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Updated: July 12, 2013

1

This presentation is made available for educational purposes to provide you with general information and understanding of the law, it is not intended nor does it constitute legal or tax advice.

The presentation should not be used as a substitute for specific legal or tax advice from a licensed attorney or tax consultant engaged for that purpose.

Further, the subject matter contained in this presentation is complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of US federal,

state or local tax penalties.

On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Affordability Reconciliation Act of 2010 were signed into law and have become known simply as "Health Care Reform", or ACA.

Primarily, Health Care Reform was designed to expand health insurance coverage by:

Expanding eligibility for Medicaid

Developing a new marketplace for purchasing insurance

Mandating most individuals have health insurance

Imposing fines on large employers who do not offer coverage, or offer coverage that is unaffordable and/or has an actuarial value of .60

Subsidizing low and middle income enrollees in the described new marketplace program (the state and/or health insurance Exchanges)

The implementation of Health Care Reform takes place over nine years beginning in 2010 and ending in 2018. The following table is a high level overview of the timeline through 2018, and was updated as of July 2013.

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3

Health Care Reform impacts all US Citizens.

All Employers: Large and Small – Health Care Reform presents unique challenges and opportunities for employers. The individual coverage mandate, the opening of Exchanges and the availability of federal premium subsidies for low-income workers in 2014 require employers to decide: to offer benefits that meet specific minimum requirements or to forgo plan sponsorship and pay a penalty, thereby sending their employees to secure coverage for themselves through the Exchanges.

Beyond “play versus pay”, there is a range of approaches to help employers reshape their health benefits programs to optimize their own costs in 2014 and beyond, and to direct employees to advantageous coverage options. Employers need to select the approach that best aligns with their corporate philosophy and strategy, and provides optimal value in terms of both cost and talent.

All Individuals - Starting in 2014, most individuals will be required to obtain acceptable health

insurance coverage for themselves and their family members or pay a tax (penalty). This provision of the health care reform law is often called the “individual mandate” because it has the effect of requiring individuals to have health coverage. Under ACA, all individuals will now have access to coverage without pre-existing condition clauses being applied to their coverage.

State & Federal Government – Both State and Federal Government will be involved in providing

health insurance to individuals through Health Insurance Marketplaces (also known as Exchanges). New organizations will be set up to create alternative markets for buying health insurance. They will offer a choice of different health plans, certify plans that participate and provide information to help consumers understand their coverage options.

Beginning in 2014, Marketplaces will primarily serve small business with up to 100 employees and individuals. The small business marketplaces will be known as Small Business Health Option Programs, or SHOP Exchanges. (States may limit employer size to 50 employees for the first two years and can choose to include larger employers in the future.) States can establish their own Marketplaces, which may be run by a government agency or a nonprofit organization. Alternatively, states can have the federal government step in to set up the state’s Marketplace, or can work with the federal government on a partnership Marketplace.

4

Under ACA, Employers have many responsibilities which vary based on company size. These responsibilities include benefits, penalties/fees, documentation, and notifications.

Depending on the size of the employer, the definition of large group and the required responsibilities vary:

Responsibility Definition of Large / Small Employer Determining Benefit / Penalty Responsibilities

Large = 50 or more full-time equivalent employees for a 6 month period in the prior 12 months

W-2 Requirements Large = 250 W-2’s generated in the prior year (defined by count of W-2’s, not actual group size currently employed)

Automated Enrollment Large = 200 full time employees (working more than 30 hours/week)

Participation of Group Exchanges Small = Less than 100 full-time employees, however states may cap at 50 full time employees in the short term

The definition of “Large Employer” varies under ACA. For most, an employer is large if they have at least 50 full-time equivalent employees during the preceding calendar year. In order to determine whether an employer is a large employer, both full-time and part-time employees are included in the calculation. Full-time employees are those working an average of 30 or more hours per week. The number of full-time employees excludes full-time seasonal employees who work for less than 120 days during the year. The hours worked by part-time employees (that is, those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120.

