The Affordable Care Act’s Credits, Subsidies, Penalties and Fees This presentation is a high-level summary and for general informational purposes only. The information in this presentation is not comprehensive and does not constitute legal, tax, compliance or other advice or guidance. A Division of Health Care Service Corporation, a Mutual Legal Reserve Company, an Independent Licensee of the Blue Cross and Blue Shield Association

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Credits, Subsidies, Penalties and Fees 2 Other Fees PCORI Fee Risk Adjustment Payments Reinsurance Fee Health Insurer Fee Employers Employer Shared Responsibility Payment Small Businesses Tax Credits Individuals Premium Tax Credits Cost-Sharing Subsidies Tax Penalties

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Individuals

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Individuals: Premium Tax Credits The Premium Tax Credit Is: Available for eligible individuals who purchase individual coverage on the exchanges, also known as health insurance marketplaces, with household incomes between % of the federal poverty level On a sliding scale Applied to the health insurance PREMIUM payments of a plan at any metallic level, and will most likely be applied monthly Advanced to the consumer upon enrollment in an exchange plan Based on the consumer’s income the previous year 4

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Individuals: Premium Tax Credits To be eligible for a premium tax credit, an individual must: 1. be a U.S. citizen or legal resident 2. have household income between % of FPL 3. be enrolled in an exchange plan 4. be included in tax filings to the IRS as an individual, or as a member of a married couple or family with dependents 5. not be eligible for other affordable coverage, such as Medicaid or Medicare or other types of “minimum essential coverage” (other than through the individual health insurance exchange) 6. not have access to an affordable employer plan that meets minimum value requirements Premium Tax Credit Eligibility 5

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Individuals: Premium Tax Credits Income Tax Filing The amount received for a premium credit is based on the prior year’s income tax returns. These amounts are reconciled in the next year when individuals file a tax return for the actual year in which they received a premium credit. If a person who is filing taxes has a change in income, and the filer should have received a higher tax credit, the additional credit would be included in the tax refund for the year. Conversely, any excess amount that was overpaid in premium credits would have to be repaid to the federal government as a tax payment. For households with incomes from % of the FPL, the amount of repayment cannot exceed $400 for joint filers and $250 for single filers. This amount will be indexed by inflation in future years. 6

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Enhanced Actuarial Value Cost-Sharing Subsidy Designed to help those at lower incomes with costs at the point of service by enrolling them in health plans with higher actuarial values. Individuals: Cost-Sharing Subsidies This Cost-Sharing Subsidy Is: 7 A federal payment to the insurer that reduces the eligible member’s costs (deductible, coinsurance or copayment) Based on the consumer’s income the previous year For those enrolled in an exchange plan with household incomes % of FPL Applied when members select a Silver level plan

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Individuals: Cost-Sharing Subsidies Enhanced Actuarial Value Cost-Sharing Subsidy 8 Household Income Plan Original Cost-Share Member Original Cost-Share Plan NEW Cost-Share Member NEW Cost-Share % of FPL70%30%70% (same)30% (same) % of FPL70%30%73%27% % of FPL70%30%87%13% % of FPL70%30%94%6% Silver Plans & Cost-Sharing Variations SOURCE: Actuarial Value and Cost-Sharing Reductions Bulletin published by The Center for Consumer Information & Insurance Oversight on February 24, 2012 at

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Individuals: Cost-Sharing Subsidies Out-of-Pocket Maximum An out-of-pocket maximum cost-sharing subsidy is available to those that select a silver plan and have a household income of % of the FPL. This subsidy limits the maximum out-of- pocket expenses for individuals. Without any federal subsidies, ACA limits out-of-pocket maximums to those established for Health Savings Accounts. Those limits, which include deductibles and copayments, are $6,250 for individuals and $12,500 for families for Out-of- pocket limits will be indexed. In 2014, this subsidy considerably reduces the out-of-pocket maximum. 9

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Individuals: Cost-Sharing Subsidies Out-of-Pocket Maximum Subsidy Amounts 10 Income Level 2013 OOP Maximum Without Subsidy (Individual) Reduction in OOP Liability 2013 OOP Maximum With Subsidy (Individual) % FPL$6,2502/3 of the maximum$2, % FPL$6,2501/2 of the maximum$3, % FPL$6,2501/3 of the maximum$4,166

