1. Health Care Reform Update
& Review of Tax Implications
Bernard DiFiore
President and
Chief Executive Officer
CompuPay, A BenefitMall Company
Thursday, September 20
4:00 p.m. EDT

2. CompuPay is registered with the National
Association of State Boards of Accountancy
(NASBA) as a sponsor of continuing professional
education on the National Registry of CPE
Sponsors. State boards of accountancy have final
authority on the acceptance of individual courses
for CPE credit. Complaints regarding registered
sponsors may be submitted to the National
Registry of CPE Sponsors through its website:
www.learningmarket.org.

3. Housekeeping
Course Level: Basic
Prerequisites: None required
Advanced Preparation: None required
Instructional Delivery Method: Group
Internet based
CPE Credits: 50-60 minutes. One (1)
credit hour is available for this session.
Questions
Evaluation

4. Webinar Overview
Attendees will learn about
Part II: How will
Part I: PPACA employers be impacted
Part III: Summary of Key
Background and and what can employers
Points
Supreme Court Ruling do to prepare for the
future?

5. Part I:
PPACA Background and
Supreme Court Ruling

6. PPACA Background
• The Patient Protection and Affordable Care Act (PPACA) was signed into law
by President Obama on March 23, 2010
• Various portions of the law began being implemented in 2010 and will continue
until 2018. Many key changes will occur in 2014.
• Federal and state governments are largely implementing these provisions
• Several federal agencies are assuming pivotal roles
• U.S. Department of Health and Human Services
• U.S. Department of Labor
• U.S. Department of Treasury
• U.S. Department of Homeland Security

7. PPACA Goals
• Covering the uninsured and 32 million more Americans
underinsured population
• Improving the transparency The Exchange System
and ease of purchasing health
insurance
• Medical Loss Ratio (MLR)
Increasing insurance accountability
• Creating national standards
Essential Health Benefits (EHBs)
• Summary of Benefits (SOB)
Standardizing benefit packages
• Reducing medical and insurance
Addressing financing issues
costs/Paying for Programs

8. Individual Mandate
• The Individual Mandate is an integral part of PPACA to ensure full participation by all U.S.
citizens, unless they are exempted.
• Effective January 1, 2014
• Most employers also must participate, either through offering coverage or by paying a penalty
• Individuals who do not obtain health insurance will be assessed a tax they must pay along with
their regular federal tax return
• The amount of the tax penalty for individuals in 2014 (reported in 2015), will be $95, or 1
percent of income, whichever is greater.
• The penalty would subsequently rise in 2016, reaching $695, or 2.5 percent of income,
whichever is greater.
• For families: the health insurance non-compliance penalty is capped at $285 per family, or
1% of income, whichever is greater.
• By 2016, it will jump sharply to $2,085 per family, or 2.5% of income, whichever is
greater.
• In theory, this will help spread the risk and make sure everyone is participating in the insurance
system.
Picture Credit: Texas Enterprise ; Univ of Texas at Austin

9. Exceptions to the Individual Mandate
Applies to everyone except the following:
• Who already have minimum essential coverage through an employer-sponsored plan
• Who have individual qualified coverage
• Who are enrolled in a Medicaid, Medicare, Tricare, or similar program
• Who are permanently incarcerated
• Who are members of Indian tribes
• Who express religious objection
• Who are without coverage for less than three months
• Who would be contributing more than eight percent of their household income as a
“required contribution,”
• Whom the Secretary of HHS determines that obtaining coverage would constitute an
extreme hardship

