This document provides a step-by-step guide for employers to understand their shared responsibility requirements under the Affordable Care Act beginning in 2014. It outlines determining if an employer is a large employer subject to penalties, analyzing the workforce to identify full-time employees, monitoring employee status changes, determining if minimum essential coverage is offered, and ensuring the coverage meets minimum value and affordability standards. It also discusses procedures for shared responsibility penalties and the transitional reinsurance program fee.

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