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Individuals: Penalty for No Coverage 11 Minimum Essential Coverage Defined A government-sponsored program, including coverage under Medicare Part A, Medicaid, the Children's Health Insurance Program and TRICARE ® An eligible employer-sponsored plan (meets affordability and minimum value requirements) A health plan offered in the individual market A grandfathered health plan Other health benefit coverage (such as a state health benefit risk pool) that is recognized by the U.S. Department of Health and Human Services Beginning in 2014, most U.S. citizens and legal residents must have a minimum level of health coverage or pay a federal tax penalty. The tax penalty is assessed according to a percentage of income or flat fee, whichever is greater.

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Individuals: Penalty for No Coverage Penalty Amounts Examples of Penalty (% or flat fee, whichever is higher) YearPercent of Income orFlat Fee % of taxable income or$ % of taxable income or$ % of taxable income or$695 after 2016 the tax will increase annually by cost-of-living adjustment Year Annual income of $15,000 Annual income of $20,000 Annual income of $25,000 Annual income of $30, % = $150$951% = $200$951% = $250$951% = $300$ % = $300$3252% = $400$3252% = $500$3252% = $600$ % = $375$6952.5% = $500$6952.5% = $625$6952.5% = $750$695 12

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Small Businesses

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Small Businesses: Tax Credit Tax Credit Amount Available 14 Year Tax Credit Available: For-profit Small Businesses Tax Credit Available: Non-profit Small Organizations Current up to 35% of the employer’s contribution up to 25% of the employer’s contribution 2014 up to 50% of the employer’s contribution up to 35% of the employer’s contribution Tax Credit Requirements Must have less than 25 full-time equivalent employees Must pay an average annual wage of $50,000 or less per employee Must provide health care insurance and cover 50% or more of cost

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. SOURCE: Statistics of U.S. Businesses, 2008, All industries Texas; from The U.S. Census Bureau at Small Businesses: Penalty Are there any penalties for small businesses? ACA does not require businesses with less than 50 full-time equivalent employees to offer health insurance. Employer Shared Responsibility Payment Businesses with 50+ full-time equivalent employees must offer their employees and dependents health insurance that provides “minimum value” and is “affordable.” 15

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Employers

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Employer Shared Responsibility Payment 17 Beginning in 2014, ACA requires employers with more than 50 full-time equivalent employees to offer minimum essential health coverage to their employees and their dependents or be subject to a tax penalty. If a business employs less than 50 full-time equivalent employees, with full-time defined as averaging 30 or more hours a week in a given month, then the business is exempt from the employer shared responsibility payment. An employer cannot offer just any health care plan. The plan has to be one that meets “minimum essential coverage” requirements.

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Employer Shared Responsibility Payment 18 Minimum Essential Coverage Requirements Affordable The employer’s coverage is deemed affordable if the employee’s share of the premium costs for self-only coverage does not exceed 9.5% of the employee’s household income. Minimum Value An employer’s plan’s share of total allowed costs must be at least 60%. Minimum value must be determined using a method that is consistent with the actuarial value rules.

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Employer Shared Responsibility Payment 19 Penalty 1: Failure to Meet the Affordable Requirement If a company offers health insurance, but requires some employees to contribute more than 9.5% of their income, AND those employees obtain health insurance through a public exchange, AND they receive a subsidy, THEN the employer would pay a penalty of $3,000 per employee receiving the subsidy.

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Employer Shared Responsibility Payment 20 Penalty 2: Failure to Offer Minimum Value Requirement A company with 50 or more FTEs that does not provide health insurance will be subject to a penalty of $2,000 per year multiplied by the number of FTEs, minus the first 30. For example, a company with 100 FTEs would be subject to a penalty of $140,000. ([100 – 30] x $2,000 = $140,000) The penalty is $2,000 for each full-time employee in excess of 30 full-time employees. Note that the penalty is for each full-time employee, not “full-time equivalent” employee.

