the amount of employer subsidy of the health plan by more than 5% • Add or reduce an annual limit on any service in the plan • For fully-insured plans, change insurance carriers but only during the period after March 23, 2010 but prior to November 15, 2010

8. HCR: Adult Children • Effective date: for plan years that begin/began on or after September 23, 2010 • Who may be eligible (depending on plan definitions): • Biological children • Stepchildren • Adopted children • Foster children • Grandchildren or other related children only have to be covered if there is a dependent relationship • Spouses and dependent children of adult children do not have to be covered • Open Enrollment Notification: • HCR reform requires a 30 day special enrollment period for “aged out” dependents • Employees must be notified in writing no later than the first day of the plan year for which the change is effective

9. HCR: Adult Children • Cost: • The plan cannot charge more for an older child than a younger child, but it is permissible to increase the costs for all children • Taxation: • The federal government has amended the tax code to allow favorable tax status to non-dependent adult children covered by the medical plan • However, each state is permitted to do otherwise • New York, New Jersey and Connecticut all follow federal guidelines

10. HCR: Adult Children: Differences in Plan Status • Grandfathered Plans: • Adult children must be offered coverage up to age 26, but only if they are not eligible for an employer provided plan through their own employment, or through a spouse’s employment • Non-Grandfathered Plans: • All adult children must be offered coverage up to age 26, even if they are eligible for an employer provided plan through their own employment, or through a spouse’s employment • Just an aside – many carriers are opting to cover all adult children up to age 26 regardless of plan status

11. HCR: Preventive Care • Grandfathered Plans: there are no mandates on how, or if, preventive care is covered • Non-grandfathered Plans: • The list of mandates includes all the expected services, such as physicals, immunizations, blood pressure and cholesterol screenings in accordance with the standard age guidelines • But, it includes services that may not immediately come to mind: • For adults: • Screening and counseling for alcohol abuse and tobacco use • Aspirin therapy for men age 45 and older and women age 55 and older • Obesity screening and diet counseling • STD screenings, prevention counseling • For women only: • Breast feeding inventions and support • Folic acid for pregnant women • Breast cancer chemoprevention

12. HCR: Preventive Care • Non-grandfathered Plans: (cont’d) • For children: • Alcohol and drug abuse assessments • Autism screening for children at 18 and 24 months • Behavior assessments • Iron supplements for at risk infants • Fluoride supplements for areas without fluoridated water • STI and HIV screenings and prevention counseling • Complete guidelines are available from: • The US Preventive Services Task Force recommendations with a rating of A or B • Advisory Committee on Immunization Practices of the Centers for Disease Control • Recommendations from the Health Resources and Services Administration

13. HCR: Preventive Care (cont’d) • Other provisions: • Whether cost sharing provisions are imposed on an office visit depends on how the bill is submitted – any visit that is billed as primarily prevention may not have a cost share • If new services are added to the recommendations list those services must be covered with the next effective date • But if a recommendation is dropped, the plan no longer has to cover that service from the date of the change

14. HCR: Over-the-Counter Drugs • In the recent past, over-the-counter drugs could be covered by a flexible spending account • Effective January 1, 2011, OTC drugs will only be reimbursed under a FSA (and HRA) if the medical provider has written a prescription • However other OTC items will be covered without a script including diagnostic kits, equipment, or supplies • Insulin may also be covered without a prescription • When submitting an after the fact claim to the FSA or HRA, a copy of the store receipt and prescription is needed to substantiate the purchase • However, many FSA and HRA plans had moved to debit cards

15. HCR: Over-the-Counter Drugs • In order for a purchase to be made with a debit card, certain requirements have to be met: • A script has be presented prior to purchase and the drug dispensed by the pharmacist in accordance to the applicable regulations and a rx number is assigned • The vendor must comply with IRS recordkeeping rules which requires the rx number, name of patient/purchaser, date, and amount paid • The records are available upon request by the employer • The card system will only accept an OTC drug charge if there is an assigned rx number • The IRS has also limited where debit cards can be used • Cards must be used at “90 percent pharmacies” where 90% of gross receipts qualify for reimbursement under IRS Code 213(d), grocery stores with pharmacies, mail order houses that follow this procedure and organizations with a merchant code (e.g., hospital)

16. HCR: Lifetime Maximums & Mini-Med Plans • HCR eliminated lifetime maximums for all “essential benefits”: • Ambulatory patient services • Emergency services • Hospitalizations • Maternity and newborn care • Mental health and substance treatment • Prescription drugs • Rehabilitative services and devices • Laboratory services • Preventive and wellness services • Pediatric services including oral and vision care • Lifetime maximums may still be maintained for non-essential benefits

17. HCR: Lifetime Maximums & Mini-Med Plans (cont’d) • Mini-med plans are generally low premium plans that provide a limited benefit – often more focused on wellness/prevention than major illness coverage • The lifetime maximum is generally far lower than the average plan • Plan sponsors may apply for a waiver of the lifetime maximum if the cost of the coverage would increase significantly or if the elimination of the plan would result in decreased access • The application must be filed at least 30 days in advance of the plan year • If a waiver is granted, it only applies to the annual maximum – all other provisions of HCR apply

18. HCR: Lifetime Maximums & Mini-Med Plans (cont’d) • Further, if the waiver is granted a detailed notification must be provided to all current and eligible plan participants that includes: • A statement that the plan does not meet HCR lifetime minimum annual amounts limits for essential benefits • The actual annual dollar limit and a description of the benefits to which the limit applies • A statement that the waiver is only for one year • The notice must be in 14 point bold type • The notice must be included in any educational materials, including SPDs or certificates of insurance and prominently displayed