10. Individual Mandate:
What are the tax penalties for non-compliance?
The annual tax (formerly known as a penalty) for not obtaining minimum essential coverage
will be the greater of a flat dollar tax amount per individual or a percentage of the
individual’s taxable income.
The applicable flat dollar amount for 2014 for a tax filer with no dependents will be $95
and the amount for 2015 will increase to $325. This amount will increase over the years,
rising to $695 in 2016, and will be further revised in 2017 according to the changes in
cost-of-living.
Each adult will pay the rate of an individual, and then you need to add the dependent at
the 50% rate. For example, in 2016 a couple with one child under 18 would be assessed
a flat dollar penalty of $1,737.50 (two adults x $695 plus one child at $347.50 -- one half
of adult penalty).
A family of four (one couple with two children over 18) would only be required to pay the
300% cap in 2016. Three hundred percent of the $695 flat amount for 2016 is equal to
$2,085. This amount is less than the flat amount that could be charged if the cap were
not in place (two adults + two children over 18 = $695 x 4 = $2,780).

11. First Polling Question
According to the White House
website, PPACA is aimed at:
A)strengthening consumer
rights and protections
B) providing affordable
coverage
C) improving access to care
D) strengthening Medicaid
E) All the above
Image Source: progressillinois.com

12. U.S. Supreme Court - PPACA Legal Issues
• The Question of Legal Standing and the
Applicability of the Anti-Injunction Act
Issues being
• The Constitutionality of the Individual
considered by
Mandate
the Court were:
• The Missing Severability Clause
• The Medicaid Expansion Provisions

13. U.S. Supreme Court Ruling
• The Court found that jurisdiction and timing was proper, and rejected the
argument that the Anti-Injunction Act prohibited the case from being
heard
• The Court found that the Commerce Clause does not grant Congress
Findings by the U.S. the authority to regulate inactivity, but that the Individual Mandate is
Supreme Court constitutional under Congress’s ability to levy and collect taxes.
• Court noted that the missing Severability Clause was not relevant to this
case.
• The Court upheld most of the Medicaid Expansion Provisions but
narrowed the financial obligations of the state

14. Reactions to the Decision
• Prior to the Supreme Court’s decision, less than half of the
country was moving forward to implement the various provisions
of PPACA
• Now that the Supreme Court has issued their ruling, 60% of
states have made progress towards complying with PPACA
• The remaining 40% of states are still waiting for November 6th to
see what the election brings before they move forward
• What is clear is that the election will be the next big litmus
test
• Additional litigation challenging PPACA will likely occur
depending on the election outcomes

15. Second Polling Question
What issue was not considered
by the Court in the Affordable
Care Act decision?
A) Rule Against Perpetuities
B) Medicare expansion
provisions
C) Constitutionality of the
Individual Mandate
D) Lack of severability clause

16. Part II:
How will employers be
impacted and what can
employers do to prepare for
the future?

17. Exchange Overview
• The Exchange concept will take individuals and small group employers
into large risk pools that will give them better purchasing power and
could result in lower premiums
• Exchanges will serve as the platform that will allow individuals to
determine if they are eligible for government coverage or insurance
premium subsidies
• Exchanges will also facilitate the ability of individuals to compare
benefit plans that meet minimum coverage requirements on a
standardized basis

18. State-Based Exchanges
• Individual/Non-Group
• Small Business Health Options Program (SHOP)
• As of October 1, 2013, Small group employers with fewer than 101
employees will be able to access health insurance through the SHOP
exchange.
• The SHOP exchange will only sell benefit plans that conform to a
consistent format
• On January 1, 2017, state health insurance SHOP exchanges may be
able to expand eligibility to large employers with more than 100 FTEs.
• Blended model that combines both the Individual and SHOP options
• State Exchanges must be certified and operational by October 1, 2013

19. State Exchange Updates
• Implementing a State-Based Exchange: 16 States that are moving forward with
Exchanges are California, Colorado, Connecticut, Hawaii, Indiana, Kentucky,
Maryland, Massachusetts, New York, Nevada, Oregon, Rhode Island, Vermont,
Utah, West Virginia, Washington (and the District of Columbia)
• State-Based Exchange Legislation Pending: 2 States with pending Exchange
legislation include Illinois, and Pennsylvania.
• Not Implementing a State-Based Exchange: 10 States not moving forward with
Exchanges are Alaska, Florida, Louisiana, Maine, Michigan, New Hampshire,
Ohio, South Carolina Texas, Wisconsin
• Leaning Towards/Not Moving Forward: 22 other states are leaning toward
opting out of broad health care reform or waiting for a federal exchange.

