EGWP Presentation

Post-Retiree Pharmaceutical Benefit Challenges and the EGWP Alternative

Spring 2011

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Contents

Overview of Post-Retiree Pharmaceutical Benefit Challenges 3

Post-Retiree Pharmaceutical Plan Alternatives 6

The Employee Group Waiver (“EGWP”) Alternative 10

Benefits of an EGWP 12

RDS v. EGWP 13

EGWP Example 14

EGWP Implementation and Timeline 16

Technical Foundation 17

Why AgencyONE? 20

AgencyONE Team 21

Glossary of Terms 24

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Overview of Post-Retiree Pharmaceutical Benefit Challenges

• With the enactment of the Medicare Prescription Drug Improvement &

Modernization Act of 2003 (the “Act”), Medicare Part D was born.

Medicare Part D became effective on January 1, 2006 and as a result anyone

eligible for Medicare can now qualify for federally subsidized prescription

drug benefits.

• The Act created the Retiree Drug Subsidy (“RDS”) to encourage employers

(both for profit employers and non-profit employers, governmental entities

and unions) to continue to offer post retiree prescription drug coverage. The

RDS was intended to provide an incentive for employers to maintain their

post-employment retiree medical benefits for Medicare eligible retirees by

providing them a direct subsidy.

– In January 2006 employers were permitted to apply for the RDS and there are now

thousands of employers collecting this subsidy.

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• However, in the intervening years, funding and providing promised retiree

health benefits has a new series of requirements that must now be met.

• The escalating liability for post retiree medical plans known as “Other

Than Pension Employee Benefits” (“OPEB”) must be carried and/or

disclosed on the financial statements of both private and public sector

entities pursuant to Financial Accounting Standards Board (“FASB”) and

Government Accounting Standards Board (“GASB”) guidelines.

– Private sector entities have been recording the financial impact of OPEB

benefits in some manner since 1993. The underlying accounting standards are

FASB standards 106 and 158.

– Public sector entities began to recognize OPEB benefits on their financial

statements in 2006 under GASB statements 43 and 45.

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• The Patient Protection and Affordable Care Act of 2010 (PPACA) changed the tax status of the RDS subsidy, which had a negative financial statement impact for private sector employers. The change affected entities’ deferred tax asset balances and resulted in a charge to earnings on their income statement.

– The RDS subsidy has historically been a tax free to employers. Effective 1/1/2013, the RDS subsidy will be taxable to employers.

• Declining revenues for some entities, combined with a decade of substandard investment returns, make covering this growing liability more daunting than ever before.

• The net effect is that entities are forced to take a number of unappealing paths, engaging in potentially riskier investments and shifting more of the burden of financing these post retiree obligations to employees. – The result is overburdened HR managers and angry employees and pensioners. – Further, continued underfunded status can lead to additional compliance reporting,

oversight, expenses and delays in providing benefits to retirees.

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Post-Retiree Pharmaceutical Plan Alternatives

There are four primary solutions to manage post retiree pharmaceutical benefits. They are:

1. Termination of prescription drug benefits for retirees.

– Plan sponsors should consider the probability of litigation when terminating a retiree drug plan.

– Under the Employee Retirement Income and Security Act of 1974, as amended (ERISA),

lawsuits can be filed by disgruntled plan participants or groups of retirees.

– The likelihood of success for these lawsuits depends on what types of promises have been made

to retirees and whether the entity has adequately reserved in plan documents the right to

terminate its retiree prescription drug plan.

– Lawsuits challenging retiree benefit changes can be successful if the entity has not been careful

to reserve the right to amend or terminate health benefits, and retirees have been lead to believe

through written plan communications and documents that their retiree medical benefits are

vested.

– Lawsuits regarding termination of retiree prescription drug benefits can be more complicated

where there are union contracts (particularly contracts that are unclear about the scope of retiree

coverage) or where the entities have represented that retiree medical benefits are guaranteed for

the life of the retiree.

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Post-Retiree Pharmaceutical

Plan Alternatives2. Retiree Drug Subsidy.

