KAPNICK INSURANCE GROUP

Insurnace • Employee Benefits • Risk Management • Financial Strategies

Flexible Benefits Plan

Sample Expenses for your

Medical Care Reimbursement Account

PHYSICALS

Allowable expenses: • Routine & preventive physicals • School & work physicals

HEARING EXPENSES

Allowable expenses: • Hearing aids and warranties • Batteries for operation of hearing aids

THERAPY TREATMENTS

Allowable expenses: • X-ray treatments • Treatment for alcoholism or drug dependency • Sterilization • Acupuncture • Vaccinations • Hair transplant (if medically necessary) • Electrolysis (if medically necessary) • Physical therapy (as a medical treatment) • Occupational therapy (as a medical treatment) • Speech therapy • Fee to use swimming pool for exercises

prescribed by physician to alleviate specific medical condition such as rheumatoid arthritis

• Stop smoking programs for general well-being

• Massage Therapy, payable with a prescription or letter of medical necessity from your physician stating condition and number of treatments

Expenses specifically disallowed by the IRS or courts:

• Tattoos and body piercing • Religious cult de-programming • Physical treatments unrelated to a specific health problem

(e.g., massage for general well-being) • Any illegal treatment

MENTAL HEALTH CARE

Allowable expenses: • Services of psychiatrists, psychologists, and clinical

social workers • Psychiatric therapy for sexual problems

• Long distance telephone tolls for psychiatric counseling conducted over the phone

• Legal fees directly related to mental commitment of mentally ill person

Expenses specifically disallowed by the IRS or courts:

• Psychoanalysis undertaken to satisfy curriculum requirements of a student

VISION CARE

Allowable expenses: • Optometrist's or ophthalmologist's fees • Eyeglasses

• Insurance for replacement of lost or damaged contact lenses

• Contact lenses • Solutions used for contact lens maintenance • Laser Surgery

MISCELLANEOUS CHARGES

Allowable expenses: • X-rays

• Expenses for services connected with donating an organ • Cost of computer storage of medical records • Cost of special diet, but only if taxpayer can show

that it is medically necessary and only to the extent that costs exceed that of a normal diet

• Weight Loss Program expense due to obesity or specific disease diagnosed by your physician

Expenses specifically disallowed by the IRS or courts:

• Expenses of divorce when doctor or psychiatrist recommends divorce

• Cost of toiletries, cosmetics, and sundry items (e.g., soap, toothbrushes)

• Cost of special foods taken as a substitute for regular diet, when the special diet is not medically necessary or taxpayer cannot show cost in excess of cost of a normal diet

• Maternity clothes • Diaper service • Distilled water purchased to avoid drinking fluoridated city

water supply • Installation of power steering in automobile • Pajamas purchased to wear in hospital • Mobile telephone used for personal calls as well as calls to

physician • Insurance premiums (e.g., medical insurance,

dental insurance, vision insurance, long-term care insurance, etc.)

• Any portion of a premium charge which represents a tax • Union dues for sick benefits for members • Contributions to state disability funds

• The cost of a weight loss program for general well-being

• Prescription drugs, surgical procedures or other medical care for cosmetic purposes

• Vitamins, except when prescribed by a physician for a specific medical condition. A letter of medical necessity from physician must be provided.

e-

Page 1 June 2, 2010

INSURANCE GROUP KAPNICK

0 IL Eligibility Changes Effective Janu y 1, 20 for FSA & HSA Accounts

Due to healthcare legislation changes, many over-the-counter (OTC) drugs and medications will no longer be eligible for reimbursement after December 31, 2010, unless accompanied by a prescription under Flexible Spending Accounts (Cafeteria Plans) (FSA) and Health Savings Accounts (HSA).

However, many OTC items will remain eligible for reimbursement. This table details the eligibility for OTC items. Those items which are highlighted will no longer be eligible for reimbursement after December 31, 2010.

This list was compiled by SIGIS (Special Interest Group for IIAS Standards).