20. Federally-Facilitated Exchanges
• Should a state fail to implement a state-based Exchange, even if by
choice, the federal government will implement a federally-facilitated
Exchange
• The structure of this Exchange can take one of several options –
either a joint venture between the federal government and the state,
with varying levels of state control, or one where the federal
government runs the entirety of the Exchange
• The State can maintain some control over this type of Exchange
• Funding for this type of Exchange is still lacking

21. Exchange Challenges
• Setting up the governance and operational infrastructure, including the
IT platforms
• Promoting efficiency and flexibility while keeping costs for participants
down (e.g., for small businesses and individuals)
• Avoiding adverse selection by pooling a mix of the healthy and the
unhealthy
• Becoming financially self-sustaining
• Complying with PPACA standards for public accountability,
transparency, and reporting
• Private Exchanges will exist and compete with them

22. Qualified Health Plans
• A QHip is a “qualified health plan” is a health plan that:
• Is certified by each Exchange through which it is offered
• Provides the essential benefits package
• An issuer must offer plans that meet the following 4 standards:
• Licensed and in good standing in each state in which it is offered
• Agrees to offer at least one silver plan and one gold plan
• Agrees to charge the same premium whether the plan is sold through the Exchange or
outside the Exchange
• Complies with other requirements of the Secretary of HHS and the Exchange
Source: NAIC

23. Essential Health Benefits
Beginning in 2014, PPACA requires health insurance plans offered to individuals and small businesses to
include health benefit services in each of ten categories, called essential health benefits (EHBs).
• HHS has established a rule that allows state regulators several options to define their state’s EHBs.
State regulators may choose any of the following:
• One of the three largest small group plans in the state by enrollment
• One of the three largest state employee health plans by enrollment
• One of the three largest federal employee health plan options by enrollment, or
• The largest health maintenance organization (HMO) plan offered.
Policy Goal: "It is important to find a successful balance between providing affordable coverage while
establishing a reasonable level of benefit protection. If we continue to increase the cost by mandating a
comprehensive set of essential benefits, we place further unwanted burdens on the business owner and
their employees."

24. Sec. 1302. Essential Health Benefits
Requirements
• (A) Ambulatory patient services.
• (B) Emergency services.
• (C) Hospitalization.
• (D) Maternity and newborn care.
Sec.
• (E) Mental health and substance use disorder services,
1302(b)(1)
including behavioral health treatment.
services
• (F) Prescription drugs.
covered
• (G) Rehabilitative and Rehabilitative services and devices.
include:
• (H) Laboratory services.
• (I) Preventive and Wellness services and Chronic Disease
Management.
• (J) Pediatric services, including oral and vision care

25. EHB Challenges
• Embracing state flexibility especially for multi-state employers
• Customizing EHB standard packages for each state
• Keeping EHB levels affordable
• Addressing variability in mandated benefits at state level
• Understanding additional variations in benefit designs
• Defining Medical Necessity when interpreting applicability of EHBs
• How will EHBs be addressed in Federally-Facilitated Exchanges

26. Summary of Benefits and Coverage
• Effective September 23, 2012, insurers and group benefit plans must issue a Summary of
Benefits and Coverage (SBC)
• SBC should detail “in plain language, simple and consistent information about health plan
benefits and coverage that…will help consumers better understand the coverage they have.“
• NAIC provided recommendations that were adopted by the federal government
• Should include coverage examples that illustrate benefits provided under the plan or coverage,
detail out-of-pocket costs, provide examples of coverage for a simple delivery and a Type II
diabetic care, and explain any coverage exclusions for common benefits
• Person requesting an SBC must be provided with the document within seven (7) business days
• Upon renewal, must be provided to both participants and beneficiaries as part of any written
enrollment application materials
• Experts differ as to when updated SBCs need to be issued – after September 23 or after new
policy year

