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General Overview of Health Care Reform (HCR)

Critical Decisions and Considerations for 2013

• Individual Mandate

• Employer Shared Responsibility (Play or Pay)

• Reporting

• Costs, Taxes & Fees

• State Exchanges

Your Business Strategy

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Provisions 2010 – 2018• Mandates & Statutes

• Access To Affordable, Quality Coverage

• Taxes, Penalties, Fees & Credits

• Reporting & Administration

Impact to Business Owners• More complexity in purchasing decisions

• Increased compliance requirements

• Rising costs for small businesses

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Individual Mandate

Employer Shared Responsibility (Play or Pay)

Reporting

Costs, Taxes & Fees

State Exchanges

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• Effective January 2014, all individuals must purchase qualifying health coverage

• Limited exceptions apply• Penalties for failure to comply collected through

individual’s federal income tax return

Penalty is lesser of above amount or the national average cost of bronze level coverage in the state exchanges

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• Are you prepared to answer employees’ questions?

• Will the penalty change your employees’ behavior?

• Will more employees enroll in your health insurance offering?

• What is the impact to your plan design and total health care cost?

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• 40 FTEs*

• Offers Coverage

• 75% Participation

• 10 FTEs currently not enrolled• $5,000 contribution per employee

A. 10 FTEs (currently not enrolled) enroll because of individual mandate

B. Employer’s costs of offering coverage increases

C. 10 x $5,000 = $50,000

*Full-Time Employees

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Individual Mandate

Employer Shared Responsibility (Play or Pay)

Reporting

Costs, Taxes & Fees

State Exchanges

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• Employers with 50 or more FTEs (including FTEQs*) are subject to Play or Pay penalties if certain minimum requirements are not met (coverage, value and affordability)

• One or more FTEs obtains coverage through a state exchange and receives a premium tax credit or cost sharing subsidy

*Full-Time Equivalents: individual(s), not treated as full-time employees, who in combination are counted as a full-time employee based on number of hours worked during a fixed time period

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• Consider controlled group status

• FTE calculation is performed on month-by-month basis and requires following data:

– Employment Status (full-time, part-time or seasonal)

– Hire Date– Hours Worked

• Ongoing Data Tracking:– Hours and status for all

employees to determine coverage eligibility

– FTEs for purposes of determining eligibility for coverage

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60% of minimum essential benefits costs covered by the plan*

Not to exceed 9.5% of household income

*Actuarial plan value

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• Do you offer health insurance?• Does your health insurance offering meet the minimum

value and affordability requirements?• How many full-time employees do you have under the

new health care reform calculation?• Do you think any of your full-time employees will receive

a subsidy for state exchange coverage?• What is your exposure to play or pay penalties?

• 50 FTEs (including FTEQs)

• ≠ MECA. 1 FTE goes to exchange

B. 1 FTE gets subsidy

C. Penalty on employer is triggered

D. (50 – 30) x $2,000 = $40,000

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*Minimum Essential Coverage: defined under HCR as (i) an employer-sponsored group health plan, (ii) certain government programs such as Medicare, Medicaid, CHIP and TRICARE, (iii) an individual policy

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• 50 FTEs (including FTEQs)

• Offers Coverage

• ≠ Minimum Value

• ≠ Affordable

A. 10 FTEs go to exchange

B. 5 FTEs get subsidies

C. Penalty on employer is triggered

D. 5 x $3,000 = $15,000

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Individual Mandate

Employer Shared Responsibility (Play or Pay)

Reporting

Costs, Taxes & Fees

State Exchanges

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• Number of full-time employees (FTEs) employed each month• Name, address and Taxpayer Identification Number of each FTE

during calendar year and months (if any) when employee (and dependents) were covered under health plans

• Length of any waiting periods• Certify coverage offered to FTEs and dependents• Months employer sponsored plan was available• Monthly premium for the lowest cost options• Employer’s share of the total allowed costs of benefits

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• State/Local Reporting • State Exchange Reporting• Employment and Plan Offering Verifications• Penalty Appeals

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• Are you prepared to comply with existing or future reporting requirements?

• Are your payroll processing, benefits administration and HR services managed by multiple systems and/or vendors?

• How will you coordinate the tracking of necessary information and submit the appropriate reports on a timely basis?

