Healthcare Update Panelists Jeffrey Lundgren, U.S. Chamber of Commerce Jeffrey Lundgren, U.S....

Healthcare UpdatePanelists

• Jeffrey Lundgren, U.S. Chamber of Commerce• Mike Kahley, SrVP at Lockton Companies• Don Fox, CEO of Firehouse Subs• David Barr, Chairman of PMTD Restaurants

The PPACA – Where is Washington Taking This Thing?

Jeff LungrenU.S. Chamber of Commerce

64% franchise / 53% non-franchise businesses believe the health care law will have a negative impact on their businesses

29% franchise / 41% of non-franchise businesses are already seeing health care costs increase due to the law 

More than 50% of franchise and non-franchise businesses are planning to make decisions, such as reducing employee’s hours, to comply with the law’s employer mandate

Source: Chamber/IFA survey

November 13, 2013

PPACA Impact on Business

PPACA Regulatory Onslaught

Red Tape Tower—300+ pounds

—7 feet 3 inches

—20,000+ pages

“Despite all of the good news, there’s plenty of horror stories being told. All of them are untrue, but they’re being told all across America.”

-- Sen. Harry Reid

Remarks on the Senate Floor

February 26, 2014

Political Reality – PPACA Has Ardent Defenders

in Powerful Places

Law is here to stay – glaring warts and all

Administration frantically trying to put out political fires caused by implementation— www.healthcare.gov debacle

— Wave of cancellation notices

— Employer mandate blowback (volunteer firefighters/adjunct professors)

PPACA – Where Are We?

Republicans pushing hard to undercut implementation— Targeted repeal votes

— Seeking other ways to gum up implementation

Democrats unsure of their message and approach— Tout its benefits and argue GOP wants to go back to bad old days

— Tout its benefits and support targeted fixes

PPACA – Where Are We?

Administration’s Theme: do almost anything to mitigate political problems— Possible areas of action

— Addressing policy cancellations

— Addressing rate shock

— Open network requirements

PPACA – Where Are We Going?

Regulatory side:— Do not expect any new regulations impacting 2015

— Fall of this year: start seeing regulations governing 2016

Legislative side:— 40 hour work week definition

— Medical device tax?

PPACA – Where Are We Going?

July 2, 2013 – delayed until 2015 for all employers

February 10, 2014 – “transition relief” for 2015 and 2016 for employers with more than 100 full-time equivalent employees (FTEs)

—70% coverage in 2015

—95% coverage in 2016

Employer Mandate Delay + “Transition Relief”

February 10, 2014 – “transition relief” in 2015 and 2016 for those with more than 50 BUT less than 100 FTEs—Maintain workforce and hours of service

—Maintain previously offered coverage

—Certify that it meets these requirements

Employer Mandate “Transition Relief”

Opportunity for enactment this year? Passed House April 3 248-179

— 18 Democrats supported

Some Democratic support in Senate— 2 Ds cosponsor legislation

White House veto threat

40 Hours Full Time Legislation

For more information:

Jeff Lungren, U.S. Chamber of Commercejlungren@uschamber.com or 202-463-5607

www.uschamber.com/health-care

Today’s ACAMeasurement &

Workforce StrategyMike Kahley

Lockton Companies

ACA: It’s a Continual Planning and Decision Process

Plan Design & Contributions

Participation & Underwriting

Measurement Period & Eligibility

Compliance & Communication

Renewal Costs

Qualifying & Affordable Coverage: Must be offered in order to some to

avoid Nuclear Penalty ($2k) Must be offered to employees and

dependent children Must be “affordable” based on 9.5% of

W-2 or Federal Poverty Level

Employer Play or Pay

Full-

time

empl

oyee

s

& de

pend

ents

Qualifying C

overage: 60%

AV

Affordable Cost: 9.5% W-2 or FPL

Employer’s “Play or Pay”

How Many Employees are Likely to Enroll in Coverage?

Total # of full-time employees

Less # in Measurement Period

Less # of <26 years who opt out

Less # eligible for government programs

Less # other opt-outs

# covered by plan

Employees less than 26 years old may elect to get coverage under a parent’s plan

Employer mandate requires coverage offered to full-time employees (work 130 hours per month/30 hours per week)

Variable and Seasonal employees may be eliminated from offering until full time status is determined

Employees eligible for Government programs (i.e. Medicaid, Medicare, Tricare, Indian Nation) not likely to elect employer coverage

Other employees may opt out due to cost or availability of coverage through spouse; employer only required to offer coverage

Determine number of employees likely to elect employer coverage or to purchase coverage on exchange

Serving Three Employee Populations

I am excited about the insurance plan offered to me for

the first time.

