Affordable Care Act Update for Round Table Pizza Group

1. Affordable Care Act Update for Round Table Pizza Group October 19, 2011

2. 12 Reasons to Support Healthcare Reform Affordable Care Act (ACA) will have a profound impact on the health and economic well-being of American families, businesses, and the economy. Below are some of the key provisions of the new legislation. The new healthcare law will:

3. 12 Reasons to Support Healthcare Reform

4. Affordable Care Act KEY PROVISIONS THAT WILL BECOME EFFECTIVE - 2011 • Businesses that employ fewer than 50 people are eligible for a tax credit equal to 35 percent of health insurance premiums • States can choose to establish temporary high-risk pools for people with preexisting conditions until new health insurance exchanges are implemented in 2014 • Prescription required for health account reimbursement for over-the-counter medications • 20% tax for nonqualified HSA withdrawals • Medical loss ratio standards go into effect (80% for small groups) • CLASS long-term program developed (enrollment date to be determined) • Grants for qualifying small employer wellness programs – 5 years • Federal rate review This presentation is intended for general guidance and planning and does not constitute a legal opinion

5. Affordable Care Act 2012: • Uniform coverage summaries/60-day notice for material modifications • First year medical loss ratio rebates may be issued 2013: • Value of employer-sponsored coverage on W-2s for 2013 tax year – meaning W-2s issued in January 2014 (IRS reporting optional for 2011 and 2012 tax years for employers who issue fewer than 250 W-2s) • Employee notification of exchanges, premium subsides and free choice vouchers • Medical flexible spending account contributions limited to $2,500 per year • Annual per-member fee for Patient Centered Outcomes Research Institute (for fiscal year 2013, which technically begins October 1, 2012) This presentation is intended for general guidance and planning and does not constitute a legal opinion

6. Affordable Care Act 2013: Continued • Minimum threshold for claiming deductions for medical expenses will increase from 7.5 percent to 10 percent of adjusted gross income for those under 65 • Medicare payroll tax rate will rise from 1.45 percent to 2.35 percent on earnings over $200K for individuals and $250K for couples • Employer tax deduction for subsidizing Medicare Part D-eligible retirees will be eliminated 2014: • U.S. citizens will be required to buy health insurance or pay a penalty of $95 per person in 2014, $325 in 2015, and $695 or up to 2.5 percent of income in 2016. After 2016, penalties will be indexed. The working poor may qualify for subsidies This presentation is intended for general guidance and planning and does not constitute a legal opinion

7. Affordable Care Act 2014: Continued • Companies with 50 or more employees generally must offer health insurance or pay a penalty of $2,000 per employee after the first 30 employees. Employers with 200 or more employees must auto enroll • Small group redefined as 1-100 (states may defer until 2016) • Insurers will not be allowed to refuse coverage because of preexisting conditions and cannot charge higher rates because of health status, race, or gender, no annual dollar limits on essential health benefits • Health insurance exchanges will be available in each state, allowing individuals and small firms to comparison shop for a standardized policy This presentation is intended for general guidance and planning and does not constitute a legal opinion

8. Affordable Care Act 2014 Continued: • Individual mandate, guaranteed issue • 30% incentive cap for wellness programs • Coverage for routine patient costs for clinical trials of life-threatening diseases (grandfathered plans exempt) 2018: • A 40% excise tax will be imposed on employers who provide their workers costly “Cadillac” health plans, those with premiums beyond $27,500 annually for family coverage and $10,200 for individuals. Companies can choose to pay the tax, pass it on to employees, or lower the plan benefit This presentation is intended for general guidance and planning and does not constitute a legal opinion

9. Affordable Care Act STEP ONE: Are you a “large employer”? 2014: Firms that employ 50 or more full time equivalents (FTEs) are required to provide affordable, comprehensive health insurance to their employees. If they do not and an employee accesses new health insurance tax credits, the large employer is required to make a contribution to the federal government. • Part time workers are included in this calculation on a pro rata basis. Seasonal workers are not included in this calculation. Small employers (employing fewer than 50 FTE’s) are NOT required to provide health insurance and they are not required to make contributions. This presentation is intended for general guidance and planning and does not constitute a legal opinion

10. Affordable Care Act DETERMINING THE NUMBER OF FULL TIME EQUIVALENT EMPLOYEES: An employer’s number of FTE’s is determined by dividing the total number of hours for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by 2,080. The result if not a whole number, is then rounded to the next lowest whole number. For example, for 2010 tax year, an employer pays, say, five employees wages for 2,080 hours each, three employees wages for 1,040 hours each, and one employee wages for 2,300 hours. The employer would have FTE’s calculated as follows. Total hours not exceeding 2,080 per employee is the sum of: 1.) 10,400 hours for the five employees paid for 2,080 hours each (5of 2,080) 2.) 3,120 hours for the three employees paid for 1,040 hours each (3 of 1040) 3.) 2,080 hours for the one employee paid for 2,300 hours (lesser of 2,300 and 2,080 4.) 10,400 + 3,120 + 2,080 = $15,600 hours divided by 2,080 = 7.5 FTE’s This presentation is intended for general guidance and planning and does not constitute a legal opinion

