1. Health Care Reform Roundtable:
A Step-by-Step Guide to the
Shared Responsibility
Requirements
Bret Busacker Bret Clark
208.388.4885 208.388.4938
bbusacker@hawleytroxell.com bclark@hawleytroxell.com

2. Shared Responsibility – the Big Picture
• Effective January 1, 2014:
– Individual mandate forces most employees to obtain
coverage or pay a tax
– Exchanges become available where individuals and small
businesses can obtain coverage
– Individuals with household income of up to 400% of the
poverty level ($94,200 for a family of 4 in 2013) and who are
not eligible for qualifying coverage from an employer will be
eligible for Premium Assistance for exchange coverage
– Shared responsibility requires employers to provide
coverage to employees or pay a shared responsibility
penalty
• Employers need to review requirements now so that they have
time to modify plans, if needed

3. Shared Responsibility – the Big Picture
• Key Concepts:
– Large Employer – Shared responsibility penalties only apply
to employers with 50 or more full-time (and full-time
equivalent) employees
– Minimum Essential Coverage – Coverage that provides
standard medical benefits
– Minimum Value – Minimum Essential Coverage that pays at
least 60% of medical costs (determined actuarially)
– Affordability – Coverage with Minimum Value that costs the
employee 9.5% or less of the employee’s household income
for self-only coverage

4. Shared Responsibility – the Big Picture
• Shared Responsibility Penalties. Large Employers will be subject to a
penalty if one or more employees obtain Premium Assistance on an
exchange and either:
– The employer fails to offer Minimum Essential Coverage to at least
95% of its full-time employees and their dependents, or
– The coverage provided does not have Minimum Value or is not
Affordable
• No Coverage Penalty. The penalty for not offering Minimum Essential
Coverage to all full-time employees and their dependents is $2,000 per
full-time employee (less 30 full-time employees)
• Insufficient Coverage Penalty. The penalty for not offering coverage with
Minimum Value that is Affordable is $3,000 per full-time employee
receiving Premium Assistance (capped at the No Coverage Penalty)
• Penalties are not tax deductible

5. Steps for Shared Responsibility
Compliance
1. Determine whether you are a Large Employer
2. Analyze your workforce to identify employees who
must be offered coverage
3. Determine your full-time employees
4. Monitor changes in status
5. Determine whether you provide Minimum
Essential Coverage to 95% of full-time employees
6. Determine whether your plan provides Minimum
Value and is Affordable

6. Step 1: Determine Whether You are a
Large Employer
• You are a Large Employer for a year if you averaged 50 or more
full-time employees plus full-time equivalents during the prior
year
• First, calculate full-time employees during each month of the
prior year
– Employees who work at least 130 hours or more in a month
are full-time employees
– Add full-time equivalencies - the total number of hours
worked by non full-time employees in a month divided by
120
• Then, add the totals for all 12 months and divide by 12
• Round average down (i.e., 49.7 is 49)

7. Step 1: Determine Whether You are a
Large Employer
• Seasonal employees – If an employer exceeds 50
employees for 4 or fewer months because of seasonal
employees, the seasonal employees may be
disregarded
• Transitional relief – For determining whether the 50-
employee threshold is reached for 2014 only, average
employment in 2013 may be determined using any
consecutive 6-month period in 2013

8. Step 2: Analyze Your Workforce
• Large Employers must determine which
employees are full-time employees (disregarding
full-time equivalents) who must be covered to
avoid penalties
• Employee defined
– Employees generally include all “common law”
employees
• Confirm independent contractors/leased employees are
not common law employees
– All employees of the same “controlled group” and/or
“affiliated service group” are counted together, but
penalties are assessed separately to each employer

9. Step 2: Analyze Your Workforce
• Employees are full-time if they work 30 hours per week
• Counting hours
– For hourly employees, must use actual hours worked
– For salaried employees, may use actual hours or
equivalencies of 8 hours per day or 40 hours per week
– In addition to hours worked, must count hours during
paid leave (for example, vacation leave, sick leave)
• Use a reasonable method to determine full-time status
of non-traditional employees (for example,
commissioned sales people, truck drivers)

10. Step 2: Analyze Your Workforce
• Place each employee in one of three buckets
– Full-time Bucket – Full-time employees –
employees reasonably expected to work 30 or
more hours per week
– Part-time Bucket – Part-time employees –
employees that will never work 30 or more
hours per week
– Variable-hour Bucket – Employees that may be
part-time or may be full-time (for example,
variable-hour employees, seasonal employees)

11. Step 3: Determine Your Full-Time
Employees
• Full-time Bucket should be offered coverage (plan may
have 90-day waiting period)
• Part-time Bucket is not required to be covered
• Variable-hour Bucket options:
1. Assume employees in Variable-hour Bucket are full-
time
• If less than 5% of workforce, may be safe to exclude
• If more than 5% of workforce, consider covering or
tracking full-time status (see item 2)
2. If Variable-hour Bucket is not covered, develop and
implement procedures for determining full-time status

