Implementing Health Care in 2014: It’s Far More Than Just a ‘Pay or Play’ Decision 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. Implementing Health Care in 2014:
It’s Far More Than Just a ‘Pay or Play’ Decision
Getting Down to the Details – Employers
with less than 50 FTE Employees – “Small
Employers”
Presented by: Jeffrey P. Cairns, JD CPA
Leonard, Street and Deinard, PA; and
Stephen Sutten,
Baker Tilly Virchow Krause, LLP

2. Agenda
• Determination of “Large Employer” Status for “Pay or Play”
• The Individual Mandate
• The ACA “Grandfather”
• Group Health Plan Federal Mandates
• Non-discrimination rules
• Cafeteria Plans
• Medical Loss Ratio Rebates
• Healthcare Taxes, Taxes and More Tax Issues!
 Form W-2 Reporting of Healthcare Premiums
 Minimum Essential Coverage Reporting
 PCORI and Transitional Re-insurance Fees

3. Agenda
• Medicare and income tax changes and Tax Planning Ideas
• Medical Device Excise Tax
• The Notice of Availability of Health Care Exchange
• The Small Employer Health Options Program (“SHOP”)
• Small Business Health Care Tax Credits
• Premium Assistance Credits and subsidies
• “Cadillac tax” excise tax on high cost coverage
• Industry Trends for Small Businesses

4. Large Employer Status and the
Employer Shared Responsibility
“Play or Pay” Rules• The PPACA does not mandate an employer to offer health
insurance to employees
 Penalties may apply to a “Large Employer”
 $2000 per FT employee not offered coverage or
 $3000 per FT offered unaffordable or non-qualified coverage
and
– Employee obtains a subsidy in an Exchange
 “Large”= at least 50 full-time equivalents (“FTEs”)
 This provision also applies to “grandfathered” plans
 “Play or Pay” rules do not apply unless you are a “Large
Employer”

5. Large Employer Status and the
Employer Shared Responsibility
“Play or Pay” Rules
 Employer Mandate- January 1, 2014
- Deloitte Survey:
- 81% of Companies surveyed representing 84% of the
workforce plan to continue offering benefits
- 9% of Companies representing 3% of the workforce
anticipate dropping coverage in the next 1-3 years
- 10% of Companies representing 13% of the workforce
are not sure

6. To Determine the Number of
“FTEs”
 Full-time employees (30+ hours per week)
 Part-time employees (total monthly hours divided by 120)
 Excluding full-time seasonal employees who work less than 120 days
during the year
 Preceding calendar year (monthly calculation)
 For purposes of large employer determination, all employees of all entities
are counted together. However, penalties will apply on an entity by entity
basis.

7. To Determine 30+ Hour Employees-
“Standard Measurement Periods” &
“Stability Periods”
“On-going Employees”= employees who have been by the employer for at
least one complete “Standard Measurement Period”.
> Full-time status is determined by looking back at a defined period of time
from 3-12 consecutive calendar months = “Standard Measurement
Period”).
> Employers can choose the months the Standard measurement period
starts and ends but must be consistent with all employees in same
category.
– Collectively bargained vs. non-collectively bargained
– Salaried and hourly
– Employees of different entities
– Employees located in different states

8. To Determine 30+ Hour Employees-
“Standard Measurement Periods” &
“Stability Periods”
> If employee works 30+ hours per week during the Standard
Measurement Period, the employee is considered full time during a
“Stability Period”.
> The Stability Period = at least 6 months and cannot be shorter than the
Standard Measurement Period.
> If employee did not work 30+ hours during the Standard Measurement
Period, employer can treat that employee as not full-time during the
Stability Period.

9. To Determine Whether You Are A “Large
Employer”
• Counting Employees
On-going employees: Administrative safe harbor
> Employers may need time between the standard measurement period
and the stability period for administrative issues.
> Standard measurement period may end before the associated stability
period begins.
> The administrative period in between may not reduce or lengthen either
the stability period or measurement period. This period may last up to 90
days.

