~~ VERITY NATIONAL ~~~ ~~~~ Mr. Don Wallace Wallace & Associates Insurance 800.372.8411 ~~ VERITY NATIONAL Mr. Don Wallace Wallace & Associates Insurance 800.3 72.8411 ~* VERITY NATIONAL September 7, 2007 Mr. Gary Looney, REBC Insurance Consultant 3201 Cherry Ridge Dr Suite D 405 San Antonio, Texas 78230 RE: Kerr County Employees RFP 2008 Dear Mr. Looney, On behalf of Don Wallace of Wallace & Associates and Verity National, we appreciate the opportunity to provide the accompanying response to the RFP for January 1, 2008. As noted on the General Information Section, originally Page 9, Item # 3, wherein you state: "All deviations from the specifications must be clearly identified and explained." We would respectfully note the following: Rate Deviations accounted for in the Stop Loss Section, question 20, with TTC Star Payor discounts, the rate as quoted reflects the aggregated discount (i.e. discount included in accompanying final rates proposed. 2. The Reinsurance Rates Proposed are blended rates. 3. The proposed administrative rates are quoted using the " 3-Year Option" as referred to in the RFP Assumptions section, Item # 4. Should there be any other questions, comments, or requests as a result of any part of the enclosed, please feel free to contact us regarding. Working with Don Wallace, we feel we bring a unique blend of the familiar (Mutual of Omaha, Texas True Choice), with cutting edge technology and service (Verity National). We look forward to serving the Kerrville public employees. Sincerely, as .Bartlett Sr. V.P. Business Development Cc: Don Wallace, Don Wallace & Associates VERITY NATIONAL GROUP, INC. Corporate Office 11467 Huebner Road, Ste 300, San Antonio, TX 78230 800.840.3977 Dallas Office 5956 Sherry Lane, Ste 1000, Dallas, TX 75225 214.346.6989 veritynationaLcom The Lafayette Life Insurance Company Kerr County Group Life and AD&D Proposal Option 3 Schedule of Benefits Class Description of Class Life Benefit AD&D Benefit 1) All Eligible Employees Flat: 20,000 Flat: 20,000 Reduction: Life and AD&D amounts will be reduced by 35% @ 65; 60% @ 70; 70% @ 75; 80% @ 80; 85% @ 85; 90% @ 90; 95% @ 95; and will terminate upon retirement. All reduction percentages indicated apply to amounts in effect at age 64. Coverage Rate Volume Monthly Premium Life $0.225 per $1,000 $5,605,000 $1,261.13 ,rAD&D $0.035 per $1,000 $5,605,000 $196.18 Total Monthly Premium $1,457.31 290 Employees Miscellaneous Provisions 1. Life proposal includes Waiver of Premium to age 65. 2. Standard Actively-at-Work Provision will apply (30 hours per week). 3. Written notification of a sold case must be submitted within 15 days of the proposed effective date. 4. Includes 24 Hour AD&D Coverage. 5. Coverage is to be effective January 1, 2008. 6. The Non-Medical Maximum for this group is $20,000. 7. *Rates guaranteed for 24 months. 8. This proposal is valid through January 1, 2008. 9. This proposal is contingent on compliance with Lafayette Life's Electronic Administration System. 10. This is a contributory plan. 11. This proposal assumes that all participants are residing and performing the duties of their occupation in the U.S.A. 12. This proposal excludes the individual born in 1910. *The rates are guaranteed to the rate guarantee date listed above, assuming there are none of the following benefit structure changes: no more than a 20% change in enrollment, there is no addition/deletion of a unit, there is no lapse in the report of monthly census changes, or there is no payment of fir' monthly premium other than as billed. A rate guarantee does not otherwise alter or amend the terms or conditions of the policy. The rate guarantee is good only as long as the policy is in force. This quote shows a summary of proposed benefits, rates and miscellaneous provisions. It is not part of the group policy or a legal contract with Lafayette Life Insurance Company. Sales Representative: James M. Bennett Monday, August 20, 2007 7%re ~afayeite Lf ~ vt Insurance Company r 1905 Teal Road ~~ P.O. Box 7007 Lafnyeae, /ndiana 47903 ® (800) 443-8793 (7G5) 477-7411 Group FAX (7G5) 477-33G9 ADDITIONAL LIFE INSURANCE for Kerr County Employee Benefits Choice of $10,000 to $500,000 in $5,000 increments, not to exceed five times annual Base Salary. Employee life insurance is convertible/portable. (See policy for eligibility requirements). Spouse Benefits Choice of $5,000 to $125,000 in $5,000 increments, not to exceed 50% of the Employee benefit Child(ren) Benefits Choice of $2,500, $5,000, $7,500 or $10,000 (10% of the full benefit for child(ren) under 6 months). Maximum Benefit Employee: $500,000 Spouse: $125,000 Child(ren): $10,000 Minimum Requirement 15% participation needed, 10 life minimum Participation Guarantee Issue Group Size: <50 50-99 100-499 500-749 750+ Employee: $50,000 $75,000 $100,000 $125,000 $150,000 Spouse: $25,000 (regardless of group size) Child(ren): All guarantee issue *Guarantee Issue for employees and spouses ages 60-69 is limited to 50% of the above stated GI limits. No Guarantee Issue for employees or spouses at or over the age of 70. Evidence of Insurability Up to $125,000 over guarantee issue -Short form, MIB, APS (only if questions) Requirements More than $125,000 over guarantee issue - Blood test, complete medical history, Short Form, MIB, APS. Evidence of Insurability 1) Late Entrants 2) Increases in Amounts 3) Employees age 70+ Also Required for Additional Life Step Rates Age Employee /Spouse Rates per $1,000 00-24 0.07 25-29 0.08 30-34 0.09 35-39 0.11 40-44 0.17 45-49 0.28 50-54 0.49 55-59 0.82 60-64 1.18 65-69 1.96 70-74 3.46 75-79 5.80 Child(ren) Reduction Employee: Spouse: Child(ren): Waiver of Premium Terminates (Employee Only) Eligibility Employee: Spouse and Children: $0.45 per $2,500 unit Std ADEA65 -Terminates the earlier of age 80 or retirement 35% at age 65, terminates the earlier of age 70 or when employee ceases to be eligible Terminates at earlier of age 21 (23 for full-time student) or when employee coverage terminates ~t age 65 (must be disabled prior to age 60) Actively at work, performing normal duties at least 20 hours per week Not hospital confined nor disabled GP1231 (01!06) Preferred ~~ VERITY NATIONAL Kerr County Specific and Aggregate Stop Loss Insurance Third Party Medical Claims Administration Group Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (IRS code 125) Administration Prescription Benefit Management RFP CONTENTS: 1: Acknowledgement Form 2: Specifications and General Requirements Form 3: Certification of Responsibility Form 4: Conflict of Interest Questionnaire 5: Specific and Aggregate Stop Loss 6: TPA Organization a. Claims Administration b. Eligibility System c. System Capabilities d. Banking Arrangements e. Utilization Review f. Preferred Provider Organizations g. Reporting h. General 7: HRA Questionnaire 8: Prescription Benefit Manager Questionnaire 9: Cafeteria Plan Administration 10: Administration 11: Organization Structure ~~ VERITY NATIONAL RFP CONTENTS CONTINUED: 12: Liability Protection and Banking Reference 13: Prices/Fees 14: History 15: Unique Characteristics 16: References 17: Wellness and Prevention Questionnaire 18: Health Risk Assessment Services 19: Health Risk Assessment Form 20: Implementation and Communication Strategy Attachments (see next page) ~~ VERITY NATIONAL ATTACHMENTS: 1: Verity National Errors & Omissions Declaration Page 2: Verity National Report Options 3: Verity National Patient Information 4: Verity National Rx Sample Reports 5: Verity National Rx "Clinical Consults" Newsletter 6: Verity National Rx Explanation of Benefits 7: Verity National Marketing Tools 8: Verity National Modeling Tools 9: Verity National Sample Contract 10: Medical & Section 125 Sample Administrative Agreements 11: Medical & Section 125 Sample Plan Documents 12: Section 125 Educational Materials 13: Section 125 Sample Reports 14: Verity National TPA License 15: Verity National Fee Schedule 16: Resume: Lynn Taylor 17: Health Risk Assessment Sample Online Screenshots 18: Health Risk Assessment Tool Kit 19: Health Risk Assessment Demo Registration Instructions REQUEST FOR PROPOSALS ~P) SPECIFICATIONS Specific and Aggregate Stop Loss Insurance Third Party Medical Claims Administration Group Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (Ills code 12~ Administration Prescription Benefit Management Kerr County Courthouse 700 Main Kerrville, Tezas 78028 EFFEC'T'IVE DATE: January 1, 2008 Page 2 of 68 Kerr County REQUEST FOR PROPOSAL TABLE OF CONTENTS Page Request for Proposal Legal Notice ............................................................................................... 3 Acknowledgement of Receipt of RFP, Certifications,Con~ict of Interest Questionnaire ................ 4 - 7 Notice to Proposers ..................................................................................................................... 8 General Information, Timetable .................................................................................................. 9 - 13 Background ................................................................................................................................ 14 RFP Assumptions, Questionnaires, and Submission Forms ......................................................... 15 -27 Attachments: The following files are also included on CD Claim Experience ................................................................................................................. Summary Plan Documents .................................................................................................... Census ................................................................................................................................. ASO Agreement ............................................................................................... If you do not have access to an intemet system you may obtain a hard copy of the Request for Proposal from: Gary R Looney, 3201 Cherry Ridge Rd, Suite D 405, San Antonio, Texas 78230 Ph: 210-930-6665 'err Page 3 of 68 Kerr County Request for Proposal Specific and Aggregate Stop Loss Insurance Third Party Medical Claims Administration `"~`' Group Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (IIZS code 125) Administration Prescription Benefit Management Kerr County will accept sealed proposals for listed items individually or corporately until 11:00 A.M. local time, September 4, 2007 County Judge Pat Tinley's office, County Courthouse 700 Main Kerrville, Texas 78028. Proposals will be opened and acknowledged publicly on September 4, 2007. This is a procurement of insurance through the competitive sealed proposal procedure outlined in the Texas Local Government Code Chapter 252, Subchapter B, Sections 252,021 (c); 252,041 (b); 252.042 (a), (b); 252,043 (b); and 252.049 (b). At the proposal opening, only the identity of the proposers will be disclosed by KERB COUNTY. The proposals will be forwazded to KERB COUNTY' S insurance consultant for review, tabulation and analysis. The contents of each proposal will not be disclosed in order to protect the integrity of the negotiation process. To obtain the best final offer(s), revisions by short-listed candidates may be permitted after original proposal submission, and before contract award. All proposals will be later made available to the public for inspection after the contract is awarded, if a proposer indicates and justifies in his proposal(s) that certain information is proprietary, KERB COUNTY will not release the materials for public inspection after the contract award. Detailed specifications, including the criteria for proposal evaluations, maybe obtained from: Gary R Looney, 3201 Cheny Ridge Rd, Suite D 405, San Antonio, Texas 78230 Ph: 210-930-6665 glooney@alamoinsgrp.com Please mazk on the outside of the submitted envelope/box: "SEALED PROPOSAL FOR KERB COUNTY MEDICAL STOP LOSS, TPA SERVICES, LIFE INSURANCE AND AD&D, September 4, 11:00 AM" and send or deliver to the attention of "Kerr County Commissioner's Court, C/O County Judge Pat Tinley County Courthouse 700 Main Kerrville, Texas 78028" KERB COUNTY reserves the right to reject any or all competitive sealed proposals and waive any irregularities contained therein and to accept any competitive sealed proposals deemed most advantageous to KERB COUNTY, any competitive sealed proposal received after 11:00 am., local time, September 4, 2007, will be automatically rejected and returned to the proposer unopened. KERB COUNTY will not be responsible in the event that the U.S. Postal Service or any other carrier system fails to deliver the sealed proposal to KERB COUNTY by the given deadline above. `r- Page 3 of 68 ~.+~ :Kerr County Specific and Aggregate Stop Lass insurance Third Party Medical Claims Administration. GraupTetm L'tfe and: Ad&D Health Reimbursement Atr~tttgement Cafeteria Plan (IRS code 125) Administration Prescription Benefit Management PLEASE ACKNOWLEDGE RECEIVING THIS RFP BY RETURNNG TEAS FORM In order to allow a fairand competitive bid process proposer will not b~ allowed CO access markets prior to the release date ofthis RFP. The official date andtime ofretease i Monday, August'6, 2007, t0:00 AM. Any agent contacting markets prior to'this~ttate will not be allowed to present a proposah if it is determined that markets were. approached in advance of the release date, then, that vendor shall immediately notify our'insurance consultant of the date and time of receipt of the request. Failure to disclose the early request will result. in disqualification of the vend+ar, Disclosure will result in reassignment of the vendor to another proposer. [t is your responsibility to return this. intent to bid with the proper means of contacting you or-your organization.'Communicatingony questions, answers, or amendments to this RFl'wil be made through the process you provide on this form. FAX or Mail T0; Gaty Looney Rsac .'.Insurance Consultant 3201 Cherry tZcige Dr Suite D ~30~ San Antonio,. Texas 78230 Fax: 210-930- 1838 `err X WILL RESPOND* _ WILL NOT'RESPOND COMMENTS; ~~.+' COMPANY NAME: ^WALLACE' & ASSOCIATES COMPANY 1=AX: _,,,{830) 303-5380..... COMPANY PHONE` -{830) 372-4442 -~'""~ SIGNATU Page ~ of 4 Derr County Specific and Aggregate Stop Loss [nsurarice Third Party Medical Claims Administration Group Term Life and AD&D I-[ealtli Reimbursement Atrartgemenf Cafeteria P[ari (IRS code T25) Administration Pt~escription BenefirManagement The undersigned proposer, by,signing and execut[ng this proposal, certifies and represents to Kerr County that proposer has not offered, confen•ed ar agreed to confer any pecuniary benefit, as defined by (1.07 (a) (6) ofthe Texas Penal Code, or any other thing of value as consideration for the receipt of information or any special treatment: of advantage relating to this proposal; the proposer also certifies and represents that the proposer has not offered, conferred ar agreedl to confer any pecuniary benefit or other thing of value as consideration for the recipient's decision,. opinion, recommendation, vote or other exercise of discretion concerning this proposal, the proposer certifies and represents that proposer has neither coerced nor attempted to influence the exercise of discretion by any officer, trustee, agent or employee of Kerr County concerning this proposal on the basis of any consideration not authorized by law; the proposer also certifies;and represents that proposer has not received any information not available to other proposers so as to give the undersigned a preferential advantage. with respect to this proposal; the proposer further certifies and represents that proposer has not violated any state., federal, or local law, regulation. or ordinance relating tabribery, improper influence, collusion orthe like ,and that proposer will not in the future offer, confer, or agree to confer any pecuniary benefit. or other thing of value of any officer, trustee, agent or employee of Kerr County in return for the person having exercised their person's official discretion, power or duty with respect to this proposal; the proposer certifies and represents that it has not now and will not'n the future offer, confer, ar agreexo confer a pecuniary benefit or other thing of value to any officer, trustee, agent, or employee of Kerr County in connection with information regarding th[s proposal, the submission of this proposal, the award: ~' of this proposal or the performance, delivery or sale pursuant to this proposal. The proposer shall defend; [ndemnify, and hold harmless Kerr County, alLof its officers; agents and employees from and against all claims, actions, suits, demands, proceeding, costs, damages, and liabilities, arising out of, connected with, or resultingfrom any: acts or omissionsofcontractor or any agent,,emplayee,,suocontractor, or Supplier of contractor in the: execution or performance of this RFP. t have read°at1 of the specifications and general proposal requ[rements and do hereby certify that all items submitted meet specifications. COMPANY: WALLACE & ASSOCIATES AGENT NAME: _ N WALLA E ~_ AGENT SIGNATURE; ~ `~'~~~``-°''~` ADDRESS: 628 N. 1'23 BYPASS #3 C1TY: SEQUIN STATE: TX ZIP CODE: 7815 TELEPHONE: 8~0-372-~40~2 FAX: _830-3©3.5'>80 FEDERAL TIN#: ANED/C7(t SOC[AL SECURITY #: ~~ 1776293 DEVIATIONS FROM SPECIFICAT[ONS IF'ANY (Attach documents as necessary or state No Deviations): Page5of5 Kerr County Specific. and Aggregate Stop Loss Insurance Third Party Medical Claims Administration Group Tenn Life and AD&1? Health Reimbursement Arrangement Cafeteria Plan (1RS code t~5) Administration' Prescription Benefit Management CERTIFICAT[~N REGARDING 17BBARi~IENT, SUSPENSION, AND QTHER RESPONSIBILITY MATTERS NarneOf'Entiry:_DON WALLACE The prospective participant certifies to the best of its knowledge and belief-that if and its principals: a) Are not presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from covered transactions by any Federal,department ar agency: b) 'Have not within a three year period preceding this proposal been convicted,of had a civil. judgment rendered against them far commission of fraud or a criminal offense in connection with obtaining, attempting to obtain, or performing a public (Federal, State, or local) transaction or contract under a public transaction; violation of Federal or State antitrust statutes or commission of embezzlement, theft, Forgery, bribery, falsification or destruction of records, making false. statements, or receiving stolen property; c) .Are not presently indicted for or otherwise criminally ar civilly charged'by a gavemment entity (Federal,-.State, Local) with commission of any ofthe offenses enumerated in paragraph (I) (b) of this certification; and d} Have not. within a three year period preceding this application/proposal had one or more public transactions (Federal, State, Loeal) terminated. for cause or default. I understand that a false statement on this;eertification may be grounds ..for rejection of this proposal or termination of the award.ln addition, under I S USC Section i 00:1, a false statement may result in a fine up to a $ 1'0,000(00 or imprisonment for up to five (5) years, or both. C`~ Lz/~tJ'P r^ err Name and Title of Authorized Representative<(Typed) Signature of Authorized. Representative :Date ~-s tam unable to certify to the above statements. My explanation is attached. 'Page 6 of 6 Conflict of TnterestQuestlonnare For Vendor or Other Person 1)oine Business with a Local Government Entity Tltis qutstionnaire isbeing filed in accordance withchaptcr'17b ofthe Local Gavern'iitent Code by a person doing business with a government entity.. ~trrr+' I3y lacy this quesuannaire must be tiled +vitlt the records administrate>r of the focal government riot later than the 7'h businass dap offer the date the parson becomesaware of the_;facts-that require the staternanl to be tiled, ~S~e~ sear"c3rr L~Fi.~06, Loccrl Governnten~ Cade. A person commits;au otf'ense iFthe person vii~lates Section 176.0(}G. Local Government Code. An otl'ense under this section is a Class C Misdemeanor. I. vame of poison doing business with local government entity. DON WALL.ACE 2. ^ Check this bnx if you are tiling an update to ii previously tiled questionnaire. Cfhe law requires that you.tile an updated completed questtpnnaire with the appropriate fih(tg authority not Tatar than September 1 of the }•sar for which the activity described in Section 17G.DDfi(a) focal Governnunt Coda, is pending and not later than the 7t6 business day after thenriginalty i"vled questionnaire buewnes incomplete or inaccurate.) 3. bescribe each afiiliaton or business relationship with an employee or contractor of the local government entity who makes recommendations to a local government officer ofthe locitl government entity. with respect fo expenditure of money. Nt)NE d. Describe each affiliation or business relationship with a parson who is a local government ofliccr and who appoints or employs a local government officer of the local govenuncnt entity that is subject of this questionnaire. NONE 5. Name of local government oti'icer withwhom tiler has an atliliationor businass relationship. (Complete this section only ifthe answerto A, [3 ar ~ is YES) ~fhis section, item. § including subparts A, B, C & C) must be complefed far each officer with n~hom the tiler has atiiliution or business relationship. Attach additional s as necessary.. r\. fs the local government officer named in this section receiving or likely to receive taxable income from the filer of this questionnaire? ^ Y> S X NO Q, is the filer of the questionnaire receiving orlikely to receive taxable income born or at file direction of the local govr:rnmcnt of'f'icer named'in this section? o YES X NO C. Is the tiler ofthis questionnaire atTliated with acorporation orother business cntitythat the local government officer serves as un officer or director orholds an ownership position of I Q°ro ormore? YES X NO D. Describe each affiliation or business relationship. b. Uescribeany other ati~iliation or businessrelationship that might causes conflictofintcrtst, NC7Nl 7. Signatures ~' 1 1 -,- . z, ~-~ ~~ 7 Signature of person doing busitess with the Date Governrncntal entity Page 7 of 7 Kerr County Specific and Aggregate Stop Loss Insurance Third Party Medical Claims Administration Group Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (IRS code 125) Administration Prescription Benefit Management NOTICE TO PROPOSER Information provided in these specifications is to be used for purposes of preparing a proposal detailing costs of providing the services and insurance specified. It is further expected that each proposer will read these specifications with caze, since failure to meet each condition or a combination of specified conditions may disqualify proposal. Information provided by Kerr County includes: 1. Current census 2. Plan documents 3. Rate history 4. Standard Loss Information 5. High Claim Losses KERR COUNTY reserves the right to reject any or all proposals or any portion thereof and to accept the proposal deemed most advantageous to KERB COUNTY. Proposer is required to submit quotations on the basis of these specifications. Alternative quotations (for service on a basis different from requested in these specifications) will receive consideration if such alternatives are clearly explained. Any exceptions to coverage requested herein must be clearly noted in writing and be included as a part of the proposal. KERB COUNTY believes that the data contained in these specifications is sufficient for preparation for a proposal. The information is believed to be accurate and is based upon the latest available information, but it is not to be considered in any way as a warranty. Requests for additional information should be directed in writing to Gat~Looney REBC Insurance Consultant, 3201 Cherr~d~e Drive Suite D 405 San Antonio Texas 78230 Phone (210) 930-6665_ Fax X210) 930-1838 Email address lg ooney~a.alamoins~rp.com ~r+ Page 8 of 68 Kerr County Specific and Aggregate Stop Loss Insurance Third Party Medical Claims Administration Group Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (IRS code 125) Administration Prescription Benefit Management GENERAL INFORMATION and INSTRUCTIONS 1. The information contained in these specifications is confidential and is to be used only in connection with preparing a proposal for all or part of the following employee benefit plans: Specific and Aggregate Stop Loss Insurance, Third Party Medical Claims Administration, Group Term Life and AD&D, Health Reimbursement Arrangement, Cafeteria Plan (IItS code 125) Administrafion, Prescription Benefit Management 2. KERB COUNTY reserves the right to accept or reject all or any part of the proposals, waive minor technicalities, and award the proposal to best serve the interest of KERB COUNTY. KERB COUNTY also reserves the right to waive or dispense with any of the formalities contained herein. 3. Proposals are to be submitted on the basis of the specifications contained herein. Alternate proposals will also be considered, if the alternatives are clearly explained. All deviations from the specifications must be clearly identified and explained. 4. The information contained herein is believed to be accurate and up-to-date, but is not intended to be an express or implied warranty. 5. No telephone or fax proposals will be accepted. Proposals will only be accepted if delivered by U.S. Postal Service, contract carriers, hand delivery, etc. KERB COUNTY will not be responsible for missing, lost or late mail. Any proposals received after the deadline will be °+ returned to the proposer unopened. 6. At the proposal opening, only the identity of the proposers will be disclosed by KERB COUNTY. The contents of each proposal will not be disclosed in order to protect the integrity of the follow- up negotiation process with short-listed candidates. 7. To obtain the best final offer(s), revisions by short-listed candidates maybe permitted after original proposal submission, and before contract award. 8. All proposals will later be made available to the public for inspection after the contract is awarded. If a proposer indicates and justifies in his proposal(s) that certain information in the proposal(s) is confidential or a trade secret, KERB COUNTY will review those materials with the proposer prior to releasing the materials for public inspection after the contract award. 9. Gary R Looney REBC is the independent insurance consulting agent providing technical assistance to Kerr County during the RFP process. Gary R Looney is compensated by KERB COUNTY on a fee basis, and is not compensated by the service provider. 10. Vendors are cordially invited to the proposal opening, but are not required to attend. fir' Page 9 of 68 Kerr County Specific and Aggregate Stop Loss Insurance Third Party Medical Claims Administration Crroup Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (IRS code 125) Administration Prescription Benefit Management TIMETABLE 1. These specifications aze to be released for action at 10:00 am August 6, 2007. 2. One original and two (2) copies of the proposals are to be delivered or mailed to Kerr County Courthouse, C/O Judge Pat Tinley, 700 Main, Kerrville, Texas 78028 to arrive by September 4, 2007, 11:00 am. 3. Consideration and action on the Proposals will be presented to the Commissioner's Court on or about September 24, 2007. 4. The successful proposer will be notified on or about September 24, 2007. 5. Coverage is to be effective January 1, 2008. 6. Policies or contracts aze to be provided to KERB COUNTY no later than 30 days after such effective date. 7. The contract term desired is three years with yeazs two and three subject to County Commissioner's Court approval. PREPARATION OF PROPOSAL The proposer shall prepare their proposal in one original and two (2) copies on the attached proposal form with attachments as necessary to fulfill the specifications contained herein. Unless otherwise stated, all blank spaces on the proposal or as, applicable to the subject specification, must be correctly filled. A unit price must be stated for each item, either typed in or written in ink. Any exceptions or deviations from the requested services must be cleazly indicated in writing and submitted with and form a part of the proposal form. Failure to follow these instructions will be grounds for disqualifications of a proposal. Complete and sign all documents provided including the Conflict of Interest Questionnaire (CIQ) which is included in the information you have received. Page 10 of 68 Kerr County Specific and Aggregate Stop Loss Insurance Third Party Medical Claims Administration Group Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (IRS code 125) Administration Prescription Benefit Management WITHDRAWAL OF PROPOSAL Proposers may withdraw their proposals anytime up to the time specified as the closing time for acceptance of proposals. However, no proposer shall withdraw or cancel their proposal for a period of 60 days after said closing date for acceptance of proposal nor shall the successful proposer withdraw or cancel or modify their proposal, except at the request of KERR COUNTY, after having been notified that KERR COUNTY has accepted the said proposal. Withdrawal or cancellation of a proposal after the closing date for acceptance of proposals shall result in the forfeiture of the bid security. CRITERIA USED TN EVALUATING PROPOSALS 1. No insurance proposals will be accepted from insurers without a Best's Rating, of at least an "A-" in the most recent edition of BEST'S KEY RATING GUIDE FOR LIFE/I-IEALTH,. 2. Any insurers, agents or third party administrators shall be duly licensed by the state of Texas, and comply with all applicable state insurance laws and requirements or duly constituted applicable insurance regulatory authorities. A local government self-insurance pool organized under the Texas Interlocal Cooperation Act or other state law shall also be an acceptable provider. 3. The proposal must be in easily understood format with coverage clearly outlined. ~' 4. Proposals will be first evaluated on technical factors other than cost, including coverage, benefits, services and financial stability. After a preliminary evaluation of the technical criteria, cost will be included in the evaluation process. Cost will be evaluated on an equal basis with the technical criteria. For the evaluation of cost, fixed administrative cost for athree-year period will be considered first; followed by total first year cost for stop loss insurance premiums and maximum claim cost. For aggregate stop loss insurance maximum claim cost, additional specific deductibles (lasers) will be added to maximum claim cost, if not an allowable claim expense for aggregate maximum claim cost. Page 11 of 68 Kerr County Specific and Aggregate Stop Loss Insurance Third Party Medical Claims Administration Group Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (IRS code 125) Administration Prescription Benefit Management QUALIFICATION OF COMPANIES AND AGENTS SUBMITTING PROPOSALS. All companies and agents submitting proposals must be licensed by the state of Texas and have demonstrated level of good performance with municipalities, school district or other public entities in Texas. The company or agent must have an Errors and Omissions (E&O) policy with a minimum limit of $1,000,000. An agent submitting a proposal must maintain a fully staffed office for the servicing of the program. The agent must have been in business for at least five years and must assign a minimum of one qualified account representative to service KERR COUNTY to include assisting with enrollment responsibilities. This representative must have a minimum of five years experience in employee benefits, or hold the CLU, CEBS and or RHU designation. DEVIATION FROM SPECIFIED COVERAGE OR SERVICE Proposals are to be submitted on the basis of the specifications contained herein. Proposer MUST include the RFP Submission Forms with its proposal. All costs to be incurred and billed to KERR COUNTY will be firm and included in these forms. Alternative proposals will also be considered, provided the alternatives are clearly explained. All deviations from the specifications must be clearly identified and explained. UNDERWRITING DATA KERR COUNTY has assembled the underwriting exposure, and loss data included in these specifications. While every effort has been made to ensure the accuracy of this information, it cannot be guaranteed. It shall be the responsibility of the successful proposer to review this information and work with KERR COUNTY on an ongoing basis to ensure all relevant exposures are included in KERR COUNTY'S program. If it becomes necessary to revise any part of this proposal, a written addendum will be provided to-all proposers who have submitted an "Intent to Bid Form". KERR COUNTY is not bound by any oral representation, classifications, or changes made in the written specifications by KERR COUNTY employees, unless such classification or change is provided to proposers in a written addendum from an authorized representative of KERR COUNTY or KERR COUNTY'S insurance consultant. COMPLIANCE WITH LAWS All proposers involved shall observe and comply with all regulations, laws ordinances, etc., of local, state, and federal government as they apply to this proposal process Page 12 of 68 err` Kerr County Specific and Aggregate Stop Loss Insurance Third Party Medical Claims Administration Group Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (IRS code 125) Administration Prescription Benefit Management TERM OF CONTRACT AND EXTENSION/RENEWAL RIGHTS The term of the contract for insurances or service shall be for not less than one yeaz, subject to eazlier termination as provided by the law and by the terms of the contract. In addition, unless otherwise specified in the proposal, the award of this proposal shall include the right at the option of KERR COUNTY, and contingent upon the agreement by both parties, to any change in premium costs or benefits to renew and extend this contract on a yeaz to yeaz basis as may be permitted by applicable law and Commissioner's Court approval as may be in the best interest of KERR COUNTY; if the maximum term of this contract and all renewals of it shall be not more than three years before such contract must again be offered for competitive bidding. AUTHORIZED SIGNATURE All proposal forms must be signed by persons who have legal authority to bind the insurer and administrator to the services proposed. DISQUALIFICATION AND REJECTION OF PROPOSALS Failure to comply with the requirements or the procedures set forth herein, or to satisfy the insurance and servicing criteria as set forth in the specifications, may result in disqualification. It is not Ord intended that exceptions to the specification will, in and of themselves, result in disqualification. CONTINUITY OF COVERAGE All employees, retirees and dependents covered by the current plan aze to receive immediate coverage under the new plan. Continuity of coverage for current participants is to be on a "no loss no gain" basis for all insurance coverage. In addition, proposers must waive the actively at-work provisions. In fulfilling the Continuity of Coverage requirement fair credit must be allowed for all or any part of health insurance deductibles or co-insurance satisfied, and accumulated lifetime maximum amounts before the contract effective date. Page 13 of 68 Kerr County Specific and Aggregate Stop Loss Insurance Third Party Medical Claims Administration Group Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (IlZS code 125) Administration Prescription Benefit Management Background Information Kerr County is located North West of San Antonio in the Texas Hill Country. The majority of the 200+ insured employees, retirees and COBRA participants participating in KERB County's self-funded health benefit plan use the services of providers located in Kerr County and San Antonio. Mutual of Omaha has provided Administrative Claim Services, COBRA, HIPAA administration, HRA administration for the Health Plan since January of 2005. The plan has been self-insured for several years. In 2005 the County instituted an HRA plan for all employees, changed the previous three option plan to two options both with HRA accumulation accounts. In 2007 the plan options were offered however, no employees enrolled in the $1,500 deductible plan. The HRA account expenses are not included in the losses attributed to the specific or aggregate insurance coverage. The County is very interested in providing a proactive wellness program for their employees. Be certain to provide a description of a wellness plan that you feel would impact the employees of Kerr County. The basic group term life insurance amount is $20,000 per employee and includes accidental death and dismemberment. A copy of the plan of benefits is included in the attachments. The rate is $.20/$1,000 for `"~ basic life coverage and $.02/$1,000 for accidental death and dismemberment. KERB COUNTY desires to receive proposals for continuation of the self-funded health plan based on duplication of existing Plan of Benefits unless other specified. `ar- KERR COUNTY currently provides medical plan benefits for retirees. The current retirees will be grandfathered for coverage. Future Retirees will be provided with a limited plan of benefits not to exceed the level of the Specific Deductible. Retirees are shown on census as Class R001. Page 14 of 68 Kerr County Specific and Aggregate Stop Loss Insurance '"~` Third Party Medical Claims Administration Group Term Life and AD&D Health Reimbursement Arrangement Cafeteria Plan (IRS code 125) Administration Prescription Benefit Management Individual Stop Loss Insurance (ISL)/Aggregate Stop Loss Insurance (ASL) Request for Proposal Submission Form RFP ASSUMPTIONS: 1. Proposal is to be based on the duplication of the existing Plan of Benefits, unless otherwise specified, Any deviations must be clearly identified and explained. All proposals will be assumed to have been submitted without any deviations unless clearly noted. 2. Proposal is to be based on the provided census. 3. Contract effective date is to be January 1, 2008. All participants enrolled in the insurance plan as of December 31, 2007 are to be covered on a "no loss/no gain" basis. "No loss/no gain" for participants are to include credit/debit for accumulated deductible, coinsurance, and lifetime maximum benefits. 4. KERR COUNTY desires to receive proposals for a three (3) yeaz period on one of the following basis: • Fixed price for the three (3) year period, or • Two annual renewal adjustments determined by formula at the time the contract is awazded, or • One (1) year contract with two annual renewal options for rate and premiums deemed to be favorable to KERR COUNTY. Renewal rates aze to be provided to KERR COUNTY by October 1 (90 days prior to anniversary date). 5. KERR COUNTY will only consider stop loss insurance policies meeting the following: a Specific and Group Aggregate Policy on a 15/12; paid/12; 24/12 or paid /15 basis for Medical and Drug (Rx). We do not wish to see an aggregating specific. b. Medical and Drug (RX) Specific Coverage with $40,000; $50,000; $60,000 Stop loss. c. Medical and Drug Aggregate Coverage at 120% and 125% of expected claims d Final determination on all lasers, if any, including deductible amounts and conditional lasers should be clearly identified and provided with RFP response based on provided claims data e. Insurance Company Quotation Document with all terms cleazly listed f.. Waive Actively at Work Provisions 6. Renewal rate must be received by KERR COUNTY at least 90 days prior to date of rate change. 7. Any estimated savings, performance or other guazantees should be specific, quantifiable and should include a method for validation. QUESTIONS: I . Describe the business entity submitting the proposal: a. Insurance Company Name: b. Address: c. Contact Person: d. Telephone Number: e. Year Founded (Ins. Co): Mutual of Omaha Mutual of Omaha Plaza, Omaha, NE 68175 Brad Waldecker (402) 351-8358 1909 Page 15 of 68 Kerr County Specific and Aggregate Stop Loss Insurance "` f. What percentage of overall business is Health related? June 2007 YTD: 63% of the revenue for the Group Benefit Services division was health related. g. Managing Underwriter's Name: United of Omaha Life Insurance Company h. Year Founded (Managing Underwriter): 1926 i. Number of Years for Representing Insurance Company: N/A 2. Describe Financial Stability of Insurance Company: a. Financial Rating Service Current Rating Prior Year Rating A.M. Best A+ A Standard & Poors AA- AA- Moody's Aa3 Aa3 b. Is Insurance Company authorized to do business in Texas? Yes. 3. Provide three (3) Texas client references (preferably public entities): Since we do not work directly with employer groups, references are not available. Please contact us to discuss. 4. Describe the business entity submitting the proposal: Questions 4-7.• N/A a. Name of Business Entity: b. Current Business Address: c. Mailing Address: d Contact Person: e. Telephone Number: f. Type of Business Entity: -Corporation -General Partnership _ Sole Proprietorship Registered Limited Liability Partnership _ Limited Liability Company 5. a. Has the business entity been a defendant in any lawsuit in any state or federal court during the preceding five (5) yew? Yes _ No If yes, identify each lawsuit by party, case number, court, subject matter, and disposition: b. Does the business entity have any claims filed against it which are unresolved and presently pending before any State of Texas Administrative agency? Yes _ No If yes, please provide a full description of the charges 6. Financial Information: a. Has the business entity filed a voluntary or involuntary petition in bankruptcy, obtained an order for relief, or ~ received a discharge on any debt under the U.S. Bankruptcy laws during the preceding seven (7) years? _ Yes No Page 16 of 68 b. Has any owner, member, or partner of the business entity filed a petition in banla-uptcy, obtained an order for relief, or received a dischazge on any debt under the U.S. Bankruptcy laws during the preceding seven (7) yeazs? Yes No If yes, please describe: 'wr 7. Describe insurance coverage (include copy of Insurance Certificate): a. The business entity must provide satisfactory evidence of existing insurance coverage in the amount of $1,000,000.00 for Errors and Omissions or other fiduciary liability. If the business entity is selected to provide services it must provide evidence that such coverage will be in effect for the duration of the agreement. 8. Describe ISL and ASL claim payment: a. Where will claims be paid? Omaha, Nebraska b. What is the definition of "paid claim" to be eligible for reimbursement? We define a "paid "claim as one that has been processed, provided adraft/check is delivered to the payee within S days after the day the claim was processed. c. Can KERR County's HR Director and consultant speak directly to claim examiner for questions related to payment of claim? Yes Comment: d. What is the normal processing time for ISL claim? Our time service goal is 10 days. e. What is normal processing time for ASL claim? Our time service goal is 10 days but is dependent upon whether or not an onsite audit is required. f. What expenses related to investigation of claim are eligible for reimbursement (e.g. hospital audit, medical records, etc) by the stop loss carrier? Hospital audits initiated by Mutual of Omaha, case management and negotiation fees. g. If KERR COUNTY has negotiated with providers, will these discounts be accepted, in lieu of doing a hospital or other audit? Yes g. Describe documentation needed for ISL claim reimbursement: Speciftc Claim Process: Notes us as soon as possible of potential specific claims. As soon as paid claims for the contract period exceed the specific deductible, you must submit an initial request for reimbursement with the following: • Copies of all pertinent eligibility documentation (e.g. enrollment card, screen prints of history, COBRA payment) and verification of creditable coverage (how coverage is maintained while off work) • Results of other insurance, Medicare and subrogation • Signed subrogation form and accident details, if applicable • Copies of care certifications (preauthorizations, hospital precertifications, etc.) Page 17 of 68 • Copies of case management progress notes • Copies of all provider bills (refunds, benefit exceptions, overpayments) ~, Copies of EOBs • Claim history report • Proof of deductible and out-of-pocket, Any subsequent claim filings must also include the following information: • Claim history report • Copies of care certification (preauthorization, hospital precertifications, etc.) • Copies of case management progress notes • Copies of all provider bills (refunds, exception payments, overpayments) • Copies of EOBs 9. Describe Underwriting: a Will any claimants be excluded or assigned a higher deductible (lasered)? No If so, please describe: 10. Did you provide a Specimen Stop Loss Contract? No l1. Does your Stop Loss insurance contract have any exclusions or limitations that are more restrictive than those used in ~-' KERR County's booklet? No If so, please describe: Not that we are aware of, but we don't have the entire Plan Document. 12. Are the active-at-work and disabled dependent provisions waived for the effective date of the contract? Yes 13. If Centers of Excellence are used for your transplant coverage, please provide specific information for facilities cost and procedures to be used: Please attach a schedule with complete information: Mutual of Omaha's Medical Specialty Network (MSN) includes providers that have contracted both directly and indirectly with Mutual of Omaha to provide organ or tissue transplants. The providers are leased through United Resource Network (URN). The MSN is an option for self-funded group health plans for which you provide administrative services and Mutual of Omaha provides stop loss coverage. Mutual of Omaha encourages you to use the MSN; however, the choice is yours. By using the MSN, your clients are assured that the facilities they are using are accredited, provide quality service, the best possible outcomes, and cost effectiveness. For all transplant cases, your Mutual of Omaha case manager will contact you about utilizing this network. Use of other networks with comparable facilities and contracted rates also is acceptable. 14. Please state any variations to the Request for Proposal Assumptions or other qualifications for your quote: None 15. After the ISL deductible is reached will the stop loss carrier pay claims directly to vendor or require Kerr County to pay claim and be reimbursed? No. If reimbursed what is turnaround time? 16. For what period of time are quoted rates guaranteed? 12 Months. ~ 17. Is a longer rate guarantee available? No. If so, please describe: Page 18 of 68 18. Are quoted rates net of agent commission? No. If no, please describe: Rates include IS% commissions. 19. Do quoted rates include advance funding for: a. Specific Claims? Yes. If no, additional cost to provide: b. Aggregate Claims? No. If no, additional cost to provide: Additional cost for advance on Aggregate is $1. SO PEPM. 20. Is the quote based on the services of a specific provider network? Yes. Specific Aggregate a. PHCS -6.0% -2.3% b. Healthsmart +9.0% +2.0% c. BOBS No Data No Dara d. CNN No Data No Data e. Beechstreet +2.5% +1.2% f. TTC (Star Payor) -6. D% -2.3% (Already included in rates quoted.) parr Page 19 of 68 21. The following rate exhibit may be used for rate submission however included with the CD or available by Internet is an Excel Spreadsheet titled, "Self Funded Quote Spreadsheet". ~.r BASIC PLAN/HIGH PLAN $_40,000_ Specific Deductible Basis for Deductible: Incurred 15 Paid 12 Number of Rates Monthly Premium Annual Premium Partici ants Specific Premium: Single 165 $92.75 Family 78 $210.80 Com osite $31,741.20 $380,953.80 Aggregate Premium Com osite 243 $7.54 $1,832.22 $21,986.64 Aggregate Attachment Pts. Single Family 165 78 $424.04 $795.09 $131,983.62 $1,583,803.44 Com osite 243 ~r° BASIC PLAN/HIGH PLAN $ 50,000 Specific Deductible Basis for Deductible: Incurred 15 Paid 12 Number of Rates Monthly Premium Annual Premium Partici ants Specific Premium: Single 165 $75.34 Family 78 $174.47 $26,039.76 $312,477.12 Com osite 243 Aggregate Premium Com osite 243 $7.69 $1,868.67 $22,424.04 Aggregate Attachment Pts. Single 165 438.82 Family 78 843.85 $138,225.60 $1,658,707.20 `~r- BASIC PLAN/HIGH PLAN $ 60,000 Specific Deductible Basis for Deductible: Incurred 15 Paid 12 Number of Rates Monthly Premium Annual Premium Partici ants Specific Premium: Single 165 $62.16 Family 78 $146.67 $21,696.66 $260,359.92 Com osite 243 Aggregate Premium Com osite 243 $7.69 $1,868.67 $22,424.04 Aggregate Attachment Pts. Single 165 $450.10 Family 78 $867.84 $141,958.02 $1,703,496.24 ~rr+` Kerr County Third Party Administration Questionnaire ~r TPA Organization 1. Name, Address, City, State, Zip Code and Telephone Number of Firm. Verity National Group, Inc. 11467 Huebner Road, Suite 300 San Antonio, TX 78230 (210) 348-7300 2. Is your firm owned or operated by a parent company? If yes, please identify the parent and its primary business. No. 3. How long has your fum been in business? How long have you done claims administration? 18 years for both. 4. Who are the principal officers in your firm? How long have they been in their positions? Bruce J. Gilbert, CEO; Laurie H. Burke, President &CFO; James Reid, EVP &COO. Each has held their position since acquiring the firm in 2005, and each has been involved in managing the firm since 2003. 5. Is this a branch facility? If so, please identify the main office location. No. ~ 6. How many claim processors are Full Time employees in your firm? Four. 6a. How many claim processors will be appointed to service this account? All four will be familiar with the Kerr County plans and able to pay the associated claims. In addition, the Kerr County benefit manager(s) will have an officer-level point of contact. 6b. Of those approximately how many years of experience does each have with medical claims processing? 7 Years. 7. Do you have bilingual claims personnel available to plan participants who call your office for customer service and/or claims processing? Yes. 8. How many clients do you perform claim administration services for? What is the average size? 31 medical groups, averaging 152 employees. We also provide complete claims and administrative services to approximately 1, 600 fully-insured clients of The Union Central Life Insurance Company. 9. Do you carry Errors & Omissions coverage? Provide a copy of your current policy. Yes; see Attachment #1. Page 21 of 68 Claims Administration §`rr 1. What are your claim office performance standards for claim accuracy and turnaround time? 99% accuracy. Our processing goal is same day. 2. What is your average turnaround time? Twenty four hours. 3. What is your current per day production minimum expected of your claims processor? We do not use a minimum production model. Our expectation is that the claims department will process all claims within 24 hours of receipt. We do monitor production and, more importantly, payment accuracy. Our `Effective Productivity' is a multiple of production times accuracy. 4. What are your internal audit procedures? Random audits are completed on 7% of claims under $ 2, 000. Any claim that exceeds $ 2, 000 has a mandatory audit procedure. 5. What edits and controls are used to avoid duplicate payments? We use highly customizable software, and can set several criteria, including point value, same provider, same charge amount, same procedure, same dependent, location of provider, and `modifier or procedure is within XX days of date of service. ' 6. What safeguards exist to protect against claims abuse and fraud? Our experienced adjustors are trained to see patterns of abuse, and our processing software will ident~ designated `red jlags' for abuse. All of our internal claims and banking controls and procedural separations of duties were reviewed during our most recent SAS70 and no deficiencies were noted. We require a signed W-9 form from all providers prior to issuing payment. 7. What program do you use to unbundle claims? Ingenix. 8. What coordination of benefits (COB) procedures do you follow? COB information is requested of all members at the point of enrollment and again annually. The information is used to populate an edit in our claims processing software. Claims for which Kerr County has been identified as the secondary payor are flagged, and require the primary carrier's Explanation of Benefits prior to payment. 9. What database do you use to determine Reasonable and Customary fee allowances? How frequently do you update your R&C screens? Ingenix, updated quarterly. 10. Describe your procedures for professional Medical claims review? ~,; Professional medical claims above a set dollar amount previously agreed upon by the client are forwarded upon receipt to our Clinical Services Manager. That individual performs the first level review of the claim. If the services provided seem a) consistent with the procedure and Diagnosis codes Page 22 of 68 submitted, b) relevant to the condition or injury, and c) are gender- and age-appropriate, the bill is returned to the claims examiner for processing. If any of the aforementioned areas are inconsistent, the bill is forwarded to our external vendor for bill audit. The vendor's clinical staff will undertake a complete review of all charges, which can include requests for additional records and chart notes, ~"` consultation with their medical director, and peer-to peer inquiries between our vendor and the provider. 11. Explain your hospital bill audit procedures. See #9 above. Hospital bill audit procedures follow the same format, once the dollar amount threshold has been set. 12. Describe your procedures for tracking and reporting excess claims? Our reporting platform includes standard SO% reports which we run monthly and supply to the stop loss carrier. Claimants on the 50% report, if not already in active case management, are reviewed by our Clinical Services Manager to ensure they are receiving the most appropriate care in the most cost- effective setting. 13. Explain how you handle subrogation and third party disbursements? Claims resulting from an accident, or any claim where there may be an indication of third party liability, are denied pending receipt of accident details or information regarding the third parry liability. We typically utilize Strategic Recovery Partnership (www.srpsubro.com) to assist in the recovery process. 14. List the excess carriers which you are approved with for claims administration? Cairnstone Re-Transamerican Life ING -ReliaStar Life Insurance Company Perico Life Insurance Company Spectrum Underwriting- Zurich Life Insurance HCC Life I5U-Companion Life Insurance Comparry AIG Sun Life Mutual of Omaha RE Moulton/AUL 15. Do you provide a toll free number for claim inquiries? If yes, what is the cost? Yes, no additional cost. 16. What are your normal hours of operation to answer calls for claim inquiries? 8:00 a. m. until S: 00 p. m. CST. Our interactive voice response system is available 24/7. 17. Describe your customer service process when an employee calls with a claim inquiry. Participants' calls are routed, via either touch-tone response or live operator, to our customer service queue. The average wait time to answer there is 1 S seconds. All customer service reps are also trained claims payors, and can resolve most participant inquiries on that initial call. If the issue is more complex, a Verity representative will contact the participant within 24 hours, and again each day until the issue is resolved. 18. If you have a separate customer service unit, what are your standards for: ~r Answer Time: 15 seconds; Abandon Rate: 2% Page 23 of 68 19. What submission rate has been assumed when calculating your fee? We assume only that the submission rate will fall within the standard deviation of our entire population. 20. Does your fee assume a first year claim lag? If so, what is the cost to purchase mature claim year administration? Our fee assumes a f rst year claim lag, however, our quoted fee will remain constant throughout the three year period described in this request for quote. 21. Does your fee assume any excess loss carrier overrides? No. Page 24 of 68 Eligibility System '`rr~' 1. How is an insured's eligibility assigned and maintained? Verity National Group's online, comprehensive enrollment wizard, "BeneView, " provides a client- centric, group-specific Internet portal through which employees may both enroll in and view their benefits. It is completely integrated with our LuminX claims and eligibility system, is highly customizable, and can be utilized by your employees to enroll in ALL of the benefits Kerr County provides, not simply the ones we administer. Accumulators keep up-to-date running totals of employee contributions, employer subsidies, and total benefit costs. Best of all, complete control via a security hierarchy is maintained by your human resource department, but requires a fraction of their time relative to a more conventional, paper-laden process. 2. How often can eligibility information be updated? Employees can submit updated demographics or changes in eligibility status to HR officials 24/7 via BeneView. (Alternatively, if Kerr County prefers, employees can submit such changes in writing, with electronic access limited to HR.) As soon as HR approves them, updates are electronically submitted to Verity National's BeneView Team. Our eligibility team reviews every submission, and then approves an update to the live system. Most updates are approved within minutes of their submission; no updates are reviewed less than hourly. Eligibility updates are traded with PBMs three times per week, and with other carriers and vendor partners on a weekly or monthly basis. 3. Do you maintain information on each of the family members sepazately, as well as the employee? Yes; we maintain separate eligibility information on each covered member, whether employee or `'~'" dependent. 4. What is your accuracy standard and turnazound time for loading new groups, updates, and changes? The accuracy standard is 1 DO% relative to eligibility data submitted. Turnaround time on a new group is generally 24 to 48 hours. Updates and changes are almost instantaneous, as described in Question 2, above. Page 25 of 68 System Capabilities 1. Is your claim processing system completely automated? `~ Yes. Claims are entered into the system through EDI Files which are loaded within 1 hour of receipt. Paper claims are scanned and data on the claims is verified and entered into our system within 1 business day of receipt. Claims are adjudicated by the system the same day they are entered into the system. Each claim is released for payment by a claims adjuster, not auto-released by our system. 2. Are there any significant manual activities required to process claims? Only in the conversion of paper claims to EDI, and we do not consider that significant. Paper claims make up less than 1 S% of total claim volume. Describe your claims payment system, including hardware and software? Verity has partnered with Acclamation Systems, Inc. (ASI), the industry leader for group health claims and administration software. Our equipment is hosted in a hardened tier-1 offsite facility. Connectivity to the system from Verity Offices is accomplished via a secure IPSec VPN tunnel. Uptime during normal business hours approaches "five nines" reliability. 4. Do you own or rent your claim payment system software? ASI maintains the system. Verity pays a monthly hosting and maintenance fee. 5. How is a person's claim history tracked? All claims are stored in proprietary database tables -- each claim record includes over 300 fields of specifically relevant data. 6. How many benefit components (IE -separate deductible, totals, lifetime benefits, etc.) can be maintained by the system? Deductible by benefit, incident, lifetime or annual, in or out of net, etc. -- number of which is dependant on plan design. Accumulated totals can be calculated and reported. The system tracks all plan accumulators and benefit component totals. In other words, more benefit components than any benefit design would contemplate. 7. Can the system track number of visits by procedure? Yes. 8. Can the system handle different benefit levels for PPOs? Yes. 9. How many PPOs can the system handle for one client? There is no limit. 10. Can your system accept Electronic Data interchange claim submissions? Yes. ~, 11. What percentage of your claims is currently accepted on an electronic basis? Over 85%, including all forms -- dental, professional, and facility. Page 26 of 68 Banking Arrangements 1. Do you require the use of a specific bank for claim accounts? If so, please provide the name, address, and phone number of the bank. Almost all Verity National clients choose to participate in Verity's banking relationship with Frost Bank, N.A., 7702 Louis Pasteur Drive, San Antonio, Texas 78296. Our banking officer is Mr. Lewis Thorne, Market President, Medical Center, at (210) 220-6513. However, use of a Verity National account at Frost is not a requirement. 2. Is an initial claims payment deposit required to establish banking arrangements? An initial claims payment for the medical plan is only required if Kerr County would like us to establish a new account at a bank of their choosing. 3. Will you perform bank account reconciliations? Yes. Bank account reconciliations are performed on Verity National accounts as part of our services. Reconciliation of a Kerr County-owned account will be offered for an additional fee. 4. Are there any additional costs to the banking? (I.E.: -EFT charges, monthly charges, etc.) There are no additional banking costs unless we are to manage aCounty-owned account at a financial institution other than Frost Bank. In that instance there is an extra charge for Account Management Services, which include check inquires, stop pays, balance monitoring, and account reconciliation. 5. What is the cost of the check stock you provide? We use electronic check stock maintained in our system at no additional charge. This is true no matter what banking arrangement is preferred, but there are some initial set-up charges for facsimile signatures, etc. in a County-owned account. 6. How many checks are provided in your cost assumptions? The number of checks issued is based upon the number of member lives; Verity National has no limit on the number of electronic checks printed. Page 27 of 68 Utilization Review I . What U.R. services are performed in-house? Pre-Admission Review: Evaluating the medical necessity and appropriateness of planned hospitalizations before it happens. Concurrent Review: Evaluating the medical necessity and appropriateness of a continued stay beyond original approval. Retrospective Review: Evaluating the medical necessity and appropriateness of a hospital stay, which took place without Pre-Admission review. Outpatient Surgery Review: Evaluating the selected procedure to determine whether the procedure is appropriate for an outpatient surgical setting. Our Utilization Review Process additionally evaluates for Case Management intervention. Case Management will be assigned as needed. Case Management is assigned based on current needs and goals of the treatment and a specific Case Management Plan of Care is developed for each patient. Case Management can be a short-term facilitation to assist the patients and medicalproviders with short-term hospitalizations and with making the transition to home. Case Management can also be used in a long- term role to assist in any critical illness, hospital stay, transition to an outpatient setting, assisting with continued outpatient treatments and provider visits. 2. What outside U.R. services do you use? How long have you used them? Verity National has had an ongoing partnership with Spectrum Review Services, Inc. for the past six years. Spectrum assists us in our Utilization Review Process by tracking hospitalizations, following up with hospital discharge planning and by generating correspondences. Indicate which U.R. services you have assumed in your proposal? Pre Notification: All approver procedures will have approval number assigned and notification will be provided to all parties involved. Preadmission Review: Will be conducted as noted above. Concurrent Review - On Site or Off Site: Will be conducted as noted above. Most concurrent review will be conducted of,~site with on-site visits only as needed. Retrospective Review: Will be conducted as noted above. Large Case Management: Will be conducted as noted above. Discharge Planning: Discharge Planning is part of the Utilization Review Process and starts at time of admission. Can you accommodate Pre-Notification for the following? Specialty Care Referrals: Yes. Home Health Care: Yes. Ancillary Services: Yes, as needed. Inpatient Surgical Procedures: Yes Outpatient Surgical Procedures: Yes. Lab & X-ray Procedures: Yes, if done in an outpatient setting. Inpatient Mental Health and Substance Abuse: No Outpatient Mental Health and Substance Abuse: No Page 28 of 68 Preferred Provider Organizations ~r 1. Do you have capabilities to process PPO discounts in-house? Yes. 2. Which PPOs do you have access to processing in-house? In-house discount processing is no longer a preferred method. Although our system offers the capability, all of our current arrangements call for providers to file their claims via EDI, either directly or through a clearinghouse, with the network. The provider community in any area is one of the most dynamic there is, in terms of movement and contractual activity. Therefore, the most up-to-date information remains the sole property of the network itself. Once the most accurate contract terms have been applied, i. e., the claim is re priced, the information is sent by the network to us via EDI in HIPAA-compliant, 837 formatted files. 3. Can you install PPO discounts for Direct contracts with providers? If so, what is the charge? Yes. If Kerr County has direct relationships with providers key to the healthcare of their employees, we will store the contractual details directly in our system. There will be no additional charge for this service. 4. How many different PPOs do you interface with currently? Who are they? We work with several, but the bulk of our claims are processed through Texas True Choice (7'TC). TTC (Verity National is a Star Payor), PHCS and Beechstreet are our primary networks. http://www.tezastruechoice.com/ htta://www.beechstreet.com/ http•//www.phcs.com/ 5. Which PPOs are you currently using? (attach directory or website access) Page 29 of 68 Reporting ' 1. Provide a list of reports available in your standard reporting package. What is the cost of these reports? Kerr County may select from a list of over 35 standard reports at no additional charge. (See Attachment #2) 2. Can you generate customized reports? Are reports available through Internet? What is the charge? We can and do generate customized reports for our clients. There is an hourly charge for custom programming of $150.00 per hour. Any standard or custom report can be made available online, at no additional cost. 3. How are paid claims reported? Each week, Verity National will send to Kerr County a Request For Funding (RFF), detailing all claims processed on their behalf during the preceding week. With the County's approval, we will release those claims for payment. The RFF then serves as a record of the paid claims. 4. How does your firm report claims to Excess Loss carriers? "50% Reports' are sent to the carriers monthly. In our experience, additional information requirements and preferred format are carrier-specific. We routinely accommodate each carrier's unique needs. 5. Can you report on PPO savings? Yes. Page 30 of 68 General ~lnrr' 1. What is the cost for producing a plan document? Is it included In your cost assumptions? The cost varies based upon document length and the number of copies requested, but printing and shipping average approximately $2. SO per plan booklet. Printing of the initial Plan Documents is included in Verity's Set-up Fee. Plan Documents also are posted online on each client's BeneView site. Additional hard copies, or re prints due to benefit changes, are coordinated by Verity National at the client's expense. 2. What is the cost for producing a Summary Plan Description? Is it included in your cost assumptions? The Summary Plan Description is included in the initial Booklet containing the Plan Documents. Costs are included in the production of the Plan Booklets, as described above. The SPD also is posted online. 3. What is the cost of having the Plan Document and SPDs changed due to regulatory changes? Is it included in your cost assumptions? There is no charge to have regulatory or other changes made to online documents. Reprints of the booklets are approximately $2.50 per booklet, contingent upon specific document length and number of copies, as described above. Reprinting costs for hard copies would be borne by the client. 4. What is the cost of printing the 500 Summary Plan Descriptions for the plan participants? Is it included in your cost assumptions? The cost would be approximately $7S. Normally, such distribution is accomplished by posting the SPD online. However, Verity National will be glad to provide hardcopies of the initial SPD to Kerr County at no additional cost. 5. What is the cost for printing 1000 ID cards? Is it included in your cost assumptions? ID Card Printing is not included in the cost assumptions. Depending on the mailing requirements the additional cost could reach (but not exceed) $ 2, 000. 6. What is the cost of Explanation of Benefits: Is it included in you cost assumptions? If so, how many do you assume? The EOB is electronically generated by our Claims Processing system, LuminX, and transmitted to our mail services vendor in St. Louis, Missouri. The cost to produce EOBs depends upon the number of plan participants. It is included in Verity's monthly administration fee; there is no additional per-EOB cost. 7. Is there an initial set-up fee charged for the installation of our plan? Yes. For Kerr County it is ~3, 000; this includes both Medical and Section 125 services. 8. Please disclose any additional fees or expenses that are borne by the client. Any additional fee not already disclosed in our response would be minimal, and we would refer you to the Administrative Agreement (Attachment #10) for those details. 9. Do you offer assistance in the administration of COBRA benefits? HIPPA Certificates? Please explain the type of assistance and/or administration duties you provide. Verity National offers complete COBRA and HIPAA Certificate services, including actuary-developed rates; mailing of initial notices; monitoring of monthly eligibility throughout the COBRA period; premium tracking and billing; monthly invoices; adjudication and payment of claims; and Certificate of Coverage issuance at the end of the COBRA eligibility period. Page 31 of 68 HIPAA administration services include provision of Certificates of Creditable Coverage; validation of existing Certificates; and administration of special enrollment rights. Page 32 of 68 HRA Questionnaire 1. Do you offer HRA administration in conjunction with your claims administration? Yes. 2. How often do you reimburse a claimant for expenses incurred that are filed on a paper claim form? Three times a week. 3. Do you provide a debit card for all participants? Yes. 4. Do you require the use of a specific banking institution? No. 5. Is there a minimum funding requirement? If so what? Typically it's 2-1/2 times the payroll amount. 6. Please describe your HRA administration in relationship to your medical claims administration. Medical claim administration services are performed on LuminX, long considered the "Cadillac "among claims processing systems. Tenured benefit analysts focus exclusively on the processing of medical claims, while Customer Service requests are handled by a different set of pros. Some claims may auto- adjudicated, but no claim is auto released without analyst review. Verity clients receive a request to fund eligible medical claims once each week, on the weekday of their choosing. The request will include all claims received through the end of the previous business day, as all clean claims are processed within hours of receipt. 85% of medical claims are received electronically, via EDI. The accuracy standard is 99%. HRA claim administration services are accomplished through "mbiTime ", a software system owned by Metavante. VNG contracts the debit card processing for qualified HRA plan purchases through MBI. MBI also handles the creation and mailing of the debit card to participants, settles approved purchases through the MasterCard network and provides transaction details to VNG for substantiation. Payroll contributions are loaded into "mbiTime " by Verity National on a daily basis. Verity National accesses the MBI system through aweb-based portal secured with a 128-bit encryption through the Secure Socket Layer (SSL) protocol. 7. Identify all costs associated with your HRA administration package to include all costs and services provided. There is a monthly PEPMof $4.00 which includes the cost of the debit card and Verity National's administrative services. This PEPMfee encompasses all HRA-related expenses outside of the initial set-up fee of $500. 8. Do you include access to accounts via the internet? At what additional cost if any? Transaction reports and account balances are available on the internet 24/7 at no additional cost. Page 33 of 68 Prescription Benefit Manager Questionnaire Please fmd the current prescription drug plan design in the medical plan summary attachment . 1. Please describe' your retail pharmacy network (number of independents and number of chains; are all chains in the network?) including its relationship to you (e.g. owned or leased). Verity National Rx (VNRx) is directly contracted with National Pharmaceuticals Services (NPS). NPS owns and operates its own National Pharmacy Provider Network and Mail Order Pharmacy -- IHMO Pharmacy. Their pharmacy network connects prescription benefit plans to over 60,500 pharmacies across the country through their digital Pharmacy SmartCard network. All pharmacies in the network have contracted directly with NPS to provide a fair price for each prescription drug on the market and are represented as a key component to the solutions we offer. We contract with independents, chains, and affiliated pharmacies for retail and/or mail order services. The NPS Pharmacy Network operates under an "any willing provider" philosophy and it is our opinion that upon award of this contract that any remaining pharmacies outside of our network that Kerr County may wish to participate will join. NPS has contracted and maintained their network since 1991. The NPS Pharmacy Network breakdown is as follows: Number of Pharmac Chains: 116 Number of Pharmacies within Chains: 41,296 Number of Inde endent Pharmacies: 17,512 Number of Pharmacies within Affiliations: 19,665 Number of LTC Licensed Pharmacies: 3,179 Number of Non-LTC Pharmacies: 55,628 116 National Chain Pharmacies ABCO Markets, Inc. AllCare Pharmacy Aurora Pharmacy Big Bear Pharmacy Carle RX Express Clinic Pharmacy Administration CVS Pharmacy Dean Pharmacy Dominick's Finer Foods, Inc. Drug Town Eagle Food Pharmacies Fagen Pharmacies Fred Meyer Pharmacies Fry's Food & Drug Genovese Drug Store Giant Eagle Pharmacies Hannaford Food & Drug Hartig Drug Company Horizon Pharmacies Ken-Caryl Pharmacy Kinney Drugs, Inc. Lewis Drug, Inc. Marsh Drugs, Inc. Medistat Pharmacies Meijer Pharmacy Peoples Services Drug Store Poudre Drug Co. Rainbow Pharmacies Acme Pharmacies American Drug Stores, Inc. Baker's Supermarkets Brookshire Grocery Company City Market Costco Pharmacies D & W Food Centers Dillon Pharmacy Drug Emporium Drug Warehouse Eckerd Drug Farmco Drug Center Fred's Inc. Fun's Drug Stores Gerbes Dillon Pharmacies Granby Drug Stores Harco Drug Stores Hi-School Pharmacy, Inc. Horton & Converse Pharmacy Ken Drug Kmart Corporation Longs Drug Store Martin's Pharmacies Med-Rx Drugs Pavillions Pharmacies Pharmacy Plus Pharmacies Publix Super Markets, Inc. Raley's Albertson's, Inc. Arbor Drug Stores Bi Rite Pay-Less Drug Stores Buttrey Food & Drug Clark Drug Stores Cub Pharmacies Dahl's Foods Discount Drug Mart Drug Mart, Inc. Duane Reade Evergreen Drug Company Food City Pharmacies Fruth Pharmacy Geddes Drugs Giant Discount Drug Store H. E. Butt Grocery Company Harmons Pharmacy Homeland Pharmacies Hy-Vee Pharmacy King Sooper's Kohll's Pharmacy & Homecare Mack Drug Co. May's Drug Store Med-X Drug Stores Payless/Thrifty Payless Phar-Mor QFC Pharmacy Reasor's, Inc. Page 34 of 68 Revco D.S., Inc. Safeway, Inc. Shoprite Pharmacies Snyder Drug Stores, Inc. Steele's Pharmacy Super Fresh Food Markets The Copps Corporation Thrift Drug Stores Tops Markets, Inc. Von's Food & Drug Wapples Nob Hill Pharmacies Rite Aid Corporation Save Mart Pharmacies Smith's Food & Drug Center Standard Drug Company Stop & Shop Pharmacy Supermarket Investors, Inc. The Grand Union Company Tidyman's Pharmacies United Drug Stores Walgreen Company Winn Dixie Pharmacy Rx Place Schnuck's Markets, Inc Snyder Brothers Statscript Pharmacy Super D Drugs Target Pharmacies The Kroger Co Tom Thumb Valuland, Inc. Wal-Mart Pharmacy Please confirm that prescription drugs prescribed by any licensed health care provider, including dentists, will be covered by the pharmacy program. This is a plan design, not a PBM issue. We do have the capability to incorporate a physician network should the plan elect such a provision. Each pharmacy claim is MD authenticated by our systems to verify the MD is a licensed health care provider. 3. Is the use of a formulary mandatory? Please attach a copy of the formulary for review. While not mandatory we highly recommend the use of a formulary, as it is a cornerstone to all potential pharmacy savings. 4. Does the retail brand discount include savings from formulary, network spread, clinical savings, DUR savings? Retail discounts quoted as net effective would include savings from provider usual and customary capture only. Formulary, clinical and DUR are additional values clients capture in the programs we offer. S. Is the brand discount a hard discount? The hard discount is determined by the provider type (retail or mail order) and claim type (brand or brand with a generic) and drug type (specialty). Hard discounts range from 14% to 20% on the brands. 6. Is the brand discount an average? Is it based on 11 digits NDC? The brand discounts are reported to clients in their weekly invoices at the 11 digit NDC level and they shall be "the" discount and may be reported in aggregate reports in an average format for obvious reasons. 7. is the brand discount at mail order based on 100 units. or actual acquisition NDG? Actual. 8. Is the mail discount based on 11 digit NDC? Yes. Regardless of provider type (Retail, Mail, etc) the discounts are tracked to the 11 digit NDC. 9. is pricing for retail brand and overall generic effective rate guaranteed? Yes. The guaranteed values are conditional and assumed that the plan adopts our model as other clients have. Any discounts captured above these minimal discounts are passed through to the clients we serve. For example, we may guarantee the Maximum Allowable Cost (MAC) program to deliver 55% savings from the aggregate 11 digit NDC numbers. However, a client may actually experience 65% savings. The additional 10% is passed on to the client. 10. Your quote must include a traditional pricing model and a transparency full pass-thru model. Is the pricing guaranteed? Yes Page 35 of 68 11. What is the discount for specialty. drugs? What is the dispensing fee? Is the specialty drug program apass-thru under a transparency model? Are supplies included in the pricing? The discount for specialty drugs ranges depending upon the product needed. The range is 15% to 35%. The ,,, transparent model supports a total pass through of discounts from providers. The filling fee at Specialty is $2.25. The pricing of these products is inclusive of shipping and of supplies that may be needed. 12. Please provide your detlnitiou of "generic". Also provide a definition of the generic included inthe overall generic guarantee. We shall use the default coding as provided by Medi-Span® (Facts and Comparisons). However in instances in which consistencies do not exist with information provided by Medi-Span® (Facts and Comparisons), we will use the product's licensing as defined by the Food and Drug Administration (FDA) to determine the status of a drug product. Any Product with an Abbreviated New Drug Application (ANDA) or a Federal Register Code 505(b)(2) application provision under the terms of the Drug Price Competition and Patent Term Restoration Act shall be considered a generic product. 13. What quantity is an AWP based on for mail order? The AWP used is based on the actual bottle size used in the facility. The AWP of the facilities' stocked bottles drives the discount. We do not, as an example, buy in the 1000's size and discount from a completely different sized bottle (100's) 14. How are manufacturer rebates handled? Will KERR COUNTY share in the rebates? If so, what percentage? We maintain direct contracts with many pharmaceutical companies that may offer rebates. Plan sponsors will have an ability to share in these programs; minimum requirements for rebate payments require contractual compliance with rebate programs. Each manufacturer has differing compliance requirements. We will be happy to share and discuss contractual terms and conditions with the plan sponsor. Plan sponsors are guaranteed 75% of the captured rebate amounts. Rebates are based upon several factors such as utilization and volume of your plan members. At risk clients are guaranteed 75% of the net rebate pool on a per claim basis. The rebate captured is to be shared 25% / 75% with plan sponsor receiving 75% of gross pool. Gross pool is inclusive of administration fees, formulary access fees, market share fees and any data sales fees when offered. In our experience clients are better off focusing on generic utilization rather than chasing rebates. A keystone of our philosophy is that it is NOT our goal to solely maximize rebates for a client, but rather to manage and maximize the lowest net-net cost. To that end, NPS does NOT accept bundled contract arrangements from drug companies The rebate process begins when a Plan sponsor adds a brand name drug to a formulary as a preferred drug and the PBM has a contract with the drug company for this preferred drug. The pharmaceutical manufacturer feels that if a Plan, through its PBM, will allow unrestricted access to their product and not disadvantage the product in terms of differential co-payments, prior authorization requirements, or limits, that the pharmaceutical manufacturer may provide a discount or a rebate for increased utilization of the product by plan members. In the employer plans or self-insured markets, rebates are offered by pharmaceutical manufacturers on the single source products only. The characteristics of this type of pharmacy claim would include that they are patent protected in which no generic equivalents are currently made. Rebates are then generally paid only on a market share basis, meaning that if the members of health plans utilize more than the national average utilization of the product, then the plan sponsor may be eligible for this rebate if they exceed the national average utilization of the product. Rebates do not guarantee savings for plan sponsors nor are they guaranteed to be paid by the drug companies contracted to the PBM. Rebates are only paid well after the plan sponsor has funded the claim for the pharmacy provider. After the plan sponsor has funded for this expensive medication, they may or may not receive a rebate. It will depend on if they paid for more of the expensive drug than the national average and this national average is determined by the drug companies. If a PBM's focus for cost containment is obtaining rebates for plan sponsors, then they are not focusing on proper management techniques, and they may actually be growing their own trend rate. While it is true that the new, more Page 36 of 68 expensive drugs may return a higher rebate amount, on average (project 3% of the claim as the per rebateable prescription value), the plan's contribution per prescription will be higher than if a generic medication were utilized that did not offer any rebate associated with the prescription. 15. Do rebates have a minimum guarantee per claim? Per brand? Yes, $1.00 per claim regardless of type and $3.50 per brand, contingent upon client acceptance of all terms and conditions of the various offers and the formulary alignment. 16. Are rebates paid quarterly? If not, when? Rebates are submitted by each drug company in the following quarter and submission is dictated and designed by the company offering the rebate. Example: Q1 of 2007 claims are submitted in Q2 2007 and may be paid in Q3 of 2007 to VPRx/NPS. Upon capturing the revenue per contract the plan sponsors who have qualified for payment will receive their rightful portion. 17. Under transparency pricing mode}, arerebates a 100% pass thru of Gross? Clients are paid 75% of gross. Gross fees collected include market share rebates, PBM administration fee, formulary placement fee or any other so called fee paid by any drug company -and this is consistent no matter the organization you choose to administer your pharmacy benefit. 18. Will coverage of OTC impact rebates? If so, how much? It may, depending on the class. Clients are coached by VPRx/NPS to never consider rebates as their first or only cost containment tool. Example: The rebate for Nexium may be $35 per prescription. However, we would recommend to move the member to non-rebated OTC Prilosec for $15 to $20 per claim rather than pay $155 for the Nexium and wait for the $35 rebate. Rebates will never overcome the savings generated by the managed care programs we operate. 19. Do rebates survive termination? When are they paid after termination? ~rr% Depending on the nature of the termination they may be still payable to a plan sponsor. Whether a client has completed their contract term, taken bankruptcy, with or without cause, and other variables determine the ultimate status of pending rebates for clients. They are paid only after the drug company remits them to us. 20. Are rebates paid on specialty'drugs? No, rebates are typically not offered on "specialty drugs" at the PBM level. Manufacturers of specialty drugs rely on what amounts to a monopoly, and plan sponsors cannot influence the distribution of their drug. 21. Do you contract directly with manufacturers for formulary rebates or do you use another PBM? If yes, who handles? We contract directly. 22. Please describe. how the drugs for the formulary are selected, and who is responsible for the selection. The Formulary is developed to ensure members receive the best care with agents that provide the best chance to restore their health. The Formulary is a continually revised compilation of pharmaceuticals, which reflects the current clinical judgment of the Pharmacy and Therapeutics (P&T) Committee as they evaluate, appraise, and select from the numerous available medicinal agents and dosage forms that are considered most useful inpatient care. The P&T Committee considers published scientific and clinical data, treatment guidelines, and FDA approved indications, plan utilization and cost in the selection process. The ultimate goal of the P&T Committee is to make the Formulary comprehensive, pro-active, and easy to use. By minimizing duplication, the Formulary lowers the costs to clients in providing prescription drug card benefits to its members. All of these factors result in lower drug costs for the drug benefit plan. Some drugs that are included in the Formulary may be excluded from coverage under certain benefit plans. The cornerstone of the Formulary is to incorporate the drug product's ability to restore ~'' member's health and sustain or improve their quality of life. When a new drug is considered for Formulary inclusion, an attempt will be made to examine the drug relative to similar drugs within the class that are already included in the Formulary. In addition, entire therapeutic classes are Page 37 of 68 reviewed on a scheduled basis. Each class is reviewed every 24 months. The class review process may result in deletion or non-Formulary (NF) status or Non-Preferred Status of drug(s) in a particular therapeutic class, in an effort to continually promote the most clinically useful and cost-effective agents. A central factor in successful management of the Formulary is the review and evaluation of the drug products available in the consumer market and a means to make changes to the Formulary in response to changing therapies and economic factors. The P&T Committee utilizes the following criterion in the evaluation of product selection for the Formulary: • The drug product must demonstrate unequivocal safety for medical use; • The drug product must be efficacious and be medically necessary for the treatment, maintenance, or prophylaxis of a medical condition; • The drug product does not have alternative/similar agents on the Formulary that could be substituted; • The drug product must demonstrate a therapeutic outcome; • The medical community must accept the drug product for use; and • The drug product must have an equitable cost ratio for the treatment of the medical condition. To promote the most appropriate utilization of selected high risk or higher cost medications, we will use one or more of the following methods to enforce formulary compliance: • Lock and block (deny approval) at the point-of--sale; • Formulary filling fee incentives for pharmacists; • Co-payment differentials for members, (steer to the correct tier); • Instant Pharmacy Provider Formulary messaging, (instant messaging on the preferred agents); • Prior authorization (off-label indications checking) • Dollar limits per claim before prior authorization; and • Quantity limitations. The P & T Committee has established formulary criteria with input from participating physicians and consideration of current medical literature. Our organization maintains and supports its own P&T Committee for our Formulary Management Program. All drug products (current and newly-approved) are included in our Formulary in some sort of tiered benefit or another, unless that medication is specifically excluded by plan design. The P&T Committee includes both physicians and pharmacists. No committee members are employed by or under contract with any drug manufacturer. They must adhere to the standards of the ethics policy set forth by the P&T Committee. They review the medications in each therapeutic class for efficacy, adverse events, and cost of treatment, and then select agents in each category for inclusion exclusion in the Formulary. They also review therapeutic classes, Pharmaco-economic data, and clinical guidelines to make decisions regarding pharmaceutical cost-effectiveness and appropriateness of medications for inclusion and tier status designation on the Formulary. The maintenance of the Formulary is a dynamic process, and new medications and information concerning existing medications are continually reviewed by the P&T Committee. Our P&T Committee Polices and Procedures are proprietary. If we are selected as the PBM, we will share P&T Policies and Procedures under a confidentiality agreement with the plan sponsor. Member .Credentials Practicing Physician Practicing Pharmacist Elderly/Disabled Expert Free of Conflict With Your Organization? Free of Conflict With Pharmaceutical Manufacturers? 1 PharmD / / Yes Yes 2 PharmD / / Yes Yes 3 PharmD / No Yes 4 PharmD / No Yes 5 RPh / No Yes 6 PharmD / No Yes 7 PharmD / No Yes 8 PHD / No Yes Page 38 of 68 9 MD / No Yes 10 MD / Yes Yes 11 MD / / Yes Yes 12 M D / Yes Yes 13 MD / Yes Yes 23. Do you own your own mail service? If not, who do you sub-contract with and do you retain revenue? We own and operate our own mail order facility. The facility is run efficiently to deliver discounts clients deserve while still providing a fair profit margins for us. As with any for-profit undertaking, the facility is entitled to make a reasonable profit. The facility is located in Omaha, Nebraska. Integrated HMO Pharmacy uses proprietary software that can be adjusted to the customer's needs. The pharmacy currently uses phone, fax, and web technology for placing orders. The patient can obtain the tracking number with the above technology and track the prescription order on the United Parcel Services website. We are licensed to provide services in a1150 states that may require us to register within the state. 24. Do you own your own Specialty Pharmacy? Or subcontract? If yes, who handles specialty pharmacy? We have our own facility and in addition we have arrangements with many specialty vendors to maintain continuity of care for our members. LZ addition to our own facility we have alignments with: • Fairview Health Systems • Accredo • Caremark • IVPCare • Walgreen Specialty 25. What is the average turnaround time for mail order pharmacy? With new starts, we advise the members to allow 14-21 business days so that we can have time to contact the physician if necessary. The patient can have the physician call or fax the prescription to the pharmacy at any time. The patient or physician may also mail the prescriptions to the pharmacy. Currently the pharmacy has a service accuracy rate of 99.998%. The in-house accuracy is greater than 99% with normal variances occurring during the prescription order entry process. The most common variance occurring are correcting typographical errors, physician name, number of refills, and date of origin. The average turn around for prescriptions is 24-48 hours for billing; order processing and shipping occurs within 72 hours. Most patients, depending upon location, will receive their medication within 10 days of pharmacy receipt. 26. Can mail order pharmacy be ordered on-line? Yes. 27. Does the PBM allow 90-day fills at retail in addition to mail order? If sa, what contracted pharmacies participate? What is the discount to KERB COUNTY fora 90-day network? What plan design is used? We have the ability to put such a model in place, but would first recommend other approaches, which have proven to produce better outcomes for all involved 28. Do you offer alternatives in the pharmacy program that can help control or reduce the plan costs? If so, please provide details and approxunate savinbs for each feature. Yes -see below: Page 39 of 68 IViandatory Generic Drus Program This program requires the member to pay the difference between the cost of the generic and the brand name medication in addition to their assigned co-pay when they or their physician determine that a brand name medication is necessary. This encourages the use of generic medications, and limits the plan's cost when a ,,, member or a member's physician prescribes a brand name medication when a generic is available. The following is a sample of some of the language that plans have added to their plan summary document to enforce their mandatory generic policy: Over the Counter Prilosec Proton Pump inhibitors represent a class of drugs generally in the top five classes based upon utilization and cost in most prescription benefit plans. Recently, Prilosec® OTC (omeprazole) has become available over the counter (OTC, or, without a prescription). Accompanying this change was a substantial price decrease. The average cost per tablet of Prilosec® OTC is less than $0.75 each, compared to prescription proton pump inhibitors such as Nexium®, Aciphex®, Protonix®, and Prevacid®, which average over $4 each. The generic version of Prilosec®, which is still available as a prescription, is around $1.20 each, even though the OTC version is available in the same strength as the prescription - 20mg. Adopting an OTC Prilosec program has the potential to save as much as $97.50 per month's supply for each claim converted from a brand name Proton pump inhibitor to Prilosec® OTC. Savings are calculated on claims cost savings. Over the Counter Clarion Non-sedating antihistamines represent a class of drugs generally in the top ten classes based upon utilization and cost in most prescription benefit plans. Recently, Claritin® (loratadine) and numerous generic equivalents have become available OTC and are available without a prescription. As with Prilosec®, this change came with a substantial price decrease. The average cost per tablet of generic Clarion 10 mg OTC is around $0.20 each, compared to prescription antihistamines such as Clarinex®, Allegra®, and Zyrtec®, which average around $2.30 each. The OTC version of Claritin® is available in the same strengths as the prescription products: a 10 mg tablet, a syrup, Clarion D® 12 hour, and Clarion D® 24 hour Adopting an OTC Clarion program has the potential to save as much as $60 per month's supply for each claim converted from a brand name Non-Sedating antihistamine to loratadine. Savings are calculated on claims cost savings. ~r Iniectible and Biotechnolo¢y Products More than 96 biotechnology drugs are currently on the market and more than 360 drugs are at the FDA awaiting approval. These medications can either be self-administered by the patient, or by a healthcare provider. Approximately 1 to 2% of participants on any health plan will utilize abiotechnology/injectable product. The cost of these products, however, can account for 10% or more of plan expenditures. These medications have historically been excluded from the pharmacy benefit and instead covered under the member's major medical benefit. However -Physician offices bill at rates above AWP in addition to the charge for administration. A recent audit conducted by our organization revealed an average charge of AWP X 2.65% for billed and negotiated charges to plans. Significant plan savings are available by simply covering these products under the pharmacy benefit due to our superior, negotiated network rates. We also have the ability to do unique co-pay designs and separate these claims from the general pharmacy claims, so that our plan sponsors may continue to monitor this class of drug as a separate item. Tablet Splittin¢ Tablet Splitting has become a popular method to reduce prescription drug costs. In some instances, cutting higher dosage tablets in half can save as much as 50 percent of the cost of prescription medications. Here is how it works: If a prescription is normally written fora 20 mg tablet that costs $30 for 30 tablets, a 40 mg tablet that also costs $30 (known as "parity pricing") can be prescribed, and then split in half, effectively doubling the quantity dispensed for the same price. Of course, not all prescription medications can be split in half, but when they can be the savings are substantial: The eight medications that we encourage plans to consider adopting a tablet splitting program for include Lexapro, Lipitor, Norvasc, Toprol XL, Aceon, Pravachol, Zocor, and Zoloft. Savings are measured by taking the actual claim cost before a medication is split and subtracting the actual claim cost for the split medication. Therapeutic InterchanSe Therapeutic Interchange is the practice of replacing, with the prescribing physician's approval; a prescription ~"' drug originally prescribed for a patient with a prescription drug that is its therapeutic equivalent. Two or more drugs are considered therapeutically equivalent if they can be expected to produce identical levels of clinical effectiveness and sound medical outcomes in patients. Some examples of drug classes that could be targeted in Page 40 of 68 therapeutic interchange programs include Ace Inhibitors, SSRIs, ARBs, and Triptans. One example of the savings realized through therapeutic interchange is switching members from Lexapro to citalopram ($55 per month's supply). Dose Optimization Dose Optimization works by reviewing current prescription(s) for multiple daily doses of alower-strength medication where a higher strength, once-daily dose may be equally effective. For example, someone may be taking two 20 mg tablets of a drug per day when only one 40 mg tablet per day could also be used (only drugs appropriate for once-per-day dosing are included in the Dose Optimization program). Often, all strengths of one medication are similar in price. Dose optimization can lower the cost per day of your medications by as much as 40% to 50%. The Dose Optimization program will help members and their doctors arrange clinically appropriate, convenient therapy. Once-daily dosing may help decrease the potential for missed doses, and make it easier to follow the doctor's instructions. Some medications included in our dose optimization program include Aricept, Effexor XR, Paxil CR, Wellbutrin XL, Zoloft, Zyrtec, Arava, Singulair, Abilify, Geodon, Seroquel, Zyprexa, Crestor, Lescol, Lipitor, Pravachol, Zocor, Caduet, Actos, Nexium, Prevacid, Protonix, Aceon, Atacand, Avapro, Benicar, Benicar HCT, Cozaar, Diovan, Diovan HCT, Hyzaar, Micardis, Micardis HCT, Coreg, Toprol XL, Norvasc, Sular, Mobic, Concerta, Detrol LA, and Ditropan XL. We can customize the medications included in the program based on the plan sponsor's wishes. Dose Blocks If Dose Blocking is selected, VPS/NPS will be blocking certain dosage forms from processing through the system. A few select strengths of medications will be blocked and pharmacies will be advised of the alternative dosage form to save the plan and/or member money on the prescription. The dosage forms that will be blocked, along with the alternatives, are noted below: Blocked Medication Cost Saving Alternative Savings Fluoxetine (Prozac) 40mg capsule Fluoxetine 20mg capsules 75 Fluoxetine 20mg tablets Fluoxetine 20mg capsules 75 Dynacin (Minocycline) 100mg tablets Minocycline 100mg capsules 85 D nacin Minoc cline 100m ca sules Minoc cline 100m ca sules 85 We also offer: Physician Formulary Compliance • Letter Campaigns encouraging use of preferred drug usage • Pre-Printed Prescription blanks to convert to Preferred Drugs • Therapeutic interchange Protocols to assist Physician in converting members to Preferred Formulary agents. Physician DAW usage for Generic Substitution Programs • Letter campaigns to physicians outlining specific member targets to encourage generic substitution. • Pre-printed Prescription blanks to encourage generic utilization. Member Mail-Order Utilization Letters to members showing them which medications they can obtain via mail order, and their annual co-pay savings from using our mail-order facilities. Member Third Tier or Formulary Compliance fir' • Targeted member letter in conjunction with physician letters to encourage formulary compliance and use of preferred drugs. Page 41 of 68 Member Generic Substitution Programs Targeted member letter campaigns in conjunction with physician letters to encourage generic utilization. `inr Member Tablet Splitting Opportunities • Targeted member letter campaigns in conjunction with physician letters to encourage tablet splitting. Member Dose Optimization Opportunities Targeted member letter campaigns in conjunction with physician letters to encourage optimized dosing of medications. Member OTC Product Utilization Opportunities • Targeted member letter campaigns in conjunction with physician letters to encourage OTC product opportunities. Many other Programs and Services are available. 