1. © 2012 Waller Lansden Dortch & Davis, LLP. All Rights Reserved. Impact of the Affordable Care Act Nashville Association for Financial Professionals February 14, 2013 James B. Bristol 615.850.8922 james.bristol@wallerlaw.com 10568079

2. © 2012 Waller Lansden Dortch & Davis, LLP. All Rights Reserved. | 2 Employee Health Benefits – New Business Decisions For Employers

3. | 3 Health Law Status Before PPACA  Employer-driven based on tax incentives  ERISA – “settlor” discretion on plan design  ERISA – fiduciary claims administration  Medicare and FAS 106  EMTALA – patient anti-dumping, charity care  Universal Coverage? Cost?

4. | 4 Employer Obligations  Federal/state mandates – ERISA preemption  HIPAA –pre-existing condition exclusions – Maximum exclusion is 12 months – No exclusion if coverage break is 63 days  Non-discrimination testing for self-funded plans  Summary description of plan, notice of changes within six months – judicial exceptions

5. | 5 Popular Changes- Talking Points  Employer Plans Grandfathered  Dependent care through age 26  No pre-existing exclusions – up to age 19; universal in 2014  Community Rating – “affordable”

6. | 6 Supreme Court Decision  “It’s a Tax Stupid” – No expansion of interstate commerce  Medicaid unconstitutional – Medicaid funding cannot be withheld for states that opt out  How much tax is ok under equal protection?

7. | 7 Mandated Health Coverage – Pay or Play  Effective January 1, 2014  Employer Mandate – Focused on “Large” employers – Most larger employers are “self-funded” – Employer as “Settlor” and “Fiduciary”  Individual Mandate  Federal and State Exchanges

8. | 8 Employer Mandate - Play or Pay  Large employers - 50+ FTEs – Headcount/30 hours  Must provide “minimum essential coverage” – Workers at 30+ hours  Employer must provide financial support – employee premium share cannot exceed 9.5% of income – plan’s share of benefit cost at least 60%

9. | 9 Employer Mandate – Tax Enforcement  Per employee tax if plan is not “affordable”  $2,000 per employee tax if no “minimum essential coverage”  $3,000 tax for each employee enrolling in exchange or receiving premium credit  Exclude first 30 employees in calculating tax

10. | 10 Individual Mandate  Must obtain “minimum essential coverage” – Through employer or exchange  Tax subsidies assist purchase, based on income – Employer “pay or play” tax covers subsidies – Provider reports– W-2 for employer plan  Expands Medicaid – although states can opt out

11. | 11 Individual Mandate  Tax penalty to enforce individual mandate – Minimum of $95, phased increases to $695 in 2016 – based on income, up to 3x – Percentage of income test, 1% phased increases up to 2.5% – Assistance and exceptions for lower income families  No Time Limit – EMTALA, Pre-existing ok, Community rating

12. | 12 Cost Containment  Comparative Effectiveness Research – Patient-Centered Outcome Research Institute (PCORI) – Non-profit created by government, funded by taxes – Compares clinical effectiveness of medical treatment options, communications, healthcare disparity – Designed to “pry savings” from healthcare  Preventive Care – Wellness  Managed Care?

13. | 13 Grandfathered Plan Status  Plans in existence on March 23, 2010 grandfathered from most requirements  Status is lost if materially modified – Changes to cost sharing – Changes to employer share of premiums  Employers will have continual decisions on maintaining grandfather

14. © 2012 Waller Lansden Dortch & Davis, LLP. All Rights Reserved. | 14 New Employer Obligations to Employees

15. | 15 Employer Obligations  Standardized summary of plan benefits and coverage – Template available on DOL website – 4 pages – Can be part of summary plan description (SPD) – Applies now

16. | 16 Employer Obligations  Form W-2 report aggregate cost of coverage for self-funded plans – Used to determine tax credits and tax penalties – Dept. of Labor valuation methods HHS MV Calculator Safe-harbor Checklist Actuarial Checklist

