HEALTH CARE REFORM - GETTING READY FOR 2014 On June 19, 2013, the Minnesota Chamber of Commerce hosted a workshop on the new health care reform law. This presentation outlines what small employers need to know about the law changes.

1. HEALTH CARE REFORM
GETTING READY FOR 2014
1
Minnesota Chamber of Commerce: Large Employer Panel
June 19, 2013
Maureen M. Maly, Partner Nicole O. Fallon
Benefits & Executive Compensation Health Care Consultant Manager
FAEGRE BAKER DANIELS LLP CLIFTONLARSONALLEN

2. The ACA
► Signed into law March 2010, is the law of the land today
► Applies to all businesses in the US, including governments
► Requires almost all individuals to obtain health insurance
coverage or pay a penalty
► Establishes health insurance exchanges (state or federal)
► Employers with at least 50 full-time + FTE employees may have
to pay a penalty, if they don’t offer full-time employees
affordable, minimum level health insurance after 1/1/2014
► Implementation details continue to be outlined through the
issuance of new regulations, guidance, and FAQ documents
from IRS, HHS, DOL
2

3. Variables Affecting Costs for Employers
► State where business is operated & employee resides
► State vs. Federal Exchange
► Medicaid Expansion
► Employer premium deductibility vs. non-deductible penalty
► Offer vs. don’t offer health insurance today
► Number of FT employees
► % of FT employees who enroll vs. don’t enroll in employer
coverage
► Wages of workers
► Employer contribution, if any, toward employee premiums
3

4. 2014: Individual Mandate
► Individual mandate to obtain health coverage: Beginning in 2014,
most individuals must obtain a minimum-level of health insurance coverage or pay
a penalty
► Minimum essential coverage includes:
► Medicare, Medicaid, TRICARE
► Insurance purchased through an Exchange, or the individual market
► Any employer-sponsored coverage
► Grandfathered plans (group plan in effect on 3/23/2010)
► Penalties for failure to obtain coverage:
► In 2014: greater of $95 or 1.0% of income
► In 2015: greater of $325 or 2.0% of income
► In 2016: greater of $695 or 2.5% of income
► Penalty is capped at three times the per person amount for a family
► Assessed penalty for dependents is half the individual rate
Hardship exemption
Premium cost for lowest
cost plan > 8% of
Household Income
4

5. 2014: Government assistance to help some
individuals obtain coverage
► Medicaid expansion: Expands eligibility to
individuals and families up to 133% of the federal
poverty level (FPL) or Modified Adjusted Gross Income
(MAGI) of 138% of FPL
► If cost effective, states can opt to subsidize employer-
sponsored premiums for this group
► Premium tax credit assistance: Individuals and
families with household income of 100 - 400 % FPL
may be eligible for sliding-scale assistance to help pay
premiums
► Cost sharing assistance: Those earning between
100-250% FPL are also eligible for out-of-pocket
reductions to help with cost sharing (e.g., maximum
out-of-pocket, deductibles, co-payments)
138% FPL
Individual =
$15,856
Family of 4 =
$32,499
400% FPL:
Individual=
$45,960
Family of 4=
$94,200
5

6. Cost Sharing Subsidies
► Federal government will pay insurers to reduce the cost sharing
for individuals:
► Enrolled in a silver-level plan through an Exchange and
► Whose household income is between 100-250% FPL
► Reductions don’t apply to benefits not included in the federal
definition of “essential health benefits”
6
Household income
as % of FPL
Cost sharing
reduction
100-200% FPL Two-thirds
200-250% FPL 50%

7. Pay or Play
7

8. Employer Shared Responsibility Rule
An applicable large employer must offer affordable health
coverage that offers minimum value to at least 95% of its full-
time employees, or else be subject to an assessable penalty
8

9. Must Employer Offer Coverage?
9
► No, employer may choose to pay or play

10. What Coverage Must Be Offered?
10
► Coverage must be affordable
► Coverage must offer minimum value
► Coverage must provide minimum essential coverage

11. Who Is An Applicable Large Employer?
► Generally, must employ average of at least 50 full-time
employees on business days in the preceding calendar year
11

12. Who Is An Applicable Large Employer? (cont’d)
► Determination of full-time employees includes certain
assumptions for part-time employees
► Determination is made on controlled group basis
► Certain excludable workers (partners, non-employee Board of
Directors)
12