10. To Determine Whether You Are A “Large
Employer”
• Counting Employees
New employees expected to work full-time
> Employer not subject to a penalty for not offering coverage to a new full-
time employee during the first three calendar months of employment.
> The rule applies when an employee is reasonably expected to work full-
time at the start date and the employer sponsors a group health plan
and offers coverage to the employee at or before the end of the first
three calendar months of employment.

11. To Determine Whether You Are A “Large
Employer”
• Counting Employees
 New variable hour or seasonal employees – Safe harbor
 New employee = variable hour employee if at date of hire it cannot be
determined that the employee will be averaging 30+ hours per week.
 Employers allowed to use good faith reasonable interpretation of the
term “seasonal employee”.
 If employer would offer coverage to an employee only if he/she is full-
time status, employer may use an initial measurement period lasting
between 3–12 months to determine if such an employee is full-time.

12. To Determine Whether You Are A “Large
Employer”
 Employers should measure the hours of service completed
by the employee during the initial measurement period and
determine if the employee averages 30+ hours per week.
During this time the employer is not subject to penalties on
these employees.
 If the employee is full-time during the initial measurement
period, the stability period must be at least 6 consecutive
calendar months that is no shorter in duration that the
initial measurement period.
 If not full-time, does not have to be treated as such during
stability period.

13. To Determine Whether You Are a “Large
Employer”
Example:
> Employer has 35 full-time employees (30+ hours per week).
> Employer has 10 employees who work 25 hours per week
 25 x 4.33 = 108.25/month; 10 x 108.25 = 1082.50/120= 9.02
> Employer has 15 seasonal employees who work 36 hours/week
during June, July and August – Not included
> Employer has 15 employees who work 20 hours per week for July
– December
 20 x 4.33 = 86.6/month; 15 x 86.6 = 1299/120 = 10.825

14. To Determine Whether You are a “Large
Employer”
Month Totals
January 35 + 9.02 = 44.02
February 35 + 9.02 = 44.02
March 35 + 9.02 = 44.02
April 35 + 9.02 = 44.02
May 35 + 9.02 = 44.02
June 35 + 9.02 = 44.02
July 35 + 9.02 + 10.825 = 54.845
August 35 + 9.02 + 10.825 = 54.845
September 35 + 9.02 + 10.825 = 54.845
October 35 + 9.02 + 10.825 = 54.845
November 35 + 9.02 + 10.825 = 54.845
December 35 + 9.02 + 10.825 = 54.845
TOTAL 593.19/12 = 49.4325 49 FTEs = Not
subject

15. To Determine Whether You are a “Large
Employer”
 Anti-abuse rules
 Employers cannot use an equivalency method for determining
hours worked if the method “substantially understates” an
employee’s hours of service.
 Employers cannot have an employee work 20 hours per week as
an employee and 20 hours per week as the employee of a
temporary staffing agency in order to avoid penalties.

16. The Individual Mandate
 Penalty phased in Beginning 2014
 Individuals are required to obtain minimum essential health
coverage for themselves and their dependents or pay a monthly
penalty tax for each month without coverage. The monthly
penalty tax is one-twelfth of the greater of the following dollar
penalty or gross income penalty amounts:
- 2014= $95 per individual ($285 per family of three or more)
or 1% of income, whichever is greater
- 2015= $325 per individual ($975 per family of three or
more) or 2% of income, whichever is greater
- 2016- fully implemented= $695 per individual ($2085 per
family of three or more) or 2.5% of income, whichever is
greater
- Congressional Budget Office estimates 6 million people will
pay a penalty because they are uninsured in 2016 and that
total collections will be near $7 billion in that year