27. Medical Loss Ratio
Tracking Medical Loss Ratio Current Rebate Process
began January 2011
•January 2011, insurers had to comply •MLR reports filed to HHS June 1st each
with MLR ratio rules year
•Large Group (defined as 100 or more •If a health plan or insurer meets or
employees) exceeds the MLR, notices will be issued
• 85% clinical services and qualified with the first plan document after July 1,
quality programs 2012
• 15% administrative •If 80/85% percentage not achieved,
•Small Group (defined as 2 to 100 notices and rebate checks must be
employees)) and nongroup distributed to employers by August 1st the
• 80% clinical services and qualified following year
quality programs •Three month requirement from August 1
• 20% administrative to take action on the MLR rebate options
•Calculations are based by legal entity, •Most rebate checks for 2011 have been
state and line of business issued

28. Employer MLR Distribution Rebate Options
DOL Technical 2011-04 Release
• Distribute rebates to current (and, if
Based upon already desired, former) participants
established ERISA • Enhance benefits provided to plan
principles, the DOL
participants by additional benefits or
guidance provides
wellness programs
employers with four
options. An • Pay reasonable plan expenses
employer may: • Reduce future premiums for current plan
participants

29. Small Employer Tax Credits
Eligible small employers are
defined as those employing 25 or
Under PPACA, small employers fewer full-time equivalent
offering health insurance coverage employees with average annual
to employees enjoy several wages of less than $50,000 and
benefits, including a new income contributing to employees’ qualified
tax credit health care coverage a uniform
percentage, no less than 50%, of
the premium cost

30. Large Employer Tax Penalties
Large employers MUST offer
Under PPACA, a premium subsidy medical coverage to its full-time
program is NOT established for a employees beginning in 2014. If a
large employer. In fact, a tax large employer fails to offer
penalty may be assessed against a appropriate coverage, that
large employer employer may be liable for a tax
penalty.

31. How is the Tax Penalty Triggered?
• If the employer does not offer coverage, and at
least one of its full-time employees claims the
The tax penalty can be premium tax assistance tax credit, or
triggered in one of two • The employer does offer coverage, but the
ways: coverage fails to meet the minimum essential
coverage threshold and one full-time employee
is certified to claim the premium tax credit

32. What are the tax penalties for large employers
who do not offer coverage?
The monthly penalty a large employer is obligated to pay for not offering any coverage is
equal to $2,000 divided by 12, multiplied by the difference of the number of full-time
employees employed during the applicable month minus the first 30 full-time employees.
Only full-time employees (not full-time equivalents) are counted for purposes of
determining the penalty.
(Number of Full-Time Employees) – 30 x (2,000/12)
For example, a firm with 51 employees would be subject to:
51-30 x (2,000/12) = total monthly penalty
$3,500 per month

33. Which Employers will face these Penalties?
• Employers with at least 50 Employees will face penalties if one or more of
their full-time employees obtains a premium credit through an Exchange.
• How does the law define 50 Employees?
• PPACA refers to “full-time equivalents”
• A subsequent rule expanded on this definition to include both full and part
time workers
• Guidance issued by DOL expanded the definition to include employees of
a “controlled group” of corporations, employees, partnerships,
proprietorships, etc., that are under common control

34. How can an Employer determine
if it is a “Large Employer”?
• Both full and part time employees are included in the calculation
• Full time employees: work 30 or more hours per week
• Seasonal employees who work for fewer than 120 days per year are not
considered to be full time employees
• Part time employees: include hours worked by taking the total number of
hours worked by individuals who work less than 30 hours per week and
dividing the total by 120
• If an employer has more than 50 employees for 120 days or less in the
preceding year, the employer will NOT be considered a large employer

