Understanding the Affordable Care Act Sorority and Fraternity Roundtable November 11, 2013 Deb Freeland, Principal Deb.freeland@claconnect.com

Compliance Issues Employer penalties have been delayed, but a number of ACA (“Obamacare”) issues remain Are you prepared to comply in 2014 with….? Health Insurance Exchange notice (10/1/2013) Summary of Coverage and Benefit change notices 90-calendar days maximum waiting period for health benefit eligibility Full-time status/large employer: Have you analyzed whether you will need to comply in 2015 or pay the large employer penalties for no or unaffordable coverage? Affordability – Have you determined if your plan is “affordable” for your employees? Or whether you should make changes to your benefits to be ready to comply in 2015?

Small vs. Large Employer Do you know if the ACA considers your company small or large? How will “control” definition impact small vs. large determination? Do you know how to calculate small vs. large? Do you know what provisions of the ACA you need to comply with? Do you know what opportunities are available? Determine if your state is running its own Exchange (and if so what is its name) or if it will have a Federally Facilitated Exchange. Competing against the Exchange - A new type of benefit evaluation: Exchange offerings vs. employer benefit, which is better? How do the proposed insurance premium rates, provider networks and benefits in the individual market portion of the Exchange compare to the benefits that your organization currently offers its employees? By making employee-only coverage affordable, your employees and their families are disqualified from receiving Exchange subsidies. So, have you evaluated whether your employees would benefit more from the subsidies to purchase Exchange insurance than through the coverage you provide? Is the coverage you provide to your employees for employee-only coverage “affordable” to them? Do you subsidize family coverage? What are the average wages of your employees? Do you know your employee mix (e.g., young singles, single parents, families , etc. )? For small employers (less than 50 employees)… Some states are requiring that employers must have 75% of their employees participate in their SHOP plan(s) and the employer contribute at least 50% toward employee premiums. Do you know what the exchange participation requirements are? For very small employers (25 or fewer and average wages of less than $50,000), if eligible for a small employer premium tax credit, the only way to receive credit is to use the SHOP channel in the Exchange to offer insurance to employees. Small employers eligible for the premium tax credit should evaluate whether their costs + credit via the Exchange are a more cost effective than purchasing insurance without the credit outside the Exchange. Some brokers offering a deal (e.g., reduction on premiums or freezing premium rates for two years).

2015: Potential Large Employer Penalties Law does NOT require employers to offer health insurance Large employer = 50 or more full-time employee + FTEs FT employee = avg. 30 or more hours of service per week FT equivalents = Hours worked in a month by all PT employees divided by 120 Large employers subject to one of two “shared responsibility” penalties if any FT employee receives Exchange subsidies For employers that own multiple companies, the 50 + employees is determined by control group or affiliated service group FT employees based upon “hours of service” per week not hours worked so includes: hours worked plus paid time off (e.g., vacation, disability, FMLA, deployment leaves, etc. ) Special consideration for workers in educational institutions. The law uses Full-Time Employees + Full Time Equivalents for determining if the employer is subject to the penalty BUT only assesses the penalty based upon FT employees. Notice 2012-17: indicates rules will be issued allowing employers a look-back stability period of no more than 12 months for determining which employees are full-time. In addition, employers will have six months to determine whether a newly-hired employee is a full-time employee for purposes of section 4980H and will not be subject to a section 4980H payment during that six-month period with respect to that employee. IRS Notice 2012-17: Indicates that employers maybe subject to a penalty if employers don’t offer employees and their dependents affordable, minimum value coverage and the employee receives a premium tax credit. IRS (Notice 2012-31) proposing three methods for calculating “minimum value”: a calculator that would be developed and available to employers, safe harbor checklist, or certified actuary. IRS (Notice 2012-31): The bulletin also provides that amounts contributed by an employer to an HSA or first made available to an employee under a health reimbursement arrangement (HRA) would be taken into account by the AV calculator. IMPORTANT: Employer’s only pay a penalty (regardless of whether they offer coverage or not) if one of their full-time employees is eligible for premium or cost sharing subsidies. ** “A report issued last fall by HHS found that approximately 98 percent of individuals currently covered by employer-sponsored plans are enrolled in plans that have an actuarial value of at least 60 percent using methods and assumptions similar to those described in this notice for determining minimum value. “ For “minimum essential coverage”, see IRS Notice 2012-31 at: http://www.irs.gov/pub/irs-drop/n-12-31.pdf

Employer “shared responsibility” penalties Penalty only assessed if a FT employee receives Exchange subsidies. Employees ineligible for subsidies if employer coverage affordable No Insurance Coverage Penalty Amount = $2000 x each full-time employee (after first 30 employees) Unaffordable Employer Coverage Penalty If employer fails to offer coverage that is: Minimum essential coverage and minimum 60% actuarial value offered to employees and their children under age 26. Affordable = Employee premium cost for single coverage < 9.5% of household income. Amount = $3000 x # of full-time employees who receive exchange subsidies “Affordable” = the employee premium contribution for single coverage is less than 9.5% of their MAGI household income, or one of three employer safe harbor options exist. (e.g., W-2 wages) Maximum penalty = no insurance penalty Inflationary adjustments to penalties begin in 2015 Employer pays no penalty for Medicaid eligible employees According to 12-28-12 IRS FAQ (and proposed regulation): Penalties not to be paid as part of business tax return. IRS will determine amount owed following individual tax return filing, present amount to employer who can challenge the amount. Once amount agreed upon, invoice will be sent to employer.

