Online Conference Takes “Deep Dive” into Affordable Care Act

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Information about Online Conference Takes “Deep Dive” into Affordable Care Act
Health & Medicine

Published on February 4, 2014

Author: PYAPC

Source: slideshare.net

Description

PYA’s Martie Ross, Principal, joined three other panelists in a full-day, online conference sponsored by the American Institute of Certified Public Accountants to offer an in-depth look at healthcare reform under the Affordable Care Act (ACA).

AICPA Online Conference on Healthcare Reform: A Deep Dive into the Affordable Care Act

Panel Mark Dietrich, CPA, ABV Laura Westfall, JD Moderator Associate, King & Spalding American Institute of CPAs® 2

Panel Brian Marks, CEBS Principal, Digital Benefit Advisors American Institute of CPAs® Martie Ross, JD Principal, Pershing Yoakley & Associates 3

Today’s Objectives Overview of the U.S. Healthcare System and Reform Employer Requirements • New Mandates • Reporting requirements, enforcement penalties The New Rules on Health Insurance • Individual, Small Group, Large Group and Self-Insured Markets • Insights into how to obtain the best coverage at the best price American Institute of CPAs® 4

Today’s Objectives (Cont.) How Hospitals and Physicians Charge for Services • The least understood and most important cause of Cost • Reform’s changes to payment mechanisms and how it impacts what you need to understand to spend wisely Prognostications: The Future of Healthcare after Reform American Institute of CPAs® 5

Overview: The U.S. Healthcare System & Healthcare Reform Mark O. Dietrich, CPA, ABV American Institute of CPAs® 6

Mark Dietrich, CPA, ABV AICPA's National Healthcare Industry Conference Committee and Chaired that Conference in 2012 and 2013 Co-Author; The Financial Professional's Guide to Healthcare Reform published by John Wiley and Son's 2012 Partner-in-charge of audit of 80 physician tax-exempt faculty group practice Speaker for over 20 years at national conferences on managed care, healthcare reform, valuation and other topics American Institute of CPAs® 7

Healthcare Spending and Healthcare in the USA American Institute of CPAs® 8

National Health Spending American Institute of CPAs® 9 Source: California HealthCare Foundation (2012)

National Health Spending American Institute of CPAs® 10 Source: California HealthCare Foundation (2012)

National Health Spending American Institute of CPAs® 11 Source: California HealthCare Foundation (2012)

National Health Spending per Person American Institute of CPAs® 12 Source: California HealthCare Foundation (2012)

Healthcare in the USA: A Baker’s Dozen of Key Elements 1. Anti-trust exemption for insurers and Insurer Consolidation 2. Tax deductibility of health insurance and the lack of consumer involvement in the cost of care 1. 3. 4. 5. 6. a/k/a The Cruise Ship Effect Medicare and Cost-Shifting Endorsement of Fee-for-Service models Medicaid and Cost-Shifting Private insurer participation in Medicare American Institute of CPAs® 13

14 Healthcare in the USA: A Baker’s Dozen of Key Elements 7. Self-insurance by Large Employers 8. Federal Government Regulation 9. Prospective Payment Systems 10. Managed Care and Capitation 11. Provider Integration 12. Import of Negotiating Leverage 13. Broad Geographic Disparities American Institute of CPAs® 14

Antitrust: McCarran–Ferguson Act,1945 Federal antitrust laws do not apply to the "business of insurance" so long as the state regulates insurers. Federal antitrust laws only apply in event of boycott, coercion, and intimidation. Bottom Line: Until ACA/Obamacare, health insurance regulation was exclusive to the states, thus it varied widely/wildly across the nation. American Institute of CPAs® 15

Medicare & Cost-Shifting American Institute of CPAs® 16

Cost-Shifting: Not-So-Hidden ―Secret‖ Cause of Insurance Inflation Medicare • $700 billion in Medicare cuts to fund Reform’s cost are supposed to come primarily from Hospitals? • Don’t count on it! Last time this worked was after 1997’s BBA and the hospitals got that repealed in 2000’s Budget Improvement & Protection Act. • Hospitals will attempt to get those savings back from private insurers and the strong hospitals are succeeding. • Result – Under 65 population and the poor will pay. American Institute of CPAs® 17

Balanced Budget Act The Last Time the Proverbial Cost Curve was Bent American Institute of CPAs® Source: The Lewin Group analysis of Medicare cost reports; AHA annual survey data. (1999) 18

Cycle of Cost-Shifting Providers Providers’ budget based budget based on Payor Mix on Payor Mix Health Health insurance insurance premiums go premiums go up up Providers seek Providers seek increases from increases from non-Medicare non-Medicare insurers insurers American Institute of CPAs® Medicare cuts Medicare cuts payments payments Providers have Providers have revenue revenue shortfall shortfall 19

Provider Integration & Negotiating Leverage American Institute of CPAs® 20

Players in the Health Insurance World American Institute of CPAs® 21

Provider Integration Long-term trend among hospitals and physicians due to historic contracting practices with insurers accelerated by new provisions of Reform legislation, especially Accountable Care Organizations or ACOs Simultaneously, small health insurers have been forced out of certain business/markets, strengthening larger insurers ability to set premiums Both trends exacerbate causes of high healthcare spending and premiums Note: As a rule, high insurance premiums are generally driven by the high cost of hospitals, physicians & other healthcare services. American Institute of CPAs® 22

Hospital-Physician Integration American Institute of CPAs® 23

Cycle of Insurance Premium Increases Consolidated Providers Demand Increases Large Insurers Demand Premium Increases from Employers Weaker providers forced out, more Consolidation Reform exacerbates this Cycle Weaker insurers forced out, more Consolidation Strong Providers get New Technologies, Procedures, Hospital Buildings and Physicians American Institute of CPAs® Employers change to higher co-pays, deductibles and benefit reductions for employees ® 24

Consolidation Drives the Healthcare Cost Spiral Hospitals acquire physician practices, move ancillary services, some practices, to hospital settings (Site of service or Venue shift) • Think getting two bills for an ER visit, one from the hospital, one from the doctor. • Services like MRI and CT done in a hospital outpatient department are often dramatically more expensive than when done in a physician office or freestanding setting. • Medicare Payment Advisory Commission is now recommending site-neutral payments (June 2013). Hospitals join other hospitals and physicians in Networks that negotiate higher rates • ACA grants regulatory waivers that permit this! American Institute of CPAs® 25

Case Study Bill for the CT scan. Again, 2 "CT Scan" charges but this time Insurer would not tell me the CPT codes for each charge. They said I had to get that from the Hospital. Odd. Without radiologist charges, CT scan plus contrast drugs charges totaled $7,727.37. They paid $5,215.98 and my portion is $579.55. A lot of money for a very short procedure. 26 American Institute of CPAs®