29. Please explain your Drug Utilization Review process for these programs: a. Prospective b. Concurrent c. Retrospective Prospective DUR VPRx/NPS maintains a listing of therapeutic interchange protocols, including antidepressants, antihypertensives, proton pump inhibitors, migraine medications, antilipidemics, and various other drug classes. When a pharmacist sees that a patient is getting a new prescription for a third tier non-preferred medication subject to the therapeutic interchange protocol, the pharmacist consults their drug history to see if there are trials of generic or preferred alternatives. If the pharmacist determines that the patient has no record of trials on generic or preferred alternatives, the pharmacist will then contact the prescriber to see if a less expensive generic or therapeutic alternative can be substituted. If the prescriber agrees, the patient is notified of the substitution and co-pay savings as a result of the intervention. Our therapeutic interchange protocols have been very successful. Also, plans can request letters be sent to members taking a third tier non-preferred medication notifying them of less expensive generic or preferred brand name medication. This letter encourages members to discuss their medication therapy with their prescriber to see if a therapeutic alternative would be appropriate for their condition. Pharmacy claims analysis identifies patients with the most costly inferred disease states and actual prescription costs. Clients can customize the identification process used to identify patients based on several different criteria, including: • Medication Possession Ratios; • Total Claims Cost; • Number of Rxs per Month; • Number of Pharmacies per Month; • Number of Prescribers per Month; and • Narcotics red flags. The following eligibility tests are conducted with our claims processing: • NABP Number Certification -- The pharmacy is in the NPS Network of Providers. ~+` • Group Eligibility -- The Group is active within our Plans. Page 42 of 68 • Member Eligibility -- The Date of Birth, Person Code, and ID number are still active within the group and have not been terminated. • Group Specific Exclusions -- Is the Claim submitted for a class or type of medication that is excluded by '~r% the group Other Medications may require pre-certification to help encourage appropriate prescribing and appropriate use in accordance with FDA Approved indications, peer-reviewed medical literature, and generally acceptable guidelines. Drug/Drug Interactions are identified from database coding schemes. Medical data and manufacturer data are used to identify interaction on claims of members' past claims history. This information is then screened against new and refilled medication for possible therapeutic interaction. Messaging is presented at the point of sale to the pharmacy provider. Concurrent DUR 1. Please provide a listing of your company's basic concurrent DUR edits indicating which are fatal vs. non-fatal edits. Concurrent drug utilization review helps promote appropriate dispensing and use of drugs to ensure high quality of care and cost effective drug therapy. Online DUR edits can be set to reject so that the pharmacy will not be able to continue processing the claim without a call to the help desk to request an override. Examples of standard concurrent edits available for claims submitted online include: (All Concurrent DUR checks are integrated to include claims dispensed in the retail network as well as mail order): • Refill Too Soon This edit checks for improper refilling of a prescription. The alert occurs when a pharmacy tries to refill a prescription before a predetermined (by the Plan) percentage of the days supply has been used. This check identifies early refills for members who are utilizing multiple network pharmacies. The alert identifies "Refill Too Soon" regardless of whether the brand or generic of a medication is submitted as a claim. • Exact Duplicate Claim The edit prohibits reimbursement for the exact drug name, RX Number, strength and/or date of service. • Duplicate Drug or Duplicate Class Therapy This edit checks for two or more medications from the same therapeutic category. If a previous prescription in the same class was dispensed in a given time period, an alert would be triggered to the pharmacy. This edit checks for members that are receiving the same drug in different strengths or formulations, as well as foor products with duplicate ingredients. • Drug Gender Edit This edit notifies the pharmacist when a prescription claim is inappropriate or is contraindicated for the member's gender. • Geriatric and Pediatric Minimum/Magimum Dosing Informational edits alert the pharmacist when a prescribed dose is over or under the recommended dosage for individuals over age 65 or under age 12. This is based upon internal calculations of quantity, strength, days supply, and age. The edit then checks for doses that are too high are low based upon pediatric, adult, or geriatric levels. • Drug/Drug Interaction An alert occurs when a prescription is filled that may interact with a previously filled drug in a specific time period. Levels of severity are assigned to interactions and only those interactions that are identified as being severe are reported back to the pharmacy. Page 43 of 68 • Drug-to-Disease or Implied Disease Contraindication Checks are performed based on member submitted disease states and allergy patterns. Please see Attachment #3 -- Patient Information Sheet. Or a disease state can also be inferred from medications that the patient is taking (i.e. insulin would infer Diabetes as a disease state). This is an important DUR ,,~ edit, especially if the plan does not have medical ICD-9 or diagnosis codes available. If the diagnosis is available, we can incorporate the ICD-9 code into the on-line DUR program. • Over/Under Utilization of Therapy This is a "duration of therapy" check that is based on the days supply entered for the prescription. Checks are performed to indicate over- and under-utilizations of therapy based on days' supply and refill patterns. • Drug Allergy Checks are performed based on member submitted disease states and allergy patterns. This can be especially useful if a member visits multiple pharmacies and does not always report their allergies to the pharmacy. • Dollar Limits Per Claim This edit would require a telephone call to the help desk to override if desired by the plan. Plan can specifically determine dollar limits of claims that could be dispensed without prior authorization by the plan. • Dollar Limits Per Compound Claim This edit would automatically audit compounded claims that exceed a certain dollar value as set by the client. This value is scaleable and designed to help gain greater control on compounded claims that are difficult to audit due to the compounded nature of the claim. • Quantity Limits Per Claim This edit would require a telephone call to the help desk. Plans can specifically determine quantity limits for particular claims, or they can use our Global Dispensing Limitations List. An override to a quantity limit would require Prior Authorization. • Days' Supply Limits Per Claim This edit would be determined by plan design and is usually not overridden unless the plan chooses to accept a vacation supply as an override denial code that is accepted. Rettospectlve DUR review of pharmacy claims is performed to accomplish the following: • Measure the quality and appropriateness of primary care physician prescribing based on accepted guidelines through Formulary Compliance Reports. • Provide physician drug information programs to help promote appropriate, cost-effective prescribing and drug therapies. • Help providers identify potential disease state management plan members who are at risk for complications and provide the appropriate intervention. • Provide vital plan-specific utilization and fmancial information through Semi-Annual Pharmacy Utilization Snapshot Reports of the Group. All utilization edits are preformed with the integrated network of retail and/or mail order providers. Clients may elect to add hard edits in either the retail or mail service setting for any of the above or all of the above mentioned DUR programs. 30. Please submit a sample of your standard reporting package. Attach samples of your standard reporting package that is included in your quote. Please note. if your paid claims numbers are based on paid or incurred claims figures. See Attachment #4. Reports are done in real-time basis and thus they would be on an incurred claims basis. Page 44 of 68 3]. Include in your response a YPl report, a specialty'drug report, and a net cost per day for mail orretail report w/ specialty and acute meds remo~~ed. ,, See Attachment #5. 32. How do you propose getting members to look at alternative brands that have generics available and do your manufacturer contracts preclude you from providing this type of information to members? Physician Formulary Compliance • Letter Campaigns encouraging use of preferred drug usage • Pre-Printed Prescription blanks to convert to Preferred Drugs • Therapeutic interchange Protocols to assist Physician in converting members to Preferred Formulary agents. Physician DAW usage for Generic Substitution Programs • Letter campaigns to physicians outlining specific member targets to encourage generic substitution. • Pre-printed Prescription blanks to encourage generic utilization. Member Mail-Order Utilization • Letters to members showing them which medications they can utilize in the mail order and their annual co-pay savings by using mail-order facilities. Member Third Tier or Formulary Compliance • Targeted member letter in conjunction with physician letters to encourage formulary compliance and use of preferred drugs. Member Generic Substitution Programs • Targeted member letter campaigns in conjunction with physician letters to encourage generic utilization. Member Tablet Splitting Opportunities • Targeted member letter campaigns in conjunction with physician letters to encourage tablet splitting. Member Dose Optimization Opportunities • Targeted member letter campaigns in conjunction with physician letters to encourage optimized dosing of medications. Member OTC Product Utilization Opportunities • Targeted member letter campaigns in conjunction with physician letters to encourage OTC product opportunities. 33. What financial advantage would KERB COlJNTY gain if we limited the pharmacy network to several large chains? Could exceptions be made in outlying areas? We see no financial gain for Kerr County from a pure product discount standpoint and would not advise clients to use a limited network. 34. Ys electronic billing available? Reports on line? Is an interactive website available? Can members compare pricing of drugs on line? Yes to all of the above. We provide a reporting framework that enables the client to manage their pharmacy benefit plan from plan design to plan performance. Our standard management reports include: Page 45 of 68 Groua Saec Resort (Online) The Group Spec Report provides a detailed listing of the current options selected in your prescription benefit plan's design. The options reported include: ~rrr` • Co-payment Setup • Physician Network • Compound Limit • Pharmacy Network • Generic Program • Exclusions/Limits • Pharmacy Override Codes • Script Limit • Formulary Options • Days Supply • Injectables • Deductibles and Caps Groua Census Report (Online) The Group Census Report currently provides two report options: 1) Member Census Report The Member Census Report provides information on both active and terminated members and/or dependents. This report provides information such as: • Cardholder ID Number • Address • Member/Dependent Name • Person Code • Date-of--Birth • Effective Date • Termination Date • Division • Location • Subgroup This online report offers options to filter, add other data, and/or sort information. 2) Prior Authorization Report The Prior Authorization report provides information throughout the PA Lifecycle: I) Under Review, 2) Active or Denied, and 3) Expired. This report provides information such as: • Member/Dependent Name • Cardholder ID Number • Person Code • Data-of--Birth • Authorization Number • Allow (Y/I~ • Effective Date • End Date • Medication Name • PA Type • PA Criteria This online report offers options to filter, add other data, and/or sort information. • Snaashot Report The "Snapshot Report" is an excellent decision support piece that provides essential knowledge to plan providers. The Snapshot Report can be used to help employers make projections for future cost modeling as well as projecting the impact of potential changes to the design of the plan. The Snapshot Report is available with your chosen administration program. The standard package of reports that we produce and make available includes the reports described below, which are cumulatively known as the "Snapshot" Report • Program Savings and Utilization Summary (Semi-Annual Report or Online Request) This report outlines the total plan savings and net effective discount for the plan as well as average utilization numbers and costs. Page 46 of 68 • Census Track and Age Band Utilization Summary (Semi-Annual Report or Online Request) This report outlines group census information for employee coverage and delineates to family and single coverage employees with projected monthly and yearly funding levels. Additionally age band and sex utilization with average PMPMs is presented. • Maintenance Therapy and Mail-Order Utilization Summary Statistics (Semi-Annual Report or Online Request) This report provides information on summarized maintenance versus non-maintenance therapy utilization in the plan's population as well as present summary statistics for mail-order services. • Brand and Generic Utilization (Semi-Annua] Report or Online Request) This report delineates prescription utilization (volume and dollars) based on brand with generic available, brand, and generic utilization. This section also presents average plan, cost, and total cost for each classification. • Preferred Drug List Utilization (Semi-Annual Report or Online Request) This report delineates prescription utilization (volume and dollars) based on tier status. This section also presents average plan, cost, and total cost for each classification. • Top Ten Therapeutic Drug Classes (Semi-Annual Report or Online Request) This report presents total dollars and PMPM contributions of the top ten therapeutic classifications of medications utilized within the plan. • Top Twenty Prescription Drugs Dispensed (Semi-Annual Report or Online Request) This report displays the top twenty prescriptions dispensed by volume as well as average costs and percentages of utilization. • Pharmacy Provider Utilization Summary (Semi-Annual Report or Online Request) This report depicts the top twenty pharmacy providers and compares number of prescriptions filled, number of members utilizing, as well as generic utilization, generic substation, and formulary compliance rates. • Physician Utilization Summary (Semi-Annual Report or Online Request) This report portrays the top twenty prescribing physicians for the plan and compares number of prescriptions filled, number of members utilizing, as well as generic utilization, generic substitution, and formulary compliance rates. • Cumulative Prescription Utilization Statistics (Annual Report or Online Request) This report breaks out monthly dollars and script count on a cumulative basis since plan initiation. • Cumulative Prescription Statistics by Month (Annual Report or Online Request) This report characterizes monthly summary of prescriptions, patient co-payments, plan cost, and total plan costs on a cumulative basis since plan inception. Explanation of Benefits (EOB) Report (Semi-Annual Report) Members appreciate the direct-to-household EOB report. It offers them the opportunity to review their healthcare record for accuracy and content. We believe in the concept of total disclosure and want members to be aware of the claims assigned to their plan provider on behalf of their benefit. The EOB report highlights to the member the expense of the product they are receiving, as well as the additional amount paid by the plan sponsor. The report is confidential and only available to the policyholder. Additionally, these reports have served as an excellent way to audit network pharmacies for error. Please see Attachment #6 -Explanation of Benefits (EOB) Report. rlrr' Page 47 of 68 35. Will the PBM provide assistance with. developing a corrununication piece? We would be happy to assist plan sponsors with communication pieces to support our programs and plan sponsor's wish to educate members on therapies and benefits provided. 36. Provide all materials used in marketing your product. See Attachment #7. 37. Do your administration fees include the following: a. Postage (in D below) b. Claim forms c. ID cards, (medical/Rx combo cards?) d. Mailing to participants' homes e. Participating provider directories f. Customer service representatives specific to KERB COUNTY. g. MaiYorder forms h. 1 - 800 number to call center i. Standard report packages Yes to all of the above. Standard UPS or US mail services are used in the offering. Special handling and or emergency services (overnight delivery) are optional, and depending on the nature of the need additional charges may be paid by the member or the plan sponsor. 38. Does your plan currently offer on-line access to claims and eligibility information for employees? 7s there a separate charge for this to the plan? Yes. Our clients enjoy a complete suite ofweb-enabled tools in the base administration fee for no additional charge. 39. Will any revenue be paid to a third`partu administrator far services, fees, disease state managementor othervendor services by the PBM? Will all compensation to`third parties he disclosed? is an implementation allowance paid to the payor? If so, how much per member or head of household? The VPRx/NPS model is different. Our fee is $6.50 per fellable prescription. There are no undisclosed fees or payments; there is no difference between the amount of money the client pays for a dispensed drug and the amount of money the pharmacy receives for that dispensed drug. Implementation cost are incurred for the welcome kits, mailings, cards, mail order switch forms, formulary kits, member education kits. This cost should not exceed $1.50 per employee in the first year. 40. Will you audit the pharmacy data? Specifically, as a payor, what independent source will audit claims? What are the fees associated with an independent audit? We audit pharmacy data on a daily basis. NPS conducts an annual SAS 70 audit of its processes, procedures and controls to assure its clients that its model is accurate and permitted within the PBM industry! In addition, we allow members to audit our results with the Rx Member Explanation of Benefits reporting. This tool is a missing link in many of the plans offered by our competitors. We believe we owe the members materials that will allow them to peruse their personal health record as recorded at NPS to keep NPS, pharmacy providers, and physicians all on the same page. 41. Will you provide consultative modeling and forecasting annually? Yes See Attachment #8 for modeling tools. 42. Will. atuue-up of guarantees be performed annually? If so, when can KERR COUNTY expect payment of true-ups above- guarantees under transparency model? Page 48 of 68 If our guarantees warrant any tune up they will be done so and at the time of any discovery! We don't need to make plan sponsors wait until their annual visit to keep the model "in great shape". 43. Will the mail service provider provide to`KE12R COUNTY copies of their suppliers (wholesaler or manufacturer) „~. invoices showing net invoice for medications? No. The mail service facility is like any other business and has proprietary documents that are not shared outside its environment for obvious business reasons. Please understand -our clients are not barred from accessing supporting documentation for any audit rights, but simply requesting copies of supplier invoices is not something we are able to accommodate. 44. Will your firm detail its total revenue from all sources for administering the KERR COUNTY pharmacy benefit plan and allow an independent audit by the KERK GOU`NTY? Yes, provided such an audit is conducted on our premises at a time convenient for us, and is within our domain of control. 45. The 3 fmalist will be required to make a presentation to KERR COUNTY and answer questions to fully explain the specifics of the program offered. Agreed. 46. Will yow firm contractually guarantee that the amount you reimburse to pharmacy providers is the exact same amount that is billed to the plan sponsor? Yes Attach a sample draft of the PBM contract. See Attachment #9. Page 49 of 68 Cafeteria Plan Administration ~` 1. Name, address, city, state, zip code and telephone number of home office of firm. Branch office location(s), if any. Verity National Group, Inc. 11467 Huebner Road, Suite 300 San Antonio, TX 78230 (210) 348-7300 1-800-840-3977 2. Is your company awholly-owned subsidiary or a division of another company? If so, please identify the company name and address. In addition, please list all owners (if not publicly owned), and all affiliated companies. Verity National Group, Inc. 5956 Sherry Lane, Suite 1000 Dallas, TX 75225 (214) 346-6989 No. Owners: Bruce J. Gilbert, CEO; Laurie H. Burke, President and CFO; James Reid, EVP and COO. Affiliated Companies: Medical Case Management Associates, LP 3. Have any principals of the firm ever been named in a lawsuit dealing with the management/administration of a Section 125 Cafeteria Plan? No. 4. How many clients are currently served? Please provide the largest group, the smallest group and the number of employees covered. Number of Clients Served: 55 Groups; Largest group: Southwest Business Corporation (698 employees); Smallest Group: Cibolo Creek Municipal Authority (23 employees) In addition, Verity National group is the program manager for aTexas-based insurance product offered by Union central Life Insurance Company of Cincinnati. That program covers approximately 1, 600 groups and 23, 000 employees. 5. What is the maximum processing time that will occur between receipt of claims and reimbursements to the members? All of Verity's Flexible Spending Account plans include use of the verity Smart card, a debit card which allows employees immediate access to their funds. We process employee paper claims every Monday, Wednesday and Friday via direct deposit or check. 6. What guarantee will you provide to Kerr County that this function will be completed within this time frame? We are happy to provide references that will speak to our reliable payment of FSA claims per the schedule outlined here. We're also glad to offer performance guarantees to Kerr County provided there also are in place performance incentives for superior service. 7. What is the size of your staff? Total staff 34 /FSA Staff S Page 50 of 68 8. List staff experience of the employees that will be handling Kerr County's account. Lisa Pugh, Group Health Claims Manager; 17 years of experience; S+ years VNG Operations Division Amber Gardner, Benefit Analyst; 13 years of experience; 4+ years VNG Operations Division Laura Gonzales, Smart Card Accountant; 6 years of experience; 1 + years in VNG Finance Department ~"` Crystal Calkins, Senior Accounting Associate; 16 years of experience; 7 years in VNG Finance Department Bobbie Thrasher, Senior Eligibility Coordinator; 1 S years of experience; 1 + years in VNG Finance Department 9. List the office location intended to service Kerr County. Verity National Group, Inc. 11467 Huebner Road -Suite 300 San Antonio, TX 78230 (210) 348-7300 10. Is there a toll free number for employees and/or Kerr County to speak to a customer service representative? If so, what are the hours? Yes; Bilingual customer service representatives are available from 8 a.m. to S p.m. There also is an Interactive Voice Response system available 24/7. Finally, FSA transaction and balance details are available online 24/7. 11. Does your firm perform discrimination studies as to eligibility, contributions and benefits under the plan? If so, how frequently? Discrimination testing is done at the beginning of each new Plan Year. In the event a group does not pass, we will work closely with them to achieve a passing score. 12. Does your company offer debit card services? If so, please explain in detail. Administration for Verity National's flexible spending accounts is accomplished through "mbiTime, " a software ' system owned by Metavante. MBI provides debit card processing for qualified plan purchases. Payroll contributions are loaded into mbiTime by Verity National on a daily basis, allowing participants immediate access to their funds. Verity National is one offew Texas companies able to administer FSA, HRA and HSA Plans on a single debit card. Page 51 of 68 ADNIINISTRATION 1. Describe the computerized system used to collect, assimilate and integrate the data of the program. The software system behind the country's leading benefits debit card is "mbiTime. " It is on this Metavante platform that Verity National supports single-card, multi-account electronic access to benefit accounts and auto-substantiation of benefit account transactions. Online, plan participants and administrators can view transactions and balances, and view or print related reports, in real-time. Purchases are approved through the MasterCard network, and transaction details are provided to Verity National for substantiation. Merchant codes for certain health-related services are automatically approved. Merchant codes for general merchandise retailers (i. e. a grocery chain or superstore that includes a pharmacy service) can be added at the direction of the Plan Fiduciary. If the appropriateness of the transaction is in question, Verity will send an email notification requesting additional detail. If the information request is ignored, a second notice is generated. If the second notice is ignored, the card can be inactivated pending substantiation of the claim or reimbursement of the non- approved charges. Eligibility and payroll contributions are posted to mbiTime by Verity National staff. Verity National accesses the MBI system through aweb-based portal secured with a 128-bit encryption through the Secure Socket Layer (SSL) protocol. Verity National staff program account limits per participant, and in instances where more than one account is maintained on a single card, also program account priority. Swiping the debit card at approved merchants gives participants immediate access to their pre-tax dollars, without requiring a cash outlay. Paper claims submitted for reimbursement are paid promptly, via direct deposit or check. 2. Provide a sample of your Administrative Service Agreement. See Attachment #10 for both the Medical and Section 125 Administrative Service Agreements. 3. Provide a sample of your Plan Document. See Attachment #11 for both the Medical and Section 125 Plan Documents. ~° 4. Describe your capabilities for Direct Deposit. Any participants using the Verity Smart Card may have reimbursement(s) direct deposited into their personal bank account after submission of a short form available online. 5. Provide samples of worksheets and/or any materials that will be provided to Kerr County for educational purposes. See Attachment #12 for our Section 125 educational materials. 6. Describe your process for entering enrollment information into your system. Most Verity clients choose to have employees enroll in FSA benefits through BeneView, our online enrollment wizard. Basic information (name, address, job grade, etc.) can be imported into BeneView from Kerr County's payroll system. Employees log into BeneView and enroll themselves and their dependents in all appropriate coverages, and can select and delineate FSA options and amounts at that time. Once enrollment is complete, the information is uploaded to mbiTime for FSA account establishment and management, and also can be exported back into Kerr County's payroll system for payroll deduction purposes. Demographic or status changes can be accomplished in BeneView throughout the course of the Plan Year. At Kerr County's option, Verity National also can provide hard copy enrollment forms, in English and Spanish. 7. What electronic or Web-based services does your company offer? Can claims be filed via fax or through other electronic means? Do you charge additional fees for this service? Claims can be filed via email or fax, which allows for faster processing than we are able to offer on claims submitted via U.S. Mail. There is no extra charge for the electronic submissions. Page 52 of 68 8. Does your firm provide monthly, quarterly, or annual account statements directly to the participating employees? If so, please explain in detail the process and if there are any additional fees associated with Employee Account Status statements. As noted earlier, employees and plan administrators may access account statements online 24/7. A unique log in and password will be provided with the establishment of the account. There is no additional charge for individual or group statements accessed online. 9. Provide a sample of Section 125 reports generated for employees and Kerr County. Provide a sample of any other reports that you believe may be useful to Kerr County on a regular basis. Please provide sample reports that would be utilized for bank reconciliation. See Attachment #13. Page 53 of 68 ORGANIZATION STRUCTURE 1. Any Administrator must have filed and be approved with the State of Texas. If a TPA is later rejected by the State, it will be considered grounds for dismissal. See Attachment # 14. 2. Is your organization for profit or non-profit? For profit. 3. Are you an affiliate of an insurance carrier or independently owned and managed? Independently owned and managed. 4. If you are a multiple site organization, are certain services delegated to specific locations or are all services available at any location? All administrative and ancillary services, as well as Sales and Marketing oversight, are conducted at the Corporate Office in San Antonio. Sales and Marketing services also are offered through our Dallas oj~ce. Page 54 of 68 LIABILITY PROTECTION & BANI~TG REFERENCE 1. Please disclose the amount of liability insurance protection currently in force. The selected Administrator ,,: must provide confirmation of coverage. Comprehensive General Liability Policy: $2, 000, 000; TPA Errors & Omissions Policy: $1, 000, 000 2. Is the company and all employees bonded? If so, please provide details. Yes; through The Hartford Companies, Verity National maintains a Fidelity Bond of $1,000,000 and an Employee Crime Policy of $1, 000, 000. 3. Are employees covered by workers compensation insurance while performing services on site at Kerr County? a. { }Yes {X}No As administrators for The Union Central Life Insurance Company's Texas Occupational Accident Program (TOA), we have elected to "opt out" of the Texas workers' compensation program. Verity National is currently a compliant workers' compensation non-subscriber with the state. We purchase and maintain the Union Central TOA coverage to protect our employees in the event of awork-related injury. IT IS IMPORTANT TO NOTE that if gerr County requires the successful bidder to carry workers' compensation coverage, we will purchase said coverage upon our selection as the County's Third Party Administrator. Page 55 of 68 PRICES/FEES 1. Provide schedules of fees for each Plan. Indicate whether fees or services are contingent upon the sale of any products to Kerr County and the conditions under which the products would be sold. err See Attachment # 15. 2. Are the fees due payable on the fast of the month, quarterly, annually or combination of these? Fees are payable the first of each month. 3. Is a fee structure available that incorporates various levels of participation? Yes. At clients' request, we will offer a fee structure that reduces Verity's fees if the Verity Smart Card does not attract a minimal level of participation by the second Plan Year. Normally, the convenience of the debit card drives participation to two or three times that of FSA programs that do not use the Verity Smart Card. This, of course, represents significant tax savings for both employer and participants -savings that far exceed the incremental administrative cost. 4. Do you intend to receive any commissions from the vendors servicing Kerr County? No. 5. Explain any methods to be utilized to control expense. It has been Verity National's experience that implementation of debit card technology with a FSA plan drives participation from the 10-1 S% level to the 35-45% level, particularly after the first year of availability. Historically, FSA plan participants with access to the debit card also have elected to set aside a greater amount of pre-tax dollars, because they have easier, more expedient access to those funds. Verity National will attend open enrollment sessions, provide webinars, and/or offer materials to assist Kerr County employees in understanding the FSA program, and the benefits of the debit card. ~' The increased participation means greater savings for both employers and employees. At Kerr County's request, Verity National will model multiple participation scenarios to show that payroll tax savings greatly exceed the administrative costs associated with higher plan participation. When Verity National clients choose to make an Employer Contribution to the Flex Plan, participation jumps further, to the 75-85% range. At Kerr County's request, we'll again be glad to model payroll tax savings with this level of participation, net of the employer contribution and administrative costs. Nothing does more to align employers and employees fighting to control healthcare costs than for them to "share" the expense in this manner. 6. Provide a fee for administering the Medical and Dependent Care Spending Accounts with and without a Debit Card option. PEPMfor section 125 services is $5.00, and is guaranteed for 3 years. In the best interest of our clients, we respectfully decline to offer Section 125 services without the debit card. Page 56 of 68 HISTORY 1. Briefly explain the development of your organization and your corporate business objectives. The Texas Company has been a mainstay of insurance administration since the late 1980s. Verity National is led by a corps of three professionals who've brought complementary business and insurance expertise together over the course of the last decade to forge aclose-knit team. In 2004, this executive group narrowed its national focus to concentrate on the growth and success of the Texas enterprise. At the end of 2005, they took full ownership of the firm, and adopted the "Verity National "banner to reflect the broadening array of clients and services. I~eriry National designs and administers health and welfare benefit plans for employers. Responsible for approximately 30, 000 covered members, its blue-chip client roster includes an extensive mix of heavy industries, financial institutions, universities, and municipalities in Central and South Texas. Verity National serves as the Program Manager for the Union Central Life Insurance Company's Texas Occupational-Accident (TOA) program. This Cincinnati-based, A-rated carrier has been in business since the Civil War, and has more than $37 billion of insurance in force; this particular program extends to 1,600 employers and more than 23,000 employees. Union Central chose Verity National to serve as program manager in 2004 after growing disenchanted with the administration services of a GE Capital subsidiary. Verity's first full year of policy management and claim administration for Union Central coincided with a significant reduction in the loss ratio and record profits for the program. Union Central has recently extended the contract with Verity National, as well as lowered their rates for policyholders, as a direct result of our claims and premium management expertise. 2. Explain how long you have been in business and how long you have been providing Section 125 Administration ~` services. Yeriry National Group has been in business since 1989; Section 125 Administration services have been offered for almost 10 years. Page 57 of 68 ulv>, ~ N ~ is io 'C O rnfL- ~ vQi ~ N fl Z Q ~ Z c Z o.a cv a~ o o °-s ~ ° ~~ a', ~ of °~ ~ m cn~~a a O X C ssX ~"O.O ~ iD ~•`-' 00 ` >,O O ~ ~ O p1 T~''NmJ a c o c as ~ o a °-' ~ ~'"- 0 3 °-~ ~ ~°>W~ a 7~~ o~ O c O= O~ n t ~ ~ O ~ rn.N a ~~ ~> ^N d°, J m N~~ c`a N ~ >;°- O ~ I-d ~ cLn H °~ O ~' m coo N. 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O yy {p ~ ~` U U C L_ H »>O ^ ^^^^ i0 m N m d ~ N x:_mo L O N O U W T~ D_ L W C N d Ol m 'O > y x ~Y_,O ^ ^^^^ O m ~ m ~ N N ~ d co %~ N a m 'd y~? 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E F ~ ~ O ~'~~ ~ ~ N d _ ~ O ~ m~ eQ r A t c a ~' y v a~ 3@c~v~ ow~m~ d ~°N'aa o 'Q t ~~.. _ O 3 C ~ ~ a a o a m a"i~.am V ~ N U ~ '~ h m N ~ Q ~ _a am V N d c O Q N iri ~ ~• a ~ ~sU m c•~ ~ ~ r ° ~ o c ~ ~ ~ t ~ ~ >+ ~ o o ca ~ o N x ~ ~ m •o ~ ~ a ~ ~ aNi E ~ ~ ~ c ~ a ~' ti m c E ~ ~~ U U~ ~ c = .E a• Z a 0 ~ IA a •~ •~ ~ °, c a ° p a> > o ° p ~ ° 3 N m O > v°i ~ '~ V O O~ O y T Q O O ~~~ O ~ ~ ~ ~ ~ N ti ~ Q N LA v Q- ~ ~ ~ °- N ~ ~ ~ ca ~o ~ cya Q ~ ``° o °°° o °- cMO m c m 00 ~ ~• ~ ~ O z -- N O U -a ~ ,~ Q- ti O c 0 ~- ~ ~, ~~ o- m m ~ c ~~ ~ d c '= c o w ~ w O o~ ~ ~ w. 7 c~ O ~~ O tv 3 N M ~ «s 00 N R N Z c "U •°' w N vi •°' ~ ~ ~I ~ a W Z ~ O c O ~ ~ ~ ~ C ~ vI v, ~~ ~ ea ° ~ o •~ Z ~ m m~ y vi _~ o a m ~~ m ca a _N N f0 p~~ N ~ ~" ~ ~ 0 0~ O N f0 N C 3 3 ~ 7~ U d ~ E ~- N L E W O d Q E O d N ~ c N O v ~ O V to ~ C1 L J+ ` ~ ^ ^ ^ ^ ^ ^ ^ ~ a `~ o a C N .~ O 0 c r U F~- f6 U .7 U m L a O O N `~ 0 N O °> H a SAMPLE GROUP 1/1/2004 -12/31/2004 `~rrrrlARMACY_SMARTCARD'PROGRAM SAVINGS ' ;. Network Network Network "Network Net Approved Price Savings Savings per Rx Effective Discount MANUFACTURER'S SUGGESTED $136 974.20 $99,090.27 $37,883.93 $23.71 27.66% RETAIL PRICE (AWP) , PHARMACY USUAL AND $125,901.26 $99,090.27 $26,810.99 ~`"' $1`6,7$_ 21.30% CUSTOMARY (U & C) PLAN PARTICIPATION RESULTS AND CLAIMS TOTALS(RETAIL'AND MAIL-ORDER CLAIMS) CLAIMS APPROVED FOR PAYMENT: CLAIMS DENIED (REJECTED): CLAIMS CREDITED (REVERSED): NEW PRESCRIPTIONS: REFILL PRESCRIPTIONS: PERCENTAGE OF NEW PRESCRIPTIONS VS REFILLS: AVERAGE DAYS SUPPLY DISPENSED: 1,598 ,,' 54;#.f :: w ,1290' . :. f. r` ~~-9.90 a ''~r '`',. 62% .'~ ` .,•" z8 •' O PU 7a,° ^~PAY 30% AVERAGE METRIC QUANTITY DISPENSED: y'-'~~ 65 _.. NUMBER OF PRESCRIPTIONS WITH A PRIOR AUTHOI~ATION: ~. 6 ,•? - TOTAL Rx's: 1,598 ~,. AVERAGE COPAY COST PER PRESCRIPTION:,; ~` ` $18.73 COPAY PAID: $29,923.71 r• r,, " $43.28 AVERAGE PLAN COST PER PRESCRIPTIOIjI-~. ;,, ,p.'~'° ~ PLAN PAID: $69,166.56 AVERAGE TOTAL COST PER PRESCRIH~IO„N: ~,-- '•:IwPS,AVG: Ssa.&3) $62.01 TOTAL PAID: $99,090.27 - `:, MA{NTENANCE~MEDICATION UTILIZATION (RETAIL AND MAIL-ORDER CLAIMS) MAINTENANCE THERAPY INC~IGATOR, ', -£'` • TOTAL PRESCRIPTIONS DISPENSED: 1,598 ,oo% 11111 MAINTENANCE MEDICATIONS ao% . .a% =o% o% ^ NON-MAINT •MAINT TOTAL DISPENSED: 507 AVG PLAN COST: $52.80 AVG DAYS SUPPLY: 40.32 AVG COPAY: $18.27 AVG QUANTITY PER RX: 55.16 AVG TOTAL: $71.07 NON-MAINTENANCE MEDICATIONS TOTAL DISPENSED: 1,091 AVG PLAN COST: $38.86 AVG DAYS SUPPLY: 21.80 AVG COPAY: $18.94 AVG QUANTITY PER RX: 69.42 AVG TOTAL: $57.80 ~AVPS averages and trends displayed are based on data for 7/1/2004 thru 9/30/2004 for all lines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888334x1488 SAMPLE GROUP 1/1 /2004 -12/31 /2004 NSUS TRACK -(PROJECTIONS BASED ON CURRENT TREND RATES) NUMBER OF ELIGIBLE EMPLOYEES (EE): ~ 142 NUMBER OF EMPLOYEES WITH FAMILY COVERAGE: ~ 102 TOTAL NUMBER OF MEMBERS (EMPLOYEES + DEPENDENTS): z 400 NUMBER OF EMPLOYEES WITH SINGLE COVERAGE: ~ 40 AVERAGE FAMILY SIZE: 2.8 PERCENT OF GROUP UTILIZING PRESCRIPTIONS: 54.00% CURRENT FUNDING LEVELS (MONTHL EMPLOYEES (PEPM) SINGLE FAMILY COPAY $17.53 $3.49 $23.04 PLAN $40.52 $9.16 $52.82 TOTAL $58.05 $12.65 $75.86 PMPM (PLAN):2 $14.39 PMPM (TOTAL):2 $20.61 (NPS PMPM: 40.43) AVERAGE PRESCRIPTIONS PER MONTH PER EMPLOYEE: ~ PROJECTED FUNDING BASED ON CURRENT DATA (PEARL EMPLOYEES ~ ~~' (PEPY) SINGLE FAMILY COPAY $210.38 $41:86~> f~ $276.47 PLAN $486.28 $109.92 ~~•~;~'~ $633.87 TOTAL $696.66 ,$154.Z8,j~ $910.34 PMPY (PLAN):.", $772:63 PMPY (TOTAL): 2 ~~ ;5247.31'.~'(NPS PMPM: 485.16) N' r' Z ' ~'~' 0.94 i AVERAGE PRESCRIPTIONS PER MONTH PER MEMBER (EMPLOYEE + DEPENDENTS): -•Z-, . ~ `-, 0.33 AVERAGE PRESCRIPTIONS PER MONTH PER UTILIZER: a r' ~''." 4 ~ Q:62 ,. UTILIZATION BASED ON AGE AND SEX The following chart depicts PMPM and age gender segregation based upon current utilising members. 80 70 60 50 w m 40 w 30 20 10 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $0.00 illllllllll~ FEMALE o MALE ~-PMPM -~---NPS TREND # MEMBERS W/GENDER UNSPECIFIED: 0 1. Eligible Employees are defined as policyholders or cardholders. All claims are assigned to the policy and the policyholder and or family are entitled to the products and services as outlined in plan specifications. Plan census may have changed during the time frame fo this report. 2. Members are defined as the employee or policyholder and the employee's spouse or dependents that are covered under the plan. A policyholder may have single or family coverage. Member counts are total eligible lives. Please note that members in the plan during this time frame may not be effective currently; however their claims activity is presented in order to produce an accurate and reliable picture of the cost analysis. " Utilizers are the members (employee + dependents) that have filled a prescription drug claim for funding by the plan. Non-utilizers would be members iployee + dependents) that have not filled a prescription drug claim. II NPS averages and trends displayed are based on data for 7/1/2004 thru 9/30/2004 for all lines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 SAMPLE GROUP 1/112004 -12/31/2004 SAIL-ORDER STATISTICS NUMBER OF MEMBERS UTILIIZING: AVERAGE COST PER PRESCRIPTION: AVERAGE QUANTITY PER PRESCRIPTION: GENERIC UTILIZATION RATE*: GENERIC SUBSTITUTION RATE**: FORMULARY COMPLIANCE RATE""*': AVERAGE DISCOUNT OFF AWP-BRANDS: AVERAGE DISCOUNT OFF AWP-GENERICS: MAIL-0RDER NET EFFECTIVE DISCOUNT (OFF AWP): 25 MAIL-ORDER CONTRIBUTIONS $213.52 13 i 148 37% 100% .f ^ COPAY ,F , 72.15% •. :. 87 % '* ^ PLAN 16.96% 56.93% TOTAL RX'S: ~„ 158 36.76% '~~RX'S: ,r ~ 69 F2EFILL'>RX'S: ' 89 NUMBER OF ;^• COPQiY PAID' $4,307.43 PRESCRIPTIONS .. PLAN!'AID: $29,428.48 ^ SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) ~' 99 ` 37% ^ MULTI-SOURCE BRANDS (GENERICS AVAILABLE) ~•_' 0 f 4. ^ GENERICS ~~'-•, ' 63% TOTAL NUMBER OF PRESCRIPTIONS: ~''`'~'• 158 ' • 0% NUMBE.EtOF `' ;PRESCRIPTiCdNS `;~.. 28% ^ TIER 3 (NON-PREFERRED PRODUCTS) %~ ~ 44 35% ^ TIER 2 (PREFERRED BRAND-NAME PRODUCTS) .~'~ •~,: "' ",. ~' 58 ^ TIER 1 (GENERIC PRODUCTS) ~<.~ • ~~, 56 TOTAL NUMBER OF PRESCRIPTIONS i ' ' 158 •, ..• 37% ,,, .: r~. *The overall generic utilization rate represents the percentage of all presc~iptions'filled with a;generic. **The overall generic substitution rate represents the number of pres~ciptions thaf'~uld hive been filled as generics that actually were dispensed with a generic product. "*The formulary compliance rate represents the percentage of presoriptiogs'thattyere fiAed with a generic (first tier) or Preferred Brand Name (Second Tier) medication. OP TEN' MAIL ORDER DRUG CANDIDATES BY RX NUMBER ~ ! PE[2CENT OF NUMBER OF AVG RETAIL AVERAGE POTENTIAL 2 NUMBER OF ~i. ALL TOTAL MEMBERS COST PER MO COST PRODUCT DESCRIPTION PRESCRIPTIONS '~ '"PRESCRIPTIOfdS DOLLARS UTILIZING RX PER RX SAVINGS ZOLOFT TA650MG 42 RET: 40 x,630/ MO' z , ,. $3,541.54 6 $81.88 $79.41 $98.80 NORVASC TAB1oMG 30 RAT: ~<:; 1 88% 289.30 $2 4 $73.45 $71.42 $52.78 MO: 4 . , LIPITOR TABIOMG 25 ~- ` t RET:.ts.,, ~ ~'';~ • 1 56% 418.21 $3 5 $132.99 $131.25 $26.10 MO: 10.. ~. . > , ZOLOFT TAB1ooMG 22'.` 9 ' 1 38% $2 978.03 4 $132.44 $130.09 $44.65 . Mo s . , FLOMAX CAPO.aMG ;,••=2~, ~`• ^t?Er:~s.-' 1.25% $2,166.04 3 $105.45 $103.22 $35.68 vloxx ra,ezsMG 16 ~ RET: 16 1.00% $1,356.45 3 $82.65 $78.93 $59.52 MO: 0 AMBIEN TABIOMG 16 .:'RET: 12 !~ 1 00% 991.21 $1 3 $121.20 $119.07 $25.56 Mo: a ~ . , CELEBREX CAPZOOMG 13 RET: to 81% 0 $1 570.44 6 $118.63 $113.73 $63.70 MO: 0 . , NATALCARE TABGLOSSTAB 12 RET: 12 0 75% $138.00 2 $6.50 $6.42 $0.96 Mo: o . MAVIK TAB4MG 12 Rte' t2 0 75% $386 14 2 $29.87 $28.58 $15.48 Mo: o , . TOTAL POTENTIAL SAVINGS: $423.23 (Top 10 Drugs Only) 1 -Number of prescriptions breakdown includes Retail Pharmacy (RET) vs Mail Order Pharmacy (MO) prescription counts. 2 -Calculated by using the difference between the average retail claim cost and the average mail order claim cost, multiplied by the retail claims potentially available for mail order. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 SAMPLE GROUP 1/1/2004 -12/31/2004 `~" BRAND AND GENERIC SUMMARY (BRAND AND GENERIC UTILIZATION (RETAIL AND MAIL=ORDER'CLAlM$) ~ NUMBER OF NPS AVERAGE PRESCRIPTIONS =s% ~ SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) 716 5,% .% ^MULTl-SOURCE BRANDS (GENERICS AVAILABLE) ~ GENERICS TOTAL NUMBER OF PRESCRIPTIONS 45% 53 sz°i £, I; 829 r~ 1,598 ,. .-~; (DOLLARS SPENT ON BRAND AND GENERIC THERAPIES ~ NPS AVERAGE ~ SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) : X7$;229.36 ' ~ ~~/° 3% ^MULTl-SOURCE BRANDS (GENERICS AVAILABLE) '`~ $1,7~T14, z°i° ,5% ~' ~~:-.. ~ GENERICS `-?;$19,153.77 TOTAL: > $99;'x.90.27 7s% ,~ CONTRIBUTIONS TO BRAND AND GENERIC THERAPIES ~ Vl~r' ^ AVERAGE PLAN COST 19VEFF/kGE CORAX+COST AVERAGE TOTAL COST AVERAGE DISCOUNT OFF PFR PRF.C(:RIPTI(lN ~~ ~ PFI~•PRFSC:R{PTION PER PRESCRIPTION AWP SINGLESOURCE BRANDS (NO $77.2~~ ~ ,. $32.00 ~.. $109.26 14.94% GENERICS AVAILABLE) . MULTI-SOURCE BRANDS ~ ~ $1 T.6~ ~ J, $14.54 $32.21 ° 14.77 /o (GENERICS AVAILABLE) . ~. ~N~'~ $1 ~.8 $7.53 ~' `~F" $23.10 61.69% ~~ $77.26 ~~- $17.67 $15.58 `~`•~ ,, , ~1' _. - $109.26 $32.21 $23.10 AVERAGE P1AN COST - AVERAGE COPAY COST AVERAGE TOTAL COST UTILIZATION, STATISTICS GENERIC SUBSTITUTION'RATE*: 93.99% GENERIC UTILIZATION RATE'`*: 51.88% NUMBER OF PRESCRIPTIONS DISPENSED WITH PHYSICIAN REQUESTING BRAND (DAW 1): 5 NUMBER OF PRESCRIPTIONS DISPENSED WITH MEMBER REQUESTING BRAND (DAW 2): 18 *The overall generic substitution rate represents the number of prescriptions that could have been filled as generics that actually were dispensed with a generic product. *The overall generic utilization rate represents the percentage of all prescriptions filled with a generic. 1 NPS averages and trends displayed are based on data for 7/1/2004 thru 9/302004 for all lines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 SAMPLE GROUP 1/1/2004 -12/31/2004 ~""' PREFERRED DRUG LIST UTILIZATION FORMULARY /PREFERRED DRUG LIST STATISTICS BY CLAIM COUNTS (RETAIL AND MAIL-0RDER CLAIMS) NPS AVERAGE NUMBER OF ,s, PRESCRIPTIONS 20% ~ TIER 3 (NON-PREFERRED PRODUCTS) 323 2a°i s~i ^ TIER 2 (PREFERRED BRAND-NAME PRODUCTS) 456 51% ~ TIER 1 (GENERIC PRODUCTS) 819 29% TOTAL NUMBER OF PRESCRIPTIONS 1,598 ~' i' IIULARY /PREFERRED DRUG STATISTICS BY DOLLAR ~ NPS AVERAGE 28 % 22°k 18% ~ TIER 3 (NON-PREFERRED PRODUCTS) $40,1~5~.65 ' 41% ^ TIER 2 (PREFERRED BRAND-NAME PRODUCTS) ~ ;;$40,266.49 soi ~ TIER 1 (GENERIC PRODUCTS) .$,16¢.21 TOTA4 i`'"- $99,090.27 ' .'~.::~ 41% ~i4GE COST PER FORMULARY TIER AVERAGE PLAN COST ~~`'•,:AVERAGE COPAY COST AVERAGE TOTAL COST AVERAGE DISCOUNT OFF oGGZ paG_~r~RiPTinni ~FR PRF.SC:RIPTI(~N PER PRESCRIPTION AWP TIER 3 (NON-PREFERRED PRODUCTS) f.,~~o. CJ2~,,: ~ $35.35 $125.88 15. 17% TIER 2 (PREFERRED BRAND-NAME ,~t ~1~ 1 .03 27.2$ 88.30 1 ~I,. V 1 % PRODUCTS) r" ~•, ! TIER 1 (GENERIC PRODUCTS) , ~~1 '~FY.77 $7.41 $22. ~ 8 62.61 $61.03 $14.77 AVERAGE PLAN COST $125.88 $88.30 $22.18 AVERAGE TOTAL COST UTI LIZATION STATISTICS OVERALL FORMULARY COMPLIANCE RATE*: 80% *The formulary compliance rate represents the percentage of prescriptions that were filled with a generic (first tier) or Preferred Brand Name (Second Tier) medication. VPS averages and trends displayed are based on data for 7/1/2004 thru 9/30/2004 for all lines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 AVERAGE COPAY COST SAMPLE GROUP 1/1/2004 -12/31/2004 DRUG CLASS UTILIZATION OP TEN.DRU,G CLAS . _ ,SES BY TOTAL' DOLLARS' TOP 10 DRUG CLASSES o PENICILLINS 0 CALCIUM BLOCKERS D ANTIHISTAMINES ^'ADHD/ANTI•NARCOLEPSY/ANTI- OBESITY/ANOREXIANTS' ^ DERMATOLOGICAL ~ ANALGESICS -ANTI-INFLAMMATORY a ULCER DRUGS O ANTIPSYCHOTICS a ANTIHYPERLIPIDEMIC ^ ANTIDEPRESSANTS 62,785.05 i' $2,859.86 r ,'-. $3,263.34 '' ', $4,010.24 $4,709.46 " ;; f $5,009.79 ~' " " ~' `~~ $6,104.22 ~ " 1° ,' $7,010.00` `~* ." ` ....,..~ ... i' TOTAL PMPM FOR TOP TEN DRUG GLASSES BY TOTAL DOLLARS ti1r-' OVERALL PMPM ($): $20.61 $4,00- ,. ~:~3,50- " $3.00- '~~7.50- `~~ $2.OQ- t , r=" " ,j $1.50- ~~ ~ $1.00- ~` - -~ $0.50- $0.00-, , ,~ y O' 4~ '~~ t ~,. ~~ ~' ~.- DRUG CLASSES ~~ ~~ COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 88010 7-888-334-4488 SAMPLE GROUP 1/1/2004 -12/31/2004 ~~ TOP TWENTY-FIVE PRESCRIPTIONS DISPENSED ~~. UTILIZATION~OF~TOP TWENTY-FIVE DRUGS TOP 25 DRUGS BY DOLLARS TOP 25 DRUGS BY NUMBER OF RX'S 29% 31 ~ TOP 25 DRUGS ALL OTHER DRUGS _,' OP TWENTY-FIVE DRUGS' BY PRESCRIPTION COUNTS PERCENT OF NUMBER OF AVG ."~ NUMBER OF ALL TIER TOTAL JNEMB'`ERS COST/~ PMPM PRODUCT DESCRIPTION PRESCRIPTIONS PRESCRIPTIONS STATUS DOLLARS ~UTIL12'ItfG,. PER RX COST DRUG CLASS ZOLOFT TAB50MG 42 NEW: 13 2.63/0 2 $3,541.54~;; 6 ~"'$84.32 $0.'74 ANTIDEPRESSANTS 0 REFILL: 29 TRIMOX CAP500MG 34 NEW 24 13% 2 1 $263.16 "'~, ";1 $ $7.74 $0.05 PENICILLINS REFILL: 10 . , NORVASC TA810MG 30 NEW 5 1 88% 2 ' ' 289'•~ 0 $~ 4 $76.31 $0.48 CALCIUM BLOCKERS REFILL: 25 . , . CEPHALEXIN CAPSOOMG 27 NEW 23 1 69% 1 ~ r $441.72 °'•' F ~' 17 $18.36 $0.09 CEPHALOSPORINS REFILL: 4 . _ ,' _ LIPITOR TA610MG 25 NEW 7 REFILL: 18 1.56% 2 $'~418.21~' `w,. !. 5 $136.73 $0,71 ANTIHYPERLIPIDEMIC _ ZOLOFT TAB100MG 22 NEW 8 0 1 38 /o ~ - ~... $2 978:03 4 $135 37 $0.62 ANTIDEPRESSANTS REFILL 14 . . MAX CAP0.4MG 20 NEWS 1 25% :', 2 , '$2 166.04 3 $108.30 $O,t}5 MISCELLANEOUS REFILL: 15 : • • , GENITOURINARY PRODUCTS ACIPHEX TAB20MG 19 NEW 7 1.19410? 3~`':.. 1 280.45 :$3 2 $172.66 ULCER DRUGS $0.68 REFILL: 12 , TRIMOX SUS250/5ML 19 E L 9 1 '1'94/0 ,~'` 1 :'~ ~ ~' $138.00 14 $7.26 $0.03 PENICILLINS 0 R L: ; ,, MINOCYCLINE CAP100MG 18 NEW 13 f" 13°Y~: ' 1 'ti'` $937.00 4 $52.06 $0.19 TETRACYCLINES REFILL 5 . .- . ZITHROMAX TABZ-PAK 18 NEW 18 fti'. 1:13°/° 2 $806.60 18 $44.81 $0.17 MACROLIDEANTIBIOTICS REFILL: 0}•° ;~ _ IBUPROFEN TAB800MG 18 NEW 1a •~ ::1.13%::~ 1 $135.20 12 $7.51 $0.03 ANALGESICS - ANTI- REFILL: 4 INFLAMMATORY TRIAM/HCTZ CAP37.5-25 18 NEM! 9: A 1 13/0 1 $124 20 3 90 $6 Q$ $O DIURETICS REFILL'.%9. . . . , HYDROCO/APAPTA85-SOOMG 18 .NEW 18 `°>•, .1 13% 1 $91 36 14 $5.08 $0.02 ------__ ANALGESICS -Narcotic , REFILL'.`Q . . AMOXICILLIN SUS400/SML 17 ~~ NEW 1Z".`•, i 0 t 1 06% 1 $320 31 14 $18.84 $0.07 PENICILLINS • REFILL: . . AMBIEN TAB10MG I,16~• ^ . . NEW 13 1 00% 2 $1 991 21 3 $124.45 $0.41 HYPNOTICS ` REFILL:3 . , . VIOXX TA625MG ~~ ~ 16 NE1M 4 1 00% 3 45 $1 356 3 $84.78 $O.2S '4NALGESICS - ANTI- . REFILL: 12 . , . INFLAMMATORY TRIAMCINOLONOIN0.1% y~~,, 16 `NEW 3 ' ° 1 00% 1 $175 55 3 $10 97 04 $0 DERMATOLOGICAL ,;' REFILL 13 . . . , ZYRTEC TA610MG , '. ,~'S : ' NEW 5 0 94/° 0 2 $1 275 16 6 01 $85 $0.27 ANTIHISTAMINES REFILL: 9 . , . . ZITHROMAX SUS200/SML 15 NEW 15 0 0.94 /° 2 $561 58 9 $37 44 $0 12 MACROLIDE ANTIBIOTICS REFILL: 0 . . , LEVOXYL TAB100MCG 15 Nov 4 0 94/0 0 1 $170 27 2 $11 35 04 $0 THYROID REFILL: 11 . . . , HYDROCO/APAPTAB7.5-500 15 NEW 1s 0 0 94 /0 1 $110 85 7 $7 39 $0 02 ANALGESICS -Narcotic REFILL 0 . . . . CELEBREX CAP200MG 13 NEW 6 0 81% 2 $1 570 44 6 $120 80 33 $0 ANALGESICS-ANTI- REFILL: 7 . , . . . INFLAMMATORY TOBRAMYCIN SOL0.3%OP 13 NEW 13 0 81 /° 0 1 $84 50 10 50 $6 02 $0 OPHTHALMIC REFILL: 0 . . . , EGRA-D TA660-120ER 12 NEW 4 0 0.75 /0 3 $956.83 4 $79.74 $0,20 COUGH/COLD/ALLERGY REFILL: 8 COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 SAMPLE GROUP 1/1 /2004 -12/31 /2004 TOP TWENTY-FIVE PHARMACIES BY PRESCRIPTION COUNTS UTILIZATION SUMMARY 1 AVG AVG GENERICz GENERIC; FORMULARY4 AVG DISCOUNTS NUMBER OF TOTAL MEMBERS COST DAYS UTILIZATION SUBSTITUTION COMPLIANCE OFFAWP PROVIDER PHARMACY PRESCRIPTIONS DOLLARS UTILIZING PER RX SUPPLY RATE RATE RATE BRAND/GENERIC INTEGRATED PHARMACY 158 NEW: 69 52 89.58 $33 735 91 25 $213 37% 100% 72% 17% / 57% CCD\/1(`CC BOYS TOWN. NE REFILL: 89 , . . r. WALGREENS PHARMACY NEW ss '~ '" #4974 OMAHA, NE 96 REFILL: 27 $3, 327.94 17 $34.67 19.47 68% -` 100%t>,. ~3% 14% / 56% WALGREENS PHARMACY 78 NEW. 50 $5 741.63 19 $73.61 21.55 35% ., 75% 76% 14% / 48% #4754 LA VISTA, NE REFILL: 28 , r WALGREENS PHARMACY 7`J NEW ss 148.30 $3 18 $41.98 19.77 60% '' ;100°'0;, 88% 14% / 55% OMAHA, NE #4443 REFILL: 19 , KUBAT 74 NEW 15 845.18 $5 2 $78.99 29.81 /~ 24°h ';.8~.% 72% 13% / 45% OMAHA, NE PHARMACY REFILL 59 , +~ -_, ,.x BAKERS PHARMACY 74 NEW: 42 $2 747.06 8 $37.12 20.1"', 38% ~ •'` 62% 77% 14% / 42% #321 OMAHA, NE REFILL: 32 _ WALGREENS PHARMACY 72 NEW: 37 $1 704.79 11 $23.68 ~z:67 , T4% 100% 93% 14% / 70% #5540 BELLEVUE, NE REFILL: 35 , , WALGREENS PHARMACY 68 NEW 40 $2 282 51 5 $33.57 25.~~. 63% 81% 72% 14% / 69% #2855 OMAHA, NE REFILL 28 WALGREENS PHARMACY NEW 43 #3694 BELLEVUE, NE 67 REFILL: 24 $3,735.48 7 $55.7;5 21.58 ~ 39% 100% 84% 14% / 50% WALGREENS PHARMACY c NEW. 48 ? #05360 OMAHA, NE 64 REFILL: 16 $1,865.14 17.ti' $29...94 17:7. 69% 90% 86% 14% / 44% WALGREENS PHARMACY NEVI' ~ #4772 63 $2,384.41 ~4 ".$`37.85 `7.73 65% 100% 76% 14%/ 52% OMAHA, NE REFILL: 27 .r ' +ART PHARMACY 55 NEW ~ $2,405.58•, ' 7' ~` $43,;74 26.02 42% 92% 75% 14% / 81 yg3 OMAHA, NE REFILL: 29 WALGREENS 24 HR 54 NEW. 44 $1,860:49"' ~' ~, 24 $34.45 14.83 57% 100% 85% 14% / 48% PHARMACY OMAHA, NE REFILL: 10 , WALGREENS PHARMACY NEW 25 rf'+ ' ~ 'e• #3186 OMAHA, NE 40 REFILL 15 $,2,074>3'f' 1st. $51.86 17.10 58% 100% 75% 14% / 57% SUPER TARGET PHARMACY 35 NEUV 2e ~ ` $2 3v3.62 ..,r't ~ 3 $67.25 24.66 51 % 100% 57% 14% / 70% #532 PAPILLION, NE REFILL:7 /'r •. :'~ ED'S REXALL 32 NEW' $1',931,89 3 $60.37 29.28 0% N/A 78% 13% / N/A DRUG OMAHA, NE REFILL 23'~ '~.;, HY-VEE PHARMACY NEW 14 r #1468 OMAHA, NE 32 REFILL 18 -$573'.43 4 $17.92 27.25 100% 100% 100% N/A / 65% WALGREENS NEW 25';, #7563 OMAHA, NE 31 a -~F~u: s ,$1,870.58 9 $60.34 18.00 61 % 95% 74% 14% / 50% #2056 OMAHA, NE REFILL. 2 ° SUPER SAVER PHARMACY 2~:. , NEw 15 $1,777.01 3 $68.35 22.42 23% 75% 46% 13% / 45% #20 OMAHA, NE' - ~ REFILL; ~1 ~ SHOPKO PHARMACY `•' 25 ~~ , NEw 1s ' $gg0.63 6 $39.23 15.96 40% 100% 96% 13% / 60% #2044 oMAHA, NE REFILL: 9 i WALGREENS PHARMACY ~ .'NEW 1a ' REFILL 10 2 '4 $1,007.65 7 $41.99 21.96 o 54 /0 0 100% 0 88/0 0 14 /0 / 0 42 /0 #1738 OMAHA,N@ - , f : OSCO DRUG 23 NEW zz $708.39 8 $30 80 15.35 57% 93% 87% 14% / 68% #5293 OMAHA, NE REFILL:1 . WALGREENS PHARMACY 20 NEVI! 12 $300.51 7 $15 03 20.05 0 85 /0 0 100 /0 0 90 /0 0 14 /o / 0 89 /o #05966 OMAHA, NE REFILL: 8 . FLORENCE DRUG 19 NEW 13 $1 524.35 4 23 $80 25.26 79% 100% 100% 14% / 49% TOWN OMAHA, NE REFILL:6 , . KEY: 1. Members utilizing each pharmacy provider are based on the alive members in the group for the seleded time period. - The overall generic W I¢ation rate represents the percent of generic medications compared to all medications. The overall generic substitution rate represents the number of prescriptions filled with a generic versus the total that could be filled with a generic. The formulary compliance rate represents the percentage of prescriptions that were filled with a generic (First Tier) or Preferred Brand Name (Second Tier.) 5. The average brand/generic discount only includes claims processed online. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 SAMPLE GROUP 1/1/2004 -12/31/2004 TOP TWENTY-FIVE PRESCRI BER UTILIZATION SU MMARY GENERICZ GENERIC 3 NUMBER OF 4 FORMULARY 5 NUMBER OF TOTAL MEMBERSt AVGCOST UTILIZATION SUBSTITUTION DAW1 COMPLIANCE 6 PRESCRIBER PRESCRIPTIONS DOLLARS UTILIZING PER RX RATE RATE SCRIPTS RATE PMPM WILLIAMS, STEPHEN H MD 37 N~'~ $2,137.37 3 $57.77 51% 100% 0 86% $59.27 Refill: 8 CERVANTES, JAMES ANDREW 36 New: 19 $1,833.97 3 $50.94 39% 100% ~ 0 72% $50.86 MD Refill: 17 ,/'). LOHRBERG, JOHN R MD 31 Nev. 11 $1,560.61 6 $50.34 55% 100% '~• 0 .;' 61 % $21.64 Refill: 20 f KRAMPER, RALPH J MD 30 NeN' 3 $1,414.16 1 $47.14 30% ~;' 100% ~0'' 100% $117.65 Rafill: 27 ISTAS, JOEDY RAY MD 28 New: 19 $978.59 2 $34.95 96% 1b0%'~° 0 96% $40.71 Refill: 9 STAMM, DAVID W MD 26 Nom"' 7 $1,338.41 5 $51.48 15%0 ' ~ ' 100°k,fr 0 96% $22.27 Refill: 19 ! .: HAYES, KRISTIE D MD 26 New: 1o $527.45 2 $20.29 96% •'TQO'% 0 88% $21.94 Refill: l6 _ ~ f' KOLBECK, TERRENCE JAMES 23 New. fi $1,693.15 2 $73.62`'-. 0°!0 ~''•• ,, N/A 0 96% $70.43 Refill: 15 ' ~ , " RUSSELL, DOUGLAS A MD 23 New: is $435.43 1 '~ s $18.93 ~`4C: 91 % 100% 0 100% $36.23 Refill: 5 -- ` ~'. _ _ _ . STOLLER, HERSCHEL E MD 22 New. 21 $1,653.57 3 r ~ ° $5.16 `" 86 /0 100 /° 0 86% $45.86 Refu. t . _ t}. titHU, CitUKCit Ci MU 21 '"°"'' '" $1,210.15 2 -~ '~,, $57.63"'..r ;' 48% 77% 0 62% $50.34 - ,~ .! - WILLIAMS, STEVEN MAX MD 21 New: 16 $916.43 F7 "` i $43.64 48% 83% 0 57% $10.89 Refill: 5 µy GRANKLIN, JOHN JOAQUIM MD 20 New.5 $1,436.33 ~ 1 -.,''~ "$%1.82 5% 10% 0 5% $119.50 Refill: 15 CKASEN, JOHN ROHERTY MD 20 New: 14 42' • $666 ~:;' '- 5 ~; $33.32 95% 100% 0 100% $11.09 Ref ll: 6 . . .~~ FULTON,KRISTENBMD 19 New. t3 $1 361.9. 3f.'•` $71.67 5% 33% 0 79% $37.76 Refill: 11 , , r` NAEGELE, ROBERT GERARD MD 18 New:3 '~2,71d 86 -'r' 1 $150.60 39% 100% 0 44% $225.53 Refill: 15 t CRNKOVICH, TIMOTHY P MD 18 New: 15 fi $268.25 1 $14.90 89% 100% 0 94% $22.32 Refill: 3 ,r° ,',;:. ' ZIEG, GEORGE ALLEN MD 17 New: 10 `'`4,~31.~3 1 $37.17 59% 100% 0 82% $52.56 Refill; 7, _ _ ~,, MILLARD PLAZA PHARMACY 16 NeN'$`.'• $1,417.91 1 $88.62 0% N/A 0 25% $117.96 INC RefiIL• 10`t . MCTAGGART, JILL C MD '^1f6 Nen_ 3. '` ~ ;~'~$1,284.18 3 $80.26 0% N/A 0 100% $35.61 Refile a: '' CARLSSON, LAWRENCE A MD ~^; q,rj Ne`" 9 $1,601.46 1 $106.76 20% 100% 0 100% $133.23 Refill: 6 wtvta, arjtwm L tutu 14 '~"'' $1,929.61 3 $137.83 7% 20% 4 43% ~53.J1 ~. Ref 11: 10 FONDA, ROBERT J MD 14 I Nom" 7 •k Refill:7 $837.03 2 $59.79 29% 100% 0 36% $34.82 SAMBOL, DAVID HANDLER Mb' '14 NeN'6 $480.93 3 $34.35 0% 0% 0 79% $13.34 Ref II: 8 O'MALLEY,TERRANCEKEVIN 12 New.z $1,322.37 1 $110.20 0% N/A 0 33% $110.01 MD Refill: 10 1. Members utilizing each healthcare provider an: based on the active members in the group for the selected fine period. 2. The overall generic utilization rate represents the percentage of all prescriptions filled with a generic. 3. The overall generic subsftufion rate represents the number of prescriptions that could have been filled as generics that actually were dispensed with a generic product. 4. DAW - Dispense as written -Brand was selected by the physician when a generic was available. F The formulary wmpliance rate represents the percentage of prescriptions that were filled vdth a generic (First Tier) or Preferred Brand Name (Second Tier.) Members are defined as the employee or policyhdder and the employee s spouse or dependents that are wvered under the plan. A policyhdder may have single or family coverage. Member courts are total eligible lives ~ese note that members in the plan during this time frame may not be effective cunentiy; however their Gaims activity is presented in order to produce an accurate and reliable picture of the cost analysis. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 `" C'l nical Consul s THE ON-LINE NEWSLETTER RESOURCE FQR CLINICAL PHARMACY INFORMATION January 2006 NEW GENERICS Ribavirin (Copegus®) 200mg, 400mg, and 600mg tablets Zonisamide (Zonegran®) 25mg, 50mg, and 100mg capsules TAMIFLU TEMPORARILY PREFERRED DUE TO 2005-2006 INFLUENZE RESISTANCE The Centers for Disease Control and Prevention (CDC) recently recommended against the use of amantadine and rimantadine for the treatment or prevention of influenza during the 2005-2006 influenza season. Recent reports show that a high proportion of the influenza A viruses in the U.S. are resistant to both of these medications. Thus, the CDC is recommending that either oseltamivir (Tamiflu) or zanamivir (Relenza) should be selected if an antiviral medication is used for the treatment or prevention of influenza. With this change in guidelines, NPS has temporarily moved Tamiflu from athird- tier non-preferred brand to a second tier preferred brand for the remainder of the 2005-2006 influenza season. Vaccination still remains the primary means of preventing morbidity and mortality associated with the influenza virus. Additional information from the CDC is available at www.cdc.gov/flu or www.cdc.gov/flu/arotect/antiviral NEW THERAPEUTIC CLASSIFICATIONS INTRODUCTED TO HELP PLAN COMBAT NEW DRUGS This January, we introduced numerous new third party codes in order to better classify medications and ease plan design. We have introduced the following third party classifications: Specialty Oral Medications: This classification contains high dollar oral/nebulized medications that are considered spedalty and/or biotech medications. Many of these medications are for Cancer, Hepatitis, and other rare conditions. Medications induded in this class cation include Hepsera, Rebetol, Copegus, Ribavirin, Epivir HBV, Baradude, Tarceva, Thalomid, Gleevec, Iressa, Temodar, Xeloda, Vesanoid, Targretin, Ceenu, Revlimid, Nexavar, Sensipar, Tobi, Orfadin, Tracleer, Valcyte, Pulmozyme, Revation, Exjade, and Sutent. NPS recommends covering these medications subject to prior authorization. This dassification should assist plans in designing a specialty pharmacy benefit. As new Specialty Oral medications are approved by the FDA they will be added to this category. All other Specialty Injectables: This is a new classification of injectables, that viere previously classified under the heading "All Other Injectables" These medications are usually administered in a healthcare provider's office. This classification should assist plans in designing and `~® administering a specialty pharmacy benefit. NPS recommends covering these medications subject to prior authorization. Drugs with less expensive dosage forms: These medications were previously communicated in October 2005 Clinical Consults newsletters. Medications induded in this category are fluoxetine 40mg capsules, fluoxetine 20mg tablets, and Dynacin tablets. There are less expensive dosage forms for these products that provide therapeutically equivalent therapy at a reduced cost. NPS recommends rejecting these medications and directing members to the less expensive alternative. Anabolic Steroids: This classification contains androgens and anabolic steroids. NPS recommends covering these medications. Anabolic Steroids-Injectables: These medications are anabolic steroids that are injected. These were previously dassified in the category "All other injectables." NPS recommends covering these medications subject to prior authorization. Please contact your NPS representative if you have additional questions or would like more information. WATCH FOR FALLING PRICES As part of PTI-NPS's continuous Maximum Allowable Cost (MAC) reviews, we have recently lowered 71 of our top MAC prices. These MACs were lowered an average of $0.20 per unit (per pill, gram, etc) for an average of a 17% savings on these products from their previously discounted price. Also, MAC prices were added to several new generics, induding darithromycin (Biaxin®), azithromycin (Zithromax®), and cefprozil (Cefzil®) which will offers savings over the brand name producton some highly utilized anti-biotic products. OTC COUGH SUPPRESSANTS REPORTED TO BE INEFFECTIVE Over-thecounter cough medicines do little good and may harm children, U.S. experts said in new guidelines released on January 9 , 2006. Adults are better off usng older nonprescription antihistamines and decongestants to stop the flow of mucus that causes the cough, the American College of Chest Physicians said in its guidelines. "Cough is the number one reason why patients seek medical attention," Dr. Richard Irwin of the University of Massachusetts Medical School, who chaired the guidelines panel, said in a statement. 'There is no clinical evidence that over-the-counter cough expectorants or suppressants actually relieve cough," Irwin added. "There is considerable evidence that older type antihistamines help to reduce cough, so, unless there are contraindications to using these medicines, why not take something that has been proven to work?" Dr. Peter Dicpinigaitis, a panel member who runs a cough dinic at the Montefiore Medical Center in New York, said cough medications might help some patients. But they carry the risk of over-sedation -- espedally dangerous to children, he said in a telephone interview. The older-generation antihistamines that work against cough include chlorpheniramine, he said. Newer, brand name antihistamines such as Claritin®and Zyrtec~ do not help coughs, Dicpinigaitis said. Under new guidelines, adults with acute cough or upper airway cough syndrome, commonly known as postnasal drip, should use an older variety of antihistamine with a decongestant. And while coughs in children are worrisome and annoying, cough syrup is not the answer, Irwin said. "Cough is very common in children. However, cough and cold medicines are not useful in children and can actually be harmful," he said. "In most cases, a cough that is unrelated ~` to chronic lung conditions, environmental influences, or other speck factors, will resolve on its own." The guidelines follow several studies that have suggested that nonprescription cough remedies do little more than offer comfort to desperate patients. Researchers reported in July of 2004 that neither dextromethorphan, often listed on labels as DM, or diphenhydramine, an antihistamine, offered any more relief to children suffering from cough than sugar water. The study, published in the journal Pediatrics, showed that children usually recovered quickly whatever the treatment. Francis Sullivan, a spokesman for Wyeth Consumer Healthcare, which makes the popular cough treatment Robitussin, said he did not expect the guidelines to affect sales. "The FDA (U.S. Food and Drug Administration) has concluded that these drugs are safe and they work," Sullivan said in a telephone interview. In general, analysts say, drug makers make more profit off their prescription products than on over-the-counter medications. REFLUX AND GERD IN INFANTS AND CHILDREN Similarly, in adults with the condition, gastroesophageal reflux is the upward movement of stomach acid into the esophagus and sometimes out of the mouth. Most of the time, reflux in infants is due the incoordination of the gastrointestinal tract. Usually, infants with the condition are otherwise healthy, but some babies have other problems affecting their nerves, brain, or muscles. In older children, the causes of GERD are often the same as those seen in adults. Anything that causes the muscular valve between the stomach and esophagus (the lower esophageal sphincter or LES) to relax, or anything that increases the pressure below the LES can cause GERD. Such things include obesity, overeating, and certain foods (generally fried and/or spicy), beverages, and medications. Some common symptoms in infants and children are: frequent or recurrent vomiting, frequent or persistent cough, heartburn, gas, or abdominal pain. Less common problems seen in young infants that may be blamed on GERD are: colic, poor growth, feeding problems, breathing problems, and recurrent wheezing, pneumonia, and gagging. Yet, most babies will outgrow infantile GERD. Infantile GERD is generally diagnosed by one of the following four procedures: • Barium swallow or upper GI series. This is a special X-ray test that uses barium to highlight the esophagus, stomach and upper part of the small intestine. This test may identify any obstructions or narrowing in these areas. It is not a highly sensitive or specific test for reflux. • pH probe. This is the best test to diagnose reflux, although it doesn't always pick up the condition. During the Est, the patient is asked to swallow a long, thin tube with a probe at the tip. The tip is positioned, usually at the lower part of the esophagus, and measures levels of stomach acids. • Upper GI endoscopy. This is done using an endoscope (a thin, flexible, lighted tube) that allows the doctor to look directly inside the esophagus, stomach and upper part of the small intestine. • Gastric emptying study. During this test, the child drinks milk or eats food mixed with a radioactive chemical. This chemical is fdlowed through the gastrointestinal tract using a special camera. Treatment options do vary slightly between infants and children. First, lifestyle modifications should be attempted. For infants, elevating the head of the crib or bassinet, holding the baby upright for 30 minutes after feedings, and changing feed schedules can relieve GERD. For older children, elevating the head of the child's bed, keeping the child upright for two hours after eating, serving smaller meals throughout the day instead of three large ones, encouraging your child to get regular exercise. If the reflux is severe and doesn't seem to be getting better, the doctor may recommend medications to relieve the reflux. To relieve gas: Mylicon and Gaviscon. For the most part, medicines that decrease intestinal gas or neutralize stomach acid (antacids) are very safe. At high doses, antacids cause some diarrhea. Chronic use of very high doses of Maalox or Mylanta may be associated with an increased risk of rickets (thinning of the bones). For decreasing stomach acid: antacids such as Mylanta and Maalox or acid blockers like Axid, Nexium, Pepcid, Prevacid, Prilosec, Tagamet or Zantac. Side effects from medications that inhibit the production of stomach acid are quite uncommon. A small number of children may develop some sleepiness when they take Zantac, Pepcid, Axid, or Tagamet. For more information on reflux and GERD in children and infants, please visit htta:/lwww.keepkidshealthv.com/welcome/treatmentguides/reflux.html. TO ERR IS HUMAN EVEN AFTER YEARS OF NEW TECHNOLOGY Despite the lack of palpable progress in the 5 years since the Institute of Medicine (IOM) issued its landmark report on medical and medication errors, hope is in sight and quite feasible, according to two opinion leaders writing in today's issue of JAMA. "As a result of the advances by the many stakeholders over the past 5 years, a critical mass of informed and concerned physicians, nurses, pharmacists, administrators, risk managers, and other ~ individuals is in place to help organizations make substantial changes," maintain two Boston-based authors, Lucian L. Leape, MD, of the Harvard School of Public Health, and Donald M. Berwick, MD, of the Harvard Medical School. "Not only do these highly motivated individuals have the skills and knowledge needed to make changes, they have the tools they need in the form of tested and effective safe practices awaiting implementation." While To Err Is Human: Building a Safer Health System has failed to make health can; safer on a broad and consistent basis-at least in any way that can be documented-it did expand the "level of conversation and concern about patient injuries," note Leape and Berwick. "Small but consequential changes have gradually spread through hospitals, due largely to concerted activities by hospital associations, professional societies, and accrediting bodies. All hospitals have implemented some new practices to improve safety. Fewer patients die from accidental injection of concentrated potassium chloride, now that it has been removed from nursing unit shelves; fewer patients have complications from warfarin, now that many taking anticoagulants are being treated in dedicated clinics; and serious infections have been reduced in hospitals that have tightened infection control procedures." To translate this interest and concern into results, the JAMA authors call upon the Agency for Healthcare Research and Quality to bring stakeholders together so that they can "agree on a set of explicit and ambitious goals for patient safety to be reached by 2010." Many goals "are not out of reach," the writers conclude, noting specifically: "The list provided by the Commonwealth Fund-IOM would be a good place to start. It is short, concrete, and achievable. This list called fora 90% reduction in nosocomial infections, a 50% reduction in medication errors, a 90% reduction in errors associated with high-harm medications, and 100% elimination of the [National Quality Forum] 'never' list. In its 100,000 Lives campaign, the Institute for Healthcare Improvement has adopted these as well as so~:alled rapid response teams to prevent failures to rescue. Not only would these results measurably improve safety overall, but also achieving them would require institutions to make ahigh-level commitment and to develop effective teams, critical elements of the culture change that is needed." 1. Lucian L. Leape, MD; Donald M. Berwick, MD. JAMA 2005; 293: 2384-2390. FEVERPHOBIA With flu and upper respiratory illnesses common this time of year, it is important to review the care and treatment of fever. First, fever is a symptom, not an illness. It can be caused by an underlying virus or, less likely, bacteria. The presence of fever is not a sign an antibiotic is needed. In fact, a fever is evidence that the patient's immune system is functioning well. There is no magic number that defines fever. In a survey of pediatricians, some 62% started antipyretic therapy at 101 degrees while 11 % started at 100.5. The American Academy of Pediatrics (AAP) recommends not starting antipyretics unless a temp is above 101. The prescribedparent should take into account that antipyretics also provide pain relief, and it may be prudent to give medication with a low grade or no fever in order to make a child comfortable. Standard antipyretic therapy is either acetaminophen (Tylenol®) or ibuprofen (Motrin®). Aspirin is not recommended for patients under the age of 18 because of its association with Reye's Syndrome. Both Tylenol® and Motrin® are dosed at 10-15mg/kg. Tylenol® can be used as young as two months of age, Motrin at soc months. An anxious parent may worry if the temperature does not return to normal with antipyretics. Many alternate Tylenol® and Motrin® in an effort to keep the fever at bay. There is no evidence this is safe or effective. A caregiver should be reminded of fever's function and instructed to use one antipyretic or another. For further information, seewww.aao.oro. To SUBSCRIBE to Clinical Consults, please send an email to sfoster@pti-nps.com with SUBSCRIBE in the Subject line only. To UNSUBSCRIBE to Clinical Consults, please send an email to sfoster .pti-nps.com with UNSUBSCRIBE in the Subject line only. ©2005 Pharmaceutical Technologies, Inc. All Rights Reserved fti1~"' Pharmaceutical Technologies, Inc. 14301 First National Bank Parkway, Suite 200 Omaha, NE 88154 p.t.i. n7a17a~ed Care COt1C@jJtS (800) 5485677 www.ptl-nps.com SAMPLE GROUP 1/1/2004 -12/31/2004 ~IiARMACY SMARTCARD~PROGRAM SAVINGS' Network Network Network Network Net Approved Price Savings Savings per Rx Effective Discount MANUFACTURER'S SUGGESTED 974.20 $136 $99,090.27 $37,883.93 $23.71 27.66% RETAIL PRICE (AWP) , l PHARMACY USUAL AND $125,901.26 $99,090.27 $26,810.99 ~ ~' $96,7$. o 21.30 /o CUSTOMARY (U & C) PLAN PARTICIPATION RESULTS AND CLAIMS TOTALS(RETAIL AND MAIL-ORDER CLAIMS) CLAIMS APPROVED FOR PAYMENT: CLAIMS DENIED (REJECTED): CLAIMS CREDITED (REVERSED): NEW PRESCRIPTIONS: REFILL PRESCRIPTIONS: PERCENTAGE OF NEW PRESCRIPTIONS VS REFILLS: ,.; 1,598 ~: ~ ' • rf 54tr ~ ` r'. ~,~ f9a' {: r' ~~~"~-.x.90 .;~s. '~>~. 62% r. - ~ PLE AVERAGE DAYS SUPPLY DISPENSED: `<. "~ ~ 28 AVERAGE METRIC QUANTITY DISPENSED: ~ ~-~'-~,, x 65 "OPAY 30% ~/ NUMBER OF PRESCRIPTIONS WITH A PRIOR AUTHORt2?ATION: 6 ,'~,• ~`' TOTAL Rx's: 1,598 AVERAGE COPAY COST PER PRESCRIPTION:, ~' ~ ^ ~ ,~ $18.73 COPAY PAID: $29,923.71 ,.• '.. AVERAGE PLAN COST PER PRESCRIPTIOI~I: ,,.:~~'~'`- .° ~ ' $43.28 PLAN PAID: $69,166.56 AVERAGE TOTAL COST PER PRESCRIFO„N: 4~ ' ~~ (NQS,AVG: $54.83) $62.01 TOTAL PAID: $99,090.27 wt MAINTENANCE,MEDICATION UTILIZATION (RETAIL AND MAIL-ORDER CLAIMS) MAINTENANCE THERAPY INDICATOR, `;''.;r' • TOTAL PRESCRIPTIONS DISPENSED: 1,598 ,; ; toox ~. _ MAINTENANCE MEDICATIONS eox TOTAL DISPENSED: 507 `°x •' AVG DAYS SUPPLY: 40.32 . ° x AVG QUANTITY PER RX: 55.16 NON-MAINTENANCE MEDICATIONS zox TOTAL DISPENSED: 1,091 °x AVG DAYS SUPPLY: 21.80 ^ NON-MAINT ^MAINT AVG QUANTITY PER RX: 69.42 ~/fVPS averages and trends displayed are based on data for 7/1/2004 thru 9/30/2004 for all lines of business. AVG PLAN COST: $52.80 AVG COPAY: $18.27 AVG TOTAL: $71.07 AVG PLAN COST: $38.86 AVG COPAY: $18.94 AVG TOTAL: $57.80 COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 SAMPLE GROUP 1/1/2004 -12/31/2004 NSUS`TRACK -'(PROJECTIONS' BASED ON CURRENT TREND RATES) NUMBER OF ELIGIBLE EMPLOYEES (EE): 1 142 NUMBER OF EMPLOYEES WITH FAMILY COVERAGE: 1 102 TOTAL NUMBER OF MEMBERS (EMPLOYEES + DEPENDENTS): 2 400 NUMBER OF EMPLOYEES WITH SINGLE COVERAGE: ~ 40 AVERAGE FAMILY SIZE: 2.8 PERCENT OF GROUP UTILIZING PRESCRIPTIONS: s 54.00% CURRENT FUNDING LEVELS IMONTHLYI: EMPLOYEES (PEPM) SINGLE FAMILY COPAY $17.53 $3.49 $23.04 PLAN $40.52 $9.16 $52.82 TOTAL $58.05 $12.65 $75.86 PMPM (PLAN):2 $14.39 PMPM (TOTAL): z $20.61 (NPS PMPM: 40.43) PROJECTED FUNDING BASED ON CURRENT DATA (PEARL EMPLOYEES ~ r~'•'l, (PEPY) SINGLE FAMILY COPAY $210.38 $41at6°-, %~` $276.47 PLAN $486.28 $109.92'•• ~ $633.87 TOTAL $696.66 "• .$154.78,~~ $910.34 PMPY (PLAN): `2 $17Zd63' PMPY (TOTAL): ~` ~ N~ .f247 31''"(NPS PMPM: 485.16) AVERAGE PRESCRIPTIONS PER MONTH PER EMPLOYEE: ' ~ 0.94 } AVERAGE PRESCRIPTIONS PER MONTH PER MEMBER (EMPLOYEE + DEPENDENTS): '.2. , ~ ` •, 0.33 AVERAGE PRESCRIPTIONS PER MONTH PER UTILIZER: s r `: ~ h ` 0:62 UTILIZATION, BASED ON AGE AND SEX The following chart depicts PMPM and age gender segregation based upon current utilising members. 80 70 60 50 w m 40 w 30 20 10 0 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $0.00 ~ FEMALE O MALE -~- PMPM -~-NPS TREND # MEMBERS W/ GENDER UNSPECIFIED: 0 1. Eligible Employees are defined as policyholders or cardholders. All claims are assigned to the policy and the policyholder and or family are entitled to the products and services as outlined in plan specifications. Plan census may have changed during the time frame fo this report. 2. Members are defined as the employee or policyholder and the employee's spouse or dependents that are covered under the plan. A policyholder may have single or family coverage. Member counts are total eligible lives. Please note that members in the plan during this time frame may not be effective currently; however their claims activity is presented in order to produce an accurate and reliable picture of the cost analysis. Utilizers are the members (employee + dependents) that have filled a prescription drug claim for funding by the plan. Non-utilizers would be members ~r~iployee + dependents) that have not felted a prescription drug claim. All NPS averages and trends displayed are based on data for 7/1/2004 thru 9/30/2004 for all lines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 SAMPLE GROUP 1/1/2004 -1213112004 AIL-ORDER STATISTICS _ _ NUMBER OF MEMBERS UTILIIZING: AVERAGE COST PER PRESCRIPTION: AVERAGE QUANTITY PER PRESCRIPTION: 25 $213.52 148 GENERIC UTILIZATION RATE*: GENERIC SUBSTITUTION RATE**: FORMULARY COMPLIANCE RATE*`*: AVERAGE DISCOUNT OFF AWP-BRANDS: AVERAGE DISCOUNT OFF AWP-GENERICS: MAIL-0RDER NET EFFECTIVE DISCOUNT (OFF AWP): ^ SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) ^ MULTI-SOURCE BRANDS (GENERICS AVAILABLE) ^ GENERICS TOTAL NUMBER OF PRESCRIPTIONS: 37% 100% 72.15% 16.96% 56.93% 36.76% MAIL-ORDER CONTRIBUTIONS 13% l i:. ^ COPAY ` 87% ^ PLAN ~~~ TOTAL RX'S: '~IVEVV RX'S: 1~ NUMBER OF ~~~ COF~kY PAID: PRESCRIPTION$ ~. PLAN~AID: r:. .f .;. 99 ` .. • 0 - • 5 , ~'` 158 `:;, NUMBER OF ::PRESCRIPTIONS ':,. ^ TIER 3 (NON-PREFERRED PRODUCTS) P• 44 ^ TIER 2 (PREFERRED BRAND-NAME PRODUCTS) '4 " '~` • ~~. 58 ..•~ ^ TIER 1 (GENERIC PRODUCTS) 56 J" > 37% l~ 63% 0% 28% 35% 158 69 89 $4,307.43 $29,428.48 TOTAL NUMBER OF PRESCRIPTION$~ "' 158 ,, . , '' ~ < , *The overall generic utilization rate represents the percentage of all prescriptioosfilled with a;generic. **The overall generic substitution rate represents the number of prescriptions thaf'dqutd hive been filled as generics that actually were dispensed with a generic product. "'The formulary compliance rate represents the percentage of prescriptidgs`thattyere fifi~ed with a generic (first tier) or Preferred Brand Name (Second Tier) medication. OP TEN' MAIL ORDER DRUG CANDIDATES BY RX NUMBER t ~ PE[16ENT OF ~ NUMBER OF AVG RETAIL AVERAGE 2 NUMBER OF ~'~ ALL TOTAL MEMBERS COST PER MO COST POTENTIAL PRODUCT DESCRIPTION PRESCRIPTIONS '~ ~PRESCRIPTI~IdS DOLLARS UTILIZING RX PER RX SAVINGS ZOLOFT TA650MG 42 RET: ao -2 63% 541.54 $3 6 $81.88 $79.41 $98.80 Ma 2 , NORVASC TABIOMG 30 R1=T. ~~ , 1 88% $2 289 30 4 $73.45 $71.42 $52.78 MC. 4 . , . LIPITOR TA810MG 25 f<. RET:'16>, '>'~>1 56% 418.21 $3 5 $132.99 $131.25 $26.10 Mo io. . ; , ZOLOFT TAB1ooMG 22~,•<," RET: is ~ 1 38% 03 $2 978 4 $132.44 $130.09 $44.65 MO: 3 . , . FLOMAX CAP0.4MG ,';.• '`20 ""`.RET: trx'` , 1 25% $2 166 04 3 $105.45 $103.22 $35.68 ..MA:4. . , . woxx TA625MG '•, 16 ' Rte. 16 1 00% 356.45 $1 3 $82.65 $78.93 $59.52 MO: 0 . , AMBIEN TA610MG 16 , ~,' RET: 12 1 O1)% 991 21 $1 3 $121.20 $119.07 $25.56 ,.~' M0:4 . , . CELEBREX CAP200MG 13 RET: 13 81 0 570 44 $1 6 $118.63 $113.73 $63.70 Mo: o . , . NATALCARE TABGLOSSTAB 12 REf:12 0 75% 00 $138 2 $6.50 $6.42 $0.96 Mo: o . . MAVIK TAB4MG 12 RET. t2 75% C $386 14 2 $29.87 $28.58 $15.48 Mo: o . . TOTAL POTENTIAL SAVINGS: $423.23 (Top 10 Drugs Only) 1 -Number of prescriptions breakdown includes Retail Pharmacy (RET) vs Mail Order Pharmacy (MO) prescription counts. 2 -Calculated by using the difference between the average retail claim cost and the average mail order claim cost, multiplied by the retail claims potentially available for mail order. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-0488 SAMPLE GROUP 1/1/2004 -12/31/2004 `~" BRAND AND GENERIC SUMMARY BRAND`AND GENERIC UTILIZATION' (RETAIL AND MAIL-ORDER CLAIMS) NUMBER OF NPS AVERAGE PRESCRIPTIONS ~9% ~ SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) 716 5~% <% ^ MULTI-SOURCE BRANDS (GENERICS AVAILABLE) ~ GENERICS 53 829 TOTAL NUMBER OF PRESCRIPTIONS: 1,598 •: as~io s2^i 'i rl; s DOLLARS SPENT ON BRAND AND GENERIC THERAPIES NPS AVERAGE Vie. ~ f. ux ~ SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) ,$x$;229.36 "~ ~s'/~ 3% ^ MULTI-SOURCE BRANDS (GENERICS AVAILABLE) ~' $1,7~7r1.4,. 2~io ]5% ^ GENERICS X, ~`'"=;$19,153.77 - ~s~io '. ...~ CONTRIBUTIONS TO BRANp. AND GENERIC THERAPIES ~ ~` ^ AVERAGE PLAN COST ..AVE(~AGE COPAX+COST AVERAGE TOTAL COST AVERAGE DISCOUNT OFF PER PRESCRIPTION : ~ ~ PE~t°PE2ESCRiPTION PER PRESCRIPl10N AWP SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) $77.2 ~.` , $32.00 $109.26 14.94% MULTI-SOURCE BRANDS (GENERICS AVAILABLE) $17. ~6~ - ~~ } $14.54 . $32.21 14.77% GENERICS $•1 ~.$ $7.53 `~`" $23.10 61.69% $77.26 ~... ~. I$17~.67 ~ $15.58 `~'~ $109.26 $32.21 $23.10 AVERAGE PLAN COST - AVERAGE COPAY COST AVERAGE TOTAL COST UTILIZATION- STATISTICS.. GENERIC SUBSTITUT{ON RATE*: 93.99% GENERIC UTILIZATION RATE**: 51.88% NUMBER OF PRESCRIPTIONS DISPENSED WITH PHYSICIAN REQUESTING BRAND (DAW 1): 5 NUMBER OF PRESCRIPTIONS DISPENSED WITH MEMBER REQUESTING BRAND (DAW 2): 18 *The overall generic substitution rate represents the number of prescriptions that could have been filled as generics that actually were dispensed with a generic product. *The overall generic utilization rate represents the percentage of all prescriptions filled with a generic. -NPS averages and trends displayed are based on data for 7/1/2004 thru 9/302004 for all tines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 ~~~ _. . . SAMPLE GROUP 1 /1 /2004 - 12/31 /2004 ````r PREFERRED DRUG LIST UTILIZATION (FORMULARY /PREFERRED, DRUG LIST STATISTICS BY CLA{M COUNTS: (RETAIL AND MAIL-ORDER CLAIMS) NPS AVERAGE NUMBER OF ,s% PRESCRIPTIONS 20% ~ TIER 3 (NON-PREFERRED PRODUCTS) 323 2a~io s~% ^ TIER 2 (PREFERRED BRAND-NAME PRODUCTS) 456 51% ® TIER 1 (GENERIC PRODUCTS) 819 29% TOTAL NUMBER OF PRESCRIPTIONS 1,598 ~. FORMULARY CPREFERRED DRUG STATISTI,CS',BY:bOLLAR f "`~;._ ~ TIER 3 (NON-PREFERRED PRODUCTS) $40.~~7,65 ^ TIER 2 (PREFERRED BRAND-NAME PRODUCTS) - $40,66.41 41% ~ TIER 1 (GENERIC PRODUCTS) ,$~1~;16~.21 TOTAL, _`•_~- $9.9,0'90.27 ' ,;' AGE eosr PER FoRMUL.ARY TIER 1 A°/ YI ,° NPS AVERAGE 28% 22% so% AVERAGE PLAN COST =~`~~,.AVERAGE COPAY COST AVERAGE TOTAL COST AVERAGE DISCOUNT OFF PFR PRF.,C`.N ~~ .. ;PER PRESCRIPTION PER PRESCRIPTION AWP ^ TIER 3 (NON-PREFERRED PRODUCTS) ,.,$ ~O . !J` 2~,f r $ 3 5.3 5 $12 5.8 8 15.7 7 TIER 2 (PREFERRED BRAND-NAME ; r "' °~''~ . 03 " ~' $27.28 $8~. 3~ 14.81 % PRODUCTS) ~ ~ TIER 1 (GENERIC PRODUCTS) ~•.~ 14.77 $7.41 Q $22.1 V ~+ 62.61 $125.88 $88.30 $22.18 AVERAGE TOTAL COST UTILIZATION STATISTICS OVERALL FORMULARY COMPLIANCE RATE*: 80% 'The formulary compliance rate represents the percentage of prescriptions that were filled with a generic (first tier) or Preferred Brand Name (Second Tier) medication. VPS averages and trends displayed are based on data for 7/1/2004 thru 9/30/2004 for all lines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 AVERAGE COPAY COST AVERAGE PLAN COST SAMPLE GROUP 1/1/2004 -12/31/2004 DRUG CLASS UTILIZATION OP TEN: pRUG~ CLASSES BY TOTAL DOLLARS` ^ PENICILLINS 0 CALCIUM BLOCKERS o ANTIHISTAMINES ^•ADHD/ANTI-NARCOLEPSY/ANTI- OBESITY/ANOREXIANTS' 0 DERMATOLOGICAL o ANALGESICS •ANTI-INFLAMMATORY ® ULCER DRUGS O ANTIPSYCHOTICS i• ANTIHYPERLIPIDEMIC ^ ANTIDEPRESSANTS TOP 10 DRUG CLASSES $2,785.05 $2,859.86 $3,263.34 $4,010.24 $4,709.46 $5,009.79 $6,104.22 $7,010 TOTAL DOLLAF r,<. 't .~ ff: _ ~` F"• 1; «. ~ •, i ~' ~ A OO.I CA +~, $18,462.22 PMPM`FOR TOE TEN DRUG CLASSES BY TOTAL bOLLARS ~r'° OVERALL PMPM ($): $20.61 $4,Ob - ~~3,50- ,''~ $3.00= . ~ 12,50- .. ;.~ `~ $2.OQ+ ~;_ fi $1.50- r ,~~ -~ $0.50- ._ $0.00 - ' ~, - .~°° DRUG CLASSES ;~~ COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 88070 1-888-334.4488 SAMPLE GROUP 1 /1 /2004 -12/31 /2004 TOP TWENTY-FIVE PRESCRIPTIONS DISPENSED UTILIZATIONOr= TOP TWENTY-FIVE. DRUGS TOP 25 DRUGS BY DOLLARS TOP 25 DRUGS BY NUMBER OF RX'S 29% ~ TOP 25 DRUGS ALL OTHER DRUGS 71% TWENTY-FIVEbRUGS BY PRESCRIPTION COUNTS PERCENT OF NUM$ER OF AEG NUMBER OF ALL TIER TOTAL JNEMB`ERS COST' PMPM PRODUCT DESCRIPTION PRESCRIPTIONS PRESCRIPTIONS STATUS DOLLARS :UTIL121MG,, PER RX COST DRUG CLASS 0 ZOLOFT TAB50MG 42 NEW: 13 2.63/0 2 $3,541.€i4,;i 6 ''$84.32 $0.74 ANTIDEPRESSANTS REFILL: 29 TRIMOX CAP500MG 34 FL 4 2.13% 1 $263.16 "",1~ $7,74 $0.05 PENICILLINS RE L 10 . NORVASC TABIOMG 30 NEW 5 1.88% 2 $x 289:6 0 4 $76.31 CALCIUM BLOCKERS $0.48 REFILL: 25 , , ~ CEPHALEXIN CAP500MG 27 NEW 23 1 69 /0 ° 1 $441 72 "/~' 17 $16.36 $O,Og CEPHALOSPORINS REFILL: 4 . . .4 LIPITOR TA610MG 25 F L 1 56% 2 '' `~.; $~;418 2~~" 5 $136.73 $0,71 ANTIHYPERLIPIDEMIC RE L 18 . ~ . ZOLOFT TA8100MG 22 NEW 8 1 38% t~ ~ ` .. :"k $2 978:'03 4 37 $135 ANTIDEPRESSANTS $0 62 REFILL: 14 . , , , , . . .MAX CAP0.4MG 20 NEW 5 1 25% " 2 $2 166 04 3 $108 30 $0.45 MISCELLANEOUS REFILL: 15 . ,- ,.,. , . . GENITOURINARY PRODUCTS ACIPHEX TA820MG 19 NEW 7 1.19°9/0 ~~ 3 ~ 280.45 :$3 2 $172.66 ULCER DRUGS $0.68 REFILL: 12 . p ~ : , . TRIMOX SUS250/SML 19 NEW 19 ' 1 .19% •'~` -, 1 '"! ;•' $138 00 14 26 $7 PENICILLINS $0 03 REFILL: 0 , ,, . . . MINOCYCLINECAP100MG 18 NEW 13 %f1.13°Yd, .'~"~~ $937.00 4 $52.06 $0,19 TETRACYCLINES REFILL: 5 _ ..,` ~;- ZITHROMAX TABZ-PAK NEW 18 ~' MACROLIDE ANTIBIOTICS 18 REFILL: 0,.~ ` 1':1;3% 2 $806.60 18 $44.81 $0.17 IBUPROFEN TAB800MG 18 NEW 14 ' ;,~ 13%`.~' 1 $135 20 12 $7 51 03 ANALGESICS - ANTI- $0 REFILL:4 . . , INFLAMMATORY TRIAM/HCTZ CAP37.5-25 18 NEW '9. ' _ 6 1 13'/0 1 $124 20 3 $6 90 03 DIURETICS $Q REFILL ' -9. . . . , HYDROCO/APAPTAB5-50oMG 18 NEw 1a ~ '-., M1 .1 13% 1 $91 36 14 $5 Q$ 02 ANALGESICS -Narcotic $0 ' REFILL." 0 . ' . , . AMOXICIILIN SUS400/SML 17 + ~ NEW: tZ%: ,;, '' o 1 06 /0 1 $320 31 14 $18 84 07 PENICILLINS $0 REFILL: 0` . . . . . AMBIEN TAB10MG :,.16' NEW. 13 ~ 1 00% 2 $1 991 21 3 $124 45 41 HYPNOTICS $0 ' REFILL.: ,3 , , . . . vioxx TA625MG r+~. 16 NE+n!-d 1 00% 3 $1 45 356 3 $84 78 28 ANALGESICS -ANTI- $Q +; ~-REFILL: 12 . , . . , INFLAMMATORY TRIAMCINOLONOIN0.1% 16 NEVV.3 0 1 00/0 1 $175 55 3 $10 97 04 DERMATOLOGICAL $0 i.(REFILL: 13 . . . , ZYRTEC TA810MG _-. a~ ," NEW 6 0 0 94/0 2 $1 275 16 6 $85 01 27 ANTIHISTAMINES $0 REFILL: 9 . , . . , ZITHROMAX SUS200/5ML 15 NEW 15 0 0 94 /0 2 $561 58 9 $37 44 12 MACROLIDE ANTIBIOTICS $0 REFILL: 0 . . . . LEVOXYL TA6100MCG 15 NEW 4 0 94/0 0 1 $170 27 2 $11 35 04 THYROID $0 REFILL 11 . . . , HYDROCO/APAPTAB7.5-500 15 NEW 15 0 94 /0 0 1 $110 85 7 $7 39 02 ANALGESICS -Narcotic $0 REFILL: 0 . . . , CELEBREX CAP200MG 13 NEwS 0 81% 2 $1 570 44 6 $120 80 33 ANALGESICS -ANTI- $0 REFILL: 7 . , . . . INFLAMMATORY TOBRAMYCIN SOL0.3%OP 13 NEW 13 0 81 /0 0 1 $84 50 10 $6 50 02 OPHTHALMIC $0 REFILL: 0 . . . , EGRA-D TAB60-120ER 12 NEW 4 75% 0 3 $956 83 4 $79 74 20 COUGH/COLD/ALLERGY $0 REFILL: 8 . . . , COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 SAMPLE GROUP 1/1/2004 -12/31/2004 ~`,,, TOP TWENTY-FIVE PHARMACIES BY PRESCRIPTION COUNTS UTILIZATION SUMMARY 1 AVG AVG GENERIC2 GENERICS FORMULARY4 AVG DISCOUNTS NUMBER OF TOTAL MEMBERS COST DAYS UTILIZATION SUBSTITUTION COMPLIANCE OFFAWP PROVIDER PHARMACY PRESCRIPTIONS DOLLARS UTILIZING PER RX SUPPLY RATE RATE RATE BRAND/GENERIC INTEGRATED PHARMACY 158 NEW: 69 $33,735.91 25 $213.52 89.58 37% 100% 72% 17% / 57% SERVICES BOYS TOWN, NE REFILL 89 / WALGREENS PHARMACY ~6 NEW 69 327.94 $3 17 $34.67 19.47 68% ' " 100%v ~3% 14% / 56% #4974 OMAHA, NE REFILL: 27 , , WALGREENS PHARMACY 78 NEW 50 $5,741.63 19 $73.61 21.55 35% .. 75% -s`; ,?" 76% 14% / 48% #4754 LA VISTA, NE REFILL: 28 WALGREENS PHARMACY 75 NEW. 55 $3,148.30 18 $41.98 19.77 60% _.r X100°fo;; 88% 14% / 55% #4443 OMAHA, NE REFILL: 19 KUBAT 74 NEW. 15 $5,845.18 2 $78.99 29.81 "' 2~% 8z% 72% 13% / 45% OMAHA, NE PHARMACY REFILL: 59 :.r BAKERS PHARMACY 74 NEW 42 $2 747.06 8 $37.12 20.12N, 38% •' 62% 77% 14% / 42% #321 OMAHA, NE REFILL: 32 ;r , WALGREENS PHARMACY NEW 37 '~• #5540 72 $1,704.79 11 $23.68 ~2:b7 *.~'4,% ; 100% 93% 14% / 70% BELLEVUE, NE REFILL: 35 r't WALGREENS PHARMACY 68 NEW 40 $2 282 51 5 $33.57 25.~2~ 63% 81% 72% 14% / 69% #2855 OMAHA, NE REFILL' 28 r•,, WALGREENS PHARMACY 67 NEW 43 $3,735.48 7 $55.7.5 21.58 ~ 39% 100% 84% 14% / 50% #3694 BELLEVUE, NE REFILL: 24 ,, WALGREENS PHARMACY NEB! ~ 64 $1,865.14 17.''x $29,14 17:.7.8 69% 90% 86% 14% / 44% #05360 OMAHA, NE REFILL: 16 ,ti WALGREENS PHARMACY NEW ~ 63 $2,384.41 4 -,$37.85 ''17.73 65% 100% 76% 14% / 52% OMAHA, NE #4772 REFILL: 27 "' ^ART PHARMACY NEW ~ `55 $2,405.58;- ` ~' $43;74 26.02 42% 7'•. 92% 75% 14% / 81 .93 OMAHA, NE REFILL: 29 r: WALGREENS 24 HR 54 NEW 44 $1,860f4~`` '' .., 24 :$34.45 14.83 57% 100% 85% 14% / 48% PHARMACY OMAHA, NE REFILL: 10 WALGREENS PHARMACY 40 NEW 25 $2,p74':31 9'Y $51.86 17.10 58% 100% 75% 14% / 57% #3186 OMAHA, NE REFILL 15 ~ .; r SUPER TARGET PHARMACY NEW 2e ` ~'° '' ~ $67.25 24.66 51 % 100% 57% 14% / 70% #532 PAPILLION, NE 35 REFILL:7 r,=,' $2,3~~.62 f ` 3 ED'S REXALL 32 NEW.7 ~'t $1',93.1 89 25`~ ` : REFILL 3 $60.37 29.28 0% N/A 78% 13% / N/A DRUG OMAHA, NE ;, : HY-VEE PHARMACY 32 NEW 14 ~$+573:43 4 $17.92 27.25 100% 100% 100% N/A / 65% #1468 OMAHA, NE REFILL 1B WALGREENS ~ NEW 25'x.. $1,870.58 31 9 $60.34 18.00 61% 95% 74% 14% / 50% #7563 OMAHA, NE REF{LL:6 ~ SHOPKO PHARMACY 29 NEV~ev" . Y%' $912.81 10 $31.48 15.03 59% 100% 86% 13% / 67% #2056 OMAHA, NE REFILL: 2 SUPER SAVER PHARMACY -, 26.. NEW 15 $1,777.01 3 $68.35 22.42 23% 75% 46% 13% / 45% #20 OMAHA,~~•d- "-. ~ REFILL .tt ~ ^. SHOPKO PHARMACY r," ~~~+ 25 , NEw 1s $880.63 6 $39.23 15.96 40% 100% 96% 13% / 60% #2044 °MArv', NE '-REFILL: 9 WALGREENS PHARMACY "' -NEW 1a 24 rR. REFILL 10 $1,007.65 7 $41.99 21.96 54% 100% 88% 14% / 42% . #1738 oMAHA,tt~, : OSLO DRUG 23 NEW. 22 $708.39 8 $30 80 15.35 57% 93% 87% 14% / 68% #5293 OMAHA, NE REFILL: 1 . WALGREENS PHARMACY 20 "~^'• 12 $300.51 7 $15.03 20.05 85% 100% 90% 14% / 89% #05966 OMAHA, NE REFILL: 8 FLORENCE DRUG NEW 13 524.35 $1 19 4 $80.23 25.26 0 79 /0 0 100 /0 0 100 /0 0 0 14 /o / 49 /o TOWN OMAHA, NE , REFILL: 6 KEY: 1. Members utilizing each pharmacy provider are based on the active members in the group for the selected time period. The overall generic utilization rate represents the percent of generic medications compared to all medications. The overall generic substitution rate represents the number of prescriptions filled with a genenc versus the total that caild be filled with a generic. The formulary wmpliance rate represeMS the percentage of prescriptions that were filled with a generic (First Tier) or Preferred Brand Name (Second Tier.) 5. The average brarai/generic diswunt only inGudes Gaims processed online. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 88010 1-888-334-4488 SAMPLE GROUP 1 /1 /2004 -12/31 /2004 TOP TWENTY-FIVE PRESCRI BER UTILIZATION SUMMARY GENERICZ GENERIC 3 NUMBER OF 4 FORMULARY S NUMBER OF TOTAL MEMBERSt AVG COST UTILIZATION SUBSTITUTION DAW1 COMPLIANCE PMPM 5 PRESCRIBER PRESCRIPTIONS DOLLARS UTILIZING PER RX RATE RATE SCRIPTS RATE WILLIAMS, STEPHEN H MD 37 Nei''~~ $2,137.37 3 $57.77 51% 100% 0 86% $59.27 Refill: 8 CERVANTES, JAMES ANDREW 36 New: 19 $1,833.97 3 $50.94 39% 100% ,, 0 72% $50.86 MD Refill: 17 l i LOHRBERG, JOHN R MD 31 New. 11 $1,560.61 6 $50.34 55% 100% 0 61% $21.64 Refill: 20 KRAMPER,RALPHJMD 3p News $1,414.16 1 $47.14 30% ~~•,IOQ% ;0"~ 100% $117.65 Refill: 27 ISTAS, JOEDY RAY MD 28 New: 19 $978.59 2 $34.95 96% Id0%~~ 0 96% $40.71 Refill: 9 `.`? STAMM, DAVID W MD 26 New:7 $1,338.41 5 $51.48 15% ~''~ `• 100°k,F.~ 0 96% $22.27 Refill: 19 f .~ ~, HAYES, KRISTIE D MD 26 New: 1o $527.45 2 $20.29 ~9~6% '1:~0'% 0 88% $21.94 Refill: 16 i KOLBECK, TERRENCE JAMES 23 New:B $1,693.15 2 $73.62`'•. 0%' ,`'•~ N/A 0 96% $70.43 Refill: 15 RUSSELL, DOUGLAS A MD 23 New: 18 $435.43 1 $18.93 '"~^- 91 % •~ ~ 100% 0 100% $36.23 Refill: 5 '' :r> STOLLER, HERSCHEL E MD 22 New: 21 $1,653.57 3 ~" $5.16 86% 100% 0 86% $45.86 Refill: 1 HEAD, GEORGE G MD 21 New: 14 $1,210.15 2 -• `~.. $57.63"..~;' 48% 77% 0 62% $50.34 Refill: 7 ~,~. ' WILLIAMS, STEVEN MAX MD 21 New: 18 $916.43 $43.6 t7 '= ' 48% 83% 0 57% $10.89 Ref II: 5 FRANKLIN, JOHN JOAQUIM MD 20 New.5 $1,436.33 i • 1 ; 4~~ ',$x/1.82 5% 10% 0 5% $119.50 Refill: 15 CKASEN, JOHN ROHERTY MD 20 New: 14 $666.42 ~ ' ~,` ~° 5 $33.32 95% 100% 0 100% $11.09 Refill: 6 FULTON, KRISTEN B MD 19 New:B $1,~61~9 . `''3{='' $71.67 5% 33% 0 79% $37.76 Refill: 11 , i NAEGELE,ROBERTGERARDMD 18 News 71;0.86 '$2 `r•1 ~ $150.60 39% 100% 0 44% $225.53 Refill•'IF , ..,. E CRNKOVICH, TIMOTHY P MD 18 New: 15 ~;{ ` '$268.25 1 $14.90 89% 100% 0 94% $22.32 Refill: 3 t'" ~;,. ' ''~' ' ZIEG, GEORGE ALLEN MD 17 New: 10 '"-.,.~31.~3 1 $37.17 59% 100% 0 82% $52.56 Refill:7.. ~ - ~,. ~ MILLARD PLAZA PHARMACY 16 I N~~';. ' ~I $1,417.91 1 $88.62 0% N/A 0 25% $117.96 INC ~ Refill: 10 ''=: . MCTAGGART, JILL C MD 16 Nei~3 " ~ ' $1,284.18 3 $80.26 0% N/A 0 100% $35.61 Refin:ia ' CARLSSON,LAWRENCEAMD x';1.5 NeA'9 ~ $1,601.46 1 $106.76 20% 100% 0 100% $133.23 ~^ . JONES, SARAH L MD r,^ ~ 14 ~ # $1,929.61 3 $137.83 7% 20% 4 43% $53.51 ~. Refi11:10 FONDA, ROBERT J MD 14 ? New:7 ti' Refill:7 $837.03 2 $59.79 29% 100% 0 36% $34.82 SAMBOL, DAVID HANDLER Mb' '14 News $480.93 3 $34.35 0% 0% 0 79% $13.34 Refill: 8 O'MALLEY, TERRANCE KEVIN 12 Nex:2 $1,322.37 1 $110.20 0% N/A 0 33% $110.01 MD Rein: 10 1. Members utilizing each healthcare provider are based on the active members in the group for the selected 6me period. 2. The overall generic utilization rate represents the percentage of all prescriptions filled with a generic. 3. The overall generic substitution rate represents the number of prescriptions that could have been filled as generics that actually were dispensed with a generic product. 4. DAW -Dispense as written -Brand was selected by the physician when a generic was available. F The formulary compliance rate represents the percentage of prescriptions that were filled with a generic (First Tier) or Preferred Brand Name (Second Tier.) Members are defined as the employee or policyholder and the employee's spouse w dependents that are wvered under the plan. A policyholder may have single or family coverage. Member counts are total eligible lives ~dse note that members in the plan during this time frame may not be effective currently; however their claims activity is presented in order to produce an accurate and reliable picture of the cost analysis. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 88010 1-888-334-4488 PRESCRIPTION DRUG SUMMARY REPORT National Pharmaceutical Services ~" `~ flflMflCEU11CflE 1ECHfl0l0GIES. ~HC ~ THIS ISNOTABILL ._w_._.. ..._.._._- ..~.__.._ ~___. _. Box 497 Boys Town, NE 68010 402-965-8600 800.546.5677 ~ www.pti-nps.com '~ ONLY A SUMMARY REPORT FOR YOUR RECORDS. • "~., ~ ALL CLAIMS OR TRANSACTIONS SHOWN ON THIS SUMMARY WERE TRANSMTITED - ~ BY THE PROVIDERS SHOWN BELOW. ~ ~ PTP DISCLAIMS ANY LIABIIITY FOR ERRORS IN JOHN PUBLIC INFORMATION COMMUMCATED BY PROVIDERS. 123 MAIN ST SEE BACK OF FORM FOR ANYTOWN, NE 68000 EXPLANATION OF THE FOLLOWING TRANSACTIONS ~~ m 2002-2003 PLacmaceutical Technologies, Inc.• NPSSAMP -SAMPLE GROUP PLAN NAME: po.datwi:Be;tnMtwa: v1/2003 Exam;: 5/31/2003 DATE QF FAMtLY TOTAi. Pltlq '+ Ftll MEM6ER fl>G} taESCRtPT1AN OTY PHARMACY Y!?U PAID Pt.AN pA10 TO F?HARMAt:Y STATUS L'2~"2(8:1a aG1L~! Pt!01.EC" 15lftub2 P1.uKA7X,PAAt fiAP3iYhiG )n IM'CGJLATl:LY 1:J'1 50,[1[1 5.21 PAW PHA1tAfiAGY t~:r2[f]) at31C[ PS!Bi.IC 158tb81 7AC><.1R Te+1BtUA1G 70 1N'tI-G1W"1'EU S35,a) S?3.'tl S681f PAllt AaF }t,xr 1leahlaa^e Panrplo alxwx: Lt}Yn,StAtIN, upl7e)n, tESlX1L 1:1 YltAIG'dAi`Y tr"'..r'«.UJt aOlibt PUBLIC t4A3135 Tt~PROL~I. TAlt25t1G )4 Ly'IEfaRATEl) S20.0t1 51.45 S2l.45 !'All7 PHARMACI' Ir7r^[7fFS aU}I:'J t't!p}CC' t-17[,1i7'v C'Yt-"1_r)ttE<,14?.APR7ARI0a1G 3~,t I:V1ktttA'CT,A S•7.7i S4,c0 5,73 PAIn tr1)Pat)[13 lOli,J Pt!BLIC 1585725 #11Rt3b'EA1113p TAI32i~5tei 30 1ti17EGRATED #3:aS S{t.[Ni 33.«5 PAIII PHARMACY X2003 at)}4V PUBLIC tS:Jt;41 ALLEGRA TABI§ObSC 30 tNTF.GtiATEQ 335,W 52s ts' 563.62 PAIL) yS ~ ~~fi your HceU1K~r! t'JOYi(~ abe~tlr= O !f CthktflH, C`1,P,R:1~`L'X. LYRTfC P1iAR,1lAC'1' -.1w•a[~aa aGi~l PI.~BUC Isg7[,+a~ TrtoRnan.• TA>is[rr1U so avTtGRATEV s)s.;4 So.nn sss_~-~ PAt~n Aat yaw Ilriirhrsre rmvitcr aMut- GI•l.F:aie; ptl[10t:CT AVAII.Al1t.C~tDNSL'LT Mp P1iAR~tACY 2r31.0UJ aG]tN !'CiRUI': 15Fae01i ATACAND 't'Ab)2:11G ~dl 1NTEGRATFZJ Szo-W SR4,40 St[I.1.4[) PAIp P11ARtilACY L''3~24QU) IAltt+~ I'tFAI_I{; 15telG~at ZQCOK '1'AlltlftNii 511 tN7"EGI;A'1'EU S)51xt 355:84 S7Q,sa PAfQ Ast,ow»ee~>~~rn:w;eQ tc,vAti-tnnz.I.trr~aR.t.~.sco~-w. PflAlttolAC.Y Z3~~003 aGHN I'lltit,IC 1522113 ALTACE (:At'S5,1ti 30 thTEG1iATF:17 f35,[ISI #3.13 238.13 PAIp rnur Nc,wk6rue t'ro~ ueow cAr'CaPa,exntarafC.,C.ts[:vor,l~[AV[~,ts~~vASC PHARMACY ::12+2003 aGHN PUBLLC 159t2aR PR~t;lltlN TABI.?SMG w lh'7'F~GKA7P.t) 520+1{1 Sl).",d 573.7a PAID PHARMACY a.~1.2r:.iN13 at71iN PUE3LJC 154s~63 GLYTiUR1DE T.~tIISA1G t2[> I\TTftiRAT[:I7 S7.tJEY ilti.!:5 li«3.45 PAID PHARMACY 2~a1•'2[Nla aG1iN FtBLII` 1524fiS5 MfTTORbft*I TAHS[1G,titG GO IN1`ECTKA7'kt) #?_oti St0.35 31'1,)5 9'A1n PttARMAGY d,']7t'[103 1CrILN F't!Itt.l[' I~.1hn80 CpPItALEh'11r CAPioOSIG ;I ENTFdiRJ1TEt3 57,1» 51,2.; 582) PAID N1iARhtAC1f Si3li~003 JO}LN PUBLIC 1(i031A3 TAF'~CN. XL "CAti?SMCi 30 L\1T1~[iRATEI) S.©.o(} 52.{H 522.L4 t'AII~ PHA[thl.4CY Total: itr' " S1i6.95 5230.f6 551991 ~P if you have questions about the information contained in this report, please contact National Pharmaceutical Swices (NPS) at 1-800-546-5677. Thank You. ~ V ~ ~ ~.. t 'a ~ ~ ~ ~ ~ '~ ~~c c ~ V .~ u.~ ~ y ~ ~ ,~ ~ ~ W ~. Z ~. L ~ ~ ~. N = ~ ~ rn m c ~ a> v o O C ~ cA O U 'C U ~3 Oo~a y~Nw.~ ~Uai rn m a ~ ~~ c >- m 3~° N~ a~ ~ c w a c ~ a .r o c~ ~- ~ ° ~ r > c a~i c °' a~ m o ~ ~ o ~ -~ ~ ,~ ~ w o 'co O O "O -O y N N O (n fd (0 ~ ~ ~ T O ~N ~ >, ~ >, 3 O Z o0 ~ } s ~ m o .s ~~ ~ a~ 'y o ca n~ o w c O m •~ ai m N 3 o I~ ~ ` Q; .' O 7 ~ N (0 (n Q ate.. ~ ~ ~ ~ C Q .~ ~ N "'' C N F- `- O to ~ d ~ c U ~ •~' c N ~ '8 ~ ~ n N ~ O « ~ ~ >' fl- >' C ~ N C O N = f~0 t >+ m c ~ (~C rR3+ O L ~ 7 ~ C N N O M ~ .~? ~ N C •~ O. fl- O N -p (0 ~ ~+ • O :r ~ o ~ _ E `° 41 'a C O f0 ~ ~ A C (4 L C ~ O C C :i+ O ~ ~ C >+ ~ "'' fq > = O ~ _ 3 ~ ~ ~ f0 O Y N w O N d O N >+ O O ~~ y Q (0 •• ~ C N D V m I~ ` CO ~ C ""' -O N y O U O r_ d N -O N Q d U> 7~~~ C Q O~ C N ~ M ~ v •~ ~' C •-• N ~' ~ ~" C Voi U Q N ~ U U •N c ~ •~ 4= - N y 7 O ~ ~ c0 0 ~~ U 7~~ O' Q- (n fC N V1 N 7 y N y C= -~ C (C4 3 U d ~, V f6 O N O d N N N O 7 •- ~ N N~ O O N N 01 - Q N- N 'c 7 U~ O = E ~ ~ U E cn v~ 3 ~ C'1 d a F- >, ~ a n C9 ~ •3 m ~ Q- ~ a C'1= ca a 00 c -r- o >' °c t m~ c° O° O~~ O o u°, o O m o o c c~~~ .n m O N w ~'' U "d o= p ~ >" o o ~, ~ v >, ca ~ ~ °- y ~ cNTa m ~ ~ -a ~ c ~ ~ ~ ~ ~ ~ ~ a ~ ~ f0 c _ ~ ' U p •~ ~ .~ a ~ ~ .S U ~ o a~ ~ ~ m m ~ o u `a ~ ~- ~ o a m ~ ~ o _ = o _ ~. o~•v = a. oo ~ •~ ~ a~i °~ C E °, ~ m -° .~-. c~• ° ~ Ll .~ C N ~ U ~. •o 0 0 .p ~ ~ •t0 o a~ a~~ > 3 00 ou_,~co~ Nam°~o mom. .~ a-~m~-°mEm-~ ° o ~ _ •~ L E ~. c ~ c a m v, c .~- o ~ ~' w w ~ ~ ~ E ~ a~ o a~ E •~ o ° ~ L °' -a o ~ ~ ~ ~ ~ ~° ° ~ 'u~i ~ ~ a ~ O 'o u°i T ° ° a a ~ ~ E a~ ~ ~ .c E .~ °- ~ ~cn ~ ca o ' a~ >, ~° m ~ m a a ~ y m ~ o >, ~ c cu ,,,,, ~ ~ m ~ Q ~' ,~ ~' o }~ W S d ~, •~ •N o~ ~ °- O~ c p c p o- G m o n e a° °° O` o ° c c o >, o D o c ~ o m ~ ~, _ ~ g o O U ° >, c >; .v -pa >• ~ a~i > ~, •° m w ~ o c ~ ~ ~ w `~ N N L O O Q Q ~ (U N O~ c0 O (0 d o s ca ;Y r. Q 'p N N 7 ~ ~ O V N o= ~ ~ ° ~_ 3 ~ ~ c ~ ~ ~ ~ o ~ c -a ~ ~ a ~ ~ ~ ~, E .~ O .~ ~ ~ ~ ~ -a a•°i ~ Q- ~ c ~ ~ coo =•c•°-3~_~ o o~~°~o~~ o~~°~~°p~~ s•,vL-oar=E~~E~X~m ° , . , ~ U v, rn = ~ n. a .E E E a a~ = O a_ w m d ~ ~ E ~ ~ E ~ 0 3 U rn . o a~ o a~ ~-' ~ m c m ~' ~ m Z F- U Q "O N U ~~~ ~~~ ~~~ PRESCRIPTION DRUG SUMMARY REPORT National Pharmaceutical Services s"` flNM(IfEU11Cfll IE~NhOtOGiES. ~hC ~ o eox ao~ • Boys Town. NE 68010 • 402-965-8800 • soo-sas-ss~~ THI5 IS NOT A BILL, www.pti-nps.com '+ ONLY A SUMMARY REPORT FOR YOUR RECORDS. '~~; ~ AIL CLAIMS OR TRANSACTIONS SHOWN ON THIS SUMMARY WFRB TRANSMITTED - ~ BY THE PROVIDERS SHOWN BELOW. ® PTI• DISCLAIMS ANY L[ABII.I'I'Y FOR ERRORS IN JOHN PUBLIC INFORMATION COMMUNICATED BY PROVIDERS. 123 MAIN ST SEE BACK OF FORM FOR ANY~rowN, NE 68000 EXPLANATION OF THE FOLLOWING TRANSACTIONS ~~ m21102-2003 Phumaceutical Teclmobgies, Inc! NPSSAMP -SAMPLE GROUP PLAN NAME: ForcGruwsBe~lnslsa: 1H/2003 Enrinar 5/31/2003 DATE QF FARIILY TOTAL PACK '! FlLL MEMBER flJt# OESCiliPTlgN .CITY PHARGACY Yl?1)FAIQ pt.AN PAID TO PW11flhlACY STATUS 1i~+200J JO1L`J PC?AC.tC ISSIGN2 Pl.llltn%IiPAM CAPJ4)AiCJ 3q IMFG]tATED I~tI 50.41U #9.31 YAIU PHARMACY f%224703 JCJIIN PUBLIC 1581G741 IACIQR TAB1UtilC 70 tNTTGRAC773 535.4:1 533.21 548.2) PAJtI Aet Hmr IIaW:laase PmnJaahuuc L4}y,uytACl}~. LiI"1743R, CaESC)CtL )v7. PItAJ4'~1AG.Y fr2/;GO~ JOIiN PUBLIC 1-0.R3ttS TGPROL\L TAJi:51,1[J 30 I.YT7:©7LlTEl) 520.Ofi $1.35 Sii.45 !'Ali] FI IARMACY ia7120ot JL'CTAYA1LhIILE~CONSliLTMl1 PHARMACY 1i3J:'0UJ J079N PUIIWC: lSt[36S1 ATACAJ9D 'I'n1t321tCi lq tn'7'EGKATED 524f-0q SB~.~70 SItA1..10 PnID P11AEC1dACY 2.+37c~ui ItIIIN I~Iapt.It: taStr,sl zcscoK 't'nJltgswr., ail uaTE~rtnTtru s3S tx: s5s.9~c s7ost f•ACu Ast ymu IlcrRl~rc ProR-idvalaur. I.dtVAb"TA1'C~. LINITOR. L.ESCOL.XL PIIIAItIatACY b3~2003 JG7JN I'lI1iLIC 1$22113 ALTACk C,SI'S~tti 30 th7EGkATI:1J: 535;11(1 #3.13 138.13 PAID r4.C1 NnNt 41cu" 1K~:e Pcov~kc u6au:. CAPTQPk,G1:k1At'Ktl..t.tSl.~'OP,MAY[IwL'h9VA5C PIIA1thiACY :+t3+x003 eCJIiV PUBLIC 154t;oR PR~IARIN T.4D1.35MG 3D lC+7EC'iRA`iT'.I) $20.4111 S13.7a 333,71 PAIu PIIARh1PICY ~~1:.+`ZtxiJ JOHN PL"BLIC IStfl4ti3 GLYIIURJI)E T.Af35h9G C24 1N7'FfiiRATtD S7.tJti 5aG9S 5:3.95 PAID PHARMACY 2f2lr21N13 JOHN Pt:'B11t. is29ti35 MIiTi'ORDiJ?V TAB54JG.~94i Gq th'7'kQitA'1'ED 37.Lx1 510.35 517.35. 1'AICJ PHARMACY 91171?o03 HiILW tK!BC.tC' 1C.1698ft CF.PIiALEk'Ti~: C,4PicXtSiC ?1 ENITEfiCllITEIJ S7,0sr SI.2; 5fl_:3 FAIIJ PtlAttitACtr Si3l,~(Nl3 JC)}L~f PUALIC 1G031a3 TCapRC?L XL 'CAlt?SMG 30 NTI:tiKA7EC1 5:0.+x} 52.W 522.04 1'Alt) PHARh1ACY Total: jq~' ' S2i8.95 5230.96 T519.91 if you have questions about the information contained in this report, please contact National Pharmaceutical Services (NPS) at 1-800-546-5677. Thattk You. SAMPLE GROUP 1/1/2004 - 12/31/2004 ~,.iARMACY SMARTCARD PROGRAM SAVINGS. Network Network Network `Network Net Approved Price Savings Savings per Rx Effective Discount MANUFACTURER'S SUGGESTED RETAIL PRICE (AWP) $136,974.20 $99,090.27 $37,883.93 $23.71 27.66% PHARMACY USUAL AND $125,901.26 $99,090.27 $26,810.99 $16.7$ 21.30% CUSTOMARY (U & C) PLAN PARTICIPATION RESULTS AND CLAIMS TOTALS(RETAIL AND MAIL-ORDER CLAIMS) CLAIMS APPROVED FOR PAYMENT: 1,598 CLAIMS DENIED (REJECTED): CLAIMS CREDITED (REVERSED): 54x .190' .~,. '8.90 .608 62% PLE 70`,0 ^~PAY 30% NEW PRESCRIPTIONS: REFILL PRESCRIPTIONS: PERCENTAGE OF NEW PRESCRIPTIONS VS REFILLS: AVERAGE DAYS SUPPLY DISPENSED: AVERAGE METRIC QUANTITY DISPENSED: "'~/ NUMBER OF PRESCRIPTIONS WITH A PRIOR AUTHORIZATION: 28 65 6 TOTAL Rx's: 1,598 AVERAGE COPAY COST PER PRESCRIPTION: $18.73 COPAY PAID: $29,923.71 AVERAGE PLAN COST PER PRESCRIPTIOy:. $43.28 pLAN PAID: $69,166.56 AVERAGE TOTAL COST PER PRESCRIN: (NPs AvG: Esas3) $62.01 TOTAL PAID: $99,090.27 MAINTENANCE MEDICATION UTILIZATION (RETAIL AND MAIL-ORDER CLAIMS) MAINTENANCE THERAPY INDICATOR TOTAL PRESCRIPTIONS DISPENSED: 1,598 +oox MAINTENANCE MEDICATIONS e°x TOTAL DISPENSED: 507 AVG PLAN COST: $52.80 '°x AVG DAYS SUPPLY: 40.32 AVG COPAY: $18.27 „x AVG QUANTITY PER RX: 55.16 AVG TOTAL: $71.07 z°x NON-MAINTENANCE MEDICATIONS TOTAL DISPENSED: 1,091 AVG PLAN COST: $38.86 °x AVG DAYS SUPPLY: 21.80 AVG COPAY: $18.94 ^ NON-MAINT ^MAINT AVG QUANTITY PER RX: 69.42 AVG TOTAL: $57.80 '~NPS averages and trends displayed are based on data for 7/1/2004 thru 9/30/2004 for all lines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334.4488 SAMPLE GROUP 1 /1 /2004 -12/31 /2004 `~C'~NSUS TRACK - (PROJECTIONS BASED ON CURRENT TREND RATES) NUMBER OF ELIGIBLE EMPLOYEES (EE): ~ 142 NUMBER OF EMPLOYEES WITH FAMILY COVERAGE: ~ 102 TOTAL NUMBER OF MEMBERS (EMPLOYEES + DEPENDENTS): 2 400 NUMBER OF EMPLOYEES WITH SINGLE COVERAGE: 1 40 AVERAGE FAMILY SIZE: 2.8 PERCENT OF GROUP UTILIZING PRESCRIPTIONS: s 54.00% CURRENT FUNDING LEVELS (MONTHL EMPLOYEES (PEPM) SINGLE FAMILY COPAY $17.53 $3.49 $23.04 PLAN $40.52 $9.16 $52.82 TOTAL $58.05 $12.65 $75.86 PMPM (PLAN): z $14.39 PMPM (TOTAL): 2 $20.61 (NPS PMPM: 40.43) PROJECTED FUNDING BASED ON CURRENT DATA ( YEARLY): EMPLOYEES (PEPY) SINGLE FAMILY COPAY $210.38 $41.86 •. '° $276.47 PLAN $486.28 $109.92 $833.87 TOTAL $896.66 $151,78= $910.34 PMPY (PLAN? ~ $172:83 PMPY (TOTAL): p. $247.3T '(NPS PMPM: 485.16) AVERAGE PRESCRIPTIONS PER MONTH PER EMPLOYEE: ~ 0.94 AVERAGE PRESCRIPTIONS PER MONTH PER MEMBER (EMPLOYEE + DEPENDENTS): z 0.33 AVERAGE PRESCRIPTIONS PER MONTH PER UTILIZER: a 0.62 UTILIZATION BASED ON AGE AND SEX The following chart depicts PMPM and age gender segregation based upon current utilizing members 80 70 60 50 N w m 40 W 30 20 10 0 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $0.00 ® FEMALE D MALE ~-®-PMPM --~-NPS TREND #MEMBERS W/GENDER UNSPECIFIED: 0 1. Eligible Employees are defined as policyholders or cardholders. All claims are assigned to the policy and the policyholder and or family are entitled to the products and services as outlined in plan specifications. Plan census may have changed during the time frame fo this report. 2. Members are defined as the employee or policyholder and the employee's spouse or dependents that are covered under the plan. A policyholder may have single or family coverage. Member counts are total eligible lives. Please note that members in the plan during this time frame may not be effective currently; however their claims activity is presented in order to produce an accurate and reliable picture of the cost analysis. '~ ' ltilizers are the members (employee + dependents) that have filled a prescription drug claim for funding by the plan. Non-utilizers would be members ployee + dependents) that have not filled a prescription drug claim. All NPS averages and trends displayed are based on data for 7/1/2004 thru 9/30/2004 for all lines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 00-17 18-24 25-39 40-55 56-70 SAMPLE GROUP 1/1/2004 - 12/31/2004 "~IA1L-ORDER STATISTICS NUMBER OF MEMBERS UTILIIZING: 25 MAIL-ORDER CONTRIBUTIONS AVERAGE COST PER PRESCRIPTION: $213.52 13 AVERAGE QUANTITY PER PRESCRIPTION: 148 GENERIC UTILIZATION RATE*: 37% GENERIC SUBSTITUTION RATE"": 1 OO% ^ COPAY FORMULARY COMPLIANCE RATE***: 72.15% s 7 % ^ PLAN AVERAGE DISCOUNT OFF AWP-BRANDS: 16.96% AVERAGE DISCOUNT OFF AWP-GENERICS: 56.93% TOTAL RX'S: - 158 MAIL-0RDER NET EFFECTIVE DISCOUNT (OFF AWP): 36.76% ~E~ ~ S 69 REFILL RX'S: _ 89 NUMBER OF .