Church Pension GroupInfo SessionChurch Pension GroupInfo Session

Frank Armstrong, Chief Actuary

September 21, 2013House of Bishops Fall Meeting

2

Contents

Denominational Health Plan Status Update

Affordable Care Act (ACA): Healthcare Reform and the Emerging Marketplace

Appendices

• Appendix A: 2014 Pricing Bands by Diocese

• Appendix B: Emerging Healthcare Marketplace

• Appendix C: ACA Provisions – 2010 through 2013

• Appendix D: ACA Provisions – 2014 and Beyond

Denominational Health Plan Status Update

3

4

DHP participation is well underway

100% of domestic Dioceses participating by January 1, 2014

45 additional groups currently participating

Individual participation estimated at 95%

• DHP currently serving 25,700 members 1

1 Includes active clergy, lay employees and their covered dependents

DHP is delivering expected cost containment

5

DHP feasibility study estimated 10% cost containment savings at full implementation of the DHP

To date, the DHP has delivered approximately 11% cost containment savings to the church – $60 million since 2009

Plan Year

DHP Feasibility Study Projected

Savings (%)Actual DHP Savings (%)

2011 10.0% 8.3%

2012 10.0% 10.4%

2013 10.0% 13.3%

Three-Year Cumulative 10.0% 10.8%

6

DHP is helping to moderate cost increases

Note: National trend figures based on Aon Hewitt trend study and represent increases prior to plan design changes

Since 2009, Medical Trust average rate increases have been 2% - 4% below national trend levels

DHP is addressing cost disparities1

7

Eliminated pricing bands 7 through 13 over the past three years

82 dioceses at or within one band of national rate for 2014

• 51 dioceses positioned at band 5 (up from 13 at 2012)

1 See Appendix A for list of dioceses and pricing band position effective January 1, 2014

89% of each Medical Trust dollar goes to benefits and an additional percent to member surplus1

81 Materially above ACA regulated minimum requirement of 85% for large groups and 80% for small groups

Making strides on health and wellness

Robust participation in Wellness Summits

• 14 Summits over past 2 years impacting over 1,200 participants

New resources and programs under development for 2014

9

WA

OR

WY

UT

TX

SD

OK

ND

NM

NV NE

MT

LA

KS

ID

HI

CO CA

ARAZ

AK

WI

WV VA

TN SC

OH

NCMO

MS

MN

MI

KY

IA

IN IL

GA

FL

AL

VT

PA

NY

NJ

NH

MA

ME

CT

DE

RI

MD

DC

Wellness Summit Conducted

Non-Domestic Dioceses - Fund for Medical Assistance

The Fund for Medical Assistance is sponsored and administered by The Church Pension Fund for non-domestic dioceses

Provides reimbursement for certain health care expenses not otherwise covered by public or private insurance programs

• Full-time clergy and lay employees are eligible

• Amounts available for benefits vary by diocese

• Minimal requests for reimbursement have been made to date

5 year pilot program to be reconsidered by CPF Board before December 31, 2014

For more information, contact Nelida Rivera (nrivera@cpg.org )

10

Affordable Care Act (ACA): Healthcare Reform and the Emerging Marketplace

11

DHP is compliant with all current applicable ACA provisions, for instance…

Preventive services covered at 100%

No pre-existing condition limitations or individual health rating

Coverage of adult children to age 30 (age 26 required by ACA)

No annual or lifetime plan maximums

Women’s preventive health expansion

12

The healthcare market is in a state of change

Introduction of health exchanges (i.e., Marketplace) in 2014

• Varying widely in structure, plan design, choice of providers and premium rate levels

DHP plans are generally competitive

• Prevailing TEC plan designs provide for most protective levels of coverage

• Early indications showing competitive DHP rates

13

State-BasedExchange

Partnership Exchange

FederalExchange

Marketplace Structure

14

Three Types of Exchanges under ACA

16 statesand D.C.