17. | 17 Employer Obligations  Submit to HHS and state insurance commissioner policies, practices, medical loss ratio, etc.  Additional IRS reporting requirements for covered employers in 2014  60-day prior notice of material modifications to plan

18. | 18 Employer Obligations  Accommodations for nursing mothers – Employers must provide reasonable, unpaid break time for one year after birth – Location shielded from view – Similar to many existing state laws

19. | 19 Employee Status  Many requirements do not apply to smaller employers – See over 50, over 30 mandates and penalties – Full-time equivalent calculations – divide hours worked by 2,080, etc.  Worker classification? – Compare independent contractor vs. employee to retain small employer status

20. | 20 Employer Obligations  “Whistleblower” Employee Protections – Cannot retaliate against employee for reporting, testifying about, or objecting to a reasonably believed violation of PPACA – Complaints investigated by OSHA – Similar to Sarbanes-Oxley procedures – New source of employment litigation?

21. © 2012 Waller Lansden Dortch & Davis, LLP. All Rights Reserved. | 21 Mandates for Employer Plans

22. | 22 Plan Design and Requirements  Healthcare reform imposes many rules for employer plans including: – Coverage of dependents to age 26 – New hire waiting period 90 days or less – Universal preexisting condition coverage  Medical Loss Ratio – Spend 85% of premium (80% small plan) or refund

23. | 23 Plan Design and Requirements  No lifetime limits on “essential health benefits”  Cannot rescind health benefits other than for fraud/intentional misrepresentation  Limits on annual cost sharing – Total $5,950 for individual, $11,500 for family – Annual deductible $2,000 for single, $4,000 for spouse and family coverage

24. | 24 Plan Design and Requirements  Automatic health plan enrollment required for employers with 200 or more employees – Auto for new employees, renewal for current employees – Employees may opt out – Logistical issues – effective after DOL regulations Payroll programming, notices, etc.

25. | 25 Wellness Incentives – Cost Savings  Many wellness incentives – similar to current practices  Premium discounts for wellness ok if – Made available to all similarly situated employees – Up to 30% discount on employee-paid cost (50% if regulation) – Must be reasonably designed to promote health – Individuals may qualify at least annually

26. | 26 Wellness Incentives  Health plans must cover without cost sharing – Immunizations – Preventive care, screenings for children until adolescent – Screenings, preventive care for women (mammogram, cervical cancer, genetic counseling) – Evidence-based items or services (blood pressure, diabetes, cholesterol test, wellness counseling, etc.)  More under development

27. © 2012 Waller Lansden Dortch & Davis, LLP. All Rights Reserved. | 27 Key PPACA Tax Changes

28. | 28 Tax Credits  Small Employer Tax Credit (temporary) – 25 or fewer full-time equivalents – Plan covers at least 50% of premium cost – Average annual wages less than $50,000  Based on average employer or small group premium  35% premium credit, 50% in 2014 – 25%/35% for tax-exempts – Not available after 2016 – Phased out based on employees/wages

29. | 29 Cadillac Tax  Beginning in 2018 for High Cost Plan – 40% excise tax on “excess benefit” Premiums above $27,500 family, $10,200 single Includes contributions to FSA, HRA, employer HSA – Does not apply to dental, vision, long-term care, after-tax indemnity – Employer calculates and reports tax, must notify HHS and providers

30. | 30 Revenue Enhancements  Flexible spending accounts limited to $2,500  Over-the-counter ineligible for HRA, FSA and HSA – 2011  Penalty for ineligible HSA payments increased from 10% to 20% – 2011

31. | 31 Medicare Tax Increase - 2013  Additional 0.9% - $200,000/250,000 – 2.35% or 3.8% if self-employed  3.8% on investment income $200,000/250,000 – Capital gains/dividends 20% @$400/450,000

32. | 32 Other Tax Highlights  Medical Device Tax – 2.3% excise tax on gross sales (not profits) – Items under $100 exempt  Tanning Salon Tax – 10%  Medical Expense Deduction – Must exceed 10% of AGI – currently 7.5%  Insurance Executive Deduction Limit – $500,000, no commission or performance exception