Example - A company has 35 full-time employees (30+ hours). In addition, the company has 20 part-time employees who all work about 22 hours per week (96 hours per month). These part-time employees’ hours would be treated as equivalent to 16 full-time employees, resulting in 51 Full Time Equivalent Employees (FTEs), using the following calculation:

20 employees X 96 hours/120 = 1920/120 = 16 16 + 35 FT = 51

With 51 FTEs, this company would be considered a large employer, based on a total full-time equivalent count of 51. That is, 35 full-time employees plus 16 full-time equivalents based on part-time hours.

5

HHS allows different types of employees to be categorized for the purpose of determining whether an employer is considered large or small:

Employee Category How is this category of employee used to

determine “large employer”?

If large, could the employer be subject to a penalty if this type

of employee received a premium credit?

Full-time Counted as one employee, based on a 30-hour

or more work week Yes

Part-time

Pro-rated (calculated by taking the hours worked

by part-time employees in a month divided by

120)

No

Seasonal Not counted, for those working less than 120

days in a year

Yes, for the month in which the

seasonal worker is full-time

Temporary Agency

Generally, counted as working for the temporary

agency (except for those workers who are

independent contractors)

Yes, for those counted as working

for the temporary agency only

Leased employees are not considered employees of the service recipient for purposes of the employer penalties.

The proposed regulations provide that an employer determines its status as a large employer in a given year by looking back to employees’ actual hours of service in the prior year. The proposed regulations provide additional information on how to determine the number of employees for a year, including information about how to take account of salaried and seasonal employees. Under a special transition rule, the proposed regulations allow an employer to ascertain its large employer status by determining whether it employed an average of at least 50 full-time employees (including full-time equivalents) on business days during any consecutive 3 to 12 month period in the prior year. This is referred to as the measurement period. For employees determined to be full-time, the stability period, or the period where coverage is in place regardless of hours, must be at least six months. The eligibility is then re-evaluated at the end of each stability period, which can never be shorter than the measurement period. (See page 20 for variable employees.) For example:

Measurement Period = 12 months (January – December) Stability Period = 12 months (October – September) Administration Period = 3 months (October – December)

Stability

Jan Oct Jan Oct Jan Oct

Administration

2012 2013 2014

Measurement

6

A Controlled Group are companies under a common owner or otherwise related for purposes of determining whether or not they employ at least 50 full-time employees (or an equivalent combination of full-time and part-time employees). If the combined total meets the large employer threshold, each separate company is subject to ACA’s shared responsibility rules – even companies that do not have enough employees on their own to meet the threshold. Although organizations within the same controlled group are combined for purposes of determining if they are a “large employer,” the full-time employee penalty tax associated with ACA is determined separately based on the number of employees employed by each organization within the controlled group.

According to the IRS, a controlled group relationship under ERISA exists if the businesses have one of the following relationships (Note the examples listed are for illustrative purposes only.):

Parent – Subsidiary - connected through stock ownership with a common parent corporation and 80% of the stock of each corporation is owned by one or more corporations in the group and parent corporation must own at least 80 percent of at least one other corporation. (Section 1563(a) and 414(b) and (c).)

Example – Corporation A owns 100% of the stock of Corporations B and C and each corporation employs 20 full-time employees. Corporations A, B and C are a “parent-subsidiary” controlled group and considered a “large employer” for purposes of ACA as there are at least 50 full-time employees within the controlled group.

Brother – Sister - two or more corporations, in which five or fewer common owners (individual, a trust or an estate) own directly or indirectly a controlling interest of each group and have “effective control”:

o Controlling interest generally means 80 percent or more of the stock of each corporation, AND

o Effective control generally means more than 50 percent of the stock of each corporation, but only to the extent such stock ownership is identical with respect to such corporation.