I don’t qualify for the Employer Plan and need to buy

individual coverage.

I like the coverage I have and want to

keep it.

Total Rewards & ACA

Do you need to apply the correct measurement and stability periods for each employee group?

Do you offer the right coverage for each group’s unique needs?

Are your contributions set appropriately to avoid penalties?

Can you pass Section 105(h) discrimination testing?

With varying needs, do you need unique communication and education solutions for each group?

Your Decisions

Somehow, you need to get elections to the right carriers correctly.

Since you don’t know who specifically will enroll, how do you determine the premium and financial impact?

How will Automatic Enrollment potentially change your strategy?

Your Decisions

Total Rewards & ACA

Components of a Group ExchangeEmployer Sponsored

Marketplace/Shopping Experience for the Consumer

Employer Funded Defined Contribution

Online Technology Platform

Enrollment Advocacy Resources

Enrollment Decision Support Tools

Shifting the Paradigm from Payroll Deduction to Providing Funds and Choice

Integrated with or Potential Replacement for Benefits Administration System

Online and Call Center

What’s the Hype?

Predictable Long-term Costs for the Employer

Cost Reduction – Buy downs

Employee Choice = Higher Satisfaction

“Free” Benefits Administration

The Ability to “Get Out of Benefits”

Defined Contribution vs. Defined Benefit

Advisory Services Should be Independent from the Exchange Owner— 69% of Employers Agree that Independence is Very Important*

Employer Remains Plan Sponsor— Own Financial Results

— Accountable to Employees

— Compliance Requirements Remain

Health Plan Optimization Strategies Should be Customized to the Employer

We Believe…

*Source: PWC Private Exchange Evaluation Collaborative (PEEC) employer survey, Dec 2013

Defined Contribution and Private Exchanges Alone Do Not Stop/Slow Medical Trend— CDHP Migration can Reduce Costs

— Health Outcomes and Unit Costs Matter

Multi-Year Agreements Only Work when the Cost and Performance are Guaranteed

ACOs, Evolving Networks and Redirection Represent Significant Savings Potential— Exchanges Need to Support and Enable this Transformation

Employee Choice Helps Drive Satisfaction but Not Necessarily Lowest Cost

We Believe…

*Source: PWC Private Exchange Evaluation Collaborative (PEEC) employer survey, Dec 2013

What Should You Be Doing Now?

Stratifying employees (full, part, seasonal, variable)

Measuring variable hour employees Understand and quantify exposure

Decide offer strategy (pay/play/somewhere in between)

Develop timeline for action

Mike’s Information & Experience

Mike KahleyLockton Dunning BenefitsSenior Vice President

Contact Information:E-mail: Mkahley@lockton.comPhone: 214.720.5762

Food Service Representation

Boston Market CorporationRaising Cane’sConsilient RestaurantsDominos Franchise AssociationFamous Dave’s of AmericaJack In The Box AssociationMAC PizzaSonic Drive-Thru CorpTOMS King Holdings LLCUncle Julio’sVillage TavernWingstop Restaurants

As a husband of sixteen years and father of three, Mike is especially proud of the unique professional, family-oriented atmosphere at the Lockton office. The Kahleys’ live in Highland Village, Texas and enjoy being thoroughly involved in the church and all the Kahleys’ either coach or participate in youth sports. When Mike finds a moment to slow down, you might find him reading history and planning the next adventurous Kahley trip. Speaking Engagements

Chain Restaurant Total Awards ConferenceCorner Bakery Leadership ConferenceMulti-Unit Franchise ConferenceThe Dominos Franchisee AssociationFamous Dave’s FranchisesGE Capital Franchise Finance SeminarsJack in the Box Franchise AssociationNations Restaurant News PanelPeople Report Best Practices ConferenceSonic Advisory CouncilPopeye’s Chicken Fox News Radio

Our MissionTo be the worldwide value and service leader in

insurance brokerage, employee benefits, and risk management

Our GoalTo be the best place to do business and to work

www.lockton.com

© 2014 Lockton, Inc. All rights reserved.Images © 2014 Thinkstock. All rights reserved.

The Affordable Care ActMaking Lemonade out of

Lemons

Establishing a Budget

Variables:—Cost of a qualifying policy—Employee portion of the premium—Number of full time employees—% of full time employees who will accept

Establishing a Budget

Employer portion of the premium—Minimum safe harbor for employee

portion: —$7.25 X 30 hours X 9.5% = —$20.66 per week, 1,074 per year

Establishing a Budget

Number of full time employees—Determined by 2013 payroll history

% of full time employees who will accept— ?????

