FEDERAL GUIDANCE SUPPORTS WellMEC, UNDERMINES COMPETITORS

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1 November 4, 2014 FOR IMMEDIATE RELEASE FEDERAL GUIDANCE SUPPORTS WellMEC, UNDERMINES COMPETITORS The US Department of Health and Human Services and the Department of the Treasury (including the Internal Revenue Service) today issued a joint announcement that strongly supports a major component of WellMEC, a patent- protected 1 plan designed to allow employers to comply with all requirements of the Patient Protection and Affordable Care Act (PPACA, also known as Obamacare ) with maximum cost efficiency. The federal government intends to promptly propose amending 45 CFR to provide that a plan will not provide minimum value if it excludes substantial coverage for in- patient hospitalization services or physician services (or both). WellMEC has consistently taken this same position, in marked contrast to several key competitors that have offered and publicly defended plans which offer no coverage for hospitalization. Attached to this release are copies of three documents: today s announcement from HHS and Treasury; a To Whom It May Concern letter dated June 2014, from Wallace T. Gray, General Counsel of Key Benefit Administrators Inc.; and a side- by- side comparison of certain aspects of WellMEC with Plan K, dated September 12, Highlights have been added to all three documents. The sponsors of Plan K and other Minimum Value Plans that do not include all four core benefits, including hospitalization, will be forced to discontinue or radically revise their PPACA solutions. Employers and benefit consultants considering one of these retooled plans should be cautious although the debate over calculation of Minimum Value has been decisively won by WellMEC, at least three other areas of major disagreement as to the correct interpretation of PPACA remain between WellMEC and our competitors. (The side- by- side comparison with Plan K is excerpted from a longer document that analyzes these issues, and others.) Today s government announcement strongly validates WellMEC s standing as the only patent- protected, fully guaranteed 2 low- cost PPACA solution available. 1 US Patent Pending, ID # 14/321,488 2 See Guarantee Policies and Procedures (Appendix A to the WellMEC Service Agreement) for full terms and conditions. Providence Insurance Partners LLC and/or its affiliates and reinsurers will assist in defending client employers against PPACA enforcement actions, and pay any resulting penalties West End Avenue Suite 500 Nashville, TN Phone WellMEC TM is Exclusively Licensed to Providence Insurance Partners, LLC

2 1 RELEASE DATE: Nov. 4, 2014 Group Health Plans that Fail to Cover In-Patient Hospitalization Services Notice I. PURPOSE AND OVERVIEW The Department of Health and Human Services (HHS) and the Department of the Treasury (including the Internal Revenue Service) (collectively, the Departments) have become aware that certain group health plan benefit designs that do not provide coverage for in-patient hospitalization services are being promoted to employers. A plan that fails to provide substantial coverage for these services would fail to offer fundamental benefits that are nearly universally covered, and historically have been considered integral to coverage, under typical employer-sponsored group health plans. Promoters of these plans contend that the plans satisfy minimum value within the meaning of the Affordable Care Act (including section 36B(c)(2)(C)(ii)of the Internal Revenue Code (Code) and final HHS regulations under section1302(d)(2)(c) of the Affordable Care Act (referred to in this notice as minimum value or MV)), as determined through use of the on-line MV Calculator referred to in final HHS regulations and proposed Treasury regulations. Questions have been raised as to whether plans that fail to provide substantial coverage for in-patient hospitalization services should satisfy the requirements for providing minimum value. Concerns have been raised as to whether the continuance tables underlying the MV Calculator (and thus the MV Calculator) produce valid actuarial results for unconventional plan designs that exclude substantial coverage for in-patient hospitalization services. These concerns include that the standard population and other underlying assumptions used in developing the MV Calculator and associated continuance tables are based on typical self-insured employer-sponsored plans, essentially all of which historically have included coverage for these services, and that designing a plan to exclude such coverage could substantially affect the composition of the population covered by discouraging enrollment by employees who have, or anticipate that they might have, significant health issues. It has been suggested that these and other effects resulting from excluding substantial coverage of in-patient hospitalization services may not be adequately taken into account by the MV Calculator and its underlying continuance tables. Similar concerns have been raised regarding the possibility of using the MV calculator to demonstrate that an unconventional plan design that excludes substantial coverage of physician services provides minimum value. The Departments believe that plans that fail to provide substantial coverage for in-patient hospitalization services or for physician services (or for both) (referred to in this notice as Non-Hospital/Non-Physician Services Plans) do not provide the minimum value intended by the minimum value requirement and will shortly propose regulations to this effect with a view to being in a position to finalize such regulations during 2015 and make them applicable upon finalization. Accordingly, employers should consider the consequences of the inability to rely solely on the MV Calculator (or any actuarial