A Personal Story About Shopping for Healthcare 27 American Institute of CPAs®

Markets: Self-Insured vs. Insured Employers vs. Individuals American Institute of CPAs® 28

Reform and Insurance Some of the least understood things about the Reform include: • The new insurance market rules and Exchanges apply only to small group and individual plans. • Large group and self-insured plans are mostly exempted. • A ―double whammy‖ is set up in 2016 for employers with between 50 and 100 employees, when they will both be subject to the employer mandate and will be forced into the small group market, where premiums are higher and benefits tend to be less and/or more expensive. American Institute of CPAs® 29

Who Can Self-Insure? ―While the health reform law holds self-insured plans responsible for some of the same taxes and fees as fully insured plans, self-insured plans are exempt from exposure to the excise tax on insurance, community rating on premiums and mandates for essential health benefits. Beginning in 2014, PPACA requires modified community rating in the individual and small-group health insurance markets that will allow insurers to vary rates only based on age, geographic location, family size and smoking status. These rating rules will apply to products offered in the state insurance exchanges and to fully insured products purchased outside of the exchanges by employers with up to 100 employees.‖ Small Employers And Self-insured Health Benefits: Too Small To Succeed? Center for Studying Health System Change American Institute of CPAs® 30

Who Can Self-Insure? ―Faced with rising health insurance premiums and the fallout from the economic downturn, many small employers are struggling to maintain health benefits for workers. At the same time, the markets for both third-party-administrative services and stop-loss insurance are becoming increasingly competitive as some carriers offer services to firms with as few as 10 workers. In turn, more small firms are considering self-insurance as an alternative to traditional health insurance products, according to interviews with health plans, stop-loss insurers and third-party administrators.‖ Note: This is how you AVOID a lot of Reform’s impact. Small Employers And Self-insured Health Benefits: Too Small To Succeed? Center for Studying Health System Change American Institute of CPAs® 31

Three (3) Insured Markets  Large Group Market historically more than 50 covered lives but Reform makes it more than 100 (as of 2016)   This is for Underwriting purposes and the Exchanges. The increase creates a larger pool in the Small Group Market to absorb expected actuarial losses!  Small Group Market is historically less than 50 but Reform makes it 100 as of 2016  Individual Market  Note: Massachusetts merged its individual and small group markets into a single risk pool; no other state has done this but if enrollment goals, especially of young and healthy, are not met, this may prove inevitable and will lead to premium increases for small business. American Institute of CPAs® 32

Simple Overview of Insurance Risk From an administrative standpoint, it is cheaper to insure 200 people under a single contract than it is to insure 40 groups of 5 people each under 40 contracts or 200 individuals. The next series of slides are from analysis of Reform in 2010. American Institute of CPAs® 33

50,000 insured lives average cost per member per month (PMPM) is $780 16000 Number of Insureds 14000 12000 10000 8000 6000 4000 2000 0 60 180 300 420 540 660 780 900 1020 1140 1260 1380 1500 Cost Per Member Per Month 50000 64% of the population has an expected cost PMPM between $660 and $900, American Institute of CPAs® 34

10,000 insured lives average cost per member per month (PMPM) is $780 2000 1800 Number of Insureds 1600 1400 1200 1000 800 600 400 200 0 60 180 300 420 540 660 780 900 1020 1140 1260 1380 1500 Cost Per Member Per Month 10000 46% of the population has an expected cost PMPM between $660 and $900, more variability = higher premiums American Institute of CPAs® 35

5,000 insured and ―adversely selected‖ average cost per member per month (PMPM) is $886 1200 Number of Insureds 1000 800 600 400 200 0 60 180 300 420 540 660 780 900 1020 1140 1260 1380 1500 -200 Cos t Pe r Me mbe r Pe r Month 5000 This is what happens when the young do not sign-up! American Institute of CPAs® 36

Healthcare Reform – The Affordable Care Act Newly available and less expensive coverage for some. Limited benefits, higher co-pays, bigger deductibles, greater out-of-pocket expenses, higher premiums for many. The foreseeable and the unforeseen.

Timeline of Healthcare Reform in the United States 1964: The “Great Society:” Medicare and Medicaid Early Reform Efforts 1954: Tax Deductibility of Health Insurance American Institute of CPAs® The 1990s: Rise of Managed Care, The Stark Law, Balanced Budget Act of 1997 Regulation: The Anti-kickback Statute 1970s: Medicare HMOs and ERISA Prospective Payment Systems Failure of Managed Care, Provider Integration Legislation on Medicare Spending Growth 38

How We Got Where We Are Massachusetts passes Reform in 2006 • Principal author of that legislation, later an aide to Senator Kennedy, is key author of federal legislation Patient Protection and Affordable Care Act (now called ACA or Obamacare) modeled on Massachusetts passed in March 2010 Half of states file lawsuit against PPACA in Supreme Court – and lose American Institute of CPAs® 39

Reform’s Model: Massachusetts Highest rate of insured residents in the nation, 97.4% [was 93% before Romneycare] Highest premiums in nation [and still today] • Many mandated benefits, e.g., IVF One of Highest rates of cost increase in nation American Institute of CPAs® May, 2010 40

Reform’s Model: Massachusetts (cont.) Second highest unemployment rate in New England Self-insured employers increasing to avoid merged Individual/Small Group Market premium increases Price/Benefit Gap between Small Group Market and Self-Insured & Large Group Market growing American Institute of CPAs® 41

The Reform of Health Insurance ―If you like your health care plan, you can keep your health care plan‖* *If you can still afford it! In Massachusetts, One Man’s ―Reform‖ was another Man’s Ballooning Cost American Institute of CPAs® 2011 Slide 42

What to expect May, 2010 Slide for AICPA Small Group Premiums go up • Benefit requirements - No pre-existing condition exclusions No Lifetime limits Deductibles limited: $2,000 individuals;$4,000 families If merged w/ Individual Market, will be worse • Note: Deductibles in the individual market have, in fact, proven to be higher; some states have higher deductibles on certain drugs, for example American Institute of CPAs® 43

What to expect Small Group Premiums go up • Ability to manage your costs is limited by the low deductible and maximum out of pocket levels ($6,350/$11,700), requires you to pay greater premiums - If healthy, you may have chosen a higher deductible, this would limit the subsidy you pay to the insurers for those who are not healthy - Analogous to choosing a high deductible on your auto insurance because of a safe-driving record or financial wherewithal • Minimum benefits rule requires buying coverage you may not need, e.g., maternity for a 55 year-old American Institute of CPAs® 44

Financial Professional’s Guide to Healthcare Reform – Young Folks Pages 74-78 of my book on the legislation have a detailed example of how the law would work in numeric fashion and concludes at the top of page 78 “...For example, a healthy 25 year-old sees a premium increase of 32.5 percent ...” This is my FAVORITE prediction! American Institute of CPAs® 45