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Other Fees

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION.22 Other Fees: PCORI As part of the Affordable Care Act (ACA), health insurance issuers and sponsors of self-insured group health plans will be assessed an annual fee – based on the average number of covered lives – to fund patient-centered outcomes research. (Also known as The Comparative Effectiveness Research Fee.) Patient-Centered Outcomes Research Institute Fees Fee amount is $1 times the average number of covered lives for plan/policy years ending before 10/1/13. Fee amount is $2 times the average number of covered lives for plan/policy years ending on or after 10/1/13, subject to adjustments that include the projected increases in National Health Expenditures. Fee terminates for plan/policy years ending after 9/30/19. Generally, the fee will apply to policy years ending on or after Oct. 1, 2012, and before Oct. 1, 2019.

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Other Fees: PCORI 23 1.Coverage under a group health plan through two separate insurance policies – individuals will be “double counted”. 2.Sponsor of a group health plan that provides both insured & self-funded coverage can exclude individuals with the insured coverage when reporting the number of covered lives subject to the PCORI fee. 3.Fee does not apply to employee assistance, disease management or wellness programs as long as they do not provide significant medical care or treatment. 4.Fee is applicable to retiree coverage, COBRA coverage and similar state or federal continuation coverage. 5.Special rules for number of lives calculation in the first and last years the fee is in effect. 6.Fee does not permit third-party reporting or payment. The IRS released the final rule on December 6, 2012

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION.24 All health insurance issuers will calculate the risk of their membership using a model provided by the government. States that run their own exchange can choose to also run risk adjustment; otherwise the federal government will operate it. The risk adjustment calculation will result in payments between issuers: insurers with lower than average risk will pay insurers with higher than average risk. Risk adjustment applies to the individual and small group markets, on and off the exchange, for non-grandfathered plans. Risk Adjustment is a permanent program that applies to the individual and small group insured markets. Other Fees: Risk Adjustment

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION.25 Reinsurance is a temporary program that will be in effect during the first three years of ACA's insurance market reforms ( ). Other Fees: Reinsurance Helps fund temporary reinsurance programs (established under ACA) that would operate in each state from 2014 through Purpose The Reinsurance Fee is assessed on health insurers and plan sponsors for self-funded plans. This included grandfathered and non-grandfathered plans. Impact

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. By statute, the aggregate national contributions for reinsurance payments are: 26 Year Contributions to the Reinsurance Pool Contributions to the U.S. Treasury 2014$10 billion$2 billion 2015$6 billion$2 billion 2016$4 billion$1 billion Other Fees: Reinsurance

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. A proposed rule from the Department of Health and Human Services sets the Reinsurance Fee amount at $5.25 per month per enrolled, covered life in States may have the ability to require additional reinsurance fees. 27 $5.25 $? Proposed 2014 Monthly Reinsurance Contribution 2014 State Requirements Other Fees: Reinsurance

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Beginning in 2014, health insurers will be assessed an annual fee based on the value of health insurance premiums paid in the previous year. Exemptions exist for Medicare supplement plans, self-funded groups, long term care and others. 28 YEARFEE 2014$8 billion 2015$11.3 billion 2016$11.3 billion 2017$13.9 billion 2018*$14.3 billion Total through 2020$87 billion *Aggregate insurer fees will increase by an indexed amount each year after Other Fees: Health Insurer Fee

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Possible Impact on Insurance Premiums 29 * ** *** Other Fees: Health Insurer Fee Impact Oliver Wyman, a national research firm, published a study for AHIP on “Estimated Premium Impacts of Annual Fees Assessed on Health Insurance Plans,” Oct. 31, 2011.* “Insured market premiums could increase on average by 1.9% to 2.3% in 2014.” Towers Watson, “Healthcare Reform Fees Add Up,” July 17, 2012.** “In 2014, fees might mean additional costs equal to 1.5% of plan costs for self-funded plans.” Douglas Holtz-Eakin, “Higher Costs and the Affordable Care Act: The Case of the Premium Tax.” American Action Forum. March 9, 2011.*** “Premium tax to raise premiums between 2.4% in 2014 to over 3% in 2015.”

PROPRIETARY INFORMATION. PROPERTY OF HEALTH CARE SERVICE CORPORATION. DO NOT USE WITHOUT PERMISSION. Questions?