3 2 certification or valuation) to demonstrate that a Non-Hospital/Non-Physician Services Plan provides minimum value for any portion of any taxable year ending on or after January 1, 2015, that follows finalization of such regulations. However, solely in the case of an employer that has entered into a binding written commitment to adopt, or has begun enrolling employees in, a Non-Hospital/Non-Physician Services Plan prior to November 4, 2014 based on the employer s reliance on the results of use of the MV Calculator (a Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plan), the Departments anticipate that final regulations, when issued, will not be applicable for purposes of Code section 4980H with respect to the plan before the end of the plan year (as in effect under the terms of the plan on November 3, 2014) if that plan year begins no later than March 1, Pending issuance of final regulations, an employee will not be required to treat a Non-Hospital/Non-Physician Services Plan as providing minimum value for purposes of an employee s eligibility for a premium tax credit under Code section 36B, regardless of whether the plan is a Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plan. II. BACKGROUND An employee or family member who is offered coverage under an eligible employer-sponsored plan that offers affordable MV coverage for the employee may not receive premium tax credit assistance under Code section 36B for coverage in a qualified health plan. An applicable large employer (as defined in Code section 4980H(c)(2)) may be liable for a section 4980H assessable payment if one or more of its full-time employees receives a premium tax credit. Under Code section 36B(c)(2)(C)(ii), a plan provides MV if the plan's share of the total allowed costs of benefits provided under the plan is at least 60 percent of the costs. Section 1302(d)(2)(C) of the Affordable Care Act provides that in determining the percentage of the total allowed costs of benefits provided by a group health plan or health insurance coverage under the Code, as well as under the Public Health Service Act (PHSA), regulations promulgated by the Secretary of HHS under section 1302(d)(2), addressing actuarial value, apply. HHS published final regulations under section 1302(d)(2) on February 25, 2013 (78 FR 12834), effective on April 26, For plans required to cover the essential health benefits (EHB), the HHS regulations define the percentage of the total allowed costs of benefits as (1) the anticipated covered medical spending for EHB (as defined in 45 CFR (a)) paid by a health plan for a standard population, (2) computed in accordance with the plan's cost-sharing, and (3) divided by the total anticipated allowed charges for EHB coverage provided to a standard population. 45 CFR As stated in the preamble to the HHS regulations (see 78 FR 12833), employersponsored group health plans are not required to offer EHBs unless they are insured health plans offered in the small group market subject to section 2707(a) of the PHSA.

4 3 The preamble also states that MV is measured based on the provision of EHBs to a standard population based on typical self-insured group health plans and that, in determining MV, plans may take into account those benefits covered by the employer that are covered in any one of the state EHB-benchmark plans. See 45 CFR (b). Proposed regulations under Code section 36B on MV published by Treasury and the IRS on May 3, 2013 (78 FR 25909), apply these rules in defining the standard population for MV purposes and the MV percentage. The proposed Code section 36B regulations provide that the MV percentage is determined by dividing the plan's anticipated spending (based on the plan s cost-sharing) for EHB under any one state benchmark plan by the total cost of EHBs for the standard population and converting the result to a percentage. Proposed 26 CFR 1.36B-6(c). Neither the final HHS regulations nor the proposed Code section 36B regulations require employer-sponsored self-insured and insured large group plans to cover every EHB category or conform their plans to an EHB benchmark that applies to individual and small group market plans. The HHS regulations allow MV to be determined using an MV Calculator (available at or a safe harbor established by HHS and the IRS. Under the regulations, plans with nonstandard features that are incompatible with the MV Calculator or a safe harbor may determine MV through an actuarial certification from a member of the American Academy of Actuaries. A plan in the small group market provides MV if it meets the requirements for any of the levels of metal coverage defined at 45 CFR (b) (bronze, silver, gold, or platinum). The proposed Code section 36B regulations require plans to determine MV by using either a safe harbor or the MV Calculator. Employers using the MV Calculator may, however, supplement the MV Calculator by obtaining actuarial valuation of a plan s nonstandard features. III. INTENDED APPROACH A. Proposed Amendments to Regulations Relating to Minimum Value HHS intends to promptly propose amending 45 CFR to provide that a plan will not provide minimum value if it excludes substantial coverage for in-patient hospitalization services or physician services (or both). Treasury and the IRS intend to issue proposed regulations that apply these proposed HHS regulations under Code section 36B. Accordingly, under the HHS and Treasury regulations, an employer will not be permitted to use the MV Calculator (or any actuarial certification or valuation) to demonstrate that a Non-Hospital/Non-Physician Services Plan provides minimum value. It is anticipated that the proposed changes to regulations will be finalized in 2015 and will apply to plans other than Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plans on the date they become final rather than being delayed to the end of 2015 or the end of the 2015 plan year. As a result, a Non-Hospital/Non-Physician

