THE IMPLEMENTATION OF HEALTH CARE REFORM PPACA Update Presented by Sima Reid, President Quarter Airport Plaza Drive, Suite 200 Long Beach, CA Phone: California License # 0A06716

Historical Perspective Medicare and Medicaid were passed into law in 1965 ERISA / 1974 COBRA / 1986 Medicare Reform / 2003 The Patient Protection and Affordable Care Act (PPACA) /

WHY Health Care Reform? Employer costs continue to increase substantially year after year Individuals wishing to purchase individual coverage declined if they have health issues (most States) Not all individuals who qualify for government programs currently enrolled (i.e.. MediCal, Healthy Families) Segment of our population currently choosing to be uninsured Health care is expensive Health insurance premiums are expensive Need for access to affordable health care 2

The Patient Protection and Affordable Care Act of 2010 HR3590/HR4872 signed into law in March, ,700 page rough draft became the law Largest health related legislation since Medicare/Medicaid Many provisions went into effect immediately Additional employer provisions implemented typically 1 st anniversary following effective date Major portion of the law, individual mandate & large employer mandate to go into effect 2014 Final law with clarifications projected - 200,000+ pages 3

PPACA – The Supreme Court June 28, 2012, The Supreme Court ruled that the individual mandate was legal as it is a tax and congress can levy taxes. Forcing States to expand Medicaid funding was ruled to NOT be legal. The Supreme Court, Chief Justice – The Court does not want to “legislate” and if the people do not like the law, then have Congress change it… 4

PPACA - Overview Already Implemented Beyond 2014 Eliminate lifetime benefit limits Summary of coverage requirements for all plans Individual mandateAuto-enrollment for groups 200+ Require adult children coverage to age 26 Exchange notification requirements for all employers Employer responsibility/ minimum value requirements for 50+ groups; maximum 90 day waiting period Automatic expansion of state small group markets to 100 employees No pre-existing conditions for children under age 19 Employee FSA contributions capped at $2,500 Expanded women’s preventive services to be covered Health insurance exchanges, private coverage subsidies and Medicaid expansion in willing states States can let large group join exchanges, triggering market reforms for all fully-insured large groups Temporary risk pools established for uninsurable individuals Plans must cover preventive services and medical screenings OTC medication removed from FSA plans without dr. prescription Comparative effectiveness research funding tax impacts all plans Refunds due to Medical Minimum Loss Ratio requirements.09% increase to Medicare Tax for $200,000 single/$250,000 couple Insurance market reforms and new coverage standards for individual/small group market plans No pre-existing conditions and all to be covered with guarantee issue The “Cadillac” 40% excise tax goes into effect for all high-value group plans, including self-insured plans Minimum Loss Ratio requirements on health insurers 105h nondiscrimination rules (enforcement delayed) Small Business Tax Credit New coverage appeals process Restrictions on coverage recessions Large employer W2 reporting New national premium tax for fully-insured plans 5

PPACA – Already effective Dependent coverage to age 26 No lifetime limits/restrictions on annual limits Restricted rules on rescissions No pre-existing conditions for children under 19 Preventive services covered at 100% (non-grandfathered) Expanded appeals process W-2 reporting for larger employers Medical loss ratio – $ spent on plan administration versus medical services 6

PPACA – Small Business Tax Credit Started in 2010 Who qualifies? Fewer than 25 FTE’s and Average wages of less than $50,000 per employee Must offer health insurance Employer must pay at least 50% of the premium Cost for working owners and their immediate families excluded Seasonal employees (working less than 120 days) premium excluded For more information… Health-Care-Tax-Credit-for-Small- Employers 7

PPACA – This Year Summary of Benefits Coverage (SBC) in addition to other health plan information Increased Medicare Tax +.09% (Earnings $200,000 individual, $250,000 couple) W-2 reporting for premiums paid in 2012 (Employers issuing 250 or more) Exchange notification expected in July (Notification initially was for March 2013; this has been delayed) Comparative effectiveness research tax 8

PPACA Mandate Are employers required to provide health care to their employees today? What about in the future? 9

What applies to your company? If your company has more than 50 fulltime employees in 2014 you will have to decide to “pay or play”. If your company has fewer than 50 fulltime equivalent employees you are NOT required to provide medical benefits to your employees starting in

PPACA – Calculating FTE If your company has fewer than 50 fulltime employees (defined as employees working on average 30 hours or more per week) are you subject to the employer mandate? MAYBE + = Total Number of Fulltime employees (30 hr. or more per week) Total Hours Worked by part time employees divided by 120 Total Number of Full time Equivalent Employees 11

PPACA Employer Mandate – “PAY OR PLAY” Beginning in 2014, employers with more than 50 fulltime(FTE) employees must provide health benefits to full time employees that:  Meet a “minimum value” standard with regard to the benefits, and;  Meet an “affordability” test with regard to how much an employee must pay for coverage. Failure to do so will result in a fine paid by the employer, which is the lesser of :  $2,000 x no. of full time employees (less 30), or  $3,000 x no. of full time employees who receive an exchange subsidy Employers are not required to provide coverage to part time ee 12

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Calculation of Tax Penalties Penalty for no coverage – ● If a large employer does not offer coverage to their fulltime employees, employers face a penalty of: $2,000 x the total number of full- time employees less 30 Example /100 fulltime employees 100 – 30 = 70 x $2,000 = $140,000 Penalty for unaffordable coverage – ● If a large employer offers coverage to their fulltime employees but coverage is unaffordable and/or does not provide minimum value, employers face a penalty of : The lesser of $3,000 x the number of fulltime employees receiving a subsidy from the State Exchange or $2,000 x the total number of fulltime employees less 30 14