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Individual Mandate

Employer Shared Responsibility (Play or Pay)

Reporting

Costs, Taxes & Fees

State Exchanges

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The Congressional Joint Committee on Taxation recently identified more than 20 new or increased taxes, totaling almost $1.1 trillion over the next ten years.

• Nearly double the original 2010 projection• $25 billion in taxes affecting health insurance costs in 2014

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Taxes and fees on insurers/health care industry will increase costs for businesses by 3.5-4% or $400 PEPY*

*Per Employee Per Year

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• Individual and small market reforms:- States will heavily regulate small group and individual

premiums- Adjusted community rating will limit pricing variables to age,

family size, geography and tobacco use (some states may further

limit variations or eliminate altogether) - Other rating factors will be prohibited (e.g., prior claims

experience, health status, gender, industry and duration of coverage)

- Pricing of identical medical plans offered inside & outside of state

exchanges must be the same

• Other requirements affecting costs include:- Guaranteed issue and renewability- Maximum deductible levels- Minimum plan values

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• How will new small group pricing regulations impact your cost structure?

• How will taxes and fees impact your cost structure?

• How can you modify your plan designs to offset expected cost increases?

• Should you adjust employee contributions to offset expected cost increases?

• Can you adjust your product or service prices to cover your expected cost increases?

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Individual Mandate

Employer Shared Responsibility (Play or Pay)

Reporting

Costs, Taxes & Fees

State Exchanges

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• State exchanges will be marketplaces for individuals and small businesses to view, compare and purchase health insurance

• Creation mandated by HCR- Open Enrollment - October 1, 2013- Fully-Operational - January 1, 2014

• Some regulations have yet to be finalized

• Processes, products and pricing still in development

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• Will include 4 levels of medical plans with varying coverage levels (“metal plans”)

• Some state exchanges are expected to initially offer only medical and Rx coverage

• Full scope of products and pricing for exchanges is not known in all states at this time

*% of minimum essential benefits costs covered by the plan

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• Subsidies will be available through state exchanges for

those earning up to 400% of federal poverty level (FPL)

- $45,960 for individual, $94,200 for family of 4 (2013

FPL)

- Available only for coverage obtained though exchanges

- Unavailable if employer offers qualified coverage

• Subsidy calculations are complex

- Amounts based on a sliding scale using household income/age/plan value and phased-out

as income approaches 400% FPL

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• There are two forms of subsidies: Premium Tax Credits &

Cost-Sharing Subsidies, both:

- lower overall cost of health insurance coverage for

an individual/family

- are based on a sliding income scale (those at

bottom receive most assistance, those at top

receive least)

- are pegged to Silver Plans in the State Exchanges

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FederallyFacilitated Exchanges (26)

State BasedExchanges (18)

PartnershipExchanges (7)

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• Are you prepared to provide your employees with the required notifications and answer their questions?

• Are you aware that some of your employees could incur greater costs by purchasing coverage through state exchanges?

• Are your employees prepared to purchase insurance on their own?

• Do you know if the state exchanges will offer competitive products?

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• Employers relying on state exchanges for employee medical coverage may be disadvantaged against competitors who attract and retain top talent through a comprehensive benefits strategy

• State exchange medical plans may be viewed as a lower quality solution because many believe the exchanges were developed to serve the uninsured and underinsured

• State exchanges may not provide a consistent health insurance solution for employees across multiple states

• State exchange products may initially be limited to medical and Rx only, requiring you to seek other solutions for ancillary insurance products (e.g., dental, vision, life, etc.)

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• Your role as business owner vs. employer• Your comprehensive benefits offering• Your workforce

• Limited understanding of regulations and their impact• No infrastructure/processes to manage reporting burden• Inadequate resources to stay abreast of changing landscape

• Gain a competitive advantage through a superior benefits strategy

• Cost volatility• Better prepared competitors• Potential penalties (Play or Pay, Reporting)

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COMPLEXITY: Reduce administrative burdens through a dedicated service team & best-in-class IT infrastructure

COMPLIANCE: Minimize risk of fines & penalties through continuous monitoring of changing federal & state regulations

COSTS: Stabilize health care costs through our fully-insured health plan and its low cost structure

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The information provided in this communication is for educational and informational purposes only, and is not legal advice.   IRS Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from an independent tax advisor with respect to any federal tax transaction or matter addressed herein.