1. Patient Protection and Affordable Care Act of 2010

2. KEY EFFECTIVE DATES

3. Health Care Reform Key Effective Dates for Employers 2010 Enactment Grandfathered plans established Auto enrollment of new employees for employers with more than 200 employees 1/1/2010Small business tax credits available (maximum of 35% of costs) 90 days after enactment Retiree reinsurance program available (Interim Final Regulations issued May 5, 2010; program to be implemented June 1, 2010) Plan years beginning six months after enactment All plans subject to some plan design constraints: No pre-existing condition exclusions Cover adult children (Interim Final Regulations issued May 10, 2010) No rescissions No annual or lifetime caps on “essential benefits” All plans, except grandfathered plans, subject to further plan design constraints: Appeals process Insured health plans subject to anti-discrimination testing (Code Section 105(h)) Coverage for emergency services Preventive care with no cost sharing OB/GYN primary care physician (Note: not all provisions of the Patient Protection and Affordable Care Act, as amended, are summarized below)

4. Health Care Reform Key Effective Dates for Employers (cont’d) 2012 24 months after enactment Disclosure obligations, including: Summary of coverage Notice of changes (mid-year) Quality of care (Note: not all provisions of the Patient Protection and Affordable Care Act, as amended, are summarized below) 2013 1/1/13 FSA contributions limited to $2,500 New 3.8% surtax on unearned income Additional.9% Medicare tax 3/1/13 Employer’s notice to employees concerning Exchange

5. 2014 1/1/14 Plan design changes and benefit mandates Individual mandate and individual subsidies begin State-run Exchanges begin Additional employer requirements: Report minimum essential coverage; Penalty for failure to provide affordable coverage (more than 50 employees) Free Choice Vouchers Small group subsidies increase Increased financial incentives for HIPAA wellness programs Health Care Reform Key Effective Dates for Employers (cont’d) (Note: not all provisions of the Patient Protection and Affordable Care Act, as amended, are summarized below)

6. 2015 1/1/15 Penalties for non-compliance with individual mandates increase Health Care Reform Key Effective Dates for Employers (cont’d) (Note: not all provisions of the Patient Protection and Affordable Care Act, as amended, are summarized below) 2016 – 2018 1/1/16Penalties increase for non–compliance with individual mandates 1/1/17Large employers may be permitted in Exchange 1/1/1840% excise tax on “Cadillac Plans”

7. MANDATED COVERAGES

8. Individual Mandate Effective Date: January 1, 2014 Individuals must maintain minimum essential coverage or pay tax Limited exemptions – Religious – Illegal aliens – Prisoners – Low-income individuals – Hardship recipients – Small breaks in coverage – Members of Indian tribes

9. Individual Mandate Minimum Essential Coverage – Medicare Part A – Medicaid – CHIPs – TRICARE – VA – Employer-sponsored coverage – Individual coverage – Grandfathered plans

10. Individual Mandate Consequences for failure to maintain coverage – Flat level tax or percentage of income $95 or 1% of income in 2014 $325 or 2.0% of income in 2015 $695 or 2.5% of income in 2016 Smaller penalty for minors Taxpayer is responsible for tax on all dependents Assistance available for low-income taxpayers

11. Employer Mandate Effective Date: January 1, 2014 Large employers must offer affordable minimum essential coverage or be subject to tax Must be offered to employees and their dependents Who is a large employer for this purpose? – 50 or more full-time employees – 30+ hours per week is considered full time – Number of employees includes full-time equivalents for purposes of minimum threshold – Determined on a controlled group basis

12. Employer Mandate Minimum essential coverage – No required benefits, employer coverage suffices Affordability must be determined for employees whose household income does not exceed 4 x the federal poverty level (poverty level for a single person is $10,830) – Cost of coverage Eligible for subsidy if employee premium exceeds 9.5% of AGI – Minimum level of benefits Eligible for subsidy if benefits offered under the plan not reimbursed at least at a 60% level (for example, 60/40 plan) Determined on an aggregate actuarial basis, not benefit specific Free choice voucher – Available for employees who must pay between 8% and 9.8% of AGI on healthcare – Income does not exceed 4 x the federal poverty level

13. Employer Mandate Consequences for failing to offer minimum coverage – Tax is based upon number of full-time employees; full-time equivalents are excluded – Exclude first 30 full-time employees in calculating the tax – Amount of tax depends upon whether any coverage is offered at all If no coverage offered, then $2000 x number of full-time employees less 30 If coverage is offered and an employee is entitled to a federal subsidy, then the lesser of – $2000 x number of full-time employees less 30 and – $3000 x number of full-time employees receiving assistance