'Category : ,Example ligibility- . Not Eligible Acid Controllers Pepcid AC, Zantac, Prilosec

Acne Creams Clearasil, OXY Eligible

Allergy & Sinus Alavert, Benadryl, Claritin, Sudafed Not Eligible

Antibiotic Products Bacitracin, Neosporin, triple antibiotic ointment Not Eligible

Anti-Diarrheals Imodium, Kaopectate Not Eligible

Antifungal (Foot) Lamisil, Lotrimin Eligible

Anti-Gas Gas-X, Phazyme Not Eligible

Anti-Itch & Insect Bite Remedies Caladryl, Lanacane, Sarna, hydrocortisone Not Eligible

Antiparasitic Treatments Nix, Rid, lice treatments Not Eligible

Antiseptics & wound cleansers alcohol, peroxide, epsom salt, Betadine, Hibiclens Eligible

Baby Electrolytes and Pedialyte, Enfalyte Eligible

Baby Rash Ointments & Creams Desitin, Aveeno Baby Not Eligible

Baby Teething Pain Baby Orajel, Anbesol Baby Oral Gel

Cold Sore Remedies Abreva, Herpecin, Orajel Not Eligible

Contraceptives condoms, female contraceptives Eligible

Cough, Cold & Flu Robitussin, Theraflu, Vicks, Halls, Cepacol, Zicam, Cold-Eeze Not Eligible

Denture Adhesives, Repair, Pain Relief and Cleansers

PoliGrip, Benzodent, Plate Weld, Efferdent Eligible

Diabetes Testing & Aids Ascencia, One Touch, Diabetic Tussin, insulin syringes; glucose products Eligible

Diagnostic Products thermometers, blood pressure monitors, cholesterol testing Eligible

Digestive Aids Lactaid, Lactase, Beano, ' Not Eligible

Ear Care Ear drops, syringes, and ear wax removal; Debrox, Similasin Eligible

Elastics/Athletic Treatments ACE, Futuro, elastic bandages, braces, hot/cold therapy, orthopedic supports & rib belts, Eligible

Eye Care contact lens care, Visine, Refresh Tears Eligible

KAPNVCK Page 2 / June 2, 2010

.. category amp! IlMelii,

Family Planning pregnancy kits, ovulation kits Eligible

Feminine Antifungal and Anti-itch Monistat, Gyne-Lotrimin, Vagisil, Soothing Care Not Eligible

Fiber Laxatives (bulk forming) Benefiber, Fibercon, Metamucil (powder or pills) Eligible

First Aid Burn Remedies Dermoplast, Solarcaine Eligible

First Aid Dressings & Supplies Band Aid, 3M Nexcare, J&J First Aid, non-sport tapes, etc. Eligible

Foot Care Treatment corn & callus treatments, wart removers, therapeutic insoles Eligible

Glucosamine &/or Chondroitin Osteo-Bi-Flex, Cosamin D, Flex-a-min Eligible

Hearing Aid/Medical Batteries Eligible

Hemorrhoidal Preparations Preparation H, Tucks Not Eligible

Home Health Care (limited segments)

Ostomy supply products, walking aids, decubitis/pressure relief, enteral/parenteral feeding supplies, patient lifting aids, orthopedic braces/supports, splints & casts, hydrocollators, nebulizers, electrotherapy products, catheters, wound care, wheel chairs

Eligible

Homeopathic Remedies Boiron and Hyland products Eligible

Incontinence Protection &

Treatment Products Attends, Depend, GoodNites for juvenile incontinence, Prevail, anti-fungals, Calmoseptine

Eligible

Insulin Eligible

Laxatives (non-fiber) Dulcolax, Ex-Lax, Miralax Not Eligible

Motion Sickness Dramamine, Sea-band Wristband, Bonine Not Eligible

Nasal Sprays, Drops & Inhalers Afrin Spray, Ocean Nasal Spray Eligible

Oral Remedies or Treatments saliva substitutes, mouth sore treatments, dental repair, Salivart, Anbesol, Orajel, Dentemp Eligible

