1. © Grant Thornton LLP. All rights reserved. Health Care Reform: Reporting and Compliance April 24, 2014

2. © Grant Thornton LLP. All rights reserved. 2 Health Care Reform – Reporting and Compliance Agenda Taxes (Fees) Imposed On Group Health Plans Individual Mandate Employer Mandate Cadillac Excise Tax Noncompliance Excise Tax Identifying and Monitoring Risks Preparing to be Audit Ready

3. © Grant Thornton LLP. All rights reserved. Taxes (Fees) Imposed Upon Group Health Plans PCORI Funding Fee 3 The PCORI fee funds a new federally-chartered not-for-profit institute designed to fund patient-centered outcomes research Applies to group health plans, both insured and self-funded Effective for 7 years beginning with plan years ending on or after October 1, 2012 and before October 1, 2019 Tax is due on July 31 st following the end of the plan year Initial year fee is $1 per covered life; second year, $2; then indexed thereafter Payable to the U.S. Treasury Fee is tax deductible

4. © Grant Thornton LLP. All rights reserved. Taxes (Fees) Imposed Upon Group Health Plans Transitional Reinsurance Fees 4 The Reinsurance Fee subsidizes health insurance companies with an influx of individuals from the Insurance Exchanges who have high claims during the initial years of operations Applies to group health plans, both insured and self-funded Effective for 3 years beginning in 2014 Tax is due on January 15th following the end of the calendar year Fee is $63 per covered life for 2014; $44 per covered life for 2015; and an amount to be determined for 2016 Payable to the Department of Health and Human Services Fee is tax deductible

5. © Grant Thornton LLP. All rights reserved. Taxes (Fees) Imposed Upon Group Health Plans Annual Fee on Health Insurance Providers 5 The annual fee imposed on insurance companies generates income to fund the Affordable Care Act Applies to entities which offer health insurance for any United States health risk; does not apply to self-funded plans Effective January 1, 2014 Tax is due by September 30 th following the end of the calendar year Fee is based on an total amount to be raised and divided among all insurers. 2014 estimate will cost 2%-2.5%; 3-4% of premium thereafter Payable to the United States Treasury Fee is not tax deductible

6. © Grant Thornton LLP. All rights reserved. 6 Health Care Reform – Reporting and Compliance Agenda Taxes (Fees) Imposed On Group Health Plans Individual Mandate Employer Mandate Cadillac Excise Tax Noncompliance Excise Tax Identifying and Monitoring Risks Preparing to be Audit Ready

7. © Grant Thornton LLP. All rights reserved. Individual Mandate Sources of Coverage Beginning in 2014, individuals must acquire minimum essential coverage or pay a penalty Individuals will have a number of options from which to acquire the insurance coverage: –Government-sponsored Insurance Exchanges –Government-sponsored programs (e.g., Medicaid, TriCare) –Employer-sponsored plans –Private insurance exchanges –Insurance companies through their agents 7

8. © Grant Thornton LLP. All rights reserved. Individual Mandate The Penalty The individual penalty for failing to acquire minimum essential coverage is the greater of: The fixed fee amounts will be indexed thereafter. Fixed Fee Per Adult (Half for Child under age 19) Percentage of Household Income 2014$95 (up to a maximum of $285)1.0% 2015$325 (up to a maximum of $975)2.0% 2016$695 (up to a maximum of $2,085)2.5% 8

9. © Grant Thornton LLP. All rights reserved. Individual Mandate Tax credits available Tax credit or premium reduction may be offered to individuals who purchase coverage through an Insurance Exchange if the family household income is between 100% and 400% of the poverty level Eligible Individual Income is between 100% - 400% of the poverty level Affordability Test 9.5% of Family Income; or Minimum Value Test Plan covers 60% of Plan Costs State Exchange Tax Credit or Plan Cost Reduction No Employer Coverage; or 2014 Poverty Level Guidelines 100% - 400% Individual: $11,670 - $46,680 Household of 2: $15,730 – $62,920 Household of 4: $23,850 – $95,400 9

10. © Grant Thornton LLP. All rights reserved. 10 Health Care Reform – Reporting and Compliance Agenda Taxes (Fees) Imposed On Group Health Plans Individual Mandate Employer Mandate Cadillac Excise Tax Noncompliance Excise Tax Identifying and Monitoring Risks Preparing to be Audit Ready