11. Affordable Care Act DEFINING SMALL GROUP TAX CREDIT: Requirements for the credit, employer must have fewer than 25 full-time equivalent (FTE’s) for the tax year. The average annual employee wages for the year must be less than $50,000 per FTE. The employer must pay the premiums under a “qualified arrangement”. Calculating the credit: Employer paid portion of gross premium only, maximum beginning 2010 through 2013 tax years 35% of the employer’s premium expenses. Example: 9 FTE’s with average wages $23,000 per FTE. Employer pays, say $72,000 toward health insurance premiums for those employees and otherwise meets the requirements for the credit. Employer’s 2010 credit is $25,200 (35% of $72,000). This presentation is intended for general guidance and planning and does not constitute a legal opinion

12. Affordable Care Act STEP TWO: Does the coverage you offer meet requirements under the new law? PPACA requires that coverage: • Includes an actuarial value of at least 60 percent. (most employer insurance is currently well above 90 percent). • Covers the minimum benefit standards in PPACA such as inpatient care, preventive care, office visits, prescription drugs, etc. (typically, employer sponsored coverage exceeds most of the requirements). • Is affordable to your employees. The cost of premiums to your employees must be less than 9.5 percent of their combined annual household income amount • If these requirements are met then NO employer contribution is required This presentation is intended for general guidance and planning and does not constitute a legal opinion

13. Affordable Care Act STEP THREE: Calculate required contribution • Make an Offer: Large employers that make an offer of qualifying health insurance coverage that may not be affordable are required to make a contribution. The contribution is triggered as soon as one full time employee receives a health insurance tax credit. The contribution is calculated as the lesser of: $3,000 per full time employee that receives a tax credit, or $2,000 per [total number of all full time employees – 30] • Do Not Make an Offer: Large employers that do NOT make an offer of qualifying health insurance coverage are required to make a contribution. The contribution is triggered as soon as one full time employee receives a health insurance tax credit. The contribution is calculated as: $2,000 per [total number of all full time employees – 30] This presentation is intended for general guidance and planning and does not constitute a legal opinion

14. Affordable Care Act SAMPLE CALCULATIONS: Example One An employer has 45 full time workers and 5 part time workers (equal to 3 FTE’s). The employer makes no offer of health insurance and all 50 employees – including the owner of the business – are receiving health insurance tax credits in the exchange. Required Contribution: Zero. The firm employees less than 50 FTE’s and, therefore, is considered a “small business” and exempt from contribution requirements. This presentation is intended for general guidance and planning and does not constitute a legal opinion

15. Affordable Care Act SAMPLE CALCULATIONS: Example Two An employer has 70 full time workers and 30 part time workers. The employer makes an offer to her employees of qualifying coverage but for 6 of her employees the coverage is unaffordable and they receive health insurance tax credits. 10 employees receive new Medicaid coverage. Required Contribution: The lesser of $3,000 x 6 = $18,000/ year; or $2,000 x [70 – 30] = $80,000/year The employer contribution is the lesser of the two, or $18,000/year This presentation is intended for general guidance and planning and does not constitute a legal opinion

16. Affordable Care Act SAMPLE CALCULATIONS: Example Three An employer has 70 full time workers and 30 part time workers. 10 employees are receiving Medicaid and 6 employees are receiving federal tax credits. The employer does NOT make an offer of qualifying coverage. Required Contribution: $2,000 x [70 – 30] or $80,000/ year NOTE: “Large employer” defined as having at least 50 full-time employees during the preceding calendar year. “Full-time employees” are defined as those working 30 or more hours per week. The number of full-time employees excludes those full-time seasonal employees who work less than 120 days during the year. This presentation is intended for general guidance and planning and does not constitute a legal opinion

17. Affordable Care Act SAMPLE CALCULATIONS: Example Four An employer has 35 full-time employees (30+hours). In addition has 20 part-time employees who all work 24 hours per week (96 hours per month). These part-time employees’ hours would be treated as equivalent to 16 full-time employees, based on the following calculation: 20 employees x 96 hours/120=1920/120=16 Thus, in this example, the firm would be considered a “large employer” based on a total full-time equivalent count of 51 – that is, 35 full-time employees plus 16 part-time equivalents based on part-time hours. However, in terms of calculating potential penalties part-time hours and part-time employees are not included; only the actual 35 full-time employees would be counted. This presentation is intended for general guidance and planning and does not constitute a legal opinion