19. W-2 Disclosure Initially, this was a requirement for calendar year 2011, but now has been made optional; it will be required for calendar year 2012 The amount is not included in the employee’s gross income In light of limited guidance available, the cost is based on the same methodology as the current COBRA premium

20. HIPAA Regulations for Wellness • Under the final HIPAA regulations, there was clarification around “wellness” programs • Wellness programs are meant to promote overall good health or to prevent the onset of disease • Under HIPAA, plan sponsors are permitted to provide a reward for the desired behavior up to 20% of the premium the individual is enrolled in • If any of the dependents are enrolled in the program, the 20% is of the total premium the family is enrolled • However, the government has rules for a “bona fide” wellness program: • The reward must be reasonable for all participants to take advantage of • An alternative must be provided if the initial standard presents difficulties for some of the participants to meet • Any program requirements (including the alternate means of meeting the rewards’ standard) must be described

21. HIPAA Regulations for Wellness (cont’d) • Beginning in 2014, HCR increases the potential reward from 20% to 30% and it may potentially rise if certain government agencies find value in wellness programs • Employers with less than 100 employees will be eligible to receive grants for comprehensive wellness programs • $200 billion is available under a five year program • However, there is some concern about how the wellness programs will meet the requirements of the Americans with Disabilities Act • Under the Act, any medical examinations, activities, medical history taking, etc. must be voluntary unless the information is intrinsic to performing the position • As the percentage reward increases, as well as the cost of health care, how does one define “voluntary”

22. Early Retiree Reinsurance Program (ERRP) ERRP is another means of encouraging access to health insurance until 2014 provides government plans The program has been allocated with $5 billion The program began in 2010 and will run until the money runs out Any plan sponsor that a plan covers early retirees between the ages of 55 to 64 (e.g., not Medicare eligible) may apply for reimbursement of large claims The reimbursement is equal to 80% of claim dollars between $15,000 and $90,000 In order to be eligible the plan must include a program that generates savings for participants with chronic and high cost conditions, AND, the monies must be used to reduce plan or participant costs (e.g., deductibles, copays, coinsurance

23. ERRP (cont’d) • The application requests specific information, including: • Disease management programs • Projected reimbursements for the next two plan years • A statement that the plan has policies and procedures in place to detect fraud and waste • HHS started accepting applications on June 29, 2010 and will continue to accept them until it is apparent that the funding has run out • The approval notification process began on August 31st, 2010 • Once approved the designated account manager and account representative will receive an e-mail providing instructions to register on-line • The on-line process will allow plan sponsors to submit participant and claim data, track submissions and reimbursements

24. ERRP (cont’d) Participants must be notified that the plan is participating in the program, no later than after the first reimbursement The notice may be provided in any way, including inclusion in the educational materials, desk drop, mail, etc., that the plan sponsor is assured of delivery The notice must include general information about how the funds will be utilized to offset future increase Additional information is available at www.errp.gov

25. Mental Health Parity and Addiction Equity Act The original Mental Health Parity Act of 1996 was signed into law under President Bill Clinton and it eliminated dollar amount limits for these benefits Most plan sponsors then modified their programs to day/visit limits that generally equated to the dollar amounts Many advocates felt the law did not fully accomplish the hoped for change in attitude and coverage

26. Mental Health Parity and Addiction Equity Act The 2008 law, officially known as the, Mental Health Parity and Addiction Equity Act, (MHPAEA) expanded coverage to include substance abuse benefits as well as mental health benefits The law became effective for plan years effective 1/1/10, however, interim regulations were not issued until 2/2/10, thus forcing plan sponsors to re-think changes made for 1/1/10 The regulations state that the employee cost sharing provisions for MH/SA must be substantially equal to the predominant limits that apply to medical/surgical benefits under the plan

27. Mental Health Parity and Addiction Equity Act (cont’d) • Each category of benefits must be looked at separately to determine parity: • Inpatient, in-network • Inpatient, out-of-network • Outpatient, in-network • Outpatient, out-of-network • Emergency care • Prescription drugs • To determine the minimum level of coverage, a plan sponsor must calculate the medical/surgical cost sharing in each category • The cost sharing for MH/SA services must be equal to the cost sharing provisions of 2/3rds of the medical/surgical benefits • Additionally, the same protocols must be followed; thus certain common requirements are likely not to be permitted: • Requiring care through an EAP or other managed care vendor • Prior authorization for care • Step therapy • Exclusions for non-compliance

28. Mental Health Parity and Addiction Equity Act (cont’d) • Plan sponsors must also provide information regarding the standards used for the determination of medical necessity, if requested by the participant • Also, the standard ERISA claim denial information applies: • The reason for denial, including references to the materials utilized • A description of the appeals process • Access to any documents that the decision is based on • The name of the medical providers who were consulted in the process • There are a few plans that are exempt: • Employers with no more than 50 employees in the prior year • Plans which actuarial attest that the cost of implementing the changes will result in a percentage increase of 2% or more • Self-funded non-federal governmental plans that opt out

29. Mental Health Parity and Addiction Equity Act (cont’d) • Many states have mandated mental health and substance abuse benefits; any mandated benefit will trigger full parity • Thus, fully-insured plans will have less flexibility than self-insured plans

30. Discussion/Horror Stories/Tales of Good Health Insurance Gone Bad