1. Copyright ©2013 by The Segal Group, Inc., parent of The Segal Company. All rights reserved. ACMA Conference PPACA - Understanding the Employer Mandate Aaron Polkoski Benefits Consultant July 25, 2013

2. Employer Shared Responsibility Penalty (4980H)  Beginning with the first day of the plan year in 2015*, certain large employers may be subject to a penalty tax, called an Employer Shared Responsibility Penalty, for failing to offer minimum essential health care coverage to full-time employees and their dependent children OR offering such coverage that is not affordable and/or does not offer a minimum value.  * On July 2, 2013, the Treasury Department announced that it is delaying until 2015, the employer shared responsibility penalties that were to have started with the 2014 plan year. Treasury is also delaying by one year, the detailed reporting requirements for employers and insurers that would have applied to coverage provided during 2014. This transition relief does not currently apply to any other provisions of the ACA, including the individual mandate. 1

3. Paying the Penalties  The Congressional Budget Office has projected that employers will pay $150 BILLION in penalty payments over a 10-year period.  As a large employer, how much do you want to contribute to this amount? 2 Large employers will need to learn the “ins and outs” of this (4980H) penalty tax in order to avoid it. Large employers will need to learn the “ins and outs” of this (4980H) penalty tax in order to avoid it.

4. Employer Shared Responsibility Penalty (4980H)  4980H penalty applies to “large” employers starting on the first day of their plan year in 2015  “Large employer” means an employer who employed an average of at least 50 “full-time employees” on business days during the preceding calendar year (include FT equivalencies of part-time employees based on 120 hours = 1 FTE for 1 month. Employees references a common law relationship between employer and employee)  “Full-time employee” means an employee who works on average 30 “hours of service” or more per week (e.g., 130 hours of service or more per month) –“Hour of Service” includes: »Hours Worked (meaning each hour for which the employee is paid, or entitled to payment, “for the performance of duties”); AND »Paid-Time Off (meaning each hour for which the employee is paid, or entitled to payment, for the period of time due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence)  4980H penalty not applied if employee worked <3 months 3

5. Employer Shared Responsibility Penalty 4980H(a)  No Coverage Penalty (also known as “Pay or Play” or 4980H(a))  If a “large employer” does not offer to 95% of its “full-time employees” (and their dependent children up to age 26) an opportunity to enroll in minimum essential coverage (group medical plan coverage), and at least one full-time employee enrolls in the Exchange and receives a government subsidy to help pay for Exchange coverage, then the large employer is subject to a penalty.  Penalty is $2,000/year** times EACH of an employer’s full-time employees. –(** adjusted for inflation) –In calculating the penalty the first 30 full-time employees are excluded. –Minimum essential coverage means any employment-based group health plan of any actuarial value, insured or self-insured, except one that consists only of HIPAA “excepted benefits” like insured dental and vision coverage. 4

6. Employer Shared Responsibility Penalty 4980H(b)  Unaffordable Coverage (also known as “Free Rider” or “Employer Shared Responsibility” or 4980H(b)) Penalty  If a large employer offers to at least 95% of its full-time employees (and their dependent children) an opportunity to enroll in minimum essential coverage, that alone will not necessarily avoid penalties, because the coverage offered must be both affordable and valuable to the employee  If at least one full-time employee enrolls in the Exchange and that employee is able to receive a government subsidy because the employer’s coverage is considered to be either unaffordable or of low-value, then the employer is subject to the 4980H(b) penalty  The penalty is $3,000/year** times each full-time employee who is certified to receive a government subsidy –(**adjusted for inflation) –This 4980H(b) penalty is capped at the level of the value of the 4980H(a) penalty  Note that this (b) penalty could be applied to any full-time employees that you fail to offer minimum essential coverage, if they receive a subsidy toward Exchange coverage. 5

7. Delay to 2015 for 4980H Penalties  Even though on July 2, 2013, Treasury announced a one year delay in applying penalties to large employers for failing to meet 4980H (a) and (b) obligations, large employers will still need to determine affordability and minimum value of coverage because this information is needed for:  The required Employer Notice about coverage options in the Marketplace  And the information is relevant to whether participants and/or their family members will qualify for premium assistance tax credits (subsidies) in Health Insurance Marketplaces starting in January 2014. 6

