Healthcare Reform – What Employers Need to Know An Informative Seminar for Employers of All Sizes Presented by National PEO LLC, Nexus Partners Insurance LLC & Ogletree Deakins, Nash, Smoak & Stewart P.C. January 30, 2013

Disclaimer Health Care Reform is still evolving and subject to change. What we will tell you today is correct to the best of our knowledge as of this moment but is not a comprehensive discussion of all aspects of the Health Care Reform. We are not giving legal advice, not even the attorney is giving legal advice. Certain explanations have been simplified for understandability. There will be exceptions to many provisions we explain. If you are a National PEO client, you may contact us for assistance with any aspect of Health Care Reform. If not, please contact your legal counsel or CPA or health insurance carrier.

Patient Protection and Affordable Care Act Signed by Obama on March 23, 2010 Enacted October 23, 2010 Also know as –PPACA –Affordable Care Act (ACA) –Health Care Reform (HCR) –Obamacare

PPACA Provisions Already in Effect No pre-existing conditions under age 19 Adult child coverage until age 26 Lifetime dollar limits prohibited Annual dollar limits restricted ($2,000,000 in 2013) Donut Hole closed Preventive services with no cost sharing Small business tax credit Summary of Benefit Coverages (SBC) OTC medications not eligible for FSA, HRA, HSA

Minimum Medical Loss Ratio Small business wellness grants 60 day advance notice on material modifications Women’s preventive services with no cost sharing (2013) High earner tax (2013) FSA contributions limited to $2,500 (2013) W-2 reporting of health care costs (2013) HealthCare.gov PPACA Provisions Already in Effect (cont.)

Patient Protection and Affordable Care Act 2014 & Beyond

Essential Health Benefits (EHB) Preventative and wellness services Chronic disease management Prescription drugs Lab services Ambulatory patient services Emergency services Hospitalization Rehabilitative services Maternity and newborn care Pediatric care (includes oral and vision care) Mental health and substance abuse disorder services Self-insured plans have some flexibility with what constitutes EHB

Essential Health Benefits (EHB) Provisions related to plan benefits go into effect as of 2014 renewal date. If no existing plan, then January 1, 2014.

Essential Health Benefits (EHB) Maximum Out Of Pocket Cost $6,250 Individual $12,500 Family

Underwriting Criteria 2013 and prior Medical underwriting - Including dependents Pre-existing conditions Gender Age Tobacco Use Location Claims History No guaranteed issue SIC Code 2014 and beyond Age (3:1) Location (Adjusted Community Rating) Tobacco Use (1.5:1) No medical underwriting No pre-existing conditions Guaranteed issue Large group plans expected to be able to use group claims experience

Health Care Exchanges Virtual insurance store where individuals and small business will be able to purchase coverage directly from carriers.

Health Care Exchanges (cont.) Can be set-up and operated by the State or Federal Government but act the same. Arizona elected to allow Feds to operate the exchange in Arizona Oklahoma ex rel. Pruitt v. Sebelius, No. 11-CV- 30 (E.D. Oklahoma, Sept )

Types of Exchanges Public -Small Business -Individual Private

Types of Exchanges (cont.) Public - Small Business Small Business Health Options Program (SHOP) –Not all States will have them –Companies will be able to buy group policies –Limited to employers with up to 50 employees –Acts as an insurance agent but DIY on-line –Probably won’t be open by 1/1/2014

Types of Exchanges (cont.) Public – Individual -Employers required to notify employees of existence of exchanges in writing by late summer 2013 (actual date TBD) -Open enrollment begins October Individual can buy policy and may be eligible for financial assistance -Individuals can purchase through the exchange even if they have the opportunity to participate in their employer’s plan -On-line transaction but Navigators will have brick and mortar offices

Navigators Individuals paid by the exchanges to guide individuals to the best coverage options. Similar to function of insurance agent today, but compensated by the exchange rather than the insurance company.

Actuarial Value For a given population, averages historical usage and cost for all members of that population and applies them to individuals in similar populations. Does not limit costs for any one participant. Only predicts average or expected cost for entire population.