What to expect Limited Provider Networks • In order to meet ACA standards on benefits, deductibles and out-of-pocket limits, insurers have been compelled to exclude high cost institutions, typically teaching hospitals and related ―high cost‖ physicians, from their networks • There are already multiple lawsuits against insurers by providers. • Impacts ability to continue existing care & relationships with providers American Institute of CPAs® 46

What to expect 35% - See Marriage Penalty next slide http://aspe.hhs.gov/poverty/13poverty.cfm © 2014, Mark O. Dietrich, All Rights Reserved #AICPA_HEALTH 47

ACA Marriage Penalty As written in the text, based upon an analysis by the Congressional Research Service, a government agency. • ―PPACA phases out premium support subsidies based on individuals’ or families’ income relative to poverty. Because the FPL for the married couple is not twice that of a single person, but only 35% higher (i.e., $14,570/$10,830), premium support under PPACA phases out at a faster rate relative to income for a married couple than it does for a single person, even though the phase-out rate relative to the FPL is the same. The structure of the phase-out results in what some might describe as a ―marriage penalty.‖ One or both individuals in a couple who are unmarried might be eligible for premium support subsidies based on their individual incomes, but if they married they might not, based on their combined income; if found eligible, the premium subsidy they might receive as a married couple could be less than the combined premium subsidies they might receive as an unmarried couple.‖ Health Insurance Premium Credits in the Patient Protection and Affordable Care Act, Congressional Research Service, April 28, 2010 American Institute of CPAs® 48

Other Impacts ―People who earn 250 percent of the federal poverty level or less will also have their maximum out-of-pocket spending capped at lower levels than will be the case for others who buy plans on the exchange. In 2014, the out-of-pocket limits for most plans will be $6,350 for an individual and $12,700 for a family. But people who qualify for cost-sharing subsidies will see their maximum out-ofpocket spending capped at $2,250 or $4,500 for single or family coverage, respectively, if their incomes are less than 200 percent of the poverty level, and $5,200 or $10,400 if their incomes are between 200 and 250 percent of poverty.‖ http://www.kaiserhealthnews.org/features/insuring-your-health/2013/070913-michelle-andrewson-cost-sharing-subsidies.aspx American Institute of CPAs® 49

Other Impacts (cont.) ―In California, for example, a standard silver plan will have a $2,000 deductible, a $6,400 maximum out-ofpocket limit and a $45 copayment for a primary care office visit. Someone whose income is between 150 and 200 of the poverty level, on the other hand, will have a silver plan with a $500 deductible, a $2,250 maximum out-of-pocket limit and $15 copays for primary care doctor visits.‖ American Institute of CPAs® 50

Financial Professional’s Guide to Healthcare Reform – Exchanges ―As part of the research for this book -— and after receiving notice of a 64% increase from Massachusetts Blue Cross Blue Shield in my insurance premium — I visited the Health Connector [Exchange] web site to see if I could obtain less expensive insurance. There was, in fact, no less expensive coverage and it took many hours to determine that because of the complexity of comparing one policy against the dozens of others. Abandoning the task due to its clear futility, I called my insurance rep, who confirmed the obvious: there ain’t no bargains. In fact, under Massachusetts’ law insurers are required to offer the same non-subsidized products inside the Exchange as they offer outside of it, so there could not be cheaper plans to begin with.‖ American Institute of CPAs® 51

Coming Up Next… Laura Westfall, JD Associate, King & Spalding American Institute of CPAs® 52

Employee Benefit Administration and Reporting Requirements for Employers Laura R. Westfall, Esq.

Overview Introduction Timeline of Major Healthcare Reforms Affecting Employers What Should Employers Be Doing Right Now? American Institute of CPAs® 54

Overview Items We’re Still Awaiting Guidance On Strategies for Cost Containment American Institute of CPAs® 55

Current State of Employer-Provided Health Plans Average total cost for active employees: $12,136 in 2013 • Up 5.1% from $11,457 in 2012 Employees’ share of total health care expenses, including premiums and out-of-pocket costs, has climbed from 34% in 2011 to 37% in 2013 • More than 80% of large U.S. employers plan to continue to raise the share of premiums that employees pay 66% of large employers offer an account-based health plan (ABHP), such as a health savings account (HSA) or a health reimbursement arrangement (HRA) • Expected to increase to 79% in 2014 American Institute of CPAs® 56

Timeline of Major Healthcare Reforms Affecting Employers American Institute of CPAs® 57

What Should Employers Be Doing Right Now?

What Should Employers Be Doing Right Now? Confirm That Changes Required to Be Made On or Before January 1, 2014 Have Been Made Prepare for Changes Required Beginning Mid-2014 and Later Obtain Necessary Additional Information on Employees Determine if Your Company is an ―Applicable Large Employer‖ That Will Be Subject to the ―Pay or Play‖ Mandate American Institute of CPAs® 61

What Should Employers Be Doing Right Now? (Cont.) Applicable Large Employers: Evaluate the Cost of ―Playing‖ vs. ―Paying‖ Decide Basic Plan Design (if ―Playing‖) Monitor and Assess Implications of Emerging Requirements and Interpretive Guidance Implementing Health Reform American Institute of CPAs® 62

Confirm That Changes Required to Be Made On or Before January 1, 2014 Have Been Made

Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective for Plan Years Beginning On or After 09/23/2010 • Required Coverage of Dependents to Age 26 • Prohibition on Lifetime Limits • Restrictions on Annual Limits • Prohibition on Pre-Existing Condition Exclusions for Children Under Age 19 • Prohibition on Rescissions • Changes to Internal & External Appeals Process American Institute of CPAs® 64

Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective for Plan Years Beginning On or After 09/23/2010 (con’t.) • • Increased Patient Protections - E.g., requirement not to require pre-authorizations for in-network emergency care Coverage of Preventive Services Without Cost-Sharing • Prohibition on OTC Drug Reimbursements • Higher Taxes on Improper HSA and Archer MSA Distributions - If plan documentation discusses taxation of HSA/Archer MSA distributions, make sure to update additional tax to 20% American Institute of CPAs® 65

Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Other Required Changes Effective Prior to 2014 • Distribution of Summary of Benefits and Coverage (SBC) Generally, must be provided beginning on the 1st day of the first open enrollment period that begins on or after 09/23/12 ―Good Faith Compliance‖ safe harbor for 2013 & 2014 plan years - Plans must provide 60-day advance notice of changes that affect SBC content • Form W-2 Reporting Report aggregate cost of employer-sponsored health coverage on Form W-2s (began with 2012 tax year, with Form W-2s issued to employees by end of Jan. 2013) • $2,500 Limit on Salary Reduction Contributions to Health FSAs Applies on a plan year basis Effective for plan years beginning after 12/31/2012 $2,500 limit is indexed for cost-of-living adjustments in future plan years (still $2,500 for 2014 plan year) American Institute of CPAs® 66

Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Other Required Changes Effective Prior to 2014 (con’t.) • $500,000 Deduction Limit for Executive Compensation Paid to Officers of Health Insurers - Applies for current and deferred compensation paid to officers, directors, employees and service providers of health insurers Effective for plan years beginning after 12/31/2012 (with respect to services performed after 2009) • Patient-Centered Outcomes Research Institute (PCORI) Fee - Applies to grandfathered and non-grandfathered self-insured health plans (including retiree plans) Fee: $2 multiplied by the average number of lives covered under the policy or plan (e.g., covered employees, spouses and dependents) Fee for 2012 had to be paid by July 31, 2013 (filed on Form 720) American Institute of CPAs® 67

Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Other Required Changes Effective Prior to 2014 (con’t.) • Employer Notice of Exchanges and Premium Credits - - - Employers must provide all new hires and current employees with a written notice that: Describes the state health insurance exchanges, and Provides information about premium subsidies that may be available Required to be provided to all current employees by 10/01/2013; within 14 days of new hires’ start dates thereafter DOL announced that there is no fine or penalty for failing to provide the notice • Employer Notice of Restricted Annual Limits Waiver - Required only of group health plans that received a waiver or extension of a waiver of annual limit restrictions 2013 was the last year the restricted annual limits waiver could apply Required to be provided by 12/31/2013 American Institute of CPAs® 68

Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective 01/01/14 • Prohibition on Annual Limits Annual dollar limits are prohibited on the value of ―essential health benefits‖ (―EHBs‖) for any individual - Note that the exclusion of all benefits for a particular condition is still permitted • Prohibition on Pre-Existing Condition Exclusions (for all enrollees) - Note that plans will no longer need to issue ―certificates of creditable coverage‖ after Jan. 1, 2014 as a result • Prohibition on Waiting Periods for Coverage Exceeding 90 Days - Guidance in recent IRS proposed regulations - 90 calendar day limit (includes weekends and holidays) - Employee must be able to elect coverage that is effective on the 91st day - Coordinating with other eligibility conditions - A plan may impose other eligibility conditions (besides the passage of time) - A waiting period begins only after an employee/dependent has met a plan’s other eligibility conditions for coverage American Institute of CPAs® 69

Confirm Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective 01/01/14 (con’t.) • Elimination of Stand-Alone Health Reimbursement Accounts (HRAs) - DOL FAQs state that ―stand-alone‖ HRAs will violate PPACA rule prohibiting group health plans from imposing lifetime or annual limits on essential health benefits • Annual Limits on Out-of-Pocket Maximums - Limits on out-of-pocket expenditures may not exceed the out-ofpocket expense limits for high deductible health plans ($6,350 individual / $12,700 family for 2014) • Annual Deductible Limits for Small Employers - Deductibles under small employer plans may not exceed $2,000 individual / $4,000 family for 2014 American Institute of CPAs® 70

Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Required Plan Design Changes – Effective 01/01/14 (con’t.) • Required Clinical Trial Coverage - Group health plans must cover certain costs in connection with clinical trials, must not discriminate against an individual who participates in a clinical trial for the treatment of life-threatening diseases • Maximum Financial Reward for Wellness Program Participation Increases - Wellness programs that condition rewards on satisfaction of a standard related to a health factor will be able to offer rewards of up to 30% of the cost of coverage (e.g., sum of the employee and employer portions of the cost of coverage) in the aggregate American Institute of CPAs® 71

Confirm That Plan Changes Required to Be Made On or Before January 1, 2014 Have Been Made Check Documentation and Administrative Procedures for Compliance Generally • • • Does each ERISA benefit plan have a plan document and an SPD that comply with ERISA’s written plan/SPD requirements? Consider creating a ―wrap‖ plan/―umbrella‖ plan Do written terms match administrative practices? Example: Employee eligibility waiting periods (30 days) Do not assume that your company’s third-party administrators and vendors will create/provide/amend plan documents and SPDs that comply with ERISA, the Code, PPACA, etc. Make sure you know whether your company is expected to create/provide/amend plan documents, SPDs, and other documentation (such as the new SBCs) American Institute of CPAs® 72

Prepare for Changes Required Beginning Mid-2014 and Later

Prepare for Changes Required Beginning Mid-2014 and Later Transitional Reinsurance Report and Fee - 11/15/14 • • • Applies to grandfathered and non-grandfathered self-insured health plans (including retiree plans) and insurers 2014 Fee: $63 ($5.25 per month) per ―covered life‖ (each individual covered by the plan) Plan sponsor must report number of covered lives to HHS by Nov. 15, 2014; must remit the fee to HHS within 30 days after receiving notice of fee liability (which will be sent no later than Dec. 15th) Employer Mandate - ―Pay or Play‖ - 01/01/15 American Institute of CPAs® 74

Prepare for Changes Required Beginning Mid-2014 and Later • • • • Annual Health Insurance Coverage Reporting - 01/01/15 Required information includes whether the employer offers a plan providing ―minimum essential coverage,‖ and if so, other information, including the length of any applicable waiting period and the employer’s share of total allowed costs of benefits Penalties for failure to satisfy reporting requirement for the 2014 plan year will not be enforced Required Automatic Enrollment (Large Employers) 2015(?) Employers with more than 200 employees that offer health insurance coverage (both fully insured and self-insured) will be required to automatically enroll new full-time employees in coverage, along with an opportunity to opt out of the coverage Still awaiting guidance/effective date American Institute of CPAs® 75

Obtain Necessary Additional Information on Employees

Obtain Necessary Additional Information on Employees PPACA’s requirements necessitate the collection of additional information by employers regarding their employees • • • Total family income (unless a safe harbor is used) Availability for, and enrollment in, other health insurance coverage (e.g., by an employee’s spouse) Cultural and language affiliations (for purposes of distributing materials in required languages, etc.) Such additional information needs to be safeguarded against misuse American Institute of CPAs® 77

Determine if Your Company is an “Applicable Large Employer” That Will Be Subject to the “Pay or Play” Mandate

Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate ―Pay or Play‖ Mandate Only Applies to ―Applicable Large Employers‖ Who is the ―Employer?‖ Who is a ―Full-Time Employee?‖ Determining ―Applicable Large Employer‖ Status American Institute of CPAs® 79

Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate ―Pay or Play‖ Mandate Only Applies to ―Applicable Large Employers‖ • ―Applicable Large Employer‖ Employers who employed an average of at least 50 ―fulltime employees‖ on business days during the prior calendar year - Determination must be made annually American Institute of CPAs® 80

Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Who is the ―Employer?‖ • • • IRS proposed regulations apply the ―common law‖ meaning of ―employer‖ All entities treated as a single employer under the controlled group and affiliated service group rules are treated as the same employer for purposes of who is a large employer subject to the employer mandate An employer also includes: Predecessor and successor employers Governmental entities Tax-exempt entities under Section 501(c) American Institute of CPAs® 81

Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Who is a ―Full-Time Employee‖? • A ―full-time employee‖ is an individual who is employed on average at least 30 hours of service per week for a month in the prior calendar year - • • 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week, provided the employer applies this equivalency rule on a reasonable and consistent basis ―Full-time employees‖ include ―Full-Time Equivalent Employees‖ (FTEs) Calculating the Number of FTEs - - (A) Determine the total ―hours of service‖ for a month in the prior year for all employees who were not full-time employees, including seasonal workers (up to 120 hours of service for each employee); (B) Divide the number in (A) by 120 Result = Number of FTEs for the month Fractions are taken into account in determining the number of FTEs for each month American Institute of CPAs® 82

Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Determining ―Applicable Large Employer‖ Status • Based on the number of full-time employees on ―business days‖ during the preceding calendar year • IRS Proposed Regulations’ Multi-Step Calculation Method: - Step 1: Calculate the number of full-time employees (including seasonal employees) for each calendar month in the preceding calendar year - Step 2: Calculate the number of FTEs (including seasonal employees) for each calendar month in the preceding calendar year (using the method described above). - Step 3: Add the number of full-time employees and FTEs in Steps 1 and 2 for each month of the preceding calendar year - Step 4: Add up the 12 monthly numbers from Step 3 and divide the sum by 12 = Average number of full-time employees for the preceding calendar year - Step 5: - If Step 4 < 50, then the employer is not an ―applicable large employer‖ for the current calendar year - If Step 4 => 50, then the employer is an ―applicable large employer‖ for the current calendar year American Institute of CPAs® 83

Determine if Your Company is an ―Applicable Large Employer‖ Subject to the ―Pay or Play‖ Mandate Determining ―Applicable Large Employer‖ Status (con’t.) • • Seasonal Worker Exception: Not a ―large employer‖ if the sum of the employer's full-time employees and FTEs is more than 50 for 120 days or less during the prior calendar year (and the employees in excess of 50 who were employed during the not-more-than-120-days period are seasonal workers) Employer Not In Existence in Prior Calendar Year: Such an employer is a large employer if it is reasonably expected to employ, and actually does employ, an average of at least 50 full-time employees (taking into account FTEs) on business days during the current calendar year American Institute of CPAs® 84

If Your Company is an “Applicable Large Employer,” Evaluate the Cost of “Playing” vs. “Paying”

The Employer Mandate Generally Beginning in 2015, ―applicable large employers‖ must choose to either: • ―Play‖ Offer ―minimum essential coverage‖ to substantially all full-time employees (and their dependents) which is both ―affordable‖ and offers ―minimum value‖ OR • ―Pay‖ Pay a penalty tax (an ―assessable payment‖) for either of the following: - Failing to offer ―minimum essential coverage‖ to substantially all full-time employees (and their dependents), or Offering eligible employer-sponsored coverage that is not ―affordable‖ or does not offer ―minimum value‖ American Institute of CPAs® 86

The Employer Mandate Generally Applicable penalty tax is calculated on a monthly basis • An employer is treated as not offering coverage for the entire month if it fails to offer coverage to a full-time employee for any day of a calendar month The rules for determining liability for and the amount of assessable payment are applied separately to each member of a controlled group. American Institute of CPAs® 87

Evaluating the Cost of ―Playing‖ vs. ―Paying‖ How Much Will ―Playing‖ Cost? • • • Look at actual costs of providing coverage for 2013, estimated costs of providing coverage for 2014, under current plan options Confirm that current plan options comply with applicable PPACA requirements (discussed above) Fixing noncompliant plan options will most likely increase costs of providing coverage Consider hiring outside consultant to review plans for compliance, estimate costs of offering (compliant) current plan options in 2015 How Much Will ―Paying‖ Cost? • • Calculate the Estimated Penalty for Not ―Playing‖ Understand How the Penalties Work Identify Your Full-Time Employees for Purposes of Determining Scope of Liability for Penalties Consider Possible Indirect Costs of Not Offering Coverage American Institute of CPAs® 88

Determine the Cost of ―Paying‖: Understand How the Penalties Work Subpart A Penalty: Opting Out Entirely • An applicable large employer will pay a penalty tax for any month that: - The employer fails to offer substantially all full-time employees (and their dependents) the opportunity to enroll in ―minimum essential coverage‖ under an ―eligible employer-sponsored plan‖ for that month; and - At least one full-time employee has been certified to the employer as having enrolled for that month in a health exchange for which health coverage assistance is allowed or paid • Penalty Amount: - $166.67/month, times each full-time employee (minus up to 30 full-time employees) Before the penalty will apply for a given month, at least one full-time employee must enroll in a qualified health plan through an exchange for that month and must receive an applicable premium tax credit for that month’s coverage American Institute of CPAs® 89

Determine the Cost of “Paying”: Understand How the Penalties Work • Subpart A Penalty (continued) - Defined Terms ―Substantially All‖ IRS proposed regulations clarify that ―substantially all‖ is generally 95% ―Offer‖ Offer must be made no less than once during the plan year ―Dependent‖ Does not include employee's spouse or domestic partner, only employee’s children ―Minimum Essential Coverage‖ Defined by what it does not include, which is ―excepted benefits‖ (e.g., stand-alone dental, vision, etc.; AD&D; workers’ comp; liability insurance, etc.) Should include any major medical-like coverage provided by employer American Institute of CPAs® 90

Determine the Cost of “Paying”: Understand How the Penalties Work Subpart B Penalty: Coverage Offered Fails Minimum Value and/or Affordability Requirements • • An applicable large employer will pay a penalty tax for any month that such employer offers coverage to substantially all of its full-time employees and their dependents, but the coverage: Does not have ―minimum value‖; and/or Is not ―affordable‖ Penalty Amount: $250/month, times the number of full-time employees for any month who receive premium tax credits Capped at the amount of the Subpart A Penalty Subpart B will never cost an employer more in penalties than Subpart A American Institute of CPAs® 91

Determine the Cost of “Paying”: Understand How the Penalties Work Subpart B Penalty (continued) • Defined Terms ―Minimum Value‖ The plan's share of the total allowed costs of benefits provided under the plan is at least 60% Several methods available to determine minimum value Minimum Value Calculator Design-Based Safe Harbors in the form of checklists Actuarial Certification Amounts contributed by an employer to an HSA are taken into account in determining the plan’s share of costs for purposes of ―minimum value‖ Amounts made available under an HRA that is integrated with an eligible employer-sponsored plan for the current plan year count if the amounts may be used only for cost-sharing and not to pay insurance premiums American Institute of CPAs® 92