17. Grandfathered Plans
• Certain group health plans in effect on March 23, 2010
are exempt from many of the mandated benefit
requirements if the plan design or eligibility is not
modified from that in effect on that date
• To our knowledge, all small group insured plans in
Minnesota have been modified by the carriers since 2010
so as to void any grandfathered status

18. HEALTH CARE REFORM
Federal Benefit Mandates – Already in effect for Nongrandfathered Plans
• Preventive services at 100%
• No pre-authorization or differential in coverage for emergency
care services (in or out of network)
• Cannot limit emergency care to in-network providers
• Regs have rules that allow out of network providers to balance
bill for amounts in excess of amounts paid by the plan
• No rescissions except for fraud or misrepresentation

19. HEALTH CARE REFORM
Miscellaneous – 2014 (non-grandfathered plans)
• No pre-existing condition limitation for any enrollee
• No waiting periods longer than 90 days
 Can use measurement periods for “pay or play” for
employees when uncertain if hours requirement will be met
 Time working while not in eligible class is not taken into
account
 Cannot delay coverage for more than 13 months plus time
remaining to first of month
 IRS Notice 2012-59
• Coverage for participants in approved clinical trials required
(nongrandfathered plans only)

20. HEALTH CARE REFORM
Federal Benefit Mandates – Already in effect
(non-grandfathered plans)
• Coverage of children to age 26
• Break time for nursing mothers
 “Reasonable” break time to express milk
 Private place other than bathroom
 Until child is 1 year old
 Fair Labor Standards Act (FLSA) requirement – only applies
to nonexempt employees
 Employers with less than 50 employees exempt if “undue
hardship”

21. HEALTH CARE REFORM
Annual Limits
• Some waivers for have been allowed
• Problem for stand alone HRAs – no exemption after 2013
other than plans that are limited to dental and/or vision care
with a group health plan. Exemption until 2013 for any HRA in
place 9/23/10

22. HEALTH CARE REFORM
Nondiscrimination Rules – 2014 (or later)
• Non-discrimination rules apply to insured plans – IRC section
105(h) – unless “grandfathered” plan
• 105(h) rules require plans not be discriminatory in eligibility or
benefits
• Penalty is not income tax but $100/day excise tax under Public
Health Services Act

23. Nondiscrimination Rules –
• Maximum penalty is $500,000
• Does not apply to small employers with between 2 and 25
employees – “business as usual”
• Does not apply to retiree medical plans that are not providing
coverage to at least two active employees

24. Nondiscrimination Rules –
• IRS issued guidance delaying the effective date of these rules
until it issues regulations describing how to determine if the
coverage is discriminatory
 IRS Notice 2011-1

25. Nondiscrimination Rules –
• Discriminatory insured health coverage creates a claim under
ERISA Title I for comparable benefits by non-highly
compensated employees – would need to sue to recover
benefits

26. HEALTH CARE REFORM
Simple Cafeteria Plan – Calendar 2011
• New small employer “simple” Cafeteria Plan - employers with
100 or fewer employees
 No discrimination tests required if minimum eligibility,
participation and contribution requirements are met
 All non-excludable employees who had at least 1,000 hours of
service during the preceding plan year must be eligible
 Minimum employer contribution
– 2% of base pay or
– lesser of 200% or 6% match
 Can exclude <21, union, NR aliens

27. Flexible Spending Arrangements - 2011
Calendar Year
• Over the counter drugs not eligible for tax benefits
• Applies from 2010 forward

28. Flexible Spending Arrangements - 2013
Calendar Year
• Flex spending account limit for salary deferrals is $2,500
(indexed 2014 and later)
 This was previously unlimited
 Employer matching or non-elective contributions not counted
toward limit

29. HEALTH CARE REFORM
Medical Loss Ratio Rebates -
• ACA requires insurance companies to spend 80 or 85% of
premiums on health care costs annually
 Does not apply to self funded plans
• If less than that spent, insured's are entitled to refunds
• First refunds were due August 1, 2012
• Insurers generally required to notify insured's whether standard
was met