~' COPPcY PAID: $4,307.43 PRESCRIPTIONS PLAN PAID: $29,428.48 ^ SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) - 99 3~/0 ^ MULTI-SOURCE BRANDS (GENERICS AVAILABLE) 0 , ^ GENERICS 59 TOTAL NUMBER OF PRESCRIPTIONS: ~ 158 63% ' 0% ^ TIER 3 (NON-PREFERRED PRODUCTS) ^ TIER 2 (PREFERRED BRANaNAME PRODUCTS) ^ TIER 1 (GENERIC PRODUCTS) TOTAL NUMBER OF PRESCRIPTIONS: NUMBER OF PRESCRIPTIONS 44 58 56 158 28% 35% 37% *The overall generic utilization rate represents the percentage of all prescriptions filled with a generic. **The overall generic substitution rate represents the number of prescriptions that squid have been filled as generics that actually were dispensed with a generic product ***The formulary compliance rate represents the percentage of prescriptions that were filled with a generic (first tier) or Preferred Brand Name (Second Tier) medication. STOP TEN MAIL ORDER DRUG CANDIDATES BYRX NUMBER ~ 1 PERCENT OF ~ NUMBER OF AVG RETAIL AVERAGE 2 NUMBER OF 'ALL TOTAL MEMBERS COST PER MO COST POTENTIAL PRODUCT DESCRIPTION pRESC RIPTIONS ' 'PRESCRIPT IObdS DOLLARS UTILIZING RX PER RX SAVINGS ZOLOFT TABSOMG 42 RET: 40 i -2.63°~0+ 541 54 $3 6 $81.88 $79.41 $98.80 Ma z . , NORVASC TA810MG 30 RET. 26 1 88% 289 30 $2 4 $73.45 $71.42 $52.78 Mo a . , . LIPITOR TABIOMG 25 RET. 15 1 56% 418 21 $3 5 $132.99 $131.25 $26.10 nno 10. . , . ZOLOFT TA8100MG 22 , RET 19 1 38% 978 03 $2 4 $132.44 $130.09 $44.65 nno: s . , . FLOMAX CAP0.4MG 20 RET: 16 1 25% 04 166 $2 3 $105.45 $103.22 $35.68 Mo- a . , . VIOXX TAB25MG 16 RET: 16 1 00% 45 356 $1 3 $82.65 $78.93 $59.52 Mora . , . AMBIEN TABIOMG 16 .'RET: 12 1 00% 991 21 $1 3 $121.20 $119.07 $25.56 Mo:a . , . CELEBREX CAP200MG 13 RET: 13 0 81% 1 570 44 $ 6 $118.63 $113.73 $63.70 MO: 0 . , . NATALCARE TABGLOSSTAB 12 RET: 12 0 75% 138 00 $ 2 $6.50 $6.42 $0.96 MO: 0 . . MAVIK TAB4MG RET: 12 12 Mo: 0 0.75% $386.14 2 $29.87 $28.58 $15.48 TOTAL POTENTIAL SAVINGS: $423.23 (Top 10 Drugs Only) 1 -Number of prescriptions breakdown includes Retail Pharmacy (RET) vs Mail Order Pharmacy (MO) prescription counts. 2 -Calculated by using the difference between the average retail claim cost and the average mail order claim cost, multiplied by the retail claims potentially available for mail order. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 88010 1-888-334.4488 SAMPLE GROUP 1/1/2004 -12/31/2004 ~" BRAND AND GENERIC SUMMARY BRAND AND GENERIC UTILIZATION (RETAIL AND MAIL-ORDER CLAIMS) ~ NUMBER OF NPS AVERAGE PRESCRIPTIONS ~a% 5]% ~ SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) 716 o .% ^ MULTI-SOURCE BRANDS (GENERICS AVAILABLE) ~ GENERICS 53 829 TOTAL NUMBER OF PRESCRIPTIONS: 1,598 as ro s2~i ~~ DOLLARS SPENT ON BRAND AND GENERIC THERAPIES NPS AVERAGE ' ° xz% ~ SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) $7$;229.36 ~s~ro ~% ^MULTl-SOURCE BRANDS (GENERICS AVAILABLE) `~'- $1,70T:14 2"~ ]5% ~ GENERICS ~`~ $19,153.77 TOTAL: $99,090.27 7s~ro ONTRIBUTIONS TO BRAND AND GENERIC THERAPIES AVERAGE PLAN COST AVEfZAGE COPAY COST AVERAGE TOTAL COST AVERAGE DISCOUNT OFF PER PRESCRIPTION ^ PEf2 PRESCRIPTION PER PRESCRIPl10N AWP ^ SINGLE-SOURCE BRANDS (NO GENERICS AVAILABLE) $77.26 $32.00 $109.26 14.94% MULTISOURCE BRANDS (GENERICS AVAILABLE) $17`:67 : ' $14.54 $32.21 14.77% ~N~"~ $15.58 $7.53 $23.10 61.69% $77.26 ,~- :32.00 - ^ $14.54 $17.67 $15.58 $7.53 $109.26 $32.21 $23.10 ., ~_ AVERAGE PLAN COST ~ AVERAGE COPAY COST AVERAGE TOTAL COST UTILIZATION STATISTICS GENERIC SUBSTITUTION RATE*: 93.99% GENERIC UTILIZATION RATE**: 51.88% NUMBER OF PRESCRIPTIONS DISPENSED WITH PHYSICIAN REQUESTING BRAND (DAW 1): 5 NUMBER OF PRESCRIPTIONS DISPENSED WITH MEMBER REQUESTING BRAND (DAW 2): 18 *The overall generic substitution rate represents the number of prescriptions that could have been filled as generics that actually were dispensed with a generic product. The overall generic utilization rate represents the percentage of all prescriptions filled with a generic. averages and trends displayed are based on data for 7/1/2004 thru 9/30/2004 for all lines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 1-888-334-4488 SAMPLE GROUP 1 /1 /2004 -12/31 /2004 "`"` PREFERRED DRUG LIST UTILIZATION FORMULARY /PREFERRED DRUG LIST STATISTICS BY CLAIM COUNTS (RETAIL AND MAIL-0RDER CLAIMS) NUMBER OF NPS AVERAGE 15% PRESCRIPTIONS 20% ~ TIER 3 (NON-PREFERRED PRODUCTS) 323 za~r s~% ^ TIER 2 (PREFERRED BRAND-NAME PRODUCTS) 456 51% ~ TIER 1 (GENERIC PRODUCTS) 819 29% TOTAL NUMBER OF PRESCRIPTIONS 1,598 FORMULARY /PREFERRED DRUG STATISTICS BY DOLLAR ' NPS AVERAGE 0 29% 22% 18 /o ~ TIER 3 (NON-PREFERRED PRODUCTS) $40,6'7.85 ^ TIER 2 (PREFERRED BRAND-NAME PRODUCTS) $40,268.41 41% so% ~ TIER 1 (GENERIC PRODUCTS) ~ $i~,Y16~.21 TOTAL, $9,090.27 41% ''~7ERAGE COST PER FORMULARY TIER AVERAGE PLAN COST AVERAGE COPAY COST AVERAGE TOTAL COST AVERAGE DISCOUNT OFF PER PRESCRIPTION PER PRESCRIPTION PER PRESCRIPTION AWP ^ TIER 3 (NON-PREFERRED PRODUCTS) 1'~ (~ 0 . CJ2 ~ 35.35 $12 5.88 15.77 % TIER 2 (PREFERRED BRAND-NAME PRODUCTS) 411 .03 $27.28 $88.30 14.81 % TIER 1 (GENERIC PRODUCTS) `x,14':77 $7.41 $22.18 62.61 UTILIZATION STATISTICS OVERALL FORMULARY COMPLIANCE RATE*: 80% *The formulary compliance rate represents the percentage of prescriptions that were filled with a generic (first tier) or Preferred Brand Name (Second Tier) medication. BPS averages and trends displayed are based on data for 7/1/2004 thru 9/30/2004 for all lines of business. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 88010 7-888-334-4488 AVERAGE COPAY COST AVERAGE PLAN COST AVERAGE TOTAL COST SAMPLE GROUP 1/1/2004 - 12/31/2004 `~"'` DRUG CLASS UTILIZATION OP TEN DRUG CLASSES BY TOTAL DOLLARS TOP 10 DRUG CLASSES ® PENICILLINS ® CALCIUM BLOCKERS ^ ANTIHISTAMINES ^'ADHD/ANTI-NARCOLEPSY/ANTI- OBESITY/ANOREXIANTS• s DERMATOLOGICAL ^ ANALGESICS -ANTI-INFLAMMATORY D ULCER DRUGS ^ ANTIPSYCHOTICS G ANTIHYPERLIPIDEMIC ^ ANTIDEPRESSANTS TOTAL DOLLARS SPENT $18,462.22 PMPM FOR TOP TEN DRUG CLASSES BY TOTAL DOLLARS OVERALL PMPM ($): $20.61 `~r+ 12,785.05 ' $2,859.86 $3,263.34 $4,010.24 $4,709.46 $5,009.79 $6,104.22 $7,010.00. ss,s83.s1 DRUG CLASSES COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 88010 1-888-334-4488 SAMPLE GROUP 1/1/2004 -12/3112004 `"~ TOP TWENTY-FIVE PRESCRIPTIONS DISPENSED UTILIZATION OF TOP TWENTY-FIVE DRUGS TOP 25 DRUGS BY DOLLARS TOP 25 DRUGS BY NUMBER OF RX'S 29% 31% TOP 25 DRUGS ALL OTHER DRUGS 71 % 69b/o OP TWENTY-FIVE DRUGS BY PRESCRIPTION COUNTS PERCENT OF NUMBER OF AVG NUMBER OF ALL TIER TOTAL MEMBERS COST. PMPM PRODUCT DESCRIPTION PRESCRIPTIONS PRESCRIPTIONS STATUS DOLLARS UTIL121NG. PER RX COST DRUG CLASS 0 ZOIOFT TABSOMG 42 NEW: t3 2.63 /0 2 $3,541.54 6 $84.32 $0.74 ANTIDEPRESSANTS REFILL: 29 TRIMOX CAP500MG 34 NEW: 24 2.13/0 1 $263.16 19 $7.74 $0,05 PENICILLINS 0 REFILL: 10 NORVASC TABIOMG 30 NEW 5 1.88 /0 2 $2,289.30 4 $76.31 $0,48 CALCIUM BLOCKERS 0 REFILL: 25 CEPHALEXIN CAP500MG 27 NEW 23 0 1 69 /0 1 `~ $441.72 17 $16.36 $0,09 CEPHALOSPORINS REFILL: 4 . LIPITOR TABIOMG 25 NEW: 7 0 1.56 /0 2 418.21 $3 5 $136.73 $0.71 ANTIHYPERLIPIDEMIC REFILL: 18 , ZOLOFT TAB100MG 22 NEW' 8 0 1 38 /0 2 $2 97&.03 4 $135.37 $0,62 ANTIDEPRESSANTS REFILL: 14 . , , w~N1AX CAP0.4MG 20 "~ 5 1 25% 2 $2 166.04 3 $108.30 $0.45 MISCELLANEOUS REFILL: 15 . , GENITOURINARY PRODUCTS ACIPHEX TA620MG 19 NEW 7 1.19% 3 $3 280.45 2 $172.66 $0.68 ULCER DRUGS REFILL: 12 , TRIMOX SUS250/5ML 19 NEW 19 1:19% 1 $138 00 14 $7.26 $0.03 PENICILLINS REFILL: 0 . MINOCYCLINE CAP100MG 18 NEW 13 13% 1 ~ ` $937 00 4 $52.06 $0.19 TETRACYCLINES REFILL: 5 . . ZITHROMAX TABZ-PAK 18 NEW: 1a 1:1.3% 2 $806 60 18 $44 81 $0.17 MACROLIDE ANTIBIOTICS REFILL: 0.- . . IBUPROFEN TAB800MG 18 NEW 14 13% >' :1 1 $135 20 12 $7 51 03 ANALGESICS - ANTI- $0 REFILL: a . . . . INFLAMMATORY TRIAM/HCTZ CAP37.5-25 18 NEW 9 1 13% 1 $124 20 3 $6 90 03 DIURETICS $0 REFILL: ?~ . . . , HYDROCO/APAPTABS-SOOMG 18 NEw: 1a ~ 1 13% 1 $91 36 14 $5 08 02 ANALGESICS -Narcotic $0 REFIIC' 0 . . . . AMOXICILLIN SUS400I5M1 17 NEw iz 1 06% 1 $320 31 14 $18.84 $0,07 PENICILLINS REFILL 0 . . AMBIEN rAB1oMG ,16 NEw:13 1 00% 2 $1 991 21 3 $124 45 $0.41 HYPNOTICS REFILL: 3 . , . . vloxx rAB2sMG 16 NENt a 1 00% 3 $1 45 356 3 $84 78 28 ANALGESICS - ANTI- $0 . REFILL: 12 . , . . , INFLAMMATORY TRIAMCINOLONOIN0.1% 16, NEW 3 0 1 00% 1 $175 55 3 $10 97 Q[} DERMATOLOGICAL $Q REFILL: 13 . . . , ZYRTEC TA810MG 15 ~' NEW 6 0 0 94/0 2 $1 275 16 6 $85 01 27 ANTIHISTAMINES $0 REFILL: 9 . , . . . ZITHROMAX SUS200/5ML 15 NEW 15 0 94 /0 0 2 $561 58 9 $37 44 12 MACROLIDE ANTIBIOTICS $0 REFILL: 0 . . . . LEVOXYL TAB100MCG 15 NEw.4 0.94/0 1 $170.27 2 $11.35 $0,04 THYROID 0 REFILL: 11 HYDROCO/APAPTAB7.5-500 15 NEW: 15 0 0 94 /0 1 $110 85 7 $7 39 02 ANALGESICS -Narcotic $0 REFILL: 0 . . . . CELEBREX CAP200MG 13 NEW 6 0 81% 2 $1 570 44 6 $120 80 33 ANALGESICS-ANTI- $0 REFILL: 7 . , . . , INFLAMMATORY TnBRAMYCIN SOL0.3% OP 13 NEW 13 0 0 81 /0 1 $84 50 10 $6 50 02 OPHTHALMIC $0 REFILL: 0 . . . . ~EGRA-D TAB60-120ER 12 NEW 4 0 0 75 /0 3 $956 83 4 $79 74 20 COUGH/COLD/ALLERGY $0 REFILL: 8 . . . . COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 88010 1-888-334-4488 SAMPLE GROUP 1 /1 /2004 - 12/31 /2004 ~r+' TOP TWENTY-FIVE PHARMACIES BY PRESCRIPTION COUNTS UTILIZATION SUMMARY I AVG AVG GENERICZ GENERICS FORMULARY4 AVG DISCOUNTS NUMBER OF TOTAL MEMBERS COST DAYS UTILIZATION SUBSTITUTION COMPLIANCE OFFAWP PROVIDER PHARMACY PRESCRIPl10NS DOLLARS UTILIZING PER RX SUPPLY RATE RATE RATE BRAND/GENERIC INTEGRATED PHARMACY NEW 69 SERVICES BOYS TOWN, NE 158 REFILL: 89 $33,735.91 25 $213.52 89.58 37% 100% 72% 17% / 57% WALGREENS PHARMACY NEW 69 #4974 OMAHA, NE 96 REFILL: 27 $3,327.94 17 $34.67 19.47 68% 100°io ~3% 14% / 56% WALGREENS PHARMACY 78 NEW 5a $5,741.63 19 $73 61 21.55 35 /0 ° 7~ 76% 14% / 48% #4754 LA VISTA, NE REFILL: 28 . WALGREENS PHARMACY 75 NEW ~ 148.30 $3 18 $41 98 19.77 60 /0 ° 1'00 , o ~~ 88% 14% / 55% #4443 OMAHA, NE REFILL: 19 , . 74 NEW 15 $5,845.18 2 $78.99 29.81 ` 2~3°k 82% 72% 13% / 45% OMAHA, NE PHARMACY REFILL: 59 BAKERS PHARMACY 74 NEW a2 $2,747.06 8 $37.12 20.1?" 38% ' 62% 77% 14% / 42% #321 OMAHA, NE REFILL: 32 . WALGREENS PHARMACY 72 NEW 37 704.79 $1 11 $23 68 .22.47 74% 100% 93% 14% / 70% #5540 BELLEVUE, NE REFILL: 35 , . WALGREENS PHARMACY 68 NEW 40 $2 282 51 5 $33.57 25:22 63% 81% 72% 14% / 69% #2855 OMAHA, NE REFILL: 28 WALGREENS PHARMACY 67 NEW 43 $3 735.48 7 7.5 $55 ? 1:58 39% 100% 84% 14% / 50% #3694 BELLEVUE, NE REFILL: 24 , , . WALGREENS PHARMACY 64 NEW 48 $1 865.14 17 $29 14 17:7b~ 69% 90% 86% 14% / 44% #05360 OMAHA, NE REFILL: 16 , . WALGREENS PHARMACY 63 New. 3e $2 384.41 f 4 $37.85 17.73 65% 100% 76% 14% / 52% #4772 OMAHA, NE REFILL: 27 , ' -FART PHARMACY 55 NEW ~ $2,405.58- " 7 $43 :74 26.02 42% 92% 75% 14% / 81 X93 OMAHA, NE REFILL: 29 , WALGREENS 24 HR 54 NEW ~ 860.49' $1 24 $34 45 14.83 57% 100% 85% 14% / 48% PHARMACY OMAHA, NE REFILL: 10 , . WALGREENS PHARMACY 40 NEW 25 074:31 $2 11 $51 86 17.10 58% 100% 75% 14% / 57% #3186 OMAHA, NE REFILL: 15 , . SUPER TARGET PHARMACY 35 NEW 28 62 $2,353 3 $67.25 24.66 51% 100% 57% 14% / 70% #532 PAPILLION,NE REFILL:7 , ED'S REXALL 32 NEW 7 ' $1',931..89 3 $60 37 29.28 0% N/A 78% 13% / N/A DRUG OMAHA, NE REFILL: 29 . HY-VEE PHARMACY 32 NEw t4 -_$573'43 4 $17 92 27.25 100% 100% 100% N/A / 65% #1468 OMAHA, NE REF{LL 18 . WALGREENS 31 "E~`'25`` $1,870.58 9 $60.34 18.00 61% 95% 74% 14% / 50% #7563 OMAHA, NE RERLL 6 ~ SHOPKO PHARMACY 29 NEw v. _ $812.81 10 $31 48 15.03 59% 100% ° 86 /O 13 /o / 67 /o ° ° #2056 OMAHA, NE REFILL 2 . SUPER SAVER PHARMACY 26 NEw is $1 777.01 3 $68 35 22.42 23/0 ° 75/0 ° 46% 13% / 45% #2O OMAHA, NF 1 REFILL }t .. , . SHOPKO PHARMACY " 25 N~ ts $980.63 6 $39 23 15.96 40% 100% 96% 13% / 60% #2044 oMAHq. NE REFILL: 9 . WALGREENS PHARMACY ~ 24 'NEW 14 007.65 $1 7 $41 99 21.96 54% 100% 88% 14% / 42% #1738 oMAHA,nt REFILL: to , . OSCO DRUG 23 NEW 22 $708.39 8 $30 80 15.35 57% 93% 87% 14% / 68% #5293 OMAHA, NE REFILL: 1 . WALGREENS PHARMACY 20 NEW 12 $300.51 7 0 0 0 0/ o #05966 OMAHA, NE REFILL: 8 $15.03 20.05 85 /0 100 /0 90 /0 14 /0 89 /o FLORENCE DRUG 19 NEW 13 $1,524.35 4 $80.23 25.26 79% 100% 100% 14% / 49% TOWN OMAHA, NE REFILL: 6 KEY: t. Members utilizing each pharmacy provider an: based on the active members in the group for the selected time period. The overall generic utilization rate represents the percent of generic medications compared to all medications. The overall generic substitution rate represents the number of prescriptions filled with a generic versus the total that could be filled with a generic. The fomwlary compliance rate represents the percentage of prescriptions that were filled with a generic (First Tier) or Preferred Brand Name (Second Tier.) 5. The average brend/generic discount only indudes daims processed online. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 68010 t-888334-0488 SAMPLE GROUP 1 /1 /2004 -12/31 /2004 TOP TWENTY-FIVE PRESCRI BER UTILIZATION SU MMARY GENERICZ GENERIC 3 NUMBER OF 4 FORMULARY 5 NUMBER OF TOTAL MEMBERSt AVG COST UTILIZATION SUBSTITUTION DAW1 COMPLIANCE PMPM b PRESCRIBER PRESCRIPTIONS DOLLARS UTILIZING PER RX RATE RATE SCRIPTS RATE WILLIAMS, STEPHEN H MD 37 Nov ~ $2,137.37 3 $57.77 51 % 100% 0 86% $59.27 Refill: 8 CERVANTES, JAMES ANDREW 36 Nov 19 $1,833.97 3 $50.94 39% 100% ,. 0 72% $50.86 MD Refill: 17 ~~ ~ LOHRBERG, JOHN R MD 31 New. 11 $1,560.61 6 $50.34 55% 100% I, 0 61 % $21.64 Refill: 20 KRAMPER, RALPH J MD 30 New. 3 $1,414.16 1 $47.14 30% I OQ° ~ 0 100% $117.65 Refill: 27 - ISTAS, JOEDY RAY MD 28 New: is $978.59 2 $34.95 96% 100"b ` 0 96% $40.71 Refill: 9 STAMM, DAVID W MD 26 NeN 7 $1,338.41 5 $51.48 15% '- 100%,.~ 0 96% $22.27 Refill: l9 HAYES, KRSSTIE D MD 26 New: 10 $527.45 2 $20.29 f96% 1Q0~% 0 88% $21.94 Refill: l6 f` KOLBECK, TERRENCE JAMES 23 Ne".6 $1,693.15 2 $73.62 ` 0% . N/A 0 96% $70.43 Refill: 15 RUSSELL, DOUGLAS A MD 23 Nev: 16 $435.43 1 $18.93 91 % 100% 0 100% $36.23 Refill: 5 STOLLER, HERSCHEL E MD 22 New: 21 $1,653.57 3 $75.16 86% 100% 0 86% $45.86 Refill: 1 HEAD, GEORGE G MD 21 NeN:14 $1,210.15 2 ~ '~,. $57.63' ` 48% 77% 0 62% $50.34 Refill: 7 WILLIAMS, STEVEN MAX MD 21 New: 1s $916.43 f7 $43.64 48% 83% 0 57% $10.89 Refll:5 ~4NKLIN, JOHN JOAQUIM MD 20 New.5 $1,436.33 1 X71.82 5 /0 ° 10 /0 0 5 /o ° $119.50 Refill: 15 LUCKASEN, JOHN ROHERTY MD 20 New. 14 $666.4 5 $33.32 95% 100% 0 100% $11.09 Refill: 6 FULTON, KRISTEN B MD 19 NeN' 6 $1,361.79 3 $71.67 5% 33% 0 79% $37.76 Refill: 11 - s NAEGELE, ROBERT GERARD MD 18 Neat 3 $2,710.86 1 $150.60 39% 100% 0 44% $225.53 Refill: 15 CRNKOVICH, TIMOTHY P MD 18 New: 15 Y $268.25 1 $14.90 89% 100% 0 94% $22.32 Refill: 3 ,. ZIEG, GEORGE ALLEN MD 17 N~+' 10 ` $63L~3 1 $37.17 0 59 /0 0 100 /0 0 0 82 /o $52.56 RefilC 7 MILLARD PLAZA PHARMACY 16 Af~v 8 ' $1,417.91 1 $88.62 0% N/A 0 25% $117.96 INC Refill: 10' < MCTAGGART, JILL C MD 16 Ne"' 3 ' $1,284.18 3 $80.26 0% N/A 0 100% $35.61 Refll. 13, CARLSSON,LAWRENCEAMD 1:5 Nevg $1,601.46 1 $106.76 20% 100% 0 100% $133.23 Refill6 JONES, SARAH L MD 14 ~'"~ $1,929.61 3 $137.83 7% 20% 4 43% $53.51 a. Refill: l0 FONDA, ROBERT J MD 14 ?' NeN' 7 $837.03 2 $59.79 29% 100% 0 36% $34.82 „~.` Refill:7 SAMBOL, DAVID HANDLER MD' 14 NeN 6 $480.93 3 $34.35 0% 0% 0 79% $13.34 Refill: 8 O'MALLEY,TERRANCEKEVIN 12 N~v'2 $1,322.37 1 $110.20 0% N/A 0 33% $110.01 MD Refill: 10 1. Members utilizing each healthcare provider are based on the alive members in the group for the selected tlme period. 2. The overall generic utilization rate represents the percentage of all prescriptions filled with a generic. 3. Ttre overall generic substitution rate represents the number of prescriptions that could have been filled as generics that actually were dispensed with a generic product. 4. DAW - Dispense as written -Brand was selected by the physidan when a generic was available. The formulary compliance rate represents the percentage of prescriptions that were filled with a generic (First Tier) or Preferred Brand Name (Second Tier.) Members are defined as the employee or pdicyholder and the employee's spouse or dependents that are covered under the plan. A pdicyholder may have single or fanuly coverage. Member counts are total eligible lives se note that members in the plan during this time frame may not be effective currently; however their daims activity is presented in order to produce an accurate and reliable picture of the cost analysis. COPYRIGHT 2004 PHARMACEUTICAL TECHNOLOGIES, INC. P.O. Box 407 Boys Town, NE 88010 1-888-334488 102098 - ST MARYS HEALTH SYSTEM 1/1/2007 - 6/30/2007 OTC Prilosec Coverage Model '~rl9ton Pump inhibitors represent a class of drugs that are generally in the top five classes based upon utilization and cost in most prescription drug benefit plans. Recently, Prilosec (omeprazole) has become available over the counter or available without a prescription. With the product's availability over the counter, also came a substantial price decrease. The average cost per capsule of Prilosec® over the counter is less than $0.72 each, compared to prescription proton pump inhibitors such as Nexium®, Aciphex®, Protonix®, and Prevacid®, which average around $4 each; even the generic version of Prilosec, omeprazole with is still available as a prescription is only slightly under $2 each. The over the counter version of Prilosec® is available in the same strength as the prescription version at 20mg. In order to assist our plans in determining the financial impact of covering over the counter (OTC) versions of Prilosec, Pharmaceutical Technologies, Inc. (PTI) has created the following model to assist our plans. (FINANCIAL IMPACT ANALYSIS Number of Utilizing Members 480 Average Total Cost /Script (Current) $196.92 Number of Prescriptions 1,084 Average Total Cost /Script (OTC Prilosec) $25.00 Average Savings / RX Converted $171.92 SCENARIO ONE Add coverage of OTC product at generic copay; all other products remain covered at current levels. Based on a 15% conversion rate of traditional PPI to OTC Prilosec: Traditional PPI Prescriptions Converted 163 Total Projected Claim Cost Savings $28,022.96 SCENARIO TWO Add coverage of OTC product at generic copay; all other products move to third tier copays or non-preferred status. Based on a 30% conversion rate of traditional PPI to OTC Prilosec: Traditional PPI Prescriptions Converted 325 Total Projected Claim Cost Savings $55,874.00 SCENARIO THREE Add coverage of OTC product at $0 copay; all other products move to third tier copays or non-preferred status. Based on a 40% conversion rate of traditional PPI to OTC Prilosec®: Traditional PPI Prescriptions Converted 434 Total Projected Claim Cost Savings $74,613.28 SCENARIO FOUR Add coverage of OTC product only at generic copay; all other products are not covered'. Based on a 98% conversion rate of traditional PPI to OTC Prilosec®: Traditional PPI Prescriptions Converted 1,062 Total Projected Claim Cost Savings $182,579.04 SCENARIO FIVE Add coverage of OTC product only at $0 copay; all other products are not covered"`. Based on a 98% conversion rate of traditional PPI to OTC Prilosec: Traditional PPI Prescriptions Converted 1,062 Total Projected Claim Cost Savings $182,579.04 SCENARIO SIX Discontinue coverage of class of drugs entirely"'. 99.5% Discontinuation: Total Projected Claim Cost Savings $212,393.97 "Prior Authorization for Zollinger Ellison syndrome and other hypersecretory conditions only. ~/ CONFIDENTIALfI'Y NOTICE: This document contains privileged and confidential information intended only for the use of the individual or entity to which it is addressed. If the receiver of this document is not the intended recipient, you are hereby notified that any dissemination, distribution, use, or copying of this document is strictly prohibited. If you have received this document in error, please immediately notify the sender by calling (800) 546-5677 and destroy the document. Thank you 200708024757 - CL203 Page 1 of 1 PHARMACEUTICAL TECHNOLOGIES, INC.® PHARMACY BENEFITS ADMINISTRATION AGREEMENT This Pharmacy Products and Services Benefits Administration Agreement is made and entered into as of the _ day of 200_, by and between Pharmaceutical Technologies, Inc., a Nebraska corporation ("PTI"), and , a ("Company"). WITNESSETH WHEREAS, PTI has developed the pharmacy benefit management system under which National Pharmaceutical Services® (a division of PTI®) provides for the administration and delivery of Pharmacy Products and Services through a network of pharmacies (such system is referred to herein as the "NPS System"); [Option 1 Employer Group] [WHEREAS, Company has a Plan that offers a Pharmacy Products and services benefit;] [Option 2 TPAJ [WHEREAS, Company provides administrative services for one or more Plans offering Pharmacy Products and Services as a benefit;] WHEREAS, Company desires to utilize the NPS System in connection with the delivery of Pharmacy Products and Services to Members of the Designated Plans; and WHEREAS, PTI desires to contract with Company to make the NPS System available in connection with the delivery of Pharmacy Products and Services to the Designated Plans. NOW, THEREFORE, in consideration of the foregoing, and in consideration of the covenants and agreements set forth herein, the parties agree as follows: ARTICLE I Definitions For purposes of this Agreement, the following terms shall have meanings as follows: 1.01 "Administrative Services" shall mean all of the services described in Section 2.03 of this Agreement. 1.02 "Agreement" shall mean this Pharmacy Benefits Administration Agreement. ~1rr 1.03 "Average Wholesale Price" or "AWP" shall mean the average wholesale price for a given Prescription Legend Drug or other pharmaceutical product, as published by Facts and Comparisons (MediSpan®), or other generally recognized drug pricing services in the retail prescription drug industry and updated on a weekly basis. 1.04 "Business Day" shall mean Monday through Friday, excluding holidays on which PTI is not open for regular business. 1.05 "Co-payment" shall mean the applicable co-payment, access fee, co-insurance or deductible due from the Member for a Covered Pharmacy Product and Service. 1.06 "Covered Pharmacy Products and Services" shall mean any Pharmacy Products and Services that a Member requests and which are considered as covered or compensable under the terms of the Member's Plan. 1.07 "Designated Plans" shall mean the Plans designated on Exhibit "1" attached to this Agreement, as may be updated from time to time by notice from Company to PTI of the addition or removal of Plans. 1.08 "Drug Utilization Review" or KDUR" shall mean the drug utilization review program used by PTI as described in Section 2.07 and Exhibit "4." ©2004 Pharmaceutical Technologies, Inc. PO BOx 407 PAGE 1 p,~i, managed care concepts Boys Town, NE 68010 1.09 "Effective Date" shall mean the date that the first Designated Plan begins processing through the NPS System under the terms of this Agreement. 1.10 "Formulary" shall mean the proprietary document to PTI which (i) lists various Prescription Legend Drugs, (ii) is provided by PTI to Network Pharmacies, healthcare providers and/or Members for the purpose of guiding and prescribing, dispensing, and reimbursement of Prescription Legend Drugs, (iii) restricts what Prescription Legend Drugs are subject to reimbursement by the Plan to Members and/or Network Pharmacies, and (iv) may determine Co-payments for Covered Pharmacy Products and Services for Members. The Formulary is subject to periodic review by PTI's Pharmacy and Therapeutics Committee. 1.11 "Maximum Allowable Cost" or "MAC" shall mean for drugs obtainable from multiple manufacturers, the reimbursement level for Pharmacy Products and Services for Network Pharmacies as established by PTI. The MAC list is subject to periodic review and modification from PTI to reflect changes in market conditions. 1.12 "Member" shall mean any eligible participant of a Plan Sponsor or eligible dependent of an eligible participant of a Plan Sponsor who is participating in and entitled to receive Pharmacy Products and Services under the Plan of the Plan Sponsor. 1.13 "Member Identification Card" shall mean the identification card provided by PTI or the Plan Sponsor that identifies an individual as a Member covered under a Designated Plan. The Member Identification Card shall display the NPS icon necessary for identification by network pharmacies. 1.14 "NCPDP" shall mean National Council of Prescription Drug Plans. 1.15 "Network" shall mean PTI's nationwide network of Network Pharmacies. 1.16 "Network Pharmacy" shall mean a pharmacy included in the network as described in Section 2.01 of this Agreement. 1.17 "Network Pharmacy Reimbursement Schedule" shall mean the negotiated payment rates for Covered Pharmacy Products and Services for Network Pharmacies as schedule for reimbursement of Network Pharmacies as described in Section 2.03 d. 1.18 "Pharmacy Products and Services" shall mean Prescription Legend Drugs and other products, services and/or supplies normally provided by the Network Pharmacy to the general public in the ordinary course of pharmacy business. 1.19 "Pharmacy and Therapeutics Committee" shall mean a committee composed of physicians and pharmacists that evaluate, appraise, and select products for inclusion or exclusion from the Formulary. The Pharmacy and Therapeutics Committee considers published scientific and clinical data, treatment guidelines, efficacy, adverse events, FDA approved indications, plan utilization, and cost in the evaluation process. 1.20 "Physician" shall mean a doctor of medicine, osteopathy, dental surgery, dental medicine, or podiatry who is legally licensed to prescribe medications within the scope of that license. 1.21 "Plan" shall mean a Plan Sponsor's group insurance plan or health care plan or other employee benefit plan that provides a Pharmacy Products and Services benefit, among other covered services to Members. 1.22 "Plan Sponsor" shall mean an employer, health maintenance organization, self-funded plan, competitive medical plan association, insurance carrier, trust fund, or other organization that provides a Plan to Members. ~r- ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 2 p,~i, managed care concepts Boys Town, NE 68010 1.23 "Prescription Legend Drug" shall mean any medicinal substance the label of which is required to bear the legend - "Caution: Federal Law prohibits dispensing without prescription," as defined under the Federal Food Drug and Cosmetic Act. 1.24 "Prior Authorization" shall mean the process as described in Section 2.08 by which a Pharmacy Product and Service that is not covered and the terms of the Member's Plan is determined to be a Covered Pharmacy Product and Service. 1.25 "Usual and Customary Charge" shall mean the proprietary and confidential chazge associated with Pharmacy Products and Services which a Network Pharmacy would have charged a Member receiving benefits pursuant to this Agreement if such Member was not covered by a Plan. This value is submitted to the NPS system by the Network Pharmacy in the NCPDP field defined as Usual and Customary. ARTICLE II PTI Responsibilities 2.01 Establish network of pharmacies. PTI shall contract with and maintain a network of pharmacies to provide Covered Pharmacy Products and Services to Members and shall maintain, regularly update, and make available to Company via web access (or other electronic means) the names and locations of the Network Pharmacies. Company agrees that Network Pharmacies may elect to participate or not participate in the Network on a Plan-by-Plan basis. 2.02 Delivery of Covered Pharmacv Products and Services. PTI shall make arrangements for PTI Network Pharmacies to provide Covered Pharmacy Products and Services to Members of a Designated Plan upon a Member's presentation of a Member Identification Card, which has not been deactivated. 2.03 Administrative services. PTI will provide administrative services as follows: a. PTI shall enter Plan specifications and Member eligibility information received from Plan Sponsor into the NPS System. The information entered into the system will be considered correct unless notified by Plan Sponsor that corrections need to be made. b. PTI shall verify a Member's eligibility to receive Covered Pharmacy Products and Services upon a Member's request for Pharmacy Products and Services presented to a Network Pharmacy. c. PTI shall verify whether a Pharmacy Product and Service is a Covered Pharmacy Product and Service upon a Member's request for Pharmacy Products and Services from a Network Pharmacy. d. PTI shall require Network Pharmacies to provide Covered Pharmacy Products and Services to Members in accordance with the Network Pharmacy Reimbursement Schedule attached as Exhibit " 2," as amended from time to time. e. PTI shall require Network Pharmacies to collect required Co-payments for Covered Pharmacy Products and Services provided to Members. f. PTI shall coordinate the delivery to Company of claims reimbursement requests by Network Pharmacies for Covered Pharmacy Products and Services in accordance with the Plan Payment Schedules. g. PTI shall arrange for mail order pharmacy services if mail order prescriptions are part of the Plan. PTI's affiliated pharmacy, Integrated HMO PharmacyTM, or one of PTI's regional mail order pharmacies will provide mail order pharmacy services as designated by Plan Sponsor. ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 3 Boys Town, NE 68010 p•ti. managed care concepts h. PTI shall process and issue two (2) Member Identification Cards to Members of a Designated Plan upon written request by Company and shall deactivate Member Identification Cards for a Member upon request by Company. Member Identification Cards shall be issued and deactivated not more than five (5) Business Days following PTI's receipt of a request from Company. Initial Member Identification Cards at group start-up will be bulk mailed at no cost to the Plan Sponsor location. If the Plan Sponsor desires to have Member Identification Cards shipped directly to Members or alternative locations, the Plan Sponsor will be charged for the associated mailing costs. i. PTI shall require Network Pharmacies to maintain appropriate documentation to support claims for Covered Pharmacy Products and Services. j. PTI shall maintain all data and processing information pertaining to claims for Covered Pharmacy Products and Services for a period of no less than six (6) years from the date on which the claim for Covered Pharmacy Products and Services is submitted to PTI by a Network Pharmacy. k. PTI shall maintain atoll-free help desk for Members and Network Pharmacies to answer inquiries concerning Covered pharmacy Products and Services. 2.04 Subrogation claims. PTI will assist Company in processing any lawful subrogation claims that Company may have against a Member. 2.05 Formulary. PTI shall maintain and implement a Formulary as part of the NPS System. 2.06 Formulary Savings/Rebate program. PTI may implement a Formulary savings/rebate program for Designated Plans that utilize the PTI Formulary. Company and/or Designated Plans shall be eligible for the Formulary savings and/or rebates as described in Exhibit " 3," upon meeting the following requirements of the program. The Plan Sponsor's eligibility to receive Formulary savings/rebates is based upon: (i) the provisions of ~`1w-; the Plan Sponsor's drug benefit design, the implementation of the PTI's Formulary and/or a differential Co-payment system depending on the Formulary status of a medication as designated by the Pharmacy and Therapeutics Committee of PTI; (ii) conformance to the PTI Formulary; and (iii) the provisions of PTI contracts with pharmaceutical manufacturers. The Plan Sponsor understands that its eligibility to receive payments for Formulary savings/rebates may change over time. The Plan Sponsor also understands that changes in its drug benefit program, changes in PTI contracts with pharmaceutical manufacturers, or the selection of certain services, such as Prior Authorization, or open Formulary management may disqualify the Plan Sponsor from eligibility or limit the Plan Sponsor's eligibility to receive Formulary savings/rebates. 2.07 Drug Utilization Review. PTI shall provide the Drug Utilization Review services described in Exhibit "4" as part of the NPS System. PTI may deny payment for claims to the extent the information received is not sufficient to allow for PTI DUR Services. PTI will transmit DUR messages to Member Pharmacies. PTI's DUR process is not intended to substitute for the professional judgment of the prescriber, the dispensing Network Pharmacy, or any other healthcare professional providing services to the Member. Furthermore, the DUR process depends, in part, on clinical drug data and information on dispensing practices provided to PTI by third party vendors, and is limited to certain drugs and certain analytical criteria that are established by PTI from time to time. Accordingly, PTI assumes no liability to Plan Sponsor or any other person in connection with the DUR process, including, without limitation, the failure of the DUR process to identify a prescription that results in injury to a Member. 2.08 Prior Authorization. PTI will provide Prior Authorization services for Plans that may be administered in one of two ways: a) "Client Directed Prior Authorizations" are provided to the Plan Sponsor at no charge. Under this method of administration, the Plan Sponsor is responsible for the approval and/or denial of requests received by Members to cover excluded Pharmacy Products and Services. The Plan is responsible ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 4 Boys Town, NE 68010 P•~I• managed care concepts for providing approvals to PTI. PTI will provide the necessary forms or Web tools to the Plan Sponsors designated review team. b) "Managed Prior Authorizations." Upon request of the Plan Sponsor and for additional fees as set forth in Exhibit " 3," PTI shall implement managed Prior Authorizations, which would cover those Pharmacy Products and Services designated by the Plan Sponsor in Exhibit "5." Such Pharmacy Products and Services must be prior authorized before such Pharmacy Products and Services are deemed Covered Pharmacy Products and Services. The criteria for coverage of these Pharmacy Products and Services would be those of approved FDA indications and uses generally accepted in the medical literature, which criteria are incorporated into the Prior Authorization protocols developed by PTI's Pharmacy and Therapeutics Committee. The protocols also incorporate specific criteria to Members with specific disease states, co-morbid conditions, concomitant lab tests or other specific medical conditions. In determining whether to authorize dispensing of such Pharmacy Products and Services under Managed Prior Authorization, PTI may rely entirely upon information about the Member and the diagnosis of the Member's condition provided to it from sources deemed reliable to PTI at the time that Pharmacy Products and Services are to be dispensed, and upon such Prior Authorization protocols. Sponsor acknowledges that Prior Authorization programs are non-discretionary processing techniques intended to provide better management of the Prescription Drug Program based on objective criteria and the limited amount of patient information available to PTI. PTI shall not undertake, and is not required hereunder, to determine medical necessity, appropriateness of therapies, to make diagnosis or substitute PTI's judgment for the professional judgment and responsibility of the Physician or healthcare provider. Company shall indemnify and hold harmless PTI, its employees, directors, officers, and agents from and against any and all awards, losses, claims, suits, damages, liability, judgments, fines, penalties, settlement amounts, and expenses, including reasonable attorneys arising from or as a result of PTI's decision to authorize or deny coverage of any such Pharmacy Product and Service in accordance with the protocols, except to the extent that any such awards, losses, claims, suits, damages, liability, judgments, fines, penalties, settlement amounts, and expenses, including reasonable attorney fees arise from PTI's gross negligence or willful misconduct. ARTICLE III Company Responsibilities err' 3.01 Plan design information. Prior to the Effective Date, Company shall provide PTI, in a format approved by PTI, information regarding each Designated Plan's drug benefit design. Company shall be required to approve a PTI Group Spec Form to certify that the Plan has been accurately set up according to the Plan Sponsor's drug benefit design. Company shall be solely responsible for any liability in connection with the Plan Sponsor's drug benefit design. If the Company decides to change the benefit design for any Designated Plan after initial set- up, changes must be requested in writing to PTI. Such changes may include deductibles, Co-payments, covered drugs, and Prior Authorization requirements. PTI will review the requested changes and provide Company with an updated PTI Group Spec Form for signature or inform the Company that the requested changes cannot be implemented. PTI will notify the Company at the time of request if any additional fees would be associated with the requested changes. The requested changes will not take effect until the Company has signed off on the design change and acknowledged the additional fees, if applicable. The Company acknowledges that it will be solely responsible or otherwise liable for costs or other damages for failing to notify PTI of a drug benefit design change. 3.02 Member elieibility information. Company shall deliver to PTI, prior to the Effective Date, a list of eligible Members under each Designated Plan, which list shall include information sufficient for PTI to issue Member Identification Cards to the eligible Members and process claims under this Agreement. Such Member listing shall be in an electronic or written format as from time to time designated by PTI; such format shall satisfy 451 CFR Part 162.1502: ASCX 12N 834. Company shall notify PTI of any additional Members that are eligible to participate in a Designated Plan and of the termination of any Member's eligibility to participate in a Designated Plan. Notwithstanding the termination of a Member's eligibility to receive benefits under a Designated Plan, Company acknowledges that it remains responsible for all claims submitted by Network Pharmacies for Covered Pharmacy Products and Services prior to the updating of PTI's database, but not more than five (5) Business Days ©2004 Pharmaceutical Technologies, Inc. PO BOX 407 PAGE 5 p,~~, managed care concepts Boys Town, NE 68010 ``r' following PTI's actual receipt of a proper notice of the termination of a Member's eligibility to participate in a Designated Plan. 3.03 Plan Formularies. Company shall use the PTI Formulary for each Designated Plan, which is referred to herein as the Applicable Plan Formulary. The Applicable Plan Formulary may be modified or updated from time to time by PTI, or by Company with ninety (90) days prior written notice to PTI. In the event that Company elects to modify the PTI Formulary for a Designated Plan: (i) PTI may elect not to provide clinical and financial support services for Physicians and Members with respect to the modified Fonnulary, and (ii) Company shall be responsible for providing PTI and the Plan Members with contact information for clinical support services if PTI elects not to provide such services. Company agrees that its right to use the Formulary is limited to the use of the Formulary in connection with each Designated Plan. Company further agrees that, except in connection with such limited use, it shall not copy, distribute, sell or otherwise provide the Formulary to any third party without PTI's prior written approval. Upon termination of this Agreement, Company shall cease all use of the Formulary and shall destroy or return to PTI all copies in it's or a third party's possession. Upon PTI's request, Company shall provide proof to PTI that it has complied with the terms and conditions of this Section. 3.04 Formulary Savings/Rebate program. Company agrees and acknowledges that neither Company nor the Designated Plans may contract directly or indirectly with any person or entity for Formulary savings/rebates for claims processed by PTI under this Agreement, and that in addition to any other limitations specified in this Agreement or exhibits hereto, Company and/or Designated Plan's right to Formulary savings/rebates is contingent upon compliance with this restriction. In the event that Company negotiates or arranges Formulary savings/rebate programs without the expressed written consent of PTI, PTI may immediately terminate Company's participation in Formulary savings/rebates as described in Exhibit " 3," and may exercise its rights following a material default under Section 5.02 of this Agreement. In the event of a termination of Company's rights to participate in Formulary savings/rebates or termination of this Agreement, PTI shall be entitled to retain one hundred percent (100%) of any and all Formulary savings/rebates which may have accrued but have not been remitted to Company as of the effective date of termination. Company further acknowledges that pharmaceutical manufacturers may discontinue payment of Formulary savings/rebate Programs at will; that laws governing prescription drug pricing (including Formulary savings/rebates) may change; and that Formulary Savings/Rebates are affected by Physician prescribing and other factors. 3.05 Miscellaneous Plan services. Company shall be responsible for providing any and all other Plan services required by the Designated Plan and Plan Sponsor which are not specifically delegated to PTI by this Agreement. 3.06 Online Access. Subject to and only in accordance with the terms and conditions set forth in the Online Access Agreement attached hereto as Exhibit "6", Company may have access to PTI's electronic claims processing facilities to view and use information and services to be provided by PTI under this Agreement. In the event of any conflict between the terms of this Agreement and the attached Online Access Agreement, the terms of the Online Access Agreement shall apply with respect to the ECPF as contemplated by the Online Access Agreement. ARTICLE IV PTI Compensation and Payment Terms 4.01 Payments to PTI. Company shall pay PTI administration fees based upon the Schedule of Fees attached hereto as Exhibit " 3." 4.02 Timing of pharmacy billing invoice payments. PTI shall bill on a weekly basis and Company shall accept the processed claims for Covered Pharmacy Products and Services submitted by PTI or Network Pharmacies and shall issue payment for such claims to PTI or the Network Pharmacy within 48 hours of receipt of a pharmacy claim invoice from PTI. Any amounts not paid by the due date shall bear interest at the rate of eighteen percent (18%) per annum (1.5% per month) or, if lower, the highest interest rate permitted by law. If Company '~r% ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 6 Boys Town, NE 68010 P•~I• managed care concepts disputes any item on an invoice, Company shall pay the full amount owed and shall notify PTI of the disputed amount within thirty (30) days of the date of invoice. 4.03 Timing of administration billing invoice nayments. Payments owed to PTI under Section 4.01 of this Agreement shall be remitted by Company within ten (10) Business Days of receipt of an administration fee invoice from PTI. 4.04 Form of payment. All payments to PTI by Company shall be made by electronic funds transfer to such bank account or accounts as may from time to time be designated by PTI. 4.05 Deposit. In the event Company is delinquent in payment of pharmacy and/or administration fee invoices for two consecutive months, PTI shall have the option to require Company to provide PTI a deposit in an amount equal to the average monthly invoice amount for the previous six (6) months. PTI shall retain the deposit until the termination of this Agreement and in the event Company is delinquent in future payments, may offset payments against such deposit without prior notice to Company. 4.06 Collections of Fees and Co-payments. In the event that a Plan should fail to provide timely reimbursement or payment of claims under this Agreement or in the event that specific Plan Members fail to make required Co-payments, Company shall use all reasonable efforts to coordinate the collection of such fees and/or Co- payments. Company acknowledges the right of PTI and the Network or mail order Pharmacies to suspend Plans or individual Plan Members for the failure to pay claims, fees or Co-payments. 4.07 Network Fees. Company acknowledges that there may be arrangements with Network Pharmacies or with other providers or suppliers of Pharmacy Products and Services, including drug manufacturers or suppliers, under which PTI or its affiliates may receive payment from those providers or suppliers in return for services. Company further acknowledges that PTI may be entitled to or may retain a portion of the amounts that are paid by such providers or suppliers as a fee for PTI's services in establishing, maintaining and operating the v Network and for PTI's services provided under this Agreement. In no event shall PTI have any obligation to disclose such fees or fee schedules to Company. ARTICLE V Term of Agreement 5.01 Term and renewal. The term of this Agreement shall commence on the Effective Date first above written, and shall continue for an initial term of one (1) year. Thereafter, this Agreement will automatically renew each year for successive one (1) year terms, unless notice of termination is delivered by PTI or Company at least sixty (60) days before the end of the then current term. 5.02 Termination for default. In the event of any failure of PTI or Company to perform any of the material terms, conditions or covenants of this Agreement for more than thirty (30) days after written notice delivered to the party in default, then in such event, the non-defaulting party, in addition to other rights or remedies it may have, shall have the right to immediately terminate the term of this Agreement, provided, however, that the termination of the term of this Agreement shall not relieve the parties of their duties and obligations which have accrued up to the date of termination. Notwithstanding the foregoing, in the event that Company defaults in its obligation tq remit payments in the times as required by Section 4.02 or Section 4.03 of this Agreement, and such failure continues for seven (7) Business Days following written notice of nonpayment by PTI, then PTI, in its sole discretion, may immediately cease performance of all of its obligations under this Agreement as pertains to the Designated Plans for which fees under Section 4.02 have not been paid, and in respect to all Designated Plans if the nonpayment relates to fees owed to PTI under Section 4.03, until full payment has been received by PTI and Company has provided PTI with assurances satisfactory to PTI that future payments under Section 4.02 or Section 4.03, as the case may be, will be remitted within the applicable time periods. ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 7 Boys Town, NE 68010 P•~~ managed care concepts 5.03 Termination upon insolvency. Either party may terminate the term of this Agreement upon the filing by or against the other party of a petition in bankruptcy under the Federal Bankruptcy Act if such filing is not dismissed within thirty (30) days, or if the other party affirmatively seeks relief under any other law or act regarding insolvency, reorganization, or arrangement or extension for the relief of debtors, including an assignment of assets for the benefit of creditors, or if there is an appointment of a receiver or trustee for transfer or sale of a material portion of the other party's assets. 5.04 Termination resulting_from change in laws. In the event PTI's performance of its duties under this Agreement is made materially more burdensome or expensive, or its duties required under this Agreement are materially changed due to amendments, modifications or changes in federal, state or local laws, regulations or rules during the term of this Agreement, in such event, PTI shall deliver notice to Company of such circumstances. If PTI and Company cannot agree on adjustments to the fees to be paid to PTI within thirty (30) days following PTI's delivery of notice to Company, then PTI may terminate this Agreement upon thirty (30) days notice to Company. 5.05 Effect of termination. In the event of termination of this Agreement, such termination shall not relieve either party from the performance of duties and obligations that accrued prior to the effective date termination, including, without limitation, the responsibility of Company for the reimbursement of claims and the payment of fees to PTI. ARTICLE VI Indemnification 6.01 Indemnification. Subject to the limitations of Section 7.07, Company and PTI each agree to indemnify and hold harmless the other party and their respective officers, directors, employees, and agents, from and against any and all claims, liabilities, damages, or expenses, including reasonable attorney fees, to the extent permitted by law, arising from any of its or its employees or agents negligent or intentional wrongful acts or omissions to act. ARTICLE VII Miscellaneous 7.01 No joint venture. This Agreement shall not be deemed to create a partnership, association, joint venture or other similar arrangement between PTI and Company, the intent of this Agreement being that both PTI and Company shall be and shall remain independent contractors for purposes of the performance of their respective obligations under this Agreement. 7.02 Notices. Any notice, designation, consent or approval required or permitted hereunder shall be made in writing and delivered personally or mailed by reputable overnight carrier or by certified mail, return receipt requested, addressed to the parties as hereinafter specified. Any notice forwarded by overnight courier shall be deemed to have been received, delivered or given to the other party the next Business Day following deposit with such overnight courier, or if forwarded by certified mail in accordance with the terms of this Section, shall be deemed to have been received, delivered, or given to the other party three (3) Business Days following the date of mailing. Addresses, for purposes of this Agreement, unless otherwise designated in a subsequent written notice, are as follows: PTI: Pharmaceutical Technologies, Inc. Attn.: Chief Financial Officer Post Office Box 407 Boys Town, NE 68010 `fir ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 8 p,~I, neanaged care concepts Boys Town, NE 68010 COMPANY: 7.03 Proprietary Rights. Company acknowledges that PTI is the owner of the exclusive rights to the names "Pharmaceutical Technologies, Inc.," "National Pharmaceutical Services" and/or any other name or names used or developed by PTI in conjunction with the NPS System, together with any distinctive trademark and/or any service mark that may hereafter be adopted, and to any trade secrets and other information of any kind with respect to the NPS System including, but not limited to, operating procedures, manuals, forms, Plan data sheets, computer software (herein the "NPS System names, marks, and information"). Company agrees that the NPS System names, marks and information, are proprietary to PTI and shall not be used by Company or its owners or employees, or otherwise disclosed in any way to third parties, without the prior written consent of PTI first having been obtained. Any new product developments, forms or improvements of the NPS System during the term of this Agreement shall be the property of PTI and shall be deemed part of the NPS System, names, marks and information. Upon termination of this Agreement, Company will immediately return to PTI: all copies of manuals, forms, Plan data sheets, Plan Payment Schedules, Plan Formularies and other documentation which is the property of PTI. This provision shall survive the termination of the term of this Agreement. 7.04 Force Majeure. The duties and obligation of each party to this Agreement are limited in the event of circumstances beyond their control, such as a major disaster, epidemic, war, complete or partial destruction of facilities, disability of a significant number of personnel, significant labor dispute and acts of God. In such an event, the parties hereto agree to use their best efforts under the circumstances to fulfill their duties and obligations under this Agreement by whatever reasonable means are available. 7.05 Confidentiality. Except as otherwise specifically provided in this Agreement, parties to this Agreement each covenant that they shall keep the information and data generated during the course of this Agreement, and the terms and conditions of this Agreement, strictly confidential and shall not distribute copies of this Agreement or disclose the terms and conditions of this Agreement to any person or entity. As an exception to the foregoing, and to the extent not prohibited by applicable federal and state laws, rules or regulations, including without limitation the regulations regarding the privacy of individually identifiable health information adopted under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), PTI shall be entitled to use or disclose (1) all aggregate data and other de-identified protected health information generated during the term of this Agreement for purposes of Drug Utilization Review, Formulary development, or to otherwise develop and enhance its services hereunder, and as may be necessary or appropriate to secure rebates or reimbursements from drug manufacturers, and (2) all PHI received from Company for the purposes described in, and pursuant to the terms of, any authorization or consent, if necessary, that Company may obtain from a Member under section 7.06 of this Agreement. As a further limited exception to the foregoing, either party may distribute copies of this Agreement or disclose the terms and conditions of this Agreement under the conditions as follows: a. This Agreement and the terms and conditions of this Agreement may be disclosed to the parties' legal and tax advisors; b. This Agreement and the terms and conditions of this Agreement may be disclosed as may be necessary or appropriate to enforce the terms of this Agreement or as may be directed by binding court order or subpoena; and c. This Agreement and the terms and conditions of this Agreement may be disclosed as may be required to prevent them from violating any applicable laws. The confidentiality and nondisclosure obligations of the parties shall survive the termination of this Agreement. 7.06 HIPAA Compliance. PTI and Company acknowledge that PHI will be disclosed to PTI pursuant to this Agreement. It is contemplated that PTI will be able to use and disclose a Member's PHI in order to (1) obtain premiums, determine or fulfill a Plan Sponsor's responsibility for coverage and provision of benefits under a ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 9 Boys Town, NE 68010 P~~~ managed care concepts Plan (including the coordination of benefits or the determination of cost sharing amounts), or adjudicate claims; (2) provide reimbursement for the provision of Pharmacy Products and Services to the Member; (3) conduct utilization review activities; (4) conduct quality assessment and improvement activities, including outcomes management; (5) review and evaluate a Plan Sponsor's qualifications and performance; (6) contact health care providers with information about treatment alternatives; (7) engage in cost-management analyses, including Formulary development and administration; (8) provide PHI to Members on behalf of Plan Sponsor; (9) provide PHI to Member physicians and pharmacists for payment, treatment and healthcare operations purposes; (10) perform data aggregation services on behalf of Plan Sponsor as permitted by 45 CFR 164.504(e)(2)(i)(B); (11) perform administrative, management, or legal activities as set forth in this Agreement; (12) comply with any legal obligations, federal and state laws, and/or health and human service requirements; (13) conduct or perform research and satisfy research objectives and goals; and (14) remove identifiers from PHI and use or disclose such de- identified information as permitted by law and this Agreement. a. Definitions. Capitalized terms not otherwise defined shall have the meaning ascribed to them in this Agreement or in the Privacy Rule: (i) "Business Associate" shall have the meaning given to such term under the Privacy Rule, including, but not limited to, 45 CFR Section 160.103. (ii) "Covered Entity" shall have the meaning given to such term under the Privacy Rule, including, but not limited to, 45 CFR Section 160.103. (iii) "Data Aggregation" shall have the meaning given to such term under the Privacy Rule, including, but not limited to, 45 CFR Section 164.501. (iv) "Designated Record Set" shall have the meaning given to such term under the Privacy Rule, including, but not limited to 45 CFR Section 164.501. (v) "Health Care Operations" shall have the meaning given to such term under the Privacy Rule, including, but not limited to 45 CFR Section 164.501. (vi) "Privacy Rule" shall mean the HIPAA Regulation that is codified at 45 CFR Parts 160 and 164. (vii) "Protected Health Information" or "PHI" means any information, whether oral or recorded in any form or medium: (1) that relates to the past, present or future physical or mental condition of an individual; the provision of health care to an individual; or the past, present or future payment for the provision of health care to an individual; and (2) that identifies the individual or with respect to which there is reasonable basis to believe the information can be used to identify the individual, and shall have the meaning given to such term under the Privacy Rule, including, but not limited to, 45 CFR Section 164.501. As a business associate of Company, PTI and Company agree as follows: i. PTI shall not use or disclose PHI received from Company other than as permitted or required by this Agreement or law; PTI will disclose only the minimum necessary in accordance with the Privacy Rule. ii. PTI agrees to use reasonable safeguards to prevent use or disclosure of PHI other than as provided for by this Agreement. iii. PTI agrees to mitigate, to the extent practicable, any harmful effect that is known to PTI of a use or disclosure of PHI by PTI in violation of the requirements of this Agreement. ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 10 Boys Town, NE 68010 p•ti. managed care concepts iv. If PTI delegates any of its functions, activities, or services under this Agreement to an agent, including a subcontractor, and such delegation involves a disclosure of PHI received from, or created or received by PTI on behalf of, Company, then PTI shall take appropriate measures to ensure that the agent agrees to the same restrictions and conditions to which PTI is subject under this Agreement with respect to such information. v. PTI shall make PHI that it maintains available (for a reasonable cost-based fee) to the Members to whom it relates, subject to the restrictions and requirements of 45 C.F.R. § 164.524. PTI shall also make such information available to such Members for purposes of amendment, and shall incorporate any amendments, subject to the restrictions and requirements of 45 C.F.R. § 164.526. PTI shall also furnish, to a Member who makes a request, an accounting of PTI's uses and disclosures of that Member's PHI from and after the effective date of this Agreement, during the six-year period prior to the date on which the Member requests the accounting, subject to the restrictions and requirements of 45 C.F.R. § 164.528. Each Member shall be entitled to one report of PTI's accounting per year commencing on the effective date of this Agreement and the anniversary of such date thereafter at no cost; any additional requests for a report of accountings during such year shall be subject to a reasonable cost-based fee. vi. PTI agrees to make its internal practices, books, and records that relate to the use and disclosure of PHI received from, or created or received by PTI on behalf of, Company available to the Department of Health and Human Services within ten (10) business days after written notice for purposes of determining Company's compliance with the Privacy Rule. vii. Because PTI must maintain PHI received from Company for audit purposes, it is infeasible for PTI to either destroy such information or return it to Company upon the termination of this Agreement. Therefore, PTI shall extend the terms of this Agreement to such information and limit further uses and disclosures to those related to the conducting of audits of such information until such information has been destroyed. viii. PTI agrees to notify Company if PTI has knowledge that PHI has been used or disclosed by PTI in a manner that violates applicable law within ten (10) business days of becoming aware of such use or disclosure. ix. PTI shall provide access (for a reasonable cost-based fee), upon written request of Company, to PHI in a Designated Record Set, to Company or, as directed by Company, to a Member in order to meet the requirements under 45 CFR Section 164.524. PTI and Company agree that the information contemplated to be provided to Company under this section shall only be such information contained in the explanation of benefits report provided by PTI. x. To the extent required by Network Pharmacy, PTI shall make any amendment(s) to PHI in a Designated Record Set that Company directs or agrees to pursuant to 45 CFR Section 164.526, at the request of Company or an Individual, and in the time and manner designated by Company. If a Member requests an amendment of PHI directly from PTI, PTI will notify Company in writing within ten (10) business days of receiving such request. xi. Company shall: (1) provide PTI with the notice of privacy practices that Company provides to its customers in accordance with 45 CFR 164.520, as well as any changes to such notice; (2) provide PTI with any changes in, or revocation of, permission by an Individual or the Individual's Personal Representative, to use or disclose PHI, if such changes affect PTI's permitted or required uses and disclosures; (3) notify PTI of any restriction to the use or disclosure of PHI that Company has agreed to as well as requests for confidential communication by alternative means and at alternative locations all in accordance with 45 CFR 164.522; (4) not request PTI to use or disclose PHI in any manner that exceeds that which is minimally necessary or that would not be permissible under the Privacy Regulations if done by Company; (5) provide PTI with any amendments to PHI that Company has agreed to pursuant to 45 ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 11 BOys Town, NE 68010 p.ti. managed care concepts CFR 164.526; and (6) not to de-identify any PHI created by or received from or on behalf of PTI, unless such de-identification is expressly authorized by PTI in writing prior to such de-identification.. c. Chain of Trust. PTI and Company agree to protect the integrity and confidentiality of any PHI electronically exchanged between them and other appropriate business associates, if any. d. PTI and Company agree that in the event of any changes, modifications or amendments to HIPAA or the Privacy Rules, they will cooperate in executing any amendments to this Agreement that are necessary for the parties to maintain compliance with HIPAA and the Privacy Rules. If the parties fail to agree on reasonable amendments to the provision in this Section 7.06, either party may terminate this Agreement upon sixty (60) days written notice to the other. 7.07 LIMITATION OF WARRANTIES AND DAMAGES. EXCEPT FOR WARRANTIES AS SPECIFICALLY PROVIDED IN TffiS AGREEMENT, PTI MAKES NO WARRANTY, EXPRESSED OR Il14PLIED, INCLUDING ANY Il4IPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AS TO THE SERVICES AND PRODUCTS TO BE PROVIDED BY PTI TO COMPANY PURSUANT TO THIS AGREEMENT. ]IN NO EVENT SHALL EITHER PTI OR COMPANY BE LIABLE TO THE OTHER PARTY UNDER THIS AGREEMENT, BY REASON OF ANY HIPAA VIOLATION, TORT, BREACH OF CONTRACT OR WARRANTY, INDEMNIFICATION OR OTHER LEGAL LIABII.1[TY THEORY, FOR PROSPECTIVE, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY, PUNITIVE, INDIRECT OR SPECIAL DAMAGES, ECONOMIC LOSS, LOSS OF PROFITS OR SIl~IILAR DAMAGES SUFFERED BY THE NONDEFAULTING PARTY ARISING OUT OF A BREACH OR DEFAULT IN THE PERFORMANCE OF THE PARTIES' RESPECTIVE OBLIGATIONS UNDER THIS AGREEMENT. 7.08 Assi ng ment. This Agreement is personal to the parties and may not be assigned by either party except by written agreement signed by the parties. Any attempt to assign, transfer, pledge, or hypothecate, or make any other disposition of this Agreement, or any of the rights, obligations, or benefits contrary to the foregoing shall be null and void and without effect. Subject to the restrictions against unauthorized assignment or transfer set forth herein, the provisions of this Agreement shall inure to the benefit of and be binding upon each of the parties and their respective successors and assigns. Notwithstanding the foregoing, PTI shall have the right to assign this Agreement to any parent or subsidiary corporation of PTI, or to any entity which, by way of merger, acquisition, or other similar transaction, succeeds to the rights of PTI. 7.09 Amendment. This Agreement contains the entire agreement between the parties, and may only be amended or modified by written instrument signed by the parties. The partial invalidity of any provision of this Agreement shall not invalidate or affect the validity of the remaining provisions of this Agreement. If any provision of this Agreement is deemed invalid or unenforceable, this Agreement shall remain in full force and effect as if such invalid or unenforceable provision were omitted. 7.10 Waiver. No failure by either party to require the performance by the other party of any of the terms of this Agreement shall in any way affect such party's rights to enforce such terms, nor shall any waiver on any one occasion be deemed a waiver of any other term hereof, or subsequent breach thereof. No right under this Agreement may be waived and no modification or amendment to this Agreement may be made except by written agreement executed by the parties. 7.11 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the respective parties' rights under this Agreement, shall be settled by arbitration. Such arbitration shall be in accordance with the rules of the American Arbitration Association, and judgment upon the award may be entered in any court of competent jurisdiction. The prevailing party in such arbitration and any ensuing legal action shall be reimbursed by the party who does not prevail, for the reasonable attorneys, accountants, and expert fees and the costs of such actions. ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 12 Boys Town, NE 68010 p.bi. managed care concepts 7.12 Applicable law. This Agreement shall be construed, interpreted, and governed by the laws of the State of Nebraska. Time is of the essence for the purposes of this Agreement. 7.13 No third party beneficiary. Nothing express or implied in this Agreement is intended to confer, upon any person other than Company, PTI, and their respective successors and assigns, any rights, remedies, obligations or liabilities whatsoever. 7.14 Exhibits. The following exhibits are made a part of and incorporated in this Agreement as if fully set forth herein: Exhibit "1" Designated Plans Exhibit " 2" Network Pharmacy Reimbursement Schedule Exhibit " 3" Schedule of Fees Exhibit "4" Drug Utilization Review Exhibit "5" Prior Authorization Services Exhibit "6" Pharmaceutical Technologies, Inc. ®Online Access Agreement IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the date and year first above written. PHARMACEUTICAL TECHNOLOGIES, INC., a Nebraska Corporation By: Title: Corporation By: Title: a ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 13 Boys Town, NE 68010 p.ti. managed care concepts ~rr+ EX~IIBIT "1" DESIGNATED PLANS Plan Name: Plan Sponsor: Plan Administrator: ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 14 Boys Town, NE 68010 p•~~. managed carecancepts EI~~IT " 2» NETWORK PHARMACY REIlI~IIBURSEMENT SCHEDULE The pricing formula to the Network Pharmacy is as follows: A. Community Pharmacy Based Stores are priced follows: 1. Brand equals AWP - _% + $ filling fee. 2. Brand with Generic equals AWP - _% + $ filling fee. 3. Generic equals AWP - _% + $ filling fee or MAC + $ filling fee. B. National Pharmacy Stores are priced as follows: 1. Brand equals AWP - _% + $ filling fee. 2. Brand with Generic equals AWP - _% + $ filling fee. 3. Generic equals AWP - _% + $ filling fee or MAC + $ filling fee. C. Mail Order fills are priced as follows*: 1. Brand equals AWP - _% + $ filling fee per month. 2. Brand with Generic equals AWP - _% + $ filling fee per month. 3. Generic equals MAC + $ filling fee per month. *Mail Order Pharmacy network rates are listed as above with the exception of the following products: Avonex, Betaseron, Enbrel, Copaxone, Rebif, Procrit, Peg-Intron, Roferon-A, Intron-A, Aranesp, Fragmin, Lovenox, Innohep, Epogen, Neupogen which shall be billed on a cost plus basis. ~r ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 15 Boys Town, NE 68010 P•~I• managed care concepW ' EXffiBIT " 3" 5CHEDULE OF FEES A. BASE ADMINISTRATION FEES Option 1: $ per covered Member per month. Paper claims have a fee of $ per paper claim processed. Option 2: $per paid claim processed electronically and $ per paper claim submitted. Option 3: $_~er transaction processed electronically and $ per paper claim submitted. B. ENROLLMENT KIT FEES PTI's standard enrollment kit is designed to provide Members with detailed information regarding their drug benefit program. Materials include two PTI standard membrane member identification cards, National Pharmacy Provider Booklet, Generic/Maintenance Medication Information Sheet, Patient Information Sheet, PTI Formulary, and mail order pharmacy services information and enrollment form (if applicable). If Company elects for PTI to create a Member plan summary document to be included in the enrollment kit, the Company will be billed at a rate of $0.50 per plan summary document. C ADDTTIONAL/REPLACEMENT MEMBER IDENTIFICATION CARDS (SETS OF TWO) $ per standard membrane card set (PTI Standard Card Stock) $ per standard hard plastic card set (PTI Standard Card Stock) D. EXPLANATION OF BENEFTTS/PROOF OF SAVINGS REPORT PTI shall provide to the Member asemi-annual HIPAA compliant record of all Member claims assigned to the Plan. E. CUSTOM FORMULARY MANAGEMENT For Plans that elect not to utilize the PTI Formulary, applicable programming time for the development of a customized Formulary shall apply at a rate of $125 per hour. It is then the Plan's responsibility to provide timely updates to PTI for Formulary updates. Applicable billing time may also apply to Formulary updates whether received electronically or via paper. Plans that do not utilize the PTI Formulary are not eligible for the PTI Formulary Savings Program. F. PRIOR AUTHORIZATIONS Client directed Prior Authorizations are included in base administration fees. Managed Prior Authorizations shall be administered as described in Exhibit "5." Additional fees for managed Prior Authorizations can be paid either to PTI by the Company in administration fees as noted below: $1.50 per paid claim that required managed Prior Authorizations services. $10 per requested authorization (approved or denied) per protocol approval time. $25 per approved authorization per protocol approvable time. or by the member, with an additional $5 added to the Member co-payment on all applicably designated Pharmacy Products and Services that required managed Prior Authorization services. SELECTED ADMII~TISTRATION METHOD G. FORMULARY SAVINGS/REBATES PROGRAM Company or the Designated Plan, as directed by Company, shall be entitled to seventy-five percent (75%) of the net Formulary savings and rebate funds received for Designated Plans utilizing the PTI Formulary, with the balance payable to PTI. Company acknowledges that the ability of PTI to secure Formulary savings or rebates from pharmaceutical ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 16 p,~~, managed care concepts Boys Town, NE 68010 ~ manufacturers may be modified or eliminated from time to time for reasons, including, but not limited to, the following: (i) failure to utilize the PTI Formulary; (ii) changes in applicable laws; (iii) modification of PTI agreements with pharmaceutical manufacturers; (iv) discontinuance of programs by drug manufacturers; and (v) the election of Company or a Designated Plan not to utilize programs offered by PTI. H. REPORTING Standard Reporting A standard package of reports that PTI produces and makes available includes the reports described below, which are cumulatively known as the "Snapshot." The Snapshot will be made available to Company in an electronic format. The Snapshot report includes the following: Report Name Frequency Brief Description Produced 1. Program Savings and Semi-Annually This report outlines the total plan savings and net effective discount for the Utilization Summa lan as well as avera a utilization numbers and costs. 2. Census Track and Age Band Semi-Annually Outlines group census information for employee coverage and delineates to Utilization Reporting family and single coverage employees with projected monthly and yearly funding levels. Additionally age band and sex utilization with average PMPMs is resented. 3. Maintenance therapy and Semi-Annually Summarized Maintenance versus non-maintenance therapy utilization in the Mail-Order Utilization plan's population as well as present summary statistics for mail-order services. Summa Statistics 4. Brand and Generic Semi-Annually Delineates prescription utilization (volume and dollars) based on brand with Utilization generic available, brand, and generic utilization. Also presents average plan, cost, and total cost for each classification. 5. Preferred Drug List Semi-Annually Delineates prescription utilization (volume and dollars) based on tier status. Utilization Also resents avera a lan, cost and total cost for each classification. 6. Top Ten Therapeutic Drug Semi-Annually Presents total dollars and PMPM contributions of the Top ten therapeutic Classes classifications ofinedications utilized within the lan. 7. Top Twenty Prescription Semi-Annually Displays the top twenty prescriptions dispensed by volume as well as average Dru s Dis ensed costs and ercenta es of utilization. 8. Pharmacy Provider Semi-Annually Depicts the top twenty phannacy providers and compares number of Utilization Summary prescriptions filled, number of members utilizing, as well as generic utilization, eneric substation, and formul com Hance rates. 9. Physician Utilization Semi-Annually Portrays the top twenty prescribing physicians for the plan and compares Summary number of prescriptions filled, number of members utilizing, as well as generic utilization, eneric substation, and formula com Hance rates. 10. Cumulative Prescription Annually Breaks out monthly dollars and script count on a cumulative basis since plan Utilization Statistics initiation. 11. Cumulative Prescription Annually Characterizes monthly summary of prescriptions, patient copays, plan cost, and Statistics By Month total lan costs on a cumulative basis since plan ince lion. Other Reporting Customized Programming Per Hour Run-Time Fee per non-standard report run $ 100 $ 25 r ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 17 p,~~, managed care concepts Boys Town, NE 68010 I. APPEALS/GRIEVANCES PTI has an internal review process to give Members the added option of requesting an objective and timely external review of certain coverage denials. Any Member dissatisfied with the result of the Plan's internal appeal hearing process regarding a utilization management determination may file an appeal with PTI. If a Plan elects coverage for an external/third party review organization, once the PTI internal coverage decision review process is exhausted, Members may then appeal the decision to an external review organization if the coverage denial involves more than $500 per claim and is based on lack of medical necessity or on the experimental or investigational nature of the proposed medication. A Member may not appeal non-medical denials of coverage. Non-medical denials include, but are not limited to, those made because there were no Physician orders or certification of medical necessity for the medication; or documentation was lacking for the Prior Authorization. In these situations, services are denied for reasons other than medical necessity. Company may elect to add external review options for their Plans for aone-time set-up fee of $500 per Plan. The external review organization retained by PTI may refer the case to be reviewed by a neutral, independent Physician with appropriate expertise in the area in question. After all necessary information is submitted, external reviews generally are decided within 30 days of the request. Expedited reviews are available when a Member's Physician certifies that a delay in service would jeopardize the Member's health. Once the review is complete, the Company will be presented the review for final review of determination. Company is responsible for costs associated with the hourly charges for the independent/external review. Company elects for each Designated Plan to offer external review as an option for cases as described above. Company waives for each Designated Plan the right to offer external review as an option for Members. Grievance and Appeals will be directed to the Plan's Sponsor's contact for further instruction. J. OTHER Network access fees may apply for maintaining the Network, maintaining the Maximum Allowable Cost (MAC) program, and database management/storage. In the event the Company requests that PTI provide non-standard or customized services, including special research projects, reports, system changes to accommodate changes in a Plan or other tasks to be specifically performed for and on behalf of the Company, PTI may require the Company to pay PTI additional charges as mutually agreed upon by the parties in writing before such services are provided. ~w ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 18 Boys TOWn, NE 68010 p•~+• managed care concepts ~' EXHIBIT "4" DRUG UTILIZATION REVIEW A. DESCRIPTION OF SERVICES PTI shall provide the following concurrent Drug Utilization Review services. The following provides a list of the standard on-line edits performed concurrently with the PTI's claims processing system at the point of sale. All utilization edits are performed with the integrated network of retail and/or mail service pharmacy providers. • Refill too Soon -This checks for improper refilling of a prescription. The alert occurs when a pharmacy tries to refill a prescription before a predetermined (by the Plan) percentage of the days supply has been used. This check identifies early refills for Members who are utilizing multiple Network Pharmacies. The alert identifies refills too soon regardless of whether the brand or generic of a medication is submitted as a claim. • Exact Duplicate Claim -The system prohibits reimbursement for the exact drug name, RX Number, strength and/or date of service. • Duplicate Drug or Duplicate Class Therapy -This duplicate edit checks for two or more medications from the same therapeutic category. If a previous prescription in the same class was dispensed in a given time period, an alert would be triggered to the pharmacy. This edit checks for members that are receiving the same drug in different strengths or formulations and also checks for products with duplicate ingredients. • Drug Gender Edit -The pharmacist is notified when a prescription claim is inappropriate or contraindicated for the Member's gender. • Geriatric and Pediatric Minimum/Maaimum Dosing -Informational edits alert the pharmacist when a prescribed dose is over or under the recommended dosage for individuals over age 65 or under age 12. This is based upon internal calculations of quantity, strength, days supply, and age. The edit then checks for doses that are too high are low based upon pediatric, adult, or geriatric levels. • Drug/Drug Interaction - An alert occurs when a prescription is filled that may interact with a previously filled drug in a specific time period. Levels of severity are assigned to interactions and only those interactions that are identified as being severe are reported back to the Network Pharmacy. • Drug-to-Disease or Implied Disease Contraindication -Checks are performed based on Member submitted disease states and allergy patterns, or a disease state can also be inferred from medications that the patient is taking (i.e. insulin would infer Diabetes as a disease state). This is an important DUR edit, especially if the Plan does not have medical ICD-9 or diagnosis codes available. If the diagnosis is available, PTI can incorporate the ICD-9 code into the on-line DUR program. • Over/Under Utilization of Therapy -This is a duration of therapy check that is based on the days supply entered for the prescription. Checks are performed to indicate over and under utilizations of therapy based on days supply and refill patterns. • Drug Allergy -Checks are performed based on Member submitted disease states and allergy patterns. This can be especially useful if a Member visits multiple pharmacies and does not always report their allergies to the Network Pharmacy. • Dollar Limits Per Claim -This edit would require a telephone call to the help desk to override if desired by the Plan. A Plan can specifically determine dollar limits of claims that could be dispensed without prior authorization by the Plan. • Dollar Limits per compound claim -This edit would automatically audit compounded claims that exceed a certain dollar value as set by the Plan. This value is scaleable and designed to help gain greater control on compounded claims that are difficult to audit due to the compounded nature of the claim. • Quantity Limits Per Claim -This edit would require a telephone call to the help desk. Plans can specifically determine quantity limits for particular claims, or they can use the Global PTI Dispensing Limitations List. An override to a quantity limit would require Prior Authorization. ~rrr ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 19 p,~t, managed care concepts Boys Town, NE 68010 • Days Supply Limits Per Claim -This edit would be determined by Plan design and is usually not override able unless the Plan chooses to accept a vacation supply as an override denial code that is accepted. B. LIl~IITATIONS OF DRUG UTILIZATION REVIEW SERVICES The information generated in connection with the PTI DUR services is intended as an information guide to, and not a substitute for, the knowledge, expertise, skill, and judgment of Physicians, pharmacists, and other healthcare professionals. PTI on behalf of the Plan Sponsor, shall message Network Pharmacies when DUR is noted, however the PTI DUR system should not be relied upon as a substitute for their professional judgment. The Plan Sponsor acknowledges and agrees that the PTI DUR system will provide informational messaging and warning to Network Pharmacies, but the PTI DUR system can not prevent Network Pharmacy provider from dispensing Covered Products and Services to Members that may be inconsistent with the information they receive through the PTI DUR system. The Plan Sponsor acknowledges that Network Pharmacies are individually responsible for acting or not acting upon information generated and transmitted through the PTI DUR system, and for performing services in each jurisdiction consistent with the scope of their licenses. PTI SHALL ENDEAVOR TO UPDATE THE PTI DUR DATABASE ON A REASONABLE BASIS TO REFLECT CHANGES IN STANDARDS OF PRESCRIBING PRACTICES; HOWEVER, COMPANY ACKNOWLEDGES THAT NO SYSTEM WILL CONTAIN ALL CURRENTLY AVAILABLE INFORMATION ON ACCEPTED MEDICAL PRACTICES OR PRESCRIBING PRACTICES, AND PTI DISCLAIMS ANY AND ALL WARRANTIES TO THE CONTRARY, EXPRESS OR IMPLIED. COMPANY FURTHER ACKNOWLEDGES AND AGREES THAT PTI SHALL NOT BE LIABLE FOR ANY INJURIES, COSTS, LIABILITIES, DAMAGES, EXPENSES, CLAIMS, SUITS, OR PROCEEDINGS OF ANY TYPE ARISING IN CONNECTION WITH (n MEDICAL OR SCIENTIFIC JUDGMENTS MADE IN CREATING THE PTI DUR DATABASE OR ANY OTHER DATABASES AND REPORTS UPON WHICH THE PTI DUR SERVICES ARE BASED OR (II) ANY FAILURE TO INCLUDE INFORMATION IN THE PTI DUR DATABASE. ~irr- ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 20 Boys Town, NE 68010 p•~I• managed care concepts EXHIBIT KS" PRIOR AUTHORIZATION SERVICES DRUG BENEFIT INCLUSIONS/EXCLUSIONS -DEFAULTS Recommended drug classes for prior authorization are shaded. .Standard inGusions Federal Legend Drugs which bear "Caution: Federal law prohibits dispensing without a prescription." Compound medications that contain at least one ingredient that is a Federal legend drug Standard Exclusions • Non-legend drugs, over-the-counter (OTC) products, except as noted' • Charges for injection or administration of a drug • Drugs which are entirely consumed at the time and place of prescribing • Prescriptions which are covered under workers' compensation law or which are covered without charge under any government program • Experimental or Investigational drugs or drugs labeled "Caution -limited by federal law to investigational use" • Medication which is to be taken by or administered to a beneficiary while a patient is in a licensed hospital, nursing home, or similar institution, which operates or allows to be operated on its premises a facility for dispensing pharmaceuticals • Refills in excess of the number specified or authorized by the prescriber or any refill dispensed after one year from the prescriber's original order Mailing and delivery charges (standard delivery services are included) • Drugs, which were distributed by the manufacturer as samples • Unapproved uses of drugs i.e., Uses that are not approved by the United States Food and Drug Administration or peer-reviewed medical journals o~e•..~r.+inn mnriirnTinne dwtwrmined fn he "less than effective" by the Drub EffiCacv Study Implementation Program (DESp. COVERAGE OPTIONS PRIOR AUTHORIZATION UTILIZATION AND DISPENSING .DRUG CATEGORY sPEC1AL_COPAY client NPs LIMITATIONS or EXCEPTIONS INCLUDE EXCLUDE -FIXED .~ Or ~o plr8Ct6d Managed Insulin Q ^ ^ ^ Insulin S rin eS [~ ^ ^ ^ Quantity Limit of 800 in a 81 day period Test Stri S Q ^ ^ ^ Quantity Limit of 800 in a 81 day period Blood Glucose Monitors ^ ~r Q ^ ^ One Touch meters available from NPS at no char e Lancets and Lancet Devices ^ Q ^ ^ Quantity Limit of 800 in a 81 day period Diabetic Su lies ^ [~ ^ ^ Quantity Limit of 800 in a 81 day period Oral Contrace tives Q ^ ^ ^ Post Coitals ^ Q ^ ^ Non-Oral Systemic ^ Q ^ ^ Ortho Evra limit of 3 per 28 days Contraceptives TD (Nwaring), Patches (Ortho- Evra in ectablea De Provers Lunelle Im ants Nor lant Contraceptive Other (Condoms. ^ Q ^ ^ Dia hra ms, S rmcides Sure Su lies ^ Q ^ ^ Allergy and Self Admin ^ Q ^ ^ S rin es Other S rin es ^ Q ^ ^ Eternal and Parenteral ^ Q ^ ^ Su lies Durable Home Medical ^ Q ^ ^ E ui ment (Crutches, Walkers, Bandages) GI & GU Ostomy Supplies ^ Q ^ ^ (Catheters, Ostomy Supplies, Incontinence Supplies, Urinary Drainage and Irri ation Su lies Asthma and Respiratory ^ Q ^ ^ Aerochamberlimitof 1 peryear Su lies Sure Su lies In'ectable ^ Q ^ ^ Dial sis Su lies ^ Q ~ ~ ~rrr+ ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 21 p"G~, managed care concepts Boys Town, NE 68010 ~ll COVERAGE OPTIONS PRI AUTHOR OR IZATION UTILIZATION AND DISPENSING .DRUG CATEGORY INCLUDE EXCLUDE sPEC1AL_COPAV -FIXED .$ Or ,~d Cllant Directed NP$ Managed LIMITATIONS or EXCEPTIONS Blood Components and Products (MonoGonal Anti-botliea, Blood products and derivatives Albumin Factor VIII ^ Q ^ ^ Blood Components In'ectables ^ D ^ ^ Dia nostic A ents ^ 4 ^ ^ Blood and Urine Test Stri s ^ Q ^ ^ Dia nostic A ents In'ectables ^ D ^ ^ Anesthetic A ents ^ D ^ ^ Anesthetic A ents In' ^ Q ^ ^ Fertili A ents ^ Q ~ ^ This drug Gass would only be authorized for r~Qp- Fertilit A ents In'ectable ^ Q ^ ^ Infertility purposes. Anorexic Agents (Welghtlo.s/reduQion.diet su ements ^ Q ^ ^ Multi-Vitamins ^ Q ^ ^ Multi-Vitamins In' ^ 4 ~ ~ Hematinic Vitamins ^ 4 ~ ~ Prenatal Vitamins Q ^ ^ ^ Home Injectables (AVOnex,Oopaxene,Enbrel, Be[aseron, Neupopen, LMW Heparlns (Fragmin, Lovenoz, Normi}b, Or aran, Innohe , E en / Procrit Methotrexate Imitrex, Epipen, Glucagon ^ Q Q ^ ^ ^ ^ ^ mitrexinjedion-limitof3kitspermonth Mi renal and Imitrex s ra limit of 2 boxes er month Other Home Injectables,IntronA, Pep-Intron, InJ B VRamins, Heparin, Rofaron A, Araneape, Infergen, CaIC@0010, Lu ran ^ D ~ ^ Vaccines, Serums, Toxoids, and Aller ens ^ D ^ ^ Other In'ectables ^ Q ~ ^ Antiretrovirals 4 ^ ^ ^ Antiretrovirals In' ^ C~1 ^ ^ Bulk Chemicals ^ Q ^ ^ Anti-emetic Medications p ^ ^ ^ Anzamet, Kytril and Zofranl0 tablets per Rx dispensed Emend 5 er Rx dis ensed Cosmetic Alteration ^ Q ^ ^ Accutane ^ Q ~ ^ 1 month supply per Rx dispensed Cosmetic Hair Products ^ D ~ ~ Retin-A roducts Q ^ ^ ^ ®Toa9e 25 Anti-de ressants Q ^ ^ ^ Anti-depressants Inj ^ 4 ~ ^ Multi-Vitamins with Fluoride ^ D ^ ^ `~Ir ©2004 Pharmaceutical Technologies, Inc. PO Box 407 Boys Town, NE 68010 PAGE 22 p,~~, managed care concepts PRIOR COVERAGE OPTIONS AUTHORIZATION UTILIZATION AND DISPENSING .DRUG CATEGORY SPECIAL_COPAY LIMITATIONS or EXCEPTIONS INCLUDE EXCLUDE -FIXED $ Or CII@nt Directed NP$ Managed ado Pediatric Multi-Vitamins w/ ^ Q ^ ^ Fluor. Growth Hormones ^ Q ~ ~ Growth Hormones In' ^ Q ^ 0 Hypnotic/Sedative Agents Q ^ ^ ^ Sonaitalimittof30tabets perr30days H notic/Sedative A ents In' ^ Q ^ ^ Multi-Vitamins with Iron ^ Q ^ ^ Multi-Vitamins with Iron In' ^ Q ^ ^ Immunosuppressants (an[~organ rejection Q ^ ^ ^ medications Immunosu ressants In' ^ Q ^ ^ Chemical De endenc A ents Q ^ ^ ^ Anti-Narcole s /ADHD A ents Q ^ ^ ^ Anti-Ps chotics Q ^ ^ ^ Anti-Ps chotics In' ^ Q ^ ^ Smokin Cessation A ents ^ Q ^ ^ Anti-Anxie A ents Q ^ ^ ^ Anti-Anxiet A ents In' ^ Q ^ ^ OTC Equivalents (Products In which ageneric exists ^ Q ^ ^ -- as an OTC oduct ie creams, eu lementa Erectile Dysfunction (Viagra, Vohimbine, Levitra, ^ Q ^ ^ Limit of 6 tablets per 30 days Cialis Erectile Dysfunction Inj ^ Q ^ ^ Caverject-Limitof6injper30days Edex -Limit of 8 inj per 30 days Muse -Limit of 6 inserts er 30 da s Co nitive Services ^ Q ^ ^ Otherl_ImltatlOnS-FDA recommended Q ^ ~ ~ Amergelimitof20mgoftabletspermonth Axert limit of 100mg of tablets per month quantity limitations as adopted by NPS Clarinex limit of 30 tabs per 30 days Diflucan 150mg tablets 2 per 30 days Imitrex tablets limit of 800mg of tablets per month Iressa limit of 30 tablets per 30 days Lamisil limit 90 days supply per calendar year Maxalt limit of 120mg of tablets per month Nexium limit of 30 caps per 30 days Pulmazyme limit of 75m1 per 30 days Regranex limit of 1 tube per Rx dispensed Relpax 20mg limit of 12 tabs per 30 days Replax 40mg limit of 6 tabs per 30 days Sporanox 90 days supply per calendar year Stadol NS limit of 2 bottles per 30 days Strattera limit of 60 caps per 30 days Terazol limit of 1 tube per 30 days Toradol / Ketorolac 20 tablets per calendar year Ultram I Tramadol 240 tablets per 30 days Ultracet limit of 240 tablets per 30 days Zomig limit oT 30mg of tablets per month Zovirax Oint limit of 30 rams er 30 da s ©2004 Pharmaceutical Technologies, Inc. PO Box 407 Boys Town, NE 68010 PAGE 23 p,~~, managed care concepts EXHIBTT "6.. ,r-` PHARMACEUTICAL TECHNOLOGIES, INC.® ONLINE ACCESS AGREEMENT In connection with entering into a Pharmacy Products and Services Benefits Administration Agreement ("Administration Agreement"), Company has asked to be allowed to enter into the electronic claims processing facilities (the "ECPF") of Pharmaceutical Technologies, Inc. ("PTI®") at PTI's website (http://www. PTI-NPS.comn so that Company can access and use certain information and services (the "Services") of PTI or its affiliates (the "Affiliates") online. By executing the Administration Agreement, Company acknowledges and agrees to the general terms and conditions applicable to Company's use of the ECPF contained in this Online Access Agreement (the "Agreement"). Persons entering the ECPF for Company (the "Users") must also accept the terms of use for the ECPF. Finally, before Company is able to use a Service through the ECPF, an authorized representative of Company must sign or accept any applications, agreements, instruments, rules, standards, policies, instructions, and other documents and forms required to use the ECPF (the "Service Forms"). 1. Using the ECPF. Company agrees to use the ECPF only as provided in: (a) this Agreement; (b) the rules, procedures, standards, requirements, and policies made applicable to the ECPF from time to time by PTI and the Affiliates; (c) any communications, instructions, terms, or conditions appearing at the ECPF; and (d) any state or federal laws or regulations applicable to the ECPF. 2. ID Codes and Passwords. (a) Each User will be given an ID code and a password by PTI to be used when the User first enters the ECPF. PTI will also assign a company ID code for Company to use each time a User ,. enters the ECPF. Although Company's ID code and the ID codes for each User will remain the same for each entry into the ECPF, the password assigned by PTI to each User must be changed to a new User-selected password when each User first enters the ECPF. PTI will not know the new passwords or any subsequent passwords selected by the Users. Attached as Schedule "A" is a list of Company authorized Users. In the event that Company desires to add or remove any Users, Company must concurrently provide PTI with an updated Authorized User List. (b) Company will be able to manage and control who in Company has access to the ECPF and the Services by the ID codes and passwords. It is Company's responsibility to ensure that the Company ID code and the User ID codes and passwords are known to, and used only by, persons who have been properly authorized by Company to access the ECPF and use the Services through the ECPF. (c) FAILURE TO PROTECT ID CODES AND PASSWORDS MAY ALLOW AN AUTHORIZED PARTY TO: (i) USE THE SERVICES; (fi) CORRECT, CHANGE, VERIFY OR SEND DATA USED WITH THE SERVICES; (iii) SEND INFORMATION AND COMMUNICATIONS TO, OR RECEIVE INFORMATION AND COMMUNICATIONS FROM, PTI AND THE AFFILIATES; OR (iv) ACCESS COMPANY'S ELECTRONIC COMMUNICATIONS AND FINANCIAL DATA. ALL ENTRIES INTO THE ECPF, ALL COMMUNICATIONS SENT, AND ALL USES OF THE SERVICES, THROUGH COMPANY'S ID CODES AND PASSWORDS WILL BE DEEMED TO BE ENTRIES, COMMUNICATIONS, AND USES AUTHORIZED BY COMPANY AND BE BINDING UPON COMPANY. COMPANY ASSUMES THE ENTIRE RISK FOR THE FRAUDULENT OR UNAUTHORIZED USE OF ALL ID CODES AND PASSWORDS. COMPANY ACKNOWLEDGES THE IMPORTANCE OF DEVELOPING INTERNAL PROCEDURES TO LIMIT SUCH RISK, WHICH PROCEDURES WILL INCLUDE, AT A MINIMUM, THE NOTIFICATION OF PTI IMMEDIATELY WHEN ANY NEW PERSON BECOMES A USER OR WHEN ANY EXISTING USER NO LONGER 'err ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 24 p,~~, managed care concepts Boys Town, NE 68010 IS TO BE A USER, AND NOT KEEPING, IN ANY FORM IN ANY PLACE, LISTS OF ID CODES OR ' PASSWORDS. (d) Company agrees to notify PTI immediately when Company become aware of any loss or theft of, or any unauthorized use of, any ID codes or passwords. Company also agrees to notify PTI immediately when Company becomes aware of any unauthorized entry into the ECPF. 3. Use of Certain Software to Access the ECPF. In using the ECPF, Company will be sending personal information and data as well as electronic messages directly to PTI and the Affiliates through the Internet. Company acknowledges that when the Internet, or any other electronic communications facilities, are used to transmit or receive data and messages, the data and the messages may be accessed by unauthorized third parties. To reduce the likelihood of such third party access, Company agrees to transmit and receive data and messages through the ECPF using only software, including, but not limited to, browser software, or other access devices that support the Secure Socket Layer (SSL) protocol, or other protocols required by, or acceptable to, PTI, and to follow the PTI log-on procedures that support such protocols. 4. HIPAA. Company agrees to establish appropriate policies and procedures for Company in connection with access to the ECPF by employees that will comply with applicable state and federal laws, rules and regulations, including, without limitation, requirements of the Health Insurance Portability and Accountability Act ("HIPAA") rules, governing privacy and security of individually identifiable health care information in respect of the use of the ECPF. In the event that HIPAA, in its final rules, or pursuant to any amendments thereof, specifically requires the implementation of further policies or procedures, or requires modification of this Agreement, Company agrees to take such actions as may be necessary or appropriate to comply with HIPAA and if necessary, to amend this Agreement accordingly. 5. Disclaimers. NEITHER PTI NOR ANY AFFILIATE MAKES ANY EXPRESSED OR IMPLIED WARRANTY AS TO THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE ECPF, THE INFORMATION AVAILABLE VIA THE ECPF, OR THE SERVICES, AND NEITHER PTI NOR ANY OF THE AFFILIATES MAKES ANY OTHER WARRANTY, PROMISE, COMMITMENT, GUARANTEE, OR REPRESENTATION WITH RESPECT TO THE ECPF, THE INFORMATION AVAILABLE VIA THE ECPF, OR THE SERVICES EXCEPT THOSE WARRANTIES, PROMISES, COMMITMENTS, GUARANTEES OR REPRESENTATIONS SPECIFICALLY STATED IN THIS AGREEMENT OR THE SERVICE FORMS. 6. Limitation of Liability. Neither PTI nor any Affiliate will be liable to Company for any direct or indirect damages or losses suffered or incurred by Company in connection with the ECPF, any of the Services, or any other information or data Company receives through the ECPF, or any failure to provide, or delay in providing access to the ECPF, or any Service, except to the extent any Service Forms specifically provide otherwise and except to the extent such damages or losses arise directly from the gross negligence or willful misconduct of PTI or an Affiliate. Notwithstanding any provision of this Agreement or any Service Form to the contrary, IN NO EVENT WILL PTI OR ANY AFFILIATE HAVE LIABILITY FOR ANY CONSEQUENTIAL, SPECIAL, PUNITIVE, OR INDIRECT DAMAGES OR LOSSES WHETHER ANY CLAIM FOR SUCH DAMAGES OR LOSSES IS BASED ON TORT OR CONTRACT OR WHETHER PTI OR ANY AFFILIATE KNEW OR SHOULD HAVE KNOWN THE LIKELIHOOD OF SUCH DAMAGES IN ANY CIRCUMSTANCE. 7. Restricting or Terminating Access to the ECPF. In addition to, and not in substitution for, any provision in this Agreement or the Service Forms, Company understands and agrees that neither PTI nor any Affiliate will in any way be obligated to permit Users access to any information or the use of any Service through the ECPF if: (a) such use or access is not in accordance with any term or condition applicable to the Service or the ECPF or to the information to be accessed; (b) such use or access is not permitted by any state or federal law or regulation; (c) PTI or any AfFliate has reasonable cause to believe that such use or access may not be authorized by Company or any person whose authorization PTI or such Affiliate believes ~r ©2004 Pharmaceutical Technologies, Inc. PO BOX 407 PAGE 25 p,~x managed care concepts Boys Town, NE 68010 is necessary for such use or access; (d) PTI or any Affiliate has reasonable cause to deny such use or access for Company's protection or the protection of PTI or any Affiliate; or (e) PTI or any Affiliate is no longer providing pharmacy benefits administration services to Company. If any Service cannot be used through the ECPF, PTI will make reasonable efforts for such Service to be used by other means. PTI reserves the right in its sole discretion at any time upon thirty (30) calendar days written notice to Company, or upon immediate written notice to Company if Company has violated any provision of this Agreement or any Service, or in the event that PTI is no longer providing pharmaceutical benefits administrative services to Company, to terminate this Agreement and Company's access to the ECPF, or to terminate Company's use of any or all of the Services through the ECPF. Neither PTI nor any Affiliate shall have any liability to Company for any losses or damages Company may suffer or incur as a result of any such termination. 8. Waivers. Neither PTI nor any Affiliate shall be deemed to have waived any of its rights or powers under this Agreement unless such waiver is in writing and such writing is signed by an authorized representative of PTI or such Affiliate. No delay, extension of time, compromise, or other indulgence which may occur or be granted from time to time by PTI or any Affiliate under this Agreement shall impair the rights or powers of PTI or any Affiliate under this Agreement. 9. Amendments. PTI may amend this Agreement or add to this Agreement at any time upon written notice to Company. Company will be deemed to have accepted an amendment of, or any addition to this Agreement if any of Company's Users use any Service through the ECPF more than thirty (30) calendar days after Company receives notice of such amendment or addition. 10. Assignment. Except for transfers of Company's rights, duties, and obligations to PTI and the Affiliates under this Agreement by operation of law, such rights, duties and obligations may not be assigned by Company without the prior written consent of PTI and the appropriate Affiliate. PTI may assign this Agreement to any Affiliate or to any successor or assign of PTI, including, without limitation, by way of merger or acquisition. 11. Governing Law. Company's rights and obligations and the rights and obligations of PTI and the Affiliates under or in connection with this Agreement will be governed by and be subject to the laws of the State of Nebraska. 12. Severability. If any provision of this Agreement shall be invalid, illegal or unenforceable in the jurisdiction, the validity, legality and enforceability of such provision in other jurisdictions, and of the remaining provisions of this Agreement in all jurisdictions, shall not in any way be affected or impaired. ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 26 p,~~, managed care concepts Boys Town, NE 68010 SCHEDULE "A" AUTHORIZED USER LIST FOR PTI ELECTRONIC CLAIMS PROCESSING FACILITIES ~rrr`" Permi ssions Name Email Group No. Access Read On Read 8 Modi Read, Modify 8 Create/Add 1. ^ ^ ^ 2. ^ ^ ^ 3. ^ ^ ^ 4. ^ ^ ^ 5. ^ ^ ^ 6. ^ ^ ^ 7. ^ ^ ^ 8. ^ ^ ^ 9. ^ ^ ^ 10 ^ ^ ^ 160151v9 ©2004 Pharmaceutical Technologies, Inc. PO Box 407 PAGE 27 p,~~, managed care concepts Boys Town, NE 68010 Veri National Grou Inc. ty p, Third Party Administrative Services Agreement TABLE OF CONTENTS General Provisions Section 'Title Pa e I Definitions 3 II Relationshi of Parties 5 III Em to ee Benefit Plan 7 N TPA's Res onsibilities 8 V Em to er's Res onsibilities ~ VI Com fiance with Privac Standards 15 VII Taxes and Assessments 19 VIII Related Services and A eements 19 IX Fees of TPA. 20 X Timin of A eement 20 XI Claims Account 21 XII Termination of A eement 22 XIII Governin Law 23 XIV Entire A eement, Amendment, Waiver 23 XV Written Communication 24 Module Title ~ Page I Claims Administration 25 II Run-In Administration 25 III Run-Out Administration 26 IV Third Par Claims Audit A eement 26 V COBRA/HIPAA 29 VI Sto -Loss Services 31 VII Termination Fees without Run-Out Administration 32 VIII Disclosure Form 33 IX Short term Disabili Claim Administration - N/A 34 X Third a Recove 35 Exhibit Title ~ Page ~ Schedule A Fees ~ 38 ~ Page 2 Verity National Group, Inc. `ter ADMINISTRATIVE SERVICES AGREEMENT WHEREAS Sample Client ("Employer") has established a single employer employee health and welfare benefit plan (the "Plan") within the meaning of the Employee Retirement Income Security Act of 1974 as amended ("ERISA") to provide certain welfare benefits to its employees, former employees and their dependents who are eligible to participate in such benefits in accordance with the Plan ("the Participants"); WHEREAS, as defined in ERISA, Employer is a named fiduciary of the Plan, and is the administrator and Sponsor of the Plan; WHEREAS, the Plan is funded directly from the general assets of Employer through employee salary reductions; and WHEREAS, Employer desires that Verity National Group, Inc., Inc. (I'PA) furiush certain administrative services described in this Agreement which are necessary for the operation and administration of the Plan; NOW THEREFORE, in consideration of the mutual promises and covenants contained herein and the Exhibits, Schedules, Modules and Addenda, if any, attached thereto, Employer and TPA hereby agree as follows: SECTION I DEFINITIONS Agreement Period means the length of time the Administrative Services Agreement shall be in effect. Calendar Year means January 1st through December 31st of the same year. Claim means a request by a Claimant for payment or reimbursement for Covered Services from the Plan. Claimant means any person or entity submitting expenses fox payment or reimbursement from the Plan. Claims Administrator or Third Patty Administrator (TPA) means the entity which has been contracted by the employer or plan sponsor, to process claims per the written plan document and administrative services agreement. Claims Payment Account means an account established by the TPA for payment or reimbursement fox Covered Services. COBRA means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. Code means the Internal Revenue Code of 1986, as amended. Page 3 Coveted Entity shall have the same meaning as Employer. Covered Services means the care, treatments, services, ox supplies described in the Plan Document as eligible fox payment or reimbursement from the Plan. Employer means the Employer and any successor organization or affiliate of such Employer which assumes the obligations of the Plan and this Agreement. ERISA means the Employee Retirement Income Security Act of 1974, as amended. Fee Schedule means the listing of fees or charges fox services provided under this Agreement. This Fee Schedule may be modified from time to time in writing by the mutual agreement of the parties. It is contained in Exhibit A and is a part of this Agreement. Health Care Providers means physicians, dentists, hospitals, or other medical practitioners or medical care facilities that are duly licensed and authorized to receive payment or reimbursement for Covered Services provided under the terms of the Plan. HIPAA means Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191 (Aug. 21, 1996) as amended. Initial Period means the two year period August 1, 2006 through July 31, 2008. Plan means the self-funded employee welfare benefit plan, which is the subject of this Agreement and which the Employer has established pursuant to the Plan Document. Participant means an active employee or COBRA enrollee of the Employer. Plan Document means the instrument or instruments that set forth and govern the duties of the Plan Sponsor and eligibility and benefit provisions of the Plan which provide fox the payment or reimbursement of Covered Services. err Plan Participant is any person who is properly enrolled and entitled to benefits from the Plan. Plan Year means the period of time specified as such in the Plan Document. Protected Health Information shall have the same meaning as the term "protected health information" in 45 CFR 164.501, limited to the information created or received by Business Associate from or on behalf of Covered Entity. Successive Periods means successive 12-month periods, following the Initial Period or any Successive Period. Summary Plan Description means the document required to be provided under Sec. 102 of ERISA that describes the terms and conditions under which the Plan operates. Page 4 SECTION II RELATIONSHIP OF PARTIES 2.1 Delegation of responsibilities. The Employer delegates to the TPA only those powers and responsibilities with respect to development, maintenance, and administration of the Plan which are specifically enumerated in this Agreement. Any function not specifically delegated to and assumed by the TPA pursuant to this Agreement shall remain the sole responsibility of the Employer. 