27 states 7 states

Prevailing TEC plans have 15% – 20% higher coverage levels than emerging Marketplace norm

15

Typical Marketplace Design Versus Prevailing TEC Plans

Plan OptionTotal Plan

Value Deductible

Out-of-Pocket

MaximumPlan’s

Coinsurance

Prevailing TEC Plans

85% - 90%

$0 - $250$1,500 - $2,000

90% - 100%

Silver Plan 70% $1,000 $5,000 60%

Marketplace plans categorized into four levels of coverage, ranging from least to most protective

• Bronze < Silver < Gold < Platinum

• Silver Plan being positioned as the emerging Marketplace norm

Prevailing TEC plans are Platinum and Gold Level

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Platinum PlansAetna Choice POS IIAetna National HMOAetna Select EPOCigna EPO (OAPIN)Empire EPO 100Empire EPO 90Empire High Option PPOEmpire PPO 90/70Kaiser High Option EPOKaiser Mid Option EPOUHC ChoiceUHC Choice Plus

Platinum PlansAetna Choice POS IIAetna National HMOAetna Select EPOCigna EPO (OAPIN)Empire EPO 100Empire EPO 90Empire High Option PPOEmpire PPO 90/70Kaiser High Option EPOKaiser Mid Option EPOUHC ChoiceUHC Choice Plus

Gold PlansCigna POS (OAP)Empire PPO 75/50Empire PPO 80/60Empire EPO 80Kaiser Low Option EPOUHC Choice 80UHC Choice Plus 80/60

Gold PlansCigna POS (OAP)Empire PPO 75/50Empire PPO 80/60Empire EPO 80Kaiser Low Option EPOUHC Choice 80UHC Choice Plus 80/60

Silver PlansCigna HDHP/HSAEmpire BCBS HSA

Silver PlansCigna HDHP/HSAEmpire BCBS HSA

Platinum plans are popular across majority of Dioceses (as percent of total enrollment)

Platinum (30 states and DC)

Gold (12 states)

WA

OR

WY

UT

TX

SD

OK

ND

NM

NV NE

MT

LA

KS

ID

HI

CO CA

ARAZ

AK

WI

WV VA

TN SC

OH

NCMO

MS

MN

MI

KY

IA

IN IL

GA

FL

AL

VT

PA

NY

NJ

NH

MA

ME

CT

DE

RI

MD

DC

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Silver (8 states)

Plan Type

Early indications showing competitive DHP rates

17 states plus D.C. have recently filed 2014 Marketplace rates

• Early look showing wide variation in rate levels within and across rating areas

DHP plan rates are generally competitive

• DHP rates are at similar, and in some cases lower, levels for similar plans, rating areas and age

• Medical Trust will continue to benchmark against the Marketplace as more data emerges

18

DHP at competitive disadvantage - Premium Tax Credits

Premium tax credits (PTCs) are tax subsidies that will lower the cost of premiums for certain individuals that buy their own coverage from the Marketplace

Two key criteria needed to qualify:

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Household Income100% - 400% of FPL1

No Access toAffordable Healthcare

QualifyFor

Premium Tax Credits

1 FPL = Federal Poverty Level

However, less than 5% of Medical Trust participants estimated to qualify for PTCs*

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TotalDHP

13,000

HouseholdIncome >400% FPL

8,50065.3%

2,30017.7%

HouseholdIncome300% -

400% FPL

Access toAffordableCoverage

8006.2%

Eligible forMeaningful

PTC

6004.6%

Age 65and Over

8006.2%

*Based on 2013 CPG and Medical Trust clergy and lay employee census data, available employee contribution levels and ESI Tapestry household income database; analysis and results validated by external source

Household Income 100% - 300%

Church Health Plan Act requesting equal treatment for church plans in the Marketplace

Would allow the 600 eligible clergy and lay employees to:

1. Gain access to premium tax credits

2. Continue to receive benefits of Medical Trust plan offerings

Status:

• Introduced in Senate (S. 1164) on June 13th by Senator Pryor (D-AR) and Senator Coons (D-DE)

• Outreach to Senators to support bill

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Ongoing communication outreach to the Church

Regular Diocesan Administrator Teleconferences

Monthly Administrator Emails

EBAC

Benefits Partnership Conference

House of Bishops & Provincial Bishop Meetings

Provincial Synod Meetings

Executive Council

CEEP, CODE, NACBA, etc.

