Sponsored by : Health Care Reform – What Employers Need to Know Now (Version 5.0) Scott A. Sinder

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4 Key Provisions Affecting Employers Employer and Individual Mandates/Subsidies/Credits Market Reforms/Plan Design Requirements Wellness Exchanges New Taxes New Fees New Reporting Obligations

5 Sponsored by : Key Effective Dates for Employers Open enrollment in Exchanges begins (10/1/2013) Increase Medicare payroll tax by 0.9% on earned income Impose 3.8% tax on unearned income PCORI fee Employers generally must be in compliance with coverage requirements (1/1/2014) Individual mandate and premium tax credits Medicaid expansion Other insurance market reforms Transitional Reins. Program begins Employer information reporting to the IRS on employee coverage (due by 1/31/2015) Transitional Reins. Program ends 40% Cadillac tax on high-cost health plans Provisions not effective until regulations issued Employer coverage notices under FLSA Non-discrimination rules Auto-enrollment of employees States may open Exchanges to large group market

6 Sponsored by : Employer Mandate

7 Sponsored by : Employer Mandate: Pay or Play? – 1/1/2014 Large Employers >50 FT & FTE ees No coverage – $2000/FT ee penalty (>30 ees) (if <95% FT ee) Not offer affordable qualifying coverage – lesser of: $3000/ subsidized FT ees or $2000/total FT ees (>30 ees) Self + children under 26 Excludes overseas & seasonal ees Small Employers exempt

8 Sponsored by : Determining Large Employer Status Count # of FT ees (incl. seasonal) who avg. 30 hrs/wk Determine # of FTE ees by totaling # of hrs worked by non-FT ees (incl. seasonal) & dividing by 120 Add FT ees and FTE ees for each mo. in prev. yr Add monthly totals & divide by 12. Avg. is >50 FTE ees after applying seasonal exception = large employer Seasonal exception: Workforce is >50 FT ees for <120 days / 4 mos. AND excess FT ees are seasonal = NOT large employer

9 Sponsored by : Commonly Owned / Controlled Business IRS rules Each component pays its own penalties Pro-rata share of 30 ee exemption

10 Sponsored by : Other Mandate Issues 90 Day Waiting Period Can Challenge IRS Assertion of Penalty Transition Issues Non-Calendar Year Plans – Delayed Start Date offered 12/27/12 1/3 ees eligible 1/4 ees participating Smaller Employers – 6 mos. to determine employer size for 2014

11 Affordable Care Act of 2010 Compliance Workflow for Pay or Play Analysis Start Does the employer have at least 50 full-time equivalent employees? Yes Does the employer offer coverage to its Full-Time (30 Hours or more) Employees? No Penalties do not apply to small employers. Does the insurance pay for at least 60% of covered health care expenses for a typical population? Yes Does any employee have to pay more than 9.5% of His/Her income for single EE coverage? Did at least one employee receive a premium tax credit or cost sharing subsidy in an Exchange? The employer must pay a penalty for failing to offer coverage. There is no penalty payment required if the Employer offers Affordable coverage. The employer must pay a penalty for failing to offer Affordable coverage. Employees can elect to buy coverage in an Exchange and receive a premium tax credit. No Yes The employer must pay a penalty for failing to offer Affordable coverage. Yes The penalty is $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums. If the employer has 25 or fewer employees and average wages up to $50,000 it may be eligible for a health insurance tax credit. The penalty is $2,000 annually times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums. The penalty is $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums.

12 Sponsored by : Variable Hour Employee Safe Harbors – On-Going Employees Standard Measurement (Look Back) Period (3 – 12 Months) Administrative Period (Up to 90 Days) Part of prior stability period Stability Period (6 Mos. Min.) Change in status during stability period Breaks in service – FMLA + Educational Institution Employees Disability loophole? Transition measurement period min. 6 mos. start no later than 7/1/13 & end no later than 90 days prior to 1st day of plan 2014 yr

13 Sponsored by : Variable Hour Employee Safe Harbors – On-Going Employees Standard Measurement for On-Going Employees Standard Measurement for On-Going Employees Standard Measurement for On-Going Employees 12-Month Stability for On-Going Employees Test Administrative Period

14 Sponsored by : Variable Hour Employee Safe Harbors – New Employees Good faith and reasonable basis for new ees Up to 1 yr init measurement period w/no coverage Combination of Standard Measurement + Admin Period <13 Months Initial MeasurementInitial Stability 12-Month Stability for On-Going Employees 12-Month Stability for On-Going Employees Administrative Period