Determine the Cost of “Paying”: Understand How the Penalties Work Subpart B Penalty (continued) • Defined Terms (continued) ―Affordable‖ The employer-only premium cost is no more than 9.5% of the employee’s household income - Safe Harbor Relief for Determination of Affordability Available - - Form W-2 Pay Rate of Pay Federal Poverty Line Special Rules: - Integrated HRAs - Wellness Incentives American Institute of CPAs® 93

Determine the Cost of “Paying”: Understand How the Penalties Work Generally: • • • An applicable large employer’s potential penalty tax liability is determined by reference to the number of full-time employees employed in a given month Calculation must be done on a monthly basis - Unlike the annual determination for purposes of determining ―applicable large employer‖ status All part-time employees are excluded - No ―full-time equivalency‖ conversion necessary American Institute of CPAs® 94

Determine the Cost of “Paying”: Identify Full-Time Employees • • Identifying ―Full-Time Employees‖ ―Full-time employee‖: An employee who has an average of at least 30 hours of service/week during a calendar month 30-hour threshold is the same as for purposes of determining whether an employer is an ―applicable large employer‖ Determining ―Hours of Service‖ Includes hours during which no duties are performed because of vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty or leave of absence Hourly Employees: Employers must calculate actual hours of service for employees who are paid on an hourly basis from: Records of hours worked; and Hours for which payment is made or due American Institute of CPAs® 95

Determine the Cost of “Paying”: Identify Full-Time Employees Determining ―Hours of Service‖ (continued) • Non-Hourly Employees: Employers must calculate hours of service for employees paid on a nonhourly basis using one of three methods: - - Actual hours of service, from records of hours worked and hours for which payment is made or due; A days-worked equivalency, under which an employee is credited with 8 hours of service for each day for which the employee must be credited with at least one hour of service under the hourly employee calculation rules; or A weeks-worked equivalency, under which an employee is credited with 40 hours of service for each workweek for which the employee must be credited with at least one hour of service under the hourly employee calculation rules American Institute of CPAs® 96

Determine the Cost of “Paying”: Identify Full-Time Employees (Cont.) • • Employers do not need to use the same method for all non-hourly employees, and may apply different methods for different classifications of non-hourly employees if the classifications are reasonable and consistently applied Note: the definition of ―hours of service‖ is not identical to the definition of ―hour of service‖ for purposes of qualified retirement plans American Institute of CPAs® 97

Determine the Cost of “Paying”: Identify Full-Time Employees • IRS Safe Harbors for Determining ―Full-Time Employee‖ Status Allows employers to identify full-time employees by calculating employees’ hours during a specified period of months (a ―measurement period‖) and then locking in that status (full-time or not) for a separate specified period (a ―stability period‖) Terminology A ―Measurement Period‖ The look-back period over which hours are calculated to determine whether an employee has averaged at least 30 hours per week. There are two types of measurement periods: The ―Standard Measurement Period‖ Used for ongoing employees The ―Initial Measurement Period‖ Used for new employees American Institute of CPAs® 98

Determine the Cost of “Paying”: Identify Full-Time Employees Terminology (continued) • • • • The ―Stability Period‖ - The look-forward period for which an employee’s status (as full-time or not) is locked in, regardless of the employee’s actual hours during this period - The stability period begins at the end of the measurement period (and any administrative period) An ―Ongoing Employee‖ - An employee who has been employed for at least one complete standard measurement period A ―New Employee‖ - An employee who has not been employed for at least one complete standard measurement period An employee is a ―Variable-Hour Employee‖ if it cannot be determined on the employee’s start date that the employee is reasonably expected to work an average of at least 30 hours per week during the initial measurement period (based on the facts and circumstances on the employee’s start date) American Institute of CPAs® 99

Determine the Cost of “Paying”: Identify Full-Time Employees ―Look-Back‖ Measurement Period - Generally: • • • • Measure each employee’s average hours of service over a look-back measurement period that is 3-12 months long Assign each employee full-time or part-time status based on that measurement Continue that status throughout a stability period that follows the measurement period and is usually the same length Between the measurement period and the stability period, an employer may have an administration period of up to 90 days Documentation is Key • Make sure to properly document the methodology used for determining ―full-time‖ status—including the measurement and stability periods used under the IRS safe harbors—as well as accounting for breaks in service and leaves of absence American Institute of CPAs® 100

Determine the Cost of “Paying”: Consider Possible Indirect Costs of Not Offering Coverage Necessity of Additional Compensation? Company’s Attractiveness to Potential Talent? Affect on Employee Morale/Productivity? Affect on Employee Turnover Rate? Affect on Public Opinion of Company? American Institute of CPAs® 101

Decide Basic Plan Design (if “Playing”)

Decide Basic Plan Design (if “Playing”): Two Basic Design Choices Option One: • Offer a plan that provides ―minimum essential coverage‖ with ―minimum essential value‖ to all full-time employees, and either: - Pay a penalty for those full-time employees for whom the employee-only coverage is ―unaffordable‖ and who elect coverage under an exchange; or Subsidize the cost of coverage for any full-time employees for whom coverage would be ―unaffordable‖ Option Two: • Offer a plan providing ―minimum essential coverage‖ with ―minimum essential value‖ to some (but not all) full-time employees, and pay a penalty for full-time employees electing coverage under an exchange, for whom the plan is ―unaffordable‖ or to whom the plan doesn’t offer ―minimum essential coverage‖ - NOTE: Although FTEs (i.e., part-time employees) are included for purposes of determining whether an employer is a ―large employer,‖ FTEs are not required to be offered ―minimum essential coverage‖ American Institute of CPAs® 103

Decide Basic Plan Design (if “Playing”): Factors to Consider Features of Current Plan(s) Offered • • Eligibility Cost of coverage (and in particular, employee-only coverage) Analyze Characteristics of Company’s Workforce • • • • • Average Employee Age Relative Health Turnover Rate Number/Percentage of Part-Time Employees Any Special Characteristics Affecting Calculation of Penalties Importance of Offering Health Coverage to Company’s Overall Benefits & Compensation Strategy American Institute of CPAs® 104

Monitor and Assess Implications of Emerging Requirements and Interpretive Guidance Implementing Health Reform

Monitor and Assess Implications of Emerging Requirements and Interpretive Guidance Implementing Health Reform The DOL, IRS and HHS continue to issue regulations and guidance with respect to many of PPACA’s healthcare reforms; future guidance may require additional changes to plan design, documentation, administrative process, etc. American Institute of CPAs® 106

Issues We’re Still Awaiting Guidance On

Items We’re Still Awaiting Guidance On Automatic Enrollment Outstanding Worker Classification Issues Offering Dependent Coverage Nondiscrimination Rules for Insured Health Coverage American Institute of CPAs® 108

Strategies for Cost Containment

Strategies for Cost Containment Evaluate Coverage of Dependents and Spouses Compare Fully Insured to Self-Insured Plan Design Assess and Adjust Communication of Benefits to Employees Review Contracts with Vendors Compare Actuarial Value of Current Plan to Available Options American Institute of CPAs® 110