FAQ document, instructions and other resources on cpg.orghttps://www.cpg.org/administrators/insurance/health-and-wellness/health-care-reform/

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DHP is driving positive results

• Participation is well underway

• Delivering expected cost containment

• Keeping annual rate actions down

• Addressing cost disparities

• Continued focus on wellness

Proactively addressing healthcare reform

• Compliant with all current applicable provisions

• DHP generally competitive with developing marketplace

• Medical Trust exploring opportunities for enhanced value

Summary

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Appendix A2014 Pricing Bands

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2014 Pricing Bands by Diocese

25

DioceseDHP

Enroll2014 Band

Diocese of Alabama 155 1

Diocese of Alaska 7 5

Diocese of Albany 34 4

Diocese of Arizona 116 4

Diocese of Arkansas 72 4

Diocese of Atlanta 272 6

Diocese of Bethlehem 36 5

Diocese of California 351 3

Diocese of Central Florida 126 5

Diocese of Central Gulf Coast 107 3

Diocese of Central New York 61 3

Diocese of Central Pennsylvania 63 5

Diocese of Chicago 211 5

Diocese of Colorado 117 5

Diocese of Connecticut 220 6

Diocese of Dallas 156 5

Diocese of Delaware 59 6

DioceseDHP

Enroll2014 Band

Diocese of East Carolina 67 5

Diocese of East Tennessee 108 5

Diocese of Eastern Michigan 29 3

Diocese of Eastern Oregon 6 6

Diocese of Easton 26 6

Diocese of Eau Claire 5 6

Diocese of El Camino Real 69 6

Diocese of Florida 118 5

Diocese of Fond Du Lac 23 6

Diocese of Fort Worth 19 6

Diocese of Georgia 71 5

Diocese of Idaho 12 5

Diocese of Indianapolis 167 4

Diocese of Iowa 28 6

Diocese of Kansas 39 5

Diocese of Kentucky 22 5

Diocese of Lexington 58 5

2014 Pricing Bands by Diocese

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DioceseDHP

Enroll2014 Band

Diocese of Long Island 192 5

Diocese of Los Angeles 321 2

Diocese of Louisiana 93 5

Diocese of Maine 52 5

Diocese of Maryland 213 5

Diocese of Massachusetts 280 5

Diocese of Michigan 89 4

Diocese of Milwaukee 39 6

Diocese of Minnesota 77 5

Diocese of Mississippi 74 5

Diocese of Missouri 64 5

Diocese of Montana 23 4

Diocese of Nebraska 25 5

Diocese of Nevada 7 5

Diocese of New Hampshire 45 5

Diocese of New Jersey 143 5

Diocese of New York 788 5

DioceseDHP

Enroll2014 Band

Diocese of Newark 123 6

Diocese of North Carolina 281 3

Diocese of North Dakota 9 2

Diocese of Northern California 67 5

Diocese of Northern Indiana 15 5

Diocese of Northern Michigan 6 5

Diocese of Northwest Texas 51 5Diocese of Northwestern Pennsylvania 18 4

Diocese of Ohio 96 5

Diocese of Oklahoma 79 5

Diocese of Olympia 169 1

Diocese of Oregon 89 5

Diocese of Pennsylvania 233 5

Diocese of Pittsburgh 45 2

Diocese of Quincy 5 5

Diocese of Rhode Island 58 5

Diocese of Rio Grande 40 6

2014 Pricing Bands by Diocese

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DioceseDHP

Enroll2014 Band

Diocese of Rochester 58 2

Diocese of San Diego 110 5

Diocese of San Joaquin 11 5

Diocese of South Dakota 19 6

Diocese of Southeast Florida 117 6

Diocese of Southern Ohio 102 5

Diocese of Southern Virginia 116 5

Diocese of Southwest Florida 134 5

Diocese of Southwestern Virginia 66 2

Diocese of Spokane 30 4

Diocese of Springfield 18 6

Diocese of Tennessee 83 3