Pain Relief (includes aspirin) Tylenol, Advil, Midol, Bayer Not Eligible

Prenatal Vitamins Stuart Prenatal, Nature's Bounty Prenatal Vitamins Eligible

Reading glasses and maintenance accessories Eligible

Respiratory Treatments and Vapor Products Primatene, Bronkaid, Vicks Vapor Rub, Sudacare Not Eligible

Skin treatments Psoriasin, MG217, Dermarest Eczema Eligible

Sleep Aids & Sedatives Unisom, Nytol, Sominex Not Eligible

Smoking Deterrents Nicoderm, Nicorette Eligible

Stomach Remedies Mylanta, Maalox, Turns Not Eligible

INSURANCE GROUP

Dependent Care Reimbursement Rev. 8/06

The Dependent Care Reimbursement Account has been made available to you by your employer through Sections 125 and 129 of the Internal Revenue Code.

Dependent Care Reimbursement permits you to be reimbursed, on a pre-tax basis, for the cost of child care expenses (the child must be under 13 years of age), or for the care of an incapacitated spouse or dependent when those services make it possible for you (and your spouse) to work. To be eligible to use this account, you must be at work during the time your eligible dependents are receiving the care.

You qualify to use this account if: • you are a single parent; or • you have a working spouse; or • your spouse is a full-time student for at least

five months during the year while you are working; or

• your spouse is disabled and unable to provide for his or her own care.

The Dependent Care Reimbursement Account has been designed to meet IRS guidelines. Your expenses will be eligible for reimbursement if the services would be considered an eligible credit under the Internal Revenue Code. Expenses may be reimbursed for services provided:

• inside or outside your home by anyone other than

1) your spouse, 2) someone who is your dependent for

income tax purposes, 3) one of your children under age 19; or

• in a dependent care center or a child care center (if the center cares for more than six children, it must comply with all applicable state and local regulations); or

• by a housekeeper whose services include, in part, providing care for an eligible dependent; or

• Day camp expenses (overnight camp is not eligible)

A taxpayer must provide the name, address and taxpayer identification number of the dependent care provider. If the provider is exempt from federal income taxation under Code Section 501 (c)3, the taxpayer is not required to report this number.

To make sure your situation and the type of care being provided meet IRS requirements, refer to IRS Publication 503 and Form 2441 which is available at your local post office, public library, or IRS office. You must decide during your enrollment period how much money you want to set aside for dependent care assistance on a pre-tax basis. This amount cannot be changed during the plan year unless you have a change on account of and consistent with a change in family status such as:

• marriage • divorce • death of spouse or child • birth or adoption of child • significant change in your spouse's

employment status

The maximum amount you may contribute from your salary to the Dependent Care Reimbursement Account is the lesser of:

• one-half of your taxable income, or • if you're married, your spouse's taxable

income, or • the maximum amount shown on your election form (if applicable).

Section 125 states that any money you have not used for reimbursement by the end of the plan year must be forfeited. So be sure to plan carefully. Budget only for those expenses you know will be incurred.

It may not always be to your best advantage to make use of your Reimbursement Account. For some people, the Federal tax credit may be a better option. For others, the Reimbursement Account is preferable. With whatever approach taken, you cannot use the same expenses for both the tax credit and Reimbursement Account. Further, the amount which a taxpayer may take into account in calculating the tax credit under Code Section 21. will be reduced, dollar-for-dollar, by any amounts excluded from income through the Reimbursement Account.

Insurance • Employee Benefits • Risk Management • Financial Strategies

Staple receipt, statement, Gretchen's House Child Care Centers

or copy of explanation 4531 Concourse Drive

benefit form here. Ann Arbor, MI 48108

Flexible Benefit Reimbursement Request

Part One Print or Type Employee's Name Social Security No.

Part Two Complete Only if Claim is for a Dependent

1.Dependent's Name 2. Relationship Child Spouse Parent

Other

3. Date of Birth

Part Three Reimbursement: I request reimbursement to pay the following itemized eligible expenses which qualify under the health

care and/or dependent care Flexible Benefit Plan.

The area below does not need to be completed if an invoice which provides the requested information is attached to this request.

1.

2.

3.

4.