Example:

Owner Corporation

A Corporation

B Identical

Ownership

Individual C 40% 30% 30%

Individual D 20% 40% 20%

Individual E 35% 15% 15%

Individual F 5% 0% ----

Individual G 0% 15% ----

Totals for common owners

95% 85% 65%

7

In this example, the 80% common ownership test is satisfied as Individuals C, D, and E (the “common owners”) have a combined ownership which equals or exceeds 80% (95% in Corporation A and 85% in Corporation B). The 50% identical ownership test is satisfied as the sum of the identical ownership percentages for the “common owners” is more than 50% (65%). In this example, F and G are not “common owners” as they do not have ownership in both businesses. If corporation A employed 30 full-time employees and corporation B employed 40 full-time employees, they are considered a “large employer” for purposes of PPACA as there are at least 50 full-time employees within the controlled group.

Combination of the above - consists of three or more organizations that are organized as follows:

Each organization is a member of either a parent-subsidiary or brother-sister group AND

At least one corporation is the common parent of a parent-subsidiary AND is also a member of a brother-sister group.

In addition, attribution rules apply in determining common ownership. Attribution may result from family or business relationships. Specific to family relationships, the ownership interests:

Of a Spouse Are attributable to a Spouse

Of a Minor Child (< 21) Are attributable to a Parent

Of a Parent Are attributable to an Adult Child*

Of an Adult Child Are attributable to a Parent*

Of a Grandparent Are attributable to Minor or Adult Child*

Of a Minor or Adult Child Are attributable to a Grandparent*

Of a Sibling None *Only if the attributable party owns more 50% of that business

An Affiliated Service Group exists when the ownership of related business entities are formed in an “artificial manner” under Section 414(b) and (c) in order to circumvented the aggregation rules established by ERISA.

8

As a large employer, there are two primary concerns with respect to the benefits offered to employees:

1. Do the benefits meet the minimum actuarial value requirement?

2. Is the coverage affordable for the employees? If both of these requirements are met, the “Employer Mandate” is satisfied and penalties would not be imposed.

ACA provides that a plan fails to provide minimum value if the plan’s share of total allowed costs of benefits provided under the plan is less than 60 percent of those costs. Minimum value (MV) is calculated by:

There several approaches an employer can take in determining if their plan meets minimum value:

Minimum Value Calculator - HHS has recently made available a calculator which helps determine the “metal” status (that is, bronze, silver, gold or platinum) of non-grandfathered plans. The MV Calculator produces an empirical estimate of the actual average spending by a wide range of consumers representative of those currently enrolled in self-insured employer-sponsored plans (45 CFR 156.145(c)). Although producing an exact calculation of a very complex interaction of use of health care services is not possible in a tool that is publicly available and

The cost of essential health benefits (EHBs) the plan would pay for a standard population

The total cost of EHBs for the standard population (including amounts the plan pays and amounts the

employee pays through cost-sharing)

Results (converted to a percentage)

=

The employer mandate provision was set to take effect on January 1, 2014. However, on July 2, 2013, the Treasury announced that the employer mandate penalties and related reporting requirements will be delayed for one year, until 2015. Therefore, these payments will not apply for 2014. The Treasury plans to issue more formal guidance on the delay shortly and additional regulations on the reporting requirements over the summer. Future guidance may also impact the rules described in this document. Plan provisions, such as the elimination of pre-existing conditions, no lifetime maximum benefit, etc., of ACA are not affected by this delay.

9

able to accommodate the majority of group health plans, the results provided by this MV Calculator ensure that the determination of whether a group health plan provides MV is made in compliance with the Affordable Care Act and regulatory standards. AV Calculator: http://cciio.cms.gov/resources/regulations/index.html#pm

Safe Harbor Checklist - HHS and the IRS will provide design-based safe harbors in the form of checklists that employers can use to compare to their plans’ coverage. If the employer-sponsored plan’s terms are consistent with or more generous than any one of the safe harbor checklists, the plan will be treated as providing minimum value. This method will not involve calculations and can be completed without an actuary.