Diocese of Texas 590 6

Diocese of Upper South Carolina 196 5

Diocese of Utah 38 6

Diocese of Vermont 30 1

DioceseDHP

Enroll2014 Band

Diocese of Virgin Islands 11 2

Diocese of Virginia 382 2

Diocese of Washington 196 5

Diocese of West Missouri 50 6

Diocese of West Tennessee 83 5

Diocese of West Texas 107 4

Diocese of West Virginia 37 6

Diocese of Western Kansas 5 5

Diocese of Western Louisiana 37 6Diocese of Western Massachusetts 50 6

Diocese of Western Michigan 44 5

Diocese of Western New York 50 1Diocese of Western North Carolina 70 5

Diocese of Wyoming 31 5

Episcopal Church in Navajoland 5 5The Episcopal Church in South Carolina 50 3

Appendix BHealthcare Marketplace

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The healthcare market is in a state of change

Marketplaces (i.e., health exchanges) expected to vary widely in structure, plan design, choice of providers and premium rate levels

Silver Plan positioned as the normative benefit coverage level

Premium tax credits (PTCs) are only available through coverage purchased on an Individual Marketplace

29

Three key factors driving change…

30

Two main health plan contracting models

1. Clearinghouse => contract with all Qualified Health Plans

2. Active Purchaser => direct negotiations and selective contracting with health plans on value, choice, quality, service, and price

State-BasedExchange

Partnership Exchange

FederalExchange

Marketplace Structure

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Three Types of Exchanges under ACA

16 statesand D.C.

27 states 7 states

Plan contracting models vary by State with most taking a more passive approach

Clearinghouse (44 states and DC)

Active Purchaser (6 states)

WA

OR

WY

UT

TX

SD

OK

ND

NM

NV NE

MT

LA

KS

ID

HI

CO CA

ARAZ

AK

WI

WV VA

TN SC

OH

NCMO

MS

MN

MI

KY

IA

IN IL

GA

FL

AL

VT

PA

NY

NJ

NH

MA

ME

CT

DE

RI

MD

DC

32

NOTE: This assumes that all states choose to expand Medicaid eligibility up to 138% FPL January 2014.SOURCE: Congressional Budget Office, February 2013. Total may not equal 100% due to rounding

25 Million estimated to be covered through the Marketplace by 2017

Uninsured

Medicaid/CHIP

Private / Other

Employer-sponsored Insurance

Uninsured

Medicaid/CHIP

Private / Other

Employer-sponsored Insurance

Exchange

33

The Big Bet….what will make up that 9%?

What is the size and characteristics of this population?

• How many of the 14M uninsured will be low utilizers?

• Will the young and healthy purchase healthcare insurance?

• Underlying financial model of ACA is based on the premise that they will buy

34

Source of Pre-Exchange Coverage

Number of Individuals(in millions)

Percent of Nonelderly Population

Uninsured 14.0 5%

Private / Other 5.5 2%

Employer Sponsored 5.5 2%

Total 25.0 9%

New Pricing Considerations for Health Plans

Limits on rating methodology

• No gender

• No adjustment for health status or experience

• Age rating limited to 3:1 ratio

Regulatory Fees

• ACA requires insurers to pay several new fees

• Estimated to add about 7-10% to cost of insurance

Access to risk mitigation programs and subsidies

• Provide premium stabilization in early years of Marketplace

• Mitigate impact of selection

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What does this all mean for healthcare premium rates?

