The Skinny Option aka. MEC Self-Funding AN OBAMACARE STRATEGY Hammett Marketing Group LLC

For Consideration By Businesses: ◦ With 50+ Employees ◦ Existing Indemnity Plan Clients ◦ With A Significant Number of Hourly-Wage Staff ◦ Currently Offering Limited Medical (“Mini-med”) Coverage Or No Health Insurance Plan To Some Full-Time Employees

The Self-Funded MEC Strategy Employer Provides a Group Health Plan Consisting of Two Separate Components: ◦ A Fully-Insured Limited Medical Plan, and ◦ A Self-Funded Plan Covering Preventive Care Expenses Only Employer Pays up to 100% of the Cost for Employee-only Coverage For Both Plans. Existing or Rollover Clients Continue Current Contribution Levels Total Cost: $110 to $120 per Employee per Month (Depending on Limited Medical Plan Design and Employer Census) Self-Funded Preventive-Only Plan Meets The Current Minimum Essential Coverage “MEC” Standard Limited Medical Plan Provides Employees With First-Dollar Benefits At No Cost As An Alternative To Expensive Individual Major Medical Coverage

“Pay Or Play” EFFECTIVE 1/1/ BUSINESSES WITH 50+ FULL-TIME EQUIVALENT EMPLOYERS (“FTE’S”) MUST OFFER HEALTH INSURANCE OR PAY A PENALTY THE PENALTY IS CALLED THE EMPLOYER SHARED RESPONSIBILITY PAYMENT (“ESRP”)

What Is The Penalty? PENALTY # 1 – IF HEALTH INSURANCE IS NOT OFFERED AND ANY FULL-TIME EMPLOYEE (30 OR MORE HOURS PER WEEK) GETS COVERAGE THROUGH AN EXCHANGE AND QUALIFIES FOR AN OBAMACARE SUBSIDY, THE 2015 ESRP IS: $2,000 FOR EACH FULL-TIME EMPLOYEE (MINUS THE FIRST 30 EMPLOYEES) THE ESRP IS CALCULATED AND APPLIED MONTHLY (1/12TH OF $2,000 = $167/MONTH) THE ESRP WILL BE ADJUSTED EACH YEAR BASED ON THE NATIONAL AVERAGE PREMIUM GROWTH

What Is The Penalty? PENALTY # 2 – IF HEALTH INSURANCE IS OFFERED BUT IT DOES NOT PROVIDE “MINIMUM VALUE” OR IS NOT “AFFORDABLE” AND ANY FULL-TIME EMPLOYEE GETS COVERAGE THROUGH AN EXCHANGE AND QUALIFIES FOR A SUBSIDY, THE ESRP IS: $3,000 FOR EACH FULL-TIME EMPLOYEE WHO GETS A SUBSIDY TOTAL PENALTY #2 AMOUNT CANNOT EXCEED AMOUNT OF PENALTY # 1 THE ESRP IS CALCULATED AND APPLIED MONTHLY (1/12 TH OF $3,000 = $250/MONTH) THE ESRP WILL BE ADJUSTED EACH YEAR BASED ON THE NATIONAL AVERAGE PREMIUM GROWTH

Group Health Insurance Providing Minimum Essential Coverage Must Be Offered To Avoid Penalty # 1 - Group Health Insurance Providing Minimum Essential Coverage Must Be Offered MEC IS DEFINED AS “COVERAGE UNDER AN ELIGIBLE EMPLOYER-SPONSORED PLAN” PROVIDED SUCH COVERAGE IS NOT COMPRISED SOLELY OF “EXCEPTED BENEFITS” LIMITED MEDICAL PLANS ARE EXCEPTED BENEFITS SO LIMITED MEDICAL ALONE IS NOT MEC AN “ELIGIBLE” EMPLOYER-SPONSORED PLAN IS “A GROUP HEALTH PLAN OR GROUP HEALTH INSURANCE COVERAGE OFFERED BY AN EMPLOYER TO THE EMPLOYEE.”