Actuarial Certification - An actuarial certification approach will be available for plans with nonstandard features that preclude the use of the MV Calculator or checklist methods. Nonstandard features would include quantitative limits (for example, limits on covered hospital days or physician visits) on any of the four core categories of benefits and services. Under this approach, plans will be able to generate an initial value using a calculator and then engage a certified actuary to make appropriate adjustments to take into consideration for the nonstandard features.

In general, an employer’s coverage is considered unaffordable under ACA if the employee’s required contribution for self-only coverage exceeds 9.5 percent of the employee’s annual household income for the calendar year. The IRS recognizes that an employer will generally not know an employee’s household income. Thus, in Notice 2011-73, the IRS outlined a safe harbor under which an employer could determine affordability based on whether the employee’s required contribution exceeds 9.5 percent of his or her Form W-2 wages. The proposed regulations provide additional guidance on the Form W-2 safe harbor and establish two additional safe harbors for determining affordability – the rate of pay safe harbor and the federal poverty line (FPL) safe harbor.

Rate of Pay Safe Harbor – Under this safe harbor, affordability is determined based on an employee’s rate of pay. For salaried employees, the employer would use the employee’s monthly salary to determine affordability. For hourly employees, the employer would multiply the employee’s hourly rate of pay by 130 hours per month and determine affordability based on the resulting monthly wage amount. The employee’s monthly contribution amount (for self-only coverage) is affordable if it is equal to or lower than 9.5 percent of the computed monthly wages.

Federal Poverty Level Safe Harbor – This safe harbor determines affordability based on the FPL

for a single individual. If the employee’s cost for self-only coverage under the employer’s health plan does not exceed 9.5 percent of the FPL for a single individual, the coverage is considered affordable.

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Still Effective Been Delayed

The delay in the requirement does not affect the insurance market reforms. This means these requirements are still scheduled to go into effect as of the start of the 2014 plan year (with penalties of up to $100 per person per day for non-compliance). These requirements apply to all plans except as noted:

Waiting periods cannot be more than 90 days from the date the employee becomes eligible

All pre-existing condition limitations must be removed

Essential health benefits may not have annual dollar limits

Grandfathered plans must cover children to age 26 even if the child has access to his/her own employer-provided coverage

The new wellness program requirements Reporting and payment of applicable ACA fees Timely distribution of any MLR rebates Employer Notification Requirements (SBC and

Exchanges) W-2 Reporting, if applicable

The play or pay provision requires employers with 50 or more employees comply in the following way to avoid penalties: Offer minimum essential coverage to 95 percent

of full-time employees Offer minimum value coverage to full-time

employees Offer affordable coverage to full-time employees Consider employees who average 30 or more

hours per week full-time for purposes of their health plan

Count employees’ hours to determine whether they average 30 or more hours work per week

As of July 2, 2013 - ACA Delay of the Employer Mandate The Obama administration announced that it is delaying the Employer Mandate under the ACA until 2015. The IRS has stated this announcement is the result of employer concerns that the requirements were too complicated and difficult to implement in time for the January 2014 deadline. It is believed the additional year will give employers time to understand the Employer Mandate rules, to make decisions about providing health coverage and to adapt their reporting systems, without worrying about potentially significant penalties. The administration plans to use the additional implementation time to consider ways to simplify the new reporting requirements consistent with ACA. The Treasury also plans to discuss the rules with stakeholders, including employers that currently provide health coverage to employees, and then publish proposed rules implementing these provisions later this summer. It is the Treasury’s intention to minimize the reporting requirements.

The IRS issued Notice 2013-45 to provide transition relief for the 2014 Code section 6055 and 6056 information reporting requirements. Under the transition relief, employers are encouraged to voluntarily comply with the reporting requirements for 2014 once the IRS issues reporting rules, which are expected this summer. However, compliance with the reporting rules is completely optional for 2014 and no penalties will be applied for failing to comply.