So What Happened at Firehouse?

Firehouse Subs Company Restaurant Example

$791K AUV$89K EBITDA17 employees

— 1 manager

—16 hourly

— 3 full time

—13 part time

Firehouse Policy Highlights

Premium - $5,138—Employee portion = 20% ($1,028 annually; $86

monthly)

Deductible $4K Out of pocket max: $6250 (network) $10K

(out of network) Co Pay: $40 (Primary) $80 (specialist) $100

(urgent) $200 (emergency)

The Result

Silver Plan offered to full time Firehouse employees

Firehouse pays 80% of premium 65% of employees accepted (two per

restaurant) $8K expense per location; 3% sales increase

needed to recoup expense

What to do next?

Determine your status Decide whether to offer health insurance or

not Design scheduling protocols that support your

decision

Avoid Minefields

Employees drifting above and below 30 hours, creating unbudgeted risk

Cutting employees hours due to poor planning

Lawsuits and partial unemployment claims due to cutting hours

Thank You!

Twitter: @DonMFoxEmail: dfox@firehousesubs.com

CEO, Firehouse of America, LLC

Affordable Care Act

David BarrOne Lonely Operator Trying to

Make Sense Out of This

PMTD Restaurants LLC – 23 KFC/Taco Bells/KT’s

A franchisee owner/operator of restaurants in small towns of Alabama and Georgia.

A Case Study

TotalCurrently

EligiblePre-ACA

CurrentlyEnrolledPre-ACA

# of active employees 412 36 30

# of full time 109 36 30

# of part-time 303 0 0

Full time employees are defined using a one year measurement period. Of the 109 full time employees, 36 are salaried and 73 are hourly.

PMTD Restaurants LLC – 23 KFC/Taco Bells/KT’s

PMTD’s Plan Currently Qualifies as Affordable to Employees

EmployeeOnly

FamilyCoverage

Annual premium $5,028 $12,612

Paid by Employer- $- %

$4,07381%

$4,34934%

Total $ paid by Employer $129,000

Paid by Employee $955 $8,263

PMTD’s plan will meet the affordability test (less than 9.5% of employees pay) for its employees as full time employees make at least $10,000 per year and PMTD’s plan is at 84% actuarial value.

ACA Could Increase Insurance Cost To Employer

Total $Paid by

Employer

Currently pre-ACA $129,000

Estimate under ACA with no change to plan $444,000

This approx. $300,000 increase represents 1.5% of sales.

Assumption: All eligible individuals accept plan as currently designed and employer maintains same contribution.

The Bigger Question – Will Employees Sign Up?

They will have different choicesEmployer

PlanGovernment

ExchangeDo Nothing

30+ hours employees with household income > $16,800 (est. Medicaid threshold)

$955/yr.9.5% of Income

$4,800/yr.(Subsidized only

if employer doesn’t offer plan at 9.5%)

2014 - $120/yr.2016 -

$695/yr.Penalty on

taxes

30+ hours employees with household incomes < $16,800 (est. Medicaid threshold)

$955/yr.9.5% of Income

Enroll in Medicaid

$0/yr.

N/A

Summary of Costs and Employees

# of Employ# of

Salaried Employ

# of Hourly Employ Total Cost

Total 412 36 376

Less: Non-fulltime employees (303) (303)

Sub-total of FT Employees 109 36 73 $444,000

Less: Reducing 30-33 hour employees (1/2 of 35)

(17) (17) ($69,200)

Less: Est. Employees that do not sign-up (10% sign-up)

(50) (50) ($203,700)

Less: Employees On Spouse Plan (6) (6) ($24,400)

Benefit of Employees Pay More (36 employees x $100)

($3,600)

Change in Plan design (36 employees x approx. $275) ($10,000)

Ending Total 36 30 6 $133,100

As a Result of Planning for ACA, Costs Can be Managed

Exchange is calculated as 109 employees less exemption for 30 full time employees times $2,000 per employee

Total $Paid by

Employer

Currently Pre-ACA $129,000

Calculated Estimate under ACA

$133,100

Everyone goes into the Exchange (not tax deductible)

$158,000

Healthcare UpdatePanelists

• Jeffrey Lundgren, U.S. Chamber of Commerce• Mike Kahley, SrVP at Lockton Companies• Don Fox, CEO of Firehouse Subs• David Barr, Chairman of PMTD Restaurants