8. Affordability  An employee is eligible for government subsidized coverage in an Exchange (a premium assistance tax credit or “subsidy”) if: 1.the employer sponsored medical plan is unaffordable: meaning employee premiums/contributions for the single coverage option with the lowest cost plan are more than 9.5% of the employee’s household income 3 safe harbor methods for determining household income: W-2 is individual’s contribution/premium greater than 9.5% of the employee’s compensation from Box 1 on form W-2 for the year just ended; or Rate of Pay (hourly rate of pay for each hourly employee who is eligible, multiplied by 130 to determine affordability based on the monthly wage); or Federal Poverty Level (does self-only coverage exceed 9.5% of the most recently published federal poverty level for a single individual) May use different safe harbor for different categories of employees provided the categories are reasonable. Rate of Pay may be the method that gives the employer the most control to assure that the plan is “affordable.” 7

9. Minimum Value  An employee is eligible for government subsidized coverage in an Exchange ( a premium assistance tax credit or “subsidy” ) if : 2. the medical plan options do not provide at least minimum value (meaning at least one medical plan option offered has an actuarial value of at least 60%) Regulations include ways to determine the minimum value: 1.A minimum value (MV) calculator and methodology made available by IRS and HHS 2.Design-based safe harbor established by HHS and IRS 3.Certification by an actuary if the plan has non-standard features not suited to the calculator or safe harbors 4.(The final regulations also added a fourth method for use by small employers)  In terms of avoiding the 4980H(b) penalty, must be careful as there is NO de minimis exception for missing the 60% threshold on minimum value.  The following can enhance actuarial value:  Employer contributions to Health Savings Accounts (HSAs)  Current year employer contributions to Health Reimbursement Arrangements (HRAs) if the HRA can only be used to reimburse cost sharing. 8

10. The 4980H Penalty Process Are you a large employer? Does the large employer offer medical plan coverage to at least 95% of its FT employees (& their dependent children) ? Does a FT employee of the large employer get a premium assistance subsidy? 4980H(a) Penalty Applies YESNOYES No Penalty Is the medical plan coverage offered to FT employees affordable ? Does a FT employee of the large employer get a premium assistance subsidy? 4980H(b) Penalty NOYES No Penalty Does a FT employee of the large employer get a premium assistance subsidy? 4980H(b) Penalty Does the medical plan coverage offered to FT employees provide minimum value ? NO YES No Penalty START YES NO 9

11. Reminder… 10  In order to avoid a 4980H(a) penalty, a large employer must offer minimum essential coverage to at least 95% of its full-time employees and their children.  If an employer offers such coverage to at least 95% of full-time employees and their children, the employer will not be subject to the 4980H(a) penalty but may still be subject to the 4980H(b) penalty if such coverage is not affordable and/or not of minimum value.  You must keep your eye on both (a) + (b) at the same time from now on.

12. Safe Harbor for Determining Hours of Service  The IRS safe harbor method allows a large employer the opportunity to assess whether or not certain employees constitute a “full-time” employee to whom coverage must be offered or else a 4980H penalty could apply.  Large employers have the option to use a “look back” measurement period of between 3 and 12 months to determine whether variable-hour employees or seasonal employees are full-time employees, without being subject to a 4980H penalty.  Thus a key advantage of the safe harbor is that a variable hour or seasonal employee does not have to be offered coverage during the measurement period.  Using the safe harbor method is voluntary  Do not need to use the safe harbor if it is reasonably clear which employees have 30 or more hours of service per week (130 hours per month) and which have fewer hours than that 11

13. Taking Steps to Avoid Employer Penalties in 2015  Are you a “large employer” with 50 or more full time equivalents?  If so, do you offer minimum essential medical plan coverage to at least 95% of your full time employees (and dependent children), meaning employees who work, on average, 30 hours or more per week?  Have you assessed all possible common law employees?  Do you need to redefine the # of hours that qualifies an employee for coverage?  Can you afford the additional cost to reach at least 95% in order to avoid the $2,000 “No Coverage” penalty?  Work with your payroll dept. to find possible common law employees and to determine how many employees working 30 hours or more per week are NOT offered the opportunity to enroll for medical plan coverage?  Can you afford to offer these employees coverage in 2015? –If not, you’ll need to be sure these employees always work LESS than 30 hours/week starting with the first day of your plan year in 2015 or be prepared to pay a 4980H a or b penalty. 12