12. Step 3: Determine Your Full-Time
Employees
• Analyze margin of error:
Margin of error
50 employees 5 employees
100 employees 5 employees
200 employees 10 employees
300 employees 15 employees
400 employees 20 employees
500 employees 25 employees

13. Step 3: Determine Your Full-Time
Employees
• For employees in the Variable-hour Bucket:
– An employer may establish measurement periods
of between 3 and 12 months during which the
employer determines whether the employee is a
full-time employee
– Then the employee will be treated as a full-time
employee during the following stability period,
generally the length of the measurement period
– The employer may also establish an administrative
period between the measurement period and
stability period for enrollment, up to 90 days

14. Step 3: Determine Your Full-Time Employees
• Ongoing employees
– An employee determined to be a full-time employee during a measurement
period is treated as a full-time employee during the following stability period
– Employers may want to structure periods so that stability periods are plan
years and coordinate measurement periods and administrative periods
accordingly
– Employees who change employment status during a stability period may not
lose coverage until the end of the stability period
• Example:

15. Step 3: Determine Your Full-Time Employees
• New employees
– May be excluded during initial measurement period
– Initial measurement period + administrative period may not extend beyond
the end of the month following the first anniversary of the employee’s start
date
– 2 measurement periods may run at the same time (new hire measurement
period and first ongoing employee measurement period beginning after hire
date)
• Example (June 1, 2014 hire date):

16. Step 3: Determine Your Full-Time
Employees
• For 12-month stability periods beginning in 2014, measurement
periods may be as short as 6 months if they:
– Begin no later than July 1, 2013, and
– End within 90 days of the beginning of the 2014 plan year
• Example:

17. Step 4: Monitor Changes in Status
• Employees who perform no services for an employer for 26
consecutive weeks are treated as new hires
– Rule of parity – If employment prior to service break was less
than 26 weeks, employee will be treated as new hire if service
break was (i) at least 4 weeks and (ii) longer than the length of
employment before the break in service
• Employers should develop written procedures for
– Tracking full-time status of Variable-hour Bucket
– Tracking employment status changes between Buckets
• A new employee who moves to Full-time Bucket during his
initial measurement period must be allowed to participate by
the first day of the fourth month following the status change
• Ongoing employees who change buckets during a stability
period retain full-time or non-full-time status until the end of
the stability period

18. Step 5: Determine Whether You Provide
Minimum Essential Coverage to 95% of Full-
Time Employees
• Minimum Essential Coverage
– Generally includes all health coverage except:
• Limited scope dental or vision benefits
• Coverage only for a specified disease or illness
• Long-term care insurance
• Other insurance coverage under which health care is not the
primary benefit
– Major medical plans generally constitute minimum essential
coverage

19. Step 5: Determine Whether You Provide Minimum
Essential Coverage to 95% of Full-Time Employees
• No Coverage Penalty
– If the employer does not provide Minimum Essential
Coverage to at least 95% of its full-time employees and,
effective 2015, their dependents and
– At least one full-time employee receives Premium
Assistance on an exchange
– Then the Coverage Penalty applies
• $2,000 per full-time employee
• Disregarding 30 full-time employees
• If you do not currently provide Minimum Essential Coverage
to 95% of full-time employees, consider plan design change
• Example, change service requirement from 32 hours per
week to 30 hours per week

20. Step 5: Determine Whether You Provide
Minimum Essential Coverage to 95% of Full-
Time Employees
• Analyze penalty exposure:
Margin of error No coverage penalty
50 employees 5 employees $40,000
100 employees 5 employees $140,000
200 employees 10 employees $340,000
300 employees 15 employees $540,000
400 employees 20 employees $740,000
500 employees 25 employees $940,000

21. Step 6: Determine Whether Your Plan
Provides Minimum Value and is Affordable
• Minimum Value
– A plan has Minimum Value if it pays 60% or more of the
costs of medical benefits (determined actuarially)
– Proposed regulations provide that Minimum Value may
be calculated as follows
• Minimum Value calculator to be provided by HHS/IRS
• Safe harbors established by HHS/IRS
• Certification by actuary
– Additional guidance is needed before Minimum Value
can be certified, but insurers/brokers/TPAs should be
able to estimate minimum value

22. Step 6: Determine Whether Your Plan
Provides Minimum Value and is Affordable
• Affordability
– Coverage is not Affordable if the employee’s
premium for employee-only coverage exceeds
9.5% of the employee’s household income
• Potential incentive to make coverage
unaffordable to low wage earners so that their
dependents qualify for subsidized coverage on
the exchange