11. © Grant Thornton LLP. All rights reserved. Employer Mandate Current Transition Periods and Delays Employer must offer health coverage that is affordable and provides minimum value. For 2015, employers will need to certify that they are not reducing workforce to stay below 100. Employer Size 2015 Plan Year2016 Plan Year and Beyond 1-49 FTEsDoes not apply 50-99 FTEsDoes not applyEmployer must cover 95% of FTEs and dependents to age 26 100+ FTEsEmployer must cover 70% of FTEs and dependents to age 26 Employer must cover 95% of FTEs and dependents to age 26 11

12. © Grant Thornton LLP. All rights reserved. Employer Mandate Applicable Large Employer An "applicable large employer" is an employer who has 50 or more full-time equivalent employees in the preceding calendar year: –For the sole purpose of determining whether an employer is an "applicable large employer," one must add the number of full-time employees together with the full-time equivalent number of part-time employees –A full-time employee is one who normally works 30 or more hours per week –To convert part-time employees to full-time equivalent, calculate the aggregate number of hours of service in a month for employees who are part-time divide that number by 120 12

13. © Grant Thornton LLP. All rights reserved. Employer Mandate The penalties An applicable large employer with 100 or more FTE beginning in 2015 and 50-99 FTE beginning in 2016 may be subject to a penalty: * 70% in 2015 ** Minus 80 employees for 2015 13 Coverage Offered to Less than 95%* of Full- Time Employees During the Month Coverage Offered to 95% or More of Full- Time Employees During the Month But Does Not Satisfy Affordability or Minimum Value Requirements Affordability Employee Premium for Self-Only Coverage Is 9.5% or Less of Employee’s Income Minimum Value Plan Covers At Least 60% of Plan Costs $250 Per Month ($3,000 Per Year) Per Full-Time Employee Who Purchases Insurance Through an Exchange and Receives a Premium Tax Credit or Subsidy $166.66 Per Month ($2,000 Per Year) Per Full-Time Employee (Minus 30 Employees**)

14. © Grant Thornton LLP. All rights reserved. Employer Mandate Penalty decision tree An example of a detailed decision tree for 2015 penalties: 14

15. © Grant Thornton LLP. All rights reserved. Employer Mandate Margin of error is low Many employers offer coverage to all or nearly all full-time employees. These employers should not assume they will not be subject to the excise tax. Employers may easily fall below the 95% threshold and trigger the excise tax. Total number of full- time employees 5% thresholdExcise tax per year 1005$140,000 25012$440,000 50025$940,000 1,00050$1,940,000 5,000250$9,940,000 10,000500$19,940,000 15

16. © Grant Thornton LLP. All rights reserved. Employer Mandate Determination of full-time employees IRS regulations define who is and is not a full-time employee. Each month, an employer must –Identify its full-time employees - 30 or more average hours of service per week –Determine which full-time employees have been offered coverage Full-time employees are counted in the 95% threshold calculation after 3 months of service More complex rules underlie these basic rules 16

17. © Grant Thornton LLP. All rights reserved. Employer Mandate Some employees are not full-time employees for the ACA The following are not considered to be full-time employees: –a sole proprietor –a partner in a partnership –a 2% S corporation shareholder –a leased employee (who is not a common law employee) The above categories of "employees" are not used in determining whether an employer: –is an applicable large employer or –meets the 95% requirement to avoid the $2,000 per full-time employee excise tax 17

18. © Grant Thornton LLP. All rights reserved. Employer Mandate Complex rules apply The employer must count hours for each employee –Hourly employees: Count actual hours –Salaried employees: Count actual hours, or Use hours-equivalency rules Paid time-off hours must be included Special rules govern the determination of full-time status of seasonal and rehired employees The treatment of a new employee depends on determining whether he or she is reasonably expected to have on average at least 30 hours of service per week 18

19. © Grant Thornton LLP. All rights reserved. Employer Mandate Safe harbor look back periods Safe harbor look back periods - To make the full-time determination more predictable, an employer can use rules that allow an employee's status as a full-time employee in future periods to be based on hours of service in prior periods –On-going employees –New employees 2014 is the measurement period to determine who meets the full- time employee status in 2015 19

20. © Grant Thornton LLP. All rights reserved. Employees On-Going Employee Full-Time EmployeeVariable Hourly EmployeePart-Time Employee New Employees Full-Time EmployeeVariable Hourly EmployeePart-time Employee 20 Employer Mandate New Filters of Eligibility Annual Enrollment Monthly Enrollment