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W-2 – For employers that filed 250 or more Forms W-2 in the prior calendar year, Form W-2 Reporting is required. Beginning in the 2012 tax year, large employers are required to report the aggregate cost of employer-sponsored group health plan coverage on their employees’ Forms W-2.

Under the Form W-2 reporting requirement, the information that must be reported relates to “applicable employer-sponsored coverage.” Applicable employer-sponsored coverage is, with respect to any employee, coverage under any group health plan made available to the employee by the employer which is excludable from the employee’s gross income under Code section 106. For purposes of this reporting requirement, it does not matter whether the employer or the employee pays for the coverage – it is the aggregate cost of the coverage that must be reported. The aggregate cost of the coverage is determined using rules similar to those used for determining the applicable premiums for purposes of COBRA continuation coverage. It must be determined on a calendar year basis.

Coverage Type Report on Form

W-2 Do Not Report on Form W-2

Optional Reporting

Major Medical X

Dental or vision plan which gives the choice of declining or electing and paying an additional premium

X

Health Flexible Spending Arrangement (health FSA) funded solely by salary-reduction amounts

X

Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits

X

Health Reimbursement Arrangement (HRA) contributions

X

Health Savings Arrangement (HSA) contributions (employer or employee)*

X

Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis

X

Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer

X

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(Continued)

Coverage Type Report on Form W-2

Do Not Report on Form W-2

Optional Reporting

Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare coverage

Required if employer charges a

COBRA premium

Optional if employer does not charge a COBRA premium

On-site medical clinics providing applicable employer-sponsored healthcare coverage

Required if employer charges a

COBRA premium

Optional if employer does not charge a COBRA premium

Wellness programs providing applicable employer-sponsored healthcare coverage

Required if employer charges a

COBRA premium

Optional if employer does not charge a COBRA premium

Domestic partner coverage included in gross income

X

Self-funded plans not subject to federal COBRA X

Accident or disability income X

Long-term care X

Workers' compensation X

Excess reimbursement to highly compensated individual, included in gross income

X

Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income

X

*The ACA reporting obligation does not apply to amounts contributed to an Archer MSA or amounts contributed to an HSA. Those amounts are already required to be reported on the Form W-2. Thus, even small employers must report all employer contributions (including an employee's contributions through a cafeteria plan) to an HSA on Form W-2.

Automatic Enrollment – For employers that have more than 200 full-time employees, automatic enrollment will apply as of 2014 (contingent on final regulations). Large employers that are subject to the Fair Labor Standards Act (essentially all non-government law enforcement employers) will be required to automatically enroll new full-time employees in one of the employer’s health benefits plans (subject to any waiting period authorized by law), but allows employees a grace period to waive or change the coverage. This provision also requires employers to continue the enrollment of current employees in a health benefits plan offered through the employer even if the employee fails to make an open enrollment election.

Before this requirement can take effect, the DOL must issue implementing regulations. The DOL has stated that the automatic enrollment guidance will not be ready to take effect by 2014 and employers are not required to comply with the rule until final regulations are issued and become applicable.

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Summary of Benefits and Coverage - Health plans (both insured and self-funded) must provide

a Summary of Benefits and Coverage (SBC) to participants and beneficiaries. The SBC is a succinct document that provides simple and consistent information about health plan benefits and coverage in plain language. For insured plans, issuers must provide an SBC to the plan sponsor and may also send the SBC to participants and beneficiaries on behalf of an insured health plan.

Plans and issuers must provide the SBC to participants and beneficiaries who enroll or re-enroll during an open enrollment period beginning with the first open enrollment period that begins on or after Sept. 23, 2012. The SBC also must be provided to participants and beneficiaries who enroll other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees) effective for plan years beginning on or after Sept. 23, 2012.

Notification of Exchange - Employers are required to provide all new hires and current employees with a written notice about ACA’s health insurance exchanges (Exchanges) by October 1, 2013. The DOL provided the following model Exchange notices:

A model Exchange notice for employers who do not offer a health plan; and A model Exchange notice for employers who offer a health plan to some or all employees.

