Health Care Reform Update

Health Care Reform Update Presented by:Andy Impastato Vice President – Legal & Compliance

Agenda • Political Outlook • Marketplace (Exchange) • Individual Mandate • Employer Mandate • Plan Design Changes • Wellness Rules • Action Items

Political Outlook Awareness of PPACA? 42% of Americans unsure if still law 12% of Americans believe Congress repealed law 39 “show” votes to repeal in House since law’s passage 7% of Americans believe Supreme Court struck down law

Political Outlook Administration under attack? Medicaid expansion Exchange (Marketplaces) SHOP delayed Discrimination rules delayed Employer mandate delayed Automatic enrollment delayed

Political Outlook Will PPACA be de-funded? House passed bill last week Includes request to de-fund PPACA in its entirety Senate will now substitute its own version Stripping defunding language Final vote on CR expected this weekend Individual mandate delay?

Political Outlook Mid-term elections Senate makeup 52 Democrats 2 Independents 46 Republicans House makeup 234 Republicans 201 Democrats

Political Outlook Mid-term elections PPACA will be front and center (again) Job growth Super majority? Senate + 21 seats House + 56 seats

Marketplace Overview Now called “Marketplace” Effective 1/1/14 Mississippi’s will be federally run Vision is to be a one-stop shop for consumers Vision is to decrease costs through competition and subsidies Carrier participation is weak Plan design and network sufficiency

Marketplace Notice Disclosure Requirement Employer is responsible Deadline is October 1, 2013 Description of services provided by Marketplace May be eligible for subsidy Consequences for dropping employer coverage Model Notices available Penalty?

Individual Mandate Overview Individuals must maintain “minimum essential coverage” or pay a penalty Effective for 1/1/14 Penalty is greater of percentage of salary or flat fee 1% (2014), 2% (2015) and 2.5% (2016-) $95 (2014), $325 (2015) and $695 (2016-) Certain exemptions Penalty assessed on individual tax filing

Employer Mandate Overview Only applies to large employers Requires large employer to offer coverage that meets certain requirements or pay a penalty Original effective for January 1/1/14 Government recently announced delay No penalties will be assessed until 2015

Employer Mandate Big (“Sledge Hammer”) Penalty Mechanics “Large” employers that fail to “offer” “minimum essential coverage” to “substantially all” of its “full-time employees” and their “dependents” will be subject to a $2,000 per employee penalty if any full-time employee goes to an Exchange and qualifies for a subsidy. Penalty is calculated based on the total number of full-time employees (minus 30).

“Large Employer” Status Average of 50 or more full-time employees on business days Look at preceding calendar year (2014) “Full-time” defined as 30 or more hours of service per week Part-time employees represent FTEs (total hours / 120) Aggregation rules (controlled group) apply Employer Mandate

Employer Mandate “Offer” of Coverage Employee must have an effective opportunity to accept coverage at least once during the plan year Electronic offer permissible Facts and circumstances No “offer” for a month unless coverage available for every day of month

Employer Mandate “Minimum Essential Coverage” Employer-sponsored GHP plan offered on the small or large group market

Employer Mandate “Substantially All” An employer will be deemed to have offered covered to “substantially all” full-time employees and their dependents if: Coverage is offered to 95% of full-time employees and their dependents (or, if greater, 5 employees) Failure to offer to 5% need not be inadvertent (i.e., planning opportunity) Does not eliminate penalty for 5%

Employer Mandate “Full-Time Employees” Part-time employees are excluded Full-time employees only 30 “hours of service” per week 130 “hours of service” per month Hours worked v. “hours of service” Common law definition of “employee” Full-time status measured monthly on an ongoing basis Safe harbors mitigate impact of month-to-month analysis

Employer Mandate Variable Hour Employees Measurement period 3 to 12 months Standard (ongoing employees) (SMP) Initial (new employees) (IMP) Administrative period Optional Up to 90 days Stability period Generally same as SMP or IMP

Employer Mandate Variable Hour Employees Transition relief is gone All large ER’s must comply with mandate on 1/1/14 ER’s with VHEs will commence safe harbors in 2013 10/3/13 to 10/1/14 SMP 10/1/14 to 12/31/14 Administrative period 1/1/15 to 1/1/16 Stability period

Employer Mandate “And Their Dependents” The employer is required to offer coverage to “dependents” Does not include spouse Spousal carve out? Does include son, daughter, stepson, stepdaughter, adopted child, child placed for adoption, and foster children up to age 26)

Example No coverage (or coverage but not to substantially all): Employer A has 100 full-time employees. Employer A does not offer coverage to any of its employees. Employer A owes $2,000 for each full-time employee minus 30, so Employer A owes a total penalty of $140,000 (100 – 30 = 70; 70 x $2,000 = $140,000) Employer Mandate

Employer Mandate Little (“Tack Hammer”) Penalty Mechanics Large employers that offer coverage will be subject to a $3,000 per employee penalty if the coverage is either not “affordable” or does not meet “minimum value,” and as a result, any full-time employee qualifies for a subsidy. Penalty is calculated based on the number of full-time employees who obtain a subsidy (with a maximum penalty cap).

“Affordable” Employee’s premium for single coverage is greater than 9.5% of employee’s household income W-2 safe harbor Rate of pay safe harbor FPL safe harbor Employer Mandate

Employer Mandate “Minimum Value” Employer pays less than 60% of total allowed costs Not a contribution rate Tests MV Calculator Safe Harbor Checklists (waiting) Actuary

Example No “affordable” coverage Employer B offers health coverage and has 100 full-time employees, 20 of whom receive a tax credit and enroll in the Exchange. Employer B owes $3,000 for each employee receiving a tax credit, so it owes a penalty of $60,000. (20 X $3,000 = $60,000) The penalty is capped at the amount Employer B would have to pay if it offered no coverage at all. Employer Mandate

Questions/Issues Transition Relief? Fiscal Year or 1/1/14 for everyone FTE going from 30 to 40? Subsidies on Federal Exchanges? Judicial scrutiny Difference in Eligibility for Subsidies Americans v. non-Americans Employer Mandate

Plan Design Changes Probationary Periods Effective for plan years beginning on or after 1/1/14 Cannot exceed 90 days 90 days exact Calendar days (not business days) EEs currently serving probationary period Cumulative hours standard OK Substantive eligibility standard OK

Cost Sharing Limits Out of pocket Effective 1st day of plan year beginning on or after 1/1/14 GF plans excluded $6,350 / $12,700 Everything accrues to OOP Deductible, Co-payments, Rx Co-payments Transition relief for plans using separate TPAs Plan Design Changes

Plan Design Changes Prohibition on pre-existing condition exclusions Prohibition on annual limits Clinical Trials

Wellness Rules Overview Effective 1st day of plan year beginning on or after 1/1/14 Codified existing HIPAA guidelines Increased employer incentives

Wellness Rules Overview Participatory programs Health contingent programs Activity based Outcome based ER has flexibility in design

Wellness Rules Health-Contingent Programs Limited reward 30% or 50% if tied to tobacco use Annual qualification Reasonable in design Reasonable alternative Difference between activity and outcome-based programs Plan disclosure Availability of reasonable alternative Physician accommodation Contact information

Between now and 1/1/15 Restructure part-time workforce Independent contractor verification Begin measurement periods Compliance test wellness programs Affordability for tobacco-free programs Action Items

Questions & Answers 34

Health Care Reform Update