PRICE will be primary competitive driver in the Marketplace

Medical Loss Ratio (MLR) requirements limit returns at the global level

Health plans will look to remaining levers to lower price:

• Market share versus profit strategy

• Narrow networks, tiered products, Rx formularies

• Treatment of risk adjustment and reinsurance

• Benefit design within de minimis range (+/-2%)

• Product array on versus off Marketplace

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Silver Plan positioned as norm in Marketplace

Prevailing TEC plans are 15% – 20% higher in value than emerging Marketplace norm

PTCs only sufficient to cover a portion of Silver Plan premium rates offered in the Marketplace

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Sample Silver Marketplace Design Versus Prevailing TEC Plan

Plan OptionTotal Plan

Value Deductible

Out-of-Pocket

MaximumPlan’s

Coinsurance

Prevailing TEC Plans

85% - 90%

$0 - $250$1,500 - $2,000

90% - 100%

Silver 70% $1,000 $5,000 60%

Different Shades of Silver

Meaningful differences among Silver plan designs

• All should result in similar out-of-pocket (OOP) costs for the “average” utilizer (from 68% to 72% Actuarial Value)

• Materially different OOP costs for low and high utilizers

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Sample Silver Plan Designs

Silver Plan

PCP/SCP Office Visit

Copay Deductible1

Out-of-Pocket

Maximum1

Plan’s Coinsurance

Silver A $25/$40 $1,000 $5,000 60%

Silver B2 $45/$65 $2,000 $6,400various copays

Silver C $35/$70 $2,500 $6,350 70%

MT HDHP 20% $2,700 $4,200 80%

1 Represent individual (single) amounts; family amounts are twice individual amounts2 $250 copay for hospital care and outpatient surgery, imaging; additional $250 deductible for brand drugs

Prevailing TEC plans are Platinum and Gold Level

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Platinum PlansAetna Choice POS IIAetna National HMOAetna Select EPOCigna EPO (OAPIN)Empire EPO 100Empire EPO 90Empire High Option PPOEmpire PPO 90/70Kaiser High Option EPOKaiser Mid Option EPOUHC ChoiceUHC Choice Plus

Platinum PlansAetna Choice POS IIAetna National HMOAetna Select EPOCigna EPO (OAPIN)Empire EPO 100Empire EPO 90Empire High Option PPOEmpire PPO 90/70Kaiser High Option EPOKaiser Mid Option EPOUHC ChoiceUHC Choice Plus

Gold PlansCigna POS (OAP)Empire PPO 75/50Empire PPO 80/60Empire EPO 80Kaiser Low Option EPOUHC Choice 80UHC Choice Plus 80/60

Gold PlansCigna POS (OAP)Empire PPO 75/50Empire PPO 80/60Empire EPO 80Kaiser Low Option EPOUHC Choice 80UHC Choice Plus 80/60

Silver PlansCigna HDHP/HSAEmpire BCBS HSA

Silver PlansCigna HDHP/HSAEmpire BCBS HSA

Platinum plans are popular across majority of Dioceses (as percent of total enrollment)

Platinum (30 states and DC)

Gold (12 states)

WA

OR

WY

UT

TX

SD

OK

ND

NM

NV NE

MT

LA

KS

ID

HI

CO CA

ARAZ

AK

WI

WV VA

TN SC

OH

NCMO

MS

MN

MI

KY

IA

IN IL

GA

FL

AL

VT

PA

NY

NJ

NH

MA

ME

CT

DE

RI

MD

DC

40

Silver (8 states)

Plan Type

Material variability across and within markets

• Number of health plans participating differing widely across markets

• Wide spread in rates (range of lowest to highest over 200%)

• Variety of network types (e.g., select, tiered networks)

Competitiveness with DHP offerings

• Early indications showing competitive DHP rates

• Prevailing TEC plan designs are on high end of design spectrum (provide for most protective levels of coverage)

• Network of providers in Medical Trust plans is generally broader than network types in emerging Marketplace

Summary of Emerging Marketplace

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1. Exchanges shelf-life

2. Role of Accountable Care Organizations

3. Employer strategies

4. Information technology wave

5. Telemedicine and self-care

6. New drug therapies

7. Patient demand for integrated experience

What does the future hold?

