This document provides a summary and roadmap for employers to comply with upcoming health care reform requirements over the coming months. It begins with a quick recap of the major provisions of the Affordable Care Act, then discusses recent regulatory guidance. It outlines specific to-do items for large and small employers, including strategies for large employers to minimize penalties and reduce premiums through plan design changes. Strategies are also presented for small employers to potentially opt-out of providing coverage or utilize the SHOP exchange. The document concludes with additional considerations for all employers regarding defined contribution models and the potential impact of the upcoming Cadillac tax.

1. Health Care Reform:
Roadmap for the Coming Months
GALLAGHER BENEFITS TEAM | 9.19.2014

2. Overview
• Quick Recap
• Recent Guidance
• Current To Do List
– Large Employers
– Small Employers
• Strategies & Tactics
– Large Employers
– Small Employers
1

3. ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™
QUICK RECAP
Health Care Reform: Roadmap for the Coming Months
2

4. PPACA in 60 Seconds
• Employer Responsibility (“Pay or Play”)
• 90-day Eligibility/Waiting Period
• Plan Design Requirements
 Preventive Care
– Dependents up to age 26
 Any willing provider
– Pre-existing conditions
– No benefit limits (annual or lifetime) on Essential Health Benefits
 Out of pocket maximum limits
 Clinical Trials
 Wellness cost differentials
 Non-discrimination on insured plans
• Administrative Issues
 External appeals process
– Summary Benefits Coverage
– 1094 & 1095 Reporting
– Health Plan Identifier
Does not apply to grandfathered plans
3

5. ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™
RECENT GUIDANCE
Health Care Reform: Roadmap for the Coming Months
4

6. Recent Guidance
• Pay or Play Final Regs
– Extended delay for 50-100 employers until 2016
– $2,000/EE penalty safe harbor drops to 70% for
2015.
– Added Monthly Method for hours counting
• Employer Reporting Final Regs & Forms
• Forms 1094-B/C & 1095-B/C
• HPID registration
• 90-Day Waiting Period Final Regs
– Bona Fide Orientation up to 1 month
5

7. ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™
WHAT SHOULD YOU BE DOING NOW?
Health Care Reform: Roadmap for the Coming Months
6

8. Confirm Applicable Large Employer
(ALE)
50 employees during preceding calendar year
1. Count Full time: 30 hours/week
2. Count Full time equivalents: sum hours (up to
120 per EE) / 120 for monthly determination.
3. Sum up monthly totals (1) + (2)
4. Add up all 12 months and divide by 12
7
Controlled Group Rules Apply

9. If At Least 50 Full Time and FTE
• Self-funded: HPID application (due 11/5/2014)
• Self-funded: Tax/Fee Compliance
– Reinsurance Fee enrollment count – 4 methods (due 11/15/2014)
• Confirm approach for identifying Full Time EEs and FTEs for reporting
purposes – different from the over/under 50 count
• Quantify potential penalty exposure (delayed until 2016 if < 100)
• Review potential Cadillac Tax impact (2018)
• Review 90-day waiting period and orientation
• Review DC approach
• Explore alternatives for 1094/1095 reporting
– first due February 1, 2016
– Electronic filing if 250 or more EEs
• Review key hurdles for compliance
– 90-day waiting period & orientation
– Review Minimum Value (60%)
– Review Affordable (9.5% Safe Harbor)
– Review Minimum Essential Coverage (MEC)
8

10. If Less Than 50 Full Time and FTE
• Review potential Cadillac Tax impact (2018)
• Review impact of opting out
• Review 90-day waiting period & Orientation
• Review potential tax credits (less than 25 EEs)
• Review SHOP options
• Review DC approach
9

11. ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™
STRATEGIES & TACTICS
Health Care Reform: Roadmap for the Coming Months
10

12. Defining Terms
• Sledgehammer Penalty - 4980H(a)
– $167/month for all employees less 30 (80 for
2015)
• Tack hammer Penalty – 4980H(b)
– $250/month for each employee who receives a
tax subsidy on the public exchange
• 50-100 EEs: effective 2016
• At least 100: effective 2015
11

13. Before We Over-think This…
• Employers have offered medical coverage for
decades with no penalties
• Current plan designs/systems may need
minimal tweaks to comply.
12