• In the first year of Medicare Part D, the favorite approach for entities that sponsored post retiree pharmaceutical plans was the RDS program. Given the near daily issuance of Centers for Medicare and Medicaid Services (“CMS”) guidance in 2006, many entities opted to get through the first year as painlessly as possible, with an eye toward more detailed assessment of options in the future.

• Under the RDS, the entity continues to offer drug coverage to eligible retired employees in the same manner as pre-Medicare Part D.

• An attesting actuary must attest to:

A. Creditable Coverage – the entity plan must provide drug coverage that is at least as favorable as Medicare Part D. Note, if the entity’s plan does not meet this requirement, the retiree will be subject to late enrollment penalties if he or she enrolls in Medicare Part D sometime in the future.

B. Net value of the sponsored benefit. This must equal or exceed the net value of benefits under Medicare Part D.

• If A and B are satisfied, the entity receives federal subsidy payments (the RDS) equal to 28% of each qualifying retiree’s allowable prescription drug costs between the 2011 threshold limit of $310 and the 2011 cost limit of $6,300.

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2. Retiree Drug Subsidy, continued.

– Advantages:

• The entity receives a federal subsidy where no subsidy previously existed prior to Medicare Part D.

After removal of drugs and expenses excluded by Part D (for being outside CMS limits) the RDS is

estimated to be worth approximately 20% of the entity’s total drug spend for Medicare beneficiaries.

• There is no change to plan design or administration unless a change is required to pass actuarial

equivalence tests.

– Disadvantages:

• For taxable entities, for tax years beginning after 12/31/12, the tax deduction for the RDS is

eliminated thus reducing the economic value of this subsidy.

• Significant administration burden – both actuarial and recordkeeping.

• There is no Low Income Premium Subsidy (“LIPS”) based on a retiree’s income relative to the

Federal Poverty Level passed through to the retiree.

• Limited to drugs specifically allowable under Medicare Part D.

• The GASB 43 and 45 accounting standards do not allow public sector employers to incorporate the

RDS subsidy into their actuarial assumptions used to calculate the Accrued Actuarial Liability (AAL).– Note that this in contrast to the treatment under FASB accounting standards for private sector entities.

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3. Direct Contract Employer Group Waiver Plan

– The entity contracts directly with CMS to provide a Prescription Drug Plan (“PDP”) and

receives payment directly from the government (CMS).

– The PDP receives a base monthly subsidy payment equal to:

(National Average Monthly Part D Basic Bid Amount*) – (Part D Base Beneficiary Premium*).

• For 2011 the National Average Monthly Bid Amount* is $87.05 per retiree per month.

• For 2011 the Part D Base Beneficiary Premium* is $32.34.

• Therefore, the base monthly subsidy for 2011 is $54.71

• This subsidy is the same for all participating employers and retirees.

– Additional subsidies are paid at year end for retirees that either:

• Qualify for LIPS, or

• Incur prescription drug claims above a catastrophic level. – Subsidies provide reimbursement for 80% of eligible drug costs that exceed a beneficiary’s maximum out of

pocket limit.

* See Glossary for definition

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3. Direct Contract Employer Group Waiver Plan, continued.

– Advantages:• Entities with large Medicare-eligible populations may find this to be financially superior to the

RDS approach.– The subsidy is estimated to be 35% or more of the drug spend for Medicare beneficiaries, far exceeding the

estimated 20% average subsidy yielded under RDS.

• Unlike the RDS option, the direct subsidy available through the direct-contract EGWP plan includes subsidization for administrative costs and profit margins based on the national average of commercial plans.

• Public sector employers are able to incorporate CMS EGWP subsidies in the calculation of their Accrued Actuarial Liability (AAL) on their financial statements. This can result in a material reduction of an entity’s AAL and the associated Annual Required Contribution (ARC).

– Disadvantages:• Significant administrative burden for the entity. • This option is considered by most entities to be a more complex option than the RDS.• There is no favorable accounting treatment. • The entity has to deal directly with an agency of the federal government (CMS).

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The EGWP Alternative

4. Fully Insured Medicare Part D PDP, also know as an “800 Series EGWP” or simply “EGWP” – “egg whip.” – The entity contracts with a CMS approved third party Part D Sponsor, not

CMS directly. The third party Part D Sponsor contracts with CMS to offer this benefit on CMS’ behalf.