2.2 Independent contractor status. The parties enter into this Agreement as independent contractors and not as agents of each other. Neither party shall have any authority to act in any way as the representative of the other, or to bind the other to any third party, except as specifically set forth herein. 2.3 Financial Liability. The parties acknowledge that; (a) this is a contract for administrative services only as specifically set forth herein; (b) the TPA shall not be obligated to disburse more in payment for Claims or other obligations arising under the Plan than the Employer shall have made available in the Claims Payment Account; and (c) this Agreement shall not be deemed a contract of insurance under any laws ~' or regulations. The TPA does not insure, guarantee, or underwrite the liability of the Employer under the Plan. The Employer has total responsibility for payment of Claims under the Plan and all expenses incidental to the Plan. 2.4 Assignment. Except as specifically set forth herein, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors; provided, however, neither party may assign this Agreement or any or all of its rights or obligations hereunder (except by operation of law) without the prior written consent of the other, which consent may not be unreasonably withheld. 2.5 Subcontractors. The work to be performed by the TPA under this Agreement may, at its discretion and with the prior approval of the Employer, be performed directly by it or wholly or in part through a subsidiary or affiliate of the TPA or under an agreement with an organization, agent, advisor, or other person of its choosing. 2.6 TPA Indemnity. The TPA will indemnify, defend, save, and hold the Employer harmless from and against any and all claims, suits, actions, liabilities, losses, fines, penalties, damages, and expenses of any kind including, but not limited to, direct, indirect, consequential, or punitive expenses or fees, including court costs and attorney's fees, with respect to the Plan which directly result from or arise out of the dishonest, or criminal acts of the TPA or its employees, except fox acts taken at the specific direction of the Employer. Page 5 ,r 2.8 Representations. The TPA shall be entitled to rely, without investigation or inquiry, upon any written or oral information or communication of the Employer or agents of the Employer. 2.9 Employer Indemnity. The Employer will indemnify, defend, save, and hold the TPA harmless from and against any and all claims, suits, actions, liabilities, losses, fines, penalties, damages, and expenses of any kind including, but not limited to, direct, indirect, consequential, or punitive expenses or fees, including court costs and attorney's fees, to the extent that such claims, losses, liabilities, damages, and expenses arise out of or axe based upon the Employer's negligence in the performance of its duties under this Agreement, a release of Claims data by the TPA to the Employer, an interpretation of the Plan or this Agreement, or any other written or oral communication by the Employer or any of its authorized representatives upon which the TPA relies or any breach of this Agreement by the Employer, including, but not limited to, failure to fund the Claims Payment Account. Page 6 SECTION III EMPLOYEE BENEFIT PLAN 3.1 Responsibility for the Plan. Employer accepts total responsibility for the Plan, including its benefit design and compliance with any laws that apply to Employer or the Plan. Employer is the "Plan Administrator" of the plan as defined by ERISA. 3.2 Description of the Plan. Employer will provide TPA a written description of the Plan of benefits and other relevant provisions of the Plan; Plan Document, Summary Plan Description, and if applicable, Trust Agreements, including all amendments thereto, relating to the plan (collectively, the "Plan Documents"); within thirty (30) days of the Effective Date, so that TPA will be able to provide services under this Administrative Services Agreement. The Plan Document/Summary Plan Description will determine the payment of Plan benefits. 3.3 Plan Consistent with the Agreement. Employer warrants that the Plan provisions are consistent with this agreement and the services TPA is providing. Employer will furnish TPA copies of Plan Documents and employee communications and Employer will amend them if they are not consistent with this Agreement or are inaccurate. 3.4 Plan Documents prepared by TPA.. If requested by Employer, TPA shall prepare for Employer a draft Plan Document/Summary Plan Description. Employer shall be responsible for promptly reviewing the draft(s) with its own legal council and advisors and maintains all legal responsibilities for the Plan. Upon finalization of the documents, Employer shall notify TPA in writing of its approval and adoption of the Plan Documents. TPA will submit a signed copy of the Plan Document to reinsures on behalf of the Employer. 3.5 Distribution. Employer shall be responsible for maintaining a supply of, and distributing to Participants (and to persons entitled to become Participants) the Summary Plan Description and all other information and forms necessary for enrollment, continued eligibility and submission of claims for benefits under the plan. 3.6 Participant Eligibility Information. Employer shall furnish TPA with a complete list of all current Participants. During the term of this agreement, Employer shall notify TPA in writing at a minimum of ten (10) business days in advance of the effective date of each change, addition and termination with respect to eligibility of Participants. Employer shall be the sole and final determinant of issues regarding the eligibility of Participants under the Plan. 3.7 Affiliated Employers. Employer represents and warrants to TPA that the Plan is a single employer employee health and welfare benefit plan as defined in ERISA and that, as such, the Plan is not a multiple employer welfare arrangement subject to ~- regulation under the insurance laws of any state. If, however, Affiliated Employers are covered by the Plan, Employer must inform TPA in writing, of the names of any Page 7 Affiliated Employers whose Employees are covered by the Plan. Employer must ~„r provide TPA prior written notice of any changes to the above list of Affiliate Employers whose Employees are covered by the Plan. SECTION IV THE TPA'S RESPONSIBILITIES In fulfilling its duties and obligations under this agreement, TPA shall act only as an administrative agent and not as a fiduciary, sponsor, trustee or plan administrator (as such terms are defined under ERISA, Internal Revenue Code, and other law) of the Plan or with respect to Plan Assets. TPA shall not be liable for, and shall not advance its own funds for, the payment of claims for benefits under the plan, or for Plan Expenses, all such obligations being solely those of Employer. TPA shall not under any circumstances be considered the insurer or underwriter of any liability to provide benefits under the Plan. The TPA will provide the following Plan administrative services for the Employer: 4.1 Records Maintenance. Maintain Plan records based on eligibility information submitted by the Employer as to the dates on which a Plan Participant's coverage commences and terminates. ~~"'" Maintain Plan records of Plan coverage applicable to each Plan Participant based on information submitted by the Employer. Maintain Plan records regarding payments of Claims, denials of Claims, and Claims pended. Plan records shall be maintained in accordance with generally accepted standards of insurance bookkeeping. The Commissioner of the Department of Insurance shall be entitled to inspect all books and records of the TPA for the purpose of examinations and audits. 4.2 Process Claims. Adjudicate Claims incurred by Plan Participants according to the terms of the Plan Document as construed by the Employer. The Plan Document as set forth by the TPA shall adhere to the administrative guidelines and standard provisions as established by the TPA, unless instructed differently by the Employer. These Claims will be adjudicated in accordance with industry practices and the TPA will use an industry-recognized method of determining usual, customary, and reasonable charges. The TPA reserves the right to charge an additional administration fee fox adjudicating Plan provisions requiring special claims handling or considerable manual intervention with automated claims system. "~r- Page 8 Process with due diligence and according to the terms of the Plan Document as construed by the Employer, pre-existing conditions requirements, disability determuiations, subrogation, and coordination of benefits situations. Unless otherwise agreed by the parties, the TPA's duties with respect to subrogation situations shall be limited to informing the Employer that subrogation rights may exist. Acknowledge or decide, as set forth above, as to the validity of a Claim or the need for additional information within any time period specified by applicable laws. If additional information is needed, send through the U.S. Mail to the appropriate persons (with a copy to the Plan Participant) an Explanation of Benefits denying the claim pending receipt of requested information. The written request for information will be shown on the Explanation of Benefits form. When all necessary documents and Claim form information have been received and the Claim has been approved, a Claim check or draft will be remitted on the next dispersal date after funding by Employer. 4.3 Expedite Claim Resolution. Refer any doubtful or disputed Claims to Employer for a final decision in accordance with Section 4.2. 4.4 Claim Checks/Drafts. Process, issue, and distribute Claims checks ox drafts as instructed by the Employer to Plan Participants, Health Care Providers, or others as ~"` may be applicable. Claims paid in good faith but in error by the TPA shall be chargeable to the Claims Payment Account as any other Claim, but the TPA shall make good faith attempts to recover any overpayments. Every week, the TPA will notify the Employer of the amount required to be prospectively deposited to the Claims Payment Account to pay the Claims liability as these Claims occur. 4.5 Explanation of Benefits. Notify Plan Participants in writing through the U. S. Mail of ineligible Claims received, indicating the specific Plan provisions attributable to the declination of the Claims pursuant to the written Claims review and appeal procedure in the Plan. 4.6 Customer Service. Respond to Claims inquiries by a Plan Participant, the estate of a Plan Participant, an authorized member of a Plan Participant's family unit, or an authorized Health Care Provider. 4.7 Safeguard Information. Maintain information that identifies a Plan Participant in a confidential manner. The TPA agrees to take all reasonable precautions to prevent disclosure or the use of Claims information for a purpose unrelated to the administration of the Plan. Page 9 The TPA will only release this information to the Employer, or to parties authorized by the Employer, for medical necessity determinations for reinsurance and benefit plan review; to set uniform data standards; to update relative values scales; to use in Claims analysis; to further cost containment programs; to verify eligibility; to comply with federal, state or local laws; for coordination of benefits; for subrogation; in response to a civil or criminal action upon issuance of a subpoena; or with the written consent of the Plan Participant or his or her legal representative. 4.9 Plan Document Amendments. If requested by the employer, the TPA will prepare Plan Document amendments, including amendments requested by the Employer and amendments bringing Plan Document into compliance with Federal Laws and Regulations. The TPA reserves the right to charge a fee for mid-year plan changes requiring plan amendments. 4.10 Audit. Maintain a Claim file on claims system on every Claim reported to it by the Plan Participants. Such files and all Plan-related information shall be made available to the Employer for consultation, review, and audit upon reasonable notice and request, during the business day and at the office of the TPA. Any such audit will be at the sole expense of the Employer. Refer to MODULE N, "Third Party Audit Agreement" for details. 4.11 Form 5500. Capture data for IRS form 5500 filings. 4.12 Special Projects. Perform special Claims history research projects upon request by the Employer and upon payment of a separate fee. 4.13 Report Package. Provide the following reports Monthly: (1) Monthly Claims Analysis (2) Service Code Analysis (3) Stop loss Specific Detail Register (4) Aggregate Report (5) Check Register (6) PPO Analysis Report 4.15 Consulting Services. -Offer welfare plan consulting services upon request by the Employer. 4.16 Interact With Insurance Cartier. Interact with excess loss insurance company on behalf of the employer to aid in filing and processing claims as defined by the plan. 4.17 Remit Premiums. Submit payment of premiums to the excess loss carrier in a timely manner after the payment of such premium by the Employer. 4.18 Subrogation. Provide a copy of subrogation forms signed by the Employee to the Employer and provide updated reviews of subrogation payments until received. Page 10 ~r 4.19 Utilization Review Services. Coordinate utilization review services for the Plan, including pre-certification of hospital stays, concurrent review of hospital stays, discharge planning, hospital bill audits, large case management, and any other managed care programs as agreed to between the Employer and the TPA. A separate fee will be charged for these services. The separate fee for utilization review services will be payable by the Employer to the TPA. The TPA will submit payment on behalf of the Employer to the vendor. 4.20 Administer HIPAA. Generate and mail certificates of Creditable Coverage to Plan Participants and former Plan Participants from information supplied by the Employer. A separate fee will be charged for this service. 4.21 Pharmacy Benefit Management. Coordinate Prescription Benefit Management (PBM) services for the Employer. A separate fee will be charged for this service. The separate fee for PBM services will be payable by the Employer to the TPA. The TPA will submit payment on behalf of the Employer to the vendor. 4.22 Preferred Provider Organizations (PPO). Coordinate Preferred Provider Organization (PPO) services for the Employer. A separate fee will be charged for this service. The separate fee fox PPO services will be payable by the Employer to the TPA. The TPA will submit payment on behalf of the Employer to the vendor. 4.23 Fee Negotiations. Coordinate inpatient and outpatient hospital and professional fee negotiation services for the Employer. A separate fee will be charged for this service. The separate fee for fee negotiation services will be payable by the Employer to the TPA. The TPA will submit payment on behalf of the Employer to the vendor. 4.24 Identification Cards. Provide one medical I. D. Card per Employee and an additional card for family coverage upon enrollment. Replacement cards issued as necessitated by coverage changes or Employee needs. The TPA reserves the right to charge a fee for reprinting cards fox reasons other than TPA error. An additional fee will apply if the TPA is required to mail the cards to individual employee's homes or an alternative address. 4.25 Other Services. Provide additional services as listed on Exhibit A. Page 11 SECTION V ,,. THE EMPLOYER'S RESPONSIBILITIES The Employer will: 5.1 Accurate and Timely Records. Maintain current and accurate Plan eligibility and coverage records, verify Plan Participant eligibility and submit this information to the TPA. 'This information shall be provided in a format reasonably acceptable to the TPA and include the following for each Plan Participant: name and address, Social Security number, date of birth, type of coverage, sex, relationship to employee, changes in coverage, date coverage begins or ends, and any other information necessary to determine eligibility and coverage levels under the Plan. This information shall be furnished to the TPA within a reasonable period of time before the person's coverage begins or ends. For persons whose coverage ends, this period is not less than ten (10) business days prior to the end of coverage. The Employer assumes the responsibility for the erroneous disbursement of benefits by the TPA in the event of error or neglect on the Employer s part of providing eligibility and coverage information to the TPA, including but not limited to, failure to give timely notification of ineligibility of a former Plan Participant. 5.2 Final Authority. Resolve all Plan ambiguities and disputes relating to the Plan eligibility of a Plan Participant, Plan coverage, denial of Claims or decisions regarding ~'` appeal or denial of Claims, or any other Plan interpretation questions. The TPA will administer and process Claims in accordance with Section N if the Plan Document and Summary Plan Description are clear and unambiguous as to the validity of the Claims and the Plan Participants' eligibility for coverage under the Plan, but will have no discretionaryauthority to interpret the Plan or adjudicate Claims. If processing of a Claim requires interpretation of ambiguous Plan language, and the Employer has not previously indicated to the TPA the proper interpretation of the language, then the Employer will be responsible for resolving the ambiguity or any other dispute. In any event, the Employer s decision as to any Claim (whether or not it involves a Plan ambiguity or other dispute) shall be final and binding. 5.3 Communications and Enrollment. Conduct and control all enrollment meetings, maintenance of enrollment records, and distribution of enrollment materials. 5.4 COBRA, Unless TPA or another entity is contracted to provide service, Employer will provide required COBRA Initial Notification to Plan Participants upon initial election to participate in the Plan, provide COBRA Election Notice upon Plan Participant's Qualifying Event, and administer COBRA premium collection. The Employer will submit information as to the status of COBRA participants to the TPA in a timely manner for administration of the COBRA continuation option. Page 12 5.5 HIPAA. Unless TPA or another entity is contracted to provide service, Employer will generate and mail certificates of Creditable Coverage to Plan Participants and former Plan Participants. 5.6 Fund Claims. Fund the Claims Payment Account every week upon request and giant the TPA drafting authority. The Claims Payment Account shall be set up by the Employer who shall execute and deliver to the TPA and a depository selected by the Employer, any and all documents necessary to empower the TPA to act as signatory on such account. The Claims Payment Account shall not be an account in which Employer premiums or charges are directly deposited. 5.7 Advance Funds. Not require the TPA, under any circumstances, to issue payment(s) for Claims, excess loss premiums, or any other costs arising out of the subject matter of this Agreement, unless the Employer has so authorized and has previously deposited sufficient funds to cover such payment(s). 5.8 Plan Changes. Provide the TPA with copies of any and all revisions or changes to the Plan ten (10) business days prior to the effective date of the changes. 5.9 Control of Plan Assets. Provide and timely distribute all notices and information required to be given to Plan Participants, maintain and operate the Plan in ~'' accordance with applicable law, maintain all record keeping, and file all forms relative thereto pursuant to any federal, state, or local law, unless this Agreement specifically assigns such duties to the TPA. 5.10 Legal Obligations. Acknowledge that it is the Plan Sponsor, Plan Administrator, and Named Fiduciary, as these terms axe defined in ERISA. As such, Employer retains full discretionary control and authority and discretionary responsibility in the operation and administration of the Plan. 5.11 Taxes, Fees or Fines. Pay any and all taxes, licenses, and fees levied, if any, by any local, state, ox federal authority in connection with the Plan. 5.12 Confidential Business Information. Hold confidential information obtained that is proprietary to the TPA or information or material not generally known by personnel other than management employees of the TPA. Such information includes, but is not limited to, reasonable and customary Claims levels, and Claims administration guidelines. 5.13 Covered Entities. Warrant and represent that the only entities that participate, or will participate, in the Plan are in the Employers "controlled group of corporations" as that term is used in ERISA. 5.14 Timely Payment of TPA Fees. Pay, in accordance with the Fee Schedule, the TPA's fees fox services rendered under this Agreement. Unless otherwise agreed, the Page 13 TPA may withdraw from the Claims Payment Account any fees then due to the TPA '` prior to application of the funds in the Claims Payment Account to payment of Claims or any other costs arising out of the Plan or the subject matter of this Agreement. 5.15 Excess Loss Insurance. If applicable, maintain excess loss insurance. Promptly notify the TPA of any termination, expiration, lapse, or modification of this insurance. 5.16 Bonds and/or Other Insurance. Maintain any fidelity bond or other insurance as may be required by state or federal law for the protection of the Plan and Plan Participants. 5.17 Invoice Payment. Pay premium and fee invoices promptly, and in full. Premiums and fees are due by the first of the month for the month in which premiums and fees apply. Enrollment adjustments received by the 15th of the month will be applied to the following month's invoice. Retroactive adjustments for enrollment changes will not be made for changes greater than 90 days prior to the effective date of the change unless authorized by the administrative guidelines of the reinsurance carrier. 5.18 Financial Information. At TPA's request, Employer will provide TPA with the financial information to determine if Employer can meet financial obligations under this agreement and such information will be held in confidence pursuant to Section 4.7. r ~hrr+° Page 14 SECTION VI COMPLIANCE WITH PRIVACY STANDARDS 6.1 Intent. The purpose of this Section is to set out the rights and responsibilities of the parties under the Standards for Privacy of Individually Identifiable Health Information under the Health Insurance Portability and Accountability Act (the "Privacy Standards"). The intent is to provide the protections required by the Privacy Standards, but to retain for the parties the greatest latitude and flexibility permitted under those standards in order to facilitate the prompt and efficient provision of services under this Agreement. The terms of this Section shall be interpreted and applied consistent with this intent and with the Privacy Standards. As used in this Agreement, "Protected Health Information" has the meaning set out in the Privacy Standards; generally, Protected Health Information means information about an individual's health, including information about payment for health care, and which either identifies the individual or with respect to which there is a reasonable basis to believe the information can be used to identify the individual. For purposes of this Agreement, Protected Health Information shall refer only to Protected Health Information received from the Plan or created or received by the Claims Administrator on behalf of the Plan. 6.2 Permitted Uses and Disclosures. (a) The Plan may disclose Protected Health Information to the Claims v'`"` Administrator for purposes of treatment, payment, health care operations and data aggregation (all as defined by the Privacy Standards) and, subject to the terms of this Section, the Claims Administrator shall be permitted to use and disclose such Protected Health Information for these purposes. (b) The Claims Administrator shall use or disclose the Protected Health Information only as authorized by this Agreement or as required by law, and shall not use or disclose the Protected Health Information in a manner that would violate the Privacy Standards if the use or disclosure were made by the Plan itself. (c) However, the Claims Administrator may use and disclose Protected Health Information to the extent necessary for the proper management and administration of its own business or to carry out its legal responsibilities; provided that any disclosure made for these purposes shall be made only if: (1) it is required by law, or (2) the Claims Administrator obtains reasonable assurances from the person to whom the information is disclosed that (a) the Protected Health Information will be held confidentially and used or disclosed only as required by law or for the purpose for which Claims Administrator disclosed it to such person, and (b) the person will notify the Claims Administrator if it becomes aware of any instance in which the confidentiality of the information is breached. rte; Page 15 6.3 Responsibilities of the Plan. (a) The Plan shall establish written practices and procedures for the use and disclosure of Protected Health Information in accordance with the Privacy Standards and shall provide the Claims Administrator with copies of all such practices and procedures. The Plan shall promptly provide the Claims Administrator with copies of any amendments or updates of such practices and procedures. Without limitation, the Plan shall provide the following: (1) A copy of the Plan's Notice of Privacy Practices and all amendments. (2) A copy of the Plan's procedures and protocols that establish standards limiting the amount of Protected Health Information that maybe disclosed to or requested from the Claims Administrator to the amount reasonably necessary to achieve the purpose of the use or disclosure. (3) To the extent it may affect the Claims Administrator's duties under this Agreement, documentation of any restrictions to the use or disclosure of Protected Health Information to which the Plan has agreed in accordance with the Privacy Standards. (4) To the extent it may affect the Claims Administrator's duties under this Agreement, documentation of any changes in, or revocations of, permission to use or disclose Protected Health Information by the individual who is the subject of the Protected Health Information. The Plan must obtain TPA's prior written approval before the Plan agrees to any restrictions on the use and disclosure of PHI, described in (3) and (4) above. (b) The Plan shall not request ox authorize the Claims Administrator to use or disclose Protected Health Information in any manner that would not be permissible under the Privacy Standards if done by the Plan; provided, the Plan may request that the Claims Administrator provide data aggregation services. Without limitation, the Plan shall not request or authorize the Plan to disclose Protected Health Information: (1) To employees of the sponsor of the Plan unless the Plan has received proper certification that the Plan documents have been amended as required by the Privacy Standards and the Plan sponsor has agreed to the restrictions imposed by the Privacy Standards. The Plan shall provide the Claims Administrator with a written list of the employees of the Plan sponsor and other individuals under the Plan sponsor's control who axe engaged in administrative functions for the Plan and who are authorized to have access to Protected Health Information. Claims Administrator shall provide Protected Health Information only to those listed individuals. The Plan shall promptly provide any updates to the list. (2) To agents or subcontractors of the Plan sponsor unless such agent or subcontractor has entered into an agreement subjecting the agent or subcontractor to the same restrictions and conditions respecting the Protected Page 16 Health Information that apply to the Plan sponsor. The Plan shall provide the `\/ Claims Administrator with a written list of such agents and subcontractors who have entered into such agreements, and Claims Administrator shall provide Protected Health Information only to those entities. The Plan shall promptly provide any updates to this list. (3) To any business associate unless a business associate contract is in effect in accordance with the Privacy Standards. The Plan shall provide the Claims Administrator with a written list of these business associates and other agents and subcontractors of the Plan sponsor who are authorized to have access to Protected Health Information. Claims Administrator shall provide Protected Health Information only to those listed entities. The Plan shall promptly provide any updates to the list. (4) In excess of the minimum necessary standards established pursuant to Section 6.3(a) hereof. (c) The Claims Administrator is entitled to rely on any request or authorization by the Plan to use or disclose PHI as being made in accordance with the terms of this Section 6.3, but reserves the right to refuse to disclose Protected Health Information in its sole discretion if it reasonably believes that such disclosure may result in a violation of the Privacy Standards. 6.4 Unauthorized Uses and Disclosures. In the event the Claims Administrator ~"' becomes aware of an unauthorized use or disclosure of Protected Health Information by itself or any of its agents or subcontractors, the Claims Administrator shall promptly notify the Plan, in writing, of such unauthorized use or disclosure. The Plan and the Claims Administrator agree to act together in good faith to take reasonable steps to investigate and mitigate any harm caused by such unauthorized use or disclosure. The duty to mitigate is the Plan's responsibility, but it maybe reasonable for the TPA to assist in mitigating any harm caused by a breach of the privacy practices. The TPA's sole responsibility is to help mitigate to those circumstances created by TPA's negligence or gross negligence. 6.5 Appropriate Safeguards. The Claims Administrator agrees that it will use appropriate safeguards to prevent the use or disclosure of Protected Health Information in any manner not authorized by this Agreement or applicable law. 6.6 Agreements with Agents and Subcontractors. The Claims Administrator shall require each of its agents and subcontractors to which it discloses Protected Health Information to enter into a contract which requires compliance with the same restrictions and conditions that apply to the Claims Administrator under this Section. Claims Administrator shall provide to the Plan, upon request, a written list of these agents and subcontractors. 6.7 Availability of Records and Information. The Claims Administrator shall make Protected Health Information and its records available to the extent necessary to err comply with the Privacy Standards requirements to provide access to individuals Page 17 upon request; to permit an individual to amend his records; to permit accounting of disclosures; or to comply with the terms of an audit by the Health and Human Services, all as set out below. Any such access shall be provided witlvn seven (7) business days of receipt of written request by an authorized person, and shall be provided during normal business hours. (a) Upon receipt of written instruction by the Plan, Claims Administrator will provide access to Protected Health Information in a designated record set to the Plan or to the individual to whom the Protected Health Information pertains, provided the Plan certifies that such disclosure is in accordance with the individual's right under the Privacy Standards to have access to his own Protected Health Information. If the Plan determines, and notifies the Claims Administrator in writing, that the Protected Health Information is subject to amendment in accordance with the Privacy Standards, the Claims Administrator shall make any amendments to such Protected Health Information requested by the Plan or by such individual within seven (7) business days following receipt of the Plan's written instruction. (b) Upon receipt of written instruction by the Plan, Claims Administrator will provide an accounting within ten (10) business days of any disclosures made with respect to an individual's Protected Health Information during the preceding six years to the extent required by the Privacy Standards. Claims Administrator shall only be responsible to account for any disclosures made by it, its agents and subcontractors. Claims Administrator shall not be '' responsible to account for any disclosures made by other entities that may be reflected in its records. (c) Claims Administrator will make its privacy practices, books and records, as they apply to the Protected Health Information, available to the extent necessary to comply with an audit by the Secretary of Health and Human Services in accordance with the Privacy Standards. 6.8 Termination of Contract. Notwithstanding any other conditions on termination of this Agreement, the Plan may terminate this Agreement if the Claims Administrator engages in a pattern of activity or practice that constitutes a material breach of its obligations under this Section and does not correct the breach within thirty (30) days after being notified in writing by the Plan. Upon termination of this Agreement, the Claims Administrator shall, at it's option, return or destroy all Protected Health Information then ul its possession which was received from, or created or received by, the Claims Administrator on behalf of the Plan, and shall not retain any copies of such Protected Health Information; provided, if return or destruction is not feasible, the Claims Administrator agrees to extend the protections of this Section to the Protected Health Information and limit further use and disclosure to those purposes that make the return or destruction infeasible. The Claims Administrator may charge a fee if it is required to maintain any such records following termnation of this Agreement. Page 18 It is understood that TPA will have reasonable access to any and all records or r information surrendered to the Employer by TPA upon termination of this Agreement for a period of six (6) years following the date of such termination (Any costs of such inspection will be borne by TBA). The books and records must be maintained in accordance with generally accepted standards of insurance bookkeeping. SECTION VII Taxes and Assessments 7.1 Taxes. If any tax or assessment is imposed by any governmental authority in connection with or on the services performed, fees received or payments made by TPA pursuant to this Agreement (other than taxes based solely on the net income of TPA), Employer shall promptly reimburse TPA for the amount thereof. Employer shall be solely responsible for all withholding, deposit and reporting requirements of federal, state and local authorities applicable to payment of benefit payments under the Plan. SECTION VIII Related Services and Agreements 8.1 Administrative Assistance. TPA may retain accountants, attorneys ox such other service providers or professionals it deems necessary in fulfilling its duties under this Agreement. Employer shall reimburse TPA for any expenses incurred with respect to administrative assistance requested by or agreed to by Employer. 8.2 Related Service Agreements. Employer shall provide to TPA copies of all contracts in force between Employer and third parties which affect the administration of the Plan or payment of benefits there under including without limitation, contracts with preferred provider," managed care, utilization and pre- certification service providers and insurers. All such contracts are listed on Exhibit B attached hereto, if appropriate. To the extent consistent with the terms and conditions of the Plan and the performance of TPA services hereunder, TPA will make all reasonable efforts to process and pay claims under the Plan in a manner consistent with the terms of such contracts, provided, however, that TPA, which is not a party to any such contracts and cannot guarantee performance, shall not be liable or responsible for the failure of Employer to perform any term of any such contract or for Employer's obtaining of any benefits there under including, without limitations, discounts, preferred rates and price reductions. Page 19 SECTION IX Fees of TPA 9.1 Fees. Employer shall pay TPA the fees described on Exhibit A attached hereto. Such fees shall be payable monthly in advance and are fully earned by TPA upon payment. Adjustments in Fees due to changes in the number of employees shall be made within thirty (30) days of such change and the adjustment reflected in the next succeeding invoice. Interest shall be charged on the amount of all TPA due fees at the rate of 1-1 /2% per month, or, if lower, the maximum allowable rate under applicable law. TPA may immediately, at its option, cease providing any services under this contact, on the 30th day after the invoice date if the Employer fails to pay the amount due, and may otherwise terminate the Agreement. 9.2 Changes in Standard Service Fee. TPA can change the standard service fee on each Agreement Period Anniversary. TPA can also change the amount of the standard services any time if: a) any changes are made to this Agreement or the Plan which affect the fees; b) there are any changes in the state or federal laws or regulations which will reflect services to be performed or expenses incurred by TPA; c) the number of employees covered by the Plan or any option of the Plan changes by ten percent (10%) or more when compared to the number of employees covered on the date that the amount of the then current standard service fee was first effective. The fee shall be adjusted as necessary effective as of the date of such change in order to reasonably compensate TPA for any additional services required to be performed or expenses to be incurred by TPA. Failing to pay an agreed upon adjustment in fees, TPA may immediately terminate this Agreement. Furthermore, the fees as described in 9.1 shall be applicable only during the initial term hereof and shall be renegotiated upon each renewal of this Agreement 9.3 Claim Reprocessing. In the event that Employer requires TPA to reprocess claims or deviate from the Plan (including but not limited to reprocessing claims due to retroactive changes in Plan design, extra contractual approval of claims, inaccurate eligibility information, etc.), TPA reserves the right to charge for additional claims administration. SECTION X Timing of Agreement 10.1 Services Begin. TPA will begin providing Employer services under this Agreement on the "Initial Period" as defined in Section I, Definitions. °+~/ Page 20 10.2 Claims Incurred. TPA services apply only to claims for Plan benefits that are ~"`' incurred on or after the effective date as defined in "Initial Period". 10.3 Agreement Period. This Agreement will continue for the initial "Agreement Period" of 24 months. Then, it will automatically continue for additional Agreement Periods of 24 months each unless and until it is terminated. Fee shall be renegotiated upon each renewal of this Agreement and shall be agreed to in writing and signed by each party on a Schedule A -Renewal. This Agreement may be terminated by either the Employer or the TPA at any time, either upon giving 30 days advance written notice to the other party at renewal, or 90 days advance written notice at any time other than renewal, unless both parties agree to waive such advance notice, or with no notice, as stated below. At the option of the party initiating the termination, the other party may be permitted a cure period (of a length determined by the party initiating the termination) to cure any default. If this Agreement is terminated by the Employer without advance written notice, or, an agreement to waive the notice, the Employer will be responsible for payment of 90 days of the administration fees. 10.4 Services End. TPA services under this Agreement stop on the date this Agreement ends, regardless of the date that claims are incurred. However, the parties may agree to services TPA agrees to continue to provide beyond the termination date. TPA will make a reasonable effort, in the normal course of its daily operations, to process claims it receives ten (10) working days before the termination of this agreement. Claims received less than ten (10) working days before the termination of this agreement will not be processed by TPA unless a separate run-off agreement negotiated between the parties, pursuant to Module III, is in effect. SECTION XI Claims Account 11.1 Claims Payment Account. TPA will maintain a Bank Account against which checks may be drawn to pay eligible claims submitted by employees covered under the Plan. Employer will ensure that the account balance is adequate to cover the checks so drawn. TPA may immediately, at its option, cease providing any services under this Agreement if the Employer fails to adequately fund this account, and may otherwise terminate the Agreement. 11.2 Deposits to Claims Payment Account. Employer (Or Trustee, if applicable) shall make payment by check or wire transfer within 72 hours to the claims account upon the written or oral request of TPA for the purpose of funding claims processed fox payment by TPA. After bank clearance of the requested payment, but not before, TPA shall release benefit payments. ~1r-. Page 21 In the event the Claims Payment Account is not funded as described above despite ~''' the timely request of the TPA, the Employer shall pay to the TPA an additional administrative fee for each such delayed deposit as follows: Deposit Delayed for One Week or Less - $150.00 per occurrence Deposit Delayed in Excess of One Week - $200.00 per occurrence Deposit Delayed in Excess of Two Weeks - $250.00 per occurrence 11.3 Escheat. Employer shall be solely responsible fox compliance with and remittances due under applicable escheat laws of any jurisdiction as such laws may be applied with respect to benefit payments under the Plan. SECTION XII Termination of the Agreement 12.1 Termination Events. This Agreement will terminate when: a) The Plan terminates. b) Both parties mutually agree to terminate the Agreement. c) After the first twelve (12) months, either party unilaterally terminates the Agreement at any time for any reason by giving the other party at least thirty (30) days prior written notice. d) TPA gives Employer prior written notice of termination because Employer did not pay the fees or other amounts Employer owed TPA under this Agreement within thirty (30) days of their Due Date. e) The bankruptcy or insolvency of Employer or TPA occurs. f) The Employer fails to provide adequate funds to the Claims Account and does not correct the breach within seventy-two (72) hours after being notified in writing by TPA that the Agreement will terminate due to failure to fund said account. g) Either party materially breaches this Agreement (other than by situations addressed ui subsections 12.1 (d) and (fl) and does not correct the breach within thirty (30) days after being notified in writing by the other party that the Agreement will terminate due to the breach. h) The enactment of, or recognition of the existence of, any law, promulgation of ation or action of any State or Federal Agency or authority which makes any re ~ or dec aces illegal the continuance of the Agreement or the performance of any of the services of TPA hereunder. i) This Agreement otherwise provides for such termination. It is understood that TPA will have reasonable access to any and all records or in formation surrendered to the Employer by TPA upon termination of this Agreement for a period of six (6) years following the date of such termination (Any Page 22 costs of such inspection will be borne by TPA). The books and records must be maintained in accordance with generally accepted standards of insurance bookkeeping. 12.3 Employer Liability For Benefits After Termination. Upon termination of this Agreement, TPA shall cease to act on behalf of Employer, and Employer shall be solely liable for the processing and payment of all benefit claims incurred before or as of the date of termination, including claims incurred but not reported and claims reported and not processed as of such date. TPA shall have no responsibility to process any claims in its possession as of the termination date. However, if the parties mutually agree and enter into an agreement so providing, TPA may provide services with respect to the run-off of claims after termination of this Agreement. TPA fees for such service shall be paid in advance in an amount mutually agreed upon by the Employer and TPA. SECTION XIII Governing Law 13.1 Tbis Agreement is governed by ERISA. To the extent that state law applies, this Agreement will be governed by the laws of the State of Texas (situs of TPA office). SECTION XIV Entire Agreement, Amendment, Waiver 14.1 Entire Agreement. This Agreement, with its Exhibits, Schedules and Modules, is the entire Agreement between the parties governing the subject matter of this Agreement. This Agreement replaces any prior wntten or oral communications or agreements between the parties relating to the subject matter of this Agreement. 14.2 Amendment. This Agreement maybe amended only by both parties agreeing to the amendment in writing. 14.3 Waiver/Failure to Enforce. Any failure by either party at any time to enforce ox require the strict performance of any of the terms or conditions of this Contract shall not constitute a waiver of such terms or conditions. Any specific waiver by either party of any of the terms and conditions of this contract shall be considered a one- time event and shall not constitute a continuing waiver. Neither a waiver nor any failure to enforce shall in any way affect or impair the terms or conditions of the Contract or the right of either party to avail itself of its remedies. 14.4 Disputes. In the event that any dispute relating to this Agreement arises between the parties, the dispute shall be resolved by binding arbitration before the American Arbitration Association using an independent panel of three (3) arbitrators provided that the arbitrators selected have at least five (5) years experience in the health care industry. In no event may the arbitration be initiated more than one year after the date one party first gave written notice of the dispute to the other party. The arbitration shall be held in San Antonio, Texas. The arbitrators shall have no power to award any punitive or exemplary damages or to ignore or vary the terms of this Agreement and shall be bound by controlling law, including ERISA. TPA and Employer shall each bear respective costs for legal representation at any such arbitration. The cost of the arbitrator and court reporter, if any, shall be shared equally by the parties. ~sr' Page 23 SECTION XV Written Communication All notices, requests, approvals, demands and other communications between the parties shall be in writing to the following address: TPA Verity National Group, Inc., Inc. 11467 Huebner Road, Suite 300 San Antonio, Texas 78230 Attention: Bruce J. Gilbert, CEO EMPLOYER Sample Client Sample Street San Antonio, Texas 78230 Attention: '~lrr` Page 24 MODULE I Claims Administration ~r+ 1.1 Processing of Claims. TPA shall process, adjust and settle claims received by TPA fox benefits under the Plan in accordance with the terms and conditions of the Plan. TPA shall promptly adjust and settle such claims in accordance with industry standards and shall notify the claimant of the disposition of the claim within the time period required by law. 1.2 Claim Review. In the event that TPA makes an initial determination that a claim is not eligible for payment under the Plan, and the claimant (or authorized representative or beneficiary) requests a review of such determination, TPA shall refer such request to Employer together with the relevant records in TPA's possession, and Employer shall make a full and fair review of the claim denial as required by ERISA and shall notify the claimant in writing of its decision on review in accordance with the time limits and other requirements of ERISA. Employer acknowledges that TPA does not represent or warrant that all determinations made by it will be accurate, and Employer expressly reserves for itself the ultimate authority. 1.3 Claims Payment. If it is determined that a payment has been made under the Plan to an ineligible plan participant and/or provider of service, or if it is determined that more or less than the correct amount of any payment has been paid, TPA will use reasonable efforts to recover any such payment made. TPA shall not be required, except in the case of willful misconduct ox gross negligence, to reimburse Employer or initiate collection or legal proceedings for any such recovery. MODULE II Run-In Claim Administration 1.1 Run-In Claims. TPA assumes responsibility fox administering claims incurred prior to the effective date, for the period August 1, 2004 through July 31, 2005, as deemed appropriate to resolve outstanding issues and process claun backlog. 1.2 Additional Fee. There will be an additional fee, determined by TPA, for processing claims prior to the dates shown above. This fee, if applicable, is shown on Exhibit A. 1.3 Other Agreement Terms. All of the other terms of this Agreement will apply to these pre-effective date services. 1.4 Stop Loss. It is Employer's responsibility to maintain adequate stop-loss protection for this period. Page 25 ~r-o MODULE III Run-Out Administration 'err 1.1 Run-Out Claims. Unless Employer otherwise directs, upon termination of the Agreement, TPA will continue to process claims incurred prior to the termination date, for a period of three months. 1.2 Additional Fee. There will be an additional fee, determined TPA, fox processing claims after the termination date of the Agreement. This fee is shown in Exhibit A. 1.3 In-Hand Processing. Unless Employer otherwise directs, TPA will continue to process all claims that TPA received prior to the date that TPA stops providing claims processing services if TPA has received all of the information necessary to process the claim before that date, subject to Item 1.2 above. 1.4 Agreement Breach. TPA will not provide these claim processing services after termination of the Agreement if the Agreement was terminated because Employer failed to pay TPA fees due or Employer did not the provide funding required under the Funding of Benefits Section of this Module or, at TPA' option, when there is termination for any other breach of the Agreement. 1.5 Other Agreement Terms. All of the other terms of this Agreement will apply to these post-termination services as though the Agreement continued to be in effect. 1.6 Stop Loss. It is Employer's responsibility to maintain adequate stop-loss protection for this period. MODULE IV Third Parry Audit Agreement A. WHEREAS, TPA desires to cooperate with requests by its group clients to permit the auditing of its claim administration; and B. WHEREAS, an outside audit firm ("Auditor") maybe retained by for the purpose of performing an audit of the Employers Employee Benefit Plan; and C. WHEREAS, Auditor and recognize TPA legitimate interest in maintaining the confidentiality of its claim information, protecttng the proprietary nature of TPA's systems and processes, preserving its business reputation, avoiding unnecessary disruption of its claim administration, and protecting itself from legal liability; NOW, THEREFORE IN CONSIDERATION of the premises and the mutual promises contained herein, TPA and Auditor hereby agree as follows: I. Audit Specifications Auditor will specify to TPA in writing at least thirty (30) business daps prior to the commencement of the Audit the following "Audit Specifications". Page 26 a. The name and professional qualification of the individual auditors; b. The claim office location(s) to be audited; c. The Audit objectives; d. The scope of the Audit (time period, lines of coverage and number of claims); e. The process by which claims will be selected for audit; £ The records/information required by Auditor for purposes of the Audit; g. The length of time contemplated as necessary to complete the Audit; and h. The titles/descriptions of TPA employees who may need to be available during the course of Audit. 2. Access to Information TPA will make the records/information and key employees called for in the Audit Specifications available to Auditor at a mutually acceptable time and place. 3. Audit Report ,,, Auditor will provide TPA with a draft copy of the Audit Report and any amended version of the Audit Report no less than ten (10) business days prior to release to Employer in order to allow TPA reasonable tune to review it and resolve any errors or misstatements of facts. Auditor will provide TPA a true copy of the Audit Report and any amended version of the Audit Report at the time such is submitted to Employer. TPA reserves the right to provide Auditor and Employer with its comments on the Audit Reports and Auditor agrees to attach a copy of TPA's comments/rebuttal to the report submitted to Employer. 4. Confidentiality Auditor understands that TPA is permitting Auditor to review the claim records information solely for purposes of the Audit. Accordingly, Auditor will ensure that all information pertaining to individual plan participants and TPA processes and procedures will be kept confidential m accordance with all applicable laws and/or regulations. a. Auditor shall not make photocopies or remove any of the claim records/documentation without the express written consent of TPA; b. Auditor agrees that its Audit Report or any other summary prepared in connection with the Audit shall contain no individually identifiable information 5. Restricted Use of Audit Information With respect to persons other than Employer, Auditor will hold and treat information obtained from TPA during the Audit unth the same degree of standard of confidentiality owed by Auditor to its clients in accordance with all applicable legal and professional Page 27 standards. Auditor shall not, without the express written consent of TPA executed by r+ the President of TPA disclose in any manner whatsoever the results, conclusions, reports, or information of whatever nature which it acquires or prepares in connection with the Audit to any party other than Employer. Auditor agrees to indemnify and to hold harmless TPA for any and all claims, costs, expenses and damages which may result from any breach of Auditor's obligations under paragraphs five (5) and/or six (6) of this Agreement. 6. Fees Employer will pay TPA the following fees: a. $ 1.00 each for the first 200 claims selected fox audit; b. $ 5.00 fox each claim thereafter; TPA Verity National Group, Inc. EMPLOYER Sample Client Date 8/1/06 Date 8/1/06 Page 28 MODULE V i'~r+ COBRA / HIPAA Administration WHEREAS, Employer (COBRA Sponsor) desires that TPA provide certain services regarding administration of continuarion coverage for those Covered Persons who are affected by COBRA as a result of their loss of coverage under the Plan (herein `COBRA Continuation Coverage') and TPA has agreed to provide such services pursuant to the terms and conditions herein provided. SECTION I Services of TPA 1.1 To the extent specified below, TPA shall provide the services fox, and shall assist the COBRA Sponsor in the administration of COBRA Continuation Coverage and HIPAA, as follows: A. To mail to Qualified Beneficiaries at the time TPA is notified of a Qualifying Event, an election form for COBRA Continuation Coverage. B. To provide Qualified Beneficiaries, who elect COBRA Continuation Coverage, appropriate claims, supplies and instruction for the filing of claims. C. To provide Qualified Beneficiaries with coupons for the purpose of remitting monthly payments to the COBRA Sponsor. D. Obtain and forward to the COBRA Sponsor all monthly remittances. E. To notify Qualified Beneficiaries that their coverage is in a state of lapse or has terminated due to failure to pay premium. F. To notify Qualified Beneficiaries of the changes in Plan benefits or cost related to COBRA Continuation Coverage. G. To notify individuals when they have lost coverage by forwarding HIPAA Certifications of Creditable Coverage. 1.2 TPA is authorized to do all acts it deems necessary or convenient to carry out the terms and purposes of this Agreement. SECTION 2 Sponsor Obligations 2.1 The parties hereto agree that the effective performance of all obligations hereunder by TPA will require that the COBRA Sponsor furiush to TPA certain tunely reports and information which COBRA Sponsor agrees to so provide as follows: A. COBRA Sponsor shall provide written notice to TPA of the occurrence of a Qualifying Event with respect to any Covered Person, including: 1. The name of the Covered Person; ,, 2. The social security number of the Covered Person; Page 29 ,, 3. The date of birth of the Covered Person; 4. The date of the Qualifying Event; and 5. The date a qualified beneficiary has been determined (under Title 11 or XVI of the Social Security ACT) to be disabled at the time of the qualifying event or is no longer disabled; and 6. The current address of the Covered Person in order for TPA to mail COBRA Continuation Coverage information. (Subsequent notification of address changes is the responsibility of the Qualified Beneficiary). Such notice shall be delivered to both the Plan Administrator and TPA within the time required by COBRA. B. COBRA Sponsor shall also provide such additional information or documentation which, in the opinion of TPA is necessary in order for TPA to perform its services under this Agreement. 2.2 TPA shall not be responsible for delay in the performance of its services caused by the failure of the COBRA Sponsor to promptly fi~rnish any and all required information. 2.3 The COBRA sponsor shall notify TPA of any inquiries by Covered Persons pertaining to the COBRA Continuation Coverage. 2.4 The COBRA Sponsor shall comply with COBRA and all other applicable Federal, '~''` State and local laws and regulations in connection with the COBRA Continuation Coverage. SECTION 3 Indemnification 3.1 TPA, in performing its obligations under this Agreement, is acting only as an independent contractor for the COBRA Sponsor. For the purposes of the Employee Retirement Income Security Act of 1974, as amended from tune to time (`ERISA"), COBRA and any applicable state legislation of a similar nature, the COBRA Sponsor shall be deemed to be the administrator of the Plan. In no instance shall TPA be deemed to be, or be, the administrator of the Plan for purposes of the Employee Retirement Income Security Act of 1974, ERISA, as amended from time to tune or the Plan Administrator under Section 4980 13(g) (3) of the Internal Revenue Code of 1986, as amended from time to time. TPA has no discretionary authority or control with respect to the Plan or the COBRA Continuation Coverage and is not a fiduciary of the Plan, it being understood that TPA's services hereunder are purely administrative functions within the framework of policies, interpretations, rules, practices and procedures set down by the COBRA Sponsor. 3.2 It is understood that the legal and tax status of the Plan and the COBRA requirements under applicable law are matters for determination by the COBRA Sponsor and that TPA has given COBRA Sponsor no advice with respect to the legal and tax status of the Plan or compliance with COBRA and bears no responsibility therefore. Page 30 MODULE VI Stop-Loss Analysis Services as requested by the Employer WHEREAS. Employer (Pla.n Sponsor) desires that TPA provide certain stop-loss analysis services and TPA has agreed to provide such services, pursuant to the terms and conditions herein provided. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto do hereby agree as follows: SECTION 1 Services of TPA 1.1 To the extent specified below, TPA shall provide the services fox, and shall assist the Plan Sponsor in the analysis of their stop-loss coverage, if any, as follows: A. Annually market those coverages Plan Sponsor indicates to select number of insurance and reinsurance carriers in order to obtain alternate quotes for comparison. B. Prepare and deliver renewal proposal prior to renewal date. C. Provide supporting claims documentation to support renewal action. ~'" D. Interpret and analyze claim information in order to make suggestions for possible plan design changes. E. Upon renewal, complete all applications, forms and amendments. F. Communicate renewal decisions to TPA departments and all involved carrier(s) and/or vendor(s). Page 31 MODULE VII ~,,, Termination Fees without Claims Run-Out Administration At the termination of the administration agreement, TPA incurs expenses which have not been reflected in normal monthly administration fees. To offset these expenses, the following charges will be made: 1.1 Off Anniversary Termination. If this Agreement is terminated by the Employer without advance written notice, or, an agreement to waive the notice, the Employer will be responsible for payment of 90 days of the administration fees. 1.2 Reports. A standard exit report package is $5 multiplied by the number of Plan participants for which information is requested. A standard report shall mean a participant listing, deductible and out-of-pocket expense, and life maximum accumulators. The reports will be provided in a format produced by the claims payment system currently in use by TPA. If needed and available, reformatting of information will be at an additional fee. Custom formatting charges are $120.00 per hour. Detailed claims reports will be an additional fee depending upon the level of detail requested in the report. Custom reports are $120 per hour. 1.3 Images. Copies of images out of the system: $120 per hour and $.30 per page. A deposit will be required based on projected expenses before project is undertaken.. Page 32 ~1rn- 'rr MODULE VIII Disclosure Form ® Agent ® TPA Verity National Group, Inc., Inc. The Agent and/or TPA listed above will contract Related Services Agreements in conjunction with the sale of the group policy(ies) you have selected to purchase. This arrangement does not limit your Agent and/or TPA from marketing for other insurance companies or organizations. The Agent and/or TPA is entitled to commissions and/or marketing allowances on such contracts, expressed as a percentage of gross annual premium and/or a flat dollar amount, as follows: AGENT TPA 10% of the A e to Premium 5%of the A e ate Premium 10% of the S ecific Premium 5% of the S ecific Premium 0% of Life and AD&D Premium 0% of the Life and AD&D Premium $Oof Pre-Certification Review Services $0.00 of Pre-Certification Review Services $0.00 Other Per Em to ee Monthl $0.00 of PPO Services In addition to commissions, TPA may receive additional compensation in the form of cash bonus and/or certain travel bonuses awarded by the insurance carrier, PPO or other ancillary service providers. The bonus is developed and paid by the carrier, PPO or other ancillary service providers based on several aspects of TPA's entire block of business with the carrier, PPO or other ancillary service providers. These bonuses do no represent payment from plan assets, nor do these bonuses effect the premium you pay for insurance. The undersigned acknowledges receipt of the various proposals and the statement prior to any purchase and approves this transaction on behalf of the Plan without receiving, either directly or indirectly, any personal compensation in connection with the purchase of policies under the Plan. Sample Client Page 33 MODULE IX Short Term Disability Claims Administration NL 1.1 Processing of Claims. TPA shall process, adjust and settle claims received by TPA for benefits under the Plan in accordance vnth the terms and conditions of the Plan. TPA will review information supplied on the Short Term Disability (STD) Claim form and Disability Statement from physician. TPA will review information and screen for Worker's Compensation (WC), Occupational Accident (OCCAC) or Motor Vehicle Accident (MVA) situations. If a determination is made that the accident is compensable under applicable worker's compensation laws, claim will be referred back to employer for action as a WC claim. If a determination is made the disability is a result of a MVA, TPA will consult with plan regarding subrogation. TPA shall promptly adjust and settle such claims in accordance with industry standards and shall notify the claunant of the disposition of the claim within the time period required by law. TPA will request periodic updates from the physician as the condition mandates. TPA will involve outside case manager if it is determined by TPA staff the services of a case manager are warranted. TPA will request written approval from the employer before services of case manager are engaged. 1.2 Claim Review. In the event that TPA makes an initial adverse benefit determination for benefits under the Plan, and the claimant (or authorized representative or beneficiary) appeals such determination, TPA shall diligently review information provided by the claimant to support their request fox reconsideration. The review shall take into account all comments, documents, records and other information submitted by the claimant relating to the claim. If the determination was based upon medical judgement, the TPA shall consult with a healthcare professional who has appropriate training and experience in the field of medicine and who was not involved in the original benefit determination. TPA shall provide notice of determination in advance to the Employer and shall notify the claimant, or their designated representative, in writing of its decision on review in accordance with the time limits and other requirements of ERISA. Employer acknowledges that TPA does not represent or warrant that all determinations made by it will be accurate, and Employer expressly reserves for itself the ultimate authority. 1.3 Claims Payment. If it is determined that a payment has been made under the Plan to an ineligible plan participant and/or provider of service, or if it is determined that more or less than the correct amount of any payment has been paid, TPA will use reasonable efforts to recover any such payment made. TPA shall not be required, except in the case of willful misconduct or gross negligence, to reimburse Employer or initiate collection or legal proceedings for any such recovery. ~r- Page 34 MODULE X THIRD PARTY RECOVERY SERVICES AGREEMENT Verity National Group, Inc., Inc. and its affiliated companies, hereinafter referred to as "TPA," on behalf of itself, and its Plan Sponsors has entered into a contractual relationship with a recognized company who specializes in third party recovery, Strategic Recovery Partnership, Inc. referred to as "SRP". SECTION 1 Period of Time Covered by this Agreement: This Agreement shall run concurrent to the administrative services agreement to which it is attached. Plan sponsor my elect to discontinue the services of SPR at any time during the term of the administrative services agreement by providing 90 days advance notice to TPA. SECTION 2. SRP'S Services Services to be provided by SRP in connection with personal injury or other similar cases shall include, but not be limited to: •investigation of personal injury or other similar claims where liens are appropriate; •preparation, filing and assertion of liens or other appropriate notification and demands or claims for reimbursement; •collection, timely remittance and accounting of recovered funds to TPA, on behalf of the Plan Sponsor; •notification of plan participant and/or his or her attorney (hereinafter individually and collectively referred to as "Plaintiff) regarding TPA's claimed entitlement to reimbursement; •negotiation with Plaintiff for reimbursement from any settlement, judgment or recovery of monies in connection with the illness or injury which is the subject of the first party/third party/personal injury claim; SECTION 3 SRP Compensation For all subrogation services, SRP shall receive compensation as follows: a. Twenty percent (20%) of all sums recovered where another party may be liable for the injuries for which Plan Sponsor paid and TPA administered claims where the recovered amount is Sixty percent (60%) or more of the claimed lien; and Fifteen percent (15%) when the recovered amount is less than Sixty percent (60%) of the lien. b. All monies collected by SRP shall be deposited in escrow. The lien amount, as identified by plan sponsor or TPA shall be forwarded to plan sponsor, less SRP's compensation as specified above, within twenty (20) business days of receipt of recovered lien amount by SRP. c. SRP hereby discloses that a portion of its compensation, equal to five percent (5%) of ,r all sums recovered, shall be paid to TPA in consideration of its provision of Page 35 information necessary to SRP's performances of subrogation services under this agreement. B) Conferral of Authority 1. Plan Sponsor hereby authorizes SRP to compromise, adjust, settle or otherwise dispose of liens and other claims described in this Agreement in any manner authorized by law and in the best interests of Plan Sponsor except that SRP shall notify and receive its approval prior to entering into any settlement or finalizing any recovery representing less than seventy five (75%) of the total due. C) Termination 1.All cases, documents and other work product of SRP at the time of termination shall be remain in possession of SRP for completion of services under this agreement according to the fee schedule outlined in Section (2)(A) above SECTION 4. Exclusivity In consideration of the rate schedule outlined in Section (2)(A)(1), Plan Sponsor hereby promises, warrants and covenants that it has retained SRP as its only subrogation case representative. TPA will not manage or negotiate any of its Plan Sponsor's subrogation cases on its own, or "in-house," nor will it contract with, forward cases to, or otherwise employ any other vendor for the purpose of subrogation representation. SECTION 5. Records and Reporting `~rrr A. SRP will provide a quarterly report describing all claims or liens which it is managing on behalf of Plan Sponsor including an update on the status of each such claim or lien. B. SRP recognizes and will preserve and protect the confidential and proprietary nature of any information provided to it by TPA or Plan Sponsor in connection with SRP's performance of Services under this Agreement. SECTION 6 Standard of Care and Confidentiality A. SRP agrees to perform Services under this Agreement in a confidential, professional manner using that degree of skill and care as would a reasonably prudent vendor performing similar services under similar circumstances. SECTION 7. Compliance with Laws. In connection with the services contemplated hereunder, SRP will comply with all applicable federal and state laws, rules, regulations and orders in the performance of its services under this Agreement. Without limiting the generality or the foregoing, this includes compliance with any and all applicable privacy and security rules and regulations as may be applicable in connection with the services. In this regard, SRP acknowledges the importance and impact of the legislation passed in the Health Insurance Portability and Accountability Act of 1996, as amended ("HIPAA"). While SRP is not a "Covered Entity" as defined by HIPAA, SRP does fall into the category of subcontractor to TPA, who is a Page 36 Business Associate of its Plan Sponsors (each, also referred to herein as a "Covered Entity"), as defined by HIPAA. As such, SRP has contractually agreed to comply with all regulations promulgated by HIPAA. SECTION 8. Independent Contractor Plan Sponsor, TPA and SRP agree that SRP will act as an independent contractor in the performance of its duties under this agreement. Accordingly, SRP shall be responsible for payment of all taxes including federal, state and local taxes arising out of SRP's activities in accordance with this Agreement. SECTION 9. Modification of Bement This Agreement constitutes the entire contract between the parties. No modification or amendment hereto shall be valid unless in writing and signed by an officer of each of party. SECTION 10. Survival Provisions contained in this Agreement that by their sense and context are intended to survive completion of performance, termination or cancellation of this Agreement shall so survive. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective duly authorized officers. Signed this day of , 2005 Signed this _ day of , 2005 ~rr~' TPA By Bruce J. Gilbert Verity National Group, Inc. Plan Sponsor By Contact Name Sample Client Page 37 SCHEDULE A ~r Fees -Annual Renewal/Start-U Administrative Fee N/A -Monthly Medical Administration Fee $ 17.00 er Em to ee er month Pre-Certification $ 2.00 ex Em to ee er month PPO Access Fee $ 4.50 er Em to ee er month COBRA Administration Fee $ 1.50 er Em to ee er month HIPAA Administration Fee N/A Flexible S endin Account Administration N/A Dental Administration Fee N/A Vision Administration Fee N/A STD Administration Fee N/A De osit Administration Fee As described in Section 11.2 -Special Proiects: Consulting $ 100.00/Hour Programming $ 100.00/Hour Administration $ 30.00/Hour Benefit Booklets $ 1.75/Each ID Card Printing $2.00 per card -Run-In Claims Administration - Unpaid claims with service dates prior to initial period will be processed on a flat fee basis of $20.00 per claim. -Run-Out Claims Administration 2.5 times the then current Monthly Administrative Fee(s). Payable in advance, fora 3 month period to process claims with incurred dates prior to termination. TPA Date 8/1/06 Employer Date 8/1/06 Page 38 Third Party Administrative Services Agreement Signature Page ,w,- The Third Party Administrative Services Agreement (called the "Agreement) covers the services TPA is providing to the Employer. These services include the following modules: • Claims Administration • Run-In Administration • Termination Fee Without Claims Run-Out Administration • COBRA/HIPAA Administration - • Third Party Disclosure Agreement • Stop-Loss Analysis • Run-Out Administration • Third Party Recovery This Agreement is structured so that the general provisions and basic services appeared first, and the special services provisions axe attached as Modules. The Agreement consists of the main body following this page, and the Exhibits, Schedules and Modules and this page. This Agreement is effective as of March 1, 2004 (called the "Initial Period"). By signing below, each party agrees to the terms of this Agreement. `mow. By: Authorized Signature Printed Name Title: Date: By: Verity National Group, Inc. Authorized Signature race J. G ert Printed Name Title: Date: C e Executive cer Sample Client Page 39 ZTeri National Grou ,Inc. p Section 125 Flexible Spending Account Administrative Services Agreement VERITY NATIONAL GROUP, INC. ,, SECTION 125 FLEXIBLE SPENDING ACCOUNT ADMINISTRATIVE SERVICES AGREEMENT I. PARTIES This Agreement is between (Company) and Verity National Group, Inc.. (TPA). II. PURPOSE The Company desires to provide certain employee welfare benefits for its active and/or retired employees and their dependents through a cafeteria plan as defined in Section 125 of the Internal Revenue Code of 1986, as amended, and it is desired that TPA provide claim administration and other services with respect to such plan in accordance with the terms and conditions contained in this Agreement. III. DEFINITIONS (a) "Code" means the Internal Revenue Code of 1986, as amended. (b) "Company" means (Company). (c) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from ~/ time to time. (d) "Initial Period" means the period March 1 ,2007 through February 28, 2009. (e) "Participant" means an employee enrolled in the Plan, including an employee who terminates employment with the Company, if he or she continues to participate in the Plan. (f) "Plan" means the cafeteria plan adopted by the Company under Section 125 of the Code with respect to which TPA is to provide certain services in accordance with this Agreement, as such Plan is constituted from time to time by the Company. (g) "Successive Periods" means successive 12-month periods, following the Initial Period or any Successive Period. (h) "Trust" means the Trust Agreement between the Company, as Trustee and the entire assets of said Trust, including all contributions made by the Company and/or its participants, together with all contracts, investments and other property or funds received and held by the Trustee. ~`.r N. DUTIES OF TPA (a) TPA will examine each claim for benefits under the Plan, take reasonable steps to verify its validity, compute the amount payable (if any) and either disburse the benefit due under the Plan or deny the claim. (b) TPA's claim service under this Agreement is subject to the provisions and conditions set forth below: (1) All contested or questionable claims or charges for benefit amount after review by TPA will be referred to the Company for its determination of liability. The Company will direct TPA in writing to either pay or not to pay the claim or charge in question. "Questionable" claims or charges means all claims or charges where the Plan provisions or Company directions are unclear as to the payment or denial of claims. (2) The Company will establish a claims appeal procedure for handling disputes regarding claims for benefits or the payment of benefits, in accordance with the Plan and ERISA. The Company has final authority as to the final denial or payment of a claim on appeal. (3) Payment of claims by TPA, other than contested or questionable claims, and payment of approved, contested or questionable claims after completion of the claims appeal procedure, is hereby authorized and will be made from the trust account in accordance with Section N hereof. (4) TPA will rely on one or more of the following in processing claims made under the Plan: the Plan Document, Summary Plan Description, the Agreement, standard practices of the life and health insurance industry and any laws, regulations or ruling relating to Plan matters. (c) By the last day of each month, TPA will provide the Company a record of all Plan benefit checks issued in the previous month (check register). (d) On or before January 31 of each calendar year, TPA will furnish the Company with a statement indicating amounts reimbursed by the Plan fox dependent care expenses to each participant during the previous calendar year. The Company will provide each participant receiving such reimbursements with the information applicable to him or her. (e) At the request of the client, and fox an additional fee, TPA will prepare an initial draft of a Plan Document based on the information given to TPA by the Company. Upon receipt by TPA of a signed Plan Document, TPA will prepare an initial draft of a booklet describing the Plan for participants ("summary plan description"). With respect to any Plan Documents, summary plan descriptions or amendments thereto (collectively referred to as "Documents") prepared by TPA, the Company agrees: to provide TPA in writing and on a timely basis, with all information TPA needs to prepare the Documents; ~r 2. that TPA may rely on the accuracy of such written information and that the Company is solely responsible for the accuracy and adequacy of all such information; ~'` 3 that any subsequent amendments or restatements will be drafted by TPA only at the express written request of the Company: 4 that TPA is not rendering any legal or accounting services or advice and that the Documents are prepared subject to the direction and with the approval of the Company and its legal counsel; and 5 that the Company is solely responsible for carefully reviewing and editing all Documents to confirm their accuracy and suitability for its needs. (f) The parties acknowledge that; (a) this is a contract for administrative services only as specifically set forth herein; (b) the TPA shall not be obligated to disburse more in payment for Claims or other obligations arising under the Plan than the Employer shall have made available in the Claims Payment Account; and (c) this Agreement shall not be deemed a contract of insurance under any laws or regulations. The TPA does not insure, guarantee, or underwrite the liability of the Employer under the Plan. The Employer has total responsibility for payment of Claims under the Plan and all expenses incidental to the Plan. V. DUTIES OF THE COMPANY ~r (a) The Company is the Plan Administrator and a Named Fiduciary of the Plan as those terms are defined in ERISA. As such, the Company is responsible for the general management and administration of the Plan, including but not limited to, the following: Payment of claims for benefits under the Plan and payment of expenses for the administration of the Plan including without limitation, taxes and other governmental fees assessed against the Plan or the Company and any attorneys, auditors or other professionals appointed by the Company in connection with the Plan; 2 establishment, amendment and termination of the Plan and establishment of a funding policy for the Plan; 3 final interpretation of the Plan, including determination of eligibility and amount, manner and time of Plan benefit payments; 4 enrollment of eligible persons in the Plan and providing TPA with a complete and accurate enrollment form for each participant prior to the effective date of this Agreement, (unless TPA conducts the enrollment); 5 obtaining written waivers of Plan coverage from eligible persons declining such coverage; ~r 6 forwarding to TPA by the fifteenth (15th) day of each month, a written list of all persons ~""' beginning coverage under the Plan in the next month and persons terminating coverage and complete accurate enrollment forms for new participants. 7 reviewing TPAs monthly billing statement for accuracy of enrollment records and immediately informing TPA of inaccuracies; 8 providing each participant with a summary plan description as required by ERISA. ERISA requires that a summary plan description to new participants within ninety (90) days of their enrollment, that the Company update summary plan descriptions in general every five (5) year and that a summary of material modifications be distributed within 210 days after the end of any Plan Year that the Plan's benefits were substantially modified. (b) The Company will provide TPA with census data, a complete description of the Plan benefits and features and all other information relating to the Plan and its participants reasonably required by TPA to perform the benefit payment function and other services in accordance with the Agreement. (c) The Company will inform participants whose coverage under the Plan would otherwise terminate, of their right (if any) to continued coverage as required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") unless TPA has agreed to do so in a separate written agreement with the Company. ~ d The Com an is res onsible for com letin an re orts re aired b law, includin Form () p Y p p g Y P q Y g 5500, except to the extent the Company has executed a separated written addendum to this Agreement or the completion of the reports specified in the addendum. (e) The Company is responsible for deter+rining if the Plan meets any nondiscrimination requirement imposed by law, including but not limited to, requirements under Code Section 125 or under Code Sections 105, 106 or 129. (~ The Company will execute an agreement adopting the Trust on or before the effective date of the Plan. VI. ESTABLISHMENT OF TRUST AND TRUST ACCOUNT (a) The Company has established a Trust for contributions of the Company and/or participants. TPA will deposit funds received from the Company to a designated trust account as requested from time to time by TPA, to be used for the following in the order indicated: 1. payment of the service fee to TPA as set forth in Schedule A hereto; 2. disbursement of benefit payments to participants; and 3. payment of all other expenses of the Plan which are authorized by the Company. (b) The Company by this Agreement expressly authorizes TPA to disburse funds from the trust "' account in the order indicated above pursuant to the provisions of this Agreement, by drafts signed by designated employees of TPA. (c) The Company agrees that it will maintain funds in said trust accounts for the payment of drafts issued by TPA in accordance with the provisions of the Plan and this Agreement. TPA will monitor the balance in the trust account and will notify the Company when additional deposits are required. So long as the Company is so notified, the Company agrees to indemnify and hod TPA, its officers, agents, or employees harmless from any and all loss, damages, claims, suits, interest, costs and expenses (including Attorneys' fees), that TPA may sustain or become liable for or pay upon or in consequence of any liability to payees, endorsers, endorsees, holders or the drawee bank or any collecting bank or banks arising out of the failure of the drawee bank to honor any draft described in the preceding paragraph by reason of inadequacy of funds in said trust account or for any other reason whatsoever, provided, however, that such loss, damages, claims, suits, interest, costs and expenses did not result from the negligent or other wrongful acts or omission of TPA. (d) In the event the trust account is not maintained as described above, the Employer shall pay to the TPA an additional administrative fee for any delayed deposit as follows: Deposit Delayed for One Week or Less - $ per occurrence Deposit Delayed in Excess of One Week - $ per occurrence Deposit Delayed in Excess of Two Weeks - $ per occurrence "~""' VII. FEES Fox the services set forth in this Agreement to be rendered by TPA, the Company agrees to pay the service fees set forth in Schedule A herein. TPA reserves the right to change these fees: 1. as of the beginning of any Successive Period; 2. as of the date of any material benefit change or other material change in the extent of the obligation of TPA hereto. VIII. COMMENCEMENT, DURATION AND TERMINATION OF AGREEMENT (a) This Agreement will become effective on the first day of the Initial Period and unless and until terminated as hereinafter provided will continue in effect throughout the initial and each Successive Period. This Agreement will terminate on the earlier of: 1. the date agreed to between the parties; 2. ninety (90) days after written notice of termination by certified mail is received by the other party; or 3. the date either party makes an assignment for the benefit of creditors or a bankruptcy petition is filed by or against either party. TPA may unilaterally terminate this Agreement without prior notice if the company is more than thirty (30) days late in the payment of any fees due to TPA or if the Company fails to adequately fund the trust account described in Section N hereof and such failure results in Plan benefits not being paid on a timely basis. The Company may unilaterally terminate this Agreement upon thirty (30) day notice by certified mail if it does not agree to a fee increase requested by TPA. (b) Except as provided in Section IX hereof, all obligations of TPA under this Agreement, including the processing of claims and disbursement of benefit amounts will be terminated and extinguished on the effective date of termination of this Agreement. TPA will make a reasonable effort, in the normal course of its daily operations, to process claims it receives (15) working days before the termination of this Agreement. Claims received less than fifteen (15) working days before the termination of this Agreement will not be processed by TPA. A claim is considered received by TPA when all of the information pertaining to its payments or denial of payment is received by TPA. Upon termination of this Agreement, the Company 1. will have sole responsibility for the administration of the Plan, including all duties formerly performed by TPA as though this Agreement had never been in effect; and 2. will remain responsible for the payment of all fees, premiums and expenses fox services rendered or charges incurred prior to such termination. (c) TPA will hold and possess as the property of the Company all paper, books, files, correspondence and records of all kinds which at anytime shall come into its possession or under their control relating only to claims paid under this Agreement, and will surrender them to the Company within a reasonable time after termination of this Agreement. All other books, files, correspondence and records including administrative manuals, are the property of TPA and any such books, files correspondence and records held by the Company will immediately be surrendered to TPA upon termination of this Agreement. The Company will have the right at all reasonable times to inspect at the office of TPA, all books and documents belonging to the Company or the Plan relating to the provisions of services to the Plan under this Agreement. Any costs of such inspection will be borne by the Company. It is understood that TPA will have reasonable access to any and all records or information surrendered by the Company to TPA upon termination of this Agreement for a period of six (6) years following the date of such termination. Upon termination of this Agreement, TPA shall cease to act on behalf of Employer, and Employer shall be solely liable for the processing and payment of all benefit claims incurred before or as of the date of termination, including claims incurred but not reported and claims reported and not processed as of such date. TPA shall have no responsibility to process any claims in its possession as of the termination date. However, if the parties mutually agree and enter into an agreement so providing, TPA may provide services with respect to the run-off of claims after termination of this Agreement. TPA fees for such service shall be paid in advance in an amount mutually agreed upon by the Employer and TPA. IX. PROVISIONS FOR TEMPORARY PROVISION OF SERVICES In the event this Agreement is terminated and it is desired to provide for an orderly transition, the Company may arrange with TPA for the continued processing of claims incurred prior to the termination date for a period not to exceed ninety (90) days beyond such date provided that: 1. all of the terms and conditions of this Agreement remain in force; 2. TPA agrees in writing with the Company to such continued provision of services; and 3. the fees set forth in Schedule A are payable to TPA. X. GENERAL PROVISIONS (a) The legal and tax status of the Plan under applicable law, including compliance with Sections 105, 106, 125 of the Code is a matter for determination by the Company and not by TPA, which is not responsible therefor. TPA is neither the Plan Administrator nor a named Fiduciary of the Plan as these terms axe defined in ERISA. (b) If ERISA requires that the Plan be audited annually by an independent qualified public accountant, the Company is responsible for arranging for and paying the cost of the audit. (c) If the Company or the Plan is investigated or audited by any state or federal governmental ~r agency, TPA will fully cooperate with such agency's reasonable and lawful request for information. Any and all costs to TPA of such investigation or audit will be borne by the Company. (d) Failure by the parties to insist upon compliance with any provisions of this Agreement will not waive or modify the provision or render it unenforceable as to any other time or as to any other occurrence whether the circumstances are or are not the same, and no waiver or modification of any of the terms or conditions of this Agreement will be valid unless it is in writing and signed by both parties by persons duly authorized to do so. This Agreement constitutes the entire contract between the parties relative to the administration of the Plan and cancels, replaces and supersedes any and all previous agreements relating to such administration. (e) Any assignment of this Agreement or any rights hereunder will be void and of no force or effect unless it is agreed to in writing by the parties, except that TPA may assign this Agreement to any successor in a corporate reorganization or restructuring. (f) TPA has the power to add to, subtract from or modify any terms of the Plan, or to change or add any benefits provided under the Plan or to waive or fail to apply any requirements for eligibility of a benefit under the Plan. TPA does not actually pay benefits or provide insurance for benefits. (g) Liability and Indemnify: (1) It is understood that the expense of and defense of any legal action against the Company involving a claim dispute under the Plan will not be the obligation or responsibility of TPA; (2) TPA will not be liable for disbursements of funds to individuals not otherwise entitled to benefits under the terms and conditions of the Plan which are made at the express direction of the Company. (3) The Company agrees to indemnify and hold TPA, its officers, agents or employees, harmless against any and all loss, damage, interest, costs, and expense, including attorneys' fees, occasioned by claims, demands, or lawsuits brought against TPA in any way arising out of TPA's performance of its duties hereunder, except claims resulting solely from the negligent acts of TPA, its officers, agents or employees. (4) The provisions of this Section (g) will survive the termination of this Agreement. (h) Governing Law. This Agreement is governed by ERISA. To the extent that state law applies, this Agreement will be governed by the laws of the State of Texas. IN WITNESS WHEREOF, the undersigned parties have executed this Agreement. (name of company) Verity National Group, Inc.. (name of TPA) By: Name Printed: Dated: By: Name Printed: Bruce Gilbert Its: Chief Executive Officer Dated: SCHEDULE A FEES FOR SERVICES The Employer and the TPA hereby agree to the compensation schedules set forth below as being the sole compensation to the TPA for any of its services which relate to the Plan. Fees shall be invoiced monthly and shall be payable upon receipt. Initial one-time fee of $ . Annual Fee (beginning in year 2) of $ . Plus a monthly fee of: MBI Card Fee: $ per participant per month FSA or Dependent Care Participants: $ per participant per month (Minimum $150 per month) Premium Only Participants: $ per participant per month `'+irr Fee for creation of Enrollment forms, preparation of Plan Document and Summary Plan Description and Amendments included in initial or yearly set up fee. Hourly fee of $50 for special claims history research necessitated by error or omission by a party or parties other than the TPA. Printing fee plus shipping and handling per SPD booklet printed. Upon termination of this agreement, a final fee for forwarding records to the Employer to be determined. Fox other than governmental mandated changes, a flat fee of $200 for mid-year Plan changes at time of change request. Check customization, programming costs for non-standard reports, special, quarterly or annual reports or services in addition to standard monthly reports or the services mutually agreed upon, will be billed separately at the actual costs of such services. Payroll Cycle/Frequency: Paydays: 9 PLAN DOCUMENT AND SUMMARY PLAN DESCRIPTION FOR 123 COMPANY HEALTH CARE PLAN Third Party Recovery Provision. Explains the Plan's rights to recover payment of charges when a Covered Person has a claim against another person because of injuries sustained. fir' Continuation Coverage Rights Under COBRA. Explains when a person's coverage under the Plan ceases and the continuation options which are available. ERISA Information. Explains the Plan's structure and the Participants' rights under the Plan. ELIGIBILITY, FUNDING, EFFECTIVE DATE AND TERMINATION PROVISIONS A Plan Participant should contact the Plan Administrator to obtain additional information, free of charge, about Plan coverage of a specific benefit, particular drug, treatment, test or any other aspect of Plan benefits or requirements. ELIGIBILITY Eligible Classes of Employees. All Active Employees of the Employer. Eligibility Requirements for Employee Coverage. A person is eligible for Employee coverage from the first day that he or she: (I) is a Full-Time, Active Employee of the Employer. An Employee is considered to be Full-Time if he or she normally works at least 30 hours per week and is on the regular payroll of the Employer for that work. (2) is in a class eligible for coverage. (3) completes the employment Waiting Period of 30 consecutive days as an Active Employee. A "Waiting Period" is the time between the first day of employment as an eligible Employee and the first day of coverage under the Plan. The Waiting Period is counted in the Pre-Existing Conditions exclusion time. Eligible Classes of Dependents. A Dependent is any one of the following persons: (1) A covered Employee's Spouse and unmarried children from birth to the limiting age of 19 years. The Dependent children must be primarily dependent upon the covered Employee for support and maintenance. However, a Dependent child will continue to be covered after age 19, provided the child is "' a full-time student at an accredited school, primarily dependent upon the covered Employee for support and maintenance, is unmarried and under the limiting age of 25. When the child reaches either limiting age, coverage will end on the last day of the child's birthday month. If the child does not maintain full-time status or graduates, coverage closes independent of limiting age. Full-time student coverage continues between semester/quarters only if the student is enrolled as a full-time student in the next regular semester/quarter. If the student is not enrolled as a full-time student, coverage will be terminated retroactively to the last day of the calendar month that a dependent child attended school term. The only time this will not apply is when a dependent child was enrolled in the Spring semester, as they will be carried through the summer until September ls`. At that time proof of fall registration will be required to continue coverage. The term "Spouse" shall mean the person recognized as the covered Employee's husband or wife under the laws of the state where the covered Employee lives. The Plan Administrator may require documentation proving a legal marital relationship. The term "children" shall include natural children, adopted children or children placed with a covered Employee in anticipation of adoption. Step-children who reside in the Employee's household may also be included as long as a natural parent remains married to the Employee and also resides in the Employee's household. If a covered Employee is the Legal Guardian of an unmarried child or children, these children may be enrolled in this Plan as covered Dependents. The phrase "child placed with a covered Employee in anticipation of adoption" refers to a child whom the Employee intends to adopt, whether or not the adoption has become final, who has not attained the ~~, age of 18 as of the date of such placement for adoption. The term "placed" means the assumption and retention by such Employee of a legal obligation for total or partial support of the child in anticipation of adoption of the child. The child must be available for adoption and the legal process must have commenced. Any child of a Plan Participant who is an alternate recipient under a qualified medical child support order shall be considered as having a right to Dependent coverage under this Plan. A participant of this Plan may obtain, without charge, a copy of the procedures governing qualified medical child support order (QMCSO) determinations from the Plan Administrator. In all cases, to qualify as an eligible Dependent under the Plan, the child must be dependent upon the covered Employee for over one-half of his support during the Plan Year. A special rule applies in the case of a child of divorced parents, legally separated parents or parents who lived apart at all times of the year or during the last six months of the calendar year. The child will be considered dependent upon the Employee for over one-half of his support if the child is in the custody of the Employee and/or the other parent for more than one-half of the year and the child is dependent upon one and/or both parents for more than one-half of his support for the year. The Plan Administrator may require documentation proving dependency, including birth certificates, tax records or initiation of legal proceedings severing parental rights. (2) A covered Dependent child who reaches the limiting age and is Totally Disabled, incapable of self-sustaining employment by reason of mental or physical handicap, primarily dependent upon the covered Employee for support and maintenance and unmarried. The Plan Administrator may require, at reasonable intervals during the two years following the Dependent's reaching the limiting age, subsequent proof of the child's Total Disability and dependency. After such two-year period, the Plan Administrator may require subsequent proof not more than once each year. The Plan Administrator reserves the right to have such Dependent examined by a Physician of the Plan Administrator's choice, at the Plan's expense, to determine the existence of such incapacity. These persons are excluded as Dependents: other individuals living in the covered Employee's home, but who are not eligible as defined; the legally separated or divorced former Spouse of the Employee; any person who is on active duty in any military service of any country; or any person who is covered under the Plan as an Employee. If a person covered under this Plan changes status from Employee to Dependent or Dependent to Employee, and the person is covered continuously under this Plan before, during and after the change in status, credit will be given for deductibles and all amounts applied to maximums. If both mother and father are Employees, their children will be covered as Dependents of the mother or father, but not of both. Eligibility Requirements for Dependent Coverage. A family member of an Employee will become eligible for Dependent coverage on the first day that the Employee is eligible for Employee coverage and the family member satisfies the requirements for Dependent coverage. At any time, the Plan may require proof that a Spouse or a child qualifies or continues to qualify as a Dependent as defined by this Plan. FUNDING Cost of the Plan. 123 Company pays the entire cost of Employee coverage under this Plan. 123 Company shares the cost of Dependent coverage under this Plan with the covered Employees. The enrollment application for coverage will include a payroll deduction authorization. This authorization must be filled out, signed and returned with the enrollment application. The level of any Employee contributions is set by the Plan Administrator. The Plan Administrator reserves the right to change the level of Employee contributions. PRE-EXISTING CONDITIONS NOTE: The length of the Pre-Existing Conditions Limitation may be reduced or eliminated if an eligible person has Creditable Coverage from another health plan even if that coverage is still in effect. The Plan will reduce the length of the Pre-Existing Condition Limitation period by each day of Creditable Coverage under this or a prior plan; however, if there was a significant break in the Creditable Coverage of 63 days or more, then only the coverage in effect after the break will be counted. An eligible person may request a certificate of Creditable Coverage from his or her prior plan within 24 months after losing coverage and the Employer will assist any eligible person in obtaining a certificate of Creditable Coverage from a prior plan. A Covered Person will be provided a certificate of Creditable Coverage from this Plan if he or she requests one either before losing coverage or within 24 months of coverage ceasing. If, after Creditable Coverage has been taken into account, there will still be aPre-Existing Conditions Limitation imposed on an individual, that individual will be so notified. All questions about the Pre-Existing Condition Limitation and Creditable Coverage should be directed to the ~' Plan Administrator, 123 Company, 123 Anywhere St, San Antonio, Texas, 78229, (210) 123-4567. Covered Charges incurred under Medical Benefits for Pre-Existing Conditions are not payable unless incurred 12 consecutive months, or 18 months if a Late Enrollee after the person's Enrollment Date. This time, known as the Pre- Existing Conditions Limitation period, may be offset if the person has Creditable Coverage from his or her previous plan. A Pre-Existing Condition is a condition for which medical advice, diagnosis, care or treatment was recommended or received within six months prior to the person's Enrollment Date under this Plan. Genetic Information is not, by itself, a condition. Treatment includes receiving services and supplies, consultations, diagnostic tests or prescribed medicines. In order to be taken into account, the medical advice, diagnosis, care or treatment must have been recommended by, or received from, a Physician. The Pre-Existing Condition does not apply to Pregnancy, to a newborn child who is covered under any Creditable Coverage within 31 days of birth, or to a child who is adopted or placed for adoption before attaining age 18 and who, as of the last day of the 31-day period beginning on the date of the adoption or placement for adoption, is covered under any Creditable Coverage. A child has Creditable Coverage within 31 days if the child's expenses are covered under the parent's coverage during that period, either under this Plan or another plan, whether or not the child is ever enrolled in that Plan. APre-Existing Condition exclusion may apply to coverage before the date of the adoption or placement for adoption. The prohibition on Pre-Existing Condition exclusion for newborn, adopted, or pre-adopted children does not apply to an individual after the end of the first 63-consecutive day period during all of which the individual was not covered under any Creditable Coverage. 