Health Care Reform – What Employers Need to Know Now (Version 5.0)

1. Health Care Reform – What Employers Need to Know Now (Version 5.0) Scott A. Sinder

4. Key Provisions Affecting Employers • Employer and Individual Mandates/Subsidies/Credits • Market Reforms/Plan Design Requirements • Wellness • Exchanges • New Taxes • New Fees • New Reporting Obligations

5. Key Effective Dates for Employers • Provisions not effective until regulations issued • Employer coverage notices under FLSA • Non-discrimination rules • Auto-enrollment of employees • Employers generally must be in compliance with coverage requirements (1/1/2014) • Individual mandate and premium tax credits • Medicaid expansion • Other insurance market reforms • Transitional Reins. Program begins • 40% “Cadillac tax” on high-cost health plans • Transitional Reins. Program ends • Open enrollment in Exchanges begins (10/1/2013) • Increase Medicare payroll tax by 0.9% on earned income • Impose 3.8% tax on unearned income • PCORI fee • States may open Exchanges to large group market • Employer information reporting to the IRS on employee coverage (due by 1/31/2015)

6. Employer Mandate

7. Employer Mandate: Pay or Play? – 1/1/2014 Large Employers • >50 FT & FTE ees • No coverage – $2000/FT ee penalty (>30 ees) (if <95% FT ee) • Not offer “affordable” “qualifying” coverage – lesser of: $3000/ subsidized FT ees or $2000/total FT ees (>30 ees) • Self + children under 26 • Excludes overseas & “seasonal” ees Small Employers exempt

8. Determining Large Employer Status • Count # of FT ees (incl. seasonal) who avg. 30 hrs/wk • Determine # of FTE ees by totaling # of hrs worked by non-FT ees (incl. seasonal) & dividing by 120 • Add FT ees and FTE ees for each mo. in prev. yr • Add monthly totals & divide by 12. Avg. is >50 FTE ees after applying “seasonal exception” = large employer • “Seasonal exception”: Workforce is >50 FT ees for <120 days / 4 mos. AND excess FT ees are seasonal = NOT large employer

9. Commonly Owned / Controlled Business • IRS rules • Each component pays its own penalties • Pro-rata share of 30 ee exemption

10. Other Mandate Issues • 90 Day Waiting Period • Can Challenge IRS Assertion of Penalty • Transition Issues • Non-Calendar Year Plans – Delayed Start Date • offered 12/27/12 • 1/3 eeseligible • 1/4 ees participating • Smaller Employers – 6 mos. to determine employer size for 2014

11. Affordable Care Act of 2010Compliance Workflow for “Pay or Play” Analysis There is no penalty payment required if the Employer offers “Affordable” coverage. Does the employer have at least 50 full-time equivalent employees? Does the employer offer coverage to its Full-Time (30 Hours or more) Employees? Does the insurance pay for at least 60% of covered health care expenses for a typical population? Does any employee have to pay more than 9.5% of His/Her income for single EE coverage? Start Yes Yes Yes No Yes No No Employees can elect to buy coverage in an Exchange and receive a premium tax credit. Employees can elect to buy coverage in an Exchange and receive a premium tax credit. Did at least one employee receive a premium tax credit or cost sharing subsidy in an Exchange? Yes The employer must pay a penalty for failing to offer coverage. The employer must pay a penalty for failing to offer “Affordable” coverage. Penalties do not apply to small employers. The employer must pay a penalty for failing to offer “Affordable” coverage. If the employer has 25 or fewer employees and average wages up to $50,000 it may be eligible for a health insurance tax credit. The penalty is $2,000 annually times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums. The penalty is $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums. The penalty is $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums.

12. “Variable Hour Employee” Safe Harbors – On-Going Employees • Standard Measurement (“Look Back”) Period (3 – 12 Months) • Administrative Period (Up to 90 Days) • Part of prior stability period • Stability Period (6 Mos. Min.) • Change in status during stability period • Breaks in service – • FMLA + Educational Institution Employees • Disability loophole? • Transition measurement period • min. 6 mos. • start no later than 7/1/13 & end no later than 90 days prior to 1st day of plan 2014 yr

13. “Variable Hour Employee” Safe Harbors – On-Going Employees Test Test Test Administrative Period

14. Variable Hour Employee Safe Harbors – New Employees • Good faith and reasonable basis for new ees • Up to 1 yrinit measurement period w/no coverage • Combination of Standard Measurement + Admin Period <13 Months Administrative Period