– The Part D Sponsor retains a fee for administration but passes through the bulk of government payments in the form of lower premiums or, typically, direct payments to the entity.

• The Part D Sponsor shoulders the expenses associated with verifying compliance each year.

• The plan can be customized to match current benefits.• Overall, it maximizes the government contribution toward pharmaceutical

expenses without imposing administrative burdens on the entity.

The EGWP Alternative

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Employer (“ER”)

ER contracts with CMS approved

Sponsor

ER has no direct obligation to or interaction with

CMS

ER has minimal administration

obligations

ER realizes increased CMS

payments

3rd Party Part D Sponsor (“Sponsor”)

Sponsor has their EGWP approved

by CMS

Sponsor pays prescription drug costs for retirees

Sponsor receives payments from CMS which are

passed through to ER

Sponsor assumes regulatory and administrative duties for the

EGWP

CMSCMS verifies Part D eligibility of the ER’s retirees

CMS makes payments directly

to Sponsor

The Sponsor assumes all of the Employer’s Medicare Part D retiree prescription drug coverage burdens including: administrative, regulatory, formulary, and financial. The Sponsor also acts as

the Employer’s liaison with CMS.

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Benefits of an EGWP

The EGWP is a single turnkey solution that: – Provides increased CMS reimbursements.

• Improves cash flow and cash management.

– Provides monthly reimbursements based on number of retirees instead of annual reimbursements under RDS.

– Puts tax exempt entities on a level playing field with taxable entities.

– Public sector employers are able to incorporate CMS EGWP subsidies in the calculation of their Accrued Actuarial Liability (AAL) on their financial statements. This can result in a material reduction of an entity’s AAL and the associated Annual Required Contribution (ARC).

– Outsources plan administration to a CMS certified Sponsor and, therefore, qualified third party. Cost savings realized by outsourcing administration can be up to 25%.

– Includes catastrophic coverage.

– Does not change the entity’s current plan design and is, therefore, completely transparent to employees and retirees.

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RDS vs. EGWP

RDS EGWP

Nationwide average monthly drug subsidy paid by CMS per retiree ranges from $30 to $55

Nationwide average monthly fee paid by CMS for EGWP per retiree = $60

Annual reimbursement Monthly reimbursement

No favorable accounting treatment for public sector entities

Favorable accounting treatment for public sector entities

Significant administrative burden for the employer

Minimal administrative burden for the employer

Must pass actuarial equivalence tests No actuarial equivalence tests

No catastrophic coverage provided Catastrophic coverage provided

Employer must directly interact with CMS

Employer does not interact with CMS

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EGWP ExampleProposal Prepared for a Midatlantic State with 57,000 currentMedicare Part D eligible retirees

Nationwide average monthly RDS reimbursement received by Plan Sponsor from CMS for post retiree Medicare Part D benefits.

$35

Nationwide average monthly EGWP capitation fee received by Plan Sponsor from CMS for post retiree Medicare Part D benefits.

$60

RDS reimbursement on spend. 28%, however, probably closer to 20%.

OPEB discount rate. 4.3%

Medical expense trend 2010-11. 9% and 50bps declination thereafter until it reaches 5% in 2020 and remains at that level.

EGWP reduces the underfunded actuarial accrued liability (“UAAL”) in the retiree medical program as opposed to Technical Bulletin 2006-1 which indicates RDS only as a payment credit.

ASSUMPTIONS

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EGWP Example, continued

Annual increase in CMS payments with EGWP through 2020

$17,144,700And increasing with more retirees.

UAAL reduction $1,016,118,539Present value of drug spend being offset by 10 years of EGWP until “donut hole” terminates. Medicare termination of program per 2010 health care law.

Annual Required Contribution (“ARC”) reduction

$60,921,296 annually (UAAL amortized over 30 years).