21. © Grant Thornton LLP. All rights reserved. Employer Mandate Safe harbor look back periods 21 Stability Period (Which Can Be The Plan Year) October 2, 2013October 1, 2014 Standard Measurement ("Look Back") Period January 1, 2015 December 31, 2015 Employees qualify during the Standard Measurement Period for the succeeding year’s eligibility December 31, 2014 October 2, 2014 Administrative Period For on-going employees…

22. © Grant Thornton LLP. All rights reserved. Employer Mandate Offering health benefits "Offering" benefits is the key – it does not matter whether an employee accepts the offer If an employer fails to offer coverage to a full-time employee for any day of the month, the employee is treated as not having been offered coverage for the entire month Starting in 2015, a full-time employee can be counted as one who has been offered coverage only if coverage is also offered to all of the employee's dependent children Independent contractors and leased employees who should be treated as full-time employees under the common law standards must be taken into account in the 95% threshold test 22

23. © Grant Thornton LLP. All rights reserved. Employer Mandate Reporting: Minimum Essential Coverage 23 ACA contains a number of reporting requirements including the new reporting requirements of IRC sections 6056 and 6055. Provides two sets of rules: 1.6055 Report – Collect information for the "individual mandate." Applies to insurance carriers, self-insured plan, etc. that provide minimum essential coverage to individuals. 2.6056 Report- Collects information on compliance with the "Employer Mandate." Applies to applicable large employers.

24. © Grant Thornton LLP. All rights reserved. Employer Mandate 6055 Reporting: Minimum Essential Coverage IRC Section 6055 requires any entity, including group health plans (whether insured or self-funded), that provides minimum essential coverage to report annually Under final regulations, reporting is required beginning in early 2016 to report coverage provided in 2015 An applicable large employer will report on Forms 1094-C (transmittal) and 1095-C An applicable large employer will need to provide a statement regarding the filing to each covered employee –Form 1095-C may be used to satisfy this requirement –Statement must be provided by January 31 st of each year 24

25. © Grant Thornton LLP. All rights reserved. Employer Mandate 6055 Reporting: Minimum Essential Coverage Information to be reported pursuant to regulations include: –Name, address, and social security number of the employee and his/her spouse or dependents enrolled in the plan –The months of coverage during which the individual was covered during the calendar year –If the coverage is insurance, whether the coverage is a qualified health plan (QHP) offered through a state Insurance Exchange –Information about the employer if an employer is filing the return 25

26. © Grant Thornton LLP. All rights reserved. Employer Mandate 6056 Reporting: Applicable Large Employers IRC Section 6056 requires applicable large employers to report to the IRS whether they offer their full-time employees and their employees' dependents the opportunity to enroll in "minimum essential coverage" Under final regulations issued in March 2014, reporting is required beginning in early 2016 to report coverage provided in 2015 An applicable large employer will report on Forms 1094-C (transmittal) and 1095-C (same form used for Section 6055 reporting purposes and so only one form need be used) 26

27. © Grant Thornton LLP. All rights reserved. Employer Mandate 6056 Reporting: Applicable Large Employers An applicable large employer will need to provide a statement to each covered employee –Form 1095-C may be used to satisfy this requirement –Statements must be provided by January 31 st of each year Similar information needs to be reported for this purpose as reported for Section 6055 purposes However, additional information is required concerning whether the employer offers minimum essential coverage to its full-time employees and whether that coverage is affordable and meets minimum value 27

28. © Grant Thornton LLP. All rights reserved. Employer Mandate Other Reporting Transparency in Coverage Reporting: Group health plans must furnish HHS with a report discussing transparency in coverage and disclosing cost-sharing requirements –Guidance is forthcoming –Individuals will have right to ask for this information Quality of Care Reporting: Group health plans must furnish HHS with a report addressing plan or coverage benefits and provider reimbursements that may affect the quality of care –Annual quality of care reports will be available to the public through a government website –Guidance is forthcoming 28

29. © Grant Thornton LLP. All rights reserved. 29 Health Care Reform – Reporting and Compliance Agenda Taxes (Fees) Imposed On Group Health Plans Individual Mandate Employer Mandate Cadillac Excise Tax Noncompliance Excise Tax Identifying and Monitoring Risks Preparing to be Audit Ready

30. © Grant Thornton LLP. All rights reserved. Cadillac Excise Tax Effective 2018 30 Effective in 2018, one of the most significant revenue provisions is the 40% nondeductible excise tax on high-cost health coverage, referred to as the "Cadillac Tax" The tax is determined by an employer and allocated to the insurer, if insured, or to the party that administers the plan if self- funded. Ultimately, the plan sponsor will bear the cost of the tax unless it is passed along to the employee The Cadillac Tax applies generally to coverage under a group health plan excluding stand alone vision and dental programs and those programs paid exclusively with after-tax dollars by the employee