PPACA Penalties Employer penalties under PPCA are… Not tax deductible as employee health premiums Will not go to the employee to help them pay for their health insurance premiums 15

PPACA – Employees Defined At the time an employee is hired, they will have to be identified as either: 1 ) Fulltime – anyone who is expected to work on average 30 hours or more per week or 130 hours per month 2) Variable – part time employees who may or may not work on average 30 hours or more per week or 130 hours per month 3) Seasonal – employees working 120 days or less per year (employers to use a reasonable, good faith interpretation of the term “seasonal employee”) 16

PPACA – Employer Requirements Determining fulltime status – employee definitions:  Variable – not expected to work an average of 30 hours per week  Employers must track “variable” employees’ hours worked to determine if medical must be offered Tracking hours worked: (For Salaried and Hourly employees, different tracking periods okay) Standard Measurement Period Administrative PeriodStability Period Look Back Period Coverage Required 3 to 12 monthsUp to 90 daysGreater of 6 months or Maximum of 13 months & a fraction of a month due to payroll Standard Measurement Period 17

PPACA – Employer Mandate Decision to “play” – What does that mean? “Employer Shared Responsibility” Health Plan must be offered to employees and children to age 26 (If coverage meeting minimum coverage level offered to spouse, then spouse can not buy coverage through the State Exchange). Maximum waiting period 90 days (or 1 st of the month following 60 days) Minimum benefit level required (Not yet established) Contribution maximum applies to employees, not children or spouse Maximum employee contribution = 9.5% of gross pay No contribution requirement for dependents 18

PPACA – Employer Mandate When will the large employer mandate become effective? IRS issued proposed regulations – January 2, 2013 Comments due back - March 18, 2013 Public hearing scheduled – April 23, 2013 Transitional Relief for Non- January 1 st effective date Fulltime employees eligible offered affordable, minimum value coverage as of December 27, 2012 Plan offered to at least 1/3 of all fulltime and part time employees at most recent open enrollment prior to or plan covered ¼ of fulltime and part time employees as of ; all fulltime employees must be offered affordable, minimum value coverage as of

Why not split up your company? Control Group Rules Under Code Section 414(b) and (c) entities with 80% or more combined total voting control (amongst the same five or fewer stockholders who own at least 50% voting control) treated as a “single employer” Only one 30 employee deduction for the whole group if employer does not offer minimum required plan and “pays” the penalty IMPORTANT TO DISCUSS WITH YOUR ATTORNEY 20

PPACA – Individual Mandate If an individual does not qualify for a government program (Subsidy provided for individuals making less than 400% of Federal Poverty Level) Or, their employer does not provide coverage (or a plan meeting the minimum coverage level) (Applies to employed and unemployed) The individual must purchase health insurance or pay a penalty. (Penalty will be paid as a federal tax liability and will be enforced by the Treasury) Penalty – Greater of flat dollar or percent of income  $95 or 1% of taxable income  $325 or 2% of taxable income  $695 or 2.5% of taxable income  After 2016 indexed to inflation (Penalty for children under 18; ½ of individual amount) 21

PPACA – “Covered California” California State Exchange – Called Covered California Two components – Individual Exchange and Small Employer Exchange (SHOP) Multiple insurance carriers offered in the Exchange Individual Exchange – Subsidy for individuals below 400% of Federal Poverty Limit SHOP – Employers under 50 (under 100 in 2016) 22

PPACA – Covered California Individual Exchange Qualifying for a subsidy: Individuals who are offered affordable coverage through their employer are not eligible for the subsidy. 23

PPACA – Tools for individuals Individuals can go to to find out more about qualifying for a subsidy. 24

PPACA – Covered California SHOP – Small employer Exchange (under 50 employees) The same plans will be available in the Exchange as well as outside the Exchange Employees will be able to pick from different plans and from different carriers – one bill expected for the employer (Same set up as Cal Choice) Tax credits allowed for companies purchasing their benefits through the exchange 25

PPACA – 2013 Exchange Notification Employers will be required to advise employees about the State Exchange. Initial notification was to be March Notification has been extended; likely to be in July Enrollment in the Exchange will start in the fall of

PPACA – Health Care Reform Fees Starting in 2013 – Patient Centered Outcomes Research Institute (PCORI) Applies to fully insured and self insured plans Starts in 2013 at $1 per member per year; increases to $2pmpy, then adjusts to a % of national health care expenditures Transitional Reinsurance Fee 2014 – 2016 Applies to fully insured and self insured plans Quarterly assessment $63….. Distributes funds to insurers to help with high risk individuals Insurer Fee 2014 – Permanent Fee Referred to Health Insurance Industry Tax or Premium Tax Fee is to help fund subsidies in the Exchange Applies to fully insured plans only 2014 fee expected to be $8,000,000,000 (8 billion) 27

PPACA – Additional Considerations Non-discrimination rules – effective date has been delayed. When effective, all employees to be offered same plans at same contribution levels. Can not discriminate in favor of highly compensated employees. Auto enrollment – effective date has been delayed. When effective, employers with 200 or more fulltime employees will be required to enroll employees automatically in the health plan when eligible. W-2 reporting for all employers for 2013 earnings Impact of Health Care Reform on spouses with access to affordable/ minimum value coverage 28

PPACA – Next Steps Evaluation of impact – Are you a large employer? Review look back period, administrative period and stability period if large employer Consideration of waiting period Contribution maximum of 9.5% of gross pay Impact of 30 hour fulltime requirement 29

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