30. HEALTH CARE REFORM
Medical Loss Ratio Rebates -
• Employers who received refunds needed to evaluate whether
refund must be passed through to participants
• Per DOL for ERISA plans, if employer is policyholder and if
plan does not address who is entitled to rebate, then
participants are entitled to proportionate share of refund if
participants pay part of cost of coverage
 DOL Technical Release 2011-04
 $8.4 million in Minnesota issued last summer – Health
Partners $6.8 million and CIGNA $1.6 million

31. HEALTH CARE REFORM
Medical Loss Ratio Rebates
• Proceeds attributable to participant contributions should
generally be used within 3 months of receipt
 Refund to participants (taxable if premiums paid with pre-tax
dollars)
 Premium reduction or holiday
• Employer should document evaluation and use of refund

32. HEALTH CARE REFORM
W-2 Reporting 2012
• W-2 reporting of value of employer provided health coverage
(not including HSAs or flex accounts) beginning 2012 – IRS
Notice 2010-69

33. HEALTH CARE REFORM
W-2 Reporting 2013
• Per IRS Notice 2011-28, W-2 reporting of health plan coverage
is optional for 2012 calendar year for employers who file fewer
than 250 W-2s in January 2013
• Large employers reported in January 2013

34. HEALTH CARE REFORM
W-2 Reporting 2013
• IRS Notice 2012-9 clarified several issues on W-2 reporting:
 Employers with fewer than 250 W-2s in prior year also
delayed
 Wholly owned subs of tribal governments exempt
 Flex Spending Accounts are exempt if salary deferral only

35. HEALTH CARE REFORM
W-2 Reporting 2013
• Report in Box 12 with code “DD”
• No reporting on the W-3

36. HEALTH CARE REFORM
W-2 Reporting 2013
• Large employers (over 250 W-2s) must report aggregate cost
of employer sponsored coverage excluded from income – Jan
2013
• Small employers start reporting for 2013 – Jan 2014

37. HEALTH CARE REFORM
W-2 Reporting 2013
• IRS Notice 2012-9 clarified several issues on W-2 reporting:
 Reporting does not apply to taxable excess reimbursements
to highly compensated in self-insured plans and coverage for
S Corp 2% shareholders
 EAP, wellness and onsite clinic costs can be excluded if
employer does not charge a COBRA premium

38. HEALTH CARE REFORM
W-2 Reporting 2013
• Regulations will specify COBRA type rules for valuation of
coverage
• March 2011 Notice provides interim guidance that allows
employers to use as a matter of convenience, the applicable
COBRA premium, less the 2% administrative charge

39. HEALTH CARE REFORM
W-2 Reporting 2013
• Alternative #1 is the “Charged Premium Method” – for insured
plans
• Alternative #2 is the “Modified COBRA Premium Method” –
employer subsidizes COBRA premiums using the prior year
COBRA premiums

40. HEALTH CARE REFORM
W-2 Reporting 2013
• The following are not included in the amount reported:
 Long term care premiums
 Dental and vision premiums unless not stated separately
from major medical
 Contributions to HSAs, MSAs, flex spending accounts, HRAs

41. Minimum Essential Coverage Reporting
• Beginning in 2014-
• All employers providing minimum essential coverage must file information with the
IRS and plan participants
• Code section 6055(a) requires every health issuer, sponsor of a self insured health
plan, government agency that sponsors government-sponsored healthcare and
other entity that provides minimum essential coverage to file annual returns
reporting information for each individual for whom minimum essential care is
provided
• Code section 6056 directs every large employer that is required to meet the shared
responsibility requirements during a calendar year to file a return with the Service
that reports the terms and conditions of the healthcare coverage provided to the
employer’s full time employees for the year - See Notice 2012-32

42. Patient Centered Outcomes Research
Fees – Plan Years after 9/30/12
• Research Trust Fund Fee – assessed against all health plans-
• Effective for years ending after 9/30/12 and therefore first
effective for 2012 calendar years. It is effective for 7 years.