15. Transition from New to On-Going Employee • A new employee must be tested at the conclusion of the initial measurement period and after the close of the first standard measurement period for which he is employed for the full duration thereof even if the standard measurement period overlaps with the initial measurement period. 2nd Test 1st Test Test Test Test Hire Date Administrative Period

16. Affordability Safe Harbors • Self-only coverage • May use more than one: • Current W-2 wages (pro-rated if not entire year) • Rate of Pay • Hourly ees = 130 hrs x hourly rate of pay • Salaried ees = monthly salary • 100% of Federal Poverty Line

17. Valiant’s ability to identify and track the “Variable Employee” In addition to the normal Full Time and Part Time user defined status codes our customers may now want to track Variable Employees. All the new reports for ACA will run with filters to select the various Status Codes such as Variable.

18. New Valiant ACA Reports available NOW • ACA - Average Hours Report • ACA - Look Back Period Report • Features • Filter criteria such as “hourly or salary”, full time or part time, selection of hourly earning types. • Can be run for any date range to evaluate your optimal measurement period. • Can filter number of hours <> so we can track “variable” employees working > 30 hours /week. • Can track < hours so we can see which of our full time employees are not exceeding 30 hours /week

19. New ACA – Average Hours Report

20. New ACA – Look Back Period Report

21. New ACA - FTE Employee Count Available May 2013

22. Sample Questions: • How do I look at my hourly employee group to determine the best look-back measurement period (three, six, nine or twelve months)? • What are the negatives if I use a twelve month look-back timeframe?. • If I modify my existing plans to now include the Federal Minimum Essential Benefits Plan and I set my single employee cost for that new Minimum Plan at no more than 9.5% of my lowest paid, full-time hourly worker, would I be in compliance with ACA for 2014?

23. Sample Questions: • Will there be a problem if I currently offer coverage to approximately 30 employees, but have 400 eligible full time employees, with any medical carrier in 2014? • Will the exchanges that are being built become an available option for me if I have over 50 employees?

24. Market Reforms

25. Market Reforms Already in Place – All Plans • Coverage up to Age 26 • Pre-Ex for Children • Free Preventive Care / Women’s Healthcare (non-GF only) • Primary care physician designation right (non-GF only) • Mandatory appeals process rights/notice (non-GF only) • MLR (insured only) • Premium Increase Reviews (insured only) • Claims Review (non-GF only) • Uniform Coverage Summary Disclosures (all plans) • Annual/Lifetime Limits (Mini-Med Plan Waivers exp. 2013)

26. No Annual / Lifetime Limits for Essential Health Benefits • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substance use disorder services, including behavioral health treatment • Prescription drugs • Rehabilitative and habilitative services and devices • Laboratory services • Preventative and wellness services and chronic disease management • Pediatric services, including oral and vision care

27. 2014 Market Reforms Applicable to All Non-”Grandfathered” Plans • Out of pocket limitations (= HDHP OOP limits for HSAs) • $6,250/self, $12,500/family (2013 Limits) • Clinical trial participation right • No Pre-Ex • Non-Discrimination / Highly Compensated Employees (non-GF)* • Auto Enrollment (all > 200 employees)* • Employee Exchange Notice / IRS Coverage Rpts (2013/2014)*

28. 2014 Market Reforms Applicable to All Non-”Grandfathered” Insured “Small Group” Plans (< 100 Ees) • Essential health benefits • State-by-State essential health benefits • Minimum Value* • >60%; Er contributions to HRAs/HSAs part of MV • Community rating/no medical underwriting • Deductible limits - $2k/self, $4K/family*

29. Grandfathering Can – (for the moment) • Change premiums • Some structural changes • Change provider network • Change Rx formulary • Add new employees/enrollees • Enroll new dependents • Make changes to comply w/law (“normal adjustments”) Cannot – • Eliminate all benefits to diagnose or treat a particular condition • % co-insurance charges • co-pays, fixed amount cost- sharing “significantly” (med. infl. + 15%) • ER contribution “significantly” (> 5%) • New or decreased annual limits • Change carriers (for insured plans) • Switch EE’s plans; corporate mergers/sale to avoid compliance (Each Benefit Package Considered Separately)

30. Wellness Programs

31. Wellness – Generally • Generally – plan participant eligibility, benefits and/or premiums cannot vary based on health factor (HIPAA) • Wellness Programs That Satisfy Rules = HIPAA Exception • Notice of Proposed Rulemaking to Modify Rules • IRS, HHS, & DoL • Applies to group plan issuers and group plans • Participatory Programs • Offered to all similarly-situated individuals • Gym membership, health screenings, etc. • Incentive / Disincentive cannot be outcome dependent