'err ENROLLMENT Enrollment Requirements. An Employee must enroll for coverage by filling out and signing an enrollment application along with the appropriate payroll deduction authorization. The covered Employee is required to enroll for Dependent coverage also. Enrollment Requirements for Newborn Children. A newborn child of a covered Employee who has Dependent coverage is not automatically enrolled in this Plan. Charges for covered nursery care will be applied toward the Plan of the newborn child. If the newborn child is required to be enrolled and is not enrolled in this Plan on a timely basis, as defined in the section "Timely Enrollment" following this section, there will be no payment from the Plan and the parents will be responsible for all costs. Charges for covered routine Physician care will be applied toward the Plan of the newborn child. if the newborn child is required to be enrolled and is not enrolled in this Plan on a timely basis, there will be no payment from the Plan and the covered parent will be responsible for all costs. If the child is required to be enrolled and is not enrolled within 31 days of birth, the enrollment will be considered a Late Enrollment. TIMELY OR LATE ENROLLMENT (I) Timely Enrollment -The enrollment will be "timely" if the completed form is received by the Plan Administrator no later than 31 days after the person becomes eligible for the coverage, either initially or under a Special Enrollment Period. If two Employees (husband and wife) are covered under the Plan and the Employee who is covering the Dependent children terminates coverage, the Dependent coverage may be continued by the other covered Employee with no Waiting Period as long as coverage has been continuous. (2) Late Enrollment - An enrollment is "late" if it is not made on a "timely basis" or during a Special Enrollment Period. Late Enrollees and their Dependents who are not eligible to join the Plan during a Special Enrollment Period may join only during open enrollment. If an individual loses eligibility for coverage as a result of terminating employment or a general suspension of coverage under the Plan, then upon becoming eligible again due to resumption of employment or due to resumption of Plan coverage, only the most recent period of eligibility will be considered for purposes of determining whether the individual is a Late Enrollee. The time between the date a Late Enrollee first becomes eligible for enrollment under the Plan and the first day of coverage is not treated as a Waiting Period. Coverage begins on October 1st. SPECIAL ENROLLMENT RIGHTS Federal law provides Special Enrollment provisions under some circumstances. If an Employee is declining enrollment for himself or his dependents (including their spouse) because of other health insurance or group health plan coverage, there may be a right to enroll in this Plan if there is a loss of eligibility for that other coverage (or if the employer stops contributing towards the other coverage). However, a request for enrollment must be made within 31 days after the coverage ends (or after the employer stops contributing towards the other coverage). In addition, in the case of a birth, marriage, adoption or placement for adoption, there may be a right to enroll in this Plan. However, a request for enrollment must be made within 31 days after the birth, marriage, adoption or placement for adoption. The Special Enrollment rules are described in more detail below. To request Special Enrollment or obtain more detailed information of these portability provisions, contact the Plan Administrator, 123 Company, 123 Anywhere St, San Antonio, Texas, 78229, (210) 123-4567. SPECIAL ENROLLMENT PERIODS ~Irr+' The Enrollment Date for anyone who enrolls under a Special Enrollment Period is the first date of coverage. Thus, the time between the date a special enrollee first becomes eligible for enrollment under the Plan and the first day of coverage is not treated as a Waiting Period. This means that any Pre-Existing Condition will be determined on the basis of the look back period prior to the Enrollment Date, and the period of the Pre-Existing Conditions Limitation will start on the Enrollment Date. (1) Individuals losing other coverage creating a Special Enrollment right. An Employee or Dependent who is eligible, but not enrolled in this Plan, may enroll if loss of eligibility for coverage is due to any of the following conditions: (a) The Employee or Dependent was covered under a group health plan or had health insurance coverage at the time coverage under this Plan was previously offered to the individual. (b) If required by the Plan Administrator, the Employee stated in writing at the time that coverage was offered that the other health coverage was the reason for declining enrollment. (c) The coverage of the Employee or Dependent who had lost the coverage was under COBRA and the COBRA coverage was exhausted, or was not under COBRA and either the coverage was terminated as a result of loss of eligibility for the coverage or because employer contributions towards the coverage were terminated. Coverage will begin no later than the first day of the first calendar month following the date the completed enrollment form is received. (d) The Employee or Dependent requests enrollment in this Plan not later than 31 days after the date of exhaustion of COBRA coverage or the termination of non-COBRA coverage due to loss of eligibility or termination of employer contributions, described above. Coverage will begin no later than the first day of the first calendar month following the date the completed enrollment '` form is received. (e) For purposes of these rules, a loss of eligibility occurs if: (i) The Employee or Dependent has a loss of eligibility on the earliest date a claim is denied that would meet or exceed a lifetime limit on all benefits. (ii) The Employee or Dependent has a loss of eligibility due to the plan no longer offering any benefits to a class of similarly situated individuals (i.e.: part-time employees). (iii) The Employee or Dependent has a loss of eligibility as a result of legal separation, divorce, cessation of dependent status (such as attaining the maximum age to be eligible as a dependent child under the plan), death, termination of employment, or reduction in the number of hours of employment or contributions towards the coverage were terminated. (iv) The Employee or Dependent has a loss of eligibility when coverage is offered through an HMO, or other arrangement, in the individual market that does not provide benefits to individuals who no longer reside, live or work in a service area, (whether or not within the choice of the individual). (v) The Employee or Dependent has a loss of eligibility when coverage is offered through an HMO, or other arrangement, in the group market that does not provide benefits to individuals who no longer reside, live or work in a service area, (whether or not within the choice of the individual), and no other benefit package is available to the individual. ,, If the Employee or Dependent lost the other coverage as a result of the individual's failure to pay premiums or required contributions or for cause (such as making a fraudulent claim or an intentional misrepresentation of a material fact in connection with the plan), that individual does not have a Special Enrollment right. (2) Dependent beneficiaries. If: (a) The Employee is a participant under this Plan (or has met the Waiting Period applicable to becoming a participant under this Plan and is eligible to be enrolled under this Plan but for a failure to enroll during a previous enrollment period), and (b) A person becomes a Dependent of the Employee through marriage, birth, adoption or placement for adoption, then the Dependent (and if not otherwise enrolled, the Employee) may be enrolled under this Plan. In the case of the birth or adoption of a child, the Spouse of the covered Employee may be enrolled as a Dependent of the covered Employee if the Spouse is otherwise eligible for coverage. If the Employee is not enrolled at the time of the event, the Employee must enroll under this Special Enrollment Period in order for his eligible Dependents to enroll. The Dependent Special Enrollment Period is a period of 31 days and begins on the date of the marriage, birth, adoption or placement for adoption. To be eligible for this Special Enrollment, the Dependent and/or Employee must request enrollment during this 31-day period. The coverage of the Dependent and/or Employee enrolled in the Special Enrollment Period will be effective: (a) in the case of marriage, the first day of the first month beginning after the date of the completed request for enrollment is received; (b) in the case of a Dependent's birth, as of the date of birth; or (c) in the case of a Dependent's adoption or placement for adoption, the date of the adoption or placement for adoption. EFFECTIVE DATE Effective Date of Employee Coverage. An Employee will be covered under this Plan as of the first day of the calendar month following the date that the Employee satisfies all of the following: (1) The Eligibility Requirement. (2) The Active Employee Requirement. (3) The Enrollment Requirements of the Plan. Active Employee Requirement. An Employee must be an Active Employee (as defined by this Plan) for this coverage to take effect. Effective Date of Dependent Coverage. A Dependent's coverage will take effect on the day that the Eligibility Requirements are met; the Employee is covered under the Plan; and all Enrollment Requirements are met. TERMINATION OF COVERAGE When coverage under this Plan stops, Plan Participants will receive a certificate that will show the period of Creditable Coverage under this Plan. The Plan maintains written procedures that explain how to request this certificate. Please contact the Plan Administrator for a copy of these procedures and further details. When Employee Coverage Terminates. Employee coverage will terminate on the earliest of these dates (except in ,,. certain circumstances, a covered Employee may be eligible for COBRA continuation coverage. For a complete explanation of when COBRA continuation coverage is available, what conditions apply and how to select it, see the section entitled Continuation Coverage Rights under COBRA): (1) The date the Plan is terminated. (2) The last day of the calendar month in which the covered Employee ceases to be in one of the Eligible Classes. This includes death or termination of Active Employment of the covered Employee. (See the section entitled Continuation Coverage Rights under COBRA.) It also includes an Employee on disability, leave of absence or other leave of absence, unless the Plan specifically provides for continuation during these periods. (3) The end of the period for which the required contribution has been paid if the charge for the next period is not paid when due. (4) The earliest date the Employee has a claim that is denied in whole or in part because the Employee has met or exceeded a lifetime limit on all benefits. Continuation During Periods of Employer-Certified Disability, Leave of Absence or Layoff. A person may remain eligible for a limited time if Active, full-time work ceases due to disability, leave of absence or layoff. This continuance will end as follows: For disability leave only: the end of the 3 calendar month period that next follows the month in which the person last worked as an Active Employee. For leave of absence or layoff only: the end of the 3 calendar month period that next follows the month in which the person last worked as an Active Employee. While continued, coverage will be that which was in force on the last day worked as an Active Employee. However, if benefits reduce for others in the class, they will also reduce for the continued person. Continuation During Family and Medical Leave. Regardless of the established leave policies mentioned above, this Plan shall at all times comply with the Family and Medical Leave Act of 1993 as promulgated in regulations issued by the Department of Labor. During any leave taken under the Family and Medical Leave Act, the Employer will maintain coverage under this Plan on the same conditions as coverage would have been provided if the covered Employee had been continuously employed during the entire leave period. If Plan coverage terminates during the FMLA leave, coverage will be reinstated for the Employee and his or her covered Dependents if the Employee returns to work in accordance with the terms of the FMLA leave. Coverage will be reinstated only if the person(s) had coverage under this Plan when the FMLA leave started, and will be reinstated to the same extent that it was in force when that coverage terminated. For example, Pre-Existing Conditions limitations and other Waiting Periods will not be imposed unless they were in effect for the Employee and/or his or her Dependents when Plan coverage terminated. Rehiring a Terminated Employee. A terminated Employee who is rehired will be treated as a new hire and be required to satisfy all Eligibility and Enrollment requirements. However, if the Employee is returning to work directly from COBRA coverage, this Employee does not have to satisfy any employment waiting period. Any Pre-Existing Conditions Limitation provision will apply only to the extent it was in effect on the last day of COBRA coverage. Employees on Military Leave. Employees going into or returning from military service may elect to continue Plan coverage as mandated by the Uniformed Services Employment and Reemployment Rights Act (USERRA) under the ,: following circumstances. These rights apply only to Employees and their Dependents covered under the Plan immediately before leaving for military service. (1) The maximum period of coverage of a person and the person's Dependents under such an election shall be the lesser of (a) The 24 month period beginning on the date on which the person's absence begins; or (b) The day after the date on which the person was required to apply for or return to a position of employment and fails to do so. (2) A person who elects to continue health plan coverage must pay up to 102% of the full contribution under the Plan, except a person on active duty for 30 days or less cannot be required to pay more than the Employee's share, if any, for the coverage. (3) An exclusion or Waiting Period may not be imposed in connection with the reinstatement of coverage upon reemployment if one would not have been imposed had coverage not been terminated because of service. However, an exclusion or Waiting Period may be imposed for coverage of any Illness or Injury determined by the Secretary of Veterans Affairs to have been incurred in, or aggravated during, the performance of uniformed service. If you wish to elect this coverage or obtain more detailed information, contact the Plan Administrator, 123 Company, 123 Anywhere St, San Antonio, Texas, 78229, (210) 123-4567. You may also have continuation rights under USERRA. In general, you must meet the same requirements for electing USERRA coverage as are required under COBRA continuation coverage requirements. Coverage elected under these circumstances is concurrent not cumulative. The Employee may elect USERRA continuation coverage for the Employee and their Dependents. Only the Employee has election rights. Dependents do not have any independent right to elect USERRA health plan ~" continuation. When Dependent Coverage Terminates. A Dependent's coverage will terminate on the earliest of these dates (except in certain circumstances, a covered Dependent may be eligible for COBRA continuation coverage. For a complete explanation of when COBRA continuation coverage is available, what conditions apply and how to select it, see the section entitled Continuation Coverage Rights under COBRA): (1) The date the Plan or Dependent coverage under the Plan is terminated. (2) The date that the Employee's coverage under the Plan terminates for any reason including death. (See the section entitled Continuation Coverage Rights under COBRA.) (3) The date a covered Spouse loses coverage due to loss of dependency status. (See the section entitled Continuation Coverage Rights under COBRA.) (4) On the last day of the calendar month that a Dependent child ceases to be a Dependent as defined by the Plan. (See the section entitled Continuation Coverage Rights under COBRA.) (5) The end of the period for which the required contribution has been paid if the charge for the next period is not paid when due. (6) The earliest date the Dependent has a claim that is denied in whole or in part because it meets or exceeds a lifetime limit on all benefits. 10 OPEN ENROLLMENT OPEN ENROLLMENT Every September, the annual open enrollment period, covered Employees and their covered Dependents will be able to change some of their benefit decisions based on which benefits and coverages are right for them. Every September, the annual open enrollment period, Employees and their Dependents who are Late Enrollees will be able to enroll in the Plan. Benefit choices made during the open enrollment period will become effective October 1st and remain in effect until the next October 1st unless there is a Special Enrollment event or a change in family status during the year (birth, death, marriage, divorce, adoption) or loss of coverage due to loss of a Spouse's employment. To the extent previously satisfied, coverage Waiting Periods and Pre-Existing Conditions Limits will be considered satisfied when changing from one benefit option under the Plan to another benefit option under the Plan. Benefit choices for Late Enrollees made during the open enrollment period will become effective October 1st. A Plan Participant who fails to make an election during open enrollment will automatically retain his or her present coverages. Plan Participants will receive detailed information regarding open enrollment from their Employer. 11 SCHEDULE OF BENEFITS Verification of Eligibility (800) 840-3977 Call this number to verify eligibility for Plan benefits before the charge is incurred. MEDICAL BENEFITS All benefits described in this Schedule are subject to the exclusions and limitations described more fully herein including, but not limited to, the Plan Administrator's determination that: care and treatment is Medically Necessary; that charges are Usual and Reasonable; that services, supplies and care are not Experimental and/or Investigational. The meanings of these capitalized terms are in the Defined Terms section of this document. Only a general description of health benefits covered by this Plan is included in this document. A more detailed schedule of coverage is available to any Plan Participant, at no cost, who requests one from the Plan Administrator. Note: The following services must be precertified or reimbursement from the Plan may be reduced. The attending Physician does not have to obtain precertification from the Plan for prescribing a maternity length of stay that is 48 hours or less for a vaginal delivery or 96 hours or less for a cesarean delivery. Hospitalizations Skilled Nursing Facility stays Please see the Cost Management section in this booklet for details. The Plan is a plan which contains a Network Provider Organization. Inside State of Texas Outside State of Texas PPO name: Texas True Choice Beech Street Telephone: (800) 683-4856 (800) 432-1776 Website: www.texastruechoice.com www.beechstreet.com This Plan has entered into an agreement with certain Hospitals, Physicians and other health care providers, which are called Network Providers. Because these Network Providers have agreed to charge reduced fees to persons covered under the Plan, the Plan can afford to reimburse a higher percentage of their fees. Therefore, when a Covered Person uses a Network Provider, that Covered Person will receive a higher payment from the Plan than when aNon-Network Provider is used. It is the Covered Person's choice as to which Provider to use. Under the following circumstances, the higher In-Network payment will be made for certain Non-Network services: If a Covered Person has no choice of Network Providers in the specialty that the Covered Person is seeking within the PPO service area. If a Covered Person is out of the PPO service area and has a Medical Emergency requiring immediate care. If a Covered Person receives Physician or ancillary services by aNon-Network Provider at an In-Network facility. Additional information about this option, as well as a list of Network Providers, will be given to Plan Participants, at no cost, and updated as needed. 12 Deductibles/Copayments payable by Plan Participants Deductibles/Copayments are dollar amounts that the Covered Person must pay before the Plan pays. A deductible is an amount of money that is paid once a Calendar Year per Covered Person. Typically, there is one deductible amount per Plan and it must be paid before any money is paid by the Plan for any Covered Charges. Each January 1 st, a new deductible amount is required. However, Covered Charges incurred in, and applied toward the deductible in October, November and December will be applied to the deductible in the next Calendar Year as well as the current Calendar Year. Deductibles do not accrue toward the 100% maximum out-of-pocket payment. A copayment is the amount of money that is paid each time a particular service is used. Typically, there may be Copayments on some services and other services will not have any Copayments. Copayments do not accrue toward the 100% maximum out-of-pocket payment. `~r+'` NETWORK PROVIDERS NON-NETWORK PROVIDERS MAXIMUM LIFETIME BENEFIT AMOUNT $1,000,000 Note: The maximums listed below are the total for Network and Non-Network expenses. For example, if a maximum of 60 days is listed twice under a service, the Calendar Year maximum is 60 da s total which ma be s lit between Network and Non-Network roviders. DEDUCTIBLE, PER CALENDAR YEAR Per Covered Person $250 $500 Per Famil Unit $750 $1500 The Calendar Year deductible is waived for the following Covered Charges: - Lab Card program - Network Physician Office Visit - Network ER Facility - Network Urgent Care Facility - Routine Well Care - Network Aller Treatment COPAYMENTS Ur ent Care Facili $50, then 100% N/A Ph sician visits $20 N/A Emergency room (copay taken $150, then 100% $150, then 100% from facili onl The Emergency room copayment is waived if the patient is admitted to the Hospital on an emergency basis. The utilization review administrator, Spectrum Review Services must be notified at (800) 258- 5055 within 48 hours of the admission, even if the patient is discharged within 48 hours of the admission. MAXIMUM OUT-OF-POCKET AMOUNT, PER CALENDAR YEAR Per Covered Person $1,000 $2,000 Per Famil Unit $3,000 $6,000 The Plan will pay the designated percentage of Covered Charges until out-of-pocket amounts are reached, at which time the Plan will pay 100% of the remainder of Covered Charges for the rest of the Calendar Year unless stated otherwise. The following charges do not apply toward the out-of-pocket maximum and are never paid at 100%. Deductible(s) Outpatient substance abuse treatment charges Inpatient substance abuse treatment charges Cost containment penalties Copayments Amounts over UCR COVERED CHARGES Hos ital Services Room and Board 80% after deductible 60% after deductible the semi rivate room rate the semi rivate room rate 13 NETWORK PROVIDERS NON-NETWORK PROVIDERS "~r+' Intensive Care Unit Skilled Nursing Facility 80% after deductible Hospital's ICU Charge 80% after deductible facility's semiprivate room rate within 14 days of a hospital stay 120 days Calendar Year maximum 60% after deductible Hospital's ICU Charge 60% after deductible facility's semiprivate room rate within 14 days of a hospital stay 120 days Calendar Year maximum iysician Services Inpatient visits Office Services (excludes chemotherapy, infusion therapy, MRI, CT scans and Allergy serum and Home Health Care Hospice Care Infusion MRI and CT Scans Prescription Drugs (for medications that are medically necessary but are not covered under the Prescription Drug Cs Plan) .Ambulance Service 80% after deductible 100% after copayment 80% after deductible 100% after copayment 100% after copayment 80% after deductible 60 visit Calendar Year maximum 80% after deductible $10,000 inpatient and outpatient Lifetime maximum 80% after deductible 80% after deductible 80% after deductible 80% after Network deductible. Applies to Network Out of Pocket 80% after Network deductible. nnlies to Network Out of Pocket 60% after deductible 60% after deductible 60% after deductible 60% after deductible 60% after deductible 60% after deductible 60 visit Calendar Year maximum 60% after deductible $10,000 inpatient and outpatient Lifetime maximum 60% after deductible 60% after deductible 60% after deductible Second Sur ical O inion 100% before deductible Pre-Admission Testin 100% before deductible Lab Card ro ram 100% before deductible Jaw Joint/TMJ 80% after deductible $1,500 Lifetime maximum 60% after deductible $1,500 Lifetime maximum Occu ational Thera 80% after deductible 60% after deductible S eech Thera 80% after deductible 60% after deductible Ph sical Thera 80% after deductible 60% after deductible Durable Medical E ui ment 80% after deductible 60% after deductible Prosthetics 80% after deductible 60% after deductible Orthotics 80% after deductible 60% after deductible Spinal Manipulation Chiropractic 80% after deductible $1,000 Calendar Year maximum 60% after deductible $1,000 Calendar Year maximum Mental Disorders Inpatient Outpatient 80% after deductible 30 days Calendar Year maximum 80% after deductible 30 visits Calendar Year maximun 60% after deductible 30 days Calendar Year maximum 60% after deductible 30 visits Calendar Year maximum Substance Abuse Inpatient 80% after deductible 60% after deductible $10,000 Calendar Year maximum $10,000 Calendar Year maximum 14 ~r- '''err NETWORK PROVIDERS NON-NETWORK PROVIDERS Outpatient 80% after deductible $10,000 Calendar Year maximum 60% after deductible $10,000 Calendar Year maximum Inpatient /Outpatient Combined $30,000 Lifetime maximum $30,000 Lifetime maximum Preventive Care Routine Well Care 100% before deductible $500 Calendar Year maximum 100% before deductible $500 Calendar Year maximum Includes: office visits, pap smear, mammogram, prostate screening, gynecological exam, routine physical examination, x-rays, laboratory tests, immunizations/flu shots and any other routine rocedures. We11 Newborn Nursery/Physi- 80% after newborn's deductible 60% after newborn's deductible cian Care Organ Transplants 80% after deductible $100,000 Lifetime maximum 60% after deductible $100,000 Lifetime maximum Pre nanc 80% after deductible 60% after deductible De endent dau ters covered for com lications onl . All Other Covered Ex enses 80% after deductible 60% after deductible 15 PRESCRIPTION DRUG BENEFIT ~ Name Brand drugs must be filled with a generic equivalent unless the Physician has designated "dispense as written" on the prescription. If the Insured requires the Name Brand drug, even though the Physician has allowed for the generic equivalent, the copay amount will be increased to cover the difference between the Name Brand drug and the generic equivalent. Pharmacy Option Generic drugs Copayment ........................................................................................................... $10 Formulary Brand Name drugs Copayment ........................................................................................................... $20 Non-Formulary Brand Name drugs Copayment ........................................................................................................... $30 Mail Order Prescription Drug Option Generic drugs Copayment ........................................................................................................... $20 Formulary Brand Name drugs Copayment ........................................................................................................... $40 Non-Formulary Brand Name drugs Copayment ........................................................................................................... $60 16 MEDICAL BENEFITS Medical Benefits apply when Covered Charges are incurred by a Covered Person for care of an Injury or Sickness and while the person is covered for these benefits under the Plan. DEDUCTIBLE Deductible Amount. This is an amount of Covered Charges for which no benefits will be paid. Before benefits can be paid in a Calendar Year a Covered Person must meet the deductible shown in the Schedule of Benefits. This amount will not accrue toward the 100% maximum out-of-pocket payment. Deductible Three Month Carryover. Covered Charges incurred in, and applied toward the deductible in October, November and December will be applied toward the deductible in the next Calendar Year. Family Unit Limit. When the maximum amount shown in the Schedule of Benefits has been incurred by members of a Family Unit toward their Calendar Year deductibles, the deductibles of all members of that Family Unit will be considered satisfied for that year. Deductible For A Common Accident. This provision applies when two or more Covered Persons in a Family Unit are injured in the same accident. These persons need not meet separate deductibles for treatment of injuries incurred in this accident; instead, only one deductible for the Calendar Year in which the accident occurred will be required for them as a unit for expenses arising from the accident. BENEFIT PAYMENT ~/ Each Calendar Year, benefits will be paid for the Covered Charges of a Covered Person that are in excess of the deductible and any copayments. Payment will be made at the rate shown under reimbursement rate in the Schedule of Benefits. No benefits will be paid in excess of the Maximum Benefit Amount or any listed limit of the Plan. OUT-OF-POCKET LIMIT Covered Charges are payable at the percentages shown each Calendar Year until the out-of-pocket limit shown in the Schedule of Benefits is reached. Then, Covered Charges incurred by a Covered Person will be payable at 100% (except for the charges excluded) for the rest of the Calendar Year. When a Family Unit reaches the out-of-pocket limit, Covered Charges for that Family Unit will be payable at 100% (except for the charges excluded) for the rest of the Calendar Year. MAXIMUM BENEFIT AMOUNT The Maximum Benefit Amount is shown in the Schedule of Benefits. It is the total amount of benefits that will be paid under the Plan for all Covered Charges incurred by a Covered Person. The Maximum Benefit applies to all plans and benefit options offered under the 123 Company Health Care Plan, including the ones described in this document. COVERED CHARGES Covered Charges are the Usual and Reasonable Charges that are incurred for the following items of service and supply. These charges are subject to the benefit limits, exclusions and other provisions of this Plan. A charge is incurred on the date that the service or supply is performed or furnished. (I) Hospital Care. The medical services and supplies furnished by a Hospital or Ambulatory Surgical w Center or a Birthing Center. Covered Charges for room and board will be payable as shown in the Schedule of Benefits. After 23 observation hours, a confinement will be considered an inpatient confinement. 17 Room charges made by a Hospital having only private rooms will be paid at 80% of the average private room rate. Charges for an Intensive Care Unit stay are payable as described in the Schedule of Benefits. (2) Coverage of Pregnancy. The Usual and Reasonable Charges for the care and treatment of Pregnancy are covered the same as any other Sickness. Group health plans generally may not, under Federal law, restrict benefits for any hospital length of stay in connection with childbirth for the mother or newborn child to less than 48 hours following a vaginal delivery, or less than 96 hours following a cesarean section. However, Federal law generally does not prohibit the mother's or newborn's attending provider, after consulting with the mother, from discharging the mother or her newborn earlier than 48 hours (or 96 hours as applicable). In any case, plans and issuers may not, under Federal law, require that a provider obtain authorization from the plan or the issuer for prescribing a length of stay not in excess of 48 hours (or 96 hours). The Usual and Reasonable Charges for the care and treatment of Pregnancy are covered the same as any other Sickness for a covered Employee or covered Spouse only. Only Usual and Reasonable Charges for a Complication of Pregnancy are payable for the Pregnancy of a Dependent child. (3) Skilled Nursing Facility Care. The room and board and nursing care furnished by a Skilled Nursing Facility will be payable if and when: (a) the patient is confined as a bed patient in the facility; and (b) the confinement starts within 14 days of a Hospital confinement; and (c) the attending Physician certifies that the confinement is needed for further care of the condition that caused the Hospital confinement; and (d) the attending Physician completes a treatment plan which includes a diagnosis, the proposed course of treatment and the projected date of discharge from the Skilled Nursing Facility. Covered Charges for a Covered Person's care in these facilities are payable as described in the Schedule of Benefits. (4) Physician Care. The professional services of a Physician for surgical or medical services. Charges for multiple surgical procedures will be a Covered Charge subject to the following provisions: (a) If bilateral or multiple surgical procedures are performed by one (1) surgeon, benefits will be determined based on the Usual and Reasonable Charge that is allowed for the primary procedures; 50% of the Usual and Reasonable Charge will be allowed for each additional procedure performed through the same incision. Any procedure that would not be an integral part of the primary procedure or is unrelated to the diagnosis will be considered "incidental" and no benefits will be provided for such procedures; (b) If multiple unrelated surgical procedures are performed by two (2) or more surgeons on separate operative fields, benefits will be based on the Usual and Reasonable Charge for each surgeon's primary procedure. If two (2) or more surgeons perform a procedure that is normally performed by one (1) surgeon, benefits for all surgeons will not exceed the Usual and Reasonable percentage allowed for that procedure; and (c) If an assistant surgeon is required, the assistant surgeon's Covered Charge will not exceed 20% ~„ of the surgeon's Usual and Reasonable allowance. 18 (5) Private Duty Nursing Care. The private duty nursing care by a licensed nurse (R.N., L.P.N. or L.V.N.). Covered Charges for this service will be included to this extent: (a) Inpatient Nursing Care. Charges are covered only when care is Medically Necessary or not Custodial in nature and the Hospital's Intensive Care Unit is filled or the Hospital has no Intensive Care Unit. (b) Outpatient Nursing Care. Outpatient private duty nursing care is not covered. (6) Home Health Care Services and Supplies. Charges for home health care services and supplies are covered only for care and treatment of an Injury or Sickness when Hospital or Skilled Nursing Facility confinement would otherwise be required. The diagnosis, care and treatment must be certified by the attending Physician and be contained in a Home Health Care Plan. Benefit payment for nursing, home health aide and therapy services is subject to the Home Health Care limit shown in the Schedule of Benefits. A home health care visit will be considered a periodic visit by either a nurse or therapist, as the case may be, or four hours of home health aide services. (7) Hospice Care Services and Supplies. Charges for hospice care services and supplies are covered only when the attending Physician has diagnosed the Covered Person's condition as being terminal, determined that the person is not expected to live more than six months and placed the person under a Hospice Care Plan. Covered Charges for Hospice Care Services and Supplies are payable as described in the Schedule of Benefits. Bereavement counseling services by a licensed social worker or a licensed pastoral counselor for the patient's immediate family (covered Spouse and/or covered Dependent Children). Bereavement services must be famished within six months after the patient's death. (8) Other Medical Services and Supplies. These services and supplies not otherwise included in the items above are covered as follows: (a) Local Medically Necessary professional land or air ambulance service. A charge for this item will be a Covered Charge only if the service is to the nearest Hospital or Skilled Nursing Facility where necessary treatment can be provided unless the Plan Administrator finds a longer trip was Medically Necessary. (b) Anesthetic; oxygen; blood and blood derivatives that are not donated or replaced; intravenous injections and solutions. Administration of these items is included. (c) Cardiac rehabilitation as deemed Medically Necessary provided services are rendered (a) under the supervision of a Physician; (b) in connection with a myocardial infarction, coronary occlusion or coronary bypass surgery; (c) initiated within 12 weeks after other treatment for the medical condition ends; and (d) in a Medical Care Facility as defined by this Plan. (d) Radiation or chemotherapy and treatment with radioactive substances. The materials and services of technicians are included. (e) Initial contact lenses or glasses required following cataract surgery. (f) Rental of durable medical or surgical equipment if deemed Medically Necessary. These items may be bought rather than rented, with the cost not to exceed the fair market value of the v~,r equipment at the time of purchase, but only if agreed to in advance by the Plan Administrator. (g) Care, supplies and services to diagnose the cause of infertility. 19 (h) Medically Necessary services for care and treatment of jaw joint conditions, including Temporomandibular Joint syndrome (TMJ). Charges for TMJ are subject to the limits as described in the Schedule of Benefits. (i) Laboratory studies. (j) Treatment of Mental Disorders and Substance Abuse. Covered Charges for care, supplies and treatment of Mental Disorders and Substance Abuse will be limited as follows: All treatment is subject to the benefit payment maximums shown in the Schedule of Benefits. Physician's visits are limited to one treatment per day. Psychiatrists (M.D.), psychologists (Ph.D.), counselors (LPC, LMFT) or Masters of Social Work (M.S.W.) may bill the Plan directly. Other licensed mental health practitioners must be under the direction of and must bill the Plan through these professionals. (k) Injury to or care of mouth, teeth and gums. Charges for Injury to or care of the mouth, teeth, gums and alveolar processes will be Covered Charges under Medical Benefits only if that care is for the following oral surgical procedures: Excision of tumors and cysts of the jaws, cheeks, lips, tongue, roof and floor of the mouth. Emergency repair due to Injury to sound natural teeth. Surgery needed to correct accidental injuries to the jaws, cheeks, lips, tongue, floor and roof of the mouth. Excision of benign bony growths of the jaw and hard palate. External incision and drainage of cellulitis. Incision of sensory sinuses, salivary glands or ducts. Removal of impacted teeth. Reduction of dislocations and excision of temporomandibular joints (TMJs). No charge will be covered under Medical Benefits for dental and oral surgical procedures involving orthodontic care of the teeth, periodontal disease and preparing the mouth for the fitting of or continued use of dentures. (t) Occupational therapy by a licensed occupational therapist. Therapy must be ordered by a Physician, result from an Injury or Sickness and improve a body function. Covered Charges do not include recreational programs, maintenance therapy or supplies used in occupational therapy. (m) Organ transplant limits. Charges otherwise covered under the Plan that are incurred for the care and treatment due to an organ or tissue transplant are subject to these limits: The transplant must be performed to replace an organ or tissue. There is no coverage under the Plan for charges incurred in obtaining donor organs or tissues. This includes charges for: 20 evaluating the organ or tissue; removing the organ or tissue from the donor; and transportation of the organ or tissue from within the United States and Canada to the place where the transplant is to take place. (n) The initial purchase, fitting and repair of orthotic appliances such as braces, splints or other appliances which are required for support for an injured or deformed part of the body as a result of a disabling congenital condition or an Injury or Sickness. (o) Physical therapy by a licensed physical therapist. The therapy must be in accord with a Physician's exact orders as to type, frequency and duration and for conditions which are subject to significant improvement through short-term therapy. (p) Prescription Drugs (as defined). (q) Routine Preventive Care. Covered Charges under Medical Benefits are payable for routine Preventive Care as described in the Schedule of Benefits. Charges for Routine Well Care. Routine well care is care by a Physician that is not for an Injury or Sickness. (r) The initial purchase, fitting and repair of fitted prosthetic devices which replace body parts. (s) Reconstructive Surgery. Correction of abnormal congenital conditions and reconstructive mammoplasties will be considered Covered Charges. This mammoplasry coverage will include reimbursement for: (i) reconstruction of the breast on which a mastectomy has been performed, (ii) surgery and reconstruction of the other breast to produce a symmetrical appearance, and (iii) coverage of prostheses and physical complications during all stages of mastectomy, including lymphedemas, in a manner determined in consultation with the attending Physician and the patient. (t) Speech therapy by a licensed speech therapist. Therapy must be ordered by a Physician and follow either: (i) surgery for correction of a congenital condition of the oral cavity, throat or nasal complex (other than a frenectomy) of a person; (ii) an Injury; or (iii) a Sickness that is other than a learning or Mental Disorder. (u) Spinal Manipulation/Chiropractic services by a licensed M.D., D.O. or D.C. (v) Sterilization procedures. (w) Surgical dressings, splints, casts and other devices used in the reduction of fractures and dislocations. (x) Coverage of Well Newborn Nursery/Physician Care. Charges for Routine Nursery Care. Routine well newborn nursery care is care while the newborn is Hospital-confined after birth and includes room, board and other normal care for ti~rrr which a Hospital makes a charge. 21 This coverage is only provided if the newborn child is an eligible Dependent and a parent (1) is a Covered Person who was covered under the Plan at the time of the birth, or (2) enrolls himself err` or herself (as well as the newborn child if required) in accordance with the Special Enrollment provisions with coverage effective as of the date of birth. The benefit is limited to Usual and Reasonable Charges for nursery care for the first 5 days after birth while the newborn child is Hospital confined as a result of the child's birth. Charges for covered routine nursery care will be applied toward the Plan of the newborn child. Group health plans generally may not, under Federal law, restrict benefits for any hospital length of stay in connection with childbirth for the mother or newborn child to less than 48 hours following a vaginal delivery, or less than 96 hours following a cesarean section. However, Federal law generally does not prohibit the mother's or newborn's attending provider, after consulting with the mother, from discharging the mother or her newborn earlier than 48 hours (or 96 hours as applicable). In any case, plans and issuers may not, under Federal law, require that a provider obtain authorization from the plan or the issuer for prescribing .a length of stay not in excess of 48 hours (or 96 hours). Charges for Routine Physician Care. The benefit is limited to the Usual and Reasonable Charges made by a Physician for routine pediatric care for the first 5 days after birth while the newborn child is Hospital confined. Charges for covered routine Physician care will be applied toward the Plan of the newborn child. (y) Charges associated with the initial purchase of a wig after chemotherapy. (z) Diagnostic x-rays. (aa) Fees for consultive and comprehensive case management services whether or not services are rendered by a representative of the carrier. (bb) Expenses related to fee negotiations for medical services for special medical care circumstances. This provision does not include monthly preferred provider access fees. 22 COST MANAGEMENT SERVICES ~wr' Cost Management Services Phone Number Spectrum Review Services (800)258-5055 Please refer to the Employee ID card for the Cost Management Services phone number. The patient or family member must call this number to receive certification of certain Cost Management Services. This call must be made at least 7 days in advance of services being rendered or within 48 hours after an emergency. Any reduced reimbursement due to failure to follow cost management procedures will not accrue toward the 100% maximum out-of-pocket payment. UTILIZATION REVIEW Utilization review is a program designed to help insure that all Covered Persons receive necessary and appropriate health care while avoiding unnecessary expenses. The program consists of: (a) Precertification ofthe Medical Necessity for the following non-emergency services before Medical and/or Surgical services are provided: Hospitalizations Skilled Nursing Facility stays (b) Retrospective review of the Medical Necessity of the listed services provided on an emergency basis; (c) Concurrent review, based on the admitting diagnosis, of the listed services requested by the attending Physician; and (d) Certification of services and planning for discharge from a Medical Care Facility or cessation of medical treatment. The purpose of the program is to determine what charges may be eligible for payment by the Plan. This program is not designed to be the practice of medicine or to be a substitute for the medical judgment of the attending Physician or other health care provider. If a particular course of treatment or medical service is not certified, it means that either the Plan will not pay for the charges or the Plan will not consider that course of treatment as appropriate for the maximum reimbursement under the Plan. The patient is urged to find out why there is a discrepancy between what was requested and what was certified before incurring charges. The attending Physician does not have to obtain precertification from the Plan for prescribing a maternity length of stay that is 48 hours or less for a vaginal delivery or 96 hours or less for a cesarean delivery. In order to maximize Plan reimbursements, please read the following provisions carefully. Here's how the program works. Precertification. Before a Covered Person enters a Medical Care Facility on anon-emergency basis, the utilization ~rri+ review administrator will, in conjunction with the attending Physician, certify the care as appropriate for Plan reimbursement. Anon-emergency stay in a Medical Care Facility is one that can be scheduled in advance. 23 The utilization review program is set in motion by a telephone call from the Covered Person. Contact the utilization review administrator at the telephone number on your ID card at least 7 days before services are scheduled to be `~r- rendered with the following information: - The name of the patient and relationship to the covered Employee - The name, Health Plan Identification Number and address of the covered Employee - The name of the Employer - The name and telephone number of the attending Physician - The name of the Medical Care Facility, proposed date of admission, and proposed length of stay - The diagnosis and/or type of surgery If there is an emergency admission to the Medical Care Facility, the patient, patient's family member, Medical Care Facility or attending Physician must contact the utilization review administrator within 48 hours of the first business day after the admission. The utilization review administrator will determine the number of days of Medical Care Facility confinement authorized for payment. Failure to follow this procedure may reduce reimbursement received from the Plan. If the Covered Person does not receive authorization as explained in this section, an additional $250 deductible will be applied. Concurrent review, discharge planning. Concurrent review of a course of treatment and discharge planning from a Medical Care Facility are parts of the utilization review program. The utilization review administrator will monitor the Covered Person's Medical Care Facility stay or use of other medical services and coordinate with the attending Physician, Medical Care Facilities and Covered Person either the scheduled release or an extension of the Medical Care Facility stay or extension or cessation of the use of other medical services. If the attending Physician feels that it is Medically Necessary for a Covered Person to receive additional services or to stay in the Medical Care Facility for a greater length of time than has been precertified, the attending Physician must request the additional services or days. SECOND AND/OR THIRD OPINION PROGRAM Certain surgical procedures are performed either inappropriately or unnecessarily. In some cases, surgery is only one of several treatment options. In other cases, surgery will not help the condition. In order to prevent unnecessary or potentially harmful surgical treatments, the second and/or third opinion program fulfills the dual purpose of protecting the health of the Plan's Covered Persons and protecting the financial integrity of the Plan. Benefits will be provided for a second (and third, if necessary) opinion consultation to determine the Medical Necessity of an elective surgical procedure. An elective surgical procedure is one that can be scheduled in advance; that is, it is not an emergency or of alife-threatening nature. Benefits for the second (and third, if necessary) opinion will be paid at 100% before the deductible. The patient may choose any board-certified specialist who is not an associate of the attending Physician and who is affiliated in the appropriate specialty. While any surgical treatment is allowed a second opinion, the following procedures are ones for which surgery is often performed when other treatments are available. Appendectomy Hernia surgery Spinal surgery Cataract surgery Hysterectomy Surgery to knee, shoulder, elbow or toe err' 24 Cholecystectomy (gall bladder removal) ~r-' Deviated septum (nose surgery) Hemorrhoidectomy Mastectomy surgery Prostate surgery Salpingo-oophorectomy (removal of tubes/ovaries) PREADMISSION TESTING SERVICE Tonsillectomy and adenoidectomy Tympanotomy (inner ear) Varicose vein ligation The Medical Benefits percentage payable will be for diagnostic lab tests and x-ray exams when: (I) performed on an outpatient basis within seven days before a Hospital confinement; (2) related to the condition which causes the confinement; and (3) performed in place of tests while Hospital confined. Covered Charges for this testing will be payable at 80% for In-Network services and 60% for Out-of-Network services even if tests show the condition requires medical treatment prior to Hospital confinement or the Hospital confinement is not required. CASE MANAGEMENT Case Management. The Plan may elect, in its sole discretion, when acting on a basis that precludes individual selection, to provide alternative benefits that are otherwise excluded under the Plan. The alternative benefits, called "Case Management," shall be determined on a case-by-case basis, and the Plan's deternnation to provide the benefits in one instance shall not obligate the Plan to provide the same or similar alternative benefits for the same or any other Covered Person, nor shall it be deemed to waive the right of the Plan to strictly enforce the provisions of the Plan. A case manager consults with the patient, the family and the attending Physician in order to develop a plan of care for approval by the patient's attending Physician and the patient. This plan of care may include some or all of the following: -- personal support to the patient; -- contacting the family to offer assistance and support; -- monitoring Hospital or Skilled Nursing Facility; -- determining alternative care options; and -- assisting in obtaining any necessary equipment and services. Case Management occurs when this alternate benefit will be beneficial to both the patient and the Plan. The case manager will coordinate and implement the Case Management program by providing guidance and information on available resources and suggesting the most appropriate treatment plan. The Plan Administrator, attending Physician, patient and patient's family must all agree to the alternate treatment plan. Once agreement has been reached, the Plan Administrator will direct the Plan to reimburse for Medically Necessary expenses as stated in the treatment plan, even if these expenses normally would not be paid by the Plan. `r The Plan Administrator may elect to provide alternative benefits which are otherwise excluded under the Plan. The alternative benefits shall be determined on a case-by-case basis, and the Plan Administrator's determination to provide the benefits in one instance shall not obligate the Plan Administrator to provide the same or similar 25 altemative benefits for the same or any other Covered Person, nor shall it be deemed to waive the right of the Plan Administrator to strictly enforce the provisions of the Plan at any time. `w~,w The Plan Administrator, in its sole discretion, when acting on a basis which precludes individual selection, may exercise this right provided the Covered Employee and/or Dependent and the covered Person's Physician concur. The Plan Administrator may exercise this right when it anticipates future expenditures may be diminished by providing altemative benefits. Additionally, charges for Non Network providers may be independently negotiated. If a discount is obtained the Plan may elect to consider these charges at the Network benefit level. Note: Case Management is a voluntary service. There are no reductions of benefits or penalties if the patient and family choose not to participate. Each treatment plan is individually tailored to a specific patient and should not be seen as appropriate or recommended for any other patient, even one with the same diagnosis. NEGOTIATION OF 1N-NETWORK MEDICAL CLAIMS The Plan, or its designee, is allowed to negotiate in-network medical claims below the stated savings in any preferred provider organization agreement. Any such negotiation and a portion of the subsequent savings may be paid by the Plan to service venders, consultants, third party administrators, agents and/or brokers or retained by the Plan for its own use(s). Participants and beneficiaries shall not be entitled to share in any of those savings nor will claims be re- adjusted to contemplate the additional savings and their impact on a participant/beneficiary's out-of-pocket expenses. Any references to out-of-pocket, deductible and/or copayment amounts for in-network medical claims shall be subject to this provision. Thus, the percentages stated in the Plan Document will not always reflect the actual percentages paid by a participant and/or beneficiary for specific claims. 26 DEFINED TERMS The following terms have special meanings and when used in this Plan will be capitalized. Active Employee is an Employee who is on the regular payroll of the Employer and who has begun to perform the duties of his or her job with the Employer on a full-time basis. Ambulatory Surgical Center is a licensed facility that is used mainly for performing outpatient surgery, has a staff of Physicians, has continuous Physician and nursing care by registered nurses (R.N.s) and does not provide for overnight stays. Birthing Center means any freestanding health facility, place, professional office or institution which is not a Hospital or in a Hospital, where births occur in a home-like atmosphere. This facility must be licensed and operated in accordance with the laws pertaining to Birthing Centers in the jurisdiction where the facility is located. The Birthing Center must provide facilities for obstetrical delivery and short-term recovery after delivery; provide care under the full-time supervision of a Physician and either a registered nurse (R.N.) or a licensed nurse-midwife; and have a written agreement with a Hospital in the same locality for immediate acceptance of patients who develop complications or require pre- orpost-delivery confinement. Brand Name means a trade name medication. Calendar Year means January 1st through December 31st of the same year. COBRA means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. Complications of Pregnancy are determined as follows: These conditions are included before the Pregnancy ends: acute nephritis; ectopic Pregnancy; miscarriage; nephrosis; cardiac decompensation; missed abortion; hyperemesis gravidarum; and eclampsia of Pregnancy. Other Pregnancy related conditions will be covered that are as medically severe as those listed. These conditions are not included: false labor; occasional spotting; rest during Pregnancy even if prescribed by a Physician; morning sickness; or like conditions that are not medically termed as Complications of Pregnancy. Covered Charge(s) means those Medically Necessary services or supplies that are covered under this Plan. Covered Person is an Employee or Dependent who is covered under this Plan. Creditable Coverage includes most health coverage, such as coverage under a group health plan (including COBRA continuation coverage), HMO membership, an individual health insurance policy, Medicaid, Medicare or public health plans. Creditable Coverage does not include coverage consisting solely of dental or vision benefits. Creditable Coverage does not include coverage that was in place before a significant break of coverage of 63 days or more. With respect to the Trade Act of 2002, when determining whether a significant break in coverage has occurred, the period between the trade related coverage loss and the start of the special second COBRA election period under the Trade Act, does not count. Custodial Care is care (including Room and Board needed to provide that care) that is given principally for personal hygiene or for assistance in daily activities and can, according to generally accepted medical standards, be performed by persons who have no medical training. Examples of Custodial Care are help in walking and getting out of bed; `~r/ assistance in bathing, dressing, feeding; or supervision over medication which could normally be self-administered. 27 Durable Medical Equipment means equipment which (a) can withstand repeated use, (b) is primarily and customarily used to serve a medical purpose, (c) generally is not useful to a person in the absence of an Illness or Injury and (d) is appropriate for use in the home. Employee means a person who is an Active, regular Employee of the Employer, regularly scheduled to work for the Employer in an Employee/Employer relationship. Employer is 123 Company. Enrollment Date is the first day of coverage or, if there is a Waiting Period, the first day of the Waiting Period. ERISA is the Employee Retirement Income Security Act of 1974, as amended. Experimental and/or Investigational means services, supplies, care and treatment which does not constitute accepted medical practice properly within the range of appropriate medical practice under the standards of the case and by the standards of a reasonably substantial, qualified, responsible, relevant segment of the medical community or government oversight agencies at the time services were rendered. The Plan Administrator must make an independent evaluation of the experimental/nonexperimental standings of specific technologies. The Plan Administrator shall be guided by a reasonable interpretation of Plan provisions. The decisions shall be made in good faith and rendered following a detailed factual background investigation of the claim and the proposed treatment. The decision of the Plan Administrator will be final and binding on the Plan. The Plan Administrator will be guided by the following principles: (1) if the drug or device cannot be lawfully marketed without approval of the U.S. Food and Drug Administration and approval for marketing has not been given at the time the drug or device is furnished; or (2) if the drug, device, medical treatment or procedure, or the patient informed consent document utilized ~ with the drug, device, treatment or procedure, was reviewed and approved by the treating facility's Institutional Review Board or other body serving a similar function, or if federal law requires such review or approval; or (3) if Reliable Evidence shows that the drug, device, medical treatment or procedure is the subject of on-going phase I or phase II clinical trials, is the research, experimental, study or Investigational arm of on-going phase III clinical trials, or is otherwise under study to determine its maximum tolerated dose, its toxicity, its safety, its efficacy or its efficacy as compared with a standard means of treatment or diagnosis; or (4) if Reliable Evidence shows that the prevailing opinion among experts regarding the drug, device, medical treatment or procedure is that further studies or clinical trials are necessary to determine its maximum tolerated dose, its toxicity, its safety, its efficacy or its efficacy as compared with a standard means of treatment or diagnosis. Reliable Evidence shall mean only published reports and articles in the authoritative medical and scientific literature; the written protocol or protocols used by the treating facility or the protocol(s) of another facility studying substantially the same drug, service, medical treatment or procedure; or the written informed consent used by the treating facility or by another facility studying substantially the same drug, device, medical treatment or procedure. Drugs are considered Experimental if they are not commercially available for purchase and/or they are not approved by the Food and Drug Administration for general use. Family Unit is the covered Employee and the family members who are covered as Dependents under the Plan. Formulary means a list of prescription medications compiled by the third party payor of safe, effective therapeutic drugs specifically covered by this Plan. 28 Generic drug means a Prescription Drug which has the equivalency of the brand name drug with the same use and metabolic disintegration. This Plan will consider as a Generic drug any Food and Drug Administration approved generic pharmaceutical dispensed according to the professional standards of a licensed pharmacist and clearly designated by the pharmacist as being generic. Genetic Information means information about genes, gene products and inherited characteristics that may derive from an individual or a family member. This includes information regarding carrier status and information derived from laboratory tests that identify mutations in specific genes or chromosomes, physical medical examinations, family histories and direct analysis of genes or chromosomes. Home Health Care Agency is an organization that meets all of these tests: its main function is to provide Home Health Care Services and Supplies; it is federally certified as a Home Health Care Agency; and it is licensed by the state in which it is located, if licensing is required. Home Health Care Plan must meet these tests: it must be a formal written plan made by the patient's attending Physician which is reviewed at least every 30 days; it must state the diagnosis; it must certify that the Home Health Care is in place of Hospital confinement; and it must specify the type and extent of Home Health Care required for the treatment of the patient. Home Health Care Services and Supplies include: part-time or intermittent nursing care by or under the supervision of a registered nurse (R.N.); part-time or intermittent home health aide services provided through a Home Health Care Agency (this does not include general housekeeping services); physical, occupational and speech therapy; medical supplies; and laboratory services by or on behalf of the Hospital. Hospice Agency is an organization where its main function is to provide Hospice Care Services and Supplies and it is licensed by the state in which it is located, if licensing is required. Hospice Care Plan is a plan of terminal patient care that is established and conducted by a Hospice Agency and supervised by a Physician. Hospice Care Services and Supplies are those provided through a Hospice Agency and under a Hospice Care Plan and include inpatient care in a Hospice Unit or other licensed facility, home care, and family counseling during the bereavement period. Hospice Unit is a facility or separate Hospital Unit, that provides treatment under a Hospice Care Plan and admits at least two unrelated persons who are expected to die within six months. Hospital is an institution which is engaged primarily in providing medical care and treatment of sick and injured persons on an inpatient basis at the patient's expense and which fully meets these tests: it is accredited as a Hospital by the Joint Commission on Accreditation of Healthcare Organizations or the American Osteopathic Association Healthcare Facilities Accreditation Program; it is approved by Medicare as a Hospital; it maintains diagnostic and therapeutic facilities on the premises for surgical and medical diagnosis and treatment of sick and injured persons by or under the supervision of a staff of Physicians; it continuously provides on the premises 24-hour-a-day nursing services by or under the supervision of registered nurses (R.N.s); and it is operated continuously with organized facilities for operative surgery on the premises. The definition of "Hospital" shall be expanded to include the following: A facility operating legally as a psychiatric Hospital or residential treahnent facility for mental health and licensed as such by the state in which the facility operates. - A facility operating primarily for the treatment of Substance Abuse if it meets these tests: maintains permanent and full-time facilities for bed care and full-time confinement of at least 15 resident patients; has a Physician in regular attendance; continuously provides 24-hour a day nursing service by a registered nurse (R.N.); has afull-time psychiatrist or psychologist on the staff; and is primarily engaged in providing diagnostic and therapeutic services and facilities for treatment of Substance Abuse. 29 Illness means a bodily disorder, disease, physical sickness or Mental Disorder. Illness includes Pregnancy, childbirth, miscarriage or complications of Pregnancy. Infertility means incapable of producing offspring. Injury means an accidental physical Injury to the body caused by unexpected external means. Intensive Care Unit is defined as a separate, clearly designated service area which is maintained within a Hospital solely for the care and treatment of patients who are critically ill. This also includes what is referred to as a "coronary care unit" or an "acute care unit." It has: facilities for special nursing care not available in regular rooms and wards of the Hospital; special life saving equipment which is immediately available at all times; at least two beds for the accommodation of the critically ill; and at least one registered nurse (R.N.) in continuous and constant attendance 24 hours a day. Late Enrollee means a Plan Participant who enrolls under the Plan other than during the first 31-day period in which the individual is eligible to enroll under the Plan or during a Special Enrollment Period. Legal Guardian means a person recognized by a court of law as having the duty of taking care of the person and managing the property and rights of a minor child. Lifetime is a word that appears in this Plan in reference to benefit maximums and limitations. Lifetime is understood to mean while covered under this Plan. Under no circumstances does Lifetime mean during the lifetime of the Covered Person. Medical Care Facility means a Hospital, a facility that treats one or more specific ailments or any type of Skilled Nursing Facility. Medical Emergency means a sudden onset of a condition with acute symptoms requiring immediate medical care and includes such conditions as heart attacks, cardiovascular accidents, poisonings, loss of consciousness or respiration, convulsions or other such acute medical conditions. Medically Necessary care and treatment is recommended or approved by a Physician; is consistent with the patient's condition or accepted standards of good medical practice; is medically proven to be effective treatment of the condition; is not performed mainly for the convenience of the patient or provider of medical services; is not conducted for research purposes; and is the most appropriate level of services which can be safely provided to the patient. All of these criteria must be met; merely because a Physician recommends or approves certain care does not mean that it is Medically Necessary. The Plan Administrator has the discretionary authority to decide whether care or treatment is Medically Necessary. Medicare is the Health Insurance For The Aged and Disabled program under Title XVIII of the Social Security Act, as amended. Mental Disorder means any disease or condition, regardless of whether the cause is organic, that is classified as a Mental Disorder in the current edition of International Classification of Diseases, published by the U.S. Department of Health and Human Services or is listed in the current edition of Diagnostic and Statistical Manual of Mental Disorders, published by the American Psychiatric Association. Morbid Obesity is a diagnosed condition in which the body weight exceeds the medically recommended weight by either 100 pounds or is twice the medically recommended weight for a person of the same height, age and mobility as the Covered Person. No-Fault Auto Insurance is the basic reparations provision of a law providing for payments without determining ' fault in connection with automobile accidents. 30 Outpatient Care and/or Services is treatment including services, supplies and medicines provided and used at a Hospital under the direction of a Physician to a person not admitted as a registered bed patient; or services rendered in ~'`` a Physician's office, laboratory or X-ray facility, an Ambulatory Surgical Center, or the patient's home. Pharmacy means a licensed establishment where covered Prescription Drugs are filled and dispensed by a pharmacist licensed under the laws of the state where he or she practices. Physician means a Doctor of Medicine (M.D.), Doctor of Osteopathy (D.O.), Doctor of Podiatry (D.P.M.), Doctor of Chiropractic (D.C.), Audiologist, Certified Nurse Anesthetist, Licensed Professional Counselor, Licensed Professional Physical Therapist, Master of Social Work (M.S.W.), Midwife, Occupational Therapist, Physiotherapist, Psychiatrist, Psychologist (Ph.D.), Speech Language Pathologist and any other practitioner of the healing arts who is licensed and regulated by a state or federal agency and is acting within the scope of his or her license. Plan means 123 Company Health Care Plan, which is a benefits plan for certain Employees of 123 Company and is described in this document. Plan Participant is any Employee or Dependent who is covered under this Plan. Plan Year is the 12-month period beginning on either the effective date of the Plan or on the day following the end of the first Plan Year which is a short Plan Year. A Pre-Existing Condition is a condition for which medical advice, diagnosis, care or treatment was recommended or received within six months prior to the person's Enrollment Date under this Plan (e.g. the six month look back period for an Enrollment Date of August 15 is February 15 through August 14). Genetic Information is not a condition. Treatment includes receiving services and supplies, consultations, diagnostic tests or prescribed medicines. In order to be taken into account, the medical advice, diagnosis, care or treatment must have been recommended by, or received from, a Physician. The Pre-Existing Condition does not apply to Pregnancy, to a newborn child who is covered under any Creditable Coverage within 31 days of birth, or to a child who is adopted or placed for adoption before attaining age 18 and who, as of the last day of the 31-day period beginning on the date of the adoption or placement for adoption, is covered under any Creditable Coverage. APre-Existing Condition exclusion may apply to coverage before the date of the adoption or placement for adoption. The prohibition on Pre-Existing Condition exclusion for newborn, adopted, orpre-adopted children does not apply to an individual after the end of the first 63-day period during all of which the individual was not covered under any Creditable Coverage. Pregnancy is childbirth and conditions associated with Pregnancy, including complications. Note: A covered Dependent child of an Employee will be covered only for Complications of Pregnancy. Prescription Drug means any of the following: a Food and Drug Administration-approved drug or medicine which, under federal law, is required to bear the legend: "Caution: federal law prohibits dispensing without prescription"; injectable insulin; hypodermic needles or syringes, but only when dispensed upon a written prescription of a licensed Physician. Such drug must be Medically Necessary in the treatment of a Sickness or Injury. Sickness is: For a covered Employee and covered Spouse: Illness, disease or Pregnancy. For a covered Dependent other than Spouse: Illness, disease or Complications of Pregnancy. ~rrrw 31 Skilled Nursing Facility is a facility that fully meets all of these tests: (1) It is licensed to provide professional nursing services on an inpatient basis to persons convalescing from Injury or Sickness. The service must be rendered by a registered nurse (R.N.) or by a licensed practical nurse (L.P.N.) under the direction of a registered nurse. Services to help restore patients to self-care in essential daily living activities must be provided. (2) Its services are provided for compensation and under the full-time supervision of a Physician. (3) It provides 24 hour per day nursing services by licensed nurses, under the direction of a full-time registered nurse. (4) It maintains a complete medical record on each patient. (5) It has an effective utilization review plan. (6) It is not, other than incidentally, a place for rest, the aged, drug addicts, alcoholics, mental retardates, Custodial or educational care or care of Mental Disorders. (7) It is approved and licensed by Medicare. This term also applies to charges incurred in a facility referring to itself as an extended care facility, convalescent nursing home, rehabilitation hospital, long-term acute care facility or any other similar nomenclature. Spinal Manipulation/Chiropractic Care means skeletal adjustments, manipulation or other treatment in connection with the detection and correction by manual or mechanical means of structural imbalance or subluxation in the human body. Such treatment is done by a Physician to remove nerve interference resulting from, or related to, distortion, misalignment or subluxation of, or in, the vertebral column. Substance Abuse is regular excessive compulsive drinking of alcohol and/or physical habitual dependence on drugs. This does not include dependence on tobacco and ordinary caffeine-containing drinks. Temporomandibular Joint (TMJ) syndrome is the treatment of jaw joint disorders including conditions of structures linking the jaw bone and skull and the complex of muscles, nerves and other tissues related to the temporomandibular joint. Care and treatment shall include, but are not limited to orthodontics, crowns, inlays, physical therapy and any appliance that is attached to or rests on the teeth. Total Disability (Totally Disabled) means: the complete inability of an Employee covered under the Plan to perform any and every duty incident to the occupation in which the Employee was engaged immediately prior to such total disability; or with respect to a Dependent, the inability of the person to engage in the normal occupational, domestic or social activities of a person of like age and sex in good health. Usual and Reasonable Charge is a charge which is not higher than the usual charge made by the provider of the care or supply and does not exceed the usual charge made by most providers of like service in the same area. This test will consider the nature and severity of the condition being treated. It will also consider medical complications or unusual circumstances that require more time, skill or experience. The Plan will reimburse the actual charge billed if it is less than the Usual and Reasonable Charge. The Plan Administrator has the discretionary authority to decide whether a charge is Usual and Reasonable. 32 PLAN EXCLUSIONS Note: All exclusions related to Prescription Drugs are shown in the Prescription Drug Plan. For all Medical Benefits shown in the Schedule of Benefits, a charge for the following is not covered: (1) Abortion. Services, supplies, care or treatment in connection with an abortion unless the life of the mother is endangered by the continued Pregnancy or the Pregnancy is the result of rape or incest. (2) Charges for acupuncture, hypnotherapy, behavior training, bio feedback and similar programs. (3) Complications of non-covered treatments. Care, services or treatment required as a result of complications from a treatment not covered under the Plan are not covered. Complications from anon- covered abortion are covered. (4) Cosmetic Surgery. Expenses incurred in connection with the care or treatment of, or operations which are performed for plastic, reconstructive or cosmetic purposes or any other service or supply which are primarily used to improve, alter or enhance appearance, whether or not for psychological or emotional reasons, except to the extent where it is needed to: ^ Surgical correction of a body part malformed as a result of a severe birth defect, such as harelip or webbed fmgers or toes; ^ Surgical correction of a body part malformed as the result of a disease or to treat disease or injury; ^ Reconstructive surgery as a result of an accidental bodily injury; ^ Reconstructive surgery following neoplastic (cancer) surgery; ^ Reconstruction of the breast following mastectomy; ^ Surgery and reconstruction of the other breast to produce symmetrical appearance; Coverage for prostheses and physical complications of all stages of mastectomy, including lymphedemas in a manner determined in consultation with the attending Physician and patient; ^ Removal of breast implants if deemed to be Medically Necessary and reconstructive breast surgery after implant removal. Breast reconstruction is not covered if the original implants were for cosmetic reasons. However, the removal of the implants are covered, if Medically Necessary, even if the original implant was for cosmetic reasons. Note: The Plan's mastectomy provisions are subject to the requirements of the Mastectomy Provision of the Omnibus Budget Bill which amended ERISA for plan years beginning on or after the date of enactment of this ACT (October 21, 1998). (5) Counseling. Any psychiatric or psychological services in the nature of family counseling, marriage counseling, group therapy, sexual counseling or any self-therapy to another Psychiatrist or Doctor of Psychology as a part of training, or any services of a Master of Science in Social Work who is not a Certified Social Worker-Advanced Clinical Practitioner, as defined, or any services of a Licensed Professional Counselor unless such services have been recommended by a Doctor of Medicine or Doctor of Osteopathy; (6) Custodial care. Services or supplies provided mainly as a rest cure, maintenance or Custodial Care. (7) Charges for education and training of any type including those for learning disabilities. (S) Educational or vocational testing. Services for educational or vocational testing or training. (9) Excess charges. The part of an expense for care and treatment of an Injury or Sickness that is in excess of the Usual and Reasonable Charge. ``~% (10) Exercise programs. Exercise programs for treatment of any condition, except for Physician-supervised cardiac rehabilitation, occupational or physical therapy covered by this Plan. 33 (11) Experimental or not Medically Necessary. Care and treatment that is either Experimental/Investigational or not Medically Necessary. (12) Eye care. Radial keratotomy or other eye surgery to correct refractive disorders. Also, routine eye examinations, including refractions, lenses for the eyes and exams for their fitting. This exclusion does not apply to aphakic patients and soft lenses or sclera shells intended for use as corneal bandages or as may be covered under the well care section of this Plan. (13) Foot care. Treatment of weak, strained, flat, unstable, pronated or unbalanced feet, orthopedic shoes or other devices for support of the feet, metatarsalgia or bunions (except open cutting operations), and treatment of corns, calluses or toenails (unless needed in treatment of a metabolic orperipheral-vascular disease). (14) Foreign travel. Care, treatment or supplies out of the U.S. if travel is for the sole purpose of obtaining medical services. (15) Government coverage. Care, treatment or supplies furnished by a program or agency funded by any government. This does not apply to Medicaid or when otherwise prohibited by law. (16) Hair loss. Care and treatment for hair loss including wigs, hair transplants or any drug that promises hair growth, whether or not prescribed by a Physician. (17) Hearing aids and exams. Charges for services or supplies in connection with hearing aids or exams for their fitting, except as may be covered under the well care section of this Plan. (18) Hospital employees. Professional services billed by a Physician or nurse who is an employee of a Hospital or Skilled Nursing Facility and paid by the Hospital or facility for the service. (19) Illegal acts. Charges for services received as a result of Injury or Sickness occurring directly or indirectly, as a result of a Serious Illegal Act, or a riot or public disturbance. For purposes of this exclusion, the term "Serious Illegal Act" shall mean any act or series of acts that, if prosecuted as a criminal offense, a sentence to a term of imprisonment in excess of one year could be imposed. It is not necessary that criminal charges be filed, or, if filed, that a conviction result, or that a sentence of imprisonment for a term in excess of one year be imposed for this exclusion to apply. Proof beyond a reasonable doubt is not required. This exclusion does not apply if the Injury or Sickness resulted from an act of domestic violence or a medical (including both physical and mental health) condition. (20) Impotence. Care, treatment, services, supplies or medication in connection with treatment for impotence. (21) Infertility. Care, supplies, services and treatment for infertility, except for diagnostic services rendered for infertility evaluation. (22) Marital orpre-marital counseling. Care and treatment for marital orpre-marital counseling. (23) No charge. Care and treatment for which there would not have been a charge if no coverage had been in force. (24) Non-compliance. All charges in connection with treatments or medications where the patient either is in non-compliance with or is discharged from a Hospital or Skilled Nursing Facility against medical advice. (25) Non-emergency Hospital admissions. Care and treatment billed by a Hospital for non-Medical Emergency admissions on a Friday or a Saturday. This does not apply if surgery is performed within 24 hours of adnussion. (26) No obligation to pay. Charges incurred for which the Plan has no legal obligation to pay. 34 (27) No Physician recommendation. Care, treatment, services or supplies not recommended and approved by a Physician; or treatment, services or supplies when the Covered Person is not under the regular care ~'" of a Physician. Regular care means ongoing medical supervision or treatment which is appropriate care for the Injury or Sickness. (28) Not specified as covered. Non-traditional medical services, treatments and supplies which are not specified as covered under this Plan. (29) Obesity. Care and treatment of obesity, weight loss or dietary control whether or not it is, in any case, a part of the treatment plan for another Sickness. Specifically excluded are charges for bariatric surgery, including but not limited to, gastric bypass, stapling and intestinal bypass, and lap band surgery, including reversals. Medically Necessary non-surgical charges for Morbid Obesity will be covered. (30) Occupational. Care and treatment of an Injury or Sickness that is occupational -- that is, arises from work for wage or profit including self-employment. (31) Personal comfort items. Personal comfort items or other equipment, such as, but not limited to, air conditioners, air-purification units, humidifiers, electric heating units, orthopedic mattresses, blood pressure instruments, scales, elastic bandages or stockings, nonprescription drugs and medicines, and first-aid supplies and nonhospital adjustable beds. (32) Plan design excludes. Charges excluded by the Plan design as mentioned in this document. (33) Pregnancy of daughter. Care and treatment of Pregnancy for a dependent daughter only. Complications of Pregnancy are covered. (34) Relative giving services. Professional services performed by a person who ordinarily resides in the Covered Person's home or is related to the Covered Person as a Spouse, parent, child, brother or sister, whether the relationship is by blood or exists in law. (35) Replacement braces. Replacement of braces of the leg, arm, back, neck, or artificial arms or legs, unless there is sufficient change in the Covered Person's physical condition to make the original device no longer functional. (36) Self-Inflicted. Any loss due to an intentionally self-inflicted Injury. This exclusion does not apply if the Injury resulted from an act of domestic violence or a medical (including both physical and mental health) condition. (37) Services before or after coverage. Care, treatment or supplies for which a charge was incurred before a person was covered under this Plan or after coverage ceased under this Plan. (38) Sex changes. Care, services or treatment for non-congenital transsexualism, gender dysphoria or sexual reassignment or change. This exclusion includes medications, implants, hormone therapy, surgery, medical or psychiatric treatment. (39) Sleep disorders. Care and treatment for sleep disorders unless deemed Medically Necessary. (40) Smoking cessation. Care and treatment for smoking cessation programs, including smoking deterrent patches, unless Medically Necessary due to a severe active lung Illness such as emphysema or asthma. (41) Surgical sterilization reversal. Care and treatment for reversal of surgical sterilization. (42) Travel or accommodations. Charges for travel or accommodations, whether or not recommended by a Physician, except for ambulance charges as defined as a Covered Charge. `~ (43) War. Any loss that is due to a declared or undeclared act of war. 35 PRESCRIPTION DRUG BENEFITS Pharmacy Drug Charge Participating pharmacies have contracted with the Plan to charge Covered Persons reduced fees for covered Prescription Drugs. PartnersRx is the administrator of the pharmacy drug plan. Copayments The copayment is applied to each covered pharmacy drug or mail order drug charge and is shown in the schedule of benefits. The copayment amount is not a Covered Charge under the medical Plan. Any one pharmacy prescription is limited to a 30-day supply. Any one mail order prescription is limited to a 90-day supply. If a drug is purchased from anon-participating pharmacy, or a participating pharmacy when the Covered Person's ID card is not used, the amount payable in excess of the amounts shown in the schedule of benefits will be the ingredient cost and dispensing fee. Mail Order Drug Benefit Option The mail order drug benefit option is available for maintenance medications (those that are taken for long periods of time, such as drugs sometimes prescribed for heart disease, high blood pressure, asthma, etc.). Because of volume buying, Anthem, the mail order pharmacy, is able to offer Covered Persons significant savings on their prescriptions. Covered Prescription Drugs (I) All drugs prescribed by a Physician that require a prescription either by federal or state law. This includes oral contraceptives, but excludes any drugs stated as not covered under this Plan. (2) All compounded prescriptions containing at least one prescription ingredient in a therapeutic quantity. (3) Insulin and other diabetic supplies when prescribed by a Physician. Other injectables are not covered. Limits To This Benefit This benefit applies only when a Covered Person incurs a covered Prescription Drug charge. The covered drug charge for any one prescription will be limited to: (1) Refills only up to the number of times specified by a Physician. (2) Refills up to one year from the date of order by a Physician. Expenses Not Covered This benefit will not cover a charge for any of the following: (1) Administration. Any charge for the administration of a covered Prescription Drug. (2) Appetite suppressants. A charge for appetite suppressants, dietary supplements or vitamin supplements, except for prenatal vitamins requiring a prescription or prescription vitamin supplements containing fluoride. (3) Consumed on premises. Any drug or medicine that is consumed or administered at the place where it is dispensed. ``'~"' (4) Devices. Devices of any type, even though such devices may require a prescription. These include (but are not limited to) therapeutic devices, artificial appliances, braces, support garments, or any similar device. 36 ~r-. (5) Drugs used for cosmetic purposes. Charges for drugs used for cosmetic purposes, such as anabolic steroids, Retin A or medications for hair growth or removal. (6) Experimental. Experimental drugs and medicines, even though a charge is made to the Covered Person. (7) FDA. Any drug not approved by the Food and Drug Administration. (8) Growth hormones. Charges for drugs to enhance physical growth or athletic performance or appearance. (9) Immunization. Immunization agents or biological sera. (10) Impotence. A charge for impotence medication. (11) Infertility. A charge for infertility medication. (12) Injectable supplies. A charge for hypodermic syringes and/or needles (other than for insulin). (13) Inpatient medication. A drug or medicine that is to be taken by the Covered Person, in whole or in part, while Hospital confined. This includes being confined in any institution that has a facility for the dispensing of drugs and medicines on its premises. (14) Investigational. Adrug or medicine labeled: "Caution -limited by federal law to investigational use". (15) Medical exclusions. A charge excluded under Medical Plan Exclusions. (16) No charge. A charge for Prescription Drugs which may be properly received without charge under local, state or federal programs. (17) Non-legend drugs. A charge for FDA-approved drugs that are prescribed for non-FDA-approved uses. (18) No prescription. A drug or medicine that can legally be bought without a written prescription. This does not apply to injectable insulin. (19) Refills. Any refill that is requested more than one year after the prescription was written or any refill that is more than the number of refills ordered by the Physician. (20) Smoking cessation. A charge for Prescription Drugs, such as nicotine gum or smoking deterrent patches, for smoking cessation. 37 HOW TO SUBMIT A CLAIM r+~` Benefits under this Plan shall be paid only if the Plan Administrator decides in its discretion that a Covered Person is entitled to them. When a Covered Person has a Claim to submit for payment that person must: (I) Obtain a Claim form from the Personnel Office or the Plan Administrator. (2) Complete the Employee portion of the form. ALL QUESTIONS MUST BE ANSWERED. (3) Have the Physician complete the provider's portion of the form. (4) For Plan reimbursements, attach bills for services rendered. ALL BILLS MUST SHOW: - Name of Plan - Employee's name - Name of patient - Name, address, telephone number of the provider of care - Diagnosis - Type of services rendered, with diagnosis and/or procedure codes - Date of services - Charges (5) Send the above to the Claims Administrator at this address: Verity National Group, Inc. P.O. Box 780159 San Antonio, Texas 78278-0159 (800)840-3977 WHEN CLAIMS SHOULD BE FILED Claims should be filed with the Claims Administrator within 365 days of the date charges for the service were incurred. Benefits are based on the Plan's provisions at the time the charges were incurred. Claims filed later than that date may be declined or reduced unless: (a) it's not reasonably possible to submit the claim in that time; and (b) the claim is submitted within one year from the date incurred. This one year period will not apply when the person is not legally capable of submitting the claim. The Claims Administrator will determine if enough information has been submitted to enable proper consideration of the claim. If not, more information may be requested from the claimant. The Plan reserves the right to have a Plan Participant seek a second medical opinion. CLAIMS PROCEDURE ~1r- Following is a description of how the Plan processes Claims for benefits. A Claim is defined as any request for a Plan benefit, made by a claimant or by a representative of a claimant, that complies with the Plan's reasonable procedure 38 for making benefit Claims. The times listed are maximum times only. A period of time begins at the time the Claim is filed. Decisions will be made within a reasonable period of time appropriate to the circumstances. "Days" means calendar days. There are different kinds of Claims and each one has a specific timetable for either approval, payment, request for further information, or denial of the Claim. If you have any questions regarding this procedure, please contact the Plan Administrator. The defmitions of the types of Claims are: Urgent Care Claim A Claim involving Urgent Care is any Claim for medical care or treatment where using the timetable for anon-urgent care detemunation could seriously jeopardize the life or health of the claimant; or the ability of the claimant to regain maximum function; or in the opinion of the attending or consulting Physician, would subject the claimant to severe pain that could not be adequately managed without the care or treatment that is the subject of the Claim. A Physician with knowledge of the claimant's medical condition may determine if a Claim is one involving Urgent Care. If there is no such Physician, an individual acting on behalf of the Plan applying the judgment of a prudent layperson who possesses an average knowledge of health and medicine may make the determination. In the case of a Claim involving Urgent Care, the following timetable applies: Notification to claimant of benefit determination 72 hours Insufficient information on the Claim, or failure to follow the Plan's rocedure for filin a Claim: Notification to claimant, orall or in writin 24 hours Res onse b claimant, orall or in writin 48 hours Benefit determination, orall or in writin 48 hours On oin courses of treatment, notification of: Reduction or termination before the end of treatment 72 hours Determination as to extendin course of treatment 24 hours If there is an adverse benefit determination on a Claim involving Urgent Care, a request for an expedited appeal may be submitted orally or in writing by the claimant. All necessary information, including the Plan's benefit determination on review, may be transmitted between the Plan and the claimant by telephone, facsimile, or other similarly expeditious method. Pre-Service Claim A Pre-Service Claim means any Claim for a benefit under this Plan where the Plan conditions receipt of the benefit, in whole or in part, on approval in advance of obtaining medical care. These are, for example, Claims subject to pre- certification. Please see the Cost Management section of this booklet for further information about Pre-Service Claims. In the case of aPre-Service Claim, the following timetable applies: Notification to claimant of benefit determination 15 days Extension due to matters beyond the control of the Plan 15 days 39 Insufficient information on the Claim: r- Notification of 15 days Response by claimant 45 days Notification, orally or in writing, of failure to follow the 5 days Plan's procedures for filing a Claim Ongoing courses of treatment: Reduction or termination before the end of the treatment 15 days Request to extend course of treatment 15 days Review of adverse benefit determination 15 days per benefit appeal Reduction or termination before the end of the treatment 15 days Request to extend course of treatment 15 days Post-Service Claim A Post-Service Claim means any Claim for a Plan benefit that is not a Claim involving Urgent Care or aPre-Service Claim; in other words, a Claim that is a request for payment under the Plan for covered medical services already received by the claimant. In the case of aPost-Service Claim, the following timetable applies: Notification to claimant of benefit determination Extension due to matters beyond the control of the Plan Extension due to insufficient information on the Claim Response by claimant following notice of insufficient information Review of adverse benefit determination Notice to claimant of adverse benefit determinations 30 days 15 days 15 days 45 days 30 days per benefit appeal Except with Urgent Care Claims, when the notification may be oral followed by written or electronic notification within three days of the oral notification, the Plan Administrator shall provide written or electronic notification of any adverse benefit determination. The notice will state, in a manner calculated to be understood by the claimant: (1) The specific reason or reasons for the adverse determination. (2) Reference to the specific Plan provisions on which the determination was based. (3) A description of any additional material or information necessary for the claimant to perfect the Claim and an explanation of why such material or information is necessary. (4) A description of the Plan's review procedures, incorporating any voluntary appeal procedures offered by the Plan, and the time limits applicable to such procedures. This will include a statement of the claimant's right to bring a civil action under section 502 of ERISA following an adverse benefit determination on review. 40 (5) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claim. "You and your Plan ' may have other voluntary alternative dispute resolution options, such as mediation. One way to find out what may be available is to contact your local U. S. Department of Labor Office." (6) If the adverse benefit determination was based on an internal rule, guideline, protocol, or other similar criterion, the specific rule, guideline, protocol, or criterion will be provided free of charge. If this is not practical, a statement will be included that such a rule, guideline, protocol, or criterion was relied upon in making the adverse benefit determination and a copy will be provided free of charge to the claimant upon request. (7) If the adverse benefit determination is based on the Medical Necessity or Experimental or Investigational treatment or similar exclusion or limit, an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the claimant's medical circumstances, will be provided. If this is not practical, a statement will be included that such explanation will be provided free of charge, upon request. Appeals When a claimant receives an adverse benefit determination, the claimant has 180 days following receipt of the notification in which to appeal the decision. A claimant may submit written comments, documents, records, and other information relating to the Claim. If the claimant so requests, he or she will be provided, free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claim. The period of time within which a benefit determination on review is required to be made shall begin at the time an appeal is filed in accordance with the procedures of the Plan. This timing is without regard to whether all the necessary information accompanies the filing. A document, record, or other information shall be considered relevant to a Claim if it: (1) was relied upon in making the benefit determination; (2) .was submitted, considered, or generated in the course of making the benefit determination, without regard to whether it was relied upon in making the benefit determination; (3) demonstrated compliance with the administrative processes and safeguards designed to ensure and to verify that benefit determinations are made in accordance with Plan documents and Plan provisions have been applied consistently with respect to all claimants; or (4) constituted a statement of policy or guidance with respect to the Plan concerning the denied treatment option or benefit. The review shall take into account all comments, documents, records, and other information submitted by the claimant relating to the Claim, without regard to whether such information was submitted or considered in the initial benefit determination. The review will not afford deference to the initial adverse benefit determination and will be conducted by a fiduciary of the Plan who is neither the individual who made the adverse determination nor a subordinate of that individual. If the determination was based on a medical judgment, including determinations with regard to whether a particular treatment, drug, or other item is Experimental, Investigational, or not Medically Necessary or appropriate, the fiduciary shall consult with a health care professional who was not involved in the original benefit determination. This health care professional will have appropriate training and experience in the field of medicine involved in the medical judgment. Additionally, medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the initial determination will be identified. 