43. Patient Centered Outcomes Research
Institute (“PCORI”) Fee
• The amount is equal to:
 $1 per covered life for plan years ending on and after
10/1/12 through 9/30/13
 $2 per covered life for plan years ending on and after
10/1/13-9/30/14.
 The fee is indexed for plan years thereafter based on
increases in the projected per capita amount of
National Health Expenditures.
• Fee is to fund the Patient-Centered Outcomes Research
Institute (“PCORI”) established to research risks and
benefits of various medical procedures and drugs and to
review ways to diagnose, treat and prevent illness.

44. Transitional Reinsurance Fee
• Distributed to Insurers selling coverage on the Exchanges to
offset the cost of covering individuals with high claims
• Insurers will be responsible for collecting and paying the
reinsurance fees on insured plans
• Reinsurance fees for self-insured plans to be paid by plan
sponsors
• Final Regulations issued

45. Transitional Reinsurance Fee
• Imposed on medical plans (irrespective of “Grandfathered” status)
• Does not apply to excepted benefits (such as most dental plans, vision
plans, and health flexible spending accounts)
• Applies to health reimbursement arrangements (HRAs) but, if an
individual is covered by both a medical plan and an HRA, you count
the individual only once as the medical plan and HRA are treated as a
single plan
• Applies to retiree health plans but retirees and dependents for whom
Medicare is the primary payer are not included in the count of covered
individuals.

46. Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Applies to major Medical (self-
insured and insured) plus
COBRA Coverage
• Applies to separate self-insured
prescription drug benefits but
combined with major medical
coverage to determine covered
lives
• Does apply to pre-65 retiree
medical plans
Transitional Reinsurance Fee
• Applies to Major Medical (self-
insured and insured) Plus COBRA
Coverage
• Does not apply to separate self-
insured prescription drug benefits
• Does apply to pre-65 retiree
medical plans

47. Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Applies to coverage for Medicare-
eligible retired individuals
• Does not cover Expatriate major
medical plans if the insured or self-
insured plan is designed to
primarily cover employees working
outside the US
Transitional Reinsurance Fee
• Does not apply to coverage for
Medicare-eligible retired individuals
if the coverage is secondary to
Medicare
• Does not cover Expatriate major
medical plans. HHS will define an
expatriate plan in future guidance

48. Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Does not apply to stand-alone dental
and vision plans if the coverage is a
HIPAA excepted benefit
• Does not apply to other HIPAA-
excepted benefits
• Does not apply to Employee
Assistance Programs (“EAPs”),
Disease Management or Wellness as
long as the program does not provide
significant medical care benefits
Transitional Reinsurance Fee
• Does not apply to stand-alone dental
and vision plans
• Does not apply to other HIPAA
excepted benefits
• Does not apply to Employee
Assistance Programs (“EAPs”),
Disease Management or Wellness as
long as the program does not provide
significant medical care benefits

49. Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Does not apply to a Health FSA
(Flexible Spending Arrangement)
so long as the FSA is a HIPAA
excepted benefit
• Does not apply to HSAs, as the
HDHP is covered as a major
medical plan
Transitional Reinsurance Fee
• Does not apply to a Health FSA
(Flexible Spending Arrangement)
• Does not apply to HSAs, as the
HDHP is covered as a major
medical plan

50. Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• A Health Reimbursement Account (“HRA”)
integrated with a self-insured plan of the
same plan sponsor can determine the
PCOR Fee based on a combined covered
life count
• A Health Reimbursement Account (“HRA”)
integrated with an insured plan must
determine the PCOR Fee separately as if
it was a “stand- alone” HRA. The insured
plan then determines the fee separately as
major medical
Transitional Reinsurance Fee
• A Health Reimbursement Account
(“HRA”) integrated with a self-
insured or an insured major
medical plan is exempt

51. Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Applies to Retiree-Only HRAs
• Does not apply to Medigap or
Medicare supplemental payments
• Does not apply to Medicare
Advantage and Medicare Part D
Plans
• Does not apply to stop-loss and
limited indemnity plans
Transitional Reinsurance Fee
• Application based on Medicare
eligibility
• Does not apply to Medigap or
Medicare supplemental payments
• Does not apply to Medicare
Advantage and Medicare Part D
Plans
• Does not apply to stop-loss and
limited indemnity plans

52. Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Actual Count, Snapshot and Form
5500 Methods all permissible for
determining covered lives
• Any reasonable method if the plan
year begins prior to 7/11/2012 and
ends on or after 10/1/2012
• Can choose a different method for
PCOR and Reinsurance Fee
calculations
Transitional Reinsurance Fee
• Actual Count, Snapshot and Form
5500 Methods all permissible for
determining covered lives, but
revised to determine an annualized
covered life count during the first 9
months of the calendar year. No
reasonable determination method
for first year

53. Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Covered Lives determined once for
a combined HRA and self-insured
medical plan of the same plan
sponsor (No double counting)
Transitional Reinsurance Fee
• Can aggregate an HRA with both
an insured or self-insured major
medical (No double counting)

54. Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Time Period of Application= Plan Years
ending on or after 10/1/2012 and before
10/1/2019
• Amount of Fee=
 PYE on or after 10/1/2012 and before
10/1/2013=$1 per covered life
 PYE on or after 10/1/2013 and before
10/1/2014=$2 per covered life
 PYE on or after 10/1/2014 =$2 per
covered life, as adjusted for health
inflation
Transitional Reinsurance Fee
• Time Period of Application= 2014 to
2016 calendar years
• Fees to be determined by HHS as
the amount necessary to collect the
statutory national amount for each
year ($12B in 2014, $8 B in 2015,
and $5 B in 2016
 Estimates: 2014= $63/covered
life, 2015= $37.80/covered life,
2016= $25.20 per covered life

55. Comparison of PCOR Fee and Transitional
Reinsurance Fee
PCOR Fee
• Fee Paid on an IRS Form 720
• Due by July 31st of each year for
the prior year
Transitional Reinsurance Fee
• Covered entities must notify HHS of
the covered life count by November
15th of each year for the first 9
months of that year. HHS will
determine the amount of the fee
and will bill the entity by December
15th. Payment will then be due
within 30 days

56. HEALTH CARE REFORM
Tax Changes –
2013 Calendar Year
• Floor for deductible medical expenses raised from 7.5% to 10%
(delay for 65+)

57. HEALTH CARE REFORM
Medicare Tax Changes –
2013 Calendar Year
• Increased Medicare tax .9% for individuals earning over
$200,000 and joint filers over $250,000
• New 3.8% tax on unearned income (interest, dividends,
cap gains) for individuals earning over $200,000/
joint filers over $250,000
• $500,000 cap gain exclusion for principal residence still
applies

58. Medicare Contribution Tax- Tax Planning
Ideas
• Estates and Trusts:
 the 3.8% will be assessed on the lesser of:
 undistributed net investment income
 the excess of AGI over start of highest income tax bracket applicable to
estate or trust begins

59. Medicare Contribution Tax- Tax Planning
Ideas
•Highest marginal rate for estates and trusts
began at $11,650 in 2012. Therefore, 3.8% has
immediate concerns
 Income distributions
 Tax-exempt investments
 Growth versus income investments

60. 0.9% Additional Medicare Tax
• 0.9% hospital insurance tax on wages
 Begins January 1, 2013
 Applies to wages over $250,000 (joint returns)
($125,000 MFS; $200,000 for others)
 Applies to self-employed earnings
 Employer required to withhold extra 0.9% once
employee compensation exceeds $200,000
 No employer match due
 In addition to the 1.45% regular Medicare tax