14. STRATEGIES & TACTICS
Large Plans
13

15. Decide to “Pay” not “Play”
• Some employers only offer medical coverage
because their employees have nowhere else
to go.
• Guaranteed individual coverage available now
through the public exchanges.
• New opportunity to re-evaluate rationale for
offering medical benefits
14

16. Important: Analyze All Costs
15

17. Deciding to “Pay” not “Play”
Pros Cons
Predictable Annual cost ($2,000 per EE) Employee relations issues
(“throwing us to the wolves”)
Possibly less than current costs Tax inefficiency
Eliminate HCRA compliance headaches Recruiting/Retention issues
Potential lower EE cost post-subsidy Increased absenteeism? STD costs?
Provide Employees increased wages? Decreased productivity?
Completely portable coverage
(no COBRA premium shock)
Employees still look to employer for
guidance
Public relations issues
(Wal-mart & Medicaid)
16

18. Sledgehammer Shield
• Offer all employees opportunity to enroll in
inexpensive Minimum Essential Coverage
• Employees can pay 100% of cost
• May limit to those ineligible for current plans
• Minimum Essential Coverage broadly defined
– Cannot consist of Excepted Benefits only
– No 60% Value requirement
– No 9.5% Affordability
17

19. Sledgehammer Shield
Pros Cons
No premium cost to the employer Adverse selection impact
Eliminate $167/month penalty risk Increased administration
Limited impact on current plan designs Still subject to $250/month penalty for
each employee who gets a subsidy on the
public exchanges
Easy to administer Still subject to ACA administrative
requirements (e.g., SBC, SMM, etc.)
95% of all EEs: simplified reporting
(70% 2015)
Potential 125 election issues
18

20. Tack hammer Shield
• Offer all employees opportunity to enroll in
60% minimum value medical coverage
• Limit employees’ contribution for single
coverage to 9.5% of 133% Federal Poverty
Rate ($122.86 in 2014)
• May be in addition to current plans
19

21. Tack hammer Shield
Pros Cons
Bronze products cost employer less than
the $250/month penalty
Potential adverse selection impact on
current plans
Employer only has to contribute to single
coverage (not dependents)
Increased administration
Eliminate sledgehammer and tack
hammer penalty risk
Employer premium subsidy costs for
those electing single coverage
Limited impact on current plan designs Still subject to ACA administrative
requirements (e.g., SBC, SMM, etc.)
Easy to administer
98% of all EEs: simplified reporting
20

22. Premium Reduction Strategies
• Reduce Cost of Offering MV plan
– Integrated Delivery Systems (e.g., ACOs)
– Coverage Category Elimination
– Reference Pricing
oCaution: limit prohibitions
– Limited Networks
oCaution: effective access
– Pay for Performance
21

23. Premium Reduction Strategies
Pros Cons
Same pros as tack hammer shield Same cons as tack hammer shield
Reduce employer cost of compliance Potential Employee relations issues
Potential Public relations issues
22

24. Monthly Method w/ True-Up
• Offer MV/Affordable coverage each month to
all employees who COULD work 30 hrs/week
• Loan employees any employer contribution
• Track actual hours worked during each month
• < 30 hours/week: withhold from future
paychecks.
• Similar to 401(k) loan processing
23

25. Monthly Method w/ True-Up
Pros Cons
Same pros as tack hammer shield Administrative and documentation issues
(tracking hours and back-due premiums)
Employer will only have to pay portion of
premium for those who are actually full
time.
Potential to lose out on back premiums if
employee terminates or otherwise does
not earn enough (usury laws)
Limited impact on current plan designs Still subject to ACA administrative
requirements (e.g., SBC, SMM, etc.)
Eliminate sledgehammer and tack
hammer penalty risk
Employer premium subsidy costs for
those actually full time
24

26. Change Funding Approach
• Self-Funding
– Save on premium taxes
– Not required to offer Essential Health Benefits
– Make plan design changes independent of state
mandates
• Captive Insurance
– Cheaper / more stable Stop-Loss
– Limited self-funding
25

27. Change to Self-Funding / Captive
Pros Cons
Avoid Health Insurer Premium Taxes Increased Risk Retention
Avoid State Benefit Mandates Stop-Loss Insurance Issues (e.g., leveraged
trend and lasers)
Increased Design Flexibility Potential Network Disruption
Increased Claims Data Increased Employer Responsibility
Improved Cashflow Reserve requirements may apply
26