Medical Care Dependent Care Provider Name Date of Service Charge

Total:

Part Four If no invoice is available from a Dependent Care provider, complete the following:

1 ). Dependent Care Provider Signature Tax Identification Number Date

By checking here, I affirm that I attempted to obtain the Social Security Number/Federal Tax I.D. No. of my Dependent Care Provider, but my Provider refused to disclose this information to me.

The undersigned form, were incurred and that such fully understands expense for payment of that no medical

L..4>

participant in the Plan certifies that all expenses, for which reimbursement or payment is claimed by submission of this during a period while the undersigned was covered under the Flexible Benefit Plan with respect to such expenses

expenses have not been reimbursed, or are not reimbursable, under any other health plan coverage. The undersigned that he or she alone is fully responsible for the accuracy of all information relating to this claim and that unless an

which payment or reimbursement is claimed is a proper expense under the Plan, the undersigned may be liable for the all related taxes on amounts paid from the Plan which relate to such expense. The undersigned further understands

expense tax deduction or credit is permitted for amounts for which reimbursement is made.

Signature Date

This

Beginning Balance:

Area is For Office Use Only Received:

Account Balance:

Sufficient Account

If not, when will

I $ I I

contr. @ Balance: -Yes

-No

funds be available?

I

Subtotal: (Withdrawal):

Ending Balance:

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Gretchen 's House, Inc. Flexible Benefit Plan, Medical and Dependent

Reimbursement Care Account Examples°

The following examples illustrate the tax advantages of the Reimbursement Accounts which will be available to you in the Flexible Benefit Plan. Example 1 demonstrates the tax savings generated by an employee who uses the Medical Reimbursement Account for medical care expenses. Example 2 demonstrates the tax savings generated by use of the Dependent Care Reimbursement Account. It may be advantageous for some employees to utilize the Child Care Credit, available to you when you complete your income tax return, rather than the Dependent Care Reimbursement Account. Participants should calculate the impact of both alternatives in order to determine the preferred alternative.

Example 1: Medical Reimbursement

This example compares two staff members who are single with no dependents, and both have taxable income of $25,000. They will both have $2,000 in unreimbursed expenses for health care (e.g., medical, dental and vision care) in 1996. Employee 1 uses the Medical Reimbursement Account to pay the expenses with pre-tax dollars. Employee 2 does not use the Reimbursement Account and pays for these expenses with after-tax dollars. Using 1996 tax rates, the following table shows that Employee 1 pays less in taxes than Employee 2.

Employee 1 Uses the Account

Employee 2 Pays After Taxes

Estimated Annual Taxable Income $25,000.00 $25,000.00

Less Expenses Reimbursed Through Medical Reimbursement Account ($ 2,000.00) $0.00

$23,000.00 $25,000.00

Less Federal, State and FICA Taxes ($5,342.00) ($5,943.00)

Less Expenses Paid After Taxes $0.00 ($2,000.00)

Spendable Income $17,658.00 $17,057.00

Employee 1 saves $601.00 by using the Medical Reimbursement Account.

Copyright° 1995 BenefitSourceinc.

Gretchen's House, Inc. Flexible Benefit Plan Medical Reimbursement Account Worksheet

Please use this Worksheet to estimate your health care expenses not covered by medical, dental or vision plans. You should estimate conservatively and use only those expenses that you can accurately predict. Any dollars that remain in your Reimbursement Account at the end of the Plan Year are forfeited by law to your employer, and you lose the money.

Listed below are some categories of health care expenses that you (and your family) may incur from year-to-year. Also, you should consider whether you will have expenses that do not repeat annually, such as pregnancy, large dental bills, etc.