Minimum Essential Coverage MEC – Minimum Essential Coverage FULLY-INSURED PLANS Are Regulated by the States Must Comply with all State Mandates Must Comply with All ACA Requirements SELF-FUNDED PLANS Are Regulated Federally by ERISA (The Employee Retirement Income Security Act of 1974) Do Not Have to Comply with State Regulations and Mandates Must Comply with ERISA and Certain ACA Requirements (Preventive Care and No Lifetime or Annual Maximums) Do Not Have to Provide “Essential Health Benefits” under ACA The Only Applicable MEC Requirements Under ERISA and ACA For Self- Funded Plans Are That Preventive Care Must Be Covered At 100% And No Lifetime Or Annual Limits Can Be Imposed On The Benefits The Plan Offers

Group Health Insurance Providing Affordable Minimum Value Coverage Must Be Offered To Avoid Penalty # 2 - Group Health Insurance Providing Affordable Minimum Value Coverage Must Be Offered “AFFORDABLE” MEANS THAT THE EMPLOYEE’S SHARE OF THE PREMIUM DOES NOT EXCEED 9.5% OF W-2 EARNINGS “MINIMUM VALUE” MEANS THAT AT LEAST 60% OF THE ALLOWABLE MEDICAL EXPENSES COVERED UNDER THE PLAN WILL BE PAID BY THE PLAN (I.E. THE EMPLOYEE’S COST THROUGH DEDUCTIBLES, CO-PAYMENTS, CO-INSURANCE, ETC. WILL NOT EXCEED 40% OF THE TOTAL COST)

Although All Applicable Minimum Value Regulations Have Not Yet Been Issued, It Is Likely That The Self-Funded Preventive-Only Plan Will Not Meet The Minimum Value Requirements THEREFORE, AN EMPLOYER USING THE SELF-FUNDED MEC STRATEGY MAY BE EXPOSED TO PENALTY # 2

Using The Self-Funded MEC Strategy Minimizes An Employer’s Exposure To Penalty # 2 However...Using The Self-Funded MEC Strategy Minimizes An Employer’s Exposure To Penalty # 2 Only Employees Earning Between 133% and 400% of the Federal Poverty Level 1 are Eligible for Subsidies ◦ Subsidies Grade Down As Income Increases Coverage on the Exchanges Will Be Expensive For Many Hourly-Wage Employees Even With a Subsidy The No-Cost Employer-Provided Limited Medical / Preventive Care Plan Will Be an Attractive Alternative 1 133% of 2013 FPL is $15,282 single and $ for a family of four 400% of 2013 FPL is $45,960 single and $94,200 for a family of four

Alternative OFFER LIMITED MEDICAL (100% EMPLOYER-PAID) AND AN OPTION FOR EMPLOYEES TO BUY UP TO A HIGH-DEDUCTIBLE SELF-FUNDED PLAN THAT IS MORE THAN PREVENTIVE-ONLY AND MEETS MINIMUM VALUE (INSTEAD OF MEC) AND AFFORDABILITY REQUIREMENTS If Minimum Value is not met by the Skinny Plan

Analyzing The Alternative ADVANTAGES Avoids Both ESRP Penalties PROBLEMS Because Employees Are Offered Minimum Value Affordable Coverage They Become Ineligible For A Subsidy On The Exchanges The Total Cost Of A Minimum Value Plan Will Much Higher Than A MEC Plan A High Deductible Minimum Value Plan Will Not Appeal To Many Employees Most Of The Cost Will Fall On the Employer Because Of The 9.5% Affordability Test

Will Employees Be Subject To A Penalty? Under Current Guidance, It Is Possible that Having MEC Coverage (Not Minimum Value) Could Be Sufficient To Exempt Employees From The ISRP (Individual Shared Responsibility Payment) Penalty

What About Employees Who Want Better Coverage? “Carve-out” Plans Are Likely To Be Deemed Discriminatory Under ACA And Can Result In Fines That Are Larger Than The ESRP Penalties A Broker Can Help Employees Obtain Individual Coverage Either On Or Off the Exchange ◦ Effective 1/1/2014, Insurers Can’t Deny Applications Or Impose Pre-Existing Conditions Limitations Consider Increasing Salaries To Indirectly Help Employees Pay For Individual Coverage

Disclaimer Hammett Marketing Group has prepared this document with information to the best of our knowledge and belief in order to assist employers in assessing their options with regard to compliance with the Affordable Care Act. Nothing contained herein may be construed as providing legal advice. The Affordable Care Act is complicated and the regulations implementing it are evolving. Hammett Marketing Group is not responsible for damages resulting from any legislative changes or regulatory interpretations of the Affordable Care Act or related legislation or for any fines or penalties an employer may incur.

Self-Funded Minimum Essential Coverage (“MEC”) AN OBAMACARE STRATEGY Hammett Marketing Group LLC