15 Sponsored by : Transition from New to On-Going Employee A new employee must be tested at the conclusion of the initial measurement period and after the close of the first standard measurement period for which he is employed for the full duration thereof even if the standard measurement period overlaps with the initial measurement period. Initial Measurement Initial Stability Standard Measurement for On-Going Employees Standard Measurement for On-Going Employees Standard Measurement for On-Going Employees 12-Month Stability for On-Going Employees Test Administrative Period Hire Date 1 st Test 2 nd Test

16 Sponsored by : Affordability Safe Harbors Self-only coverage May use more than one: Current W-2 wages (pro-rated if not entire year) Rate of Pay Hourly ees = 130 hrs x hourly rate of pay Salaried ees = monthly salary 100% of Federal Poverty Line

17 Sponsored by : Valiants ability to identify and track the Variable Employee In addition to the normal Full Time and Part Time user defined status codes our customers may now want to track Variable Employees. All the new reports for ACA will run with filters to select the various Status Codes such as Variable.

18 Sponsored by : New Valiant ACA Reports available NOW ACA - Average Hours Report ACA - Look Back Period Report Features Filter criteria such as hourly or salary, full time or part time, selection of hourly earning types. Can be run for any date range to evaluate your optimal measurement period. Can filter number of hours <> so we can track variable employees working > 30 hours /week. Can track < hours so we can see which of our full time employees are not exceeding 30 hours /week

19 Sponsored by : New ACA – Average Hours Report

20 Sponsored by : New ACA – Look Back Period Report

21 Sponsored by : New ACA - FTE Employee Count Available May 2013

22 Sponsored by : Sample Questions: 1.How do I look at my hourly employee group to determine the best look-back measurement period (three, six, nine or twelve months)? 2.What are the negatives if I use a twelve month look-back timeframe?. 3.If I modify my existing plans to now include the Federal Minimum Essential Benefits Plan and I set my single employee cost for that new Minimum Plan at no more than 9.5% of my lowest paid, full-time hourly worker, would I be in compliance with ACA for 2014?

23 Sponsored by : Sample Questions: 4.Will there be a problem if I currently offer coverage to approximately 30 employees, but have 400 eligible full time employees, with any medical carrier in 2014? 5.Will the exchanges that are being built become an available option for me if I have over 50 employees?

24 Sponsored by : Market Reforms

25 Sponsored by : Market Reforms Already in Place – All Plans Coverage up to Age 26 Pre-Ex for Children Free Preventive Care / Womens Healthcare (non-GF only) Primary care physician designation right (non-GF only) Mandatory appeals process rights/notice (non-GF only) MLR (insured only) Premium Increase Reviews (insured only) Claims Review (non-GF only) Uniform Coverage Summary Disclosures (all plans) Annual/Lifetime Limits (Mini-Med Plan Waivers exp. 2013)

26 Sponsored by : No Annual / Lifetime Limits for Essential Health Benefits Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services, including behavioral health treatment Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventative and wellness services and chronic disease management Pediatric services, including oral and vision care

27 Sponsored by : 2014 Market Reforms Applicable to All Non-Grandfathered Plans Out of pocket limitations (= HDHP OOP limits for HSAs) $6,250/self, $12,500/family (2013 Limits) Clinical trial participation right No Pre-Ex Non-Discrimination / Highly Compensated Employees (non-GF)* Auto Enrollment (all > 200 employees)* Employee Exchange Notice / IRS Coverage Rpts (2013/2014)*

28 Sponsored by : 2014 Market Reforms Applicable to All Non-Grandfathered Insured Small Group Plans (< 100 Ees) Essential health benefits State-by-State essential health benefits Minimum Value* >60%; Er contributions to HRAs/HSAs part of MV Community rating/no medical underwriting Deductible limits - $2k/self, $4K/family*

29 Sponsored by : Grandfathering Cannot – Eliminate all benefits to diagnose or treat a particular condition % co-insurance charges co-pays, fixed amount cost- sharing significantly (med. infl. + 15%) ER contribution significantly (> 5%) New or decreased annual limits Change carriers (for insured plans) Switch EEs plans; corporate mergers/sale to avoid compliance Can – (for the moment) Change premiums Some structural changes Change provider network Change Rx formulary Add new employees/enrollees Enroll new dependents Make changes to comply w/law (normal adjustments) (Each Benefit Package Considered Separately)

30 Sponsored by : Wellness Programs

31 Sponsored by : Wellness – Generally Generally – plan participant eligibility, benefits and/or premiums cannot vary based on health factor (HIPAA) Wellness Programs That Satisfy Rules = HIPAA Exception Notice of Proposed Rulemaking to Modify Rules IRS, HHS, & DoL Applies to group plan issuers and group plans Participatory Programs Offered to all similarly-situated individuals Gym membership, health screenings, etc. Incentive / Disincentive cannot be outcome dependent