RESULTS

* For 2011, during the initial coverage phase, a Medicare beneficiary will pay a copayment, and their Part D drug plan will pay its share for each covered drug until the combined amount (including deductible) reaches $2,840. Once the individual and their Part D plan have spent $2,840 for covered drugs, the individual will be in the “donut hole.” Previously, an individual had to pay the full cost of prescription drugs while in the donut hole. However, in 2011, individuals get a 50% discount on covered brand-name prescription medications. The donut hole continues until total out-of-pocket cost reaches $4,550 for 2011. This annual out-of-pocket spending amount includes yearly deductible, copayment, and coinsurance amounts.

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EGWP Implementation \and Timeline

Task Responsible Party(ies) Due Date

Order PBM Client Services Agreement TPA, PBM

Receive Client Services Agreement from PBM TPA, PBM

Send PBM Client Services Agreement to ABC TPA, PBM, AO

Begin weekly implementation conference calls TPA, PBM, AO

Receive signed Client Services Agreement from ABC AO, ABC

Send signed Client Services Agreement to PBM TPA

Receive census data from PBM PBM

Input census data into system TPA

Send census data over to PBM for a test run. PBM will do the test run and inform TPA of any errors that appear

TPA, PBM

Discussion on enrollment/disenrollment and transition policies TPA, PBM, AO, ABC

Work with ABC to correct any errors on the census TPA, ABC

Prepare final census data and send to PBM TPA

Load census data and set up group in system PBM

Send file over to CMS for approval PBM

Confirm rate and method of billing and prepare initial bill for ABC TPA, AO, ABC

In general the TPA requires a minimum of 45 days prior to an effective date. The effective date should be the first day of the month.

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Technical Foundation

• On December 8, 2003, President Bush signed into law the Medicare Prescription

Drug, Improvement, and Modernization Act of 2003; Public Law 108-173 (Medicare

Act of 2003). This legislation included sweeping changes to the Medicare program. It

provided Medicare beneficiaries with some limited assistance paying for prescription

drugs. The Medicare Act of 2003 also included major restructuring of the traditional

Medicare program, relying heavily on private insurance for the delivery of benefits.

In addition, it increased beneficiary cost sharing responsibilities.

• On December 15, 2003, CMS published interim final rules with a comment period to

implement the Medicare prescription drug discount program created by the Medicare

Act. 68 Fed. Reg. 69840 (Dec. 15, 2003).

• The Medicare Act created a new Medicare Part D under which individuals eligible for

either Part A or Part B may obtain qualified prescription drug coverage either through

a stand alone prescription drug plan (PDP) or through a Medicare Advantage plan

(MA-PD). Coverage under the voluntary benefit began on January 1, 2006.

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• Social Security Act Sec. 1860D-22. [42 U.S.C. 1395w-132] (a): “Subsidy Payment.— (1) In general.—The Secretary shall provide in accordance with this subsection for payment to the sponsor of a qualified retiree prescription drug plan (as defined in paragraph (2)) of a special subsidy payment equal to the amount specified in paragraph (3) for each qualified covered retiree under the plan (as defined in paragraph (4)). This subsection constitutes budget authority in advance of appropriations Acts and represents the obligation of the Secretary to provide for the payment of amounts provided under this section.”

• Medicare Prescription Drug Improvement and Modernization Act of 2003, Public Law 108-173 Sec. 1202: Exclusion from Gross Income of Certain Federal Subsidies for Prescription Drug Plans. Provision: Special subsidy payments under 1860D-22 made to employment-based retiree health plans for part D eligible participants that attest to being actuarially equivalent to the value of standard prescription drug coverage shall not be counted as gross income. Effective date: For taxable years ending on or after the date of enactment.

• Patient Protection and Affordable Care Act H.R.3590 (Sec. 9012) eliminates the tax deduction for expenses for determining the subsidy for employers who maintain prescription drug plans for Medicare Part D eligible retirees.

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• MEDICARE ADVANTAGE/PRESCRIPTION DRUG BENEFIT. 2009 Application Instructions for Cost Plan Sponsors to Offer New Employer/Union-Only Group Waiver Plans (EGWPs). January 24, 2008.