28. Controlled Group Structure
• May impact availability of Sledgehammer Safe Harbor
• Only need to offer MEC to 95% of FTEs (70% in 2015)
• Applies on employer-by-employer basis within a
controlled group
• An offer of coverage by ANY employer within the
controlled group counts as an offer by ALL
• Controlled group employer determined by employer
with most hours.
• If multiple employers tie: designate
27

29. Sledgehammer Safe Harbor Example 1:
Shared Employees
Company A Company B Company C Total
FTE offered 700 200 50 950
FTE not offered 0 0 47 47
Total FTE 700 200 97 997
% FTE not offered 0% 0% 48.45% 4.71%
Sledgehammer Pass Pass Fail Pass
Company A Company B Company C Total
FTE offered 700 200 50 950
FTE not offered 35 10 2 47
Total FTE 735 210 52 997
% FTE not offered 4.76% 4.76% 3.85% 4.71%
Sledgehammer Pass Pass Pass Pass
28

30. Sledgehammer Safe Harbor Example 2:
Offer of Coverage
29
Company A Company B Company C Total
FTE offered 700 200 50 950
FTE not offered 0 0 47 47
Total FTE 700 200 97 997
% FTE not offered 0% 0% 48.45% 4.71%
Sledgehammer Pass Pass Fail Pass
Company A Company B Company C Total
FTE offered 700 200 93 993
FTE not offered 0 0 4 4
Total FTE 700 200 97 997
% FTE not offered 0% 0% 4.12% 0.40%
Sledgehammer Pass Pass Pass Pass

31. Controlled Group Caveats
• Needs to be bona fide business rationale
• Careful of “tail wagging the dog”
• Documentation will be important
• Definitely need good legal advice
30

32. STRATEGIES & TACTICS
Small Plans
31

33. Opt-out of Medical Benefits
• Small employers do not face the Pay or Play
penalty
• Guaranteed individual coverage available now
through the public exchanges.
• New opportunity to re-evaluate rationale for
offering medical benefits
32

34. Deciding to Opt-Out
Pros Cons
Eliminate plan sponsorship headaches Employee relations issues
(“throwing us to the wolves”)
Eliminate HCRA compliance headaches Tax inefficiency
Provide Employees increased wages? Recruiting/Retention issues
Completely portable coverage
(no COBRA premium shock)
Decreased productivity?
Increased absenteeism? STD costs?
Employees still look to employer for
guidance
33

35. SHOP Approach
• Small Business Health Options Program
• Increase to 100 employees in 2016
• State option: over 100 employees after 2016
• Employees sign up through public exchange
• Employer may still subsidize the benefit
• Employer may continue to use a broker for
assistance
• Potential Tax Credit
(under 25 employees)
34

36. SHOP Employer Tax Credit
• Must have 25 or fewer FTEs (2080 hours)
• Average pay must not exceed $50,000
(adjusted after 2013)
• Employer premium support at least 50%
• Tax Credit = 50% (35% tax-exempt) employer
premium share
• Credit phases out over 10 FTE or $25,000
(adjusted) average pay
35

37. SHOP Approach
Pros Cons
Employer may subsidize coverage without
taking responsibility for plan selection
Employer loses control of plan design
Employer may receive Tax Credit Employees may not receive federal
subsidy
Employee wider plan design options Potential for individual market premium
volatility
Employee more premium options Less Open Enrollment flexibility
Potential to avoid adverse selection
36

38. OTHER THOUGHTS
All Sizes
37

39. Defined Contribution Model
• Private Exchanges widely available
– Medical / Ancillary / Voluntary / 401(k) / etc.
– Single provider vs. multiple provider
– Fully-insured vs. self-insured
• Cafeteria plan + decision support tools
– Plan sponsor selects
oexchange / carrier(s)
oEmployer contribution level
– Employees select benefits
38

40. Defined Contribution Model
Pros Cons
Increased employer cost control Employer loses some control of plan
design
Responsive to diverse employee benefit
needs
Employees may not receive federal
subsidy
Consistent with Total Rewards approach Employees may perceive as benefit
reduction
Decision support tools help employee Significant communication necessary
Actively engages employees Requires change in philosophy
39

41. 2012
Employee only premium:
$5,808 ($484 per month)
2014
$7,028
2018
$10,289
Cadillac Tax as Change Agent
10% Annual Trend
Excise Tax:
40% x $89 = $35.60
•Independent of cost-sharing
•May shift tax to employees
•Use as plan design change driver
2018 : $10,200 Single/$27,500 Other