32 Sponsored by : Wellness – Health Contingent Programs Incentives / Disincentives Based on Health Factors Ok if: Reasonable Alternative Standard (waiver, diet, education program, etc.) unreasonably difficult or medically inadvisable verify w/physician if reasonable circumstances Reasonable Design Notice of Availability Frequency of Opportunity to Qualify (min. once/yr) Total benefit / penalty raised to 30% of premium value Smoking related programs – total benefit / penalty up to to 50% of premium value State Laws Preempted

33 Sponsored by : Exchanges

34 Sponsored by : State Exchange Implementation Federally-Facilitated Exchange (26) Conditional Approval: State Exchange (17 + DC) Conditional Approval: State- Federal Partnership Exchange (7)

35 Sponsored by : State Medicaid Expansion Will Expand (23 + DC) No Expansion (14) Undecided (5) Leaning Toward No Expansion (4) Leaning Toward Expansion(4)

36 Sponsored by : Exchange Operating Models - Examples

37 Sponsored by : New Taxes

38 Sponsored by : Tax-advantaged accounts (HSAs, FSAs, HRAs) Reimburse only for prescribed drugs Penalty for using MSAs & HSAs for non-qualified expenses increased to 20% (2011) Limit Health FSA contributions to $2500/yr (2013) High-income earners (individuals with income > $200K; couples > $250K) increased Medicare wage tax (0.9%, 2013) new Medicare tax on investments (3.8%, 2013) Medicare Part D Subsidy – Er Tax Deduction Eliminated (2013) Cadillac Tax (2018)

39 Sponsored by : New Fees – May Prompt Higher Premiums

40 Sponsored by : Practical Applications (New Fees & Taxes) Legislation requires additional revenue to cover 3 main areas: Conduct research that compares treatment effectiveness Help fund state and federal exchanges Support individual health insurance market 40

41 Sponsored by : 3 New Taxes/Fees Implemented Comparative Effectiveness Research Fee (CERF)* Reinsurance Assessment Health Insurance Industry Fee *Also known as the Patient – Centered Outcomes Research Institute (PCORI) fee 41

42 Sponsored by : Comparative Effectiveness Research Fee Intent of Comparative Effectiveness Research Determine which treatment for a given condition works best Who pays Fee Both Fully Insured and Self Funded Plans Self Funded plan sponsor files federal excise Form 720 and pays fee directly to IRS Length of time Fee is in Effect 2012 – 2019 (first payment due July 2013) Amount of Fee $1.00 per participant (includes dependents) per year 2012 $2.00 per participant (includes dependents) per year 2013 Fee increase is indexed to inflation for subsequent years through

43 Sponsored by : TPAs/Carriers – $25 B ($5.25/mo. or $63/yr per covered life) (3 yr Transitional Reins. Program) SIPs/Carriers – $2/beneficiary (Comparative Effectiveness Research) Carriers – $8B - $14.3B+ /yr Pharmaceutical manufacturers – $2.5B+/yr Medical device manufacturers – 2.3% Per Sale Excise Tax

44 Sponsored by : New Statutory Reporting Obligations

45 Sponsored by : New Statutory Reporting Obligations ̶ Employers W-2s – Health Insurance Value (>250 ees) Ees & New Hires – Exchange & Subsidies Notice (Awaiting Updated Guidance; DoL delayed compliance date until Fall) Treasury Department – Comprehensive Info Re Coverage Provided & Who Is Covered (2014) Cadillac Taxes – Report Amounts To Carriers & HHS (2018)

46 Sponsored by : New Statutory Reporting Obligations – SIPs/Carriers To Enrollees: Uniform Summary of Coverage To Enrollees: 60 days Advance Notice of Material Changes To Plan Not in Uniform SPD (eff. date after Uniform SPD adopted) To Enrollees: Plans Appeals Process & State Consumer Assistance Office (No GF) To Enrollees & HHS: Quality of Care Measures/Wellness Programs (No GF) To HHS: Cost Data for MLRs (Informational for SIPs) To HHS/State/Internet: Unreasonable Premium Increases Notice/Justification (No GF) (Carriers Only) To HHS: Net Premiums Written (by 2014) (Carriers Only) To HHS/States: Claims Payment Policies/Rating Practices/Others (2014) (Carriers Only) Certification to HHS: HIT Data, Systems, & Payment Req. Compliance (Only in 2013 & 2015)

Sponsored by : Health Care Reform – What Employers Need to Know Now (Version 5.0) Scott A. Sinder