41 Voluntary appeals, including voluntary arbitration '' During voluntary dispute resolution, any statute of limitations or other defense based on timeliness is tolled during the time any voluntary appeal is pending. The Plan waives any right to assert that a claimant has failed to exhaust administrative remedies because he or she did not elect to submit a benefit dispute to the voluntary appeal provided by the Plan. A claimant may elect a voluntary appeal after exhaustion of appeals of an adverse benefit determination as explained in the section above, entitled, "Appeals." However, this voluntary appeal may be conducted as one of the two appeals available to the claimant. The Plan will provide to the claimant, at no cost and upon request, sufficient information about the voluntary appeal to enable the claimant to make an informed judgment about whether to submit a benefit dispute to the voluntary level of appeal. This information will include a statement that the decision will have no effect on the claimant's rights to any other benefits under the Plan; will list the rules of the appeal; state the claimant's right to representation; enumerate the process for selecting the decision maker; and give circumstances, if any, that may affect the impartiality of the decision maker. No fees or costs will be imposed on the claimant as part of the voluntary level of appeal, and the claimant will be told this. 42 COORDINATION OF BENEFITS fir!' Coordination of the benefit plans. Coordination of benefits sets out rules for the order of payment of Covered Charges when two or more plans -- including Medicare -- are paying. When a Covered Person is covered by this Plan and another plan, or the Covered Person's Spouse is covered by this Plan and by another plan or the couple's Covered children are covered under two or more plans, the plans will coordinate benefits when a claim is received. The plan that pays first according to the rules will pay as if there were no other plan involved. The secondary and subsequent plans will pay the balance due up to 100% of the total Allowable Charges. Benefit plan. This provision will coordinate the medical benefits of a benefit plan. The term benefit plan means this Plan or any one of the following plans: (1) Group or group-type plans, including franchise or blanket benefit plans. (2) Blue Cross and Blue Shield group plans. (3) Group practice and other group prepayment plans. (4) Federal government plans or programs. This includes Medicare. (5) Other plans required or provided by law. This does not include Medicaid or any benefit plan like it that, by its terms, does not allow coordination. (6) No Fault Auto Insurance, by whatever name it is called, when not prohibited by law. Allowable Charge. For a charge to be allowable it must be a Usual and Reasonable Charge and at least part of it err' must be covered under this Plan. In the case of HMO (Health Maintenance Organization) or other in-network only plans: This Plan will not consider any charges in excess of what an HMO or network provider has agreed to accept as payment in full. Also, when an HMO or network plan is primary and the Covered Person does not use an HMO or network provider, this Plan will not consider as an Allowable Charge any charge that would have been covered by the HMO or network plan had the Covered Person used the services of an HMO or network provider. In the case of service type plans where services are provided as benefits, the reasonable cash value of each service will be the Allowable Charge. Automobile limitations. When medical payments are available under vehicle insurance, the Plan shall pay excess benefits only, without reimbursement for vehicle plan deductibles. This Plan shall always be considered the secondary carrier regardless of the individual's election under PIP (personal injury protection) coverage with the auto carrier. Benefit plan payment order. When two or more plans provide benefits for the same Allowable Charge, benefit payment will follow these rules: (1) Plans that do not have a coordination provision, or one like it, will pay first. Plans with such a provision will be considered after those without one. (2) Plans with a coordination provision will pay their benefits up to the Allowable Charge: (a) The benefits of the plan which covers the person directly (that is, as an employee, member or subscriber) ("Plan A") are determined before those of the plan which covers the person as a dependent ("Plan B"). (b) The benefits of a benefit plan which covers a person as an Employee who is neither laid off nor retired are determined before those of a benefit plan which covers that person as a laid-off or 43 Retired Employee. The benefits of a benefit plan which covers a person as a Dependent of an Employee who is neither laid off nor retired are determined before those of a benefit plan which covers a person as a Dependent of a laid off or Retired Employee. If the other benefit plan does not have this rule, and if, as a result, the plans do not agree on the order of benefits, this rule does not apply. (c) The benefits of a benefit plan which covers a person as an Employee who is neither laid off nor retired or a Dependent of an Employee who is neither laid off nor retired are determined before those of a plan which covers the person as a COBRA beneficiary. (d) When a child is covered as a Dependent and the parents are not separated or divorced, these rules will apply: (i) The benefits of the benefit plan of the parent whose birthday falls earlier in a year are determined before those of the benefit plan of the parent whose birthday falls later in that year; (ii) If both parents have the same birthday, the benefits of the benefit plan which has covered the parent for the longer time are determined before those of the benefit plan which covers the other parent. (e) When a child's parents are divorced or legally separated, these rules will apply: (i) This rule applies when the parent with custody of the child has not remarried. The benefit plan of the parent with custody will be considered before the benefit plan of the parent without custody. (ii) This rule applies when the parent with custody of the child has remarried. The benefit plan of the parent with custody will be considered first. The benefit plan of the stepparent that covers the child as a Dependent will be considered next. The benefit plan of the parent without custody will be considered last. (iii) This rule will be in place of items (i) and (ii) above when it applies. A court decree may state which parent is financially responsible for medical and dental benefits of the child. In this case, the benefit plan of that parent will be considered before other plans that cover the child as a Dependent. (iv) If the specific terms of the court decree state that the parents shall share joint custody, without stating that one of the parents is responsible for the health care expenses of the child, the plans covering the child shall follow the order of benefit determination rules outlined above when a child is covered as a Dependent and the pazents are not separated or divorced. (v) For parents who were never married to each other, the rules apply as set out above as long as paternity has been established. (t) If there is still a conflict after these rules have been applied, the benefit plan which has covered the patient for the longer time will be considered first. When there is a conflict in coordination of benefit rules, the Plan will never pay more than 50% of Allowable Charges when paying secondary. (3) Medicare will pay primary, secondary or last to the extent stated in federal law. When Medicare is to be the primary payer, this Plan will base its payment upon benefits that would have been paid by Medicare under Parts A, B and D, regardless of whether or not the person was enrolled under any of these parts. ~"'' (4) If a Plan Participant is under a disability extension from a previous benefit plan, that benefit plan will pay first and this Plan will pay second. 44 Claims determination period. Benefits will be coordinated on a Calendar Year basis. This is called the claims determination period. Right to receive or release necessary information. To make this provision work, this Plan may give or obtain needed information from another insurer or any other organization or person. This information may be given or obtained without the consent of or notice to any other person. A Covered Person will give this Plan the information it asks for about other plans and their payment of Allowable Charges. Facility of payment. This Plan may repay other plans for benefits paid that the Plan Administrator determines it should have paid. That repayment will count as a valid payment under this Plan. Right of recovery. This Plan may pay benefits that should be paid by another benefit plan. In this case this Plan may recover the amount paid from the other benefit plan or the Covered Person. That repayment will count as a valid payment under the other benefit plan. Further, this Plan may pay benefits that are later found to be greater than the Allowable Charge. In this case, this Plan may recover the amount of the overpayment from the source to which it was paid. Exception to Medicaid. In accordance with ERISA, the Plan shall not take into consideration the fact that an individual is eligible for or is provided medical assistance through Medicaid when enrolling an individual in the Plan or making a determination about the payments for benefits received by a Covered Person under the Plan. 45 THIRD PARTY RECOVERY PROVISION RIGHT OF SUBROGATION AND REFUND When this provision applies. The Covered Person may incur medical or dental charges due to Injuries which may be caused by the act or omission of a Third Party or a Third Party may be responsible for payment. in such circumstances, the Covered Person may have a claim against that Third Party, or insurer, for payment of the medical or dental charges. Accepting benefits under this Plan for those incurred medical or dental expenses automatically assigns to the Plan any rights the Covered Person may have to Recover payments from any Third Party or insurer. This Subrogation right allows the Plan to pursue any claim which the Covered Person has against any Third Party, or insurer, whether or not the Covered Person chooses to pursue that claim. The Plan may make a claim directly against the Third Party or insurer, but in any event, the Plan has a lien on any amount Recovered by the Covered Person whether or not designated as payment for medical expenses. This lien shall remain in effect until the Plan is repaid in full. The payment for benefits received by a Covered Person under the Plan shall be made in accordance with the assignment of rights by or on behalf of the Covered Person as required by Medicaid. In any case in which the Plan has a legal liability to make payments for benefits received by a Covered Person, to the extent that payment has been made through Medicaid, the payment for benefits under the Plan shall be made in accordance with any state law that has provided that the state has acquired the rights of the Covered Person to the payments of those benefits. The Covered Person: (I) automatically assigns to the Plan his or her rights against any Third Party or insurer when this provision applies; and (2) must repay to the Plan the benefits paid on his or her behalf out of the Recovery made from the Third Party or insurer. Amount subject to Subrogation or Refund. The Covered Person agrees to recognize the Plan's right to Subrogation and reimbursement. These rights provide the Plan with a 100%, first dollar priority over an and all Recoveries and funds paid by a Third Party to a Covered Person relative to the Injury or Sickness, including a priority over any claim for non-medical or dental charges, attorney fees, or other costs and expenses. Accepting benefits under this Plan for those incurred medical or dental expenses automatically assigns to the Plan any and all rights the Covered Person may have to recover payments from any responsible third party. Further, accepting benefits under this Plan for those incurred medical or dental expenses automatically assigns to the Plan the Covered Person's Third Party Claims. Notwithstanding its priority to funds, the Plan's Subrogation and Refund rights, as well as the rights assigned to it, are limited to the extent to which the Plan has made, or will make, payments for medical or dental charges as well as any costs and fees associated with the enforcement of its rights under the Plan. The Plan reserves the right to be reimbursed for its court costs and attorneys' fees if the Plan needs to file suit in order to Recover payment for medical or dental expenses from the Covered Person. Also, the Plan's right to Subrogation still applies if the Recovery received by the Covered Person is less than the claimed damage, and, as a result, the claimant is not made whole. When a right of Recovery exists, the Covered Person will execute and deliver all required instruments and papers as well as doing whatever else is needed to secure the Plan's right of Subrogation as a condition to having the Plan make payments. In addition, the Covered Person will do nothing to prejudice the right of the Plan to Subrogate. Should the Employee or Dependent refuse to execute the Subrogation and Right of Reimbursement Agreement, take actions which prejudice (or permit his legal representative to take actions which prejudice) this right of subrogation and reimbursement, or fail to cooperate in any way, such Employee or any Dependent shall be personally liable to this Plan for all benefits paid to or on behalf of such Employee or Dependent in connection with such sickness or injury. The rights of subrogation and reimbursement expressed in this section exist independently of the Subrogation and Right of Reimbursement Agreement. An Employee or Dependent's refusal to execute a Subrogation and Right of Reimbursement Agreement in no way diminishes the rights of subrogation and reimbursement as expressed herein. 46 Conditions Precedent to Coverage. The Plan shall have no obligation whatsoever to pay medical or dental benefits ~"' to a Covered Person if a Covered Person refuses to cooperate with the Plan's reimbursement and Subrogation rights or refuses to execute and deliver such papers as the Plan may require in furtherance of its reimbursement and Subrogation rights. Further, in the event the Covered Person is a minor, the Plan shall have no obligation to pay any medical or dental benefits incurred on account of Injury or Sickness caused by a responsible Third Parry until after the Covered Person or his authorized legal representative obtains valid court recognition and approval of the Plan's 100%, first dollar reimbursement and Subrogation rights on all Recoveries, as well as approval for the execution of any papers necessary for the enforcement thereof, as described herein. Defined terms: "Covered Person" means anyone covered under the Plan, including minor dependents. "Recover," "Recovered," "Recovery" or "Recoveries" means all monies paid to the Covered Person by way of judgment, settlement, or otherwise to compensate for all losses caused by the Injury or Sickness, whether or not said losses reflect medical or dental charges covered by the Plan. "Recoveries" further includes, but is not limited to, recoveries for medical or dental expenses, attorneys' fees, costs and expenses, pain and suffering, loss of consortium, wrongful death, lost wages and any other recovery of any form of damages or compensation whatsoever. "Refund" means repayment to the Plan for medical or dental benefits that it has paid toward care and treatment of the Injury or Sickness. "Subrogation" means the Plan's right to pursue and place a lien upon the Covered Person's claims for medical or dental charges against the other person. "Third Party" means any Third Party including another person or a business entity. Recovery from another plan under which the Covered Person is covered. This right of Refund also applies when a Covered Person Recovers under an uninsured or underinsured motorist plan (which will be treated as Third Party arm coverage when reimbursement or Subrogation is in order), homeowner's plan, renter's plan, medical malpractice plan or any liability plan. Rights of Plan Administrator. The Plan Administrator has a right to request reports on and approve of all settlements. 47 CONTINUATION COVERAGE RIGHTS UNDER COBRA Under federal law, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), certain Employees and their families covered under 123 Company Health Care Plan (the Plan) will be entitled to the opportunity to elect a temporary extension of health coverage (called "COBRA continuation coverage) where coverage under the Plan would otherwise end. This notice is intended to inform Plan Participants and beneficiaries, in summary fashion, of their rights and obligations under the continuation coverage provisions of COBRA, as amended and reflected in final and proposed regulations published by the Department of the Treasury. This notice is intended to reflect the law and does not grant or take away any rights under the law. The Plan Administrator is 123 Company, 123 Anywhere St, San Antonio, Texas, 78229, (210) 123-4567. COBRA continuation coverage for the Plan is administered by Verity National Group, Inc., P.O. Box 780159, San Antonio, Texas 78278-0159, (800) 840-3977. Complete instructions on COBRA, as well as election forms and other information, will be provided by the Plan Administrator or its designee to Plan Participants who become Qualified Beneficiaries under COBRA. What is COBRA continuation coverage? COBRA continuation coverage is the temporary extension of group health plan coverage that must be offered to certain Plan Participants and their eligible family members (called "Qualified Beneficiaries") at group rates. The right to COBRA continuation coverage is triggered by the occurrence of a life event that results in the loss of coverage under the terms of the Plan (the "Qualifying Event"). The coverage must be identical to the Plan coverage that the Qualified Beneficiary had immediately before the Qualifying Event, or if the coverage has been changed, the coverage must be identical to the coverage provided to similarly situated active employees who have not experienced a Qualifying Event (in other words, similarly situated non-COBRA beneficiaries). Who can become a Qualified Beneficiary? In general, a Qualified Beneficiary can be: (1) Any individual who, on the day before a Qualifying Event, is covered under a Plan by virtue of being on that day either a covered Employee, the Spouse of a covered Employee, or a Dependent child of a covered Employee. If, however, an individual who otherwise qualifies as a Qualified Beneficiary is denied or not offered coverage under the Plan under circumstances in which the denial or failure to offer constitutes a violation of applicable law, then the individual will be considered to have had the Plan coverage and will be considered a Qualified Beneficiary if that individual experiences a Qualifying Event. (2) Any child who is born to or placed for adoption with a covered Employee during a period of COBRA continuation coverage, and any individual who is covered by the Plan as an alternate recipient under a qualified medical support order. If, however, an individual who otherwise qualifies as a Qualified Beneficiary is denied or not offered coverage under the Plan under circumstances in which the denial or failure to offer constitutes a violation of applicable law, then the individual will be considered to have had the Plan coverage and will be considered a Qualified Beneficiary if that individual experiences a Qualifying Event. The term "covered Employee" includes not only common-law employees (whether part-time or full-time) but also any individual who is provided coverage under the Plan due to his or her performance of services for the employer sponsoring the Plan (e.g., self-employed individuals, independent contractor, or corporate director). However, this provision does not establish eligibility of these individuals. Eligibility for Plan Coverage shall be determined in accordance with Plan Eligibility provisions. An individual is not a Qualified Beneficiary if the individual's status as a covered Employee is attributable to a period in which the individual was a nonresident alien who received from the individual's Employer no earned income that constituted income from sources within the United States. lf, on account of the preceding reason, an individual is not a Qualified Beneficiary, then a Spouse or Dependent child of the individual will also not be considered a Qualified Beneficiary by virtue of the relationship to the individual. A domestic partner is not a Qualified Beneficiary. 48 Each Qualified Beneficiary (including a child who is born to or placed for adoption with a covered Employee during a period of COBRA continuation coverage) must be offered the opportunity to make an independent election to `' receive COBRA continuation coverage. What is a Qualifying Event? A Qualifying Event is any of the following if the Plan provided that the Plan participant would lose coverage (i.e.: cease to be covered under the same terms and conditions as in effect immediately before the Qualifying Event) in the absence of COBRA continuation coverage: (1) The death of a covered Employee. (2) The termination (other than by reason of the Employee's gross misconduct), or reduction of hours, of a covered Employee's employment. (3) The divorce or legal separation of a covered Employee from the Employee's Spouse. If the Employee reduces or eliminates the Employee's Spouse's Plan coverage in anticipation of a divorce or legal separation, and a divorce or legal separation later occurs, then the divorce or legal separation may be considered a Qualifying Event even though the Spouse's coverage was reduced or eliminated before the divorce or legal separation. (4) A covered Employee's enrollment in any part of the Medicare program. (5) A Dependent child's ceasing to satisfy the Plan's requirements for a Dependent child (for example, attainment of the maximum age for dependency under the Plan). If the Qualifying Event causes the covered Employee, or the covered Spouse or a Dependent child of the covered Employee, to cease to be covered under the Plan under the same terms and conditions as in effect immediately before the Qualifying Event, the persons losing such coverage become Qualified Beneficiaries under COBRA if all the other conditions of COBRA are also met. For example, any increase in contribution that must be paid by a covered Employee, or the Spouse, or a Dependent child of the covered Employee, for coverage under the Plan that results from the occurrence of one of the events listed above is a loss of coverage. The taking of leave under the Family and Medical Leave Act of 1993 ("FMLA") does not constitute a Qualifying Event. A Qualifying Event will occur, however, if an Employee does not return to employment at the end of the FMLA leave and all other COBRA continuation coverage conditions are present. If a Qualifying Event occurs, it occurs on the last day of FMLA leave and the applicable maximum coverage period is measured from this date (unless coverage is lost at a later date and the Plan provides for the extension of the required periods, in which case the maximum coverage date is measured from the date when the coverage is lost.) Note that the covered Employee and family members will be entitled to COBRA continuation coverage even if they failed to pay the employee portion of premiums for coverage under the Plan during the FMLA leave. What factors should be considered when determining to elect COBRA continuation coverage? You should take into account that a failure to continue your group health coverage will affect your rights under federal law. First, you can lose the right to avoid having pre-existing condition exclusions applied by other group health plans if there is more than a 63-day gap in health coverage and election of COBRA continuation coverage may help you avoid such a gap. Second, if you do not elect COBRA continuation coverage and pay the appropriate premiums for the maximum time available to you, you will lose the right to convert to an individual health insurance policy, which does not impose such pre-existing condition exclusions. Finally, you should take into account that you have special enrollment rights under federal law (HIPAA). You have the right to request special enrollment in another group health plan for which you are otherwise eligible (such as a plan sponsored by your Spouse's employer) within 30 days after Plan coverage ends due to a Qualifying Event listed above. You will also have the same special right at the end of COBRA continuation coverage if you get COBRA continuation coverage for the maximum time available to you. What is the procedure for obtaining COBRA continuation coverage? The Plan has conditioned the availability of COBRA continuation coverage upon the timely election of such coverage. An election is timely if it is made during the election period. What is the election period and how long must it last? The election period is the time period within which the Qualified Beneficiary must elect COBRA continuation coverage under the Plan. The election period must begin not 49 later than the date the Qualified Beneficiary would lose coverage on account of the Qualifying Event and ends 60 days after the later of the date the Qualified Beneficiary would lose coverage on account of the Qualifying Event or the date notice is provided to the Qualified Beneficiary of her or his right to elect COBRA continuation coverage. If coverage is not elected within the 60 day period, all rights to elect COBRA continuation coverage are forfeited. Note: If a covered employee who has been terminated or experienced a reduction of hours qualifies for a trade readjustment allowance or alternative trade adjustment assistance under a federal law called the Trade Act of 2002, and the employee and his or her covered dependents have not elected COBRA coverage within the normal election period, a second opportunity to elect COBRA coverage will be made available for themselves and certain family members, but only within a limited period of 60 days or less and only during the six months immediately after their group health plan coverage ended. Any person who qualifies or thinks that he and/or his family members may qualify for assistance under this special provision should contact the Plan Administrator for further information. The Trade Act of 2002 also created a new tax credit for certain TAA-eligible individuals and for certain retired employees who are receiving pension payments from the Pension Benefit Guaranty Corporation (PBGC) (eligible individuals). Under the new tax provisions, eligible individuals can either take a tax credit or get advance payment of 65% of premiums paid for qualified health insurance, including continuation coverage. If you have questions about these new tax provisions, you may call the Health Coverage Tax Credit Consumer Contact Center toll-free at 1-866- 628-4282. TTD/TTY callers may call toll-free at 1-866-626-4282. More information about the Trade Act is also available at www.doleta.gov/tradeact. Is a covered Employee or Qualified Beneficiary responsible for informing the Plan Administrator of the occurrence of a Qualifying Event? The Plan will offer COBRA continuation coverage to Qualified Beneficiaries only after the Plan Administrator or its designee has been timely notified that a Qualifying Event has occurred. The employer (if the employer is not the Plan Administrator) will notify the Plan Administrator of the Qualifying Event within 30 days following the date coverage ends when the Qualifying Event is: (I) the end of employment or reduction of hours of employment, ~r+ (Z) death of the employee, (3) commencement of a proceeding in bankruptcy with respect to the employer, or (4) enrollment of the employee in any part of Medicare. IMPORTANT: For the other Qualifying Events (divorce or legal separation of the employee and spouse or a dependent child's losing eligibility for coverage as a dependent child), you or someone on your behalf must notify the Plan Administrator or its designee in writing within 60 days after the Qualifying Event occurs, using the procedures specified below. If these procedures are not followed or if the notice is not provided in writing to the Plan Administrator or its designee during the 60-day notice period, any spouse or dependent child who loses coverage will not be offered the option to elect continuation coverage. You must send this notice to the COBRA Administrator. 50 NOTICE PROCEDURES: Any notice that you provide must be in writing. Oral notice, including notice by telephone, is not acceptable. You must mail, fax orhand-deliver your notice to the person, department or firm listed below, at the following address: Verity National Group, Inc. P.O. Box 780159 San Antonio, Texas 78278-0159 If mailed, your notice must be postmarked no later than the last day of the required notice period. Any notice you provide must state: • the name of the plan or plans under which you lost or are losing coverage, • the name and address of the employee covered under the plan, • the name(s) and address(es) of the Qualified Beneficiary(ies), and • the Qualifying Event and the date it happened. If the Qualifying Event is a divorce or legal separation, your notice must include a copy of the divorce decree or the legal separation agreement. Be aware that there are other notice requirements in other contexts, for example, in order to qualify for a extension. Once the Plan Administrator or its designee receives timel,~notzce that a Qualifying Event has occurred, COBRA continuation coverage will be offered to each of the qualified beneficiaries. Each Qualified Beneficiary will have an independent right to elect COBRA continuation coverage. Covered employees may elect COBRA continuation coverage for their spouses, and parents may elect COBRA continuation coverage on behalf of their children. For each Qualified Beneficiary who elects COBRA continuation coverage, COBRA continuation coverage will begin on the date that plan coverage would otherwise have been lost. If you or your spouse or dependent children do not elect continuation coverage within the 60-day election period described above, the right to elect continuation coverage will be lost. Is a waiver before the end of the election period effective to end a Qualified Beneficiary's election rights? If, during the election period, a Qualified Beneficiary waives COBRA continuation coverage, the waiver can be revoked at any time before the end of the election period. Revocation of the waiver is an election of COBRA continuation coverage. However, if a waiver is later revoked, coverage need not be provided retroactively (that is, from the date of the loss of coverage until the waiver is revoked). Waivers and revocations of waivers are considered made on the date they are sent to the Plan Administrator or its designee, as applicable. Is COBRA coverage available if a Qualified Beneficiary has other group health plan coverage or Medicare? Qualified beneficiaries who are entitled to elect COBRA continuation coverage may do so even if they are covered under another group health plan or are entitled to Medicare benefits on or before the date on which COBRA is elected. However, a Qualified Beneficiary's COBRA coverage will terminate automatically if, after electing COBRA, he or she becomes entitled to Medicare or becomes covered under other group health plan coverage (but only after any applicable preexisting condition exclusions of that other plan have been exhausted or satisfied). When may a Qualified Beneficiary's COBRA continuation coverage be terminated? During the election period, a Qualified Beneficiary may waive COBRA continuation coverage. Except for an interruption of coverage in connection with a waiver, COBRA continuation coverage that has been elected for a Qualified Beneficiary must extend for at least the period beginning on the date of the Qualifying Event and ending not before the earliest of the following dates: (I) The last day of the applicable maximum coverage period. ~'" (2) The first day for which Timely Payment is not made to the Plan with respect to the Qualified Beneficiary. 51 (3) The date upon which the Employer ceases to provide any group health plan (including a successor plan) to any employee. (4) The date, after the date of the election, that the Qualified Beneficiary first becomes covered under any other Plan that does not contain any exclusion or limitation with respect to any pre-existing condition, other than such an exclusion or limitation that does not apply to, or is satisfied by, the Qualified Beneficiary. (5) The date, after the date of the election, that the Qualified Beneficiary first enrolls in the Medicare program (either part A or part B, whichever occurs earlier). (6) In the case of a Qualified Beneficiary entitled to a disability extension, the later of: (a) (i) 29 months after the date of the Qualifying Event, or (ii) the first day of the month that is more than 30 days after the date of a final determination under Title II or XVI of the Social Security Act that the disabled Qualified Beneficiary whose disability resulted in the Qualified Beneficiary's entitlement to the disability extension is no longer disabled, whichever is earlier; or (b) the end of the maximum coverage period that applies to the Qualified Beneficiary without regard to the disability extension. The Plan can terminate for cause the coverage of a Qualified Beneficiary on the same basis that the Plan terminates for cause the coverage of similarly situated non-COBRA beneficiaries, for example, for the submission of a fraudulent claim. In the case of an individual who is not a Qualified Beneficiary and who is receiving coverage under the Plan solely because of the individual's relationship to a Qualified Beneficiary, if the Plan's obligation to make COBRA continuation coverage available to the Qualified Beneficiary ceases, the Plan is not obligated to make coverage available to the individual who is not a Qualified Beneficiary. What are the maximum coverage periods for COBRA continuation coverage? The maximum coverage periods are based on the type of the Qualifying Event and the status of the Qualified Beneficiary, as shown below: (1) In the case of a Qualifying Event that is a termination of employment or reduction of hours of employment, the maximum coverage period ends 18 months after the Qualifying Event if there is not a disability extension and 29 months after the Qualifying Event if there is a disability extension. (2) In the case of a covered Employee's enrollment in the Medicare program before experiencing a Qualifying Event that is a termination of employment or reduction of hours of employment, the maximum coverage period for Qualified Beneficiaries other than the covered Employee ends on the later of: (a) 36 months after the date the covered Employee becomes enrolled in the Medicare program; or (b) 18 months (or 29 months, if there is a disability extension) after the date of the covered Employee's termination of employment or reduction of hours of employment. (3) In the case of a Qualified Beneficiary who is a child bom to or placed for adoption with a covered Employee during a period of COBRA continuation coverage, the maximum coverage period is the maximum coverage period applicable to the Qualifying Event giving rise to the period of COBRA continuation coverage during which the child was born or placed for adoption. (4) In the case of any other Qualifying Event than that described above, the maximum coverage period ends 36 months after the Qualifying Event. 52 Under what circumstances can the maximum coverage period be expanded? If a Qualifying Event that gives rise to an 18-month or 29-month maximum coverage period is followed, within that 18- or 29-month period, by a second ~"'' Qualifying Event that gives rise to a 36-months maximum coverage period, the original period is expanded to 36 months, but only for individuals who are Qualified Beneficiaries at the time of and with respect to both Qualifying Events. In no circumstance can the COBRA maximum coverage period be expanded to more than 36 months after the date of the first Qualifying Event. The Plan Administrator must be notified of the second Qualifying Event within 60 days of the second Qualifying Event. This notice must be sent to the COBRA Administrator in accordance with the procedures above. How does a Qualified Beneficiary become entitled to a disability extension? A disability extension will be granted if an individual (whether or not the covered Employee) who is a Qualified Beneficiary in connection with the Qualifying Event that is a termination or reduction of hours of a covered Employee's employment, is determined under Title II or XVI of the Social Security Act to have been disabled at any time during the first 60 days of COBRA continuation coverage. To qualify for the disability extension, the Qualified Beneficiary must also provide the Plan Administrator with notice of the disability determination on a date that is both within 60 days after the date of the determination and before the end of the original 18-month maximum coverage. This notice should be sent to the COBRA Administrator in accordance with the procedures above. Does the Plan require payment for COBRA continuation coverage? For any period of COBRA continuation coverage under the Plan, qualified beneficiaries who elect COBRA continuation coverage must pay for COBRA continuation coverage. Qualified beneficiaries will pay up to 102% of the applicable premium and up to 150% of the applicable premium for any expanded period of COBRA continuation coverage covering a disabled Qualified Beneficiary due to a disability extension. The Plan will terminate a Qualified Beneficiary's COBRA continuation coverage as of the first day of any period for which timely payment is not made. Must the Plan allow payment for COBRA continuation coverage to be made in monthly installments? Yes. The Plan is also permitted to allow for payment at other intervals. ,, What is Timely Payment for payment for COBRA continuation coverage? Timely Payment means a payment made no later than 30 days after the first day of the coverage period. Payment that is made to the Plan by a later date is also considered Timely Payment if either under the terms of the Plan, covered employees or Qualified Beneficiaries are allowed until that later date to pay for their coverage for the period or under the terms of an arrangement between the Employer and the entity that provides Plan benefits on the Employer's behalf, the Employer is allowed until that later date to pay for coverage of similarly situated non-COBRA beneficiaries for the period. Notwithstanding the above paragraph, the Plan does not require payment for any period of COBRA continuation coverage for a Qualified Beneficiary earlier than 45 days after the date on which the election of COBRA continuation coverage is made for that Qualified Beneficiary. Payment is considered made on the date on which it is postmarked to the Plan. If Timely Payment is made to the Plan in an amount that is not significantly less than the amount the Plan requires to be paid for a period of coverage, then the amount paid will be deemed to satisfy the Plan's requirement for the amount to be paid, unless the Plan notifies the Qualified Beneficiary of the amount of the deficiency and grants a reasonable period of time for payment of the deficiency to be made. A "reasonable period of time" is 30 days after the notice is provided. A shortfall in a Timely Payment is not significant if it is no greater than the lesser of $50 or 10% of the required amount. Must a qualified beneficiary be given the right to enroll in a conversion health plan at the end of the maximum coverage period for COBRA continuation coverage? If a Qualified Beneficiary's COBRA continuation coverage under a group health plan ends as a result of the expiration of the applicable maximum coverage period, the Plan will, during the 180-day period that ends on that expiration date, provide the Qualified Beneficiary with the option of enrolling under a conversion health plan if such an option is otherwise generally available to similarly situated non- COBRA beneficiaries under the Plan. If such a conversion option is not otherwise generally available, it need not be made available to Qualified Beneficiaries. IF YOU HAVE QUESTIONS If you have questions about your COBRA continuation coverage, you should contact the COBRA Administrator. For more information about your rights under ERISA, including COBRA, the Health Insurance Portability and 53 Accountability Act (HIPAA), and other laws affecting group health plans, contact the nearest Regional or District ,,= Office of the U.S. Department of Labor's Employee Benefits Security Administration (EBSA). Addresses and phone numbers of Regional and District EBSA Offices are available through EBSA's website at www.dol,gov/ebsa. KEEP YOUR PLAN ADMINISTRATOR INFORMED OF ADDRESS CHANGES In order to protect your family's rights, you should keep the Plan Administrator informed of any changes in the addresses of family members. You should also keep a copy, for your records, of any notices you send to the Plan Administrator. 54 RESPONSIBILITIES FOR PLAN ADMINISTRATION PLAN ADMINISTRATOR. 123 Company Health Care Plan is the benefit plan of 123 Company, the Plan Administrator, also called the Plan Sponsor. It is to be administered by the Plan Administrator in accordance with the provisions of ERISA. An individual may be appointed by 123 Company to be Plan Administrator and serve at the convenience of the Employer. If the Plan Administrator resigns, dies or is otherwise removed from the position, 123 Company shall appoint a new Plan Administrator as soon as reasonably possible. The Plan Administrator shall administer this Plan in accordance with its terms and establish its policies, interpretations, practices, and procedures. It is the express intent of this Plan that the Plan Administrator shall have maximum legal discretionary authority to construe and interpret the terms and provisions of the Plan, to make determinations regarding issues which relate to eligibility for benefits, to decide disputes which may arise relative to a Plan Participant's rights, and to decide questions of Plan interpretation and those of fact relating to the Plan. The decisions of the Plan Administrator will be final and binding on all interested parties. Service of legal process may be made upon the Plan Administrator. DUTIES OF THE PLAN ADMINISTRATOR. (1) To administer the Plan in accordance with its terms. (2) To interpret the Plan, including the right to remedy possible ambiguities, inconsistencies or omissions. (3) To decide disputes which may arise relative to a Plan Participant's rights. (4) To prescribe procedures for filing a claim for benefits and to review claim denials. `fir' (5) To keep and maintain the Plan documents and all other records pertaining to the Plan. (6) To appoint a Claims Administrator to pay claims. (7) To perform all necessary reporting as required by ERISA. (8) To establish and communicate procedures to determine whether a medical child support order is qualified under ERISA Sec. 609. (9) To delegate to any person or entity such powers, duties and responsibilities as it deems appropriate. PLAN ADMINISTRATOR COMPENSATION. The Plan Administrator serves without compensation; however, all expenses for plan administration, including compensation for hired services, will be paid by the Plan. FIDUCIARY. A fiduciary exercises discretionary authority or control over management of the Plan or the disposition of its assets, renders investment advice to the Plan or has discretionary authority or responsibility in the administration of the Plan. FIDUCIARY DUTIES. A fiduciary must carry out his or her duties and responsibilities for the purpose of providing benefits to the Employees and their Dependent(s), and defraying reasonable expenses of administering the Plan. These are duties which must be carried out: (I) with care, skill, prudence and diligence under the given circumstances that a prudent person, acting in a like capacity and familiar with such matters, would use in a similar situation; (2) by diversifying the investments of the Plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and (3) in accordance with the Plan documents to the extent that they agree with ERISA. 55 THE NAMED FIDUCIARY. A "named fiduciary" is the one named in the Plan. A named fiduciary can appoint others to carry out fiduciary responsibilities (other than as a trustee) under the Plan. These other persons become fiduciaries themselves and are responsible for their acts under the Plan. To the extent that the named fiduciary allocates its responsibility to other persons, the named fiduciary shall not be liable for any act or omission of such person unless either: (1) the named fiduciary has violated its stated duties under ERISA in appointing the fiduciary, establishing the procedures to appoint the fiduciary or continuing either the appointment or the procedures; or (2) the named fiduciary breached its fiduciary responsibility under Section 405(a) of ERISA. CLAIMS ADMINISTRATOR IS NOT A FIDUCIARY. A Claims Administrator is not a fiduciary under the Plan by virtue of paying claims in accordance with the Plan's rules as established by the Plan Administrator. COMPLIANCE WITH HIPAA PRIVACY STANDARDS. Certain members of the Employer's workforce perform services in connection with administration of the Plan. In order to perform these services, it is necessary for these employees from time to time to have access to Protected Health Information (as defined below). Under the Standards for Privacy of Individually Identifiable Health Information (45 CFR Part 164, the "Privacy Standards"), these employees are permitted to have such access subject to the following: (I) General. The Plan shall not disclose Protected Health Information to any member of the Employer's workforce unless each of the conditions set out in this HIPAA Privacy section is met. "Protected Health Information" shall have the same definition as set out in the Privacy Standards but generally shall mean individually identifiable health information about the past, present or future physical or mental health or condition of an individual, including information about treatment or payment for treatment. (2) Permitted Uses and Disclosures. Protected Health Information disclosed to members of the Employer's workforce shall be used or disclosed by them only for purposes of Plan administrative functions. The Plan's administrative functions shall include all Plan payment and health care operations. The terms "payment" and "health care operations" shall have the same definitions as set out in the Privacy Standards, but the term "payment" generally shall mean activities taken with respect to payment of premiums or contributions, or to determine or fulfill Plan responsibilities with respect to coverage, provision of benefits, or reimbursement for health care. "Health care operations" generally shall mean activities on behalf of the Plan that are related to quality assessment; evaluation, training or accreditation of health care providers; underwriting, premium rating and other functions related to obtaining or renewing an insurance contract, including stop-loss insurance; medical review; legal services or auditing functions; or business planning, management and general administrative activities. (3) Authorized Employees. The Plan shall disclose Protected Health Information only to members of the Employer's workforce who are designated and are authorized to receive such Protected Health Information, and only to the extent and in the minimum amount necessary for these persons to perform duties with respect to the Plan. For purposes of this HIPAA Privacy section, "members of the Employer's workforce" shall refer to all employees and other persons under the control of the Employer. (a) Updates Required. The Employer shall amend the Plan promptly with respect to any changes in the members of its workforce who are authorized to receive Protected Health Information. (b) Use and Disclosure Restricted. An authorized member of the Erployer's workforce who receives Protected Health Information shall use or disclose the Protected Health Information only to the extent necessary to perform his or her duties with respect to the Plan. (c) Resolution of Issues of Noncompliance. In the event that any member of the Employer's workforce uses or discloses Protected Health Information other than as permitted by the Privacy Standards, the incident shall be reported to the privacy official. The privacy official shall take appropriate action, including: 56 (i) Investigation of the incident to determine whether the breach occurred inadvertently, through negligence, or deliberately; whether there is a pattern of breaches; and the degree of harm caused by the breach; (ii) Applying appropriate sanctions against the persons causing the breach, which, depending upon the nature of the breach, may include, oral or written reprimand, additional training, or termination of employment; (iii) Mitigating any harm caused by the breach, to the extent practicable; and (iv) Documentation of the incident and all actions taken to resolve the issue and mitigate any damages. (4) Certi fication of Employer. The Employer must provide certification to the Plan that it agrees to: (a) Not use or further disclose the Protected Health Information other than as permitted or required by the Plan documents or as required by law; (b) Ensure that any agent or subcontractor, to whom it provides Protected Health Information received from the Plan, agrees to the same restrictions and conditions that apply to the Employer with respect to such information; (c) Not use or disclose Protected Health Information for employment-related actions and decisions or in connection with any other benefit or employee benefit plan of the Employer; (d) Report to the Plan any use or disclosure of the Protected Health Information of which it becomes aware that is inconsistent with the uses or disclosures hereunder or required by law; ~' (e) Make available Protected Health Information to individual Plan members in accordance with Section 164.524 of the Privacy Standards; (f) Make available Protected Health Information for amendment by individual Plan members and incorporate any amendments to Protected Health Information in accordance with Section 164.526 of the Privacy Standards; (g) Make available the Protected Health Information required to provide any accounting of disclosures to individual Plan members in accordance with Section 164.528 of the Privacy Standards; (h) Make its internal practices, books and records relating to the use and disclosure of Protected Health Information received from the Plan available to the Department of Health and Human Services for purposes of determining compliance by the Plan with the Privacy Standards; (i) If feasible, return or destroy all Protected Health Information received from the Plan that the Employer still maintains in any form, and retain no copies of such information when no longer needed for the purpose of which disclosure was made, except that, if such return or destruction is not feasible, limit further uses and disclosures to those purposes that make the return or destruction of the information unfeasible; and (j) Ensure the adequate separation between the Plan and member of the Employer's workforce, as required by Section 164.504(f)(Z)(iii) of the Privacy Standards. The following me mbers of 123 Company's workforce are designated as authorized to receive Protected Health Information from 123 Company Health Care Plan ("the Plan") in order to perform their duties with respect to the Plan: Human Resources. COMPLIANCE WITH HIPAA ELECTRONIC SECURITY STANDARDS. Under the Security Standards for 57 the Protection of Electronic Protected Health Information (45 CFR Part 164.300 et. seq., the "Security Standards"), the Employer agrees to the following: (I) The Employer agrees to implement reasonable and appropriate administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of Electronic Protected Health ,~ Information that the Employer creates, maintains or transmits on behalf of the Plan. Electronic Protected Health Information" shall have the same definition as set out in the Security Standards, but generally shall mean Protected Health Information that is transmitted by or maintained in electronic media. (2) The Employer shall ensure that any agent or subcontractor to whom it provides Electronic Protected Health Information shall agree, in writing, to implement reasonable and appropriate security measures to protect the Electronic Protected Health Information. (3) The Employer shall ensure that reasonable and appropriate security measures are implemented to comply with the conditions and requirements set forth in Compliance With HIPAA Privacy Standards provisions (3) Authorized Employees and (4) Certification of Employers described above. FUNDING THE PLAN AND PAYMENT OF BENEFITS The cost of the Plan is funded as follows: For Employee Coverage: Funding is derived solely from the funds of the Employer. For Dependent Coverage: Funding is derived from the funds of the Employer and contributions made by the covered Employees. The level of any Employee contributions will be set by the Plan Administrator. These Employee contributions will be 'err' used in funding the cost of the Plan as soon as practicable after they have been received from the Employee or withheld from the Employee's pay through payroll deduction. Benefits are paid directly from the Plan through the Claims Administrator. PLAN IS NOT AN EMPLOYMENT CONTRACT The Plan is not to be construed as a contract for or of employment. CLERICAL ERROR Any clerical error by the Plan Administrator or an agent of the Plan Administrator in keeping pertinent records or a delay in making any changes will not invalidate coverage otherwise validly in force or continue coverage validly terminated. An equitable adjustment of contributions will be made when the error or delay is discovered. If, due to a clerical error, an overpayment occurs in a Plan reimbursement amount, the Plan retains a contractual right to the overpayment. The person or institution receiving the overpayment will be required to return the incorrect amount of money. In the case of a Plan Participant, if it is requested, the amount of overpayment will be deducted from future benefits payable. AMENDING AND TERMINATING THE PLAN If the Plan is terminated, the rights of the Plan Participants are limited to expenses incurred before termination. The Employer intends to maintain this Plan indefinitely; however, it reserves the right, at any time, to amend, suspend or terminate the Plan in whole or in part. This includes amending the benefits under the Plan or the Trust agreement (if any). 58 CERTAIN PLAN PARTICIPANTS RIGHTS UNDER ERISA Plan Participants in this Plan are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA specifies that all Plan Participants shall be entitled to: Examine, without charge, at the Plan Administrator's office, all Plan documents and copies of all documents governing the Plan, including a copy of the latest annual report (form 5500 series) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration. Obtain copies of all Plan documents and other Plan information upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies. Continue health care coverage for a Plan Participant, Spouse, or other dependents if there is a loss of coverage under the Plan as a result of a Qualifying Event. Employees or dependents may have to pay for such coverage. Review this summary plan description and the documents governing the Plan or the rules governing COBRA continuation coverage rights. Reduction or elimination of exclusionary periods of coverage for Pre-Existing Conditions under this group health Plan, if an Employee or dependent has Creditable Coverage from another plan. The Employee or dependent should be provided a certificate of Creditable Coverage, free of charge, from the group health plan or health insurance issuer when coverage is lost under the plan, when a person becomes entitled to elect COBRA continuation coverage, when COBRA continuation coverage ceases, if a person requests it before losing coverage, or if a person requests it up to 24 months after losing coverage. Without evidence of Creditable Coverage, a Plan Participant may be subject to aPre-Existing Conditions exclusion for 12 months (18 months for Late Enrollees) after the Enrollment Date of coverage. If a Plan Participant's claim for a benefit is denied or ignored, in whole or in part, the participant has a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules. Under ERISA, there are steps a Plan Participant can take to enforce the above rights. For instance, if a Plan Participant requests a copy of Plan documents or the latest annual report from the Plan and does not receive them within 30 days, he or she may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and to pay the Plan Participant up to $110 a day until he or she receives the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If the Plan Participant has a claim for benefits which is denied or ignored, in whole or in part, the participant may file suit in state or federal court. In addition, if a Plan Participant disagrees with the Plan's decision or lack thereof concerning the qualified status of a medical child support order, he or she may file suit in federal court. In addition to creating rights for Plan Participants, ERISA imposes obligations upon the individuals who are responsible for the operation of the Plan. The individuals who operate the Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of the Plan Participants and their beneficiaries. No one, including the Employer or any other person, may fire a Plan Participant or otherwise discriminate against a Plan Participant in any way to prevent the Plan Participant from obtaining benefits under the Plan or from exercising his or her rights under ERISA. If it should happen that the Plan fiduciaries misuse the Plan's money, or if a Plan Participant is discriminated against for asserting his or her rights, he or she may seek assistance from the U.S. Department of Labor, or may file suit in a federal court. The court will decide who should pay court costs and legal fees. If the Plan Participant is successful, the court may order the person sued to pay these costs and fees. If the Plan Participant loses, the court may order him or her to pay these costs and fees, for example, if it finds the claim or suit to be frivolous. 59 If the Plan Participant has any questions about the Plan, he or she should contact the Plan Administrator. If the Plan Participant has any questions about this statement or his or her rights under ERISA, including COBRA or the Health Insurance Portability and Accountability Act (HIPAA), and other laws affecting group health plans, that Plan Participant should contact either the nearest Regional or District Office of the U.S. Department of Labor's Employee Benefits Security Administration (EBSA) or visit the EBSA website at www.do~ov/ebsa/. (Addresses and phone numbers of Regional and District EBSA Offices are available through EBSA's website.) 60 GENERAL PLAN INFORMATION ''~rr° TYPE OF ADMINISTRATION The Plan is aself-funded group health Plan and the administration is provided through a Third Party Claims Administrator. The funding for the benefits is derived from the funds of the Employer and contributions made by covered Employees. The Plan is not insured. PLAN NAME 123 Company Health Care Plan PLAN NUMBER: 501 TAX ID NUMBER: 99-9999999 PLAN EFFECTIVE DATE: 10-01-2002. Plan Revision effective 10-01-2006 PLAN YEAR ENDS: September 30th EMPLOYER INFORMATION 123 Company 123 Anywhere St San Antonio, Texas 78229 (210)123-4567 ~" PLAN ADMINISTRATOR 123 Company 123 Anywhere St San Antonio, Texas 78229 (210) 123-4567 NAMED FIDUCIARY 123 Company 123 Anywhere St San Antonio, Texas 78229 AGENT FOR SERVICE OF LEGAL PROCESS 123 Company 123 Anywhere St San Antonio, Texas 78229 CLAIMS ADMINISTRATOR Verity National Group, Inc. P.O. Box 780159 San Antonio, Texas 78278-0159 (800)840-3977 r•° 61 BY THIS AGREEMENT, 123 Company Health Care Plan is hereby adopted as shown. IN WITNESS WHEREOF, this instrument is executed for 123 Company on or as of the day and year first below written. By 123 Company Date Witness Date SAMPLE COMPANY SECTION 125 PLAN rr~ TABLE OF CONTENTS ARTICLE I DEFINITIONS ARTICLE II PARTICIPATION 2.1 ELIGIBILITY ..................................................................................................................... 3 2.2 EFFECTIVE DATE OF PARTICIPATION ...................................................................... 3 2.3 APPLICATION TO PARTICIPATE ................................................................................. 4 2.4 TERMINATION OF PARTICIPATION ........................................................................... 4 2.5 TERMINATION OF EMPLOYMENT ............................................................................. 4 2.6 DEATH ............................................................................................................................... 5 ARTICLE III CONTRIBUTIONS TO THE PLAN 3.1 SALARY REDIRECTION ................................................................................................5 3.2 APPLICATION OF CONTRIBUTIONS ...........................................................................5 ~r 3.3 PERIODIC CONTRIBUTIONS ........................................................................................ .6 ARTICLE IV BENEFITS 4.1 BENEFIT OPTIONS ..........................................................................................................6 4.2 HEALTH FLEXIBLE SPENDING ACCOUNT BENEFIT ..............................................6 4.3 DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT BENEFIT ...........................6 4.4 HEALTH INSURANCE BENEFIT ...................................................................................6 4.5 OTHER INSURANCE BENEFIT ......................................................................................7 4.6 NONDISCRIMINATION REQUIREMENTS ..................................................................7 ARTICLE V PARTICIPANT ELECTIONS 5.1 INITIAL ELECTIONS ....................................................... ................................................8 5.2 SUBSEQUENT ANNUAL ELECTIONS .......................... ................................................8 5.3 FAILURE TO ELECT ........................................................ ................................................8 ~r 5.4 CHANGE IN STATUS ...................................................... ................................................9 err ARTICLE VI HEALTH FLEXIBLE SPENDING ACCOUNT 6.1 ESTABLISHMENT OF PLAN ........................................................................................ 12 6.2 DEFINITIONS ................................................................................................................. 12 6.3 FORFEITURES ................................................................................................................ 13 6.4 LIMITATION ON ALLOCATIONS ............................................................................... 13 6.5 NONDISCRIMINATION REQUIREMENTS ................................................................ 13 6.6 COORDINATION WITH CAFETERIA PLAN .............................................................. 14 6.7 HEALTH FLEXIBLE SPENDING ACCOUNT CLAIMS ............................................. 14 6.8 DEBIT AND CREDIT CARDS ....................................................................................... 15 ARTICLE VII DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT 7.1 ESTABLISHMENT OF ACCOUNT ............................................................................... 16 7.2 DEFINITIONS ................................................................................................................. 17 7.3 DEPENDENT CARE FLEXIBLE SPENDING ACCOUNTS ........................................ 18 7.4 INCREASES IN DEPENDENT CARE FLEXIBLE SPENDING ACCOUNTS............ 18 7.5 DECREASES IN DEPENDENT CARE FLEXIBLE SPENDING ACCOUNTS........... 18 7.6 ALLOWABLE DEPENDENT CARE REIMBURSEMENT .......................................... 18 7.7 ANNUAL STATEMENT OF BENEFITS ....................................................................... 18 7.8 FORFEITURES ................................................................................................................ 19 7.9 LIMITATION ON PAYMENTS ..................................................................................... 19 7.10 NONDISCRIMINATION REQUIREMENTS ................................................................19 7.11 COORDINATION WITH CAFETERIA PLAN ..............................................................20 7.12 DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT CLAIMS ..........................20 7.13 DEBIT AND CREDIT CARDS ...................................................................................... .21 ARTICLE VIII ERISA PROVISIONS 8.1 CLAIM FOR BENEFITS ..................................................... ............................................22 8.2 APPLICATION OF BENEFIT PLAN SURPLUS .............. ............................................26 8.3 NAMED FIDUCIARY ......................................................... ............................................26 8.4 GENERAL FIDUCIARY RESPONSIBILITIES ................. ............................................26 8.5 NONASSIGNABILITY OF RIGHTS ................................. ............................................26 ARTICLE IX ADMINISTRATION 1 9 ................................... PLAN ADMINISTRATION .........................................27 . ................ 2 ..... EXAMINATION OF RECORDS .........................................28 9. ...................................... .. PAYMENT OF EXPENSES .........................................28 9.3 ................................................. 4 9 ....... INSURANCE CONTROL CLAUSE .........................................28 . ............................... RATOR 28 9.5 ..................... INDEMNIFICATION OF ADMINIST ......................................... ARTICLE X AMENDMENT OR TERMINATION OF PLAN 10.1 AMENDMENT ................................................................................................................28 10.2 TERMINATION ..............................................................................................................29 ARTICLE XI MISCELLANEOUS 11.1 PLAN INTERPRETATION ........................................................ .....................................29 11.2 GENDER AND NUMBER ......................................................... .....................................29 11.3 WRITTEN DOCUMENT ............................................................ .....................................29 11.4 EXCLUSIVE BENEFIT ............................................................ ......................................29 11.5 PARTICIPANT'S RIGHTS ........................................................ ......................................29 11.6 ACTION BY THE EMPLOYER ............................................... ......................................30 11.7 NO GUARANTEE OF TAX CONSEQUENCES ..................... ......................................30 11.8 INDEMNIFICATION OF EMPLOYER BY PARTICIPANTS ......................................30 11.9 FUNDING .................................................................................. ......................................30 11.10 GOVERNING LAW .................................................................. ......................................30 11.11 SEVERABILITY ........................................................................ ......................................31 11.12 CAPTIONS ................................................................................. ......................................31 11.13 CONTINUATION OF COVERAGE ......................................... ......................................31 11.14 FAMILY AND MEDICAL LEAVE ACT .......................................................................31 11.15 HEALTH INSURANCE PORTABILITY AND ACCOUNTA BILITY ACT ................31 11.16 USERRA ................................................................................... .......................................31 11.17 COMPLIANCE WITH HIPAA PRIVACY STANDARDS ..... .......................................31 11.18 COMPLIANCE WITH HIPAA ELECTRONIC SECURITY STANDARDS ................33 SAMPLE COMPANY SECTION 125 PLAN INTRODUCTION The Employer has adopted this Plan effective October 1, 2006, to recognize the contribution made to the Employer by its Employees. Its purpose is to reward them by providing benefits for those Employees who shall qualify hereunder and their dependents and beneficiaries. The concept of this Plan is to allow Employees to choose among different types of benefits based on their own particular goals, desires and needs. The Plan shall be known as Sample Company Section 125 Plan (the "Plan"). The intention of the Employer is that the Plan qualify as a "Cafeteria Plan" within the meaning of Section 125 of the Internal Revenue Code of 1986, as amended, and that the benefits which an Employee elects to receive under the Plan be excludable from the Employee's income under Section 125(a) and other applicable sections of the Internal Revenue Code of 1986, as amended. ARTICLE I DEFINITIONS 1.1 "Administrator" means the individual(s) or corporation appointed by the Employer to carry out the administration of the Plan. The Employer shall be empowered to appoint and remove the Administrator from time to time as it deems necessary for the proper administration of the Plan. In the event the Administrator has not been appointed, or resigns from a prior appointment, the Employer shall be deemed to be the Administrator. 1.2 "Affiliated Employer" means the Employer and any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Treasury regulations under Code Section 414(0). 1.3 "Benefit" means any of the optional benefit choices available to a Participant as outlined in Section 4.1. 1.4 "Cafeteria Plan Benefit Dollars" means the amount available to Participants to purchase Benefit Options as provided under Section 4.1. Each dollar contributed to this Plan shall be converted into one Cafeteria Plan Benefit Dollar. 1.5 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time. 1.6 "Compensation" means the amounts received by the Participant from the Employer during a Plan Year. ~"' 1.7 "Dependent" means any individual who qualifies as a dependent under the self-funded plan or under Code Section 152 (as modified by Code Section 105(b)). Any child of a Plan Participant who is determined to be an alternate recipient under a qualified medical child ,, support order under ERISA Sec. 609 shall be considered a Dependent under this Plan. 1.8 "Effective Date" means October 1, 2006. 1.9 "Election Period" means the 30 day period immediately preceding the beginning of each Plan Year. However, an Employee's initial Election Period shall be determined pursuant to Section 5.1. 1.10 "Eligible Employee" means any Employee who has satisfied the provisions of Section 2.1. An individual shall not be an "Eligible Employee" if such individual is not reported on the payroll records of the Employer as a common law employee. In particular, it is expressly intended that individuals not treated as common law employees by the Employer on its payroll records are not "Eligible Employees" and are excluded from Plan participation even if a court or administrative agency determines that such individuals are common law employees and not independent contractors. 1.11 "Employee" means any person who is employed by the Employer. The term Employee shall include leased employees within the meaning of Code Section 414(n)(2). 1.12 "Employer" means Sample Company and any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. 1.13 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.14 "Grace Period" means, with respect to any Plan Year, the time period ending on the fifteenth day of the third calendar month after the end of such Plan Year, during which Medical Expenses and Employment-Related Dependent Care Expenses incurred by a Participant will be deemed to have been incurred during such Plan Year. 1.15 "Insurance Contract" means any contract issued by an Insurer underwriting a Benefit. 1.16 "Insurer" means any insurance company that underwrites a Benefit under this Plan or, with respect to any self-funded benefits, the Employer. 1.17 "Key Employee" means an Employee described in Code Section 416(1)(1) and the Treasury regulations thereunder. 1.18 "Participant" means any Eligible Employee who elects to become a Participant pursuant to Section 2.3 and has not for any reason become ineligible to participate further in the Plan. 1.19 "Plan" means this instrument, including all amendments thereto. 2 1.20 "Plan Year" means the 12-month period beginning October 1st and ending September 30th. The Plan Year shall be the coverage period for the Benefits provided for under this Plan. In the event a Participant commences participation during a Plan Year, then the initial coverage period shall be that portion of the Plan Year commencing on such Participant's date of entry and ending on the last day of such Plan Year. 1.21 "Premium Expenses" or "Premiums" mean the Participant's cost for the self- funded Benefits described in Section 4.1. 1.22 "Premium Reimbursement Account" means the account established for a Participant pursuant to this Plan to which part of his Cafeteria Plan Benefit Dollars may be allocated and from which Premiums of the Participant may be paid or reimbursed. If more than one type of insured or self-funded Benefit is elected, sub-accounts shall be established for each type of insured or self-funded Benefit. 1.23 "Salary Redirection" means the contributions made by the Employer on behalf of Participants pursuant to Section 3.1. These contributions shall be converted to Cafeteria Plan Benefit Dollars and allocated to the funds or accounts established under the Plan pursuant to the Participants' elections made under Article V. 1.24 "Salary Redirection Agreement" means an agreement between the Participant and the Employer under which the Participant agrees to reduce his Compensation or to forego all or part of the increases in such Compensation and to have such amounts contributed by the Employer to the Plan on the Participant's behalf. The Salary Redirection Agreement shall apply only to Compensation that has not been actually or constructively received by the Participant as of the date of the agreement (after taking this Plan and Code Section 125 into account) and, subsequently does not become currently available to the Participant. 1.25 "Spouse" means "spouse" as defined in the self-funded plan or the legally married husband or wife of a Participant, unless legally separated by court decree. ARTICLE II PARTICIPATION 2.1 ELIGIBILITY Any Eligible Employee shall be eligible to participate hereunder as of the date he satisfies the eligibility conditions for the Employer's group medical plan, the provisions of which are specifically incorporated herein by reference. 2.2 EFFECTIVE DATE OF PARTICIPATION An Eligible Employee shall become a Participant effective as of the entry date under the Employer's group medical plan, the provisions of which are specifically incorporated herein by reference. 2.3 APPLICATION TO PARTICIPATE An Employee who is eligible to participate in this Plan shall, during the applicable Election Period, complete an application to participate and election of benefits form which the Administrator shall furnish to the Employee. The election made on such form shall be irrevocable until the end of the applicable Plan Year unless the Participant is entitled to change his Benefit elections pursuant to Section 5.4 hereof. An Eligible Employee shall also be required to execute a Salary Redirection Agreement during the Election Period for the Plan Year during which he wishes to participate in this Plan. Any such Salary Redirection Agreement shall be effective for the first pay period beginning on or after the Employee's effective date of participation pursuant to Section 2.2. 2.4 TERMINATION OF PARTICIPATION A Participant shall no longer participate in this Plan upon the occurrence of any of the following events: (a) Termination of employment. His termination of employment, subject to the provisions of Section 2.5; (b) Death. His death, subject to the provisions of Section 2.6; or (c) Termination of the plan. The termination of this Plan, subject to the provisions of Section 10.2. 2.5 TERMINATION OF EMPLOYMENT If a Participant's employment with the Employer is terminated for any reason other than death, his participation in the Benefit Options provided under Section 4.1 shall be governed in accordance with the following: (a) Insurance Benefit. With regard to Benefits provided under Section 4.1, the Participant's participation in the Plan shall cease, subject to the Participant's right to continue coverage under any Insurance Contract or self-funded benefit for which premiums have already been paid. (b) Dependent Care FSA. With regard to the Dependent Care Flexible Spending Account, the Participant's participation in the Plan shall cease and no further Salary Redirection contributions shall be made. However, such Participant may submit claims for employment related Dependent Care Expense reimbursements for claims incurred up to the date of termination and submitted within 60 days after termination, based on the level of the Participant's Dependent Care Flexible Spending Account as of the date of termination. (c) COBRA applicability. With regard to the Health Flexible Spending Account, the Participant may submit claims for expenses that were incurred during the portion of the Plan Year before the end of the period for which payments to the Health Flexible Spending Account have already been made. Thereafter, the health benefits under this Plan including the Health Flexible 4 Spending Account shall be applied and administered consistent with such further rights a Participant and his Dependents may be entitled to pursuant to Code Section 4980B and Section 11.13 of the Plan. 2.6 DEATH If a Participant dies, his participation in the Plan shall cease. However, such Participant's spouse or Dependents may submit claims for expenses or benefits for the remainder of the Plan Year or until the Cafeteria Plan Benefit Dollars allocated to each specific benefit are exhausted. In no event may reimbursements be paid to someone who is not a spouse or Dependent. ARTICLE III CONTRIBUTIONS TO THE PLAN 3.1 SALARY REDIRECTION Benefits under the Plan shall be financed by Salary Redirections sufficient to support Benefits that a Participant has elected hereunder and to pay the Participant's Premium Expenses. The salary administration program of the Employer shall be revised to allow each Participant to agree to reduce his pay during a Plan Year by an amount determined necessary to purchase the elected Benefit Options. The amount of such Salary Redirection shall be specified in the Salary Redirection Agreement and shall be applicable for a Plan Year. Notwithstanding the above, for new Participants, the Salary Redirection Agreement shall only be applicable from ~"` the first day of the pay period following the Employee's entry date up to and including the last day of the Plan Year. These contributions shall be converted to Cafeteria Plan Benefit Dollars and allocated to the funds or accounts established under the Plan pursuant to the Participants' elections made under Article V. Any Salary Redirection shall be determined prior to the beginning of a Plan Year (subject to initial elections pursuant to Section 5.1) and prior to the end of the Election Period and shall be irrevocable for such Plan Year. However, a Participant may revoke a Benefit election or a Salary Redirection Agreement after the Plan Year has commenced and make a new election with respect to the remainder of the Plan Year, if both the revocation and the new election are on account of and consistent with a change in status and such other permitted events as determined under Article V of the Plan and consistent with the rules and regulations of the Department of the Treasury. Salary Redirection amounts shall be contributed on a pro rata basis for each pay period during the Plan Year. All individual Salary Redirection Agreements are deemed to be part of this Plan and incorporated by reference hereunder. 3.2 APPLICATION OF CONTRIBUTIONS As soon as reasonably practical after each payroll period, the Employer shall apply the Salary Redirection to provide the Benefits elected by the affected Participants. Any contribution made or withheld for the Health Flexible Spending Account or Dependent Care Flexible Spending Account shall be credited to such fund or account. Amounts designated for the Participant's Premium Expense Reimbursement Account shall likewise be credited to such ``~° account for the purpose of paying Premium Expenses. 3.3 PERIODIC CONTRIBUTIONS ~r° Notwithstanding the requirement provided above and in other Articles of this Plan that Salary Redirections be contributed to the Plan by the Employer on behalf of an Employee on a level and pro rata basis for each payroll period, the Employer and Administrator may implement a procedure in which Salary Redirections are contributed throughout the Plan Year on a periodic basis that is not pro rata for each payroll period. However, with regard to the Health Flexible Spending Account, the payment schedule for the required contributions may not be based on the rate or amount of reimbursements during the Plan Year. ARTICLE IV BENEFITS 4.1 BENEFIT OPTIONS Each Participant may elect any one or more of the following optional Benefits: (1) Health Flexible Spending Account (2) Dependent Care Flexible Spending Account (3) Insurance Premium Payment Plan ~ (i) Health Insurance Benefit (ii) Other Insurance Benefit 4.2 HEALTH FLEXIBLE SPENDING ACCOUNT BENEFIT Each Participant may elect to participate in the Health Flexible Spending Account option, in which case Article VI shall apply. 4.3 DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT BENEFIT Each Participant may elect to participate in the Dependent Care Flexible Spending Account option, in which case Article VII shall apply. 4.4 HEALTH INSURANCE BENEFIT (a) Coverage for Participant and Dependents. Each Participant may elect to be covered under a health Contract for the Participant, his or her spouse, and his or her Dependents. (b) Employer selects contracts. The Employer may select suitable health Contracts for use in providing this health insurance benefit, which policies will provide uniform benefits for all Participants electing this Benefit. (c) Contract incorporated by reference. The rights and conditions with respect to the benefits payable from such health Contract shall be determined therefrom, and such Contract shall be incorporated herein by reference. 6 ,,: 4.5 OTHER INSURANCE BENEFIT (a) Employer selects contracts. The Employer may select additional health or other policies allowed under Code Section 125 or allow the purchase of additional health or other policies by and for Participants, which policies will provide uniform benefits for all Participants electing this Benefit. (b) Contract incorporated by reference. The rights and conditions with respect to the benefits payable from any additional Insurance Contract shall be determined therefrom, and such Insurance Contract shall be incorporated herein by reference. 4.6 NONDISCRIMINATION REQUIREMENTS (a) Intent to be nondiscriminatory. It is the intent of this Plan to provide benefits to a classification of employees which the Secretary of the Treasury finds not to be discriminatory in favor of the group in whose favor discrimination may not occur under Code Section 125. (b) 25% concentration test. It is the intent of this Plan not to provide qualified benefits as defined under Code Section 125 to Key Employees in amounts that exceed 25% of the aggregate of such Benefits provided for all Eligible Employees under the Plan. For purposes of the preceding sentence, qualified benefits shall not include benefits which (without regard to this paragraph) are includible in gross income. (c) Adjustment to avoid test failure. If the Administrator deems it necessary to avoid discrimination or possible taxation to Key Employees or a group of employees in whose favor discrimination may not occur in violation of Code Section 125, it may, but shall not be required to, reject any election or reduce contributions or non-taxable Benefits in order to assure compliance with this Section. Any act taken by the Administrator under this Section shall be carried out in a uniform and nondiscriminatory manner. If the Administrator decides to reject any election or reduce contributions or non-taxable Benefits, it shall be done in the following manner. First, the non-taxable Benefits of the affected Participant (either an employee who is highly compensated or a Key Employee, whichever is applicable) who has the highest amount of non-taxable Benefits for the Plan Year shall have his non-taxable Benefits reduced until the discrimination tests set forth in this Section are satisfied or until the amount of his non-taxable Benefits equals the non-taxable Benefits of the affected Participant who has the second highest amount of non-taxable Benefits. This process shall continue until the nondiscrimination tests set forth in this Section are satisfied. With respect to any affected Participant who has had Benefits reduced pursuant to this Section, the reduction shall be made proportionately among Health Flexible Spending Account Benefits and Dependent Care Flexible Spending Account Benefits, and once all these Benefits are expended, proportionately among self-funded Benefits. Contributions which are not utilized to provide Benefits to ®"" any Participant by virtue of any administrative act under this paragraph shall be forfeited and deposited into the benefit plan surplus. 7 ~r•~' ARTICLE V PARTICIPANT ELECTIONS 5.1 INITIAL ELECTIONS An Employee who meets the eligibility requirements of Section 2.1 on the first day of, or during, a Plan Year may elect to participate in this Plan for all or the remainder of such Plan Year, provided he elects to do so before his effective date of participation pursuant to Section 2.2. However, if such Employee does not complete an application to participate and benefit election form and deliver it to the Administrator before such date, his Election Period shall extend 30 calendar days after such date, or for such further period as the Administrator shall determine and apply on a uniform and nondiscriminatory basis. However, any election during the extended 30-day election period pursuant to this Section 5.1 shall not be effective until the first pay period following the later of such Participant's effective date of participation pursuant to Section 2.2 or the date of the receipt of the election form by the Administrator, and shall be limited to the Benefit expenses incurred for the balance of the Plan Year for which the election is made. 5.2 SUBSEQUENT ANNUAL ELECTIONS During the Election Period prior to each subsequent Plan Year, each Participant shall be given the opportunity to elect, on an election of benefits form to be provided by the Administrator, which Benefit options he wishes to select. Any such election shall be effective for any Benefit expenses incurred during the Plan Year which follows the end of the Election Period. With regard to subsequent annual elections, the following options shall apply: (a) A Participant or Employee who failed to initially elect to participate may elect different or new Benefits under the Plan during the Election Period; (b) A Participant may terminate his participation in the Plan by notifying the Administrator in writing during the Election Period that he does not want to participate in the Plan for the next Plan Year, or by not electing any Benefit options; (c) An Employee who elects not to participate for the Plan Year following the Election Period will have to wait until the next Election Period before again electing to participate in the Plan, except as provided for in Section 5.4. 5.3 FAILURE TO ELECT Any Participant failing to complete an election of benefits form pursuant to Section 5.2 by the end of the applicable Election Period shall be deemed to have elected not to participate in the Plan for the upcoming Plan Year. No further Salary Redirections shall therefore be authorized for such subsequent Plan Year. 8 ,,, 5.4 CHANGE IN STATUS (a) Change in status defined. Any Participant may change a Benefit election after the Plan Year (to which such election relates) has commenced and make new elections with respect to the remainder of such Plan Year if, under the facts and circumstances, the changes are necessitated by and are consistent with a change in status which is acceptable under rules and regulations adopted by the Department of the Treasury, the provisions of which are incorporated by reference. Notwithstanding anything herein to the contrary, if the rules and regulations conflict, then such rules and regulations shall control. In general, a change in election is not consistent if the change in status is the Participant's divorce, annulment or legal separation from a spouse, the death of a spouse or dependent, or a dependent ceasing to satisfy the eligibility requirements for coverage, and the Participant's election under the Plan is to cancel accident or health insurance coverage for any individual other than the one involved in such event. In addition, if the Participant, spouse or dependent gains or loses eligibility for coverage, then a Participant's election under the Plan to cease or decrease coverage for that individual under the Plan corresponds with that change in status only if coverage for that individual becomes applicable or is increased under the family member plan. Regardless of the consistency requirement, if the individual, the individual's spouse, or dependent becomes eligible for continuation coverage under the Employer's group health plan as provided in Code Section 4980B or any similar state law, then the individual may elect to increase payments under this Plan in order to pay for the continuation coverage. However, this does not apply for COBRA eligibility due to divorce, annulment or legal separation. Any new election shall be effective at such time as the Administrator shall prescribe, but not earlier than the first pay period beginning after the election form is completed and returned to the Administrator. For the purposes of this subsection, a change in status shall only include the following events or other events permitted by Treasury regulations: (1) Legal Marital Status: events that change a Participant's legal marital status, including marriage, divorce, death of a spouse, legal separation or annulment; (2) Number of Dependents: Events that change a Participant's number of dependents, including birth, adoption, placement for adoption, or death of a dependent; (3) Employment Status: Any of the following events that change the employment status of the Participant, spouse, or dependent: termination or commencement of employment, a strike or lockout, commencement or return from an unpaid leave of absence, or a change in worksite. In addition, if the eligibility conditions of this Plan or other employee benefit plan of the Employer of the Participant, spouse, or dependent depend on the 9 employment status of that individual and there is a change in that ~, individual's employment status with the consequence that the individual becomes (or ceases to be) eligible under the plan, then that change constitutes a change in employment under this subsection; (4) Dependent satisfies or ceases to satisfy the eligibility requirements: An event that causes the Participant's dependent to satisfy or cease to satisfy the requirements for coverage due to attainment of age, student status, or any similar circumstance; and (5) Residency: A change in the place of residence of the Participant, spouse or dependent, that would lead to a change in status (such as a loss of HMO coverage). For the Dependent Care Flexible Spending Account, a dependent becoming or ceasing to be a "Qualifying Dependent" as defined under Code Section 21(b) shall also qualify as a change in status. (b) Special enrollment rights. Notwithstanding subsection (a), the Participants may change an election for accident or health coverage during a Plan Year and make a new election that corresponds with the special enrollment rights provided in Code Section 9801(f). Such change shall take place on a prospective basis, unless otherwise required by Code Section 9801(f) to be retroactive. (c) Qualified Medical Support Order. Notwithstanding subsection (a), in the event of a judgment, decree, or order ("order") resulting from a divorce, legal separation, annulment, or change in legal custody (including a qualified medical child support order defined in ERISA Section 609) which requires accident or health coverage for a Participant's child (including a foster child who is a dependent of the Participant): (1) The Plan may change an election to provide coverage for the child if the order requires coverage under the Participant's plan; or (2) The Participant shall be permitted to change an election to cancel coverage for the child if the order requires the former spouse to provide coverage for such child, under that individual's plan and such coverage is actually provided. (d) Medicare or Medicaid. Notwithstanding subsection (a), a Participant may change elections to cancel accident or health coverage for the Participant or the Participant's spouse or dependent if the Participant or the Participant's spouse or dependent is enrolled in the accident or health coverage of the Employer and becomes entitled to coverage (i.e., enrolled) under Part A or Part B of the Title XVIII of the Social Security Act (Medicare) or Title XIX of the Social Security Act (Medicaid), other than coverage consisting solely of benefits under Section 1928 of the Social Security Act (the program for distribution of pediatric vaccines). If the Participant or the Participant's spouse or dependent who "" has been entitled to Medicaid or Medicare coverage loses eligibility, that individual 10 may prospectively elect coverage under the Plan if a benefit package option under the Plan provides similar coverage. (e) Cost increase or decrease. If the cost of a Benefit provided under the Plan increases or decreases during a Plan Year, then the Plan shall automatically increase or decrease, as the case may be, the Salary Redirections of all affected Participants for such Benefit. Alternatively, if the cost of a benefit package option increases significantly, the Administrator shall permit the affected Participants to either make corresponding changes in their payments or revoke their elections and, in lieu thereof, receive on a prospective basis coverage under another benefit package option with similar coverage, or drop coverage prospectively if there is no benefit package option with similar coverage. A cost increase or decrease refers to an increase or decrease in the amount of elective contributions under the Plan, whether resulting from an action taken by the Participants or an action taken by the Employer. (f) Loss of coverage. If the coverage under a Benefit is significantly curtailed or ceases during a Plan Year, affected Participants may revoke their elections of such Benefit and, in lieu thereof, elect to receive on a prospective basis coverage under another plan with similar coverage, or drop coverage prospectively if no similar coverage is offered. (g) Addition of a new benefit. If, during the period of coverage, a new benefit package option or other coverage option is added, an existing benefit package option is significantly improved, or an existing benefit package option or other coverage option is eliminated, then the affected Participants may elect the newly-added option, or elect another option if an option has been eliminated prospectively and make corresponding election changes with respect to other benefit package options providing similar coverage. In addition, those Eligible Employees who are not participating in the Plan may opt to become Participants and elect the new or newly improved benefit package option. (h) Loss of coverage under certain other plans. A Participant may make a prospective election change to add group health coverage for the Participant, the Participant's spouse or dependent if such individual loses group health coverage sponsored by a governmental or educational institution, including a state children's health insurance program under the Social Security Act, the Indian Health Service or a health program offered by an Indian tribal government, a state health benefits risk pool, or a foreign government group health plan. (i) Change of coverage due to change under certain other plans. A Participant may make a prospective election change that is on account of and corresponds with a change made under the plan of a spouse's, former spouse's or dependent's employer if (1) the cafeteria plan or other benefits plan of the spouse's, former spouse's or dependent's employer permits its participants to make a change; or (2) the cafeteria plan permits participants to make an election for a period of coverage that is different from the period of coverage under the cafeteria ~`'' plan of a spouse's, former spouse's or dependent's employer. 11 (j) Change in dependent care provider. A Participant may make a ~, prospective election change that is on account of and corresponds with a change by the Participant in the dependent care provider. The availability of dependent care services from a new childcare provider is similar to a new benefit package option becoming available. A cost change is allowable in the Dependent Care Flexible Spending Account only if the cost change is imposed by a dependent care provider who is not related to the Participant, as defined in Code Section 152(a)(1) through (8). (k) Health FSA cannot change due to insurance change. A Participant shall not be permitted to change an election to the Health Flexible Spending Account as a result of a cost or coverage change under any health insurance benefits. ARTICLE VI HEALTH FLEXIBLE SPENDING ACCOUNT 6.1 ESTABLISHMENT OF PLAN This Health Flexible Spending Account is intended to qualify as a medical reimbursement plan under Code Section 105 and shall be interpreted in a manner consistent with such Code Section and the Treasury regulations thereunder. Participants who elect to participate in this Health Flexible Spending Account may submit claims for the reimbursement of Medical Expenses. All amounts reimbursed shall be periodically paid from amounts allocated to the ~""' Health Flexible Spending Account. Periodic payments reimbursing Participants from the Health Flexible Spending Account shall in no event occur less frequently than monthly. 6.2 DEFINITIONS For the purposes of this Article and the Cafeteria Plan, the terms below have the following meaning: (a) "Health Flexible Spending Account" means the account established for Participants pursuant to this Plan to which part of their Cafeteria Plan Benefit Dollars may be allocated and from which all allowable Medical Expenses incurred by a Participant, his or her spouse and his or her Dependents may be reimbursed. (b) "Highly Compensated Participant" means, for the purposes of this Article and determining discrimination under Code Section 105(h), a participant who is: (1) one of the 5 highest paid officers; (2) a shareholder who owns (or is considered to own applying the rules of Code Section 318) more than 10 percent in value of the stock of the Employer; or 12 (3) among the highest paid 25 percent of all Employees (other than :'fir, exclusions permitted by Code Section 105(h)(3)(B) for those individuals who are not Participants). (c) "Medical Expenses" means any expense for medical care within the meaning of the term "medical care" as defined in Code Section 213(d) and as allowed under Code Section 105 and the rulings and Treasury regulations thereunder, and not otherwise used by the Participant as a deduction in determining his tax liability under the Code. "Medical Expenses" can be incurred by the Participant, his or her spouse and his or her Dependents. A Participant may not be reimbursed for the cost of other health coverage such as premiums paid under plans maintained by the employer of the Participant's spouse or individual policies maintained by the Participant or his spouse or Dependent. A Participant may not be reimbursed for "qualified long-term care services" as defined in Code Section 7702B(c). (d) The definitions of Article I are hereby incorporated by reference to the extent necessary to interpret and apply the provisions of this Health Flexible Spending Account. 6.3 FORFEITURES ~' The amount in the Health Flexible Spending Account as of the end of any Plan Year (and after the processing of all claims for such Plan Year pursuant to Section 6.7 hereof) shall be forfeited and credited to the benefit plan surplus. In such event, the Participant shall have no further claim to such amount for any reason, subject to Section 8.2. 6.4 LIMITATION ON ALLOCATIONS Notwithstanding any provision contained in this Health Flexible Spending Account to the contrary, no more than $1,500 may be allocated to the Health Flexible Spending Account by a Participant in or on account of any Plan Year. 6.5 NONDISCRIMINATION REQUIREMENTS (a) Intent to be nondiscriminatory. It is the intent of this Health Flexible Spending Account not to discriminate in violation of the Code and the Treasury regulations thereunder. (b) Adjustment to avoid test failure. If the Administrator deems it necessary to avoid discrimination under this Health Flexible Spending Account, it may, but shall not be required to, reject any elections or reduce contributions or Benefits in order to assure compliance with this Section. Any act taken by the Administrator under this Section shall be carried out in a uniform and nondiscriminatory manner. If the Administrator decides to reject any elections or ''" reduce contributions or Benefits, it shall be done in the following manner. First, the Benefits designated for the Health Flexible Spending Account by the member 13 of the group in whose favor discrimination may not occur pursuant to Code ,,. Section 105 that elected to contribute the highest amount to the fund for the Plan Year shall be reduced until the nondiscrimination tests set forth in this Section or the Code are satisfied, or until the amount designated for the fund equals the amount designated for the fund by the next member of the group in whose favor discrimination may not occur pursuant to Code Section 105 who has elected the second highest contribution to the Health Flexible Spending Account for the Plan Year. This process shall continue until the nondiscrimination tests set forth in this Section or the Code are satisfied. Contributions which are not utilized to provide Benefits to any Participant by virtue of any administrative act under this paragraph shall be forfeited and credited to the benefit plan surplus. 6.6 COORDINATION WITH CAFETERIA PLAN All Participants under the Cafeteria Plan are eligible to receive Benefits under this Health Flexible Spending Account. The enrollment under the Cafeteria Plan shall constitute enrollment under this Health Flexible Spending Account. In addition, other matters concerning contributions, elections and the like shall be governed by the general provisions of the Cafeteria Plan. 6.7 HEALTH FLEXIBLE SPENDING ACCOUNT CLAIMS (a) Expenses must be incurred during Plan Year. All Medical Expenses incurred by a Participant, his or her spouse and his or her Dependents shall be reimbursed during the Plan Year subject to Section 2.5, even though the submission of such a claim occurs after his participation hereunder ceases; but provided that the Medical Expenses were incurred during the applicable Plan Year. Medical Expenses are treated as having been incurred when the Participant is provided with the medical care that gives rise to the medical expenses, not when the Participant is formally billed or charged for, or pays for the medical care. (b) Reimbursement available throughout Plan Year. The Administrator shall direct the reimbursement to each eligible Participant for all allowable Medical Expenses, up to a maximum of the amount designated by the Participant for the Health Flexible Spending Account for the Plan Year. Reimbursements shall be made available to the Participant throughout the year without regard to the level of Cafeteria Plan Benefit Dollars which have been allocated to the fund at any given point in time. Furthermore, a Participant shall be entitled to reimbursements only for amounts in excess of any payments or other reimbursements under any health care plan covering the Participant and/or his Spouse or Dependents. (c) Payments. Reimbursement payments under this Plan shall be made directly to the Participant. However, in the Administrator's discretion, payments may be made directly to the service provider. The application for payment or reimbursement shall be made to the Administrator on an acceptable form within a reasonable time of incurring the debt or paying for the service. The application shall include a written statement from an independent third party stating that the Medical Expense has been incurred and the amount of such 14 expense. Furthermore, the Participant shall provide a written statement that the Medical Expense has not been reimbursed or is not reimbursable under any other health plan coverage and, if reimbursed from the Health Flexible Spending Account, such amount will not be claimed as a tax deduction. The Administrator shall retain a file of all such applications. (d) Grace Period. Notwithstanding anything in this Section to the contrary, Medical Expenses incurred during the Grace Period, up to the remaining account balance, shall also be deemed to have been incurred during the Plan Year to which the Grace Period relates. (e) Claims for reimbursement. Claims for the reimbursement of Medical Expenses incurred in any Plan Year shall be paid as soon after a claim has been filed as is administratively practicable; provided however, that if a Participant fails to submit a claim within 60 days after the end of the Grace Period, those Medical Expense claims shall not be considered for reimbursement by the Administrator. However, if a Participant terminates employment during the Plan Year, claims for the reimbursement of Medical Expenses must be submitted within 60 days after termination of employment. 6.8 DEBIT AND CREDIT CARDS Participants may, subject to a procedure established by the Administrator and applied in a uniform nondiscriminatory manner, use debit and/or credit (stored value) cards ("cards") provided by the Administrator and the Plan for payment of Medical Expenses, subject to the following terms: (a) Card only for medical expenses. Each Participant issued a card shall certify that such card shall only be used for Medical Expenses. The Participant shall also certify that any Medical Expense paid with the card has not already been reimbursed by any other plan covering health benefits and that the Participant will not seek reimbursement from any other plan covering health benefits. (b) Card issuance. Such card shall be issued upon the Participant's Effective Date of Participation and reissued for each Plan Year the Participant remains a Participant in the Health Flexible Spending Account. Such card shall be automatically cancelled upon the Participant's death or termination of employment, or if such Participant has a change in status that results in the Participant's withdrawal from the Health Flexible Spending Account. (c) Maximum dollar amount available. The dollar amount of coverage available on the card shall be the amount elected by the Participant for the Plan Year. The maximum dollar amount of coverage available shall be the maximum amount for the Plan Year as set forth in Section 6.4. (d) Only available for use with certain service providers. The cards shall only be accepted by such merchants and service providers as have been ~"` approved by the Administrator. 