Strategies for Cost Containment (Cont.) Consider Raising Plan Deductible Limits Consider Wellness and Health Risk Improvement Strategies Assess, and if Necessary Amend, Hiring Practices and Use of Full & Part-Time Workforce Impose Annual Limits on Non-―Essential Health Benefits‖ Evaluate (and Possibly Adjust) Costs of Other Benefits American Institute of CPAs® 111

Strategies for Cost Containment Evaluate Coverage of Dependents and Spouses • • • • Raise cost of coverage for dependents (and spouses, if offered) Recall that ―affordability‖ requirement is measured using ―employee-only‖ coverage Offer coverage only for dependents, but not spouses Charge a premium for spouses who are eligible for ―minimum essential coverage‖ through their own employer Charge for each family member that participates in the plan (instead of employee + family) American Institute of CPAs® 112

Strategies for Cost Containment • Compare Fully Insured vs. Self-Insured Plan Design Self-Insured Plans: - - • - Generally not subject to state health insurance regulations and benefit mandates Allows uniformity across state lines for large employers Plan sponsors may have greater control in designing plan benefits, provider networks, and employee cost sharing Costs based on company’s own claims experience Excluded from some of PPACA’s requirements Health insurance industry fee (begins 01/01/2014) Plan sponsor bears some or all of the risk for paying incurred claims Subject to more direct reporting and fee requirements under PPACA Fully-Insured Plans: - - Eligible for coverage under state guarantee programs in the event of carrier’s financial insolvency Transfer risk from plan sponsor to insurance company for all claims for benefits made under the plan Excluded from some of PPACA’s fee and reporting requirements American Institute of CPAs® 113

Strategies for Cost Containment Assess and Adjust Communication of Benefits to Employees • Evaluate Current Communication of Benefits - • How are communications to employees made? Who communicates with employees? How often are / what kind of communications are made? How transparent are communications? Adjust Communication of Benefits - Offer social media tools (online discussion groups, classes, quizzes, etc.) Offer in-person classes Make information about the cost of health services to employees readily available to employees Take advantage of technology - Smartphone apps for pharmacy management Insurer/vendor websites American Institute of CPAs® 114

Strategies for Cost Containment Review Contracts with Vendors • • • Review what services each vendor is providing Consider consolidating services with one vendor (cost efficiency) Consider implementing performance-based contracts (and setting specific performance targets) Compare Actuarial Value of Current Plan to Available Options • Run an actuary-supported financial impact study of the available options Consider Raising Plan Deductible Limits • • Employers can provide plans with higher deductibles, and then offset those higher amounts with contributions to employees’ HSAs or integrated HRAs Encourages employees to make more cost-conscious decisions when purchasing health care services American Institute of CPAs® 115

Strategies for Cost Containment Consider Wellness and Health Risk Improvement Strategies • Implement/Broaden outcome-based wellness programs - - Suggestions A discount of 20% of the cost of employee-only coverage for individuals who have an annual cholesterol test and achieve cholesterol levels below 200. Physical fitness/smoking-cessation program coupled with a financial reward (such as an employer HSA contribution) Offering disease management programs for employees/dependents with chronic medical conditions (e.g., asthma or diabetes), coupled with a financial reward for completing the program’s requirements Note: ―reasonable alternatives‖ must be offered to those for whom it would be unreasonably difficult or medically inadvisable to satisfy the requirements of the incentive due to a medical condition American Institute of CPAs® 116

Strategies for Cost Containment Consider Wellness and Health Risk Improvement Strategies (continued) • Provide education, tools and other resources for wellness - • • Suggestions Hosting a monthly health informational lunch for employees Encouraging a weight-loss club by providing a meeting space and a fringe benefit (such as a company mug) to participants Sponsoring a health fair Adding a ―phone-a-nurse‖ benefit to the plan Offering disease management programs for employees/dependents with chronic medical conditions (e.g., asthma or diabetes) On-site clinics Remember: Premium discounts offered for participation in wellness programs do not generally count toward determination of plan’s ―affordability‖ American Institute of CPAs® 117

Strategies for Cost Containment Assess, and if necessary amend, hiring practices and use of full & part-time workforce • Be careful of potential retaliation claims Impose Annual Limits on Non-―Essential Health Benefits‖ • But note: it’s still not clear what those are Evaluate (and Possibly Adjust) Costs of Other Benefits • Dental, Vision, LTD, STD, Group Life, etc. - • What % of premiums are paid by employees? How rich are the benefits offered by these programs? Does it make sense to focus benefits-related expenses on health coverage instead? American Institute of CPAs® 118

Coming Up Next… Brian Marks, CEBS Principal, Digital Benefit Advisors American Institute of CPAs® 119

Health Insurance Market Update Brian Marks, CEBS Executive Director/Principal VSCPA Benefit Advisors

Today’s overview (of a moving target) 1. Quick review of ACA requirements for 2014/15 • Not a detailed review of the law (I promise) 2. Highlights of major issues and impact to employers 3. The unintended consequences of reform…how we see the market responding heading into 2014 4. How can employers answer? • Six benefit strategies to consider to address the changes American Institute of CPAs® 121

Warning! Pay close attention if you: Have more than 50 FTEs and are not offering coverage Have employees working > 30 hours/week not currently covered by your health plan Have a large percentage of employees opting out Have a significant number of low income employees relative to Federal Poverty Level (FPL) Offer different contributions or waiting periods to sub-groups of employees Provide minimal employer contribution to premium, threatening affordable coverage If warning signals are flashing, a customized assessment is recommended… American Institute of CPAs® 122

ACA overview American Institute of CPAs® 12 3

Key issues and provisions American Institute of CPAs® 124

Individual mandate Individual mandate • Must have minimum essential coverage - Minimum essential coverage is defined as - Coverage under certain government-sponsored plans - Employer-sponsored plans, with respect to any employee - Plans in the individual market - Grandfathered health plans - Any other health benefits coverage, such as a state health benefits risk pool, as recognized by the HHS Secretary. - Doesn’t include health insurance coverage consisting of excepted benefits American Institute of CPAs® 125

Individual mandate Could drive more employees back into group plan to avoid penalty – increases employer premium contribution liability Penalties for Individuals American Institute of CPAs® 126

Individual mandate Individual mandate exemptions • • • • • • • • • Religious exemption Those not lawfully present in the United States Incarcerated individuals Cannot afford coverage based on formulas contained in the law Income below federal income tax filing threshold Members of Indian tribes Uninsured for short gaps of less than three months Received a hardship waiver from the Secretary Residing outside of the United States, or are bona fide residents of any possession of the United States American Institute of CPAs® 127

