American General Life Companies

FOR PRODUCER USE ONLY-NOT FOR DISSEMINATION TO THE PUBLIC 1

February 2013

Big Changes for Small BusinessesJay Drucker, VP of Accident & Health Products

Why Offer Health Insurance?

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• Employers offer health insurance as a means to attract and retain quality employees.

• Group insurance allows employees and their families to obtain health insurance without underwriting.

Health Care Reform: Patient Protection & Affordable Care Act

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• Fact: Effective January 1, 2014, Employers with < 50 employees are NOT required to provide health insurance for their employees.

New Alternative to Providing Health Insurance

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• A defined contribution or money purchase approach vs. providing traditional group health insurance

How Does Defined Contribution/ Money Purchase Option Work?

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• In lieu of contributing/providing traditional group health plan to employees:

– small employer can increase employees’ wages equal to their current contribution

– employee can purchase coverage through a private or public health insurance exchange

What are the Benefits of This Approach?

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• Small Employer Advantages:– Out of the Insurance business– No administrative expense– No employee complaints about:– benefit structure of plan– claims handling

• Employee Advantages:– Freedom to choose a plan that best fits their needs– Reduced out-of-pocket expense if they quality for premium subsidies

An Example of Defined Contribution Approach

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Small Employer: Employee:

Widgets Inc. John SmithLess than 50 employees Married with 2 children

Household annual income of $60,000

Defined Contribution Impact to COMPANY’S Bottom Line

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• Total cost of group health insurance for family of 4 is $1,000/month

• Current company contribution is $300/month (employee's portion is the remaining $700/month)

January 1, 2014: Defined Contribution/No Group Plan Provided

Increase to John's salary $280/month

Additional SSI (6.2%) + Medicare (1.45%) $21.42/month

Total cost to company $301.42/month

Difference between providing traditional group health coverage ($300/month) and providing defined contribution ($301.42/month) is only $1.42/month

Additional Funds Available to Employees for Health Insurance

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• Total cost of group health insurance for family of 4 is $1,000/month

• Current employee contribution is $700/month (company’s portion is the remaining $300/month)

• January 1, 2014: company provides John:

– additional $240/month ($280 - $40 income tax)

What is John’s contribution?

Federal Subsidy Calculation

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• John’s household income is between 250-300% of fed poverty level

• Contribution capped at 9.5% of his household income of $60,000

• = $475 per month

• Balance of health insurance cost is paid through a federal tax subsidy*

*Family of 4 maximum household income eligible for a subsidy ~ $92,200/year

Based on 2012-2013 Federal Poverty Guidelines

Defined Contribution Impact to EMPLOYEE’S Bottom Line

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• Current employee contribution is $700/month (group health insurance)

• January 1, 2014, company discontinues group health, provides extra income to employee to purchase insurance via the exchange

*John’s max contribution via exchange is $475/month – rest of cost is covered by a federal subsidyJanuary 1, 2014: Defined Contribution/No Group Plan Provided

No company group health ins. contribution + $700/month

Extra income from employer minus taxes + $240/month

Cost of insurance via exchange - $475/month

Total monthly employee savings $465/month

Employee has an additional $465/month in their pocket!

If Company Provides Group Health, No Defined Contribution

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• Employee’s options for health insurance include:– Continue company’s group health insurance plan (approximately $700/month)

– Opt out of company’s group plan & buy coverage through an exchange

• Employee would not have employer contribution through pay increase• Employee responsible for full cost of insurance from exchange

Group Health Provided

No DC/Opt out of Group Plan

DC Offered / No Group Plan

Employee cost: group plan $700/month $0.00 $0.00

Extra income (no grp plan) $0.00 $0.00 - $240/month

Employee cost: exchange $0.00 $475/month $475/month

Total cost to employee $700/month $475/month $235/month

Lowest cost to employee is the defined contribution option.

Win/Win Proposition

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• No additional cost to small employer

• Company no longer administers a small group health plan

• Employees may have significant reduction in out-of-pocket expense

What if Employee’s Income Exceeds Federal Subsidy Qualification?

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• Widgets Inc. raises John’s pay

• John’s household income now exceeds federal subsidy level

• John can reduce out-of-pocket expense with less expensive health plan via exchange

Be Ready on January 1, 2014

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• Whether you support it or not, Healthcare Reform becomes effective January 1, 2014.

• Small business owners have opportunity with new approach to benefit both the employer and employees.

Additional Resources from American General

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• Contact your Regional Vice President:– Bob Clancy, Western US Regional Vice President: (888) 473-3031

– Jamie Leon: Eastern US Regional Vice President: (443) 547-7959

• Health Care Reform Video Series on You Tube: www.youtube.com/americangeneralco

Important Information

The underwriting risks, financial and contractual obligations and support functions associated with products issued by American General Life Insurance Company (AGL) are its responsibility. AGL does not solicit business in the state of New York. Policies and riders not available in all states.

Important Note: Prior to soliciting business, be certain that you are appropriately licensed and appointed with the insurer and that the product has been approved for sale by the insurer in that state. If uncertain, please contact your American General Life Companies representative for assistance.

American General Life Companies, www.americangeneral.com, is the marketing name for the insurance companies and affiliates comprising the domestic life operations of American International Group, Inc., including American General Life Insurance Company.

©2013. All rights reserved. AGLC106672

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