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Fight for cheese among government, providers and health plans

Appendix CACA Provisions:2010 through 2013

43

2010: Key provisions

Small Business Tax Credit

• 2010-2013: Available to small church employers (fewer than 25 full-time equivalent employees with average wages of less than $50,000)

• 2014-2016: Only available to small employers purchasing insurance through Marketplace

• Note that sequestration will reduce credit for 2013

• For further information and detailed instructions on how to apply for the credit, see memo available on www.cpg.org

Nursing Mother Provisions

• Mandatory for large employers (those with more than 50 employees)

• Must provide private space and reasonable break

Early Retiree Reinsurance Program (ended in 2012)

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2011: Key Provisions

Form W-2 reporting of value of health insurance

• Delayed for employer participating in church health plans (earliest effective date is 2014 Forms W-2)

Coverage of adult children through age 26

• Note: The Medical Trust provides coverage through age 30

Health FSAs, HRAs and HSAs - over-the-counter drugs are not eligible for reimbursement unless prescribed or insulin

Restrictions on lifetime and annual limits

Zero cost preventive care services

No pre-existing exclusions for dependents under age 19

Restrictions on retroactive rescission of coverage

Revised claims procedures with access to external review

Increase in excise tax on ineligible distributions from health savings accounts (HSAs) from 10% to 20%.

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Tax Implications of Health Coverage For Adult Children

Under the ACA, healthcare benefits are tax-free through the calendar year the child turns age 26

The Medical Trust provides coverage through age 30

• The value of benefits provided to adult children in year child turns age 27 through age 30 may be taxable if child is not a tax dependent who is a qualifying child or qualifying relative under the Internal Revenue Code

• Report “value” of benefit as imputed income on employee’s Form W-2

Note: Similar imputed income requirement applies to domestic partners and partners in civil union. Due to recent DOMA ruling, no imputed income on Form W-2 for coverage provided to same gender spouse. Required, however, for civil unions and domestic partners.

2012: Key Provisions

Summary of Benefits and Coverage

Report and pay Patient-Centered Outcomes Research Institute Fee (2012 through 2019)

• $1 per member (for 2012)/ $2 per member (2013-2019)

• The Medical Trust files the Form 720 and pays this fee for the health plans it sponsors

• Note that if you sponsor separate medical plans or HRAs, you may be required to file a Form 720 and pay this fee

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2013: Key Provisions

$2,500 limit on Employee Pre-Tax Health FSA Contributions

Additional Medicare Payroll Tax on High Earners

• New additional .9% Medicare tax on high income earners

• Employers must begin withholding in payroll period in which wages exceed $200,000

• Note: Employers are not required to match the additional .9%

Health Insurance Marketplace Notifications

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Health Insurance Marketplace Notifications

Employers must provide notice of the availability of coverage through the Marketplace by October 1, 2013

• Employers subject to the Fair Labor Standards Act

• All employees – full-time, part-time, with or without coverage

• Must provide notice to new employees within 14 days of hire

• DOL announced that there will be no penalty for noncompliance

The Department of Labor created Model Notices

• CPG created resources to assist in completing the Notices

• Includes instructions, model cover letters, FAQs for employees

• Go to administrator’s page on www.cpg.org

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Appendix DACA Provisions:2014 and Beyond

50

Miscellaneous 2014 Provisions

Limits on Out-of-Pocket Costs

• Annual out-of-pocket costs limited to $6,350 for individuals and $12,700 for families

• In 2014, ancillary benefits that are separately administered (such as pharmacy) may provide a separate out-of-pocket maximum

Maximum waiting period of 90 days

• Employers participating in Medical Trust plans are not permitted to have waiting periods

Must cover certain clinical trials

No pre-existing conditions regardless of age

Increase permitted for wellness incentives

• Employers may offer up to a 30% premium reduction (up to 50% for tobacco cessation programs)

• Programs may not discriminate based on health factors

51

Elimination of annual limits - Impact on HRAs

Effective January 1, 2014, employers cannot offer “stand-alone” Health Reimbursement Accounts (HRAs)

The HRA must be integrated with a high deductible plan or other health plan in order to impose a limit

Note: Can offer stand-alone HRAs that cover retirees only due to special exception for retiree-only plans.