Individual mandate: Penalty Transition Relief (IRS Notice 2013-42) Applies to: • Employees and related individuals enrolled in, or eligible to enroll in, an employer’s non-calendar year plan • Where the plan year begins 2013 and ends 2014 Transition Relief: • No individual mandate penalty for months in 2014 prior to the first day of the plan year beginning in 2014 Example: • Employee and minor daughter eligible to enroll in a non-calendar year plan that begins August 1, 2013 and ends July 31, 2014 • Neither employee nor daughter enroll in plan for the 2013-2014 plan year • Employee and daughter eligible for transition relief for 128 January 2014 through July 2014

Individual subsidies Eligibility: For exchange plans – individuals with income between 133% (100% in some states) and 400% of Federal Poverty Level (FPL) without access to minimum essential coverage through their (or spouse’s) employer or are offered coverage that is not ―affordable‖ with 9.5% of income threshold Income ranges for 133% to 400% of FPL An individual making $15,282 will qualify for a subsidy if the monthly EE premium contribution is $121 or more Individual: $15,282 to $45,960 American Institute of CPAs® Target max EE cost/mo.: $121 to $364 Family of 4: $31,322 to $94,200 Target max EE cost/mo.: $248 to $746 Note: Subsidies vary by income level and may be delivered as benefit credits 129

Public exchanges/marketplaces Exchanges were “operational” in October The ―SHOP‖ group exchange and a ―Marketplace‖ for individuals Carrier signals suggest the following: • • • • Targeting the uninsured Some carriers are not participating May offer the minimal number of plans allowed (6), one catastrophic Will be a bias to narrow network options This means carriers do not want to cannibalize current group business in exchanges Exchanges will be a vehicle to manage subsidies but may be unattractive to those with other options – navigating the exchange can be challenging and cumbersome American Institute of CPAs® 130

Individual marketplace/exchange Information from: CIAB -June 28, 2013 WA MT VT ND OR NH ME MN ID MA NY WI SD MI WY NE NV IL UT CA PA IA CO AZ OK NM NC TN AR SC AL GA LA AK FL HI American Institute of CPAs® VA DE RI NJ WV KY MS TX IN MO KS CT OH MD DC Operational State Exchanges (1) State Exchange Established (15+DC) Federally -Facilitated Exchange (27) State Partnership Exchange (7) 131

Health plan requirements Minimum Value Benefits for 50+ employers; generally not a problem No annual maximum benefit limit on any plan < 50 – limits on deductibles and outof-pocket maxima • $2,000/$4,000 deductible limit but there are exceptions Wellness program incentives – up from 20% to 30% and 50% for tobacco free Waiting periods can not exceed 90 calendar days American Institute of CPAs® 132

Employer mandate Applies to > 50 FTEs, 30 hours, at least 95% FTEs must be offered effective in 2015 1. 2. If no coverage offered….$2,000 penalty/full-time employee, less the first 30 If essential coverage is offered but unaffordable (generally >9.5%of Box 1 W-2 wages for employee only on low plan) - $3,000 / FTE enrolled in exchange with subsidy Key Issues: Is current coverage minimally essential? Likely yes. Is it affordable? Harder to tell. Must offer coverage to employees and children (not spouse) Multiple PT jobs with one employer adding to > 30 hours? American Institute of CPAs® 133

Employer mandate penalty delay IRS Notice 2013-45 What does it mean? • Not repealed • Continue preparing - Await final reporting rules - Comply voluntarily - Ensure systems and procedures in place • No effect on other PPACA provisions American Institute of CPAs® 134

Key clarification Measuring FTEs is complex… 1. Need full analysis of part-time, variable hour and seasonal employees, and an understanding of measurement periods 2. Up to 15 month period prior to 2015 (formerly 2014) plan year is critical to 30 hour eligibility for each employee 3. Opportunity now to re-align work force with an understanding of the 30 hour threshold American Institute of CPAs® 13 5

Large employer determination IRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H Employers who employed at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year Employee Type Definition Calculating Employees Full-time employees Employees who, on average, work 30 hours or more per week A. Add number of employees employed on business days in the year of evaluation Seasonal employees A worker who performs labor or services on a seasonal basis B. (Add total number of hours worked during year of evaluation, but no more than 120 hours for any one employee in a given month) ÷ 120 All other non-full-time employees All other employees who are not full-time or seasonal C. (Add total number of hours worked during year of evaluation, but no more than 120 hours for any one employee in a given month) ÷ 120 TOTAL Full-time and full-time equivalent employees Add A + B + C for each month Add all months together ÷ 12 American Institute of CPAs® 136

Employer mandate tool IRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H ACA - Employer Sharing Responsibility • • • 1 - Full-time employees = total number of employees who work, on average, 30 hours per week 2 – Add all actual hours worked, in each month, by seasonal employees 3 - Add all actual hours worked in the month for those employees who are not accounted for as full-time or seasonal employees Are you mandated to offer coverage under ACA? Enter Year (YYYY) of Evaluation Applicability - 4980H Employers who employed at least 50 full-time employees, including fulltime equivalent employees, on business days during the preceding calendar year Full-Time Equivalent Employees Month Full Time employees1 Hours for all seasonal employees2 Seasonal employees converted to full-time equivalents Hours for all other nonfull-time employees3 January 0 0 0.0 0 February 0 0 0.0 0 Employer mandated to offer coverage per PPACA → American Institute of CPAs® NO 137

Variable hour and seasonal employees IRS/HHS Notices 2011-73, 2012-17, 2012-58, DOL 2012-2, IRS §4980H Type Definition Variable hour employee An employee is a variable hour employee if, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week or who initially starts at 30 hours per week but is anticipated to do so for a limited duration Seasonal employees The statute does not address how the term “seasonal employee” might be defined for purposes of whether a new employee of an applicable large employer is reasonably expected to work full time for purposes of determining the amount of any assessable payment under § 4980H. Through at least 2014, employers are permitted to use a reasonable, good faith interpretation of the term “seasonal employee” for purposes of this notice. American Institute of CPAs® 138

Variable hour/seasonal rules IRS Notice 2012-58 Full-time status of newly hired variable hour and seasonal employees Administrative Period • A “look back” period of 3-12 consecutive calendar months • Cannot exceed 90 calendar days Administrative period can be limited further when applying combined duration rule* Applicable Stability Period (IMP = Full-time) • Initial Measurement Period (IMP) Applicable Stability Period (IMP ≠ Full-time) • • • • Must be the same length as the stability period for on-going employees At least 6 consecutive calendar months Cannot be shorter duration than IMP Begins after IMP and any applicable administrative period • Cannot be more than 1 month longer than the IMP Must not exceed the remainder of the SMP plus any associated administrative period in which the IMP period ends. *IMP and administrative period cannot extend beyond, at most, 13 months and a fraction of a month from the employee’s start date American Institute of CPAs® 139

Variable hour determination tool IRS Notice 2012-58 Adding Employees Waiting period

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