13. Applicable Large Employee –
Who Is An Employee?
► IRS common law standard applies
► Partners, non-employee Board members, other
non-employees excluded
► Seasonal workers
► Leased employees
► PEO-employed workers
13

14. Applicable Large Employee –
Steps for Calculating Number of Employees
► Review actual hours of service for preceding calendar year for
each month (employee is considered full-time if had at least 130
hours of service for that month, the equivalent of 30 hours per
week)
► Determine for each month the number of full-time employees
► Add the full-time employees to the number of full-time
employees for that month
► Add totals together for all 12 months and divide by 12 (rounding
down)
14

15. Applicable Large Employee –
Seasonal Workers
► Seasonal workers generally taken into account in calculations
► Special exception if seasonal workers during limited portion of
calendar year are what puts the employer over 50
15

16. Applicable Large Employee –
Leased Employees
► Leased employees do not count as employees of the recipient if
the leasing organization and not the recipient is the common law
employer of the leased employees – this would, in many
instances, not be the case for many types of temporary or
leased employees
► For example, under PEO arrangements, the worksite employer
is typically the common law employer of the employees
16

17. Is Employer Better Off Paying Or Playing?
► This will be an individualized decision, that will vary from
employer to employer and industry to industry
► Financial issues
► Competitive issues
► Paternalistic issues
► Remember that assessable penalties are not deductible
17

18. To Whom Must Coverage Be Offered?
► At least 95% of full-time employees
► The pay or play mandate applies separately to each applicable
large employer member of a control or affiliated service group
► An applicable large employer that provides coverage to
employees is subject to different assessable penalty if coverage
is not affordable or does not provide minimum value (and an
employee qualifies for a Section 1411 certification)
18

19. Pay With Some And Play With Others?
► This is not likely to be a practical solution
► The employer must offer coverage to at least 95% of full-time
employees to avoid an assessable penalty
► If the employer does not meet that standard, its assessable
penalty is based on the total number of
full-time employees, whether or not offered coverage
19

20. May Groups be Excluded?
► Employer will need to analyze any groups that are currently
excluded from coverage to determine whether/how it might
affect the 95% rule
► Part-time (and how that category is defined)
► Seasonal
► On-call
► Bargaining unit
► Limited or defined term employees
20

21. May the Health Plan Exclude Part-Time
Employees?
► Yes, but the employer will need to evaluate how
part-time is defined to make sure no “full-time” employees are
unwittingly being excluded
► For example, a typical health plan provision might exclude
employees who are not regularly scheduled to work 30+ hours
per week
► The threshold for full-time status for these purposes, however, is
working “on average” 30+ hours per week
21

22. Penalty Strategy Components
► Defining FT employees
► Optional look-back measurement period
► Capping hours to reduce #s of FT employees
► Impact of waived on bottom line
► Employee wage level
► Implications of over/under 400% FPL
► Minimum value & affordability
► Where is best place to spend benefit dollars (e.g., premiums,
HRA/HSA contributions, etc.)
► Employer contribution level: Is it advantageous to make coverage
less affordable?
► State decisions about Medicaid expansion & exchanges
22

23. What Is The Look Back Measurement Method?
► This is a method, prescribed by proposed regulations, of
determining the full-time status of ongoing employees and new
variable hour and seasonal employees
► Looks back at an employee’s average hours of service over a
selected period of 3-12 months (the “measurement period”) to
see if the employee averaged at least 30 hours per week
23

24. What Is The Look Back Measurement Method?
(cont’d)
► If the employee averaged 30 or more hours per week during the
measurement period, the employer must offer coverage to the
employee for a subsequent period (the “stability period”) of 6-12
months (and no shorter than the measurement period)
► Option to have a brief “administrative period” (no longer than 90
days) between two periods to make determinations
24
Measurement Period
Admini-
strative
Period
Stability
Period

25. What Is The Look Back Measurement Method?
(cont’d)
► This method can be used for ongoing employees, and for new
variable hour or seasonal employees
► An “ongoing” employee is someone employed for at least one
standard measurement period
► Method cannot be used for new employees who are not
variable hour or seasonal
► Proposed regs contain many special rules and requirements for
using this method for ongoing employees (e.g., special rules for
teachers, etc.)
25

26. Addressing Common Categories
► Seasonal
► Variable hour
► Teacher/faculty
► Rehires/resumption of service
► Direct hire temporary/defined term employees
26

27. Can Employer Exclude A Class Of Employees?
► Technically possible, but must satisfy 95% rule
► 95% level chosen primarily to give cushion for mistakes, not so
much for excluding specific class, so there is not much margin
for error
27