52

Individual Responsibility Provision

Effective January 1, 2014, each individual must:

• Have basic health insurance, referred to as minimum essential coverage (all Medical Trust plans provide this coverage),

• Qualify for an exemption, or

• Make shared responsibility payment when filing tax return

Shared responsibility payment is equal to the greater of:

Penalty will be assessed for your dependents, but reduced by 50% for individuals under age 18.

Minimum Essential Coverage reporting (to IRS and individuals) effective for 2015 calendar year.

53

Year Individual $ Penalty Individual % Penalty

2014 $95 1%

2015 $325 2%

2016 (and thereafter) $695 2.5%

Individual Responsibility Provision

Exemptions include the following:

• Individuals whose contribution for the lowest cost plan would be in excess of 8% of household income

• Taxpayers with income below filing threshold

• Members of Indian tribes

• Hardships

• Individuals who experience short coverage gaps (three months)

• Religious conscience

• Members of health sharing ministry

• Incarcerated individuals and

• Individuals who are not lawfully present

54

Employer Shared Responsibility Provision- 2015

Postponed until 2015!

Applies to large employers – 50+ full-time or full-time equivalent employees

Must provide all full-time employees and their dependents (not spouses) affordable and adequate healthcare coverage or pay a penalty

Two types of penalties:

• No Offer Penalty: $2,000 (annual, calculated monthly) per full-time employee (excepting the first 30 employees), if at least one employee obtains federally-subsidized coverage on the Marketplace

• Unaffordable or Inadequate Penalty: lesser of $3,000 per subsidized employee or the “No Offer” penalty

Subject to IRS reporting

The Medical Trust will be offering webinar with detailed guidance

55

Transitional Reinsurance Fee (2014-2016)

$20 Billion to fund reinsurance pool plus $5 Billion to reimburse government for the Early Retiree Reinsurance Program (EERP) payments

Estimated annual costs to the Medical Trust:

• 2014: $1,300,000

• 2015: $900,000

• 2016: $600,000

56

The “Cadillac Tax” – 2018+

40% excise tax paid on the “Excess Amount” of coverage

Excess Amount defined as the annual cost for coverage in excess of established thresholds, 2018 amounts:

• $10,200 for single coverage

• $27,500 for family coverage

Threshold amounts will be adjusted for certain factors

• Indexed at CPI+1% for 2019 & 2020; at CPI for 2021+

• High risk profession (unlikely to include church employees)

• Age and gender (likely to result in higher thresholds for Medical Trust plans)

57

How might the Cadillac tax impact the DHP rates?

581 Band 5, 3-tier rates. Annual healthcare cost trend assumption of 7%, CPI of 3%, 10% adjustment for high average age

How might the Cadillac tax impact the DHP rates?

The Medical Trust could be subject to significant excise taxes with potential impact on DHP healthcare costs:

• $2.7 million in 2018 (1.2% of total annual contributions)

• $14.8 million in 2023 (4.8% of total annual contributions)

• Note: Assumes threshold amounts are increased by 10% due to higher average age

59

Two key criteria to qualify for PTCs

Affordable minimum essential coverage through employer defined as:

• Affordable: when the required contribution for self-only coverage does not exceed 9.5% of household income (excluding housing); and

• Minimum Value (MV): when benefit provisions cover at least 60% of the plan costs (all MT plans meet MV requirement)

Must enroll in a plan offered through an Individual Marketplace to gain access to PTCs

60

Household Income100% - 400% of FPL

No Access toAffordable Healthcare

Qualifyfor PTCs

Federal Poverty Guidelines for the 48 Contiguous States and the District of Columbia – 2014 Projected1

Note: clergy housing allowance excluded for purposes of determining eligibility for PTCs

Annual Federal Poverty Level

Family Size

Poverty Guideline

133% ofFPL

200% ofFPL

300% ofFPL

400% of FPL

1 $11,820 $15,720 $23,640 $35,460 $47,280

2 $15,900 $21,150 $31,800 $47,700 $63,600

3 $19,980 $26,570 $39,960 $59,940 $79,920

4 $24,060 $32,000 $48,120 $72,180 $96,240

5 $28,140 $37,430 $56,280 $84,420 $112,560

6 $32,220 $42,850 $64,440 $96,660 $128,880

7 $36,300 $48,280 $72,600 $108,900 $145,200

8 $40,380 $53,710 $80,760 $121,140 $161,520

611 2014 figures based on applying 2013 percentage increases (over 2012) to the 2013 Federal Poverty Guidelines