5 4 Services Plan (other than a Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plan) should not be adopted for the 2015 plan year. (As noted above, it is anticipated that the proposed changes to regulations, when finalized, will not apply to Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plans until after the end of the plan year beginning no later than March 1, The Departments anticipate that final rulemaking will be completed on or about that date.) Pending issuance of final regulations, in no event will an employee be required to treat a Non-Hospital/Non-Physician Services Plan as providing MV for purposes of an employee s eligibility for a premium tax credit under Code section 36B, regardless of whether the plan is a Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plan. B. Employer Duty to Inform Employees An employer that offers a Non-Hospital/Non-Physician Services Plan (including a Pre-November 4, 2014 Non-Hospital/Non-Physician Services Plan) to an employee (1) must not state or imply in any disclosure that the offer of coverage under the Non- Hospital/Non-Physician Services Plan precludes an employee from obtaining a premium tax credit, if otherwise eligible, and (2) must timely correct any prior disclosures that stated or implied that the offer of the Non-Hospital/Non-Physician Services Plan would preclude an otherwise tax-credit-eligible employee from obtaining a premium tax credit. Without such a corrective disclosure, a statement (for example, in a summary of benefits and coverage) that a Non-Hospital/Non-Physician Services Plan provides minimum value will be considered to imply that the offer of such a plan precludes employees from obtaining a premium tax credit. However, an employer that also offers an employee another plan that is not a Non-Hospital/Non/-Physician Services Plan and that is affordable and provides MV is permitted to advise the employee that the offer of this other plan will or may preclude the employee from obtaining a premium tax credit. FOR FURTHER INFORMATION The Departments have coordinated on the guidance and other information contained in this notice, and HHS is concurrently issuing parallel guidance. Questions concerning the information contained in this notice may be directed to HHS at or the IRS at Additional information for employers regarding the Affordable Care Act is available at and

6 .. KEY BENEFIT ADMINISTRATORS, INC. June,2014 Re: Minimum V aloe Plan Calculation of 60.1 % To Whom It May Concern: The Key Benefit Administrators, Inc. ("KBA") KeySolution Minimum V aloe Plan ("MVP") is a selfinsured health benefit program based on a benefit structure that results in a CMS MVP calculator ("Calculator) score of 60.1 %. This score takes into consideration the custom benefit structure of the MVP. The Calculator uses various essential health benefits ("EHB") that a benefit plan may offer. However, self-insured benefit plans of any size are not required to offer any or all of the EHBs. For example, the MVP does not cover hospitalization and certain other benefits, nor would these excluded benefits be covered once the MVP' s Maximum Out Of Pocket amount is reached. The Calculator recognizes that self-insured programs may elect to not cover an EHB and states in the instructions for using the Calculator: "Carve-outs for Self Insured Employer Sponsored Plans To indicate a service carve-out, select the "Service Not Covered" option. Doing so removes the benefit from the spending distributions, but does not alter the denominator of the MV calculation in any way." For a full discussion of the methojology used by CMS in creating the MVP Calculator please go to: and then click on "Minimum Value Calculator Methodology." The methodology used by KBA to reach the score of 60.1 % was in compliance with the Calculator methodology. The score of 60.1 % reflects that the MVP plan meets the requirement that a minimum value plan score at least a 60. Of note is the fact that the fields and formulas of the Calculator are hard coded such that the fields and formulas of the Calculator are incapable of being altered by a user such as KBA. The result is that the output of the Calculator can be relied upon. Comments from multiple independent law firms uniformly agree that the output of the Calculator is accurate when the Calculator is used in compliance with the instructions. The question has been asked as to whether an employer may or should seek a separate actuarial valuation in regards to the MVP program. Jn response, the regulations only allow a plan to turn to a separate actuarial valuation if the plan has non-standard features that do not work with the MVP Calculator. See 45 CFR (a)(3). The exclusion of hospitalization from the MVP plan is not an example of what would constitute a non-standard feature of the plan. Since the provisions found in the MVP plan reflect items that are standard medical coverage and that the use of the Calculator resulted in the score of 60.1 %, KBA is confident that the MVP is in full compliance with the Affordable Care Act minimum value plan requirements. The attached copy of the output from the Calculator upon which the MVP calculation was made may be used as proof that the MVP score was 60.1 %. P. 0. B ox , Indian a p o 1 is, IN