61. Medicare Contribution Tax- Planning
Ideas
 Plan to make activities active
 Look at grouping potential
 RE Pros – rental election – treat as one activity
 Discuss level of activity with your client
 Can they alter activity level
 Taxpayers on threshold levels
 Manage timing of gains
 Look at growth stocks versus dividend
 Tax-exempt investments have greater value

62. Medicare Contribution Tax-
Tax Planning Ideas
 Retirement Income Planning
 Maximize retirement plan contributions. Distributions are not
subject to this tax
 Consider convert into a Roth Plan in 2012?
 Other Considerations
 Use of family FLPs, even if children under 14
 Would be subject to tax at parent’s rates
 Still get benefit of Threshold separately from parents

63. Medical Device Excise Tax
 2.3% of sales price, beginning in 2013
 Manufacturer, producer or importer of device
 Taxable medical devices
 Excise tax, reported on Form 720, Quarterly Federal Excise Tax
Return
 Exemptions available for specific situations
 Minnesota Congressional representatives have authored repeal
legislation

64. HEALTH CARE REFORM
Notice of Exchange Option
• Employers must notify new and existing employees regarding
 Availability of coverage through Exchange
 How to access Exchange for coverage
 Employee may be eligible for premium subsidy through
Exchange
 Employee who uses Exchange loses employer’s (pre-tax)
subsidy of health coverage

65. HEALTH CARE REFORM
Notice of Exchange Option
• Employers must notify new and existing
employees
 March 1, 2013 original effective date –
delayed until Regs issued
 Part of FLSA
 May 9, 2013 Department of Labor issued regs
and model Notice that can be used
 Notice must be given before October 1, 2013

66. HEALTH CARE REFORM
Current State of Exchanges
• State- Operated Exchanges
 18 States and DC
 $3.8 Billion in grants to states, as of April
2013
• State-Partnership Exchanges
 7 States
• Federally-Facilitated Exchanges
 25 States
 $393.7 million in grants as of April 2013

67. Small Employer Health Options Program
(“SHOP”)
 A new program designed to simplify the process of finding health
insurance for small businesses.
 The health insurance plans available in the SHOP will be maintained
by private health insurance companies, the same way small group
plans are run now. All plans will offer the same benefits as a “typical”
employer plan.
 Existing insurance brokers may access the SHOP, or the small
business employer can shop for plans without a broker. There will
opportunities to review pricing and coverage in apples-to-apples
comparisons, complete a single application, and choose the level of
coverage that works for the budget, the business, and the employees

68. Small Employer Health Options Program
(“SHOP”)
• Recent Developments-
 States can define the size of small employers in 2014 and 2015.
 States can opt to define it as fewer than 50 or fewer than 100 employees.
 In 2016, all states will have to define small employer as fewer than 100
employees.
 State-run Exchanges will have two options for SHOP operations.
 Option 1-let employers select a metal tier, and then offer access to all
Qualified Health Plans (QHPs) in that metal tier. This is how the SHOP
was designed to operate.
 Option 2- states could choose a scaled-back operation, allowing the SHOP
to require an employer to select a specific QHP for employees

69. Small Employer Health Options Program
(“SHOP”)
 Federally run Exchanges will permit employers in the
SHOP to select only a single QHP.
 The SHOP will enroll employees in the plans they choose,
collect premiums from the employer, and forward the
premiums to the appropriate insurance carriers
 This premium aggregation function for SHOP has been delayed
until 2015, because it is not needed until employees can choose
from among all plans offered in a metal tier. Therefore, if a state
Exchange provides the employee choice model in 2014, it must
offer the premium aggregation function.