35. Employee Calculations: an Example
• A firm has 35 full time employees who work at least 30 hours a week.
• In addition, the firm has 10 part time employees who all work 24 hours per
week (for a total of 96 hours per month)
10 employees x 96 hours = 960 total hours
960 hours / 120 = 8
The part time employees would be counted as 8 full time employees
•35 full time employees + 8 = 43 “Employees”

36. Who can potentially obtain a premium credit?
• Individuals can obtain a premium assistance credit if:
• They are not eligible for Medicare, Medicaid, or other similar programs
• They are not offered employer-sponsored health benefit coverage
• Their family income is between 138% and 400% of the federal poverty level
If an individual is offered employer sponsored health benefits, but these health benefits
are unaffordable, that individual can obtain a premium assistance credit.
• Benefits are unaffordable if:
• The individual’s required contribution toward the plan premium for self-only coverage
exceeds 9.5% of their household income, OR
• The plan pays for less than 60%, on average, of covered health care expenses.

37. What are the tax penalties for large employers
who offer coverage that is not affordable?
A large employer who offers coverage that does not satisfy the minimum value threshold
or minimum affordability threshold is assessed a monthly penalty of $3,000 divided by 12
times the number of employees that qualify for the tax credit.
For example, a firm with 51 employees of whom 5 qualify for the tax credit would be
subject to a penalty of:
5 x (3,000/12) = $1,250 per month

38. Employer W2 Reporting Requirements
Employers need to report the
cost of employer-sponsored
• Applicable to all employers that provide group health
health care coverage on
plans, including federal, state, and local governments,
employees’ W-2 forms for all
and religious organizations.
tax years starting on or after
January 1, 2011.
• The employer was required to file fewer than 250 W-2
Forms for the preceding calendar year, or
An employer need not report if:
• The employer is a federally recognized Indian tribal
government

39. Excise Tax on “Cadillac” Health Plans
In an effort to penalize employers who offer excessively rich health benefit
plans, PPACA includes a new excise tax on high-cost health plans, called
“Cadillac” health arrangements.
This is a new non-deductible 40% excise tax that some experts have
estimated will affect more than half of large employers’ active health plans by
2018.

40. Medicare Tax Increase
•PPACA includes a provision that will create a new tax for certain Americans.
•Specifically, section 1411 of PPACA imposes an additional tax of 3.8% if certain conditions
are met as described below.
•Currently, individuals pay a Medicare tax of 2.9% of their wages. The new tax is in addition
to the current Medicare taxes, and expands the definition of income subject to Medicare
taxes. The tax also applies to trusts and estates.
•The tax applies to taxable years beginning after December 31, 2012
•The tax will apply to single taxpayers with a modified adjusted gross income of $200,000 or
higher and married taxpayers with a modified adjusted gross income of $250,000 or over.
The tax also will apply to a married person filing separately whose modified gross adjusted
income exceeds $125,000

41. Polling Question 3
What is the Medical Loss Ratio
percentage for large group insurers?
A) 85%
B) 40%
C) 65%
D) 90%

42. Part III:
Summary of Key Points

43. PPACA Impact: Challenges
• Health care spending is over 17% of the U.S. GDP
• CBO now estimates that PPACA will cost over $1.76 trillion
• States cannot afford to build, support and maintain many of PPACA’s requirements
• MLR premium rebates are an administrative burden
• Young subsidize the old, and males subsidizes the females
• Premium increases due to increased benefits
• PPACA law is 2,700 pages and regulations are over 9,000 pages.
• Radical changes to current health plan offerings will likely create some disruptions to
the market

44. Polling Question 4
What are the main challenges when implementing PPACA going forward?
A) Coordinating state and federal oversight of the future insurance offerings
B) Funding the new exchange system to offer qualified health plans
C) Interpreting the thousand of pages of federal regulations
D) Understanding the full array of employer responsibilities
E) All of the above

45. Questions & Answers
For additional health care Reform updates, please monitor:
• www.benefitmall.com
• www.health careexchange.com