Coverage Levels Platinum: 88% - 92% Actuarial Value (90%) Gold: 78% - 82% Actuarial Value (80%) Silver: 68% - 72% Actuarial Value (70%) Bronze: 58% - 62% Actuarial Value (60%) Balance paid by insured through deductibles, co-pays and co- insurance

Subsidies and Credits Available only through the Exchanges Not available if employee is eligible for affordable employer coverage Not available if eligible for Medicaid Premium Tax Credits and Cost Sharing Subsidies Available to individuals and families up to 400% of the Federal Poverty Line

Subsidies and Credits (cont.) 2012 Federal Poverty Line (FPL) 400% Individuals$10,834$43,336 Family of 2$14,570$58,280 Family of 3$18,310$73,240 Family of 4$22,050$88,200

Subsidies and Credits (cont.) Premium Subsidies For individuals up to 400% of FPL a/k/a PremiumTax Credit Income X Income Level % = Maximum Premium* *For second lowest cost Silver plan Courtesy of Humana

Subsidies and Credits (cont.) Premium Subsidies Income Level Up to 133% of FPL 133% - 150% of FPL 150% - 200% of FPL 200% - 250% of FPL 250% - 300% of FPL 300% - 400% of FPL Premium as a % of Income 2% of income 3% - 4% of income 4% - 6.3% of income 6.3% % of income 8.05% - 9.5% of income 9.5% of income Courtesy of Humana

Subsidies and Credits (cont.) Premium Subsidy Example Assumptions: Single person Income $28,735 Second Lowest Silver Plan Cost $5,733/yr FPL - $11,494 (est.) $28,735 / $11,494 = 250% Subsidy Calculation: Income X Income Level = Max.Premium $28,735 X 8.05% = $2,313 Premium Tax Credit = $3,420 Courtesy of Humana

Subsidies and Credits (cont.) Cost-Sharing Subsidies For individuals up to 250% of FPL Provides for higher actuarial value plan for same premium. Protects insured from high out of pocket costs. Courtesy of Humana

Subsidies and Credits (cont.) Cost-Sharing Subsidies Income Level Actuarial Value 100% – 150% FPL94% 150% – 200% FPL87% 200% - 250% FPL73%

Types of Exchanges (cont.) Private Large employers Defined contribution plans Employees pick from selection of plans Evolving concept No subsidies available

Pay or Play Large Employers Individuals

Pay or Play (cont.) Large Employer Employer Mandate a/k/a Employer Shared Responsibility Pay penalty for failure to provide affordable coverage (“Pay”) or provide an employee health insurance plan that provides Minimum Value Benefits (MVB) to Full Time employees and meets maximum cost requirements (“Play”).

Pay or Play (cont.) Large Employer (cont.) 50 or more Full Time Equivalents during the Measurement Period FTE based on 30 hours per week Includes PTO hours Excludes owners seasonal workers under 120 days Variable hour employees <30 hours/week count as fractions of an FTE each based on 30 hour weeks Best estimate of hours to be worked if no prior history Common law employer (IRC Sec.6056)

Pay or Play (cont.) Large Employer (cont.) Controlled group (as defined by IRC Sec. 414(b), (c) & (e)) Generally 80% direct or indirect ownership Includes Affiliated Service Groups Seek assistance of your tax accountant Applicable Large Employer Members can “pay or play” differently but the 30 “free” employees must be pro-rata apportioned to all members in the controlled group

Pay or Play (cont.) Measurement Period Standard Measurement Period as opposed to Initial Measurement Period Period of time beginning with effective date (2014 renewal date) and counting backwards from 3 to 12 months at employer choosing Exception for calendar year plans: Any consecutive 6 month period of 2013 beginning no later than July 1, 2013 and ending no earlier than 90 days prior to the implementation date. Stability period can still be 12 months if exception is used.

Pay or Play (cont.) Large Employer Example Assumptions: Employer A has 90 employees, including 20 salaried 40 hrs 70 hourly employees Calendar year insurance policy 6 month Measurement Period (July 1 – December 31, 2013) Step 1 – Separate employee out into FT and not necessarily FT Managers and employees that consistently work over 30 hours / week Each one counts as an FTE

Pay or Play (cont.) Large Employer Example (cont.) Step 2 – Eliminate seasonal employees Each one counts as 0 FTE Step 3 – Variable Hour Employees Add hours worked for all such employees by week or month or pay period Any hour worked in excess of 30 per week or 120 per month are rounded down to 30 or 120 Divide by number of weeks or months in measurement period (13 or 6 in this example)

EE#JulyAugSepOctNovDecTotalFT HrsFTE …705,800 34,80051, Total47.22 Variable Hour Employee FTE Calculation before 30 hour limit

EE#JulyAugSepOctNovDecTotalFT HrsFTE …705,7005,6005,7005,600 33,80051, Total45.97 Variable Hour Employee FTE Calculation after 30 hour limit

Pay or Play (cont.) Large Employer Example (cont.) FTE= 20 Full Time 45 Variable Hour 65 FTE 20 Full Time employees and any Variable Hour Employees who equal an FTE must be offered health insurance.