Health Insurance and Penalty (HIP) Calculator www.CLA Connect.com/HIP

Preparing for 2015 If a large employer, given the delay in the implementation of the penalties, what are you doing to prepare for the January 1, 2015 implementation? Nothing, there is no need because it is too far off and could still be repealed by a new Congress Assessing affordability of what we offer Have you considered the impact on your bottom line of the employees who don’t current enroll in your benefit offerings? If a large employer, given the delay in the implementation of the penalties, what are you doing to prepare for the January 1, 2015 implementation? Nothing, there is no need because it is too far off and could still be repealed by a new Congress. Issues: have you considered that the look-back measurement period will look at employee hours in 2014 to determine which employees count as full-time and therefore, at which you could be subject to penalties. Need to assess affordability of what we offer. Issues: Consider the three safe harbors. CLA Health Insurance Penalty (HIP) calculator. Other issues to consider: Tracking systems to comply with 2015 information return reporting requirement. Offering either one or an additional plan with a different benefit set to bring down total premium cost while meeting minimum ACA requirement related to 60% actuarial value or a skinny plan that doesn’t cover the full array of benefits. Have you considered the impact on your bottom line of the employees who don’t current enroll in your benefit offerings? Due to the individual mandate, individuals will be required to obtain basic level of insurance and if employer coverage is deemed under the ACA to be affordable (single coverage is less than 9.5% of their household income), then they are most likely to meet their mandate obligation by enrolling in their employer plan unless they can buy unsubsidized coverage via the Exchange for less than the employer plan cost. This increase in participation may not be budgeted for or anticipated by most employers.

Health Insurance Exchanges Competing against the Exchange - A new type of benefit evaluation Exchange offerings vs. employer benefit, which is better? By making employee-only coverage affordable, your employees and their families are disqualified from receiving Exchange subsidies SHOP plans Small employers premium tax credit Determine if your state is running its own Exchange (and if so what is its name) or if it will have a Federally Facilitated Exchange. Competing against the Exchange - A new type of benefit evaluation: Exchange offerings vs. employer benefit, which is better? How do the proposed insurance premium rates, provider networks and benefits in the individual market portion of the Exchange compare to the benefits that your organization currently offers its employees? By making employee-only coverage affordable, your employees and their families are disqualified from receiving Exchange subsidies. So, have you evaluated whether your employees would benefit more from the subsidies to purchase Exchange insurance than through the coverage you provide? Is the coverage you provide to your employees for employee-only coverage “affordable” to them? Do you subsidize family coverage? What are the average wages of your employees? Do you know your employee mix (e.g., young singles, single parents, families , etc. )? For small employers (less than 50 employees)… Some states are requiring that employers must have 75% of their employees participate in their SHOP plan(s) and the employer contribute at least 50% toward employee premiums. Do you know what the exchange participation requirements are? For very small employers (25 or fewer and average wages of less than $50,000), if eligible for a small employer premium tax credit, the only way to receive credit is to use the SHOP channel in the Exchange to offer insurance to employees. Small employers eligible for the premium tax credit should evaluate whether their costs + credit via the Exchange are a more cost effective than purchasing insurance without the credit outside the Exchange. Some brokers offering a deal (e.g., reduction on premiums or freezing premium rates for two years).

What is Your Company Planning to Do? Given the new Exchanges or marketplaces, what is your company planning to do with its benefits? Continue to offer coverage, Add new coverage where no health insurance was previously offered Drop coverage and risk penalties Drop coverage and increase employee wages or add another benefit. If dropping coverage, how will your employee react (impact on culture, morale/production, ability to retain attract talent, etc.)? We haven’t evaluated the impact yet.

Factors Driving Employer Premium Costs Community rating: age and health rating bands Maximum out of pocket and deductible limits Guaranteed issue High-risk pool thrown into Exchange/small group market ACA fees: PCORI, Exchange Reinsurance fee, HIT tax, Cadillac Tax Considerations: self-insured vs. fully-insured

Strategies For Health Care Cost Reduction Fewer full-time workers Offering minimum value or skinny benefit plan No more coverage for spouses Re-allocate contributions: from family coverage to single coverage Change proportion of the premium paid by employer/employee

Strategies For Health Care Cost Reduction (Continued) Increase/decrease wages to adjust affordability Consider associated payroll tax increases Pay non-deductible penalty vs. contribute toward premium Make coverage less affordable to send more employees to exchange Premium vs. HRA contributions : where is the bang for the buck? Definition of 'Health Reimbursement Account - HRA' Employer-funded plans that reimburse employees for incurred medical expenses that are not covered by the company's standard insurance plan. Because the employer funds the plan, any distributions are considered tax deductible (to the employer). Reimbursement dollars received by the employee are generally tax free. The downside to HRAs is that companies may choose whether to start or fund such a plan. Also, if a plan has already been established, the employer has the right to cancel it at virtually any time.

Deb Freeland Principal, Healthcare Deb. freeland@CLAconnect Deb Freeland Principal, Healthcare Deb.freeland@CLAconnect.com 317-569-6230