“The Medicare Modernization Act (MMA) provides employers and unions with a numberof options for providing coverage to their Medicare-eligible members. Under the MMA,those options include purchasing benefits from sponsors of prescription drug-only plans(PDPs), making special arrangements with Medicare Advantage Organizations (MAOs)and Section 1876 Cost Plans to purchase customized benefits, including drug benefits, fortheir members; and directly contracting with CMS to become Part D or MAO plansponsors themselves. Each of these approaches involves the use of CMS waiversauthorized under Sections 1857(i) or 1860D-22(b) of the Social Security Act (SSA).Under this authority, CMS may waive or modify requirements that “hinder the design of,the offering of, or the enrollment in” employer-sponsored group plans. CMS mayexercise its waiver authority for PDPs, MAOs and Cost Plan Sponsors that offeremployer/union-only group waiver plans (EGWPs). EGWPs are also known as “800series” plans because of the way they are enumerated in CMS systems.”

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Why AgencyONE?

• AgencyONE is the only consultancy with a multi-disciplinary solution to the Medicare Part D conundrum that can be readily implemented to meet the needs of entities and their retirees in addressing the regulatory frenzy.

– AgencyONE, through Advisors LLC has contracts with major PDP Sponsors who have certified EGWPs with CMS.

– AgencyONE’s strategic partner, McGladrey can prepare the requisite financial, economic and accounting model and affirm the appropriate accounting treatment.

– AgencyONE partners with the employer/entity to insure a smooth implementation and ongoing administration.

– AgencyONE provides an annual plan “check-up” to identify any issues or concerns and to facilitate swift resolution.

– AgencyONE monitors the legislative environment to advise the employer of any required plan changes.

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The AgencyONE Team

• Lawrence L. Bell, JD, LTM, CLU, ChFC, CFP, AEPLarry is principal of Advisors, LLC and is affiliated with AgencyONE. He assists state and local governments with benefit planning, underfunded pension obligations and OPEB liabilities. He works with political subdivisions in strategic planning, business continuity and benefit practices on a regional, national and international basis. He is a qualified expert and has testified on valuations, taxes, patents, business practices and benefits. He served as Tax Bar Liaison to the IRS for Maryland and the Attorney on the District Director’s FEPTA panel for 10 years. He was nominee for Taxpayer Advocate (National) with the IRS and named Chair of the Exempt Organizations Focus Group with the IRS. He has received patents in actuarial product fields dealing with GASB, FASB, IASB and OPEB solutions.

He has authored articles and Decision Trees on COLI Best Practices, IRC section 409A, and Benefit Planning. He teaches business and estate planning to actuaries, attorneys, accountants, financial planners and insurance professionals. Larry speaks nationally on a myriad of insurance and benefit topics.

Larry received his AB from Kenyon College, his JD from The Catholic University of America and his LTM from Georgetown University.

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The AgencyONE Team

• Amy B. Holmwood

Amy is the Director of Affluent and Specialty Markets for Agency ONE and is responsible for marketing the Employee Group Waiver Plan to Fortune 500 Companies and other plan sponsors. She is a 25 year veteran of the life insurance industry and is regarded as being one the insurance industry’s leading pioneers in the development and marketing of new products. Her success is unparalleled in the industry in terms of volume and product placement for the leading insurance companies and investment banks worldwide. Amy also has a national practice dealing with CEOs of public and private companies in insurance matters and tax mitigation strategies to preserve and protect family wealth. She is a life and qualifying member of Forum 400, MDRT’s Top of the Table, AALU and NAIFA.

Amy earned her BA in International Business from George Washington University.

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The AgencyONE Team

• Elizabeth J. Weber, JD

Liz is the Chief Marketing Officer for AgencyONE and is responsible for all aspects of marketing as

well as Advanced Markets. Immediately prior to joining AgencyONE, Liz was SVP Business

Development for NFP, a NYSE company. She has also held positions with the law firm Greenberg

Traurig, LLP as Of Counsel in the ERISA practice and with KPMG as Principal(Partner)-in-Charge

of the Midatlantic Compensation and Benefits Practice.

Liz received her JD from George Mason University where she was Associate Editor of the Law

Review. She received her BA from St. John’s College, Annapolis, MD. She is a member of the VA

Bar.