Pay or Play (cont.) Stability Period Period of time beginning with effective date (2014 renewal date) and counting forwards equal to the length of the measurement period but not less than 6 months Represents the period of time that full time employees will be entitled to participate in employer health insurance plan even if they don’t work 30 hours/week Expiration of Stability Period is a qualifying event

Pay or Play (cont.) Administrative Period Period of time beginning with the end of the measurement period and ending at the beginning of the stability period Allows employers time to determine which employees are full-time and which are not Cannot exceed 90 days

Pay or Play (cont.) Penalties Coverage Not Offered Less Than Minimum Value (MVB) Coverage Not Affordable (MEC) –Penalties are payable monthly

Pay or Play (cont.) Minimum Value Benefits (MVB) vs. Minimum Essential Coverage (MEC) MVB = EHB for at the 60% AV (Bronze Level) MEC = MVB for which employee’s premium cost for employee only coverage is less than 9.5% of employee’s household income

Pay or Play (cont.) Minimum Essential Coverage (MEC) Safe Harbors W-2 box 1 –Net of Section 125 premium costs –Don’t know it until year is over Rate of Pay –Project for year Federal Poverty Line

Pay or Play (cont.) Penalties Coverage Not Offered $2,000/yr per FT employee (>30) in excess of 30 Can exclude offering coverage to 5% of FT employees Triggered when 1 employee receives subsidy from the exchange Coverage needs only to be offered for employee and children under age 26 (not spouse). Can’t be mandatory to enroll. –In my example no penalty due because less than 30 Full Time employees

Pay or Play (cont.) Penalties Coverage Not Minimum Value (MVB) Coverage Not Affordable (MEC) $3,000/yr per FT employee who obtains coverage from exchange and receives a subsidy Maximum penalty equal to $2,000/yr per FT employee so can never exceed no coverage penalty

Pay or Play (cont.) Small Employer Less than 50 FTE No employer mandate Small groups must still include EHB in any offering

Pay or Play (cont.) Individual Individual Mandate Obtain health insurance coverage through employer or from the exchange (“Play”) or pay a tax penalty (“Pay”).

Pay or Play (cont.) Individual – Penalties Per Individual greater of $95 or 1% of income above tax filing threshold ($9,750 in 2012) greater of $325 or 2% of income above tax filing threshold greater of $695 or 2.5% of income above tax filing threshold Half off for dependents under 19

Pay or Play (cont.) Individual – Penalties Maximum per Family (300%) greater of $285 or 1% of income above tax filing threshold ($9,750 in 2012) greater of $975 or 2% of income above tax filing threshold greater of $2,085 or 2.5% of income above tax filing threshold

Pay or Play (cont.) Newly Hired Employees After Transition Large Employers Full Time employees start benefits after regular waiting period Variable hour employees subject to Initial Measurement Period, Administrative Period and Stability Period Safe Harbor provided while employee is in Initial Measurement Period or Administrative Period Each employee must be tracked individually No waiting period for variable hour employees Employees will be re-measured as part of the Standard Measurement period but cannot lose benefits until after their initial stability period is over.

Healthcare Reform Other Considerations Non-discrimination rules will apply (regulations have not been issued) Employers with over 200 employees will have to automatically enroll all Full Time employees at time of hiring (2015) Cadillac Plan Tax (2018) 40% of earned excess benefit value, as define

Healthcare Reform Other Considerations (cont.) New Medicare Withholding Tax (2013).9% on wages over $200K for individuals and $250 for MFJ Can only withhold on employee, who might not actually owe when he/she files return MFJ. Or 2 people making $130 each may owe without having anything withheld No employer match Unearned Income Medicare Contribution Tax (2013) Individuals over $200K or MFJ over $250K 3.8% tax on lesser of Net Investment Income or modified AGI 1.45% X 2 = 2.9% +.9% = 3.8%

Healthcare Reform Other Considerations (cont.) Employers must provide time and place for nursing mothers to express milk Maximum 90 day waiting period to qualify for benefits New Fees PCORI - $2 per covered life Transitional Reinsurance Fee - $63 per covered life Annual Health Insurer Fee

Healthcare Reform Other Considerations (cont.) Reporting Requirements Large employers will be subject to health insurance reporting requirements regarding the health insurance coverage provided to their workforce. New penalties for failure to provide this information to the IRS. Retiree Prescriptions No longer tax deductible to the extent of the federal nontaxable subsidy received for reimbursement. Currently benefits were reimbursed tax free but deductible as paid.

Healthcare Reform Other Considerations (cont.) Unhealthy lifestyle surcharges Up to 30% Employee can avoid surcharge for a year by attending a HIPAA certified wellness program Proposed Regulations

Healthcare Reform – What Employers Need to Know An Informative Seminar for Employers of All Sizes Presented by National PEO LLC, Nexus Partners Insurance LLC & Ogletree Deakins, Nash, Smoak & Stewart P.C. January 30, 2013

Healthcare Reform The Future of Health Insurance Presented by Hans G. Olsson Senior Broker