14. Time to Contemplate Some Tough Decisions  As a large employer, do you plan to take steps in 2013 to AVOID THE EMPLOYER PENALTIES starting 2015?  If so, evaluate all employees (their job category, hours worked, benefits eligibility) to help avoid potential financial penalties in 2015 and beyond?  Do you need to change your business model in order to deliver services and avoid 4980H penalties?  Are you thinking you need to alter your philosophy of health benefits for current retirees? For future retirees?  How do health benefits currently fit into your bigger picture of recruitment, retention and employee satisfaction?  Do you need to revisit this issue with your strategic planning this year and each year thereafter?  How much do you need to design your health benefits strategy in concert with what other employer plans do? Your peers?  Future considerations?  Maintain your employer sponsored group health plan, working to avoid penalties  Eliminate health benefits (with or without an employee stipend) and encourage individuals to purchase benefits through an Exchange 13

15. Additional Resources  Health Reform: http://www.healthcare.gov/http://www.healthcare.gov/  Dept. of Health & Human Services (HHS): http://cciio.cms.gov/resources/other/index.html#sbcug http://cciio.cms.gov/resources/other/index.html#sbcug  Dept. of Treasury/Internal Revenue Service: http://www.irs.gov/newsroom/article/0,,id=220809,00.html?portlet=6 http://www.irs.gov/newsroom/article/0,,id=220809,00.html?portlet=6  Dept. of Labor: http://www.dol.gov/ebsa/healthreformhttp://www.dol.gov/ebsa/healthreform  SBC Information: http://cciio.cms.gov/resources/other/index.htmlhttp://cciio.cms.gov/resources/other/index.html  SBC Frequency Asked Questions (FAQs): http://www.dol.gov/ebsa/faqs/faq-aca8.html http://www.dol.gov/ebsa/faqs/faq-aca9.html Segal’s website: http://www.segalco.com/publications-and-resources/health-care-reform/ 14

16. Additional Resources  Benchmark Plans: http://cciio.cms.gov/resources/data/ehb.htmlhttp://cciio.cms.gov/resources/data/ehb.html  Treasury Proposed Rule (published 1-2-13) http://www.irs.gov/pub/isr-drop/n-12-58.pdfhttp://www.irs.gov/pub/isr-drop/n-12-58.pdf  Treasury FAQs (issued 12-28-12) http://www.irs.gov/uac/Newsroom/Questions-and- Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Afforadable-Care-Acthttp://www.irs.gov/uac/Newsroom/Questions-and- Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Afforadable-Care-Act  IRS Notice 2-12-58 (issued 8-31-12) http://www.irs.gov/pub/irs-drop/n-12-58.pdfhttp://www.irs.gov/pub/irs-drop/n-12-58.pdf  Notice 2012-59: http://www.irs.gov/pub/irs-drop/n-12-59.pdfhttp://www.irs.gov/pub/irs-drop/n-12-59.pdf  Whistleblower: https://www.federalregister.gov/articles/2013/02/27/2013-04329/procedures- for-the-handling-of-retaliation-complaints-under-section-1558-of-the-affordable-care-acthttps://www.federalregister.gov/articles/2013/02/27/2013-04329/procedures- for-the-handling-of-retaliation-complaints-under-section-1558-of-the-affordable-care-act  FAQ (4-29-13): http://www.americanbenefitscouncil.org/documents2013/hcr_faq15_aca.pdfhttp://www.americanbenefitscouncil.org/documents2013/hcr_faq15_aca.pdf  FLSA Employers: http://www.dol.gov/elaws/esa/flsa/scope/screen9.asphttp://www.dol.gov/elaws/esa/flsa/scope/screen9.asp 15

17. 16 Questions? Don’t sit back and relax….You have steps to take to comply with PPACA! As always, plan sponsors should rely on legal counsel for authoritative advice on the interpretations and application of federal laws and regulations. 5261645