7 KBA is prepared to support an employer should inquiries be made as to the creation of the Calculator score. However, each employer must determine for itself whether its benefit plan meets its needs and is in compliance with the law. Questions about the MVP should be directed to an employer's legal counsel. As General Counsel for KBA, the undersigned cannot represent an employer as legal counsel, nor does this letter constitute legal advice to an employer. However, the undersigned is available to work with an employer's legal counsel in a review of the program. Sincerely yours, Wallace T. Gray, JD, MBA General Counsel wgray@keybenefit.com IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Neither Wallace T. Gray nor Key Benefit Administrators provides legal services for any non-member of the Key Family of Companies and cannot be held responsible for the decision of any third party. Independent legal counsel should be sought for a full review of the legalities of the program described herein or statements made herein.

8 Side- by- Side Comparison of WellMEC and Plan K Plan K is a health insurance solution first marketed in 2013 by a well- known Third Party Administrator. The comparison below is based upon careful analysis of the most recent information (as of September 12, 2014) we have been able to obtain about Plan K. We welcome any questions, corrections or other input, including a public dialog with the Plan K designers about the features of their plan and WellMEC. Minimum Essential Coverage Minimum Value Plan ( MVP ) Coordination with Excepted Benefits Provided to all full- time employees, with no cost sharing. Fully PPACA- compliant, providing all four core MVP benefits. None. Fully compliant with IRC , which prohibits coordination of benefits between MEC/MVP coverage and Category 3 Excepted Benefits. Neither WellMEC nor its approved TPAs administer or profit from any such benefits. PLAN K Allows employee premium cost sharing, in possible violation of PHSA Excludes hospitalization, a core MVP benefit. Possibly not MV. Appears to coordinate benefits, in violation of IRC Plan K administers and profits from both MEC/MVP coverage and Category 3 Excepted Benefits in coordination with one another. Minimum Essential Coverage PPACA requires large employers to provide the ever- changing number and variety of MEC preventative and wellness benefits to all employees who work more than 30 hours per week, at no cost sharing to the employee. 1 WellMEC therefore covers all eligible employees, with employers paying 100% of program fees (aka premium 2 ) cost. Plan K apparently has a different interpretation, in that it allows employers to shift up to the entire premium cost of MEC benefits to their employees. As with Plan K s treatment of Minimum Value Plan calculation methods (see below), we find their position on MEC cost sharing to be dangerously irrational. The stated purpose of PPACA 1 PHSA Because WellMEC is a self- insured plan regulated by the Tennessee Department of Insurance, the term premium should not be applied. Program fees are used for claims payments, administration, captive management, PPO network fees, commissions, etc. Captive premiums for reinsurance coverage is a subset of the program fees West End Avenue Suite 500 Nashville, TN Phone / Fax WellMEC TM is Exclusively Licensed to Providence Insurance Partners, LLC