14. Employer Mandate Example – Employer offers no health coverage, has 46 employees working 30 + hours per week, and 10 employees working 25 hours per week. The employer is subject to the mandate because the part-time employees convert to a sufficient number of full-time equivalents The nondeductible tax is $32,000 (16 x $2000) per year. Assuming a 39% corporate tax rate, the actual cost to the plan sponsor is $52,500 ($32,000 /.61). Example – Employer has 250 employees and offers coverage to all of them but the cost of coverage exceeds 9.5% of the household income of 35 employees. The employer will pay a penalty tax equal to the lesser of $440,000 (220 x $2000) or $105,000 (35 x $3000) Assuming a 39% corporate tax rate, the actual cost to the plan sponsor is $172,000 ($105,000 /.61)

15. Employer Mandate Example – Employer has 250 employees and offers coverage to all of them but the cost of coverage equals 9% of the household income of 35 employees. The employer must provide a free choice voucher to the 35 employees The voucher is deductible and no penalty tax is due

16. Healthcare Exchange Effective Date: January 1, 2014 Established by states – Regional or statewide coverage available Small employers and individual coverage – 100 or fewer employees Intended to permit consumer comparison of policies

17. Healthcare Exchange Essential benefits – Same as essential benefits under annual and lifetime limits – Required for plans offered under the exchange

18. Healthcare Exchange Bronze-level coverage (minimum coverage) (60% of actuarial value) Silver-level coverage (70% of actuarial value) Gold-level coverage (80% of actuarial value) Platinum-level coverage (90% of actuarial value) Young-invincibles coverage

19. REPORTING, TAXES AND REVENUE RAISERS AFFECTING EMPLOYERS

20. Employer-Sponsored Coverage - W-2 Reporting Effective Date: Coverage provided after December 31, 2010 New IRS Form W-2 reporting obligation Employer Sponsored Coverage: – Report COBRA premium values – Includes employer and employee contributions – Covers medical, dental, vision – Excludes flex spending contributions, single disease, fixed indemnity coverage

21. Additional Medicare Tax Effective for tax years after December 31, 2012 Applies to taxpayers with wages in excess of $200,000 (single) $250,000 (married filing jointly) Additional 0.9% on wages in excess of $200,000/$250,000 – Employee contribution only (no employer match) Employer withholding required only if employee receives wages in excess of $200,000

22. Flexible Spending Accounts (cafeteria/125 plans) Effective for tax years beginning after December 31, 2012 Limit on salary reduction contributions: $2,500 – Adjusted for inflation beginning 2014; – CPI-Urban Plan document requirement for “qualified” status

23. Flexible Spending Accounts - Health Savings Accounts Effective for expenses incurred in tax years after December 31, 2010 Eligible Expenses: – “Qualified medical expense” means an amount paid for medical care – Includes medicine and drugs only if prescribed by physician or insulin Special Timing Considerations: – Fiscal year plans; – Plans adopting a 3/15 “run off period”

24. Health Savings Accounts Effective for distributions in tax years beginning after December 31, 2010 Ineligible distributions subject to a 20% excise tax, in addition to income tax

25. High Cost Employer Coverage (Cadillac Plans) Effective for tax years beginning after 2017 Excise Tax: 40% of “excess benefits” – Calculated as the value of employer-sponsored coverage over dollar limit Imposed on health care providers – Insurer (fully insured plan); – Employer/administrator (self-insured plan); – Employer (HSA or MSA contributions)

26. Determining Applicable Dollar Limit: – Beginning thresholds (in 2010): $10,200 self-only; $27,500 other than self-only – Single formula adjustment for period between 2010 and 2018 to reflect medical inflation; based upon cost of Federal Employees Health Benefit Plan For example: – Cost of self-only coverage increases by 80% between 2010 and 2018 – Adjustment percentage under formula is 135% (100 + (80-55)) – In 2018, threshold is $13,770 for self-only ($10,200 X 135%) – Annual adjustments permitted for CPI – Urban and employer’s specific demographics High Cost Employer Coverage (Cadillac Plans)

27. Determining Value of of Employer-Sponsored Coverage: – COBRA premium valuation to determine cost – Aggregate the value of employer-sponsored coverage, including medical, drugs, FSA and HSA, on site clinics, EAPs Premiums included whether paid by employer or employee (whether paid before or after tax) – Separate dental/vision benefits, disability, long-term care, secondary benefits and fixed indemnity coverage may be excluded High Cost Employer Coverage (Cadillac Plans)

28. For Example: Assume coverage in 2018 $13,770 threshold for self-only ($1,148 per month) $14,500 value of employer-sponsored coverage ($1,208 per month) $60 excess coverage ($1,208 – $1,148 = $60) 9 months of coverage during 2018 $60 monthly excess X 9 months X 40% = $216 excise tax High Cost Employer Coverage (Cadillac Plans)