Less than 5% of Medical Trust participants estimated to qualify for PTCs*

62

TotalDHP

13,000

HouseholdIncome >400% FPL

8,50065.3%

2,30017.7%

HouseholdIncome300% -

400% FPL

Access toAffordableCoverage

8006.2%

Eligible forMeaningful

PTC

6004.6%

Age 65and Over

8006.2%

*Based on 2013 CPG and Medical Trust clergy and lay employee census data, available employee contribution levels and ESI Tapestry household income database; analysis and results validated by external source

Household Income 100% - 300%

Premium Tax Credits (PTCs) – Levels of Subsidies

Three types of subsidies available to those that qualify

• Premium credits (2.0% to 9.5% of income)

• Increase in benefit plan value (from 70% up to 94%)

• Limits on out-of-pocket expenses (ranging from $1,983 to $7,973)

63

Income Level (in terms of FPL)

Maximum Percentage of Household Income to Pay Premiums for Healthcare

Coverage

Up to 132% 2%

133 - 149% 3 - 4%

150 - 199% 4 - 6.3%

200 - 249% 6.3% - 8.05%

250 - 299% 8.05% - 9.5%

300 - 399% 9.5%

Additional complexities come with PTCs

Loss of employer contributions towards healthcare coverage

Loss of pre-tax treatment on employee contributions

Additional cost to purchase Gold/Platinum coverage or any Silver coverage costing more than 2nd lowest priced Silver Plan in the market

Available plan designs, provider networks, level of premium rates and PTCs in each market

Nondiscrimination rules

Changes in household income during the year

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Church Health Plan Act requesting equal treatment for church plans in the Marketplace

Would allow eligible clergy and lay employees to:

1. Continue to receive benefits of the DHP– Cost containment– Higher levels of benefits and services

2. Gain access to premium tax credits

Status:

• Introduced in Senate (S. 1164) on June 13th by Senator Pryor (D-AR) and Senator Coons (D-DE)

• Outreach to Senators to support bill

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Church Health Plan Act of 2013

Why ask for relief?

• For parity between for-profit health insurers and church plans

• Unlike for-profit health insurers, church plans cannot offer plans on the Marketplace

• Members cannot access the premium tax credit unless they purchase insurance through a Marketplace plan

Will church employees receive special tax benefits?

• No. Similar to employees who purchase insurance on the Marketplace, an employee who receives a premium tax credit, will be taxed on all contributions made to the Medical Trust Plan.

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Estimated impact of PTCs

Under current guidance, most clergy and lay employees will not qualify for PTCs as they currently have access to affordable healthcare coverage

• Material employer behavior change not expected

If Church Bill passes, church plans will be treated the same as for-profit health plans allowing clergy and lay employees to remain in Medical Trust plans and gain access to PTCs

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 Under Current Guidance If Church Bill Passes

% QualifyTotal Annual

PTCs(in millions)

% QualifyTotal Annual

PTCs(in millions)

Clergy 0.2%  $0.1 5.1%  $2.2

Lay 7.0% $4.9  13.1% $9.1

Total 4.8% $5.0 10.5% $11.3

Premium Tax Credit Recap

Limited percentage of Medical Trust participants expected to qualify for meaningful level of PTC

• Under current guidance: Less than 5% of MT participants with annual PTCs of about $5 million

• Church Health Plan Act could increase percentage to 11% and annual PTCs to about $11 million

Will employer behavior change?

• …stop offering healthcare coverage?

• …materially decrease current cost sharing levels?

Additional points of consideration

• Loss of pre-tax treatment on contributions

• Loss of employer contributions

• Available plan designs, provider networks, level of premium rates and PTCs in each market

• Nondiscrimination rules

• Changes in household income during the year

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