What to Expect from the Affordable Care Act January 16, 2012 RI Food Dealers Association

Disclaimer This presentation is for educational and informational purposes only and does not constitute legal or tax advice. This presentation does not create an attorney-client relationship. Please consult your legal counsel or tax advisor before acting on any information in this presentation. To comply with Treasury Regulations, you are informed that information contained in this presentation (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related transaction or matter.

Agenda What’s happened so far Where we’re going in 2014 and Beyond Essential Health Benefits Health Benefit Exchange Individual Mandate and Subsidies Waiting Period Requirements Employer Shared Responsibility Questions

Overview Patient Protection & Affordable Care Act (“ACA”) enacted March 23, 2010 In June 2012, the ACA was upheld by the Supreme Court Many provisions are already in effect, with many more taking effect in 2014 Many regulations pending

What is Already in Effect Dependents to age 26 Preventive services without cost-sharing No lifetime limits on essential health benefits Restricted annual limits on essential health benefits Medical Loss Ratio reporting and rebates No pre-existing condition exclusions for children under age 19 Internal appeals and external review process Summary of Benefits and Coverage documents Emergency services treated as in network

What is Already in Effect W-2 Reporting – For 2012 tax year (W-2s issued by January 31, 2013), employers must report the cost of group health care coverage (IRS Notice 2012-9: http://www.irs.gov/pub/irs-drop/n-12-09.pdf) Things that are technically in effect, but still waiting on guidance: Non-discrimination in favor of highly compensated individuals – non-enforcement guidance has been issued (IRS Notice 2011-01: http://www.irs.gov/pub/irs-drop/n-11-01.pdf) Transparency & Quality of Care Reporting

Coming in 2014 Insurance Market Reforms Essential Health Benefits Health Benefit Exchanges Individual Mandate Federal Subsidies for Individuals under 400% FPL Waiting Periods limited to 90 days Employer Shared Responsibility

Am I a Small Employer or a Large Employer? It depends on why you’re asking You could be a small employer for purposes of determining which insurance market you’re in but be a large employer under the shared responsibility rules Employer size is a pure count of employees whether full time or part time, regardless of whether eligible for coverage Until 2016: 1 to 50 employees = Small group 2016 and beyond: 1 to 100 employees = Small Group

Insurance Market Reforms In 2014 changes to rules affecting insurers will impact plan designs and rates in the small group market Plan designs must meet Essential Health Benefits requirements, increasing coverage Changes to Rating Rules New federal taxes (and state assessments?) will affect rates

What is the Essential Health Benefit Package? Categories Small Employer - Must cover services within ten categories without annual or lifetime dollar maximums Large Employer – if covering an essential health benefit, cannot have annual or lifetime maximums on those benefits Actuarial Value Actuarial Value is the % of total average costs for benefits covered under the plan Small Employer – coverage must be within one of 4 actuarial value tiers Platinum = 90% Gold = 80% Silver = 70% Bronze = 60% Deductible Limit Small Employer – Deductible cannot exceed $2,000 for Individual coverage or$4,000 for family coverage Out of Pocket Maximum Small and Large Employer – cannot have an out of pocket maximum in excess of HSA allowed amounts For 2013 = $6,250 for individual coverage or $12,500 for family coverage Deductible & OOP limits will increase annually Deductible limits can be increased if necessary to meet AV requirements

Essential Health Benefits Ambulatory services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care Categories

Who is required to have coverage? All Individuals are required to have minimum essential coverage beginning January 1, 2014 or pay a penalty Certain Individuals are eligible for an exception Federal subsidies are available Exceptions: affordability (>8% household income for insurance), religious beliefs, incarceration, undocumented immigrant Penalty: $95/year/adult + $48/year for child up to $285/family or 1% of income (whichever is greater) for 2014 increasing to greater of $975/family or 2% in 2015 and greater of $2085/family or 2.5% in 2016 and beyond. Prorated for # months w/o coverage.