23. Step 6: Determine Whether Your Plan Provides
Minimum Value and is Affordable
• IRS safe harbors
– W-2 Safe Harbor - Coverage is Affordable if it is 9.5% or less of the
employee’s W-2 income for the year (for the 2014 penalty, the 2014 W-2
issued in 2015 is used)
• Consider charging a monthly premium of a specified amount or, if less, 9% of
the employee’s W-2 income for the pay period
– Rate of Pay Safe Harbor - Coverage is Affordable if it is 9.5% or less of the
employee’s monthly rate of pay as of the beginning of the year
• For hourly employees, the monthly rate of pay is the hourly rate times 130
hours
• Not available if wages are reduced during the year
– Federal Poverty Line Safe Harbor. Coverage is Affordable if the cost is
9.5% or less of the federal poverty level for a single individual (2013
federal poverty level for a single individual is $11,490, making coverage
affordable if it is $1,091.55 per year or less - $90.96 per month)

24. Step 6: Determine Whether Your Plan Provides
Minimum Value and is Affordable
• Insufficient Coverage Penalty
– If you do not provide coverage with Minimum Value that is
Affordable
– Then the Insufficient Coverage Penalty applies
• $3,000 per full-time employee who receives Premium Assistance
on an exchange
• Capped at the No Coverage Penalty amount
• If current coverage does not have Minimum Value or is not
Affordable, consider plan design change
– Reduce cost-sharing/add benefits/add HSA/HRA (Minimum
Value) balanced against reduced premiums (Affordability)
– Example, reduce employee premium for self-only coverage
under least expensive coverage option with Minimum Value to
$90 per month

25. Shared Responsibility Penalty Procedures
• When individuals apply for coverage on an exchange (during open
enrollment for 2014) they will self-report the information required by the
exchanges to determine eligibility for Premium Assistance
• Employers may be required to verify some information reported by
employees to an exchange
• After the coverage year, individuals will substantiate eligibility for
Premium Assistance on their tax return for the year of the Premium
Assistance (initially, 2014 returns filed in 2015)
• Employers will also be required to file information returns reporting
compliance with the shared responsibility requirements
• Based on this reporting, the IRS will determine whether an employer is
required to pay a shared responsibility penalty and provide notice of the
penalty to the employer
• After the employer has had an opportunity to respond, the IRS will assess
the applicable penalty

26. Shared Responsibility Penalty
Procedures
• In order to respond efficiently to shared responsibility-
related reporting requirements and any IRS shared
responsibility penalty notice, employers need to:
– Develop comprehensive procedures for determining full-
time status and eligibility for coverage
– Document the following:
• Minimum Essential Coverage, Minimum Value and
Affordability determinations
• Compliance with coverage timing rules (90-day period,
coverage during stability periods)
• Justification for classifying employees as non-full-time
• Negative elections

27. Compliance Checklist
 Develop initial list of potential areas of risk
 Address risks with Board/Benefits Committee
 Prepare comprehensive shared responsibility action plan to address
risk/compliance
– Evaluate full-time status, Minimum Essential Coverage, Minimum Value,
Affordability
– Evaluate controlled group/affiliated service group structures, temporary,
part-time and seasonal employees, independent contractors, staffing
agency/leasing agency arrangements
– Etc.
 Implement any plan changes during open enrollment for 2014
 Prepare employee communications (revised SBCs, notice of exchanges)
 Prepare plan amendments, policies, notices to document compliance
 Report compliance efforts to Board/Benefits Committee

28. Transitional Reinsurance Program Fee
• $25 billion will be collected from health plans and insurance
companies to help stabilize the individual insurance market
• The fee applies from 2014 to 2016 and is estimated to be
– $63 per average covered life in 2014
– $42 per average covered life in 2015
– $26.25 per average covered life in 2016
– Actual fee will vary based on several factors determined by HHS
• Covered lives include participants, spouses and dependents
• Payment
– Employees must report average covered lives to HHS by
November 15 of the year (2014 report due by November 15,
2014)
– HHS will provide notice of fee within 15 days
– Fee is due within 30 days of notice

29. Transitional Reinsurance Program Fee
• Methods for calculating average number of covered lives
– Actual Count Method – count covered lives on each day during
the first 9 months of the year
– Snapshot Count Method – count covered lives on at least one
day per quarter during the first three quarters of the year
– Snapshot Factor Method – count participants on at least one
day per quarter during the first three quarters of the year and
multiply participants with spouse/family coverage by 2.35
– Form 5500 Method – add participant count on most recently
filed Form 5500 on first day to participant count on last day
(for employee-only plans, divide by 2)
• Retirees and COBRA beneficiaries are counted, except retirees
with coverage that pays secondary to Medicare

30. Transitional Reinsurance Program Fee
• Only comprehensive medical plans are
subject to the fee
– HRAs integrated with major medical, FSAs
and HSAs are excluded
– If insured, insurer pays the fee
– If self-insured, plan pays the fee (it is a
permissible plan expense)
– No double counting

31. Thank You!
Bret Busacker Bret Clark
208.388.4885 208.388.4938
bbusacker@hawleytroxell.com bclark@hawleytroxell.com
www.hawleytroxell.com