Eligible health care expenses are defined in Section 213 (d) (1) of the Internal Revenue Code and are briefly described as including the diagnosis, cure, mitigation, treatment, or prevention of sickness or injury. Please use Section 213 as a reference in order to determine whether your employer will reimburse you from your Account for a particular expense. (Refer to the Sample Medical Reimbursement Expenses brochure)

Prior Year's Estimated Current Expenses* Year's Expenses*

Deductible & Co-Payments $ $

Doctor Office or Clinic Visits $ $

Routine Physical Exams $ $

Surgical Expenses $ $

Emergency Room Visits $ $

Other Hospital Expenses $ $

Immunizations/Well Baby Care $ $

Prescription Drugs $ $

Mental Health or Substance Abuse Services Provided by a Licensed Psychologist/ Psychiatrist/Social Worker or Clinic $ $

Dental Expenses, Including Orthodontia $ $

Vision Care $ $

Hearing Care $ $

Other Hearing Care Expenses $ $

TOTAL $ $

* These expenses cannot include services that were reimbursed by insurance or another source. You also cannot claim these expenses on your income tax return if you request reimbursement from your Account.

Copyright ° 1995 BenefitSourceinc.

Gretchen's House, Inc. Flexible Benefit Plan

Dependent/Child Care Reimbursement Account Worksheet©

In using this Worksheet to estimate your dependent care expenses, you should estimate conservatively and use only those expenses that you can accurately predict. Any dollars that remain in your Reimbursement Account at the end of the Plan Year are forfeited by law, and you lose the money.

Listed below are some categories of dependent care expenses that you may incur each year. Also, you will want to consider whether you will have any unusual dependent care expenses during the current Plan Year.

Note: Expenses are allowable only if the dependent care is work-related. It does not cover babysitting expenses related to entertainment or other non-work related times.

Eligible types of day-care providers are:

• Licensed day-care center

Licensed day-care, home-based

Private babysitter (in your home or their's)

Nursery school

Private pre-school program

Public or private before-school and after-school program

Public or private summer day camps.

Prior Year's Estimated Current Expenses Year's Expenses

Infant/Toddler $ $

Pre-school $ $

Before-school or After-school Care $ $

Reporting days (Child in school only half day) $ $

School In-Service days (Child not in school) $ $

School holidays $ $

School vacations $ $

Summer day camp* $ $

TOTAL $ $

* These expenses must be at a comparable level to other types of providers of day-care.

Copyright° 1995 BerafirSourceInc.

Dependent Care Reimbursement Account - Child Care Tax Credit Comparison©

The following are three examples of the potential benefits that could be realized through the use of the Dependent Care Reimbursement Account. The example will show the use of both the Dependent Care Reimbursement Account (up to a maximum of $5,000) and the Child Care Credit. It may be preferable, in some instances, to use the Child Care Credit instead of the Dependent Care Reimbursement Account.

Employee 1: Employee 1 is a single parent with a pre-school child. Employee 1 earns $18,000 per year and spends $2,400 per year on child care.

Employee 3: Employee 3 is married and both spouses work. There are two pre-school children. Employee 3's family has $50,000 annual income and spends $9,000 per year on child care.

Employee 2: Employee 2 is married & both spouses work. There are two pre-school children. Employee 2 has a family income of $35,000 per year and they spend $7,500 per year on child care.

Employee 2 Employee 3 Employee 1

Adjusted Gross Income Before Reimbursement

Less: Dependent Care Reimbursement Account

Adjusted Gross Income

Less: Federal, State and FICA Taxes

Less: Dependent Care Paid After-Tax

Plus: Dependent Care Income Tax Credit

Income After Dependent Care Expenses

Uses Account Uses Child Care Credit Uses Account

Uses Child Care Credit Uses Account

Uses Child Care Credit

$18,000 $18,000 $35,000 $35,000 $50,000 $50,000

($2,400) $0 ($5,000) $0 ($5,000) $0

$15,600 $18,000 $30,000 $35,000 $45,000 $50,000

($2,879) ($3,526) ($5,257) ($6,572) ($9,276) ($10,665)

0 $2,400 $2,500 7,500 $4,000 $9,000

0 $624 0 $960 0 $960

$12,721 $12,698 $22,243 $21,888 $31,724 $31,295

Should this Employee use the Reimbursement Account?

Little Difference Yes -

This employee increases spendable income by $355 by using the Dependent Care Reimbursement Account.

Yes - This employee increases spendable income by $429 by using the Dependent Care Reimbursement Account.

Copyright ° June 1995 BenefitSourceInc.