• Cathy Neifeld, Esquire

Cathy is AgencyONE’s VP of Business Development and General Counsel. Previously Cathy

worked for Potomac Partners evaluating all premium financing programs and specialty products.

Prior to entering the life insurance business she was a litigation attorney in Pennsylvania and New

Jersey for 11 years.

Cathy is a member of the International Forum and AALU. Cathy received her JD from the

University of Miami School of Law in Miami, Florida and her BA from Brandeis University in

Waltham, Massachusetts. She is admitted to both the Pennsylvania and New Jersey bars.

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The AgencyONE Team

• Brian S. Blalock, ASA, MAAA, FCA

As the leader of the Actuarial Services practice in McGladrey’s Human Capital Services unit, Brian provides health actuarial consulting

services for health insurance carriers, managed care organizations, state departments of insurance, medical groups, self-insured and

fully insured plan sponsors in the private and public sectors, Taft-Hartley funds, and others. He has comprehensive experience in all

aspects of health insurance, with a particular emphasis on valuation of liabilities, product development, pricing, and forecasting. While

working for a major accounting firm, Brian provided audit support on hundreds of engagements covering a wide range of clients and

health actuarial services.

Brian has significant experience pricing all types of health plans for both active and retiree populations.

Brian was a consulting actuary with two major accounting firms, a national benefits consulting firm, and the Blue Cross Blue Shield

Association. Most recently, he has been a consulting health actuary to the State of Illinois.

Brian received his BS from the University of Illinois.

• Michael Berman, FSA, MAAA

Michael provides health and disability actuarial consulting services to employers in the private and public sectors. He has extensive

experience consulting in the following areas: group medical plan design, pricing, and IBNR valuation; FASB 106/158 valuation, GASB

43/45 valuation, disability liability valuation, and captive insurance feasibility studies. Michael has worked at major health/disability

insurance carriers and a leading employee benefit consulting firm.

Michael has an inactive CPA license and has experience auditing at a major public accounting firm.

Michael received his MS in Actuarial Science from Georgia State University and his BS from the University of Massachusetts.

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Glossary

Accrued Service

The service credited under the plan, which was rendered before the date of the actuarial valuation.

Actuarial Accrued Liability (“AAL”)

The difference between (i) the actuarial present value of future plan benefits; and (ii) the actuarial present value of future

normal cost, which is sometimes referred to as "accrued liability" or "past service liability.”

Actuarial Assumptions

Estimates of future plan experience with respect to rates of mortality, disability, turnover, retirement, rate or rates of

investment income and salary increases. Decrement assumptions (rates of mortality, disability, turnover, and retirement)

are generally based on past experience, often modified for projected changes in conditions. Economic assumptions (salary

increases and investment income) consist of an underlying rate in an inflation-free environment plus a provision for a

long-term average rate of inflation.

Actuarial Cost Method

A mathematical budgeting procedure for allocating the dollar amount of the "actuarial present value of future plan

benefits" between the actuarial present value of future normal cost and the actuarial accrued liability. Sometimes referred

to as the “actuarial funding method.”

Actuarial Equivalent

A single amount or series of amounts of equal value to another single amount or series of amounts, computed on the basis

of the rate(s) of interest and mortality tables used by the plan.

Actuarial Present Value

The amount of funds presently required to provide a payment or series of payments in the future. It is determined by

discounting the future payments at a predetermined rate of interest, taking into account the probability of payment.

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Glossary

Actuarial Value of Assets The value of cash, investments, and other property belonging to a pension or OPEB plan, as used by the actuary for the purpose of an actuarial valuation.

AmortizationPaying off an interest-bearing liability by means of periodic payments of interest and principal, as opposed to paying it off with a lump sum payment.

Annual OPEB Cost (“AOC”)An accrual-basis measure of the periodic cost of an employer’s participation in a defined OPEB plan.

Annual Required Contribution (“ARC”)The ARC is the normal cost plus the portion of the unfunded actuarial accrued liability to be amortized in the current period. The ARC is an amount that is actuarially determined in accordance with the requirements so that, if paid on an ongoing basis, it would be expected to provide sufficient resources to fund both the normal cost for each year and the amortized unfunded liability.