15 (e) Card use. The cards shall only be used for Medical Expense ~, purchases at these providers, including, but not limited to, the following: (1) Co-payments for doctor and other medical care; (2) Purchase of drugs; (3) Purchase of medical items such as eyeglasses, syringes, crutches, etc. (f) Substantiation. Such purchases by the cards shall be subject to substantiation by the Administrator, usually by submission of a receipt from a service provider describing the service, the date and the amount. The Administrator shall also follow the requirements set forth in Revenue Ruling 2003-43 and Notice 2006-69. All charges shall be conditional pending confirmation and substantiation. (g) Correction methods. If such purchase is later determined by the Administrator to not qualify as a Medical Expense, the Administrator, in its discretion, shall use one of the following correction methods to make the Plan whole. Until the amount is repaid, the Administrator shall take further action to ensure that further violations of the terms of the card do not occur, up to and including denial of access to the card. (1) Repayment of the improper amount by the Participant; (2) Withholding the improper payment from the Participant's wages or other compensation to the extent consistent with applicable federal or state law; (3) Claims substitution or offset of future claims until the amount is repaid; and (4) if subsections (1) through (3) fail to recover the amount, consistent with the Employer's business practices, the Employer may treat the amount as any other business indebtedness. ARTICLE VII DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT 7.1 ESTABLISHMENT OF ACCOUNT This Dependent Care Flexible Spending Account is intended to qualify as a program under Code Section 129 and shall be interpreted in a manner consistent with such Code Section. Participants who elect to participate in this program may submit claims for the reimbursement of Employment-Related Dependent Care Expenses. All amounts reimbursed shall ~"` be paid from amounts allocated to the Participant's Dependent Care Flexible Spending Account. 16 7.2 DEFINITIONS ~.r For the purposes of this Article and the Cafeteria Plan the terms below shall have the following meaning: (a) "Dependent Care Flexible Spending Account" means the account established for a Participant pursuant to this Article to which part of his Cafeteria Plan Benefit Dollars may be allocated and from which Employment-Related Dependent Care Expenses of the Participant may be reimbursed for the care of the Qualifying Dependents of Participants. (b) "Earned Income" means earned income as defined under Code Section 32(c)(2), but excluding such amounts paid or incurred by the Employer for dependent care assistance to the Participant. (c) "Employment-Related Dependent Care Expenses" means the amounts paid for expenses of a Participant for those services which if paid by the Participant would be considered employment related expenses under Code Section 21(b)(2). Generally, they shall include expenses for household services and for the care of a Qualifying Dependent, to the extent that such expenses are incurred to enable the Participant to be gainfully employed for any period for which there are one or more Qualifying Dependents with respect to such Participant. Employment-Related Dependent Care Expenses are treated as having been incurred when the Participant's Qualifying Dependents are provided with the dependent care that gives rise to the Employment-Related Dependent Care Expenses, not when the Participant is formally billed or charged for, or pays for the dependent care. The determination of whether an amount qualifies as an Employment-Related Dependent Care Expense shall be made subject to the following rules: (1) If such amounts are paid for expenses incurred outside the Participant's household, they shall constitute Employment-Related Dependent Care Expenses only if incurred for a Qualifying Dependent as defined in Section 7.2(d)(1) (or deemed to be, as described in Section 7.2(d)(1) pursuant to Section 7.2(d)(3)), or for a Qualifying Dependent as defined in Section 7.2(d)(2) (or deemed to be, as described in Section 7.2(d)(2) pursuant to Section 7.2(d)(3)) who regularly spends at least 8 hours per day in the Participant's household; (2) If the expense is incurred outside the Participant's home at a facility that provides care for a fee, payment, or grant for more than 6 individuals who do not regularly reside at the facility, the facility must comply with all applicable state and local laws and regulations, including licensing requirements, if any; and (3) Employment-Related Dependent Care Expenses of a Participant shall not include amounts paid or incurred to a child of such Participant who is under the age of 19 or to an individual who is a dependent of such ~"'' Participant or such Participant's Spouse. 17 (d) "Qualifying Dependent" means, for Dependent Care Flexible Spending Account purposes, (1) a Participant's Dependent (as defined in Code Section 152(a)(1)) who has not attained age 13; (2) a Dependent or the Spouse of a Participant who is physically or mentally incapable of caring for himself or herself and has the same principal place of abode as the Participant for more than one-half of such taxable year; or (3) a child that is deemed to be a Qualifying Dependent described in paragraph (1) or (2) above, whichever is appropriate, pursuant to Code Section 21(e)(5). (e) The definitions of Article I are hereby incorporated by reference to the extent necessary to interpret and apply the provisions of this Dependent Care Flexible Spending Account. 7.3 DEPENDENT CARE FLEXIBLE SPENDING ACCOUNTS The Administrator shall establish a Dependent Care Flexible Spending Account for each Participant who elects to apply Cafeteria Plan Benefit Dollars to Dependent Care Flexible Spending Account benefits. ~ 7.4 INCREASES IN DEPENDENT CARE FLEXIBLE SPENDING ACCOUNTS A Participant's Dependent Care Flexible Spending Account shall be increased each pay period by the portion of Cafeteria Plan Benefit Dollars that he has elected to apply toward his Dependent Care Flexible Spending Account pursuant to elections made under Article V hereof. 7.5 DECREASES IN DEPENDENT CARE FLEXIBLE SPENDING ACCOUNTS A Participant's Dependent Care Flexible Spending Account shall be reduced by the amount of any Employment-Related Dependent Care Expense reimbursements paid or incurred on behalf of a Participant pursuant to Section 7.12 hereof. 7.6 ALLOWABLE DEPENDENT CARE REIMBURSEMENT Subject to limitations contained in Section 7.9 of this Program, and to the extent of the amount contained in the Participant's Dependent Care Flexible Spending Account, a Participant who incurs Employment-Related Dependent Care Expenses shall be entitled to receive from the Employer full reimbursement for the entire amount of such expenses incurred during the Plan Year or portion thereof during which he is a Participant. 7.7 ANNUAL STATEMENT OF BENEFITS ``'' On or before January 31st of each calendar year, the Employer shall furnish to each Employee who was a Participant and received benefits under Section 7.6 during the prior 18 calendar year, a statement of all such benefits paid to or on behalf of such Participant during the ,,; prior calendar year. 7.8 FORFEITURES The amount in a Participant's Dependent Care Flexible Spending Account as of the end of any Plan Year (and after the processing of all claims for such Plan Year pursuant to Section 7.12 hereof) shall be forfeited and credited to the benefit plan surplus. In such event, the Participant shall have no further claim to such amount for any reason. 7.9 LIMITATION ON PAYMENTS Notwithstanding any provision contained in this Article to the contrary, amounts paid from a Participant's Dependent Care Flexible Spending Account in or on account of any taxable year of the Participant shall not exceed the lesser of the Earned Income limitation described in Code Section 129(b) or $5,000 ($2,500 if a separate tax return is filed by a Participant who is married as determined under the rules of paragraphs (3) and (4) of Code Section 21(e)). 7.10 NONDISCRIMINATION REQUIREMENTS (a) Intent to be nondiscriminatory. It is the intent of this Dependent Care Flexible Spending Account that contributions or benefits not discriminate in favor of the group of employees in whose favor discrimination may not occur under Code Section 129(d). (b) 25% test for shareholders. It is the intent of this Dependent Care Flexible Spending Account that not more than 25 percent of the amounts paid by the Employer for dependent care assistance during the Plan Year will be provided for the class of individuals who are shareholders or owners (or their Spouses or Dependents), each of whom (on any day of the Plan Year) owns more than 5 percent of the stock or of the capital or profits interest in the Employer. (c) Adjustment to avoid test failure. If the Administrator deems it necessary to avoid discrimination or possible taxation to a group of employees in whose favor discrimination may not occur in violation of Code Section 129 it may, but shall not be required to, reject any elections or reduce contributions or non-taxable benefits in order to assure compliance with this Section. Any act taken by the Administrator under this Section shall be carried out in a uniform and nondiscriminatory manner. If the Administrator decides to reject any elections or reduce contributions or Benefits, it shall be done in the following manner. First, the Benefits designated for the Dependent Care Flexible Spending Account by the affected Participant that elected to contribute the highest amount to such account for the Plan Year shall be reduced until the nondiscrimination tests set forth in this Section are satisfied, or until the amount designated for the account equals the amount designated for the account of the affected Participant who has elected the second highest contribution to the Dependent Care Flexible Spending Account for the Plan Year. This process shall continue until the nondiscrimination tests set ~"'' forth in this Section are satisfied. Contributions which are not utilized to provide 19 Benefits to any Participant by virtue of any administrative act under this „~ paragraph shall be forfeited. 7.11 COORDINATION WITH CAFETERIA PLAN All Participants under the Cafeteria Plan are eligible to receive Benefits under this Dependent Care Flexible Spending Account. The enrollment and termination of participation under the Cafeteria Plan shall constitute enrollment and termination of participation under this Dependent Care Flexible Spending Account. In addition, other matters concerning contributions, elections and the like shall be governed by the general provisions of the Cafeteria Plan. 7.12 DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT CLAIMS The Administrator shall direct the payment of all such Dependent Care claims to the Participant upon the presentation to the Administrator of documentation of such expenses in a form satisfactory to the Administrator. However, in the Administrator's discretion, payments may be made directly to the service provider. In its discretion in administering the Plan, the Administrator may utilize forms and require documentation of costs as may be necessary to verify the claims submitted. At a minimum, the form shall include a statement from an independent third party as proof that the expense has been incurred and the amount of such expense. In addition, the Administrator may require that each Participant who desires to receive reimbursement under this Program for Employment-Related Dependent Care Expenses submit a statement which may contain some or all of the following information: ,, (a) The Dependent or Dependents for whom the services were performed; (b) The nature of the services performed for the Participant, the cost of which he wishes reimbursement; (c) The relationship, if any, of the person performing the services to the Participant; (d) If the services are being performed by a child of the Participant, the age of the child; (e) A statement as to where the services were performed; (f) If any of the services were performed outside the home, a statement as to whether the Dependent for whom such services were performed spends at least 8 hours a day in the Participant's household; (g) If the services were being performed in a day care center, a statement: (1) that the day care center complies with all applicable laws and regulations of the state of residence, (2) that the day care center provides care for more than 6 individuals (other than individuals residing at the center), and 20 ,,, (3) of the amount of fee paid to the provider. (h) If the Participant is married, a statement containing the following: (1) the Spouse's salary or wages if he or she is employed, or (2) if the Participant's Spouse is not employed, that (i) he or she is incapacitated, or (ii) he or she is a full-time student attending an educational institution and the months during the year which he or she attended such institution. (i) Grace Period. Notwithstanding anything in this Section to the contrary, Employment-Related Dependent Care Expenses incurred during the Grace Period, up to the remaining account balance, shall also be deemed to have been incurred during the Plan Year to which the Grace Period relates. (j) Claims for reimbursement. If a Participant fails to submit a claim within 60 days after the end of the Grace Period, those claims shall not be considered for reimbursement by the Administrator. However, if a Participant terminates employment during the Plan Year, claims for reimbursement must be submitted within 60 days after termination of employment. 7.13 DEBIT AND CREDIT CARDS Participants may, subject to a procedure established by the Administrator and applied in a uniform nondiscriminatory manner, use debit and/or credit (stored value) cards ("cards") provided by the Administrator and the Plan for payment of Employment-Related Dependent Care Expenses, subject to the following terms: (a) Card only for dependent care expenses. Each Participant issued a card shall certify that such card shall only be used for Employment-Related Dependent Care Expenses. The Participant shall also certify that any Employment-Related Dependent Care Expense paid with the card has not already been reimbursed by any other plan covering dependent care benefits and that the Participant will not seek reimbursement from any other plan covering dependent care benefits. (b) Card issuance. Such card shall be issued upon the Participant's Effective Date of Participation and reissued for each Plan Year the Participant remains a Participant in the Dependent Care Assistance Program or Dependent Care Flexible Spending Account. Such card shall be automatically cancelled upon the Participant's death or termination of employment, or if such Participant has a change in status that results in the Participant's withdrawal from the Dependent Care Flexible Spending Account. 21 (c) Only available for use with certain service providers. The cards shall only be accepted by such service providers as have been approved by the Administrator. The cards shall only be used for Employment-Related Dependent Care Expenses from these providers. (d) Substantiation. Such purchases by the cards shall be subject to substantiation by the Administrator, usually by submission of a receipt from a service provider describing the service, the date and the amount. The Administrator shall also follow the requirements set forth in Revenue Ruling 2003-43 and Notice 2006-69. All charges shall be conditional pending confirmation and substantiation. (e) Correction methods. If such purchase is later determined by the Administrator to not qualify as an Employment-Related Dependent Care Expense, the Administrator, in its discretion, shall use one of the following correction methods to make the Plan whole. Until the amount is repaid, the Administrator shall take further action to ensure that further violations of the terms of the card do not occur, up to and including denial of access to the card. (1) Repayment of the improper amount by the Participant; (2) Withholding the improper payment from the Participant's wages or other compensation to the extent consistent with applicable federal or state law; ~ (3) Claims substitution or offset of future claims until the amount is repaid; and (4) if subsections (1) through (3) fail to recover the amount, consistent with the Employer's business practices, the Employer may treat the amount as any other business indebtedness. ARTICLE VIII ERISA PROVISIONS 8.1 CLAIM FOR BENEFITS (a) Insurance claims. Any claim for Benefits underwritten by the self-funded plan shall be made to the Employer. If the Employer denies any claim, the Participant or beneficiary shall follow the Employer's claims review procedure. (b) Dependent Care Flexible Spending Account claims. Any claim for Dependent Care Flexible Spending Account Benefits shall be made to the Administrator. For the Dependent Care Flexible Spending Account, if a Participant fails to submit a claim within 60 days after the end of the Grace Period, those claims shall not be considered for reimbursement by the "" Administrator. However, if a Participant terminates employment during the Plan Year, claims for reimbursement must be submitted within 60 days after termination of employment. If the Administrator denies a claim, the Administrator 22 may provide notice to the Participant or beneficiary, in writing, within 90 days ~, after the claim is filed unless special circumstances require an extension of time for processing the claim. The notice of a denial of a claim shall be written in a manner calculated to be understood by the claimant and shall set forth: (1) specific references to the pertinent Plan provisions on which the denial is based; (2) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation as to why such information is necessary; and (3) an explanation of the Plan's claim procedure. (c) Appeal. Within 60 days after receipt of the above material, the claimant shall have a reasonable opportunity to appeal the claim denial to the Administrator for a full and fair review. The claimant or his duly authorized representative may: (1) request a review upon written notice to the Administrator; (2) review pertinent documents; and (3) submit issues and comments in writing. (d) Review of appeal. A decision on the review by the Administrator will be made not later than 60 days after receipt of a request for review, unless special circumstances require an extension of time for processing (such as the need to hold a hearing), in which event a decision should be rendered as soon as possible, but in no event later than 120 days after such receipt. The decision of the Administrator shall be written and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, with specific references to the pertinent Plan provisions on which the decision is based. a 23 (e) Health FSA claims. If a Participant fails to submit a claim under the Health Flexible Spending Account within 60 days after the end of the Grace Period, those claims shall not be considered for reimbursement by the Administrator. However, if a Participant terminates employment during the Plan Year, claims for the reimbursement must be submitted within 60 days after termination of employment. Once a claim is submitted, the following timetable for claims and rules below apply: Notification of whether claim is accepted or denied 30 days Extension due to matters beyond the control of the Plan 15 days Insufficient information on the Claim: Notification of 15 days Response by Participant 45 days Review of claim denial 60 days The Plan Administrator will provide written or electronic notification of any claim denial. The notice will state: (1) The specific reason or reasons for the denial. (2) Reference to the specific Plan provisions on which the denial was based. (3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary. (4) A description of the Plan's review procedures and the time limits applicable to such procedures. This will include a statement of the right to bring a civil action under section 502 of ERISA following a denial on review. (5) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claim. (6) If the denial was based on an internal rule, guideline, protocol, or other similar criterion, the specific rule, guideline, protocol, or criterion will be provided free of charge. If this is not practical, a statement will be included that such a rule, guideline, protocol, or criterion was relied upon in making the denial and a copy will be provided free of charge to the claimant upon request. ~""' When the Participant receives a denial, the Participant shall have 180 days following receipt of the notification in which to appeal the decision. The 24 Participant may submit written comments, documents, records, and other ;,yam,, information relating to the Claim. If the Participant requests, the Participant shall be provided, free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claim. The period of time within which a denial on review is required to be made will begin at the time an appeal is filed in accordance with the procedures of the Plan. This timing is without regard to whether all the necessary information accompanies the filing. A document, record, or other information shall be considered relevant to a Claim if it: (1) was relied upon in making the claim determination; (2) was submitted, considered, or generated in the course of making the claim determination, without regard to whether it was relied upon in making the claim determination; (3) demonstrated compliance with the administrative processes and safeguards designed to ensure and to verify that claim determinations are made in accordance with Plan documents and Plan provisions have been applied consistently with respect to all claimants; or (4) constituted a statement of policy or guidance with respect to the Plan concerning the denied claim. The review will take into account all comments, documents, records, and other information submitted by the claimant relating to the Claim, without regard to whether such information was submitted or considered in the initial claim determination. The review will not afford deference to the initial denial and will be conducted by a fiduciary of the Plan who is neither the individual who made the adverse determination nor a subordinate of that individual. (f) Forfeitures. Any balance remaining in the Participant's Dependent Care Flexible Spending Account or Health Flexible Spending Account as of the end of the time for claims reimbursement for each Plan Year and Grace Period (if applicable) shall be forfeited and deposited in the benefit plan surplus of the Employer pursuant to Section 6.3 or Section 7.8, whichever is applicable, unless the Participant had made a claim for such Plan Year, in writing, which has been denied or is pending; in which event the amount of the claim shall be held in his account until the claim appeal procedures set forth above have been satisfied or the claim is paid. If any such claim is denied on appeal, the amount held beyond the end of the Plan Year shall be forfeited and credited to the benefit plan surplus. 25 8.2 APPLICATION OF BENEFIT PLAN SURPLUS Any forfeited amounts credited to the benefit plan surplus by virtue of the failure of a Participant to incur a qualified expense or seek reimbursement in a timely manner may, but need not be, separately accounted for after the close of the Plan Year (or after such further time specified herein for the filing of claims) in which such forfeitures arose. In no event shall such amounts be carried over to reimburse a Participant for expenses incurred during a subsequent Plan Year for the same or any other Benefit available under the Plan; nor shall amounts forfeited by a particular Participant be made available to such Participant in any other form or manner, except as permitted by Treasury regulations. Amounts in the benefit plan surplus shall first be used to defray any administrative costs and experience losses and thereafter be retained by the Employer. 8.3 NAMED FIDUCIARY The Administrator shall be the named fiduciary pursuant to ERISA Section 402 and shall be responsible for the management and control of the operation and administration of the Plan. 8.4 GENERAL FIDUCIARY RESPONSIBILITIES The Administrator and any other fiduciary under ERISA shall discharge their duties with respect to this Plan solely in the interest of the Participants and their beneficiaries and (a) for the exclusive purpose of providing Benefits to Participants and their beneficiaries and defraying reasonable expenses of administering the Plan; (b) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and (c) in accordance with the documents and instruments governing the Plan insofar as such documents and instruments are consistent with ERISA. 8.5 NONASSIGNABILITY OF RIGHTS The right of any Participant to receive any reimbursement under the Plan shall not be alienable by the Participant by assignment or any other method, and shall not be subject to the rights of creditors, and any attempt to cause such right to be so subjected shall not be recognized, except to such extent as may be required by law. 26 ARTICLE IX ADMINISTRATION 9.1 PLAN ADMINISTRATION The operation of the Plan shall be under the supervision of the Administrator. It shall be a principal duty of the Administrator to see that the Plan is carried out in accordance with its terms, and for the exclusive benefit of Employees entitled to participate in the Plan. The Administrator shall have full power to administer the Plan in all of its details, subject, however, to the pertinent provisions of the Code. The Administrator's powers shall include, but shall not be limited to the following authority, in addition to all other powers provided by this Plan: (a) To make and enforce such rules and regulations as the Administrator deems necessary or proper for the efficient administration of the Plan; (b) To interpret the Plan, the Administrator's interpretations thereof in good faith to be final and conclusive on all persons claiming benefits by operation of the Plan; (c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan and to receive benefits provided by operation of the Plan; (d) To reject elections or to limit contributions or Benefits for certain highly compensated participants if it deems such to be desirable in order to avoid discrimination under the Plan in violation of applicable provisions of the Code; (e) To provide Employees with a reasonable notification of their benefits available by operation of the Plan; (f) To approve reimbursement requests and to authorize the payment of benefits; (g) To establish and communicate procedures to determine whether a medical child support order is qualified under ERISA Section 609; and (h) To appoint such agents, counsel, accountants, consultants, and actuaries as may be required to assist in administering the Plan. Any procedure, discretionary act, interpretation or construction taken by the Administrator shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to comply with the terms of Code Section 125 and the Treasury regulations thereunder. 27 9.2 EXAMINATION OF RECORDS The Administrator shall make available to each Participant, Eligible Employee and any other Employee of the Employer such records as pertain to their interest under the Plan for examination at reasonable times during normal business hours. 9.3 PAYMENT OF EXPENSES Any reasonable administrative expenses shall be paid by the Employer unless the Employer determines that administrative costs shall be borne by the Participants under the Plan or by any Trust Fund which may be established hereunder. The Administrator may impose reasonable conditions for payments, provided that such conditions shall not discriminate in favor of highly compensated employees. 9.4 INSURANCE CONTROL CLAUSE In the event of a conflict between the terms of this Plan and the terms of an Insurance Contract of an independent third party Insurer whose product is then being used in conjunction with this Plan, the terms of the Insurance Contract shall control as to those Participants receiving coverage under such Insurance Contract. For this purpose, the Insurance Contract shall control in defining the persons eligible for insurance, the dates of their eligibility, the conditions which must be satisfied to become insured, if any, the benefits Participants are entitled to and the circumstances under which insurance terminates. 9.5 INDEMNIFICATION OF ADMINISTRATOR The Employer agrees to indemnify and to defend to the fullest extent permitted by law any Employee serving as the Administrator or as a member of a committee designated as Administrator (including any Employee or former Employee who previously served as Administrator or as a member of such committee) against all liabilities, damages, costs and expenses (including attorney's fees and amounts paid in settlement of any claims approved by the Employer) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. ARTICLE X AMENDMENT OR TERMINATION OF PLAN 10.1 AMENDMENT The Employer, at any time or from time to time, may amend any or all of the provisions of the Plan without the consent of any Employee or Participant. No amendment shall have the effect of modifying any benefit election of any Participant in effect at the time of such amendment, unless such amendment is made to comply with Federal, state or local laws, statutes or regulations. 28 10.2 TERMINATION The Employer is establishing this Plan with the intent that it will be maintained for an indefinite period of time. Notwithstanding the foregoing, the Employer reserves the right to terminate this Plan, in whole or in part, at any time. In the event the Plan is terminated, no further contributions shall be made. Benefits under any Contract shall be paid in accordance with the terms of the Contract. No further additions shall be made to the Health Flexible Spending Account or Dependent Care Flexible Spending Account, but all payments from such fund shall continue to be made according to the elections in effect unti190 days after the termination date of the Plan. Any amounts remaining in any such fund or account as of the end of such period shall be forfeited and deposited in the benefit plan surplus after the expiration of the filing period. ARTICLE XI MISCELLANEOUS 11.1 PLAN INTERPRETATION All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. This Plan shall be read in its entirety and not severed except as provided in Section 11.11. 11.2 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 11.3 WRITTEN DOCUMENT This Plan, in conjunction with any separate written document which may be required by law, is intended to satisfy the written Plan requirement of Code Section 125 and any Treasury regulations thereunder relating to cafeteria plans. 11.4 EXCLUSIVE BENEFIT This Plan shall be maintained for the exclusive benefit of the Employees who participate in the Plan. 11.5 PARTICIPANT'S RIGHTS This Plan shall not be deemed to constitute an employment contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any ~~'' Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan. 29 11.6 ACTION BY THE EMPLOYER Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 11.7 NO GUARANTEE OF TAX CONSEQUENCES Neither the Administrator nor the Employer makes any commitment or guarantee that any amounts paid to or for the benefit of a Participant under the Plan will be excludable from the Participant's gross income for federal or state income tax purposes, or that any other federal or state tax treatment will apply to or be available to any Participant. It shall be the obligation of each Participant to determine whether each payment under the Plan is excludable from the Participant's gross income for federal and state income tax purposes, and to notify the Employer if the Participant has reason to believe that any such payment is not so excludable. Notwithstanding the foregoing, the rights of Participants under this Plan shall be legally enforceable. 11.8 INDEMNIFICATION OF EMPLOYER BY PARTICIPANTS If any Participant receives one or more payments or reimbursements under the Plan that are not for a permitted Benefit, such Participant shall indemnify and reimburse the Employer for any liability it may incur for failure to withhold federal or state income tax or Social Security tax from such payments or reimbursements. However, such indemnification and reimbursement shall not exceed the amount of additional federal and state income tax (plus any penalties) that the Participant would have owed if the payments or reimbursements had been made to the Participant as regular cash compensation, plus the Participant's share of any Social Security tax that would have been paid on such compensation, less any such additional income and Social Security tax actually paid by the Participant. 11.9 FUNDING Unless otherwise required by law, contributions to the Plan need not be placed in trust or dedicated to a specific Benefit, but may instead be considered general assets of the Employer. Furthermore, and unless otherwise required by law, nothing herein shall be construed to require the Employer or the Administrator to maintain any fund or segregate any amount for the benefit of any Participant, and no Participant or other person shall have any claim against, right to, or security or other interest in, any fund, account or asset of the Employer from which any payment under the Plan may be made. 11.10 GOVERNING LAW This Plan is governed by the Code and the Treasury regulations issued thereunder (as they might be amended from time to time). In no event shall the Employer guarantee the favorable tax treatment sought by this Plan. To the extent not preempted by Federal law, the provisions of this Plan shall be construed, enforced and administered according to the laws of the State of Texas. 30 11.11 SEVERABILITY If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provision had not been included herein. 11.12 CAPTIONS The captions contained herein are inserted only as a matter of convenience and for reference, and in no way define, limit, enlarge or describe the scope or intent of the Plan, nor in any way shall affect the Plan or the construction of any provision thereof. 11.13 CONTINUATION OF COVERAGE Notwithstanding anything in the Plan to the contrary, in the event any benefit under this Plan subject to the continuation coverage requirement of Code Section 4980B becomes unavailable, each Participant will be entitled to continuation coverage as prescribed in Code Section 4980B, and related regulations. If during the Plan Year, the Employer employs fewer than twenty (20) employees on a typical business day, this Section shall not apply. 11.14 FAMILY AND MEDICAL LEAVE ACT Notwithstanding anything in the Plan to the contrary, in the event any benefit under this Plan becomes subject to the requirements of the Family and Medical Leave Act and regulations thereunder, this Plan shall be operated in accordance with Regulation 1.125-3. 11.15 HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT Notwithstanding anything in this Plan to the contrary, this Plan shall be operated in accordance with HIPAA and regulations thereunder. 11.16 USERRA Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service shall be provided in accordance with the Uniformed Services Employment And Reemployment Rights Act (USERRA) and the regulations thereunder. 11.17 COMPLIANCE WITH HIPAA PRIVACY STANDARDS (a) Application. If the Health Flexible Spending Account under this Cafeteria Plan is subject to the Standards for Privacy of Individually Identifiable Health Information (45 CFR Part 164, the "Privacy Standards"), then this Section shall apply. (b) Disclosure of PHI. The Plan shall not disclose Protected Health Information to any member of the Employer's workforce unless each of the conditions set out in this Section are met. "Protected Health Information" shall ~"` have the same definition as set forth in the Privacy Standards but generally shall mean individually identifiable information about the past, present or future 31 physical or mental health or condition of an individual, including information ~,,,,, about treatment or payment for treatment. (c) PHI disclosed for administrative purposes. Protected Health Information disclosed to members of the Employer's workforce shall be used or disclosed by them only for purposes of Plan administrative functions. The Plan's administrative functions shall include all Plan payment functions and health care operations. The terms "payment" and "health care operations" shall have the same definitions as set out in the Privacy Standards, but the term "payment" generally shall mean activities taken to determine or fulfill Plan responsibilities with respect to eligibility, coverage, provision of benefits, or reimbursement for health care. (d) PHI disclosed to certain workforce members. The Plan shall disclose Protected Health Information only to members of the Employer's workforce who are authorized to receive such Protected Health Information, and only to the extent and in the minimum amount necessary for that person to perform his or her duties with respect to the Plan. "Members of the Employer's workforce" shall refer to all employees and other persons under the control of the Employer. The Employer shall keep an updated list of those authorized to receive Protected Health Information. (I) An authorized member of the Employer's workforce who receives Protected Health Information shall use or disclose the Protected Health Information only to the extent necessary to perform his or her duties with ,, respect to the Plan. (2) In the event that any member of the Employer's workforce uses or discloses Protected Health Information other than as permitted by this Section and the Privacy Standards, the incident shall be reported to the Plan's privacy officer. The privacy officer shall take appropriate action, including: (i) investigation of the incident to determine whether the breach occurred inadvertently, through negligence or deliberately; whether there is a pattern of breaches; and the degree of harm caused by the breach; (ii) appropriate sanctions against the persons causing the breach which, depending upon the nature of the breach, may include oral or written reprimand, additional training, or termination of employment; (iii) mitigation of any harm caused by the breach, to the extent practicable; and (iv) documentation of the incident and all actions taken to resolve the issue and mitigate any damages. "` (e) Certification. The Employer must provide certification to the Plan that it agrees to: 32 (1) Not use or further disclose the information other than as permitted or required by the Plan documents or as required by law; (2) Ensure that any agent or subcontractor, to whom it provides Protected Health Information received from the Plan, agrees to the same restrictions and conditions that apply to the Employer with respect to such information; (3) Not use or disclose Protected Health Information for employment- related actions and decisions or in connection with any other benefit or employee benefit plan of the Employer; (4) Report to the Plan any use or disclosure of the Protected Health Information of which it becomes aware that is inconsistent with the uses or disclosures permitted by this Section, or required by law; (5) Make available Protected Health Information to individual Plan members in accordance with Section 164.524 of the Privacy Standards; (6) Make available Protected Health Information for amendment by individual Plan members and incorporate any amendments to Protected Health Information in accordance with Section 164.526 of the Privacy Standards; (7) Make available the Protected Health Information required to provide an accounting of disclosures to individual Plan members in accordance with Section 164.528 of the Privacy Standards; (8) Make its internal practices, books and records relating to the use and disclosure of Protected Health Information received from the Plan available to the Department of Health and Human Services for purposes of determining compliance by the Plan with the Privacy Standards; (9) If feasible, return or destroy all Protected Health Information received from the Plan that the Employer still maintains in any form, and retain no copies of such information when no longer needed for the purpose for which disclosure was made, except that, if such return or destruction is not feasible, limit further uses and disclosures to those purposes that make the return or destruction of the information infeasible; and (10) Ensure the adequate separation between the Plan and members of the Employer's workforce, as required by Section 164.504(f)(2)(iii) of the Privacy Standards and set out in (d) above. 11.18 COMPLIANCE WITH HIPAA ELECTRONIC SECURITY STANDARDS ~' Under the Security Standards for the Protection of Electronic Protected Health Information (45 CFR Part 164.300 et. seq., the "Security Standards"): 33 ,,,. (a) Implementation. The Employer agrees to implement reasonable and appropriate administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of Electronic Protected Health Information that the Employer creates, maintains or transmits on behalf of the Plan. "Electronic Protected Health Information" shall have the same definition as set out in the Security Standards, but generally shall mean Protected Health Information that is transmitted by or maintained in electronic media. (b) Agents or subcontractors shall meet security standards. The Employer shall ensure that any agent or subcontractor to whom it provides Electronic Protected Health Information shall agree, in writing, to implement reasonable and appropriate security measures to protect the Electronic Protected Health Information. (c) Employer shall ensure security standards. The Employer shall ensure that reasonable and appropriate security measures are implemented to comply with the conditions and requirements set forth in Section 11.17. 34 IN WITNESS WHEREOF, this Plan document is hereby executed this day of WITNESSES AS TO EMPLOYER Sample Company By EMPLOYER 35 CERTIFICATE OF CORPORATE RESOLUTION The undersigned Secretary of Sample Company (the Corporation) hereby certifies that the following resolutions were duly adopted by the board of directors of the Corporation on ,and that such resolutions have not been modified or rescinded as of the date hereof: RESOLVED, that the form of Cafeteria Plan including a Dependent Care Flexible Spending Account and Health Flexible Spending Account effective October 1, 2006, presented to this meeting is hereby approved and adopted and that the proper officers of the Corporation are hereby authorized and directed to execute and deliver to the Administrator of the Plan one or more counterparts of the Plan. RESOLVED, that the Administrator shall be instructed to take such actions that are deemed necessary and proper in order to implement the Plan, and to set up adequate accounting and administrative procedures to provide benefits under the Plan. RESOLVED, that the proper officers of the Corporation shall act as soon as possible to notify the employees of the Corporation of the adoption of the Cafeteria Plan by delivering to each employee a copy of the summary description of the Plan in the form of the Summary Plan Description presented to this meeting, which form is hereby approved. The undersigned further certifies that attached hereto as Exhibits A and B, respectively, are true copies of Sample Company Section 125 Plan and the Summary Plan Description approved and adopted in the foregoing resolutions. Secretary Date: ~rr~' SECTION 125 CAFETERIA PLANS Medical Spending Account Dependent Care Spending Account VERITY NATIONAL GROUP, INC. 11467 Huebner Road, Suite 300 San Antonio, TX 78230 Phone (210) 348-7300 Fax (210) 348-7112 Section 125 Cafeteria Plans Cardholder Information Overview Initiated by the Internal Revenue Service (IRS) in the mid-80's, a cafeteria plan is simply a program that employers can offer to their employees to pay for certain expenses like health insurance and dependent care, with pre-tax dollars. These plans are one of the most popular benefits around, for good reason. Employees like cafeteria plans because they can buy benefits with pre-tax dollars, giving them more take-home pay. They also get to pay for only those benefits they really want... like ordering lunch a la carte instead of being stuck with the blue plate special... hence the name "cafeteria". Payroll Deductions Once you complete and sign an Enrollment Form indicating how much you'd like taken from each paycheck you receive, your company enters your "election" into the payroll system as well as your health insurance premium if you so choose. This requires telling the person who prepares the payroll for your company to start deducting the employees' shares of their health insurance premiums (if they so choose) and flexible spending account(s) on a pre-tax basis. The result is that income tax witholding and FICA witholding will be based on each employee's reduced wages, ultimately giving the employee more take home pay and reducing their tax burden. Accessing Your Dollars The Verity Convenience Card gives you instant access to your account funds - so you rarely have to pay ~ out-of-pocket. It virtually eliminates claim forms and receipts, which means you no longer have to wait for reimbursement checks either. In addition, we provide you with instant access to your account balance via a secure Internet access. You will automatically receive your Verity Convenience Card when you enroll for a FSA through your employer. Using your Verity Convenience Card is as easy as 1-2-3: (1) Upon receipt, sign the back of your card; (2) Present your card to purchase qualified goods and services (as defined by your Plan Administrator/Document); (3) Save all receipts. Your Plan Administrator may request them to verify expense eligibility. The Verity Convenience Card allows you to monitor your account balance and transaction history, report a lost or stolen card, or print a statement at any time, night or day using a secure web page: www.mbicard.com. The Verity Convenience Card is intended for, and restricted to, use for eligible services and/or purchases associated with your FSA, as governed by the Internal Revenue Service. It has smart technology built in, allowing it to debit the appropriate account while preventing inappropriate useage. It is not eligible for use at ATM's or other unqualified merchant locations. The card will be denied at the point of sale when use at an ineligible location is attempted. If an eligible merchant or provider does not accept MasterCard, you'll need to pay out-of-pocket and submit a completed claim form with your + receipt(s) to Verity National for reimbursement by check or direct deposit. Verity National pays paper claims at least three times a week. Eligible and Ineligible Expenses A list of typical eligible and ineligible medical expenses is enclosed in this packet. Please note that in ~, some cases certain plan restrictions apply and what might normally be considerd an eligible expense may not allowed by your employer's plan. You can refer to your company's Plan Document or call Verity National for any restrictions that may apply. Annual Elections The "Annual Election" is the total dollar amount you have elected to deduct from your payroll over the course of the Plan Year. These dollars are "loaded" on the Verity Convenience Card at the beginning of the Plan Year and are available from the first day of the Plan Year. Be sure to choose your annual benefit election(s) carefully, as it/they cannot be changed during the Plan Year unless you have a qualified status change. Qualified status changes include: ~ Marriage or divorce ~ Birth or adoption ~ Death of employee or dependent ~ Employment status change for employee or spouse ~ Benefit eligibility change for employee, spouse or dependent In the case of both the Medical Spending Account and the Dependent Care Spending Account, all dollars must be used during the Plan Year. There is a 60-day "run out" following the conclusion of the Plan Year during which an employee can submit, but not incur, expenses from the previous Plan Year. Dollars that have not been used at the end of the 60 days are "lost". ~t.- Dependent Care Spending Account The Dependent Care Spending Account is a dependent care assistance program that is also part of the FSA program. An employee can use the Dependent Care Spending Account to be reimbursed for employee-related expenses that allow the employee and his or her spouse to be "gainfully employed." Employment-related expenses are typically those that are incurred to have ababy-sitter or day-care provider take care of an employee's child (under the age of 13) while Mom and Dad are working, or to take care of a spouse, or parent, or other tax dependent who lives with the employee and is incapable of self-care. While the employer has the ability to limit the maximum annual election for the Medical Spending Account (MSA), participants electing dependent care coverage are limited by the IRS to an annual contribution of up to $5,000 per family. Employees pay for the dependent care coverage with pre-tax salary reduction dollars, however, unlike the Medical FSA, which allows the annual election amount to be "pre-loaded" on the card from the first day of the Plan Year, the dependent care dollars are only available as the payroll contributions are received by the Plan Administrator. Verity National allows employees to send in a monthly, or mutiple months, invoice from the day care provider and automati- cally reimburses the employee when the payroll dollars are deposited. These reimbursements can also be automatically deposited into the employee's bank account, requiring no additional time or energy on the part of the employee once the appropriate paperwork has been submitted. Employees may also use their Verity Convenience Card to pay for the dependent care expenses when the provider is equipped to do so, but again the dollars are not loaded on the card, or available, until the payrolls have been received by the Plan Administrator. ,,; The Verity Convenience Card You can choose... As a member of the Flex Plan, each time you incur an eligible expense, you have two choices available for being reimbursed: 1. Use your Verity Convenience Card to pay for eligible medical expenses by simply presenting it at the time of purchase; ~r.+ OR 1. If you choose to submit paper claims, you must first pay for the eligible medical expense(s) out-of-pocket and then... 2. Mail or fax completed claim form with receipt attached for each eligible expense to: Verity National Group, Inc. 11467 Huebner Road, Suite 300 San Antonio, TX 78230 Fax: (210) 348-7112 3. Your claim will be processed and a check issued directly to you, or the funds can be direct deposited in your bank account. Verity National processes paper claims three times weekly. Frequently Asked Questions About Flexible Spending Accounts (FSAs) What is a Flexible Spending Account (FSA) and how does it work? A Flexible Spending Account allows you to set aside pre-tax dollars from your paycheck to cover eligible healthcare expenses. Your employer may call an FSA by any number of other names, such as a reimbursement account, Section 125 or Cafeteria Plan. They are, in effect, all the same. What is a pre-tax contribution? Contributions -also referred to as elections - to an FSA are made on a pre-tax basis. This means your contributions are taken from your paycheck before Federal, Social Security (FICA) and most state and local taxes are withheld. Each pre-tax dollar you contribute to an FSA lowers your current taxable income, so you end up reducing the current Federal income tax that you pay. In most cases, you'll also pay lower state and local income taxes Do I need to enroll to participate in an FSA? Yes, you must enroll if you want to participate in an FSA. To continue participating after your initial enrollment, you must re-enroll each year during Open Enrollment. Your contributions (the dollar amount you deduct from your paycheck to put in your FSA) do not automatically continue from one year to the next. How do I contribute to an FSA? You fund your FSA with pre-tax dollars deducted from your paycheck in equal installments throughout the year. Your plan document will define both minimum and maximum contribution amounts. When may I change my FSA? You may change your FSA contributions each year during Open Enrollment. Your plan may also allow you to ' change your contribution amount during the year if your situation changes due to a "qualifying life event" -this includes marriage, death, birth, adoption and divorce. What happens to contributions left in my FSA at the end of the plan year because I didn't file claims against them? Because of the favorable tax treatment provided by the FSA, government regulations require that the money you contribute to your FSA only be used for eligible expenses incurred during that Plan Year. You may, however, submit claims incurred during the prior Plan Year up to 60 days following the end of the Plan Year. Any money left in your account after the claims filing deadline is forfeited. You cannot use one Plan Year's contributions for the next Plan Year's expenses. What happens to an FSA if I die during the year? Your contributions to your FSA stop, however, until the claims filing deadline your survivors can continue to file eligible expenses you incurred before your death. My company offers both a Medical FSA and a Dependent Care FSA and I participate in both. Can I shift my money between my FSA accounts? No. IRS regulations require the accounts to operate separately. You cannot use funds from one to pay for expenses from the other. How do I estimate my Medical FSA contributions? To estimate your future expenses, first review similar expenses you've had over the last couple of years. Also consider any changes to your healthcare needs that you expect may occur during the year. It's important to care- fully estimate your expenses before you decide how much you want to contribute to the FSA each year. The first time you participate in an FSA, try to be conservative in your estimate since you forfeit (lose) any balance that isn't used by the claims filing deadline. On the other hand, if your expenses dramatically exceed the amount you contribute to the FSA, you miss out on some tax savings. ~tir-' Example of Monthly Savings ~wr-' TAKE HOME PAY DIFFERENCE: $136 (Monthly) / $1632 (Annually) Without Plan With Flex Plan Gross Pay $2,000 $2,000 Monthly Fixed Costs: Medical Insurance $350 Medical Insurance $350 Prescription Costs $50 Flex Contribution $50 Child Care $200 Child Care $200 Adjusted Gross Taxable Pay $2,000 $1,400 Federal Withholding Tax (15%) -$300 -$210 Social Security Tax (7.65%) -$153 -$107 Post-Tax Medical Insurance Deduction -$350 $0 Net Pay $1,197 $1,083 Prescription Costs (Out-of-Pocket) -$50 $0 Child Care Expense (Out-of-Pocket) -$200 $0 Net Spendable Pay for Month $947 $1,083 VERITY NATIONAL GROUP, INC. 11467 Huebner Road, Suite 300 ~r San Antonio, TX 78230 Phone (210) 348-7300 Fax (210) 348-7112 fir, MEDICAL REIMBURSEMENT ACCOUNT QUALIFYING EXPENSE WORKSHEET (List the amounts that are not covered by insurance or other coverage) QUALIFYING EXPENSE ESTIMATED ANNUAL EXPENSE Medical Expenses: Medical Doctor's Fees/Co-Payments $ Annual Physical Examinations $ Prescription Drugs $ Over-the-Counter Medications $ X-rays and Lab Fees $ Hospital Services $ Chiropractors and Acupuncturists $ Surgery $ Ambulance Service $ Psychiatrists or Psychologists $ ,, Visions Expenses: Eye Exams $ Glasses, Contact Lenses, Cleaning Solutions $ Laser Eye Surgery $ Dental Expenses: Deductible/Co-pay $ Teeth Cleaning, X-rays, Fillings $ Braces $ Dentures $ Hearing Expenses: Exams, Hearing Aids $ Other Eligible Expenses: $ TOTALANNUAL MEDICALLY RELATED EXPENSES: $ PAY PERIOD ELECTION (Divide annual expenses by number $ of pay periods per year) SECTION 125 FLEXIBLE SPENDING ACCOUNTS Eligibility for Common Medical Ezpenses As Determined by IRC 213(d) Reprinted from "Cafeteria Plans " / ©Employee Benefits Institute ofAmerica Inc. (EBIA) What Expenses Can Be Reimbursed Under a Health FSA? ~Irr' Is Expense a Comments and Special Rules Expense Qualifying Expense? Abortion Qualifying expense Expenditures for operations that are illegal do not qualify.° Acne treatment O Potentially qualifying Because acne is considered a disease, the cost of acne treatment qualifies orc expense (including over-the-counter acne medications). However, the cost of regular skin care (face creams, etc.) does not qualify. And when the expense has both medical and cosmetic purposes (e.g., Retin-A, which can be used to treat both acne and wrinkles), a note from a medical practitioner recommending the item to treat a specific medical condition is nonnally required. See Drugs and medicines; Cosmetic procedures; Cosmetics; Retin-A; and Toiletries. Acupuncture Qualifying expenses enses incurred before an adoption is finalized will qualify, if the l ex di M Adoption, Qualifying expense p ca e child qualifies as your tax dependent when the services/items are provrded. enses incurred in connection with al ex di pre-adoption medical p c (Adoption fees and other non-me tion assistance may qualify for an adoption assistance credit (under do expenses p a Code § 23) or for reimbursement under an adoption assistance program (under Code § 137).) Potentially qualifying To show that the expense is primarily for medical care, a note from a medical to treat a specific medical condition is i Air conditioner oTC expense tem practitioner recommending the it must be used primarrly by the person who has the Also d i , . re normally requ medical condrt~on.e If it is attached to a home (such as central air t that is more than the va]ue added to the conditioning), only the amount spen ualify.b If others benefit from the air conditioning, then only will rt ll q y prope the pro rata amount allocable to the person with the medical condition wi qualify.° See Capital expenses. Air purifier Potentially qualifying To show that the expense is primarily for medical care, a note from a medical er recommending the item to treat a specific medical condition i i oTC p ex ense on t ract (such as a severe allergy) is normally required.a Several special rules apply. See Air conditioner and Capital expenses. Alcoholism treatment Qualifying expense r fo ralcohol addi tionrwill qualify See Health institute t t ca e cen therapeu fees; Lodging at a hospital or similar institution; Meals at a hospital or titution; and Schools and education, residential. Transportation i il ns ar sim expenses associated with attending meetings of an Alcoholics Anonymous in the community would also qualify rf attending due to a physician's group advice that membership is necessary to treat alcoholism' Allergy Qualifying expense OTC medicine (Examples: Alavert, Claritin) * Rev. Rul. 73-201, 1973-1 C.B. 140. t Rev. Rul. 72-593,1972-2 C.B. 180. $ IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. For more information on adoption assrstance programs, see Fringe Benefits (EBIA, 2004-present, updated quarterly). a Treas. Reg. § 1.213-1(e)(iii). b Treas. Reg. § 1.213-1(e)(iii). c Treas. Reg. § 1.213-1(e)(iii). d Priv. Ltr. Rul. 8009080 (Dec. 6,1979). e Rev. Rul. 63-273,1963-2 C.B. 112. Expense Is Expense a Qualifying Expense? Comments and Special Rules Allergy treatment oTC products; householdirnprovements to treat allergies Potentially qualifying expense Expenses generally won't qualify if the product would be owned even without allergies, such as a pillow or a vacuum cleaner.` However, an air purifier or water filter necessary to treat a specific medical condition might qualify. To show that the expense is primarrly for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition is normally required. See Air purifier; Air conditioner; Capital expenses; and Drugs and medicines. Alternative healers, dietary substitutes, and drugs and medicines Potentially qualifying expense Non-traditional healing treatments provided by professionals may be eligible if provided to treat a specific medical condition, but the IRS looks at these expenses very closely.# The treaUnents must be legal. And the expenses do not qualify if the remedy is a food or substitute for food that the person would normally consume in order to meet nutritional requirements.a It appears that drugs and medicines recommended by alternative healers to treat a specific medical condition also can qualify as medical care. To show that the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition is normally required. See Drugs and medicines; Christian Science practitioners; Special foods; and Vitamins. Ambulance Qualifying expenseb Analgesics orc (Examples: Advil, Qualifying expense Aspirin, Tylenol) Antacids orc (Examples: Qualifying expense Maalox, Prilosec OTC, Zantac) Antibiotic orc ointments Qualifying expense (Examples: Bacitracin, Neosporin) Antihistamines orc (Examples: Benadryl, Claritin) Qualifying expense Anti-itch creams orc (Examples: Benadryl, Cortaid, Ivarest) Qualifying expense Appearance improvements Not a qualifying expense See Cosmetic procedures; Cosmetics; Toiletries; and subsection L.1. Arthritis gloves orc .Qualifying expense Artificial limbs Qualifying expense° Artificial teeth Qualifying expensed Aspirin ore Qualifying expense d Asthma treatments Qualifying expense Includes asthma medications and delivery devices (e.g., inhalers an nebuiizers). * Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, August t yyzs ~~r~ ~.oruerciicc. fi Priv. Ltr. Rul. 8009080 (Dec. 6,1979). $ Treas. Reg. § 1.213-1(e)(1)(ii); IRS Information Letter 2000-0410 (Nov. 27, 2000). Also see IRS Information Letter (July 30, 1999), reproduced behind Appendix Tab 4. a Rev. Rul. 55-261,1956-1 C.B. 307. b Treas. Reg. § 1.213-1(e)(1)(ii). c Treas. Reg. § 1.213-1(e)(1)(ii). d Treas. Reg. § 1.213-1(e)(1)(ii). ~r ''ire'. Is Expense a Comments and Special Rules Expense Qualifying Expense? Artificial~teeth Qualifying expense' Aspirin orc Qualifying expense Automobile Potentially qualifying To show that the expense is primarily for medical care, a note from a medical modifications expense practitioner recommending the item to treat a specific medical condition (e.g., a physical handicap) is normally required.t But see Capital expenses. Expenses of operating a specially equipped car do not qualify# (but see Transportation). Babysitting and child a oterige alifying notqualify as medi at care But seesDependent are expenses andaby do care p Disabled dependent care expenses. Bactine orc I Qualifying expense Behavioral modification Potentially qualifying See Schools and education, residential and Schools and education, programs expense special. Birth-control pills Qualifying expensed See Contraceptives; Drugs and medicines; "Morning-after" contraceptive pills; and subsection L.2. Bandages orc Qualifying expense Bandages are normally used to cover torn or injured skin.° Birthing classes ~ Potentially qualifying I See Lamaze classes. expense Blood pressure orc Qualifying expense tests are diagnostic items.e See Diagnostic items/services and Screening monitoring devices Blood sugar test orc Qualifying expense ~ sts are diagnostic items.f See Diagnostic items/services and Screening kits and test strips Body scans Qualifying expenses Body scans employing MRIs and similar technologies are diagnostic services.h See Diagnostic items/services and Screening tests. Braille books and Qualifying expense Only amounts above the cost of regular printed material will qualify. magazines Breast pumps orc Potentially qualifying Generally will not qualify if used merely for convenience, scheduling, or expense other personal reasons? To show that the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition (e.g., a breast abscess) is normally required x k Treas. Reg. § 1.213-I(e)(1)(ii). t Rev. Rul. 66-80, 1966-1 C.B. 57; also see Henderson v Canniissioner, T.C. Memo 2000-321 (2000). ~ IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. a Rev. Rul. 78-266, 1978-2 C.B. 123. See Section XXIV regarding expenses reimbursable under a dependent care assistance program (DCAP). b IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. c Rev. Rul. 2003-58, 2003-22 I.R.B. 959. d Rev. Rul. 73-200,1973-1 C.B. 140. e Treas. Reg. § 1.213-1(e)(1)(ii) (allowing that payments for medical care include "medical, laboratory, surgical, dental and other diagnostic and healing services"). f Treas. Reg. § 1.213-1(e)(1)(ii) (allowing that payments for medical care include "medical, laboratory, surgical, dental and other diagnostic and healing services") and Rev. Rul. 2003-58, 2003-22 I.R.B. 959. g Informal, nonbinding remarks of Donna Crisalli, IRS, Office of Chief Counsel, May 2002 ECFC Teleconference. h See Treas. Reg. § 1.213-1(e)(1)(ii) (allowing that payments for medical care include "medical, laboratory, surgical, dental and other diagnostic and healing services"). i 2ev. Rul. 75-318, 1975-2 C.B. 88. j Treasury Tax Correspondence, 2004 TNT 118-51 (June 8, 2004). k Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, Aug. 1998 ECFC Annual Symposium. Expense Is Expense a Qualifying Expense? Comments and Special Rules Breast reconstruction Qualifying expense- Will qualify to the extent that surgery was done following a mastectomy for surgery following cancer.' This is an exception to the general rules regarding cosmetic mastectomy procedures. See Cosmetic-procedures. Calamine lotion orc Qualifying expense Capital expenses Potentially qualifying Improvements or special equipment added to a home (for example, an Elevator or Inclinator) or other capital expenditures (such as Automobile expense modifications for a physically handicapped person) may qualify if the primary purpose of the expenditure is medical care for you (or your spouse or dependent).t To show that the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition is normally required. How much of the expense would qualify depends on the extent to which the expense permanently improves the property and whether others besides the person with the medical condition will benefit (see the pro rata rule under Air conditioners). Also see subsection L.9. Car modifications- Potentially qualifying See Automobile modifications. expense Carpal tunnel orc Qualifying expense wrist supports Cayenne orc Potentially qualifying ense May qualify if used primarily to treat a specific medical condition. To show that the expense is primarily for medical care, a note from a medical pepper exp practitioner recommending the item to treat a specific medical condition is normally required.$ See Alternative healers; Drugs and medicines; Special foods; Vitamins; and subsections L.2, L.3, L.4, L.7, and L.14. Chelation therapy Qualifying expense Will qualify if used to treat a medical condition such as lead poisoning.' Childbirth classes Potentially qualifying See Lamaze classes. expense Chinese herbal Potentially qualifying See Alternative healers. practitioner & herbal expense treatments Chiropractors Qualifying expenseb Chondroitin oTC Potentially qualifying se Will qualify if used primarily for medical care (for example, to treat arthritis). Won't qualify if used just to maintain general health. To show that expen the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition (for example, arthritis) is normally required. Christian Science Potentially qualifying Fees that you pay to Christian Science practitioners for medical care will practitioners expense qualify. Fees for other purposes generally do not qualify. See Alternative healers and subsection L.7. Circumcision Qualifying expense Claritin orc Qualifying expense (loratadine), an allergy drug Rev. Rul. 2003-57, 2003-22 I.R.B. 959. Treas. Reg. § 1.213-I (e)(iii). See also Zipkilt a U.S., 2000 TNT 232-10 (D. Minn. 2000) ($646,000 deduction approved for custom building a house to accommodate medical condition). IRS Information Letter 2001-0297 (Dec. 31, 2001). The IRS has informally indicated that the analysis applied to the cayenne pepper ruling was that it was a medicine, not a food. And since it was not a drug or biological, the prescription requirement did not apply. (The prescription requirement has since been eliminated however. See subsection L.7) Chelation therapy (EDTA) is a recognized treatment for heavy metal (such as lead) poisoning. However, if a participant undergoes this therapy upon the recommendation of a medical practitioner for another medical reason, such as coronary heart disease, it should also be reimbursable. Rev. Rul: 63-91, 1963-1 C.B. S4. IRS Information Letter 2000-0410 (Nov. 27, 2000); Rev. Rul. SS-261, 1955-1 C.B. 307, as modified by Rev. Rul. 63-91, 1963-1 C.B. S4. ~lr-' Expense Club dues and fees COBRA premiums Co-insurance amounts Cold orc medicine (Examples: Comtrex, Sudafed) COId/hOt OTC packs Cologne orc Condoms orc Contact orc lenses, materials, and equipment Contraceptives orc Controlled substances in violation of federal law Co-payments Cosmetic procedures Is Expense a Qualifying Expense? Potentially qualifying expense Depends on whether plan is a health FSA, HRA, or HSA; see next column for details Qualifying expense Qualifying expense Qualifying expense Not a qualifying expense Qualifying expenses Qualifying expense Qualifying expense Not a qualifying expense Qualifying expense Not a qualifying expense Cosmetics orc I Not a qualifying expense Comments and Special Rules See Health club fees. Health FSA: COBRA premiums are not qualifying expenses.' HRA: COBRA premiums are qualifying expenses? HSA: COBRA premiums are qualifying expenses? Also see Insurance premiums. Will qualify if the underlying service/item qualifies. oOthlerc ad ores (e ks tolkeeplbeveragescold or hot) won t~qual'fyold for P rP g•~ See Toiletries and Cosmetics. See Contraceptives. Materials and equipment needed for using lenses (such as saline solution and enzyme cleaner) would qualify if the lenses are needed for medical purposes, as would distilled water used to store and clean the lenses n Contact lens insurance would not qualify, however. See Insurance premiums. Contact lenses for solely cosmetic purposes (for example, to change one's eye color) do not qualify. See Cosmetics and subsections L and L.14. Includes Birth-control pills; Condoms; "Morning-after" contraceptive pills; and Spermicidal foam. Also see Sterilization procedures. If the substance violates federal law (e.g., the Controlled Substances Act), the expense would not qualify even if a state law allows its use with a physician's prescription (for example, marijuana or laetrile prescribed to treat a specific medical condition) ° See Drugs and medicines; Illegal operations and treatments; and subsection D. Will qualify if the underlying service/item qualifies. Most cosmetic procedures do not qualify. This includes cosmetic surgery or other procedures that are directed at improving the patient's appearance and don't meaningfully promote the proper function of the body or prevent or treat illness or disease. Examples include face lifts, hair transplants, hair removal (electrolysis), teeth whitening, and liposuction. There is an exception, however, for procedures necessary to ameliorate a deformity arising from congenital abnormality, personal injury from accident or trauma, or disfiguring disease-these may qualify.d See Breast reconstruction surgery. Also see Drugs and medicines and subsections L.1 and L.2. Cosmetics are articles used primarily for personal purposes, and are intended to be rubbed on, poured on, sprinkled on, sprayed on, introduced into, or otherwise applied to the human body for cleansing, beautifying, promoting attractiveness, or altering the appearance.° Examples include skin moisturizers, perfumes, lipsticks, fingernail polishes, eye and facial makeup, shampoos, permanent waves, hair colors, toothpastes, and deodorants. Also see Cosmetic procedures; Toiletries; and subsection L.2. * Prop. Treas. Reg. § 1.125-2, Q/A-7(b)(4). 1' IRS Notice 2002-45, 2002-28 I.R.B. 93, Part II. $ Code § 223(d)(2)(C) and IRS Notice 20042, 2004-2 I.R.B. 269, Q/A-27. a Informal, nonbinding remarks of Donna Crisalli, IRS, Office of Chief Counsel, May 2002 ECFC Teleconference. b IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4; Priv. Ltr. Rul. 7308270520A (Aug. 27,1973). c Treas. Reg. § 1.213-1(e)(1)(ii) and Rev. Rul. 97-9,1997-9 I.R.B. 4. d Code § 213(d)(9); see also Rev. Rul. 2003-57, 2003-22 I.R.B. 959. e Code § 213(d)(9)(A) and Treas. Reg. § 1.213-1(e)(2). Expense Is Expense a Qualifying Comments and Special Rules Expense? Cough oTC Qualifying expense See also Throat lozenges. suppressants (Examples: Pediacare, Robitussin, cough drops) Counseling Potentially qualifying Will qualify if for a medical reason. Marriage counseling doesn't qualify. To expense show that the expense is primarily for medical care, a note from a medical ractitioner recommending the counseling to treat a specific medical p condition is normally required. Also see Psychiatric care and Psychologist. Crowns, dental Potentially qualifying Will not qualify if they are obtained for a cosmetic reason. See Cosmetic expense procedures. Crutches orc Qualifying expense Will qualify whether purchased or rented.` Dancing lessons Potentially qualifying ense Generally the cost of dancing lessons, swimming lessons, etc., does not even if recommended by a medical practitioner, if the lessons are to qualify exp , improve general health. But the expenditure might qualify if recommended by a medical professional to treat a specific medical condition (such as part of a rehabilitation program after surgery).t To show that the expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required. See subsection L.14. Decongestants oTC Qualifying expense (Examples:- Dimetapp, Sudafed) Deductibles Qualifying expense Will qualify if the underlying servicelitem qualifies. Dental floss oTC Not a qualifying expense Dental sealants Qualifying expense Dental treatment Qualifying expense Includes fees for X-rays, fillings, braces, extractions, dentures, etc., but not rthodontic treatment plan is paid up front at the $ Wh i en an o ng. teeth whiten time of the first visit, some health FSAs will apportion the reimbursement<, ,:e services are provided during the treatment plan. See subsection G.3 discussing how to reconcile reimbursement requests involving apre-payment component with the claims incurred requirement, particularly for orthodontia. Also see Pre-payments. Dentures and orc Qualifying expense' denture adhesives Deodorant orc Not a qualifying expenseb See Cosmetics and Toiletries. Dependent care Not a qualifying expense Such expenses won't qualify, even if you are paying for dependent care (for example, hiring a babysitter) so that you can receive medical care ~ But see expenses Disabled dependent care expenses. Such expenses might be reimbursable under a DCAP if applicable rules are met (but the same expenses may not be reimbursed under a health FSA, HRA, or HSA and aDCAP-there is no "double-dipping" allowed). Also see Babysitting and child care. Treas. Reg. § 1.213-1(e)(1)(iii). IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. Treas. Reg. § 1.213-1(e)(1)(ii). Informal, nonbinding remarks of john Sapienza, IRS, Office of Chief Counsel, Nov. 5, 2003 ECFC Teleconference. Informal, nonbinding remarks of Harry Beker, Barbara Pie, and John Sapienza, IRS, Office of Chief Counsel, Oct. 22, 2003 ECFC Teleconference. c Rev. Rul. 78-266, 1978-2 C.B. 123. See subsection D. `err' Expense Is Expense a Qualifying Expense? Comments and Special Rules Diabetic supplies orc Qualifying expense Also see Blood sugar test kits and test strips; Glucose monitoring equipment; and Insulin. Diagnostic items/services Qualifying expense' Includes a wide variety of procedures to deternune the presence of a disease or dysfunction of the body, such as tests to detect heart attack, stroke, diabetes, osteoporosis, thyroid conditions, and cancer. Also see Body scans; Blood pressure monitoring devices; Blood sugar test kits and test strips; Medical monitoring and testing devices; and other entries throughout. Diaper rash oTC Qualifying expense ointments and creams (Example: Desitin) Diapers or oTC Not a qualifying nse Regular diapers or diaper services for newborns do not qualify. But diapers or diaper services that are used to relieve the effects of a diagnosed medical diaper service expe condition do qualify (for example, diapers used by adults who suffer from urinary incontinence)? To show that the expense is primarily for medical a note from a medical practitioner recommending the item to treat a care , specific medical condition is normally required. See Incontinence supplies and subsections D.6 and L.14. Diarrhea orc Qualifying expense medicine (Examples: Imodium, Kaopectate) Dietary orc Potentially qualifying The cost of dietary supplements, nutritional supplements, vitamins, herbal and natural medicines does not qualify if they are merely lements u supplements expense , pp s beneficial for general health (e.g., one-a-day vitamins). To show that the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition (e.g., 1,000 mg of Vitamin B-12 daily to treat a specific vitamin deficiency) is normally required. See Special foods; Mineral supplements; and Vitamins. Diet foods oTC Not a qualifying Costs of special foods to treat a specific disease (such as obesity) do not ments a i l i i expense . requ re ona t qualify to the extent that they satisfy ordinary nutr the costs of food associated with aweight-loss program, such as Thus , special pre-packaged meals, would not qualify, since they just meet normal nutritional needs. See Weight-loss programs. But see Special foods. Disabled dependent care Potentially qualifying ense x Such expenses will qualify if the expenses are for medical care of the disabled dependent. Note that some disabled dependent care expenses that expenses e p as medical expenses may also qualify as work-related expenses for ualif q y purposes of the dependent care tax credit under Code § 21 or for reimbursement under a dependent care assistance program under Code § 129. You must not use the same expenses for more than one purpose (for example, medical expenses reimbursed under a health FSA cannot be used to claim a dependent care tax credit) n DNA collection and Potentially qualifying Such expenses generally won't qualify. But temporary storage may qualify such as where the DNA is collected as part of the under some circumstances storage expense , diagnosis, treatment, or prevention of an existing or imminent medical condition. "Temporary" is not defined; however, one consideration might be whether it is stored and used within the same plan year. Also see Umbilical cord, freezing and storing of. Drug addiction Qualifying expense Amounts paid for an inpatient's treatment at a therapeutic center for drug treatment addiction will qualify.d See Alcoholism treatment. * Treas. Reg. § 1.213-1(e)(1)(ii); see also Rev. Rul. 2003-58, 2003-22 I.R.B. 959. 1' Rev. Rul. 55-261,1955-1 C.B. 307, as modified by Rev. Rul. 63-91, 1963-1 C.B. 54;1RS Priv. Ltr. Rul. 8137085 (June 17,1981); IRS Publication 502 (Medical and Dental Expenses). $ Treasury Tax Correspondence, 2006 TNT 144-20 (July 19, 2006). a Rev. Rul. 2002-19, 2002-16 I.R.B. 778. b IRS Publication 502 (Medical and Dental Expenses). See Section XXIII for more information about the dependent care credit vs. the DCAP. c Informal, nonbinding remarks of John Sapienza, IRS, Office of Chief Counsel, May 2002 ECFC Teleconference. d IRS Publication 502 (Medical and Dental Expenses). Expense Is Expense a Qualifying Comments and Special Rules Expense? Drug overdose, Qualifying expense treatment of Drugs and orc Potentially qualifying Will qualify if primarily for medical care (and not for personal, general health, di i d medicines expense c nes as me or cosmetic purposes), legally procured, and generally accepte and drugs." See also Aspirin and other entries throughout for both prescription and over-the-counter (OTC) drugs. See subsections L.1 and L.2. Dyslexia Potentially qualifying See Language training. expense Ear piercing Not a qualifying expense See Cosmetic procedures and subsections L.1 and L.14. Ear plugs orc Potentially qualifying Will qualify if recommended by a medical practitioner for a specific medical expense condition (for example, to protect surgically implanted ear tubes). To show that the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition is normally required. Ear wax orc Qualifying expense removal products (Examples: Debrox, Murine) Egg donor fees Qualifying expense .Amounts paid for the egg donor fee, an agency fee, an egg donor's medical and psychological testing, and the legal fees for preparation of the egg donor contract qualify.t Also see Fertility treatments; Sperm, storage fees; Surrogate expenses; and subsection L.13. Eggs and embryos, Potentially qualifying Fees for temporary storage qualify, but only to the extent necessary for storage fees expense immediate conception. Storage fees for undefined future conception probably aren't considered medical care. "Temporary" is not defined; however, one consideration might be whether it is stored and used within the same year.# Also see Fertility treatments; Sperm, storage fees; Surrogate expenses; and subsection L.13. Electrolysis or hair Not a qualifying expense See Cosmetic procedures. removal Elevator Potentially qualifying Installing an elevator upon the advice of a physician so that a person with expense heart disease won't have to climb stairs may be medical care to the extent of the amount in excess of value enhancement to the property.a To show that the expense is primarily for medical care, a note from a medical practitioner - recommending the item to treat a specific medical condition is normally required. See Capital expenses and subsection L.9. Exercise arc Potentially qualifying Qualifies only if required to treat an illness (such as obesity) diagnosed by a eat to t t b equipment or expense r e physician.b See subsection L.6. The purpose of the expense mus programs the disease rather than to promote general health, and the expense must not have been paid "but for" this purpose.° To show that the expense is primarily for medical care, a note from a medical practitioner recommending the item or program to treat a specific medical condition is normally required. See Capital expenses; Health club fees; and Weight-loss programs. Expectorants oT.c Qualifying expense (Examples: Comtrex, Robitussin) Eye drops rc Qualifying expense (Example: sine) * Code § 213(d); Rev. Rul._2003-102, 2003-38 I.R.B. 559. t Priv. Ltr. Rul. 200318017 (Jan: 9, 2003);1RS Information Letter 2005-0102 (Mar. 29, 2005). $ Informal, nonbinding remarks of John Sapienza, IRS, Office of Chief Counsel, May 2002 ECFC Teleconference. a Treas. Reg. § 1.213-1(e)(1)(iii). b Disney a Commissioner, 267 F. Supp. 1 (C.D. Ca. 1967), a, ff'd on other issues, 413 ft2d 783 (9th Cir. 1969). c IRS Information Letter 2003-0202 (Sept. 30, 2003). ~ro'° Expense Is Expense a Qualifying Expense? Comments and Special Rules Eye examinations, Qualifying expense" M t1AS o see Contact lenses and eglass uld be meda al care h eyeglasses, . o aners) also s Sunglasses. equipment, and materials Face creams orc Not a qualifying expense See Cosmetics; Toiletries; and Cosmetic-procedures. Face lifts Not a qualifying expense See Cosmetic-procedures and subsections L.1 and L.14. d Feminine orc Not a qualifying expense as Such expenses generally won't qualify, as they are ordinarily considere eneral health. See Toiletries and Cosmetics. There aintain d t hygiene g o m being use may be exceptions (e.g., if a medical practitioner recommends the product to products alleviate a specific medical condition). See Incontinence supplies and (tampons, etc.) Menstrual pain relievers. Fertility treatments Qualifying expense Will qualify to the extent that procedures are intended to overcome an inability to have children.# Examples are IVF (in vitro fertilization- including temporary storage of eggs or sperm), surgery (including an l operation to reverse prior surgeamete ntrafallo ian transfer). Expense s paid and GIFT (g P ts t , men shots, trea to or for an in vitro surrogate usually do not qualify. When the treatments are paid for up front at the time of the first visit, some health FSAs will apportion the reimbursements as services are provided during the treatment plan a See Egg donor fees; Eggs and embryos, storage fees; Legal fees in connection with fertility treatments; Pre-payments, Sperm, storage fees; Surrogate expenses; and subsection L.13. Fever- orc Qualifying expense reducing medications (Examples: Aspirin, Motrin, Tylenol) Fiber Potentially qualifying orc Won't qualify if taken daily just as a supplement to a normal diet. But fiber supplements would qualify if used to treat a diagnosed medical condition expense supplements (such as irritable bowel syndrome) until the condition is alleviated. To show that the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition is See Dietary supplements; Prenatal vitamins; and d i . re normally requ Special foods. First aid orc Qualifying expense cream First aid kits orc Qualifying expense Fitness programs Potentially qualifying See Exercise equipment or programs. expense l Flu shots Qualifying expense , Immunizations to prevent disease will qualify, even though no medica condition has been diagnosedp Fluoridation orc Qualifying expense ~ tlqualifies is limited to hecost allocable Po the current yeary The amount device or services i Potentially qualifying tutes See Special foods; Meals; and Alternative healers, dietary subst Foods orc expense and drugs and medicines. * IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix tab 4. t Treas. Reg. § 1.213-1(e)(iii) provides that normally, if a capital expenditure (such as eyeglasses) qualifies as a medical expense, expenditures for the operation or maintenance of a capital asset will also qualify, so long as the medical reason for the capital expenditure still exists. ~'" ± IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. a See IRS Information Letter 2002-0291 (Aug. 12, 2002); IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. 6 Informal, nonbinding remarks of Katherine Kiss> IRS, Office of Chief Counsel, August 1998 ECFC Conference. Expense Is Expense a Qualifying Expense? Comments and Special Rules Founder's fee Not a qualifying ense Founder's fees are amounts you pay under an agreement with a retirement Even if a portion is allocable to medical care, these expenses usually home exp . do not qualify.' See subsection L.10. Funeral expenses Not a qualifying These are not for medical caret expense Gambling problem, Potentially qualifying Pathological gambling has been classified as an impulse control disorder by i treatment for expense s a the American Psychiatric Association and thus, it could be argued, mental illness. If so, its treatment would be a qualifying expense. See Alcoholism treatment. Gauze pads oTC Qualifying expense See Bandages. Genetic testing Potentially qualifying A gray area. To the extent that testing is done to determine possible defects expense (for example, the possible defects of all unborn child if the mother is over it's probably medical care. Testing done just to determine the sex of e 35) a , g the fetus does not qualify. GIFT (Gamete Qualifying expense See Fertility treatments and subsection L.13. intrafallopian transfer) Glucosamine orc Potentially qualifying See Chondroitin. expense Glucose Qualifying expense Items such as blood glucose meters and glucose test strips are diagnostic orc items and are primarily for medical care. Also see Blood sugar test kits monitoring equipment and test strips. Guide dog; other animal Qualifying expense Expenses for buying, training, and caring for an animal used by a physically erson would qualify. Veterinary fees for such animals also qualify disabled aide p as medical care.b See Veterinary fees. Hair colorants orc Not a qualifying See Cosmetics and Toiletries. expense Hair removal and Not a qualifying Such expenses generally won't qualify. See Cosmetic-procedures; Drugs expense and medicines; and subsections L.l, L.2, and L.14. transplants Hand lotion Not a qualifying Such expenses generally won't qualify. See Cosmetics and Toiletries. orc expense Headache orc Qualifying expense , medications (Examples: Advil, Aspirin, Tylenol) Health club fees Potentially qualifying Only in very limited circumstances would fees paid to a health club qualify. ht be where fees are incurred upon the advice of a medical stance mi i O expense g n ne practitioner to treat a specific medical condition (e.g., rehabilitation after back surgery or treatment for obesity). The expense must not have been incurred "but for" the disease (for example, if you belonged to the health club before being diagnosed, then the fees would not qualify). When treatment is no longer needed, the fees would no longer qualify. To show that the expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required. See Weight-loss programs. See, e.g., Baker v Cormn'r, 2004 U.S. Tax Ct. LEXIS 8 (T.C. 2004). IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. Treas. Reg. § 1.213-1(e)(1)(ii) (allowing that payments for medical care include "medical, laboratory, surgical, dental and other diagnostic and healing services"); see also Rev. Rul. 2003-58, 2003-22 I.R.B. 959. Treas. Reg. § 1.213-1(e)(1)(iii); Rev. Rul. 55-261, 1955-1 C.B. 307, as modified by Rev. Rul. 63-91, 1963-1 C.B. 54; Rev. Rul. 68-295, 1968-1 C.B. 92. IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4 IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. Is Expense a Qualifying Comments and Special Rules fir'' Expense Expense? Health institute fees Potentially qualifying Qualifies only if the treatment at the health institute is prescribed by a expense physician who issues a written statement that the treatment is necessary to alleviate a physical or mental defect or illness of the individual receiving the treatment.' Hearing aids orc Qualifying expense The costs of the hearing aid and its batteries would qualify.t Hemorrhoid orc Qualifying expense treatments (Example: Preparation H) Herbs Potentially qualifying See Vitamins. orc expense HMO premiums Dea health FSAeHRA for See Insurance premiums. HSA Holistic or natural Potentially qualifying See Alternative healers and subsection L.7. healers, dietary expense# substitutes, and drugs and medicines Home care Potentially qualifying See Nursing services. expense Home improvements Potentially qualifying May qualify if done to accommodate a disability. If the improvement is expense permanent and increases the value of the property, the expense will qualify n+' (such as exit ramps, only to the extent that the improvement cost exceeds the increase in property widening doorways, value. If the improvement doesn't increase the property value at all, then the etc.) entire cost may qualify. Items that usually don't increase property value include constructing entrance or exit ramps, widening or modifying doorways or hallways, installing railings or support bars to bathrooms, lowering or modifying kitchen cabinets or equipment, moving or modifying electrical outlets and fixtures, installing porch lifts, modifying fire alarms or smoke detectors, modifying other warning systems, and modifying stairways.a To show that the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition is normally required. See Capital expenses; Elevator; and Air conditioner. Hormone Potentially qualifying Will qualify if used primarily for medical care (for example, to treat replacement therapy expense menopausal symptoms such as hot flashes, night sweats, etc.). Won't qualify if primarily for maintaining general health. To show that the expense is (HRT) primarily for medical care, a note from a medical practitioner recommending the therapy to treat a specific medical condition is normally required. See Drugs and medicines and subsections L.2, L.3, L.4, and L.7. ualif in ex ense Expenses of inpatient care (plus meals and lodging) at a hospital or similar Hospital services Q y g p institution qualify if the main reason for being there is to get medical carep Also see Nursing services; Meals at a hospital; and Lodging at a hospital. Household help Not a qualifying expense tWhe expenses qualifyias nurs ng Services. nSee Nursing services. In somess cases, household services may qualify for reimbursement under a DCAP if attributable in part to care of a qualifying individual (i.e., certain children under age 13 and certain individuals who are physically or mentally incapable of self-care) a * IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. ~ IRS Publication 502 (Medical and Denta] Expenses), reproduced behind Appendix Tab 4. T See IRS Information Letter (July 30, 1999), reproduced behind Appendix Tab 4. a IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4.. b Treas. Reg. §§ 1.213-1(e)(1)(ii) and 1.213-1(e)(1)(v). c IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. d See Section XXIV regarding expenses reimbursable under a DCAP. Expense Is Expense a Qualifying Expense? Comments and Special Rules Illegal operations Not a qualifying expense Won't qualify, even if they are rendered or prescribed by licensed medical practitioners.` See Controlled substances and subsection D. and treatments Immunizations Qualifying expense Immunizations to prevent disease (such as tetanus or well-baby shots) will qualify, even if no medical condition has been diagnosed.t Inclinator Potentially qualifying nse Would qualify if it is otherwise qualifies as medical care, is detachable from the property, and is purchased only for use by the person with the medical expe condition.# To show that the expense is primarily for medical care, a note ractitioner recommending the item to treat a specific a medical f p rom medical condition is normally required. See Capital expenses. Also see subsection L.9. Incontinence orc Potentially qualifying Might qualify if used to relieve the effects of a particular disease. For ers used to relieve incontinence may qualify; even though dult dia l supplies expense p e, a examp diapers for healthy newborns do not. Although a personal element may be " " the but for involved in using adult diapers, they wouldn't have been bought medical condition. To show that the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition is normally required. See Diapers. Infertility treatments Qualifying expense e fees Su rogate expenses P e payments and ge stora r FS f g m, pe ees subsection L.13. Insect bite orc Qualifying expense creams and ointments (Examples: Benadryl, Cortaid) Insulin orc Qualifying expenseb Equipment needed to inject the insulin, such as syringes or insulin pumps, also qualifies as a medical expense. Also see Glucose monitoring equipment. Insurance premiums Depends on whether plan Health FSA: Insurance premiums are not qualifying expenses. is a health FSA, HRA, or HSA; see next column for HRA: The following premiums are qualifying expenses: premiums for details traditional health insurance (including COBRA) or qualified long-term care (Note that reimbursing premiums for individual major medical insurance . insurance policies raises concerns under HIPAA, COBRA, and ERISA.) The following insurance premiums are not qualifying expenses: premiums for employer-sponsored group health coverage that could be paid on a pre-tax LTD insurance, fixed indemnity 's cafeteria plan l h , oyer e emp basis under t cancer insurance, hospital indemnity insurance. HSA: Payments for health insurance premiums or contributions for self- funded health coverage generally aren't qualifying expenses. However, the miums will qualify for reimbursement from an HSA: COBRA i ll f ng pre ow o ualified long-term care insurance contract; any health plan a a e q g ; cover maintained while the individual is receiving unemployment compensation under federal or state law; or, for those age 65 or older (whether or not they are entitled to Medicare), any deductible health insurance (e.g., retiree e) other than a Medicare supplemental policy. (Note: Long- l i coverag ca med term care insurance premium reimbursements that exceed certain limits wtll be subject to an additional 10% excise tax.) able and ma d t y ax as be treate Also see COBRA premiums. IVF (in vitro Qualifying expense See Fertility treatments; Eggs and embryos, storage fees; Sperm, storage enses; Pre-payments; and subsection L.13. ate ex S f fertilization) p urrog ees; Laboratory fees Qualifying expense Such expenses will qualify if they are part of medical care a Treas. Reg. § 1.213-1(e)(1)(ii). Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, August 1998 ECFC Conference. Treas. Reg. § 1.213-1(e)(1)(iii). IRS Priv. Ltr. Rul. 8137085 (June 17, 1981); IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. Code § 213(b). Prop. Treas. Reg. § 1.125-2, Q!A-7(b)(4). Treas. Reg. § 1.213-1(e)(1)(ii). `~1r~r' 'iri- Expense Is Expense a Qualifying Comments and Special Rules ense? Ex p Lactation consultant Potentially qualifying then the expense of a lactation ponsultant helping ~o overcome this child, expense dysfunction might qualify.' To show that the expense is primarily for medical ner recommending it to treat a specific titi o a note from a medical prac care , medical condition is normally required. Lamaze classes Potentially qualifying Ehildrearinga TI eafee should be apportioned to excludein traction n topics expense such as newborn care. Expenses for the coach or significant other do not qualify.$ See subsection L.14. Language training Potentially qualifying g l fees for regular schooling normally don't qualify.b To showlthat ho o ut sc expense the expense is primarily for medical care, a note from a medical practitioner ific medical condition is normally required. recommending it to treat a spec Laser e e sur er y g y' Qualifying expense Will qualify because the procedure is done primarily to promote the correct function of the eye. Also see Radial keratotomy; Vision correction Lasik procedures; and Pre-payments. Late fees (e.g., for Not a qualifying expense Such fees would not be For medical care. late payment of bills for medical services) Laxatives oTC Qualifying expense (Example: Ex-Lax) Lead-based paint Potentially qualifying ent a child who hasa(ordhas had) lead poisoningtf omaeating tthe oe removal rev home t expense paint would qualify a To show that the expense is primarily for medical care, ner recommending it to treat a specific titi o a note from a medical prac medical condition is normally required. The surfaces must be in poor repair hild's reach; the cost of repainting the h i e c n t (peeling or cracking) or be with scraped area does not qualify. If instead of removing the paint, the area is covered with wallboard or paneling, treat these items as Capital expenses. The cost of painting the wallboard does not qualify. Also see Chelation therapy. Learning disability, Qualifying expense If prescribed by a physician, tuition fees paid to a special school and tutoring fees paid to a specially trained teacher for a child who has severe learning instructional fees disabilities caused by mental or physical impairments (such as nervous ° Also see Schools and education, special. ualif ill y. q system disorders) w Legal fees, general Potentially qualifying Legal fees may qualify as medical care if they bear a direct or proximate relationship to the provision of medical care to you, your spouse or your expense dependent-for example, if [he medical care could not have been provided al services retained to authorize r F for le g ees without legal assistance treatment for mental illness may qualify. But legal fees for management of a guardianship estate for conducting the affairs of the person being treated or medical care do not qualify;g neither do f ' or t necessary other fees that aren divorce costs!' See Legal fees in connection with fertility treatments. _r ~......,,,,, ~a.,~, ~nm Ff FC Teleconference. * Informal, nonbinding remarks of John Sapienza, IKJ, viacc u~ ~.,.,~...~~..,~_, •••~, --°- - - t Priv. Ltr. Rul. 8919009 (Feb. 6, 1989). $ Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, August 1998 ECFC Conference. a See Rev. Rul. 69-607, 1969-2 C.B. 40 and IRS Priv. Ltr. Rul. 8401024 (Sept. 30, 1983). b See Coyne v. Comrnissiaier, T.C Memo 1982-262 (T.C. 1982) and Barnes v Commissioner, T.C. Memo 1978-339 (T.C. 1978). c Rev. Rul. 2003-_57, 2003-22 I.R.B. 959 and IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. d IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. e Sims a Commissioner, T.C. Memo 1979-499 (1979); Treas. Reg. § 1.213-1(e)(1)(v); Rev. Rul. 78-340, 1978-2 C.B. 124. f Priv. Ltr. Rul. 200318017 (Jan. 9, 2003) (legal fees for preparing a contract between the taxpayer and an egg donor were found to be deductible as medical care . ~1r~" g Rev. Rul. 71-281, 1971-2 C.B. 165. h Smith v Commissioner, T.C. Memo 1982-441 (1982). Expense Is Expense a Qualifying Expense? Comments and Special Rules Legal fees in Potentially qualifying ense May qualify if the legal fees are in connection with a medical procedure performed upon you (or your spouse or dependent). Legal fees for preparing connection with exp a contract for you to obtain a donated egg from an egg donor may qualify, fertility treatments too.' In contrast, legal fees incurred in connection with a procedure performed on a surrogate mother do not constitute medical care. See Fertility treatments and Legal fees, general. Lipsticks orc Not a qualifying expense See Cosmetics and Toiletries. Li uid O orc h Qualifying expense See Bandages. esive for ad small cuts Lodging at a hospital Qualifying expense Will qualify if the main reason for being there is to receive medical caret Also see Meals at a hospital or similar 8 ection L b i or similar institution . . n su s See discussion institution and Schools and education, residential. Lodging riot at a Potentially qualifying se Up to $50 per night will qualify if these.conditionsare met: (1) the lodging is primarily for and essential to medical care; (2) the medical care is provided hospital or similar expen by a physician in a licensed hospital or medical care facility related to (or ' institution t lavish or extravagant; equivalent to) a licensed hospital; (3) the lodging isn and (4) there is no significant element of personal pleasure, recreation, or ? If a parent is traveling with a sick child, up to $100 tion in the travel . vaca may qualify ($50 for each person). Also see Meals not at a hospital and subsection L.S. Lodging of a Potentially qualifying Will qualify if accompanying a patient for medical reasons and all of the conditions described under Lodging not at a hospital are also met. For companion expense example, if a parent is traveling with a sick child, up to $100 per night ($50 for each person) will qualify. See Lodging not at a hospital or similar institution. Also see subsection L.B. Lodging while Not a qualifying expenses See Medical conference admission, transportation, meals, etc. and Meals while attending a medical conference. attending a medical conference Makeup orc Not a qualifying expense See Cosmetics and Toiletries. Marijuana or other Not a qualifying expenseb See Controlled substances and Illegal operations and treatments. controlled substances in violation of federal law Massage therapy Potentially qualifying The costs of a massage just [o improve general health don't qualify. if the massage therapy was recommended by a physician to treat a However expense , specific injury or trauma, then ~t would qualify.d To show that the expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required. See subsections D and L.14. 'k Priv. Ltr. Rul. 200318017 (Jan. 9, 2003) (legal fees for preparing a contract between the taxpayer ana an egg aonui wa c wuuu ~~ ~~ deductible as medical care). t Treas. Reg. § 1.213-1(e)(1)(v). $ Code § 213(d)(2). a Rev. Rul. 2000-24, 2000-19 I.R.B. 963. b Rev. Rul. 97-9, 1997-9 I.R.B. 4. c Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, Aug. 1998 ECFC Annual Symposium. Note that some states have "every category of provider" statutes requiring that every health plan permit every category of health care provider to provide health services or care for conditions included in the basic health plan services. Of course, many of these laws are challenged on preemption grounds. d Informal, nonbinding remarks of Donna Crisalli, IRS, Office of Chief Counsel, May 2002 ECFC Teleconference. Is Expense a Qualifying Comments and Special Rules Expense Expense? tentially qualifying P econstruct ve surgery following a t l Y e lm G Mastectomy-related o r Brea S e alth. ental h reating t special bras expense mastectomy. Maternity clothes Not a qualifying expenses y Mattresses Not a qualifying expense medical condition.# mattress is prescribed by a physc ian to treat a specific Also see Capital expenses. Meals at a hospital Qualifying expense Will qualify if the main reason for being there is to receive medical care a See Lodging at a hospital or similar institution; Schools and education, ecial. See also subsection L.8. s tion d or similar institution p , uca residential; and Schools and e Meals not at a Not a qualifying expense Meals that are not part of inpatient care do not qualify b See Lodging not at a hospital. Also see subsection L.8. hospital or similar institution n L g for medical reasons. See e u d f Meals of a Not a qualifying expense tio bs s a compan on ar lodging of companion See Medical conference admission, transportation, meals, etc. Meals; attending a Not a qualifying expense medical conference Will qualify if recommended by a medical practitioner in connection with Medical alert Qualifying expense treating a medtcal condition bracelet or necklace enses for admission and transportation to a medical conference qualify, if our Ex or Medical conference Potentially qualifying ense ex p y they relate to a chronic disease suffered by you, your spouse, rimanly for and essential to the person in i admission, transportation, p s p dependent and if the conference need of medical care.a Includes transportation expenses to the city where the tion to the conference. Most of the meals, etc. conference is held, plus local transporta time at the conference must be spent attending sessions on medical hile attending the information. The expenses of meals and lodging w ° See subsection L.8. lif ' y. t qua conference don enses paid to a plan to keep medical information so that it can x ' Medical information Qualifying expense p These are e s or be retrieved from a computer databank for your (or your spouse plan charges dependent's) medical care.f Qualifying expenses Examples of such devices are blood pressure monitors, syringes, glucose kit, test kits and test strips; Body scans; Diagnostic Medical oTC monitoring etc. Also see Blood sugar items/services; Ovulation monitor; and Pregnancy test kits. and testing devices al newsletter di M lthe newsletterlitse does not directly treat ther Not a qualifying expense dical condition ifi c e , c me a spec condition. Medical records Qualifying expenseh For example, the fee associated with transferring medical records to a new medical practitioner will qualify. charges of Katherine Kiss, k IRS, Office of Chief Counsel, Aug. 1998 ECFC Annual Symposium. * Informal, nonbindin s g remar t Publication 502 (Medical and Dental Expenses). $ Rev. Rul. 55-155,1955-1 C.B. 245; Rev. and Rev Rul. 2000 24, B000 19 I.R.B. 963 by Rev. Rul. 63-91,1963-1 C.B. 54. a Treas. Reg. §§ 1.213-1(e)(1)(iv) and (v), b Publication 502 (Medical and Dental Expenses). c Informal, nonbinding remarks of Donna Crisalli, IRS, Office of Chief Counsel, Aug. 1997 ECFC Annual Symposium. d Rev. Rul. 2000-24, 2000-19 I.R.B. 963. 