28. Coverage To Be Offered
► Minimum essential coverage
► Minimum value
► Affordable
28

29. Minimum Essential Coverage
► Substantial rules for demonstrating that insurance programs
meet minimum essential coverage
► For employer group health plans, proposed regulations indicate
that minimum essential coverage will be deemed to be met
► Self-funded need not offer minimum essential
benefits...but, must meet minimum value to avoid all penalties
29

30. Minimum Value
► Generally, plan must cover 60% of expected costs of “typical
plan”
► Regulatory agencies believe most employer plans meet this
standard currently
► Online minimum value calculator
► Online minimum value calculators/tools
► HHS/CMS – http://cciio.cms.gov/resources/regulations/index.html
► IRS (coming soon)
► Features checklist
► Actuarial certification
30

31. Affordable Coverage
► Generally, employee’s premium/contribution for the lowest cost
self-only coverage may not exceed 9.5% of household income
► Due to lack of information regarding employee household
income levels, proposed regulations offer several Safe Harbors
for affordability determination
31

32. Affordability Safe Harbors
► Form W-2 Safe Harbor
► Rate of Pay Safe Harbor
► Federal Poverty Line Safe Harbor
32

33. Form W-2 Safe Harbor
► Employee’s required contribution for a calendar year for the
employer’s lowest cost self-only coverage that provides
minimum value (for the entire calendar year) does not exceed
9.5% of the employee’s W-2 wages from the employer for the
calendar year
► Additional regulatory details on how this calculation is made,
including how to adjust for partial year offer of coverage
33

34. Rate Of Pay Safe Harbor
► Employee’s required contribution for the month for the
applicable large employer’s lowest cost self-only coverage that
provides minimum value does not exceed 9.5% of an amount
equal to 130 hours times the employee’s hourly rate of pay as of
the first day of the coverage period
► For salaried employees, it is monthly salary instead of 130
hours per month
34

35. Federal Poverty Line Safe Harbor
► Employee’s required contribution for the calendar month for the
applicable large employer’s lowest cost self-only coverage that
provides minimum value does not exceed 9.5% of a monthly
amount determined as the Federal Poverty Line for a single
individual for the applicable year, divided by 12
35
2013 FPL for single person = $11,490
9.5% of $11,490 = $1091.55/year or $90.96/month

36. Employee Wage Levels Matter
36

37. Calculation of Assessable Penalty
► No insurance penalty =
► $2,000 for each full-time employee after the first 30
► Also applies if coverage offered to < 95% of full-time employees
and their dependent children < 26 years old
► The “first 30” exclusion is apportioned among members of a
controlled group
► Inadequate coverage offered penalty: If coverage offered but
fails the applicable standards, $3,000 times the number of
employees who receive a Section 1411 certification
37

38. Case Studies: Health Reform in
Action
38

39. Case Studies
39
Case Study#1 Case Study #2 Case Study #3
Facility type Non-profit SNF For-profit CCRC SNF + AL
Size 85 beds 180 Bed SNF 77 Bed SNF
# of employees 79 FT employees 1922 FT employees 284 FT Employees
Employer contribution to
single coverage (% of total) $7,632/year (85%) $4,030/year (81%) $5,090/year (66%)
Currently waived employees 34% (or 27 FT employees) 31.3% (or 603 FT employees) 57.7% (or 164 FT employees)
# of Medicaid eligible O FT employees 10.7% (206 FT employees) 6% (17 FT employees)
# of Exchange subsidy eligible
26% of FT employees (21 of 79 FT
employees), many would pay less
in the Exchange vs. ESI
3.1% of full-time employees (59 FT
employees), many would pay less in
the Exchange vs. ESI
74.3% of full-time employees (211
FT employees), most would pay
less in the Exchange vs. ESI
Impact of ACA Estimated to pay 11% less Estimated to pay 25% more Estimated to pay 12.7% more
Cost drivers
1. Number of waived employees
that will now enroll in ESI
2. Few subsidy eligible employees
(many of whom currently waive ESI)
because FT employee contribution
is affordable for most so most
employees would enroll in ESI
The increased cost is the result of
the fact that as a for-profit they
benefit from the deductibility of
health insurance premiums today
but because of the high number of
employees who would be eligible
to receive subsidies in the
Exchange, the company would
incur $508K in penalties that are
not deductible.