70. Preparing for SHOP
• Ways to Get Ready:
 Think about how your current plan works for you and your
employees.
 If you don’t offer health coverage to your workforce,
consider what benefits you’d like to provide. Also consider
the amount you may be willing to contribute toward a health
plan.
 Talk with an insurance broker about how they can help you
make the best choices for you and your employees.
 Ask your tax advisor if your business may qualify for the
Small Business Health Care Tax Credit.

71. Small Business Health Care Tax Credit
 The Credit:
 Maximum credit 35% of health insurance premiums paid by small
business employers (25% for small tax-exempt employers)
 Only firms covering 50% or more of insurance costs are eligible.
Beginning in 2014, if firms qualify for the tax credit, insurance
coverage must be purchase in a SHOP Exchange (2015 for the
federal government SHOP)
 On Jan. 1, 2014, the rate will increase to 50 percent and 35 percent,
respectively.
 A small business employer who did not owe tax during the year can
carry the credit back or forward to other tax years

72. Small Business Health Care Tax Credit
 Eligible small businesses can still claim a business expense deduction for the
premiums in excess of the credit.
 A Refundable credit (even if you have no taxable income (i.e. a tax-exempt
organization), the small business may be eligible to receive the credit as a
refund so long as it does not exceed your income tax withholding and Medicare
tax liability).
 Only firms with 10 or fewer employees that pay their workers an average wage
of $25,000 or less will receive the full credit; for firms with 11-25 employees
more than $25,000 but less than $50,000 in average wages, the amount of the
credit received works on a sliding scale. The smaller the business or charity,
the bigger the credit. So if you have more than 10 FTEs or if the average wage
is more than $25,000, the amount of the credit you receive will be less.

73. Small Business Health Care Tax Credit
 To Be Eligible:
 Employer must cover at least 50 percent of the cost of single (not
family) health care coverage for each of your employees.
 Employer must have fewer than 25 full-time equivalent employees
(FTEs).
 Two half-time workers count as one full-time worker.
 Employees must have average wages of less than $50,000 a year.
 Form 8941 Credit for Small Employer Health Insurance Premiums to
calculate the credit

74. HEALTH CARE REFORM
2014 Calendar Year
• Premium assistance tax credits to individuals with income between
100% and 400% of the federal poverty level: For 2012 these numbers
were:
# in household 100% poverty level 400% poverty level
1 $11,170 $44.680
2 $15,130 $60,520
3 $19,090 $76,300
4 $23,050 $92,200

75. HEALTH CARE REFORM
2014 Calendar Year
To qualify the taxpayer must:
 Be legally in the U.S.
 Not enrolled in employer plan or government health program
 Be under 400% of the federal poverty level
 Enrolled in an affordable health exchange
Estimates are that over 28 million will qualify/year

76. HEALTH CARE REFORM
2014 Calendar Year
• Refundable and advanceable credit is difference between the
benchmark plan and expected contribution
 Benchmark is the 2nd lowest cost plan at “silver level”
 Expected contribution is between 2% and 9.5% of HHI
 Credit is available for self only and family coverage

77. HEALTH CARE REFORM
Excise Taxes - 2018 Calendar Year
• 40% excise tax on insurers and TPAs who offer coverage
costing more than $10,200 for individual coverage or $27,500
family (indexed)
 Also called “Cadillac Tax”
• Higher limits for retirees 55-64 and selected high risk
occupations

78. Industry Trends for Small Businesses
• Delay in Federal Government SHOP
• Self-Funding Issues
 Self-funding of healthcare could become more attractive to
certain small employers as the ACAs market reforms go into
effect.
 By self funding, a small employer could bypass some of the
reforms
 By self funding, a small employer could bypass the health insurer
fee, that does not apply to self funded health plans

79. The Affordable Care Act -What A Small
Employer Needs to Know
Stephen Sutten, Jeffrey P. Cairns
Baker Tilly Virchow Krause LLP Leonard Street and Deinard PA
612-876-4593 612-335-1418
steve.sutten@bakertilly.com jeff.cairns@leonard.com
.