1 2000-24 2000-19 I.R.B. 963. e Rev. Ru . f Publication 502 (Medical and Dental Expenses). g Treas. Reg. § 1.213-1(e)(1)(ii) (allowing that payments for medical care include "medical, laboratory, surgical, dental and other diagnostic and healing services"). h Cf. Rev. Rul. 71-282,1971-2 C.B. 166 (fee for retrieval of medical information from computer databank). Expense Is Expense a Qualifying Expense? Comments and Special Rules Medical services Qualifying expense services recommended by physi~cans~ surgeonse specialistsr and othedical medical practitioners." Medicines orc Potentially qualifying See Drugs and medicines. and drugs expense Menstrual orc Qualifying expense pain relievers (Example: Midol) Mentally Potentially qualifying The cost of keeping a mentally handicapped person in a special home (not a relative's home) on a psychiatrist's recommendation to help that person handicapped, special expense adjust from life in a mental hospital to community living may qualify.t Also home for see Schools and education, residential. Mineral orc Potentially qualifying Won't qualify if used to maintain general health.$ But under narrow mineral supplements might qualify if recommended by a circumstances supplements expense , medical practitioner for a specific medical condition (for example, a prescribed dosage of iron daily to treat iron-deficiency anemia). To show that the expense is primarily for medical care, a note from a medical practitioner ecific medical condition is normally treat a s t it h i p o em ng t e recommend See Dietary supplements and subsection L.4. uired re . q Missed appointment Not a qualifying expense Such fees would not be for medical care. fees - Moisturizers orc Not a qualifying expense See Cosmetics; Toiletries; and Cosmetic procedures. "Morning- orc Qualifying expense See also Birth-control pills and Contraceptives. after" contraceptive pills Motion orc Qualifying expense sickness pills (Examples: Bonine, Dramamine) Mouthwash orc Not a qualifying expense Such expenses generally won't qualify_a See Cosmetics and Toiletries. depending on the facts and circumstances, a special mouthwash However , recommended by a medical practitioner for the treatment of gingivitis might qualify n Nail polish orc Not a qualifying expense See Cosmetics and Toiletries. Nasal strips orc Potentially qualifying Nasal sprays or strips that are used to treat sinus problems qualify as being primarily for medical care, as would those that are used to prevent sleep or sprays expense apnea. However, nasal strips or sprays used to prevent run-of-the-mill ld those used by athletes. To show that the ' t qualify, nor wou snoring wouldn expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition is normally required. See Drugs and medicines. Naturopathic Potentially qualifying See Alternative healers; Drugs and medicines; Special foods; Vitamins; 7 healers, dietary expense . and subsections L.2, L.3, L.4, and L. substitutes and drugs and medicines Nicotine gum orc Qualifying expense Such items are primarily for medical care when used for stop-smoking s i di d or patches . ne c me purposes. See Drugs an (Examples: Nicoderm, Nicorette) * Publication 502 (Medical. and Dental Expenses). 1' Publication 502 (Medical and Dental Expenses). $ Rev. Rul. 2003-102, 2003-38 I.R.B. 559. a Informal, nonbinding remarks of Harry Beker, Bazbaza Pie, and John Sapienza, IRS, Office of Chief Counsel, Oct. 22, 2003 ECFC Teleconference. b Informal, nonbinding remarks of Harry Beker, Barbara Pie, and John Sapienza, IItS, Office of Chief Counsel, Oct. 22, 2003 ECFC Teleconference. ~r ~11r/ Is Expense a Qualifying Comments and Special Rules Expense Expense? Non- oTC Potentially qualifying See Drugs and Medicines. prescription expense drugs and medicines Norplant insertion or Qualifying expense' Also see Contraceptives; Birth-control pills; Vasectomy; and f removal oam. Spermicidal Nursing services Potentially qualifying ma~udinmextra costs for nur es' room and board) generally will qualify,es d ( g provided by a nurse or other attendant expense ant whether provided in the participant's home or another facility.t The atten so long as the services are of a kind generally e b ' , e a nurs t have to doesn performed by a nurse. These include services connected with caring for the dication or changing dressings, as well i i ng me v patient's condition, such as g as bathing and grooming. But if the person providing nursing services also the amounts must be accounted ervices l , s provides household and persona for separately-only those for nursing services qualify.$ Also see subsection L.10. Nursing services for Not a qualifying expense. Won't qualify if the baby is normal and healthy.e a baby Nutritionist's Potentially qualifying May qualify if the treatment relates to a specifically diagnosed medical professional expense condition. Won't qualify if the expense is for general health.b To show that expenses the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition is normally required.. Also see Special foods and subsections L.3 and L.4. Nutritional orc Potentially qualifying See Dietary Supplements: supplements expense Obstetrical expenses Qualifying expensed Occlusal guards to Qualifying expense° prevent teeth grinding One-a-day oTC I Not a qualifying expense vitamins Operations Optometrist Organ donors Orthodontia Qualifying expense Qualifying expense See Vitamins. Will qualify if the operations are legal (and aren't cosmetic procedures) r See Cosmetic procedures and subsection L.1. Also see Eye examinations, eyeglasses, etc. Qualifying expense See TYansplants. Qualifying expense Such expenses generally will qualify.g When an orthodontic treatment plan is paid up front at the time of the first visit, some health FSAs will apportion the reimbursements as services are provided during the treatment plan. Also see Dental treatment; Pre-payments; and subsections G.3 and L.1. * Treas. Reg. § 1.213-1(e). $ Treas. Reg. § 1.213-1(e)(1)(ii). $ 1RS Publication 502 (Medical and Dental Expenses). a IRS Publication 502 (Medical and Dental Expenses). b Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, Aug. 1999 ECFC Annual Symposium. c Rev. Rul. 2003-102, 2003-38 I.R.B. 559. d Treas. Reg. § 1.213-1(e)(1)(ii). e Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, August 1996 ECFC Annual Symposium. f Treas. Reg. § 1.213-1(e)(1)(ii). e See IRS Information Letter (Feb. 19,1997), reproduced behind Appendix Tab 4. ~n-° Expense Is Expense a Qualifying Expense? Comments and Special Rules Orthopedic orc Potentially qualifying Costs of specialized orthopedic items qualify to the extent that they exceed f th shoes and expense e ordinary personal use requirements (e.g., only the excess cost o specialized orthopedic shoe over the cost of a regular shoe qualifies). inserts Osteopath fees Qualifying expense' Over-the- orc Potentially qualifying Some OTC medicines qualify (for example, aspirin). See Drugs and counter expense medicines. (OTC) medicines Ovulation orc Qualifying expenset Also see Medical monitoring and testing devices. monitor Oxygen Qualifying expense This includes the expenses of oxygen and oxygen equipment for breathing problems caused by a medical condition.# Pain relievers orc Qualifying expense (Examples: Advil, Aspirin, Tylenol) Patterning exercises Qualifying expense Expenses of hiring someone to give patterning exercises to a mentally retarded child qualify.a These exercises consist mainly of coordinated physical manipulation of a child's arms and legs to imitate crawling and other normal movements n Perfume orc Not a qualifying expense See Cosmetics and Toiletries. Permanent orc Not a qualifying expense See Cosmetics and Toiletries. waves Personal trainer fees Potentially qualifying Will qualify if a medical practitioner has recommended a supervised exercise imen in order to treat a disease or injury (e.g., rehabilitation after surgery re expense g or the treatment of obesity) and if incurred for a limited duration ~ The expense must not have been incurred "but for" the disease (e.g., if you were working with a personal trainer before being diagnosed, the expense wou]d not qualify). To show that the expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required. See Weight-loss programs. Physical exams Qualifying expensed Physical therapy Qualifying expense° Pregnancy orc Qualifying expenset Also see Medical monitoring and testing devices and Ovulation monitor. test kits Prenatal orc Potentially qualifying s Obstetricians routinely recommend prenatal vitamins for the health of If taken during pregnancy (a medical condition), prenatal unborn children vitamins expense . vitamins would be considered primarily for medical carep Vitamins taken at other times generally do not qualify. See Vitamins. * Rev. Rul. 55-261,1955-1 C.B. 307, as modified by Rev. Rul. 63-91,1963-1 C.B. 54. t Treas. Reg. § 1.213-1(e)(1)(ii) (allowing that payments for medical care include "medical, laboratory, surgical, dental and other diagnostic and healing services"). $ Rev. Rul. 55-261,1955-1 C.B. 307, as modified by Rev. Rul. 63-91,1963-1 C.B. 54. a Rev. Rul. 70-170,1970-1 C.B. 51. b IRS Publication 502 (Medical and Dental Expenses). c Informal, nonbinding remarks of Harry Beker, Barbara Pie, and John Sapienza, IRS, Office of Chief Counsel, Oct. 22, 2003 ECFC Teleconference. d Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, Aug. 1999 ECFC Annual Symposium. e Rev. Rul. 55-261,1955-I C.B. 307,1955-1 C.B. 307, as modified by Rev. Rul. 63-91, 1963-1 C.B. 54. f Treas. Reg. § 1.213-1(e)(1)(ii) (allowing that payments for medical care include "medical, laboratory, surgical, dental and other diagnostic and healing services"). g Informal, nonbinding remarks of John Sapienza, IRS, Office of Chief Counsel, Nov. 5, 2003 ECFC Teleconference. h Informal, nonbinding remarks of John Sapienza, IRS, Office of Chief Counsel, Nov. 5, 2003 ECFC Teleconference. Expense Is Expense a Qualifying Expense? Comments and Special Rules Pre-payments Not a qualifying expense Generally, pre-payments for services/items that have not yet been incurred/obtained are not reimbursable under a health FSA. See Dental treatment; Fertility treatments; and Orthodontia. Prescription drugs Potentially qualifying expense See Drugs and medicines. Prescription drugs and medicines obtained from other countries Not a qualifying expense Importing prescription drugs from other countries generally will violate federal law.' However, a drug or medicine may qualify for reimbursement if (1) it is purchased and consumed in the other country and is legal in both that country and the U.S. or (2) the FDA announces that it can be legally imported by individuals. See Drugs and medicines and subsection L.2. Prescription drug discount programs Not a qualifying expense If an individual pays a fee for a card that provides fora 20% discount on all drugs, the fee would not qualify. In contrast, the cost of a prescribed drug generally will qualify. See Drugs and Medicines. Preventive care screenings Qualifying expense Will qualify if the tests are used for medical diagnoses.t Examples include hearing, vision, and cholesterol screenings. Also see Body scans and Diagnostic items/services. Propecia Potentially qualifying expense Generally won't qualify if purchased for cosmetic purposes (for example, to treat male pattern baldness), even if recommended by a medical practitioner. But the expense may qualify if it is to ameliorate a deformity arising from congenital abnormality, personal injury from accident or trauma, or disfiguring disease. See Cosmetic procedures and Drugs and medicines. Prosthesis Qualifying expenses See Artificial limbs and teeth. Psychiatric care Qualifying expense Includes the cost of supporting mentally ill dependent at a special center that provides medical care a Psychoanalysis Potentially qualifying expense Will qualify if provided for medical care, and not just for the general improvement of mental health, relief of stress, or personal enJoyment, nor if the expense stems from training to be a psychoanalyst.b To show thatthe expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required. Also see Psychologist and Therapy. Psychologist Potentially qualifying expense Will qualify if the expense is for medical care,° and not just for the general improvement of mental health, relief of stress, or personal enjoyment.d To show that the expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required. Also see Therapy. Radial keratotomy Qualifying expense.° Would also qualifye SeerLaser eye surgery~and1V-g'sionacorrectionsion) procedures. Reading orc glasses Qualifying expenses See Eye examinations, eyeglasses, etc. '1 bl t * See IRS Publication 502 (Medical and Dental Expenses) and IRS Information Letter 2005-0011 (Mar. 14, 2005), avai a e a http://www.irs.ustreas.gov/pub/irs-wd/OS-OOl l.pdf (as visited Aug. 27, 2005). t Priv. Ltr. Rul. 200140017 (June 25, 2001). $ IRS Publication 502 (Medical and Denta] Expenses). a IRS Publication 502 (Medical and Dental Expenses). b IRS Publication 502 (Medical and Dental Expenses). c Rev. Rul. 75-187, 1975-1 C.B. 92. d IRS Publication 502 (Medical and Dental Expenses). e Priv. Ltr. Rul. 9625049 (June 21,1996); Priv. Ltr. Rul. 200226003 (Mar. 7, 2002); IRS Publication 502 (Medical and Dental Expenses) (under "eye surgery"). '~`"` f Rev. Rul. 2003-57, 2003-22 I.R.B. 959. ¢ Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, Aug. 1999 ECFC Annual Symposium. Expense Is Expense a Qualifying Expense? Comments and Special Rules Recliner chairs Not a qualifying expense Generally won't qualify, unless used exclusively to treat a specific medical nosed and prescribed by a medical practitioner. See as dia ndition g , co Mattresses. Retin-A orc Potentially qualifying Generally won't qualify if purchased for cosmetic purposes (for example, to even if recommended by a medical practitioner. But may reduce wrrnkles) expense , qualify if recommended by a medical practitioner for a specific medical condition (e.g., acne vulgaris) and not for cosmetic purposes. To show that the expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required. See Acne treatment; Cosmetic procedures; Drugs and medicines; and subsections L.1 and L.2. Rogaine orc Potentially qualifying Generally won't qualify if purchased for cosmetic purposes. But may qualify if it is recommended by a medical practitioner for a specific medical expense condition. To show that the expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required. See Propecia and Drugs and medicines. Also see subsections L.1 and L.2. Rubbing orc Qualifying expense Will qualify when purchased for first-aid purposes (e.g., when purchased in first-aid quantities in a pharmacy or first-aid section of a retail store).' alcohol Rubdowns Potentially qualifying ense x Generally won't qualify, unless a medical practitioner determines that the procedure is necessary to treat a specific medical condition.t To show that the e p expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required. See Massage therapy and subsections L.6 and L.14. Safety glasses orc Not a qualifying expense Probably won't qualify unless prescribed.$ See Eye examinations, eyeglasses, etc. Schools and Potentially qualifying Certain payments made to a residential school or program to treat individuals and/or addictive conditions qualify if the primary emotional for behavioral education, expense , , purpose of the program is medical care. (Educational services can be an residential incidental but not primary component.) Whether someone is attending to receive medical care is a question of fact that must be determined for each individual- just because a school or program provides medical care to some dividuals does not mean that it necessarily provides medical care to all i n If the child is at the school simply to benefit from the courses and dividuals i . n disciplinary methods, the expenses won't qualify-sending a person to attend a program to resolve bad personal attitudes in a structured environment does not constitute medical care. See Schools and education, special. Schools and Potentially qualifying Payments made to a special school for a mentally impaired or physically disabled person qualify if the main reason for using the school is its education, special expense resources for relieving the disability. This includes teaching Braille to a visually impaired person, teaching lip reading to a hearing impaired person, and giving remedial language training to correct a condition caused by a birth defect. Meals, lodging, and ordinary education supplied by the special school is only medical care if the child is at the school pnmarily for relieving the disability. If the child is at the school simply to benefit from the courses and disciplinary methods, the expenses won't qualify.a Also see Schools and education, residential. Screening tests Qualifying expense Will qualify if the tests are used for medical diagnoses b Examples include hearing, vision, and cholesterol screenings. Also see Body scans and Diagnostic items/services. Seeing-eye dog Qualifying expense See Guide dog. n__ * Although not official guidance, the Federal Flexible Spending Account Program treats rubbing atconoi as a rermoursauic ~AY~.~~~. ~~~ Federal FSA Program Quick Reference Guide to Over-the-Counter Medicines & Products, available at https://www.fsafeds.com/forms/OTC_QRGOOO.pdf (as visited Mar. 9, 2007). t IRS Information Letter 2000-0405 (Dec. 29, 2000). $ Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, Aug. 1999 ECFC Annual Symposium. a IRS Publication 502 (Medical and Dental Expenses). b Priv. Ltr. Rul. 200140017 (June 25, 2001). `1rr~- "tire' Expense Is Expense a Qualifying Expense? Comments and Special Rules Shampoos orc Not a qualifying expense Generally won't qualify. See Cosmetics and Toiletries. Shaving orc Not a qualifying expense See Cosmetics and Toiletries. cream or lotion Shipping and Qualifying expense Shipping and handling fees incurred to obtain an item that constitutes medical care (e.g., drugs or medicine) are inextricably linked to the cost of handling fees the medical care and therefore qualify." See subsection L.12. Sinus orc Qualifying expense See Drugs and medicines and Nasal strips or sprays. medications (Example: Sudafed) Skin orc Not a qualifying expense See Cosmetics and Toiletries. moisturizers Sleep deprivation Qualifying expense Probably qualifies if the person is under the care of a medical practitioner. treatment Smoking orc ~ Qualifying expense Amounts paid for prescribed and OTC drugs used fo stop smoking would qualify.t See Drugs and medicines; Nicotine gum or patches; and cessation subsection L.2. medications - Smoking cessation Qualifying expense Amounts paid for a smoking cessation (stop-smoking) program would qualify.$ See Smoking cessation medications and subsection L.2. programs Soaps orc Not a qualifying expense Generally won't qualify. See Cosmetics and Toiletries. Special foods orc Potentially a qualifying Will qualify if prescribed by a medical practitioner to treat a specific illness d if the foods do not substitute for normal nutritional (such as foods expense or ailment an requirements. But the amount that may qualify is limited to the amount by needed for agluten- which the cost of the special food exceeds the cost of commonly available free or salt-free diet) versions of the same product.b To show that the expense is primarily for a note from a medical practitioner recommending it to treat a medical care , specific medical condition is normally required. See Drugs and medicines; Vitamins; and subsection L.4. Spermicidal orc Qualifying expense See Contraceptives. foam Sperm, storage fees Potentially a qualifying Fees for temporary storage might qualify, but only to the extent necessary for immediate conception. Storage fees for undefined future conception " expense is not probably aren't considered to be for medical care. "Temporary onsideration might be whether it is stored and used defined; however, one c within the same year. Also see Fertility treatments; Eggs and embryos, enses; Pre-payments; and subsection L.13. te ex S f p urroga ees; storage St. John's orc Potentially qualifying Will qualify if used primarily for medical care (for example, to treat a diagnosed medical condition such as depression); won't qualify if used to Wort expense maintain general health. To show that the expense is primarily for medical a note from a medical practitioner recommending the item to treat a care , specific medical condition is normally required. __ m c nfa,.o ,.f rti;Pf ('nnncel. nct. 22.2003 ECFC ~ Informal, nonbinding remarks of Harry t3eKer, uaroara ne, a[lu Jullu JatJlc.uLa, ,,.., . ............ ______ _ _ _ Teleconference. t Rev. Rul. 99-28, 1999-25 I.R.B. 6. $ Rev. Rul. 99-28, 1999-25 I.R.B. 6. a Treasury Tax Correspondence, 2006 TNT 144-20 (July 19, 2006)/ ,,, b See, e.g., Randolph a Commissioner, 67 T.C. 481 (1976). c Informal, nonbinding remarks of John Sapienza, IRS, Office of Chief Counsel, May 2002 ECFC Teleconference. Expense Is Expense a Qualifying Expense? Comments and Special Rules Stem cell, harvesting Potentially qualifying Might qualify if there is a specific and imminent medical condition that the stem cells are intended to treat. For example, the cost of harvesting and and/or storage of expense storing stem cells because a newborn has a birth defect and the stem cells .would be needed in the near future might be allowable.' But collection and storage indefinitely, just in case an item might be needed, is not medical care. ~ See DNA collection and storage; Pre-payments; and Umbilical cord, freezing and storing of. Sterilization Qualifying expense Sterilization means the cost of a legally performed operation to make a person unable to have children.# Also see Vasectomy. procedures Stop-smoking Qualifying expense See Smoking cessation programs. Program Student health fee Potentially qualifying ense A fee that is simply the cost of belonging to the program won't qualify. Expenses for specific medical services might qualify. exp Sunglasses orc Potentially qualifying Prescription sunglasses would qualify. Allowable amounts include the e examinations and eyeglasses and lenses needed for medical es of e expense y expens reasons. It is unclear whether non-prescription sunglasses or clip-on sunglasses recommended by a physician to. alleviate an eye condition would qualify.a Sunburn orc Qualifying expense Will qualify if used to treat a sunburn (and not as regular skin moisturizers). S unscreen. See Drugs and medicines and creams and ointments (Example: Solarcaine) Sunscreen orc Qualifying expense Sunscreen with high SPF (e.g., 30 or 45) generally is used to prevent a sunburn; although not addressed in IRS guidance, we believe it would with high SPF qualify as medical care.b Items like face lotion that contain a small sunscreen component do not qualify, nor do suntan lotions. Supplies to treat Qualifying expense Will qualify if the medical supply is used to diagnose or treat a specific medical condition and isn't a personal comfort item. Also see Bandages and medical condition Crutches. Surgery Qualifying expense Generally will qualify. See Operations. Surrogate expenses Not a qualifying expense Such expenses generally won't qualify, even if they are for medical care of ° The procedure must be performed upon her unborn child t . e or the surroga you, your spouse, or your dependent in order to he medical care. Also see Fertility treatments; Egg donor fees; Eggs and embryos, storage fees; Legal fees in connection with fertility treatments; Sperm, storage fees; and subsection L.13. ~,,,,~. * See American Bar Association, Joint Committee on Employee Benefits, l2uesuons ana Hnswers ror u,c iico, .1,~,-~ ~••=ay = _. ~~~~~~ available at http://www.abanet.org/jceb (as visited Sept. 17, 2003), in which the IRS (on an informal, nonbinding basis) agreed with a proposed response that harvesting stem cells during a woman's pregnancy for use if anything is wrong with the child after it is born could be analogous to storing blood prior to an operation for use in a possible transfusion. The IRS noted, however, that the expense must still be for "medical care" under Code § 213. t See, e.g., Priv. Ltr. Rul. 200140017 (June 25, 2001). r Rev. Rul. 73-603, 1973-2 C.B. 76. a IRS Information Letter 2000-0073 (June 30, 2000). b See Joint Committee on Taxation, Present Law and Analysis Relating to the Tax Treatment of Health Savings Accounts and Other Health Expenses, JCX-27-06, at 11(June 27, 2006), available at http://www.house.gov/jct/x-27-06.pdf (as visited Sept. 15, 2006). And although not official guidance, the Federal Flexible Spending Account Program treats sunscreen as a reimbursable expense. See Federal FSA Program Quick Reference Guide, available at https://www.fsafeds.com/forms/OTC_QRGOOO.pdf (as visited Sept. 15, 2006). c IRS Information Letter 2002-0291 (Aug. I2, 2002). ~rr~'' Is Expense a Qualifying Comments and Special Rules Expense Expense? Swimming lessons Potentially qualifying Such expenses generally won't qualify, but there are some exceptions.' See Dancing lessons and subsection D. expense Swimming pool Potentially qualifying S nHoweverriftbe swimming pool s used primarily for medical care io maintenance n ecreat expense by someone who has been diagnosed with a medical condition and a medica practitioner has substantiated that the pool is part of the medical treatment, l i ta then the cost of maintaining the pool might qualify.t See also Cap expenses. Tanning salons and Not a qualifying expense f ecific medical condition (such as a skin dgsorder), sollong as there is r a s equipment p o no personal element or.use of the equipment by other family members. Taxes on medical Qualifying expense Such expenses generally will qualify to the extent that the tax is imposed on ualified medical care services/items. This includes local, sales, service, and services and q other taxes. See subsection L.12. products Teeth whitening Not a qualifying expense wh teru g is done for osmetic purposes: But if tooth dis olora~on (rising to the level of a deformity) was caused by disease, birth defect, or injury, ht qualify.b See Cosmetic-procedures and mi i hit g en ng expenses for teeth w subsections L.1 and L.14. Telephone for Qualifying expense The expenses of buying and repairing special telephone equipment for a hearing impaired person will qualify.° See Capital expenses. hearing-impaired persons Television for Qualifying expense Equipment that displays the audio part of television programs as subtitles for hearing impaired persons will qualify. But the amount that qualifies is hearing-impaired ersons limited to the excess of the cost over the cost of the regular item. For the cost of a specially equipped television qualifies only to the example p , extent that it exceeds the cost of a regular model a See Capital expenses. Therapy Qualifying expense Will qualify if provided for medical care (and not just for the general rovement of mental health, relief of stress, or personal enjoyment) ° See im d p also Patterning exercises; Psychoanalysis; Psychologist; and Schools an education, residentiallspecial. Thermometers Qualifying expense Will qualify if for medical uses. See Supplies to treat medical condition. Throat orc Qualifying expense I See also Cough suppressants. lozenges (Examples: Cepacol, Chloraseptic) Toiletries orc Not a qualifying expense A toiletry is an article or preparation that is used in the process of dressing and grooming oneself. Examples include toothpaste, shaving cream or lotion, and cologne. Also see Cosmetics. Toothache orc Qualifying expense and teething pain relievers (Example: Orajel) IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. See Emanuel v Commissioner, T.C. Summary Opinion 2002-127 (2002). Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, Aug. 1998 ECFC Annual Symposium. Rev. Rul. 2003-57, 2003-22 I.R.B. 959. Informal, nonbinding remarks of Donna Crisalli, IRS, Office of Chief Counsel, May 2002 ECFC Teleconference. Rev. Rul. 71-48, 1971-1 C.B. 99; Rev. Ru173-53, 1973-1 C.B. 139. IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. Expense Is Expense a Qualifying Expense? Comments and Special Rules Toothbrushes oTC Not a qualifying expense Won't qualify even if a dentist recommends special ones (such as electric or ed ones) to treat a medical condition like gingivitis. e b r attery-pow Toothbrushes are items that are used primarily to maintain general health-a person would still use one even without the medical condition. Thus, they are not primarily for medical care.' See Toiletries and Cosmetics. Toothpaste oTC Not a qualifying expense Won't qualify even if a dentist recommends a special one to treat a medical Toothpaste is an item that is primarily used to condition like gingivitis . maintain general health-a person would still use it even without the medical condition. Thus, it is not primarily for medical caret But topical creams or other drugs (e.g., fluoride treatment) used to treat a dental condition would qualify, so long as they are primarily for medical care. See Cosmetics; ' Drugs and medicines; and Toiletries. Transplants Qualifying expense Includes surgical, hospital, and laboratory services, and transportation $ expenses for organ donors. Transportation costs Not a qualifying expense A disabled individual's commuting costs to and from work are personal enses and not expenses for medical care. However, the costs incurred for ex of disabled p transportation to and from work may be medical expenses if the employment individual itself is explicitly prescribed as therapy to treat a medical condition.n commuting to and from work Transportation to Potentially qualifying See Medical conference admission, transportation, meals, etc. Also see and from a medical expense subsection L.8. conference ° Transportation Qualifying expense Will qualify if the expenses are primarily for and essential to medical care. tram, plane, and ferry fares, and taxi bus enses de car ex l i Th expenses for person , , , p u nc ese ambulance services. Instead of actual car expenses, a standard mileage rate to receive medical (18 cents per mile for 2006) for use of a car to obtain medical care is e d Parking fees and tolls can also qualify. See subsection L.8. allowed car . Transportation of Potentially qualifying e Will qualify in some cases. Transportation expenses of the following persons will qualify: (1) a parent who must go with a child who needs medical care; someone other than expens (2) a nurse or other person who gives injections, medications, or other the person receiving treatment required by a patient who is traveling to get medical care and is medical care unable to travel alone; and (3) an individual who travels to visit a mentally ill dependent, if such visits are recommended as part of treatment. See 'n-ansportation expenses for person to receive medical care and Lodging not at a hospital or similar institution. Treadmill orc Potentially qualifying See Exercise equipment; Capital expenses; and subsection L.9. expense Tuition for special Potentially qualifying ense Will qualify if the primary purpose is for medical care.° Includes reading program for dyslexia. See also Learning disability, instructional fees. But needs program exp see Schools and education, special and Schools and education, residential. Tuition evidencing Qualifying expense Wil] qualify to the extent that charges for medical expenses are separately r tuition for a college or private school and are for bill f i separate breakdown o n a broken down specific qualified medical services/items that have been incurred/obtained for medical expenses (and are not premiums for medical care generally). See Student health fee and Insurance premiums. Informal, nonbinding remarks of Harry Beker, Barbara Pie, and John Sapienza, IRS, Office of Chief Counsel, uct. ~~, auv~ n~,ri. Teleconference. Informal, nonbinding remarks of Harry Beker, Barbara Pie, and John Sapienza, IRS, Office of Chief Counsel, Oct. 22, 2003 ECFC Teleconference. Rev. Rul. 73-189, 1973-1, C.B. 139. See, e.g., Alderman a Commissioner, T.C. Summary Opinion 2004-74 (2004) (citing cases). Weinzimer a Commissioner, T.C. Memo. 1958-137 (1958); Misfeldt a Kelrn, 44 AFTR 1033 (D. Minn. 1951). Code § 213(d)(1)(B) and Treas. Reg. § 1.213-1(e)(iv). IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. See Rev. Rul. 69-607, 1969-2 C.B. 40 (amount paid for language training to correct dyslexia deductible under Code § 213) and Priv. Ltr. Rul. 200521003 (Mar. 1, 2005). ~r+ err Expense Is Expense a Qualifying Expense? Comments and Special Rules Ultrasound, prenatal Potentially qualifying expense Will qualify if used as a diagnostic tool to determine fetal health and development. Won't qualify if for other purposes (e.g., to obtain prenatal snapshots). d Umbilical cord, freezing and storing of Potentially qualifying expense Might qualify if there is a specific medical condition that the umbilical cor is intended to treat. Collection and storage indefinitely, just in case it is needed, is not medical care.' "Temporary" is not defined-one consideration might be whether it is stored and used within the same year.t The cost of storing cord blood where a newborn has a birth defect and where the cord blood would be needed in the near future might qualify.+ See Pre-payments. Usual and customary charges, excess Qualifying expense Medical expenses in excess of an insurance plan's usual, customary, and reasonable charges qualify if the underlying expense is for medical care. Vaccines Qualifying expense See Immunizations. Varicose veins, treatment of Potentially qualifying expense Such expenses generally won't qualify if the procedure merely improves appearance and doesn't meaningfully promote the proper function of the body or prevent or treat illness or disease. May qualify if the procedure promotes the proper function of the body or prevents or treats an illness or disease. To show that the expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required. See Cosmetic-procedures. Vasectomy Qualifying expenses See Sterilization procedures. Vasectomy reversal Qualifying expense Veneers Not a qualifying expense Such expenses generally won't qualify, as veneers are used primarily for cosmetic purposes. See Cosmetic-procedures and Teeth whitening. Veterinary fees Potentially qualifying expense Will qualify if the veterinary fees are incurred for the care of a guide dog or other animal used by a disabled person.b Otherwise, no. Viagra Qualifying expense Will qualify if prescribed by a physician to treat a medical condition Vision correction rocedures P Qualifying expense Medical procedures that correct vision, including laser procedures such as Lasik and radial keratotomy, qualify.d Also see Laser eye surgery and Radial keratotomy. Vision discount Not a qualifying expense Such expenses generally won't qualify. See Insurance premiums. But will qualify to the extent that an expense is for actual medical treatment (such as programs an eye exam).° Vitamins oTC Potentially qualifying Won't qualify if used to maintain general health (e.g., one-a-day vitamins).r expense But under narrow circumstances, vitamins might qualify if recommended by a medical practitioner for a specific medical condition (for example, a prescribed dosage of Vitamin B-12 daily to treat a specific vitamin deficiency). To show that the expense is primarily for medical care, a note from a medical practitioner recommending the item to treat a specific medical condition is normally required. See Prenatal vitamins; Dietary supplements; Special foods; and subsection L.4. Walkers orc Qualifying expense Will qualify if used to relieve sickness or disability. f Rev. Rul. 2003-102, 2003-38 I.R.B. 559. See, e.g., Priv. Ltr. Rul. 200140017 (June 25, 2001). t Informal, nonbinding remarks of John Sapienza, IRS, Office of Chief Counsel, May 2002 ECFC Teleconference. $ Informal, nonbinding remarks of John Sapienza, IRS, Office of Chief Counsel, May 2002 ECFC Teleconference. a IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. b IRS Publication 502 (Medical and Dental Expenses), reproduced behind Appendix Tab 4. c Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, Aug. 1998 ECFC Annual Symposium. d Rev. Rul. 2003-57, 2003-22 I.R.B. 959. e Informal, nonbinding remarks of Katherine Kiss, IRS, Office of Chief Counsel, Aug. 1998 ECFC Annual Symposium. Is Expense a Qualifying Expense Expense? Comments and Special Rules Wart remover orc Qualifying expense Although not addressed in IRS guidance, we believe such products are for ` treatments See the treatment of a disease and thus would qualify as medical care. Drugs and medicines. (Example: Compound W) Weight-loss Potentially qualifying Will qualify if the weight-loss program is recommended by a physician to programs and/or expense treat a specific medical condition (such as obesity, heart disease, or diabetes) and is not simply to improve general health.t However, the costs of food drugs prescribed to associated with aweight-loss program (such as special pre-packaged meals) induce weight loss would not qualify, since it just meets normal nutritional needs. To show that the expense is primarily for medical care, a note from a medical practitioner recommending it to neat a specific medical condition is normally required. See Exercise programs; Health club fees; Special Foods; and subsection L.S. Wheelchair Qualifying expense If used to relieve sickness or disability, amounts you pay for a whee]chair or autoette and the upkeep costs will qualify.$ Wigs oTC Potentially qualifying Might qualify if the wig is prescribed by a physician for the mental health of expense a patient who has lost all of his or her hair from disease or treatment (e.g., chemotherapy or radiation).' X-ray fees Qualifying expense Will qualify if the X-rays are performed for medical reasons.b Yeast orc Qualifying expense infection medications (Example: Monistat) YMCA day camp Not a qualifying expense Such expenses generally won'[ qualify. However, if a camp is a special program that is therapeutic and treats a specific disability, then the expense might qualify.° To the extent attributable to a qualifying individual under a dependent care assistance program (DCAP), such expenses might be reimbursable under a DCAP if applicable rules are met (but the same expenses may not be reimbursed under a health FSA, HRA, or HSA and a DCAP-there is no "double-dipping" allowed). * According to one dictionary definition, a wart is "caused by any of numerous genotypes of the human papillomavirus:' U.S. National Library of Medicine, MEDLINEpIus: Medical Dictionary, available at http://www.nlm.nih.gov/medlineplus/mplusdictionary.html (as visited Sept. 15, 2006). t Rev. Rut. 2002-19, 2002-16 I.R.B. 778. $ Treas. Reg. § 1.213-1(e)(1)(iii). a Rev. Rul. 62-189, 1962-2 C.B. 88. Treas. Reg. § 1.213-1(e)(1)(ii). See Emanuel a Conzmissior2er, T.C. Summary Opinion 2002-127 (2002). Employee ID Enrollee Name Account Type: DCA Plan ID: BIWEE KLY XXX-XX-2163 A~ .C IDS E~ N XXX-XX-6049 C 2L N, E XXX-XX-8632 C~ VE Y, A A XXX-XX-7801 D, S, RE f xxx-xx-721 o H• ~r AI _ XXX-XX-4192 SI tF CI S' 'H XXX-XX-2211 SI .T , J ES T XXX-XX-8946 V, JE JE =RY Total: DCA Total Enrollees: 8 Enrollee Account Balance GRPADM-VERITY NATIONAL GROUP mb'~ Plan Date Range: 1/1/2007 -12/3112007 Prefunded Employee Employer Total Total Fund Available Amount Deposits Deposits Deposits Disbursed Balance Balance $0.00 $2,884.65 $0.00 $2,884.65 $1,766.20 $1,118.45 $1,118.45 $0.00 $1,050.00 $0.00 $1,050.00 $0.00 $1,050.00 $1,050.00 $0.00 $2,884.65 $0.00 $2,884.65 $2,884.65 $0.00 $0.00 $0.00 $500.00 $0.00 $500.00 $0.00 $500.00 $500.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $1,730.85 $0.00 $1,730.85 $0.00 $1,730.85 $1,730.85 $0.00 $807.75 $0.00 $807.75 $807.75 $0.00 $0.00 $0.00 $504.90 $0.00 $504.90 $0.00 $504.90 $504.90 50.00 510,362.80 30.00 510,382.80 55,458.80 34,904.20 54,904.20 Page : 1 8/29!2007 3:07:14 PM Enrollee Account Balance GRPADM-VERITY NATIONAL GROUP nb'~ '"' Employee ID Enrollee Name Plan Date Range: 1/1/2007 -1213112007 Prefunded Employee Employer Total Amount Deposits Deposits Deposits Total Disbursed Fund Balance Available Balance Account Type: FSA Plan ID: WEEKLY XXX-XX-5923 E R Aft VI $100.00 $28.57 $0.00 $28.57 $45.00 -$16.43 $55.00 XXX-XX-4520 G IP JOB $1,000.00 $442.29 $0.00 $442.29 $460.00 -$17.71 $540.00 XXX-XX-3679 H, CI $520.00 $180.00 $0.00 $180.00 $509.00 -$329.00 $11.00 EI A T XXX-XX-0560 L~ ~E ~, $1,750.00 $1,009.65 $0.00 $1,009.65 $1,625.20 -$615.55 $124.80 BI Jl XXX-XX-3623 L1 IE AL $520.00 $300.00 $0.00 $300.00 $464.10 -$164.10 $55.90 Jf :~ XXX-XX-7341 M -H/ ~E $1,300.00 $750.00 $0.00 $750.00 $1,091.54 -$341.54 $208.46 KI .Y XXX-XX-8879 M LL $2,500.00 $1,442.10 $0.00 $1,442.10 $1,924.81 -$482.71 $575.19 ~, ra XXX-XX-3053 N' '.RI ;R, R $1,000.00 $557.67 $0.00 $557.67 $998.82 -$441.15 $1.18 XXX-XX-2865 O _LL ~B f $500.00 $278.98 $0.00 $278.98 $471.36 -$192.38 $28.64 XXX-XX-2494 O V< AT $572.00 $330.00 $0.00 $330.00 $526.31 -$196.31 $45.69 XXX-XX-6745 P~ tC JE i $300.00 $167.33 $0.00 $167.33 $173.00 -$5.67 $127.00 XXX-XX-4065 P, V( R~ T $500.24 $48.10 $0.00 $48.10 $0.00 $48.10 $500.24 XXX-XX-8509 PI .Z )SE $104.00 $52.00 $0.00 $52.00 $13.66 $38.34 $90.34 XXX-XX-0221 S~ _E ~N' A $780.00 $450.00 $0.00 $450.00 $554.59 -$104.59 $225.41 XXX-XX-7568 SI N( S1 E $300.00 $173.10 $0.00 $173.10 $199.94 -$26.84 $100.06 XXX-XX-4060 S~ JT $2,200.00 $1,269.30 $0.00 $1,269.30 $2,200.00 -$930.70 $0.00 RI JC S XXX-XX-4343 VI ~f OL DO $1,000.00 $576.90 $0.00 $576.90 $973.05 -$396.15 $26.95 XXX-XX-4097 VV IAI $4,000.00 $0.00 $0.00 $0.00 $0.00 $0.00 $4,000.00 TI ~F XXX-XX-1232 Z ~V ,R~ t0 $1,500.00 $865.50 $0.00 $865.50 $1,493.94 -$628.44 $6.06 XXX-XX-0011 Z ~L R, AN $700.00 $242.46 $0.00 $242.46 $695.43 -$452.97 $4.57 E XXX-XX-9305 Z \L iR iAN $1,000.00 $576.90 $0.00 $576.90 $991.18 -$414.28 $8.82 E Page : 2 8/29!2007 3:07:14 PM Enrollee Account Balance GRPADM-VERITY NATIONAL GROUP ~b'i Employee ID Enrollee Name Plan Date Range: 1/1/2007 -12131/2007 Prefunded Employee Employer Total Amount Deposits Deposits Deposits Total Disbursed Fund Balance Available Balance Plan ID: BIWEE KLY XXX-XX-2163 A EI V $800.00 $461.55 $0.00 $461.55 $118.28 $343.27 $681.72 E N XXX-XX-6686 B. , I Z. ~ $2,600.00 $1,500.00 $0.00 $1,500.00 $2,117.48 -$617.48 $482.52 XXX-XX-5148 BI JE A Y $2,600.00 $1,500.00 $0.00 $1,500.00 $2,578.61 -$1,078.61 $21.39 XXX-XX-3927 Bl ~E N TIN $1,500.00 $865.35 $0.00 $865.35 $1,305.33 -$439.98 $194.67 XXX-XX-9605 C~ ~L E, JI $3,900.00 $2,250.00 $0.00 $2,250.00 $2,839.41 -$589.41 $1,060.59 XXX-XX-6049 CI tL N, ~E $2,080.00 $1,200.00 $0.00 $1,200.00 $15.00 $1,185.00 $2,065.00 XXX-XX-3130 C( 'f Si R $3,000.00 $1,730.85 $0.00 $1,730.85 $649.31 $1,081.54 $2,350.69 XXX-XX-8558 Df y ~A A $1,700.00 $981.00 $0.00 $981.00 $1,644.42 -$663.42 $55.58 XXX-XX-7801 D< S, ~( T $1,500.00 $1,500.00 $0.00 $1,500.00 $983.98 $516.02 $516.02 XXX-XX-9898 DI ~O, f1 AH $500.00 $288.45 $0.00 $288.45 $54.06 $234.39 $445.94 XXX-XX-8200 EII ~~ R ~ $1,000.00 $577.05 $0.00 $577.05 $479.04 $98.01 $520.96 XXX-XX-1656 FE 3L N $200.00 $42.90 $0.00 $42.90 $0.00 $42.90 $200.00 KE ~A XXX-XX-2811 FL CI t, VID $1,300.00 $750.00 $0.00 $750.00 $786.85 -$36.85 $513.15 XXX-XX-6338 GI IF S :Y $500.00 $288.90 $0.00 $288.90 $218.91 $69.99 $281.09 XXX-XX-4379 GI /E lE Y W $250.00 $144.30 $0.00 $144.30 $0.00 $144.30 $250.00 XXX-XX-2686 H/ , ( ZY $2,000.00 $1,153.95 $0.00 $1,153.95 $1,794.96 -$641.01 $205.04 XXX-XX-4785 Hf N UI JL $1,000.00 $646.17 $0.00 $646.17 $971.18 -$325.01 $28.82 XXX-XX-9413 Hf C = IAN $1,500.00 $865.50 $0.00 $865.50 $1,495.76 -$630.26 $4.24 , XXX-XX-8132 HE _, LL A $7,500.00 $4,327.05 $0.00 $4,327.05 $137.47 $4,189.58 $7,362.53 XXX-XX-6583 HE V~ ~l $5,000.00 $3,000.00 $0.00 $3,000.00 $1,878.06 $1,121.94 $3,121.94 MI XXX-XX-0213 H( :n E $2,080.00 $1,200.00 $0.00 $1,200.00 $1,490.77 -$290.77 $589.23 Jp D XXX-XX-7210 H~ ~~ AI L $4,000.10 $2,307.75 $0.00 $2,307.75 $3,994.88 -$1,687.13 $5.22 XXX-XX-2097 H N( U N $1,040.00 $600.00 $0.00 $600.00 $82.00 $518.00 $958.00 XXX-XX-4063 H N( iF T $1,000.00 $577.05 $0.00 $577.05 $653.37 -$76.32 $346.63 XXX-XX-7104 H fC 31 JT $4,160.00 $2,400.00 $0.00 $2,400.00 $2,550.81 -$150.81 $1,609.19 XXX-XX-6528 I; Y, UII JO $2,500.00 $1,442.40 $0.00 $1,442.40 $2,088.99 -$646.59 $411.01 XXX-XX-7673 K Vlf 'N $520.00 $300.00 $0.00 $300.00 $520.00 -$220.00 $0.00 B ,N XXX-XX-7846 K _Y iE _ L $500.00 $288.60 $0.00 $288.60 $158.52 $130.08 $341.48 XXX-XX-0244 K R ~E $700.18 $403.95 $0.00 $403.95 $0.00 $403.95 $700.18 XXX-XX-4613 L ~E )AI $915.00 $528.00 $0.00 $528.00 $900.83 -$372.83 $14.17 T M XXX-XX-4274 L ~, VIE $260.00 $150.00 $0.00 $150.00 $0.00 $150.00 $260.00 XXX-XX-3472 L G ILl $520.00 $300.00 $0.00 $300.00 $100.00 $200.00 $420.00 K E XXX-XX-0183 N ZI , J, .S $2,340.00 $1,350.00 $0.00 $1,350.00 $2,333.65 -$983.65 $6.35 XXX-XX-1151 N E VII' $1,000.00 $577.05 $0.00 $577.05 $492.06 $84.99 $507.94 XXX-XX-6035 N 'l , T MAS $2,500.00 $1,442.40 $0.00 $1,442.40 $2,497.37 -$1,054.97 $2.63 XXX-XX-1251 N ~I MI AEL $2,500.00 $1,362.52 $0.00 $1,362.52 $2,353.81 -$991.29 $146.19 XXX-XX-1391 R F ;, : CIE $400.00 $230.85 $0.00 $230.85 $0.00 $230.85 $400.00 XXX-XX-6019 S ~ TF IIAS $650.00 $375.00 $0.00 $375.00 $650.00 -$275.00 $0.00 Page : 3 8/29/2007 3:07:14 PM v~.r Enrollee Account Balance ~^ ~ GRPADM-VERITY NATIONAL GROUP +~ Plan Date Range: 1/1/2007 - 12/31/2007 Prefunded Employee Employer Total Total Fund Available Employee ID Enrollee Name Amount Deposits Deposits Deposits Disbursed Balance Balance XXX-XX-4192 S ZF $520.00 $300.00 C S" 'H XXX-XX-2211 SI .T J, .S $1,600.00 $923.10 T XXX-XX-8657 SI EI A; I M $500.00 $288.45 XXX-XX-6180 T/ 0 :C Y $1,352.00 $780.00 XXX-XX-8946 Vi IE lE :RY $500.00 $288.45 XXX-XX-1306 W OI EI AY $1,000.00 $577.05 Total: FSA 595,633.52 552,808.49 Total Enrollees: 65 $0.00 $300.00 $225.00 $75.00 $295.00 $0.00 $923.10 $1,478.69 -$555.59 $121.31 $0.00 $288.45 $269.85 $18.60 $230.15 $0.00 $780.00 $1,350.02 -$570.02 $1.98 $0.00 $288.45 $0.00 $288.45 $500.00 $0.00 $577.05 $611.05 -$34.00 $388.95 50.00 552,806.49 580,280.71 -57,474.22 535,352.81 Total: 595,833.52 583,189.29 50.00 583,169.29 585,739.31 .52,570.02 540,257.01 Total Enrollees: 66 Total: VERITY NATIONAL GROUP 595,633.52 563,169.29 Total Enrollees: 66 50.00 583,189.29 585,739.31 -52,570.02 540,257.01 Page : 4 8/29/2007 3:07:14 PM Texas Department of Insurance w~ ~ ~ CERTIFICATE N0. 14195 CERTIFICATE OF AUTHORITY THIS IS TO CERTIFY THAT VERITY NATIONAL GROUP, INC. SAN ANTONIO, TEXAS COMPANY N0.30-094482 has complied with the laws of the State of Texas applicable thereto and is hereby authorized to transact the business of THIRD PARTY ADMINISTRATOR within the State of Texas. This Certificate of Authority shall be in full force and effect until it is revoked, canceled, or suspended according to law. 1N TESTIMONY WHEREOF witness my hand and seal of office at Austin, Texas, this 28t'' day of September. A.D. 2006 MIKE GEESLIN COMMISSIONER OF INSURANCE ~o+ ~y BY MATT R DEPUTY COMMI SIONER IiCENSING DIVISION Bid Spread Sheet-Kerr County Self-Funded Welfare Plan Stop-Loss Proposal Comparison Reiasuraace Carrier MUTUAL OF OMA MUTUAL OF OMAHA MUTUAL OF OMAHA Sctup Fa •: S3 000 $3 000 53,000 Renewal Fce': f1000 SI 000 SI 000 Run-WRun-Out: Administration Pee See Attachment X10 Sce Attachment X10 See Attachment X10 Estimated rm out claim IiabililN Specific Lifetime Maximum 1000 000 1 000 000 1 000 000 Aggreegate Plan Yem Annual Maximum • Nore: These rates are not inc/aded in (orals below. STOP-LOSS BASIS IS/12 IS/12 I$/l2 Number of Employces: 243 243 243 Number of Spouse Only 21 2l 21 Number of Child(ren) only 31 31 31 Numbm of Family Units 26 26 26 Number of Deprndent Units: 78 78 76 Speck Deductible: S 40 000 S 50,000 S 60 000 Speck Contrgct: 15/12 IS/12 15/l2 Specific Contract Includes MEDICAURX MEDICAL/RX MEDICAL/RX Aggregate Contract: 15/12 15/12 15/12 Maximum Aggregate Rm N A em Contract Includes MEDICAL/RX MEDICAL/RX MEDICAL/RX MONTHLY FIRED COSTS Specific Premium Employee: (lncfudes lS%commissions) $92.75 575.34 $62.16 Employee and Spouse Employe and Child(ren) Dependent Unit: (/ncludes/S%commissions) $118.05 599.13 584.51 Family: Composite: Aggregate Premium Composit¢(/ncludes lS%commissions) 57.34 57.69 57.69 Monthly Cap Adndsistratios( all fees per ooit per month) Claims Cost Per Employee : 517.00 SI7.00 $17.00 Claims Cost Per Dependent : 50.00 50.00 $0.00 Utilization Review per EE 52.23 52.25 52.25 PPO Network Per EE: 55.75 55.75 55.75 Rx Program Fces(Desrsibe) ": 56.30 56.30 56.50 COBRA per EE $2.00 52.00 52.00 HIPAA Per EE Included in Cobra Fce Included N Cobra Fee Included m Cobra Fee Cafeteria Plao FSA Accowt Per Participant SS.00 55.00 53.00 Child Care Per Participant (included in FSA) $0.00 50.00 50.00 Debit card expense 50.00 50.00 50.00 Start up expense $0.00 $0.00 50.00 Other Flex/Cafeteria Plan Fees: HRA Start up expense $300.00 5300.00 $300.00 Per Account Fee 54.00 54.00 $4.00 Debit card expense $0.00 50.00 50.00 Other HRA Plan fees: $0.00 50.00 50.00 Wellness Plas Cost Disease Maaagemeut Dental Dental Admin Fee per EE/Mth $2.00 52.00 52.00 Dental Admin Fee per Dep/M[h $0.00 50.00 50.00 Dental NeRVOrk Access Fce $0.00 50.00 50.00 Positive Pay Baukiag System Broker Fee: Total Per Employee: $2.00 52.00 52.00 Total Per Dependent Unit: S0.00 50.00 50.00 Total Per Fmvily Unit: 50.00 50.00 50.00 AGGREGATE FACTORS Employee Only: 5434.02 5449.15 5460.70 Dependent Unit: 5397.79 5414.56 S42Z37 Family: 50.00 50.00 50.00 Composite: $0.00 50.00 50.00 Attachment Points Monthly: 5136,494.48 5141479.13 $145,300.56 Annual: 51,637,933.76 51697749.56 51743606.72 cem ;te: $o.oa 50.0o so.oo TOTAL ANNUAL COSTS Stop Loss Premium 5380 953.80 5312.477.12 5260 339.92 Aggregate Premium 521 986.64 522,424.04 $22 424.04 Administration 555,404.00 555 404.00 555 404.00 Administration as % of Maximum Annual Cost 2% 2% 2 UR, PPO, Rx, Broker, and all other 34,992.00 534 992.00 534,992.00 Total Fixed 5493 336.44 $425,297.16 5373 179.96 Expected: 51,760 79.19 51,752262.92 $1733976.95 Maximum: S2 077,139.88 S2 084,004.36 52,076 676.20 I Thal Fixed IncreaseNCost as percent ofcurrrnt Expected Maximum Notes: for medical, 5250 Cor FSA Notes: •• : PBM section for full details Describe covered Disease Marragemmt expenses IKERR COUNTY 08 revised 9-6-07 Benefit Plan CURRENT CURRENT CURRENT TPA VERITY VERITY VERITY Carrier MOO MOO MOO Specific Level $40,000 $50,000 $60,000 ~ir+' Anticipated Claims Anticipated Plan Cost $ $ 1,267,042.75 1,760,379.19 $ $ 1,326,965.76 1,752,262.92 $ $ 1,362,796.99 1,735,976.95 Specific Rates: Employee Only $ 92.75 $ 75.34 $ 62.16 Dependent(s) $ 118.05 $ 99.13 $ 84.51 Aggregate Premium $ 7.54 $ 7.69 $ 7.69 Administration: Medical Adm. $ 17.00 $ 17.00 $ 17.00 Dental $ 2.00 $ 2.00 $ 2.00 COBRA $ 2.00 $ 2.00 $ 2.00 Pre-Cert/UR $ 2.25 $ 2.25 $ 2.25 PPO $ 5.75 $ 5.75 $ 5.75 Broker Fee $ 2.00 $ 2.00 $ 2.00 Total Admin $ 31.00 $ 31.00 $ 31.00 Aggregate Factors: Medical/RX Employee Only $ 424.04 $ 438.82 $ 450.10 Dependent(s) $ 371.05 $ 405.03 $ 417.74 Enrollment: Employee Only 243 243 243 Sp 21 21 21 Ch 31 31 31 Fam 26 26 26 Dependent(s) 78 78 78 Anticipated Funding EE $427.82 $425.84 $421.89 Sp $513.38 $511.01 $506.26 Ch $385.03 $383.26 $379.70 Fam $770.07 $766.52 $759.39 Maximum Funding EE $504.80 $506.47 $504.68 Sp $605.76 $607.76 $605.62 Ch $454.32 $455.82 $454.22 Fam $908.64 $911.64 $908.43 Maximum Annual Plan Cost ~ $ 2,077,139.88 ~ $ 2,084,004.36 ~ $ 2,076,676.20 Proposal Conditions and Assumptions ~'iIS DOCUMENT MAY CONTAIN PROTECTED HEALTH INFORMATION (PHI) AND SHOULD BE SHARED ONLY WITH 1,,,DIVIDUALS DESIGNATED TO VIEW SUCH INFORMATION PER HIAA REGULATIONS. • For more than 90 years, Mutual of Omaha has provided individual financial services and group benefit services to its customers. With an A.M. Best rating of A+ (Superior), we have earned a reputation worldwide as a solid, stable, customer-driven company. Mutual of Omaha would like to be your carrier of choice. For more information please visit our website @ www. mutualofomaha.com/brokers/products/stoploss/index.html • Stop Loss coverage is underwritten by United of Omaha. • Our rates assume your plan has utilization review, pre-certification and large case management. Terms of our proposal are subject to change if this assumption is incorrect. • The rates reflect a 12-month contract period. This proposal is valid only up to the proposed effective date. • Only full-time employees working a minimum of 30 hours per week or all eligible members meeting the hour bank requirements as stated in the current plan are eligible for coverage. • A minimum of 75% participation is required if the plan is contributory and 100% if the plan is non-contributory. Those covered under another employer-sponsored plan will not be included in the participation calculation. However, if quoting along-side an HMO plan, participation of 50% of the eligible employees are required whether they are in another employer-sponsored plan or not. • Actively at work provision is waived for known disabled employees and dependents subject to underwriting approval. If not disclosed prior to the effective date, reimbursements will be limited to plan losses from employees "actively at work" and dependents "performing normal activities" as described in the Stop Loss contract. • Receipt of updated monthly paid claims, enrollment and shock loss information up to the month prior to the effective date, which may cause a revision of the proposed rates and factors. • Rates/factors will be finalized based on receipt and approval of the Select Risk Questionnaire not more than 30 days prior to the effective date disclosing: Claims paid, pending, pre-authorized, or not yet billed that are expected to exceed $20,000 or 50% of any specific deductible (if less), hospital confinements, and any participants who are currently disabled or absent from work due to illness or injury. • The minimum annual aggregate deductible is 100% of the Aggregate Factors multiplied by the 1st month's enrollment multiplied by 12. • A final census showing all eligible employees and all those participating on the effective date of the plan is required. We reserve the right to reevaluate our quote based on final enrollment. • Our proposal assumes the current plan document includes Pre-existing conditions limitations. If not, our standard Pre-existing conditions limitations will be included in our Stop Loss contract. • The plan document must be received and approved by us within 30 days of the effective date of the plan. Our Terms assume Experimental services, U&C charges and Medically Necessary services are addressed (and acceptable to Mutual of Omaha) in the Plan Document. If they are not addressed/acceptable, we will add our standard language to the Stop Loss contract. Requests for reimbursement will not be processed until approval is received. Reimbursements for all individuals is dependent upon satisfaction of all Policy and Plan Doc provisions, limitations, exclusions and eligibility requirements. • Expenses for on the job injuries and the treatment of illness or injury resulting from war or any act or war, whether declared or undeclared, or while in the armed forces of any country or international organization will not be considered eligible. • The Stop Loss Coverage is based upon the terms and conditions outlined in the underlying plan document. However, if the terms of the stop loss policy differ from the underlying plan document, the terms of the stop loss policy will control. Effective Date Group Name Producer Underwriter No. 01/01/2008 Kerr County Verity National Group, Inc. (San Antonio, T Brad Waidecker 54990 Generated: 08/31 /2007 11:29 Proposal Conditions and Assumptions • Any individual involved with the marketing of this proposal is required to be licensed and appointed by Mutual of Omaha. Contracts can not be issued nor commissions paid until such license/appointment is secured. Furthermore, pre-appointment is ~"` required in certain states prior to the marketing of the proposal. Adherence to the state requirements must be followed. • This quote covers retirees and is based on Medicare being primary on retirees age 65 or older. The quote is subject to change if Medicare is not primary on these retirees. • The maximum lifetime specific reimbursement is $1,000,000 less the specific deductible, and the maximum aggregate reimbursement is $1,000,000. • Specific run-in is limited to the specific deductible. Spec run-in can be waived after receipt and approval of pended claim reports. • Continuation of In-Force benefits is assumed unless otherwise stated. • Any claim dollars, which exceed the specific level and are incurred prior to the effective date, or losses that should have been reimbursed by the prior Stop Loss carrier, will not be applied to the Aggregate Attachment Point. • This quote is based on the current participation between plan options. If final enrolled participation varies, we reserve the right to adjust our quote. • Specific Terminal Liability is available for an additional fee of 5% of annual Specific premium. Aggregate Terminal Liability is available for an additional fee of $1.00 per/ee/mo. • Quote is subject to review of any claims at or expected to be 50% or more of the current specific deductible and subject to review of any trigger diagnosis claims. • Quote is based on PPO: TTC UR: MCMC Rates/Factors will be finalized based on receipt and approval of a 50% specific deductible report(including anyone expected to ``r~ exceed $20,000 or 50% of any specific deductible, if less), pending claim report, precertification report, large case management report(s), trigger/ICD-9 report(that takes into account the trigger/ICD-9 diagnoses referred to in the Large Case Management section of the TPA Administative Manual), hospital confinements during the past 30 days or expected to be within 90 days after the proposed effective date and any participants who are currently disabled(physically or mentally unable to perform all of the usual and customary duties and normal activites of an individual who is in good health) or absent from work due to illness or injury. This must be provided not more than 30 days prior to the effective date. `err Effective Date Group Name Producer 01/01!2008 Kerr County Verity National Group, Inc. (San Antonio, T Underwriter No. Brad Waldecker 54990 08131 /2007 11:29 .r2 "` ' ~~ ~~ Lynn E. Taylor ~ '~ r ~ 19275 Stone Oak Pkwy #926 ,i~~ ~ ~ ~~'~ San Antonio, TX 78258 (210) 490-5565 Objective: A position in which to utilize my organizational and managerial skills for the benefit of an insurance company.. Experience: January 2001 to Verity National Group, Inc., San Antonio, TX Present Vice President of Client Services Key contact for largest clients to handle all aspects of their self- funded needs from eligibility to stop-loss contracts. Responsible for the operations of claims (medical, dental. and flex) adjudication, customer service, reinsurance, indexing, claims auditing, large case management and disease state management. May 1998 to Key Benefits, Indianapolis, IN January 2001 Trainer and Auditor Responsible for the training and auditing for the claims department for this Third Party Administrator satellite office located in Fort Wayne, IN. October 1994 to AIA-Great Fidelity Life, Fort Wayne, IN March 1998 Underwriting and Office Manager In charge of manning all aspects of daily operations for the Fort Wayne Office. Responsible for product and systems training along with the respective departments of Underwriting, Claims, Personnel and Office Services. July 1991 to AIA-Great Fidelity Life, Fort Wayne, 1N October 1994 Underwriting Supervisor Established and implemented underwriting guidelines for individual and small to large group contracts, along with long term care products. Reviewed renewal contracts for all lines of business. Assisted underwriters in making difficult underwriting decisions. Reviewed cases for reinstatements. Conducted medical terminology classes for the underwriting and claims departments. Assisted the Office Manager in the worl~low within the department. ate' March 1987 to Great Fidelity Life, Fort Wayne, IN July 1991 Claims Analyst IIUSenior Claims Analyst![Jnderwriter/Claims Supervisor Responsible for the daily operations for the Underwriting/Claims Departments. Requested and reviewed medical reports from physicians and hospitals to determines if an applicant was insurable for long term care or medicare supplement insurance. Trained underwriters, claims processors and agents on product language, underwriting guidelines and medical terminology. Claims experience includes life, major medical, vision, disability, long term, and medicare supplement. May 1982 to Mutual Security Life, Fort Wayne IN March 1987 Claims Analyst I, II, III Processed major medical, disability and vision claims. Handled large group major medical contracts. Education: April 1991 Lincoln National Life, Fort Wayne, IN Completed Gold Series Seminars for Professional Underwriter May 1987 Indiana University, Fort Wayne, IN Associates Degree in General Studies May 1983 Great Fidelity Life, Fort Wayne, IN Completed Medical Terminology Course May 1977 Bishop Dwenger High School, Fort Wayne, IN Type of degree, Major Screenprints of Online HRA X hife„ I.~//.....1..,h1...wk.4..~.m ~G. ~ ~, a~~~~~~~er~~~~ Health-e0utlook ~`<< this Health Risk Appraisal and return to the Health Dashboard. Health Risk Appraisal Questionnaire HMRC Version ~Ilf Complete each question as best you can, by indicating the best response. This Health Risk Appraisal is not designed for people who already have Heart disease, Cancer, Kidney disease, or other serious conditions. .x, _ra'i:. f .. _ . AUTHORIZATION coalirred SEX Female AGE (At last birthday) ~a years old Q. Are you pregnant? ~ If Yes, answer this questionnaire with prepregnancy information. HEIGHT (without shoes) s feet ~ inches WEIGHT (without shoes) ias voonde Systolic (high number) ] What is your bbod pressure now? ~ Diastolic (low number) r I'm not sure $ What is your total cholesterol level? (based on a blood test) r "mod - G I m not sure 9 What is your FiDI cholesterol level? (based on a blood test) r my/d~ IF you do not know the number, which best desaibes your HDL cholesterd7 CIGARETTE SMOKING xever smoked Now would you describe your dgarette smoking habits? for Current Cigarette Smokers Only AOC eDPliceble for FotYner Cigarette Smokers Only eroc evDlioeble ~] pipes? 13 Do you smoke or use - cigars? - ~ smokeless tobacco? 14 How often do you use drugs or medication (aiduding prescription drugs) which affect your -mood or help you to relax? 1.5 How many drinks of alcoholic beverages do you have in a typical week7l-- drinks -(one drink =one beer, glass of wine, shot of liquor or mixed drink,) 1~ How many times in the last month did you drive or ride when the driver had petfiaps r times last month too much to drink? ~r B. Motorcycle 1$ What percent of the tkrre do you usually buckle your safety belt when driving or riding? y,9 On the average, how dose to tfie speed omit do you usually drive? - _ __ 2Q On a typical day how do you usually travel? - _ __ __ How marry servings of foods do you eat that are high in fiber, such as whole grate bread, 21 higt- fiber cereal, fresh fruits or vegetables? (serving size: 1 slice bread, 1/2 cup or 110 ml r-] vegetables, 1 medium fruit, 3/4 cup or 170 ml cereal) How many servings of foods do you eat that are high in cholesterol or fat such as fatty 22 meat, cheese, fried foods or eggs? (serving size: 3 1/2 oz or 100 g meat, 1 egg, 1 oz/slice - or 28 g cheese) In the average week, how many times do you engage in physical activity (exercise or work which Is hard enough to make you breathe more heavily and to make your heart _ ?3 beat faster) and is done for at least 20 minutes? Examples include running, brisk - walking or heavy labor, e. g. dropping, lifting, digging, etc. In the next 12 months how many thousands of miles wig you probably ~, ]drive or ride by each of the fouowing? A. Car, tn,idc, van or SUV Zt~ In general, how satisfied are you with your life? (Include personal and professional aspects) 25 Would you agree you are satisfied with your job? 2 ~ In general, how strong are your- soaal ties with your family and/or friends? - _ _ 2 ]Considering your age, how would you desait>e your overall physical health? (] 12f rww many hours of sleep oo you usuairy get a[ ntghCr I- J J Have you suffered a personal loss or misfortune in the past year? (For example: 2Q a job loss, disability, divorce, separation, Jail term, or the death of someone close to - you) 30 Flow often do you feel tense, anxious, or depressed? 81 During the Past year, how much effect has stress had on your health? 3 2 In the past year, how many days of work have you missed due to personal iNness? During the past 4 weeks how much did your health problems affect your productivity 3 3 wh~e you were working? - ---- How many hours did you take off from work over the past 2 weeks to take cue of side d~ildren, 3Q~ parents or other relatives? (This might include taking children to doctor's appointments, staying ~ hours home with a sick child or parent or calling doctors or health Insurance companies.) Do you have a family history (brother, sister, [ ~ High blood pressure ~_~ Diabetes 3~ mother, father, grandparents) of: (~~ Heart problems Cancer (~ High cholesterol 3 (Do you have: If have currently Allergies ~~ r Taking medication r Under medical care Arthritis (~ r Taking medication r Under medical care Asthma ~~ r Taking medication i" Under medical care Bade pain ~] r Taking medication r- Under medical care Cancer r~ r Taking medication r Under medical care Chrorilc tNOnchltis/emphysema ~ G Taking medication r Under medical care Chronic pain ~ r Taking medication r Under medical care Depression r-] r Taking rr~dtcation r Under medical care Diabetes (~] r Taking medication r Under medical care Heart problems ~~ r Taking medication r Under medical care Heartburn or acid reflux G Taking medication c finder medical care High blood pressure r-~ f- Taking medication r' Under medical care High dwlesterol ~] r Taking medication G Under medical care Menopause ~] r Taking medkatlon r Under medical care Migraine headaches ~] r Taking medication t" Under medical care Osteoporosis ~ f- Taking medication r t.Xider medical care Stroke (--,~ C Taking medication C Under medical care Other condition ~ r Taking medication r Under medical care r---~] Colon cancer screen - Rectal exam When was the last furls you had these preventive ~ 7 Flu shot services or health screenings? - y Tetanus shot -~ Blood pressure ~~ Cholesterol Pap test for Women Curly - __ . • Mammogram - _ ___ &east exam by a physician or nurse ~~ Visited a physician's office or clinic ~] Gone to the emergency room 3$ In the past 12 months, how many tunes have you: ~~ Stayed overnight In a hospital r~ Used atoll-free number for medical advice Used aself-cue book - ~ Been treated with alternative medicine $Q How many women in your natural family (mother and sisters only) have had breast cancer? QQ Have you had a hysterectomy operation? L~ 1, At what age did you have your first menstrual period? (- 42How old were you when your first child was born? r 48 How often do you examine your breasts for lumps? ~- for Men Onlyxoc syDliceble Ni:s;4.:+~~sd'tt_ ZtV~CDficNi~!'{'~QN 45 current mar9tat status ~-- 46 Race/Origin - ~] Whidr is the highest level of education you have achieved? _- _ _ 4$ Expected household income this year? r Increase physical activity Lose weight ~' Reduce alcohol use ~~ In the next 6 months, are you planning to make any changes to ~~ Quit or cut down smoking keep yourself healthy or improve your health? (~~ Reduce fat/cholesterol Intake (- Lower blood pressure (~~ Lower cholesterol level Cope better with stress JrQ In the next 6 months, would you partiapate in a program that would help you to enhance your overatl health? 5 ~, If ava~able, would you like fogow-up information and other services? Concinus Feb 9, 2005; 10:09: 17 EST OlTldbllf 7 customer Toolkit ~~ ~1 ti ' j ~.... r '~ .--. ~ ` ~,:;~ ~ ~ ~ '~ '~~'. Il~__ . ~:~... ~ .~ , :' _ ~: r Table of Contents Page Executive Summary Overview and Process Flow Marketing to Members Brochure Check Stuffers Posters HRA Information Sheet 4 Executive Summary Health-e Outlook Overview As healthcare costs continue to rise, employers are seeing the need for employees to play a greater role in the management of their own health. Health-e Outlook, American Health's online health management solution, promotes wellness education and prevention. It also strengthens our disease management programs, and empowers employees to keep their health problems from spiraling out of control. Using an online Health Risk Appraisal (HRA) designed to determine an individual's risks, Health-e Outlook provides members with information tailored to their health needs, and gives access to online Health Management Programs. These programs are personalized to help members manage their existing conditions and reduce their risks of developing new ones. Key Features and Benefits American Health's Health-e Outlook includes: URAC Accreditation-The Health-e Outlook web portal has full URAC Health Web Site accreditation E-Health Dashboard-personalized homepage for each employee, with health programs, records, stats, reminders and articles Online Health Management Programs-available for Diabetes, Heart Disease, Asthma, Pregnancy, and Fitness and Nutrition; track, graph and report important signs and symptoms, provide action steps and customize diet and exercise programs to each employee's needs r Personal Health Record-online repository for each employee's medical records and family health information; integrated calendar can be programmed to e-mail health care appointment reminders to employees y Comprehensive Health Information-consumer-friendly encyclopedic health information that promotes healthier lifestyles y Risk Assessment Quizzes and Interactive Tools-help employees discover their risk for various conditions and explore their personal health y Health Risk Appraisal-developed by the University of Michigan's Health Management Research Center, this HRA offers actionable feedback on health risks in the form of a wellness profile 'fir Reporting ~ A designated individual at your organization will have access to regular online reports outlining site usage: Site Utilization: quarterly aggregate report outlining visits to the site Top 10 Content Groups: quarterly aggregate report showing the top content groups accessed, with number of visits and percent of total visits y Risk by Prevalence: quarterly aggregate report showing number and percentage of users who are at risk for a variety of conditions y Demographics: quarterly aggregate report showing total number of users registered in that quarter, and breaks down demographics by gender, race and age group Usage: quarterly aggregate report showing general usage statistics, including page views, number of visits, and number of unique visitors to the site Program Participation: quarterly aggregate reports showing the number of members enrolled in the online programs. A summary lists the number of enrollees by program, while program-specific reports reflect progress through the program y HRA User List: monthly member-specific report showing the names of individuals who have taken the HRA in a given month along with the date the HRA was taken 2 Process Flow Chart Member registers on the Health-e Outlook site Member can choose to personalize the site manually or by taking the online HRA Personalize manually: Member selects "Personalize the site for me" and chooses topics of interest from the list Content related to selected topics is added to the member's Dashboard; member can take the HRA at a later date Member can access health articles, health trakkers and tools, Personal Health Record, drug dictionary, calendar feature, and more Personalize via HRA: Member clicks on the link to the HRA Member reviews Important Information about the HRA and the Privacy Statement Member elects whether or not to share personally identifiable information with American Health Share info: PHI is shared with AHH as described in the Privacy Statement; member is eligible to receive any available incentives Do not share info: Only aggregate data shared with AHH; member is ineligible to receive available incentives Member takes HRA, reviews resulting wellness profile Content related to health risks identified by the HRA is added to the member's Dashboard 3 Marketing to Members The following pages contain samples of the printer-ready marketing materials that are included on your Toolkit CD. These materials may be used as-is, or you may choose to private label or co-brand them. Changes may be made to the materials subject to American Health's review and approval. Brochure: this trifold brochure explains at the member level what Health-e Outlook is and how to access the services. r Check Stuffers: these check stuffers remind members of the availability of the Health-e Outlook wellness web portal. They can be used as traditional check stuffers or as mailers, or you can cut and paste the content for use on an employee website. Posters: these posters remind members of the availability of the Health-e Outlook wellness web portal. They can be printed and hung in employee common areas. y HRA Info Sheet: this form outlines the kind of information that is requested on the online HRA, and explains that the best results are achieved when all of the data is provided. It encourages members to make appointments with their doctors if they do not know their blood pressure and cholesterol readings, etc. You can use this to prepare your members to take the HRA. "' ~ Member Demo: this PowerPoint walks members through the registration process, provides a brief overview of the site and the HRA, and shows an example of one of the online health programs. It can be loaded onto an employee website or public drive, or set up at a kiosk for use as a training tool. The demo is saved on the CD as a .ppt file so that you may add your group's PassKey and Primary Cardholder ID on slide 3. Once you have edited the file to your liking, you should re-save it as a PowerPoint show (.pps) for use with your employees. Alive demo of the website is available upon request. 4 Marketing Timeline The following is a suggested timeline to help coordinate your marketing efforts for the Health- e Outlook program around the materials provided to you in this Toolkit. We recognize that not all of the options will work for all customers, and we can assist you in developing a communication strategy that will work for you. r Hang first of Posters series in common areas (cafeterias, break rooms, restrooms, mail rooms, etc.) One month before "go live" date ~ Change posters once a month (for 3 months), once a quarter (for 3/4 of the year) or choose your own fre uenc Two weeks before "go live" date '" Distribute Client Introductory Letter* and Brochure to members :' Distribute HRA Information Sheet Week of "go live" r Arrange for viewing of Member Demo - Redistribute Brochure First pay period following "go r Distribute first of Check Stuffers series with payroll live" - Change check Stuffers every pay period (for 1 year) * The Client Introductory Letter will be e-mailed to you prior to your "go live "date for distribution to members. The letter includes your PassKey and other pertinent information required for registration, and references the Brochure. You are welcome to further customize the letter to better suit your needs. r Health-e Outlook demo registration Following the instructions below allows you to create an account as an employee of the Alliance Holistic Herbs ,, company. Your experience setting up and using this demo mirrors the experience of any member who registers for the site. Please note that you will have access to the HRA upon registration, and will be able to take the HRA once every 6 months. ~P 1. Log onto the Health-e Outlook site at www.health-eoutlook.com. 2. Click REGISTER in the New User box (during subsequent visits, you will simply need to type the UserID and Password for the demo you are creating into the Returning User box). 3. Review the Terms and Conditions and click "I agree". 4. Complete the fields in the registration page. See the screenshot below for assistance. _- The inforrrtatiort we roUect here is protected and secure. You are the urtiy one whet ltas access to it.. Clock here to find out: rttore. • • . ~ • ~ Demo PassKey is ahhts (all lower case, no spaces). Ender the Passf(ey: he Primary card holder ID: t,e Demo card holder ID is 12345. Relationship To card holder Card holder: First Name: Last Name: Eller a UserID: ~-[i] letter.--andh~r nUmberi~ Drily. t!u sµaces- Choose a Password: ~ Retype your 1 Password: Entail: E>;amrJe: JaneSa,IH~~CgMyEroall.,:on~i }'not ar+ra{t wsill NnT @e ¢hared ur wed far msM~kina I would like to receive email newsletters as: kelF• ZipCode: Plain Text r HTML ~ No newsletter I I would like to receive Personalized Messages as: aeip C' Plain Text ~ HTML r No messages I would like to receive Disease Management-Case Management assistance: kelp t Yes ~ No Cordad Number: help e ~• ~ r r r Name: First Name: MrI: Last Name: DOB: Aloatll *'. Dun •: You ''• Gender: t Male-r~Female Height ~ ft I" .J in Weigh: Ibs Pregnant? !" Yes ~ No SAYo Your UserID is kerrcounty (all lower-case) Your Password is 090507 Complete the rest of the registration information and click Save. You will then be able to access all of the functions of the website, including the HRA and Online Health Coaches. ~' VERITY NATIONAL Tom Bartlett h 21o.aa~ aco, t. ~ 10.42-466 ._ ~10213.9ll6 TBartlettC~?VerityNatio;~ai_com '~ VERITY NATIONAL Lynn E. Taylor F,. ~~ to aa2 a~~~a 2.o.3a~ , l 1 lTaylorCa?VerityNaGuneLcom The healthcare battle rages! General Motors charges $1500 extra per car to cover its employee benefits. Starbucks spends more on benefits than coffee beans. California now makes employers pay for acupuncture... chiropractors... and infertility treatments. Other states are moving to mandate employer-paid coverage. Total costs for healthcare could soon exceed total profits in industry... and are soaring across America. i -.~_ ..;~ -a v We're in this fight together ^ Working to keep benefit costs in line with your budget ^ Serving. public and private employers like you for almost 20 years ^ Designing new approaches to cost control... administering Benefit Plans with superior results (please ask our clients!) ^ Bringing Texas-based expertise to the turbulent national benefit landscape ^ Staying close to your staff... close to your special needs 1" , ~` ((4(~ e Wi'.~~ r .v+i7 What we do ^ Help organizations practice self governance through state-of--the-art benefit plans ^ Administer medical, HSA, HRA, FSA, dental, vision, disability, and other insurance benefits ^ Coordinate reinsurance, network, pharmacy, lab, wellness, disease management, medical case management, and pre-certification services ^ Consolidate online benefit eligibility and billing for all group coverages ^ Bring re> bear select resources that share alike-minded resolve fur client interests ^ 14lanage programs for insurance carriers, using sophisticated document management and financial systems We're here for you: wi+,h verity Na~tiona~ u's ail anour vou_ 'icnti~ ~t ~~ rir,Nti 1~1Ai !~.~ppPn in your day? Whom we serve Proud to oversee benefit plans for more than 30,000 employees. Honored by a tnix of blue-chip employer groups of various types and sizes-some of which have been with us more than 10 years: ^ Manufacturers ^ Hospitals and physician practices ^ Financial institutions ^ Universities ^ Municipalities ^ Professional firms Long-term client relationships include: ^ A large anesthesiology practice in Houston ^ A century-old university in San Antonio ^ A credit union with over $1 billion in assets ^ An international gas exploration and production company ^ A heavy equipment distributor ^ Banking companies, both public and private ^ Qne of Americas 10-largest insurance mutuals, an A-rated carrier that moved ro Veriry National f=rom a GE subsidiary ^ And many more... 800.840.3977 www.veritynationaLaxn Verity National Group, Ittc. -1 ~~ Why we excel i There are FIVE PERFORMANCE MEASURES t~~ wh;r_I~ ~~~~; ~- -~-- Verity National Team is held accountable evF;ry ~iuy. wi a ~.,. with all due respect, we believe set us apart fr~~i i .~ti~~~,r~ i~~ our field 1. Extraordinary persona! attention ^ Fierce devotion to assuring your immediate, open access to our friendly, bilingual, San Anronio-based staff. ^ Great respect for your proprietary financial, personal, and health-related information. ^ Sincere interest in resolving issues of concern. 2. A passion for speed ^ All clean claims processed within five business days. Actually, they are processed in about Eive hours, bur no one believes us until they become a client. With our remarkable record of paying quickly and accurately, we've been designated as a "Star Payor° by the ~7(Xa5 True Choice Network. The honor is not only a cherished sig n of our service, it provides carrier-level discounts at ma}or hospitals and medical centers across Texas. ^ Customer Service calls are answered within 15 seconds: the call abandonment rate is under 24/0. ~`L'e assume the few that drop the line must have taken another call; we try not to take it personally. ^ Issues are resolved with a single call 95"'0 of the time. Customer Service reps have access to the same information that a Claims Examiner does, and alI have claims processing experience to facilitate on-the-spot resolution. 3. U ncomprom ised accuracy ^ Financial and procedural accuracy exceeds 99%. Routine claims may be auto-adjudicated, but no claim is auto-released. A tenured, focused Examiner reviews every claim before approving payment. We administer benefit plans and funds as if they were our own. 4. Technological strength ^ Our state-of--the-art data center was originally designed for the Fortune I00 Martin Marietta... underlying our immensely valued reputation as not only "High Touch," but "High Tech" too. For technicians in the know: ^ We operate on a unified system platform in a Microsoft Windows environment. ^ We have successfully integrated Electronic Data Interchange (EDI) in over 80% of our operations. ^ Workflows are driven by digital images, regardless of the type of incoming data. ^ Application systems are database-oriented and are optimised in-house, making it possible to offer virtually unlimited alternatives for data management and customized reporting. ^ Other features include CISCO routers; Astaro firewalls; Tier I ASP facility access; Disaster Recovery plans, and much more. 5. Team of deep experience a Executives and employees with great backgrounds... great talent. Many years in the complexities of healthcare and insurance; careers in corporate management, operations, law, finance, and more. We know what you're up against. ^ Real pros. Close partners. On constant call. 2.4/7... 25/8... whenever we're needed. Come see us... get to know us. 25/8? Either we are really, really reliable or we hold soi7ie. power over the space-time continuum. Ether way, you can't lose, right? 800.840.3977 www.veritynational.com Verity National Group, Inc. And now, a word from our clients '' ~~ ~ .~. rr + '~' ~ W `y, ~' } .' ,w ~~, ~: - -'~ .~- _~ "The best value for my money--lowest cost at most reasonable benefit levels. " "Recognition by my employees of the value I'm providing them. "Administration that maximizes control of both benefits and costs. " "Excellent service that minimizes healthcare concerns for my team and their families...and increases their satisfaction in an increasingly tough environment. " "Experts that keep our HR and Finance execs out of welfare benefit management and allow them to focus an our business. " What I get from the Verity National team __ , __ ____ _. UVi;il~~ w2 hope cur work speaks for itself. (and we believe it does) we certainly don't mind if other ueople du ii for us. 'it, "Between the online resources Vei'iry National makes available. For us> and theirfast and accurate handling of employees' medical claims... I now spend only a few hours a week on the benefit portion of my responsibilities;' Human Resources Manager, major metropolitan municipality "i see this as a great partnership of two companies striving for success. We surely have come along way in the last two. years. This is only the beginning of our success story." 2nd Vice President, large insurance carrier "I know Iwas ahigh-maintenance client. But you all handle high-maintenancedients well. I'm doing all kinds of work I didn't have to do when I was with Verity." HR Manager after six months with a competitor TPA "Verity National health plans allow us to do what we do best... take care of our patients." CEO and Founder, Group Medical Practice `All myself insured cases are currently being administered by insurance carriers. I carne looking for atZ adminisu~ator that would be willing. to handle my 100 and 2Q0-life groups. I have found much more than I was expecting in Verity hational." Vice President, Employee Benefits, one of the nation's largest insuranceagencies "We have-found that you and the staff have done all that we expected and more. With. this in mind; we would nor hesitate to recommend you to anyone considering you for these services." SVP for NR, San Antonio-based financial institution "As business owners, we know what it takes to protect your most valuable asset: Your employees. 'That's why we work with Verity National to provide affordable, expanded benefit solutions to your company." Chairman, Texas-based. insurance broker (and Verity National client> $00.$40.3`)77 ww4v.veri[ynaronai.com Verity National Gtoup, lnc. ~* VERITY NATIONAL LEADERSHIP Bruce J. Gilbert Chief Executive Officer Bruce, a principal in Verity National, has nearly 30 years of experience in legal, business and insurance environments. An attorney and former litigator, his background includes management of multi-state claims operations, strategic planning and operational analysis, data migration and systems conversion, and the development of medical and indemnity cost-containment initiatives. A graduate of Dickinson College and the Duquesne University School of Law, Bruce has held senior executive positions with third-party administrators, managing general agencies, and a Fortune 100 health insurer. Laurie H. Burke President and Chief Financial Officer Together with two other partners, Laurie is involved in overall executive management and governance of the company. As Chief Financial Officer, she heads finance and treasury functions, including financial planning, accounting, controls, and bank relations. Previously, she was a partner in a national consulting firm analyzing corporate financial strategies and results and communicating them to Wall Street. Laurie's clients included AT&T, Bank of America, CIGNA, Delta Air Lines, Time Warner, and United Technologies. A native of Dallas, she holds both MBA and undergraduate degrees from The University of Texas at Austin. fames Reid Executive Vice President and Chief Operating Officer Jim, a principal in Verity National, is responsible for optimizing company performance; motivating and developing staff; expanding significant client relationships; and the allocation of resources. He has been involved in insurance and healthcare for over twenty years. A former vice president of a Fortune 100 health insurer, Jim's expertise includes provider contracting, network development, insurance program management, strategic planning, operational analysis, data migration and systems conversion, and Texas nonsubscription coverage. ~* VERITY NATIONAL LEADERSHIP Thomas E. Bartlett Senior Vice President, Business Development Tom Bartlett has been involved in insurance and healthcare for nearly twenty-five years, specializing in carrier relations, program development, production underwriting, marketing field operations and market research. A graduate of the University of Oklahoma, he carries general lines licenses in Texas for both life/health and property/casualty coverages. His primary responsibilities for Verity National include strategic analysis and expansion of carrier relationships and distribution channels. Lynn Taylor Vice President, Client Services Lynn has more than twenty years of experience in insurance and healthcare. A graduate of Indiana University Fort Wayne and former underwriter, she has handled large group medical contracts and overseen daily operations for both insurance companies and third party administrators. Her duties have included staff oversight and management, stop loss administration and reporting, claims processor training and auditing, and large case management. At Verity National, Lynn's primary responsibility centers upon her service as the key contact for select human resource professionals and broker partners, with cross-functional authority to review and resolve any and all problems or concerns they may have with respect to their employee benefit plans. ~* Lynn Taylor * 210.442-4699 * LTaylor@veritynational.com A Presentation of Verity Smart Card Services SEPTEMBER 2007 ~* THE VERITY SMART CARD Verity National Group was among the first to incorporate the debit card for use with FSA accounts. That technology is now grandfathered among select healthcare administrators, and is not readily integrated with the debit or credit card offerings of financial services firms, making us one of few Texas businesses offering this sought-after service. Today, Verity National is one of an even more select group offering FSA, HSA and HRA accounts on a single "smart card." At the majority of Verity National's client companies, introduction of the debit card increases employee involvement by a factor of 2-3 times historic program participation. That means a significantly higher percentage of employees are taking advantage of the opportunity to use pre-tax dollars for essential expenses...and simultaneously lowering their taxable income. (When employers offer the debit card in concert with an Employer Contribution to a Flexible Spending or Health Savings Account, we find that employee participation typically soars to 70+%.) Experience has shown that the Verity Smart Card increases the number of employees who participate and the annual contribution per employee. The related increase in FICA tax savings (net of additional administration costs) is significant enough to impact the employer's bottom line... and/or to offset the rising cost of other components of employer- funded benefit plans. If an employer would like to consider making an Employer Contribution, Verity National is pleased to analyze multiple scenarios to guage projected savings to assist in that decision process. ~* THE POWER OF A VERITY SMART ,-- ~_ .~ Election made ~~: ~' ~: FSA/HSA $$$s deducted at payroll .`_. r .-1 Employee seeks appropriate services Traditional Method... Employee pays provider out-of-pocket l ~ Employee completes and mails or faxes claim form and receipts to TPA ` ~ Administrator reviews claim ~ and receipts Tom- -- Administrator cuts check or issues denial letter to ~ employee and balance is adjusted accordingly ® ®®I Employee receives ~ ' reimbursement check and deposits or cashes it With the Card... Employee pays provider for eligible expenses with pre-tax dollars - at time of service Verity National reviews claim `* online for eligibility and issues receipt request if ~ deemed necessary w _.. ... _ _ _ _ L `-'~ .Q ~ tC ~ _ {i Y ~ ~ t~ N J ~ N O (6 L ~ O` N N (U m O ~ N c ~ ~ 'uN-i coo 3 ~ T Q O O Q O .C •~ (V ~ ~ ~ ` Q ~ ~ o c ` c v ~ fn N ~ E O 7 N ~ ~ ~ ~ ~° ~ ~ ~ '~ •X ~ (4 N ~ ~ 6 U Q m Z O N N o Q ~ IJJ V ~ O a .~. ~ (6 ~ N ~ ~ ~ E ~ _ O 'O ~ ~ ~ ~ X O »-O y- aoi a`~ ~, T Q Q ~ ~ N 4? Z ~ O °- W O Z ~ ~ rn ~ U C ~ ~ ~ c N U ~ C T N O E i ~ rn N C m -~ ~ ~ Q O Z o c U ~ ~ (O Q Z ~ Q ~ m fT6 ?i Q ~ Q N ~• ~ N ~ ~ - ~ ~ ..Q ' ~ .L-. N to ~ C ~~~ ~O ~ (V ~, -O m ~ a`> ~ O O ~ Q O O ~ N in ~ uoi ~ Q ~ N O c .v (V (n N ~ ~ U ~ ~ o ~ "' ~ O _ `" a> °' a i ~ _~ m m '~ ° +r C n ~ co o c a o Q a~ ~ ° ~ ~ ~ cn ~ ~ m c O rn ~ ~i ° ~ .~ - a~i ~ ~ =-° a ~ '~ 0 N c Q- in N c ~ o C] ~ o N O X N o U U 0 ~ am, ~ O o c0 („) Q N . N ~ ~'' O O ~ O ~ ~~- ~ O O OO N~ ~ O> (~ C O '~ j C6 O c0 O ~ O O N '~ O O O M ~ N ~ ~ i ~ N L . O ' O /n O ~ O O ~ N C C~ C O ~ (6 CU N N N ~ j, 0- O- N ~ N ~ 2 - - i "O w C O -Q c In f6 a .n u f6 U cv O d 'O CO c0 C .O t m N '~ ~ ~ = c ~ ~ ° _° U ~ m = N ~ ~ x u i a~ o ~ ~ c ° "a m .._ aNi co F- ~ ~ c ~ o ~ ~ Q o t n F- U ~ C ~ a a> ~ .n . ~ ~ U V `p) N ~ CU ~ OT ~ ~ N ` ~ o -~ o o o.. ~ ~ a a x c g -a ~ a ~ T ~ ~ D ~ °~ c Xa a c ~ o ~ ~ ~ ~ ~ ~ ~ o c o 0 0 ~ ~ ~ E o ~ Q c ~ ~ -° c t6 ~ n ~ Z Z >- V~ >, ~ ~ z o - Q m ~ ~ ~ rn cu u.l m to _° a"i to ~' o o ~ o ~ n 3 a i to N ~ ~ N p ~ ~ z ¢ ji ~ c ~ ~ c LL.I U o u- U Q a~ v Q 3 Q Q Q Q -° o Q o ~ m m m fl. ;~ c o °~ '~ ~ ~' = ~ 4 ~+ n ~+ a `m ~ ~ m ~ o y w w c Q Q ~ Q U c 4 a> -a ~ ~ o 7 O w fn 'O 4 ~ ~ Z y 0 c ... T ._ T ~, c -o d ~ Q U 3 y x ld ~ 4 O U ~ ~ ~ v LL C' O 7 Q y d ~ c o a' m ~ o ~ ~ c o. >+ m ~ ~' 3 ~ iv c i a 'C ~ °o a' ~ a w x ~ x ~ ~ ~i a° ~° ~ ii R a ~ t i o t°~ '~ .., ~ ~ o ~* VERITY SMART CARD SERVICES Service Cost Basic Plan Setup Fee /Annual Fee Varies by Group Size Annual Renewal Fee Varies by Group Size Monthly Fee per Participating Employee Varies by Group Size Verity Smart Card (per employee per month) Included Custom Plan Design & Document Preparation Included Plan Document Amendments Included Electronic Summary Plan Descriptions Included Employee Communication Materials: Sample Announcement Letter; Review of Eligible Expenses and Procedures; Summary Plan Description; Payroll Stuffers; Resources for Additional Assistance Included Additional Cards for Family Members Included Web-Based Enrollment System Included Customized Electronic Enrollment/Communication Materials Included Attendance at Employee Benefit and/or Open Enrollment Meetings Included for Major Texas Locations (multiple meetings at multiple locations or travel outside of Texas requires an additional charge) Coordination of Required Paperwork with HSA Custodian Included Web-Based/Mailed Participant Statements Included Direct Deposit Reimbursements Included Comprehensive Anti-Discrimination Testing for FSAs Included Data for Schedule A of Tax Form 5500 for FSAs Included Employer Reports: Overall Account Balances, Employee Account Balances and Claim Tracking Reports (Available Online 24/7 or via Verity Accounting Department) Included Employee Reports: 24/7 Web-based Information for Participants Includes Account History, Deposits, Disbursements and Balances Included Programming for Ad Hoc Reporting (per hour) $150 (standard reports included) Toll-free, Bilingual Customer Service Number Included PLEASE NOTE: The fees noted above are inclusive of Verity National's monthly costs for the Verity Smart Card; there are no additional charges beyond those outlined above. Any employer offering of FSA, HSA or HRA programs may be included on the same Smart Card. Reimbursement is instantaneous when the Verity Smart Card is used. Checks and/or Direct Deposits are issued three times a week when claims are submitted via email, fax or U.S. mail. The Verity Smart Card can be used for both Unreimbursed Medical Expenses and Dependent Care Expenses covered in a Flexible Spending Account. FSA pricing does not include the 2.5 month provision that allows employers to amend their document to provide for an extension of the time allowed to incur expenses against a plan year's contributions. To include this provision, the PEPM fee is increased by $ .50. For first full year of City of Garland administration; $5.00 in Year 2, only if enrollment grows to 35% or more of eligible employees. ~* REFERENCES 1. Bastrop County 804 Pecan Street Bastrop, TX 78602 Rose Boehnke, Human Resources 512/581-7120 or rose. Boehnke@co. Bastrop. tx. us 2. Greater Houston Anesthesiology, LP 2411 Fountainview, Suite 200 Houston, TX 77057 Jon Thompson, Director of Financial Services 713/458-4125 or jthompson@imedgroup. com 3. Prosperity Bank 1301 North Mechanic El Campo, TX 77437 Karen Alford, Benefit Administrator 979/543-1238 or kren. alford@prosperitybanktx. com 4. Southwest Foundation for Biomedical Research 7620 NW Loop 410 San Antonio, TX 78227 Linda Wingo, Human Resources 210/258-9810 or lwingo@sfrr. org PLEASE NOTE: Each of the individuals above has kindly agreed to serve as a reference for Verity National and would welcome your call or email. ~* Lynn Taylor * 210.442-4699 * LTaylorC~veritynationaLcom A Presentation of Online Enrollment £~ Consolidated Billing Services SEPTEMBER 2007 ~* ONLINE ENROLLMENT POWERE Verity National's customized enrollment wizard, "BeneView", provides aclient-centric web portal from which to manage benefits. Online enrollment screens allow employees to study benefit offerings, check healthcare- related links, compare costs and features, make selections and changes, and submit electronically to HR from home or work. (If Verity National administers medical or other coverages, employees can also check claim status and view or print Verifications and Explanations of Benefits direct from the BeneView site.) eV FR tw Fwsr.w took Wo ,: ix~ ~ah~.W.~~l _ YOUR COMPANY Bene~*iew Leah. io My Prafde I_-_ _._-__.___..__.._._.._...._____-__.___._ ____-_________-___. seem ea¢aao. Wekome to eenevkw OnIMe'. a.p.xire«y i Gres uwaan n». penorne:.a ~ eM qMe yae ordim .caa. ro yaar.mpay.. b.n.rd eee,pa t iMormalwn. raa~.n>ra.ea. Rened Clove ' parliegainp prwdder lisle -Pad clam stales MedieelClum -plop bmrom daw$ - Medical t WMa Clam Forme Pm¢mntian - Po(M.i eM.r kmu and much much mar.... Dw MeS !~>~ Sea the menu on lM loll hand ode a tlw l.gas below to Maize th.se lama and many mere Regneel Help. }30bJity i:~ ~. is ~1- ti r i~, a.mr sew,. TRUE - 'vVeb¢LLe Nelp Texes Prohders • ~ • l,;vc~.Pepede:..~ €,Mwaeer..._ ~I,mp.wu.ro..~ : s ;ny®m612S~1!7$. AL l,:ua.l BeneView is a single control source for employers to manage eligibility for all benefit plans... programs from multiple carriers...for all employees. An online "accumulator" displays a running total of employee contributions, employer subsidies, and total benefits costs. Once employees have completed their benefit selections, a Confirmation Report is submitted to HR electronically - or can be printed out and submitted with signature. v ~ 1 ~ ~ ~ If a voluntary coverage requires evidence of insurability via • a separate form, BeneView can provide a link to the carrier's ~ website, or alternatively, can provide a link directly to the *~ ~ :~~ requisite form. Verity National can also convert hard copy ~~ forms from carriers for online completion, in English and Spanish. ~` r, ~ =`~ Verity's proprietary technology transmits benefit information to and from corporate payroll systems, insurance carriers, and B ~~~.. .other vendors; an imperative for busy HR executives whose priority is people, not paperwork. (In such a scenario, it also makes perfect sense to delegate onerous COBRA/HIPAA responsibilities to Verity National's Eligibility Team...) ~* CONSOLIDATED BILLING PO Verity National consolidates all benefit bills into a single statement. We handle all payments, credits, corrections, additions, terminations and notifications with every carrier and vendor partner. We also take on the sometimes arduous task of reconciling carrier invoices and resolving "exception issues" relative to the comprehensive eligibility roles we maintain on clients' behalf. NAL We do this even if Verity National doesn't administer the benefit. (Why don't we, by the way?) We do this even if it's voluntary rather than employer-sponsored. Once each month, we submit a single invoice to HR (electronic, hard copy, or both). A detailed list bill is included for review. Clients submit a single payment for all premiums and fees. Verity National does all requisite accounting and remits payments and electronic eligibility detail to each carrier or payee. If your HR department has more important things to do than benefit bookkeeping, please consider Consolidated Billing powered by Verity National: ~ c ~! / ~* / %~~ • One enrollment form for all benefits. • One billing statement for all benefits. • A single point of contact for all enrollment and eligibility questions - ~* for you and your carriers/vendors. • No lost premium due to enrollment errors. • Assistance with underwriting process for voluntary benefits. ~* ONLINE ENROLLMENT & CONSOLIDATE ONLINE ENROLLMENT COST Set-Up Fee Varies with Size of Group and Number of Coverages Annual Renewal Fee Varies with Size of Group and Number of Coverages Online Availability of Plan Documents, Summary Plan Documents & Requisite Forms Included Conversion of Forms (Certificates of Credible Coverage, etc.) from Carriers to Downloadable Format in English and Spanish Included Import and Export of Data from Employer's Payroll System To and From BeneView at Initiation and Completion of Open Enrollment Included Employee Communication Materials: Sample Announcement Letter; Login and Included Password Instructions; Online Enrollment Assistance Included for major Texas Locations Attendance at Employee Benefit and/or Open Enrollment Meetings (multiple meetings at multiple locations or travel outside of Texas may require additional charge) Toll-free, Bilingual Customer Service Number Included ... ADD ELIGIBILITY Set-Up Fee Waived Annual Renewal Fee Varies with Size of Group and Number of Coverages Monthly Fee per Employee $3.00 Maintain All Eligibility Data throughout the Plan Year via BeneView Included Includes 3 Exchanges per Plan Year (more Electronic Exchange of Eligibility Data Between Employer's Payroll System and BeneView frequent exchanges require additional charge) ... ADD ELIGIBILITY and CONSOLIDATED BILLING Set-Up Fee Waived Annual Renewal Fee Varies with Size of Group and Number of Coverages Monthly Fee per Employee $6.00 Single Monthly Invoice to Employer with Detailed List Bill (electronic and/or hardcopy) Included Eligibility to All Carriers/Vendors Monthly (electronic and/or hardcopy) Included Remit Payments to All Payees Promptly Upon Receipt of Client Funds Included Review and Reconcile "Exception Reports" from All Payees Included ~* WHAT OUR CLIENTS HAVE TO SAS About Online Enrollment... "We had heard about online enrollment and always thought it sounded promising. We had no idea it would have the impact it did. Our HR team actually did two weeks work in a matter of a day or two. We'll never go without it again. " -National Meatpacking Employer "I love having all my coverages in one online package. I do all our adds and drops one time, and I'm done!" -County Hospital "I had no idea it would be so easy... and so fast... to complete my enrollment. " - Insurance Services Firm About Consolidated Billing... "We added consolidated billing thinking it was a good idea, and subsequently wondered if we might be able to do it in-house, so we tried it. It wasn 't six weeks later; we realized we needed to leave it up to the experts and begged them to restart it. It's one of the best decisions we ever re-made! " - National Equipment Distributor "I spend two days out of every month reconciling the carrier bill for one of our coverages. Whatever we do with our benefit coverages, I don't want to give up access to Verity National's consolidated billing services. " - Telecommunications Company ~* Lynn Taylor * 210.442.4699 * LTaylorC~veritynational.com A Presentation of COBRA / HIPAA Administration Services SEPTEMBER 2007 ~* COBRA/HIPAA ADMINISTRATION Because of the liabiliy incurred if information is not received in a timely manner, Verity National Group offers COBRA/HIPAA Administration only if it's included with another product, such as medical administration or any of the consumer-driven healthcare products. COBRA administration includes: • Group-specific, actuary developed rates, • Mailing of initial COBRA eligibility notices, • Monitoring monthly eligibility throughout the COBRA period, • Premium tracking and billing, • Monthly invoices, • Adjudication and payment of all claims, and • Issuing updated Certificates of Coverage when COBRA ends. HIPAA administration includes: • Providing Certificates of Creditable Coverage when an individual loses coverage under your plan, • Validating existing Certificates to guard against coverage not required by the law, and • Administering the special enrollment rights. ~* VERITY COBRA/HIPAA SERVICES Service Cost Setup Fee /Annual Fee Varies with Size of Group Annual Renewal Fee Varies with Size of Group Monthly Fee per Employee $2.00 COBRA Administration: Group-specific actuary developed rates Mailing of initial COBRA eligibility notices Monitor monthly eligibility throughout the COBRA period I l d d Premium tracking and billing nc u e Monthly invoices Adjudication and payment of all claims Updated Certificates of Coverage issued when COBRA ends HIPAA Administration: I l d d Provide Certificates of Credible Coverage when an individual loses coverage nc u e Validation of existing certificates to guard against coverage not required by law Administration of special enrollment rights Toll-free, Bilingual Customer Service Number Included PLEASE NOTE: Because of the liability issues raised if information is not received in a timely manner, Verity National does not offer COBRA/HIPAA Administration as a stand-alone product.