Base Beneficiary Premium (“BBP”) The BBP is equal to the product of the beneficiary premium percentage and the national average monthly bid amount. The beneficiary premium percentage (“applicable percentage”) is a fraction, with a numerator of 25.5% and a denominator that is 100% minus a percentage equal to (i) the total reinsurance payments that CMS estimates will be paid for the coverage year, divided by (ii) that amount plus the total payments that CMS estimates will be paid to Part D plans based on the standardized bid amount during the year, taking into account amounts paid by both CMS and plan enrollees.

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Glossary

Discount Rate

The rate used to adjust a series of future payments to reflect the time value of money.

Expected Net Employer Contributions

The difference between the age-adjusted premium or expected retiree healthcare claims and retired member’s share of the

premium. This amount is used to offset the Annual OPEB Cost during the fiscal year.

Entry-Age Normal Cost Actuarial Method

A method under which the actuarial present value of projected benefits of each individual included in the actuarial valuation is

allocated on a level basis over the earnings or service of the individual between entry age and assumed exit age(s). The portion of

this actuarial present value allocated to a valuation year is called the normal cost.

Financial Accounting Standards Board (“FASB”)

FASB is the private, nonpartisan, nonprofit organization that works to create and improve the rules corporations follow when

accounting for their finances and reporting them to the public.

Implicit Rate Subsidy

The de facto subsidy of retirees by permitting them to pay lower than age adjusted premiums through the use of a single common

or blended premium for both retirees and active employees.

Explicit Rate Subsidy

The portion of the premium paid by the employer. The premium may be based on the experience of active and retired members

or retired members only.

Medical Trend Rate (Health Inflation)

The increase in the plan’s cost over time. Trend includes all elements that may influence a plan’s cost, assuming those

enrollments and the plan benefits do not change. Trend includes such elements as pure price inflation, changes in utilization,

advances in medical technology, and cost shifting.

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Glossary

National Average Monthly Bid Amount This is a weighted average of the standardized bid amounts for each prescription drug plan and for each MA-PD plan. The weights are based on the number of enrollees in that plan. The weight for each plan bid is equal to a percentage with the numerator equal to the number of Part D eligible individuals enrolled in the plan in the reference month and the denominator equal to the total number of Part D eligible individuals enrolled in the reference month in all applicable Part D plans. The calculation does not include bids submitted by MSA plans, MA private fee-for-service plans, specialized MA plans for special needs individuals, PACE programs under section 1894, any “fallback” prescription drug plans, and plans established through reasonable cost reimbursement contracts under section 1876(h) of the Act. The reference month for the 2011 calculation was June 2010.

Net OPEB Obligation (“NOO”) An accounting liability when an employer doesn’t fully fund the ARC.Normal Cost

The annual cost assigned, under the actuarial funding method, to current and subsequent plan years. Sometimes referred to as "current service cost." Any payment toward the unfunded actuarial accrued liability is not part of the normal cost.

OPEB - Other than Pension Employee BenefitsOPEB are postemployment benefits other than pensions. OPEB generally takes the form of health insurance and dental, vision, prescription drugs or other healthcare benefits.

Pay-As-You-Go Funding A method of financing benefits by making required benefit payments only as they come due.

Plan Member A plan’s membership includes active service employees, terminated employees who are eligible to receive benefits

but are not receiving them, and retired employees and beneficiaries currently receiving benefits.

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Glossary

Pre-Funding A method of financing benefits by placing resources in trust as employees earn benefits so that the resources thus

accumulated, along with related earnings, can be used to make benefit payments as they become due. Present Value of all Projected Benefits

The present value of the cost to finance benefits payable in the future, discounted to reflect the expected effects of the time value of money and the probabilities of payment.

Qualified PlanA qualified plan is an employer-sponsored retirement plan that qualifies for special tax treatment under Section 401(a) of the Internal Revenue Code.

Unfunded Actuarial Accrued Liability (“UAAL”)The difference between the actuarial accrued liability and valuation assets. Sometimes referred to as "unfunded accrued liability.”

Valuation AssetsThe value of current plan assets recognized for valuation purposes.

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Documents

EGWP Presentation