32. Wellness – Health Contingent Programs • Incentives / Disincentives Based on Health Factors • Ok if: • Reasonable Alternative Standard (waiver, diet, education program, etc.) • “unreasonably difficult” or “medically inadvisable” • verify w/physician if “reasonable circumstances” • Reasonable Design • Notice of Availability • Frequency of Opportunity to Qualify (min. once/yr) • Total benefit / penalty raised to 30% of premium value • Smoking related programs – total benefit / penalty up to to 50% of premium value • State Laws Preempted

33. Exchanges

34. State Exchange Implementation Federally-Facilitated Exchange (26) Conditional Approval: State Exchange (17 + DC) Conditional Approval: State-Federal Partnership Exchange (7)

35. State Medicaid Expansion Will Expand (23 + DC) No Expansion (14) Leaning Toward Expansion(4) Leaning Toward No Expansion (4) Undecided (5)

36. Exchange Operating Models - Examples

37. New Taxes

38. Tax-advantaged accounts (HSAs, FSAs, HRAs) • Reimburse only for prescribed drugs • Penalty for using MSAs & HSAs for non-qualified expenses increased to 20% (2011) • Limit Health FSA contributions to $2500/yr (2013) • High-income earners (individuals with income > $200K; couples > $250K) • increased Medicare wage tax (0.9%, 2013) • new Medicare tax on investments (3.8%, 2013) • Medicare Part D Subsidy – Er Tax Deduction Eliminated (2013) • “Cadillac Tax” (2018)

39. New Fees – May Prompt Higher Premiums

40. Practical Applications (New Fees & Taxes) Legislation requires additional revenue to cover 3 main areas: • Conduct research that compares treatment effectiveness • Help fund state and federal exchanges • Support individual health insurance market 40

41. 3 New Taxes/Fees Implemented • Comparative Effectiveness Research Fee (CERF)* • Reinsurance Assessment • Health Insurance Industry Fee *Also known as the Patient – Centered Outcomes Research Institute (PCORI) fee 41

42. Comparative Effectiveness Research Fee Intent of Comparative Effectiveness Research • Determine which treatment for a given condition works best Who pays Fee • Both Fully Insured and Self Funded Plans • Self Funded plan sponsor files federal excise Form 720 and pays fee directly to IRS Length of time Fee is in Effect • 2012 – 2019 (first payment due July 2013) Amount of Fee • $1.00 per participant (includes dependents) per year 2012 • $2.00 per participant (includes dependents) per year 2013 • Fee increase is indexed to inflation for subsequent years through 2019 42

43. TPAs/Carriers – $25 B ($5.25/mo. or $63/yr per covered life) (3 yrTransitional Reins. Program) • SIPs/Carriers – $2/beneficiary (Comparative Effectiveness Research) • Carriers – $8B - $14.3B+ /yr • Pharmaceutical manufacturers – $2.5B+/yr • Medical device manufacturers – 2.3% Per Sale Excise Tax

44. New Statutory Reporting Obligations

45. New Statutory Reporting Obligations ̶ Employers • W-2s – Health Insurance Value (>250 ees) • Ees& New Hires – Exchange & Subsidies Notice (Awaiting Updated Guidance; DoL delayed compliance date until Fall) • Treasury Department – Comprehensive Info Re Coverage Provided & Who Is Covered (2014) • Cadillac Taxes – Report Amounts To Carriers & HHS (2018)

46. New Statutory Reporting Obligations – SIPs/Carriers • To Enrollees: Uniform Summary of Coverage • To Enrollees: 60 days Advance Notice of Material Changes To Plan Not in Uniform SPD (eff. date after Uniform SPD adopted) • To Enrollees: Plan’s Appeals Process & State Consumer Assistance Office (No GF) • To Enrollees & HHS: Quality of Care Measures/Wellness Programs (No GF) • To HHS: Cost Data for MLRs (Informational for SIPs) • To HHS/State/Internet: “Unreasonable” Premium Increases Notice/Justification (No GF) (Carriers Only) • To HHS: Net Premiums Written (by 2014) (Carriers Only) • To HHS/States: Claims Payment Policies/Rating Practices/Others (2014) (Carriers Only) • Certification to HHS: HIT Data, Systems, & Payment Req. Compliance (Only in 2013 & 2015)

47. Health Care Reform – What Employers Need to Know Now (Version 5.0) Scott A. Sinder