Premium Tax Credit This credit helps pay premiums for individuals and their spouse or dependents with a household income between 100 and 400% of federal poverty (FPL) who: Are not eligible for affordable minimum essential coverage from an employer; and Enroll in a plan through an Exchange 400% FPL is approx. $92k for a family of 4

Cost Sharing Reduction Subsidy This subsidy is available in addition to the Premium Tax Credit and helps reduce the cost-sharing for individuals and their spouse or dependents between 100-250% of FPL (up to 350% for Native Americans) who: Are not eligible for affordable minimum essential coverage from an employer; and Enroll in a plan through an Exchange

What is the Health Benefit Exchange? An on-line marketplace for individuals and small employers (and their employees) to shop, compare, and purchase health insurance coverage The Exchange determines eligibility for Medicaid, federal subsidies, and exceptions from individual mandate RI has elected to establish a state-run exchange

Notice about the Exchange Employers are required to notify employees that the Exchange is available This notice is currently due by March 31, 2013 but guidance is expected to delay the requirement

Waiting Periods Effective for plan years beginning on or after January 1, 2014, a waiting period cannot exceed 90 days for eligible employees This includes rules that currently say “1st of the Month following 90 days of employment” Applies whether eligible employee is full-time or not

Am I required to cover employees? No, but . . . Large employers that do not provide minimum essential coverage (MEC) to substantially all of their full-time employees (and dependents) will be required to pay a penalty if a full-time employee obtains a federal subsidy in the Exchange In addition, if MEC does not provide minimum value or is not affordable to a full-time employee and that employee gets coverage in the Exchange, a penalty will be assessed Effective 1/1/14, but safe harbor applies to “fiscal year” plans (e.g. a plan year begins other than on January 1)

6 Steps to Shared Responsibility Step 6: Is MEC Affordable? Step 5: Does plan offer Minimum Value? Step 4: Will a full-time employee receive a subsidy in the Exchange? Step 3: Do you offer MEC to substantially all of your full-time employees (and dependents)? Step 2: Identify full-time employees for purpose of the penalty. Step 1: Are you a Large Employer?

Are you a Large Employer? Step 1: If total of full-time and full-time equivalent employees is 50 or more, you are a Large Employer To determine Employer : Add all hours of service for employees working less than 30 hours/week (but not more than 120 hours/month for each employee) and divide total hours for the month by 120; plus Number of Full-Time employees Example: 30 employees each with 20 hours of service per week = 2400/120 = 20 FTEs + # Full-Time Employees Are you a Large Employer? Note: you need to count hours of service, not hours worked . . . E.g include all time for which the employee is entitled to payment (holiday, vacation, sick time, jury duty, military leave, paid leave) Each hour for which the employee is paid is counted – including paid time off (vacation, sick time, jury duty, etc.) For hourly employees, use actual hours worked For non-hourly employees, use equivalency test “Controlled Group” rules

Identify full-time employees for purpose of the penalty Step 2: Can be determined prospectively or retrospectively Retrospectively: Full-time employee – an employee that is employed an average of 30 hours per week or 130 hours per month Prospectively: Use Look Back Method Employer looks back at a period of 3 to 12 months (the “measurement period”) If full-time during the measurement period, then treated as full-time during subsequent “stability period” which is at least six months long and no shorter than measurement period Identify full-time employees for purpose of the penalty Note: The “look back method” is used solely for determination of number of full-time employees for calculating the tax penalty, and not to determine if employer is a Large Employer subject to the statute. The employer determines the length and timing of the “measurement period” but this determination must be made on a uniform and consistent basis for all employees in the same category. The employer may add an “administrative period” of up to 90 days between the measurement period and the stability period to allow it time of administrative steps, such as determining which ongoing employees are eligible for coverage, and notifying and enrolling employees. This administrative period cannot reduce or lengthen the measurement or stability period, and must overlap with the prior stability period (in that ongoing employees who were eligible for coverage based on the last measurement period must continue to receive coverage)