18. Affordable Care Act OTHER CONSIDERATIONS: Employers are ineligible to receive federal tax credits if premiums of employer sponsored coverage are less than 9.5 percent of combined household income. Tax credits are not available above 400 percent of the poverty level ($43,000 per year for an individual and $88,000 for a family of four). Thus, employers only make a contribution if coverage is above this affordability threshold for all employees below 400 percent of poverty but who do not qualify for Medicaid (below 133% of poverty, about $10,400 per year for a single individual and $29,300 for a family of four). When premium costs exceed 8 percent of income, employers are exempted from individual penalty. Between 8 percent and 9.8 percent of income, employers are required to offer a “free choice voucher”. An employee may come to exchange but may not receive a tax credit (except between 9.5% and 9.8% of income. The employer only provides the value of their existing contribution to health insurance costs. This presentation is intended for general guidance and planning and does not constitute a legal opinion

19. Affordable Care Act Maintaining “Grandfathered” Plan Status: • Federal employee communication must be provided to all plan members • Reducing employer or employee organization contributions based on the cost of coverage or a formula by more than 5 percentage points below the contribution rate on March 23, 2010; • Reducing an overall annual dollar limit or adding a new overall annual dollar limit, compared with what was in effect on March 23, 2010; • Switching to a grandfathered plan that, compared with the current plan, has fewer benefits or higher cost sharing as a means of avoiding new consumer protections; or • Merger, acquisition or similar business restructuring if the principal purpose of the action is to avoid complying with the Patient Protection and Affordable Care Act (PPACA). This presentation is intended for general guidance and planning and does not constitute a legal opinion

20. Affordable Care Act • W-2 Reporting Requirements • For tax years beginning 1/1/2012 reportable by 1/31/2013 • The full cost of applicable employer-sponsored coverage without regard to employee contributions. This applies to all group health plans • Applicable employer-sponsored coverage: The Easy Rule: COBRA eligible benefit cost minus the 2% • Not includable: Long term care; AFLAC-type benefits (e.g. cancer policies); 125 Plan salary reduction contributions for health care spending account; contributions to HSAs or Archer MSAs • No taxes involved (separate box) • 2018, if these values exceed Cadillac tax limitations, balance will be subject to a 40% excise tax This presentation is intended for general guidance and planning and does not constitute a legal opinion

21. Affordable Care Act Special Rules for Employers with 200 FTE’s or More: Effective 1/1/2014 • Mandates • Must automatically enroll new employees but allow them to opt out • Must provide employees (regardless of wages) notice regarding the exchange • Qualifying low income employees receive vouchers. Employees can keep excess voucher amount after paying for coverage, if any. No penalties on employees that receive vouchers. • Income less than 400% of FPL • Not on employers health plan • Contribution between 8% and 9.8% of income This presentation is intended for general guidance and planning and does not constitute a legal opinion

22. Affordable Care Act Exchanges Under PPACA • By January 1, 2014, all 50 states must establish (or defer to feds): • An American Health Benefits Exchange (ABHE) • Eligible Users: Individuals • A Small Business Health Options Program Exchange (SHOP) • Eligible Users: Small employers of less than 100 employees • These Exchanges perform 5 basic services: • Certify health plans meet "essential health benefits package" standards • Offer certified plans for purchase to qualified individuals & employers • Provide assistance evaluating and enrolling in a plan • Facilitate application for federal premium assistance tax credits and cost-sharing reductions • Serve as single, streamlined access point for eligibility determination and enrollment in ALL subsidized state health coverage programs • Medicaid, SCHIP, Exchange plans, etc. This presentation is intended for general guidance and planning and does not constitute a legal opinion

23. Affordable Care Act Essential Health Benefits The coverage requirements for plans offered through the Exchanges-as set by the Secretary-must include the following the following categories of benefits: States may add additional requirements – but must pick up the cost. Prescription drugs Rehabilitative and Habilitative services and devices Laboratory services Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substance use disorder services, including behavioral health treatment This presentation is intended for general guidance and planning and does not constitute a legal opinion

24. Affordable Care Act Fees on fully insured and self funded plans • Fully-Insured (Premium Paid to an Insurance Company) • Impose an annual fee on the health insurance sector, according to the following schedule: • $8 billion in 2014; • $11.3 billion in 2015-2016; • $13.9 billion in 2017; • $14.3 billion in 2018 • Self-Funded (Employer Responsibility for Fixed and Variable Plan Costs: • In 2013, the plan sponsor of a self-insured plan is required to pay $2 multiplied by the average number of covered lives • From 2013-2019 the previous year's fee is multiplied by projected per-capita amount of National Health Expenditures • Plans are not required to pay fees beyond 2019 This presentation is intended for general guidance and planning and does not constitute a legal opinion

25. THANK YOU!