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

2. 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.

3. 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

4. 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

5. 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

6. 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 :
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 :
Transparency & Quality of Care Reporting

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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.

13. 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

14. 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 % 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

15. 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

16. 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

17. 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

18. 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)

19. 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?

20. 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

21. 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)

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

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

30. 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

31. 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

32. 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?

33. 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)

34. Resources
General Information and Guidance about the ACA:
Dept. of Labor:
IRS:
Shared Responsibility Proposed Rule:
IRS FAQs on Shared Responsibility:

35. Questions?