9 is to provide health coverage to most uninsured Americans, and to require employers to provide at least a basic level of coverage to all of their full- time employees. Interpreting PPACA in such a way as to allow employers to shift 100% of the MEC premium cost back to their employees makes no sense to us, and we cannot imagine that it will to regulators or the courts either. Neither WellMEC nor our reinsurers would guarantee any plan that allows employee cost sharing including program/premium costs for MEC. Minimum Value Plan Like many other aspects of PPACA which contains more than 400,000 words and has been the subject of hundreds of updates, revisions, guidance bulletins, postponements, and other official notices since it was originally signed into law in 2010 the definition of Minimum Value has not been definitively established. The Department of Health and Human Services provides two methods of determining MV, the first of which requires actuarial certification. Since the Plan K MVP does not include Hospital and Emergency Room services one of the four core MVP benefits (the others being Physician care, Pharmacy, and Laboratory/ Imaging), no actuary would risk his or her license by certifying that it provides Minimum Value. Plan K therefore uses the second method an online government calculator that generates a numeric score based on a plan s benefits. Plan K simply inserts Not Applicable into the Hospital and ER section of the calculator to manipulate a passing score. WellMEC has adopted a more conservative (and rational) approach, by designing our Minimum Value Plan to meet both HHS tests. Since PPACA includes four core benefits in the Minimum Value definition, it is counterintuitive to believe that regulators or the courts would allow plans that fail to include one or more of those benefits to meet the MV test. Note that the consequences of an adverse determination are dire. If a regulator or court determines that the narrow MVP offered by Plan K is not minimum value, then the plan was never minimum value. Exposure for penalties, as well as potentially fraudulent dissuasion of employee plan participants from seeking subsidies to which they were rightfully entitled, would be substantial and retroactive. Coordination with Excepted Benefits Per IRC , it is expressly forbidden to coordinate: a) health benefits that are subject to PPACA (MEC/MV); with b) Category 3 Excepted Benefits, including medical and hospital indemnity. WellMEC steers clear of such illegal coordination by not offering, marketing, administering, or profiting from the sale of any Category 3 Excepted Benefits. (General Agents, brokers, and consultants may independently provide proposals that include WellMEC as well as Indemnity and other Excepted Benefits, without violating IRC ) Anti- coordination provisions may be enforced based on either a formal violation (the documents themselves are in violation of the law) or an operational violation (the practices of the administrator are in violation of the law). Plan K does not appear to be compliant, either formally or in operation, with IRC West End Avenue Suite 500 Nashville, TN Phone / Fax WellMEC TM is Exclusively Licensed to Providence Insurance Partners, LLC

10 According to the Plan K documents, the administrator will perform coordination of benefits activities according to the provisions of the Plan, and subrogation recoveries will be subject to the terms of the stop- loss insurance policy and will first be paid to the stop- loss insurance carrier. The Plan K marketing materials and service contracts require participating clients to apply concurrently for MEC/MV and also for fully- insured hospital indemnity benefits. Employees who enroll in MEC/MV as well as hospital indemnity under Plan K are issued a single ID card to access both sets of benefits. Furthermore, MEC/MV and hospital indemnity benefits are controlled by a single plan document. IRC has three general requirements, with further regulations anticipated in the future. First, separate policies, certificates or contracts are required for the PPACA- subject benefits (MEC/MV) and the non- PPACA- subject benefits (Indemnity and other Category 3 Excepted Benefits). Plan K has recently issued an opinion that its coordinated offerings are permissible under the Wrap rules. As with MEC cost sharing and MV calculation, we find Plan K s interpretation of the anti- coordination rules to be self- serving and illogical. Why would IRC exist if a sponsor could circumvent it simply by calling its coordinated plan a Wrap? The second and third coordination provisions require that plans cannot exist to offset the costs of a PPACA- subject plan at the expense of a non- PPACA- subject plan. This offsetting may occur either by providing benefits in the non- PPACA- subject plan that are not provided by the PPACA- subject plan, or by forcing the non- PPACA- subject plan to pay first for coverage of dually covered benefits. Recall that Plan K s subrogation recoveries will be subject to the terms of the stop- loss insurance policy [PPACA- subject plan] and will first be paid to the stop- loss insurance carrier. Plan K thus explicitly acknowledges a formal violation of coordination provisions, benefiting the PPACA- subject plan at the expense of the non- PPACA- subject plan, an event that would not happen but for their coordination. Operationally, the plans are administered on a single ID card. Thus, if dual benefits are covered by the PPACA- subject plan and the non- PPACA- subject plan, coordination of payment of these plans must occur when the single ID card is offered for billing purposes. Unless the payment of claims happens always to detriment the PPACA- subject plan first as primary payor, an operational violation of coordination provisions will occur. Finally, consider the overall objective of Plan K in this structure. Is Plan K attempting to coordinate and instituting policies for the pure purpose of achieving a beneficial tax result, i.e. mitigation of PPACA penalties? If so, the step transaction doctrine will likely apply, allowing regulators and courts to look past Plan K s structural features and consider the plan without such steps. This doctrine gives broad discretion to close what may otherwise be perceived as loopholes in the spirit of the law West End Avenue Suite 500 Nashville, TN Phone / Fax WellMEC TM is Exclusively Licensed to Providence Insurance Partners, LLC