40. Employer Health Insurance & Penalty (HIP) Costs
Impact of Employer Health Insurance Reforms HEALTH REFORM SUBSIDIES IMPACT ON HEALTH COSTS
Full-Time Employees 115 (20 Insured / 95 Waived) One-Off Hospitality Today's 2014 Offer 2014 Drop/
Total Staffed 382 (6 PT Insured/261 PT No ESI) ($000s) Cost Coverage Don't Offer
2014 PPACA FTEs 252 Baseline Premium Cost 62$ 62$ 62$
HEALTH REFORM KEY DRIVERS 2012-2014 Premium Increase (9.0% / Yr) - 12 12
Today's Single Coverage Employer Premium Cost Pre-Reform Projected Premium Cost 62 74 74
Average Single Employer Cost 2,400$ TaxAdjusted Premium Costs 40 48 48
Employer Contribution % 39% PLUS: Additional Reform Impact
Medicaid Eligible Employees Previously Waived FT Employees - 211 -
Total FT Medicaid Enrollees 23 Penalty: Subsidy Eligibles & ESI - 170 -
Employer Estimated Cost Savings 6$ ($000s) Health Reform Increased Cost - 381 -
Employer Unaffordable Coverage Penalty
Subsidy Eligible Full-Time Employees 79 LESS: Previous Premium Liabilities
Subsidy ($3,000) 3$ Medicaid Employee ESI - (6) -
Estimated Subsidy Penalty 237$ ($000s) Subsidy Eligible FT Employees ESI - (225) -
% Total Full-Time Employees 68.7% Health Reform Decreased Cost - (231) -
Employer No ESI Insurance Penalty No Minimal Essential Coverage
Total Full-Time Employees 115 Less: 2014 Inflation Adjusted HC Cost - - (74)
Less: 30 Employees (30) Plus: Subsidy Eligible Penalty - - 170
Adjusted Full-Time Employees 85 Health Reform No ESI Cost - - 96
No Insurance Penalty ($2,000) 2$ Post Reform HC Costs 62$ 224$ 170
Estimated Subsidy Penalty 170$ ($000s) HC Cost Change to 2014 Projected 150$ 96$
2014 Pre Reform Projected HC Costs 48$ ($000s) % HC Cost Change to 2014 Projected 203% 130%
Estimated Net Cost (122)$ ($000s) Tax Adjusted HC Costs 40$ 205$ 170
Sample Organization
40

41. 2014 Coverage Breakdown
We estimate 69% of your full-time employees will be
eligible for Exchange subsidies, 20% for Medicaid,
and the remaining 11% enrolled in ESI.
23 , 20%
79 , 69%
13 , 11%
Post Reform ESI
FT Employee
Mix
Medicaid
Eligible
Subsidy Eligible
ESI Coverage
41

42. Average Premium Cost Per Employee Perspective
42

43. Health Insurance and Penalty (HIP) Calculator
www.cliftonlarsonallen.com/HIP
43

44. Wellness Programs
► Substantially the same as prior regulations, but
► Awards may be up to 30%
► Additional 20% if related to smoking
44

45. Other Changes
► Out-of-pocket limit for all plans (except grandfathered) – mirrors
HSA limits ($6,350 self/$12,700 family for 2014)
► Removal of pre-existing limitation
► 90-day waiting period
► Coverage of clinical trials for routine cost (except for
grandfathered)
► Reinsurance contributions
► Applies for 2014, 2015 and 2016
► Approximately $60.00 per covered individual for 2014
45

46. Other Changes (cont’d)
► Auto-enrollment
► Applies to employers with more than 200 FT employees
► Notices
► Exchange notice – model just issued
► IRS reporting – begins in 2015; key to penalty assessment
46

47. Other Resources
► FaegreBD Beyond Health Care
Reform Blog (please subscribe!)
http://beyondhealthcarereform.com
► FaegreBD Health Care Reform Q/A (posted on
www.FaegreBD.com)
► www.dol.gov/ebsa.healthreform
► www.irs.gov/uac/Affordable-Care-Act-Tax-Provision
► www.whitehouse.gov/healthreform
► www.healthcare.gov
47

48. Questions?
4852274069
Maureen M. Maly Nicole O. Fallon
Partner Health Care Consultant Manager
FAEGRE BAKER DANIELS LLP CLIFTONLARSONALLEN
612.766.7916 612.376.4843
maureen.maly@FaegreBD.com nicole.fallon@cliftonlarsonallen.com
http://beyondhealthcarereform.com www.cliftonlarsonallen.com/HIP