31. © Grant Thornton LLP. All rights reserved. Cadillac Excise Tax Thresholds The initial annual threshold amounts for the tax are: –$10,200 for self-only coverage –$27,500 for coverage other than self-only Threshold does include employer and employee contributions made to a HSA or FSA The initial threshold amounts are subject to different adjustments: –Health cost adjustment percentage (2018 only), –Cost-of-living adjustment (calendar years after 2018), and –Age and gender adjustment (applicable to 2018 and later) 31

32. © Grant Thornton LLP. All rights reserved. Cadillac Excise Tax Illustration 32 Exceeds threshold by $2,691 (Tax is $1,076.35 per employee) Exceeds threshold by $151 (Tax is $60.46 per employee) Exceeds threshold by $1,203 (Tax is $481.20 per employee)

33. © Grant Thornton LLP. All rights reserved. 33 Health Care Reform – Reporting and Compliance Agenda Taxes (Fees) Imposed On Group Health Plans Individual Mandate Employer Mandate Cadillac Excise Tax Noncompliance Excise Tax Identifying and Monitoring Risks Preparing to be Audit Ready

34. © Grant Thornton LLP. All rights reserved. Noncompliance Excise Tax In addition, there is a general noncompliance excise tax The penalties for noncompliance can be significant: –$100 per day, per employee –Not applicable if you employ, on average throughout the year, 50 or fewer employees (looking at preceding calendar year) If you demonstrate reasonable cause, the penalty would be limited to the lesser of: –$500,000, or –10% of the amount you spent on health care benefits during the prior year 34

35. © Grant Thornton LLP. All rights reserved. 35 Health Care Reform – Reporting and Compliance Agenda Taxes (Fees) Imposed On Group Health Plans Individual Mandate Employer Mandate Cadillac Excise Tax Noncompliance Excise Tax Identifying and Monitoring Risks Preparing to be Audit Ready

36. © Grant Thornton LLP. All rights reserved. Reactionary Behind the Curve Responsive Meeting the Minimum Expectations Visionary Strategic Approach to Risk 36 More Insight Identifying and Monitoring Risks Addressing ACA Risks What is your position on the risks of ACA?

37. © Grant Thornton LLP. All rights reserved. Evaluate the workforce to determine how hours are tracked and employees paid. Evaluate Design a program to meet the requirements of ACA, including policies, procedures, and controls. Design Implement the program; communicate with stakeholders. Implement Continually evaluate new and on-going employees to determine "average hours" and eligibility for medical coverage; monitor process. Monitor Prepare reporting process to comply with ACA and business needs. Report Identifying and Monitoring Risks Monitoring Risks

38. © Grant Thornton LLP. All rights reserved. Identifying and Monitoring Risks Monitoring Risks 38

39. © Grant Thornton LLP. All rights reserved. 39 Health Care Reform – Reporting and Compliance Agenda Taxes (Fees) Imposed On Group Health Plans Individual Mandate Employer Mandate Cadillac Excise Tax Noncompliance Excise Tax Identifying and Monitoring Risks Preparing to be Audit Ready

40. © Grant Thornton LLP. All rights reserved. Audit Readiness Limit Exposure Limiting your liability for noncompliance Review internal controls around tax-related provisions Conduct risk and readiness assessments Work with internal stakeholders on ACA implementation Consider emerging trends and options Review challenges and opportunities 40

41. © Grant Thornton LLP. All rights reserved. Audit Readiness Document, Document, Document Document policies and procedures Retain individual employee records – Hire dates, re-hire dates, hours, wages, measurement and stability periods –Employee elections – Offered, elected, waived –Dependent elections – Offered, elected, waived Retain forms – Various fees, W-2 reporting, benefit offerings, Premium cost Retain results of employer mandate analysis –Analysis of 95% full-time employee tests –Affordability and minimum value tests 41

42. © Grant Thornton LLP. All rights reserved. Health Care Reform – Reporting and Compliance Questions 42

43. © Grant Thornton LLP. All rights reserved. Health Care Reform – Reporting and Compliance Contact Information Andy Mechavich Director Grant Thornton LLP T: 312.602.8167 E: Andy.Mechavich@us.gt.com 43

44. © Grant Thornton LLP. All rights reserved. Disclaimer This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered. For additional information on matters covered in this presentation, contact your Grant Thornton LLP adviser. 44