Step 3: Offer minimum essential coverage to 95% of full-time employees (and their dependents) or, if greater, 5 full-time employees Any employer sponsored coverage will be considered MEC (do not confuse with Essential Health Benefits) “Offer” means employee must have an opportunity to accept coverage at least once per plan year Must be offered to employee and dependents (children) Do you offer MEC to substantially all full-time employees (and their dependents)? While you may meet the “substantially all” test without offering to every full-time employee, if an employee is not offered coverage and obtains a subsidy, you are still subject to a penalty

Will a full-time employee receive subsidy on the Exchange? Step 4: A full-time employee will be eligible for a subsidy on the Exchange only if: Below 400% of FPL Employer sponsored coverage is not Minimum Essential Coverage Employer sponsored plan does not provide “minimum value” Employee’s share of premium for self-only coverage for lowest cost employer plan is not Affordable Will a full-time employee receive subsidy on the Exchange? Note – a part-time employee may obtain a subsidy on the exchange, but you will not be subject to a penalty if one does. The shared responsibility provisions only assess a penalty

Is coverage of “minimum value”? Step 5: Plan’s share of the total allowed cost of benefits provided under the plan is at least 60% A standard minimum value calculator will be made available to employers Is coverage of “minimum value”? Note – a part-time employee may obtain a subsidy on the exchange, but you will not be subject to a penalty if one does. The shared responsibility provisions only assess a penalty

Step 6: Is MEC affordable? Employee’s contribution for self-only coverage for the lowest cost plan offered does not exceed 9.5% of the employee’s household income Safe Harbor allows employer to calculate based upon employee’s W2 wages (Box 1) Alternate Safe Harbors are also available – based on rate of pay for hourly employees (monthly wage) or Federal Poverty Level Is MEC affordable? Note – a part-time employee may obtain a subsidy on the exchange, but you will not be subject to a penalty if one does. The shared responsibility provisions only assess a penalty 2012 FPL for Individual is: $11,170

When does a penalty apply? If do not offer MEC to substantially all (95%) of full-time employees (and their dependents); or Offer MEC but it is not affordable or is not of minimum value; AND At least 1 full-time employee purchases coverage on the Exchange and receives a federal subsidy

What is the Penalty? If you do not offer MEC: Example: $2,000 x number of full-time employees if at least one full-time employee obtains federal subsidy (first 30 full-time employees excluded) Example: An employer with 50 full-time employees would pay: $2,000 x 20 = $40,000 NOTE: For a controlled group, only one 30 employee reduction is allowed

What is the Penalty? If you offer MEC but it is not affordable, the lesser of: $3,000 for each Full-Time employee that receives a federal subsidy; or $2,000 x total Full-Time employees (first 30 employees excluded) Example: An employer with 50 Full-Time employees and 2 receive subsidy would pay: $3,000 x 2 = $6,000

When is Penalty Due? Upon notice from IRS Will have opportunity to respond Penalty is an excise tax – not tax deductible

Transition Rules If you have a fiscal year plan (one that starts other than on January 1st ) Will not be subject to a penalty for employees that will be eligible for and offered coverage as of the 1st day of the 1st plan year beginning in 2014

Reporting Requirements Employers will be responsible for submitting detailed information to the federal government in support of Shared Responsibility requirements Details have not yet been released

What should I be doing now? Identify full-time employees and determine whether you are a Large Employer Consider modifications to Cafeteria Plan to allow employees to enroll or disenroll off-cycle Identify options to avoid penalty Modifications to meet minimum value or affordability standards? Modifications to offer coverage to dependents?

Why continue to offer coverage? Consider why you offer coverage now: Employee recruitment/retention Employee health, productivity, morale Competitive market Penalties could increase Consider costs associated with eliminating coverage: Reduction in total compensation, considerations to making employee whole Increased taxes (FICA) and penalties are an excise tax (not deductible)

Resources General Information and Guidance about the ACA: www.healthcare.gov Dept. of Labor: http://www.dol.gov/ebsa/healthreform/ IRS: http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions Shared Responsibility Proposed Rule: http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf IRS FAQs on Shared Responsibility: http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act

Questions?