The compliance date of October 1, 2013 coordinates with the expected open enrollment period for Exchanges.

60 Day Notice of Plan Changes (Mid-Year) - A health plan or issuer must provide 60 days

advance notice of any material modifications to the plan that are not related to renewals of coverage. Specifically, the advance notice must be provided when a material modification is made that would affect the content of the SBC and the change is not already included in the most recently provided SBC.

A “material modification” is any change to a plan’s coverage that would be considered by the average plan participant to be an important change in covered benefits or other terms of coverage.

A material modification may include an enhancement in covered benefits or services or other more generous plan or policy terms, a material reduction in covered services or benefits, or more strict requirements for receiving benefits.

Notice can be provided in an updated SBC or a separate summary of material modifications. This 60-day notice requirement becomes effective when the SBC requirement goes into effect for a health plan.

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Large employers can be fined (post tax) in one of two ways:

If these employers do not offer coverage to at least 95% of its full-time employees:

PENALTY = $2,000 X # of Full Time Employee (working 30 or more hours a week) less the first 30 employees (@ $2,000/ee)

If these employers do offer coverage butvalue of .60:

PENALTY = $3,000 X # of Full Time Employees (working 30 or more hours a week) whose coverage is unaffordable or whose plan does not meet the minimum value AND is not already covered by a government policy such as Medicare, Medicaid, TRICARE, CHIP or VA. These employees will receive subsidized healthcare coverage through the Exchange.

These penalties, if applicable, will be paid by the employer on a 1/12th (monthly) basis.

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Fee Description

Health Insurance Industry Fee (“Industry Fee”) Only applies to fully insured plans The carriers are responsible for this fee, as a result it is felt indirectly by groups (potential premium increase)

This fee is intended to help fund the cost of implementing provisions of PPACA. The total annual amount of the Industry Fee starts at $8 billion in 2014, and increases to $14.3 billion in 2018. Beyond 2018, the total annual fee amount will increase in direct proportion to the growth in health insurance premiums. The fee is divided among health insurance carriers based on each carrier’s share of the overall national premium base, and will only be assessed relative to insured health plans, including medical, dental and vision plans. (The fee is not applicable to self-funded health plans or stop-loss insurance policies.) The Industry Fee is not deductible for federal income tax purposes. This substantially increases the cost impact, which is expected to be in the range of 2.0 to 2.5% of premium in 2014, increasing to 3.0 to 4.0% of premium in later years. Insurance companies will likely begin to reflect this additional cost in their premium rates in 2013 or 2014.

Comparative Effectiveness Fee – Due in 2013 (“PCORI”) Applies to both fully insured and self-funded groups. For fully insured groups, this fee is paid by the carrier.

The Comparative Effectiveness Research Fee is now known as the Patient-Centered Outcomes Research Institute (PCORI) Fee. This fee sponsors the establishment of the Patient-Centered Outcomes Research Trust Fund. The fund provides funding for a new Patient-Centered Outcomes Research Institute. ACA requires the Institute to conduct research to evaluate and compare health outcomes and the clinical effectiveness, risks, and benefits of medical treatments, services, procedures, drugs and other strategies or items that treat, manage, diagnose or prevent illness or injury. Fee dates: For plan years ending between 10/1/12 and 9/30/13 – Self-funded groups are

responsible for a $1 fee per covered life (including dependents) For plan years ending between 10/1/13 and 9/30/14 – Self-funded groups are

responsible for a $2 fee per covered life The fee is indexed to national health expenditures thereafter until it ends in

2019

Payment must be submitted with IRS Form 720 by July 31 of the calendar year immediately following the last day of the plan year. Or if your plan year ended on Dec. 31, 2012, your first PCORI Fee payment is due by July 31, 2013. If your plan year ends June 30, 2013, your first PCORI Fee payment is due by July 31, 2014.

The fee is in effect from 2012-2019.

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(Continued)

Fee Description

Reinsurance Fee – Coming up in 2014 Applies to both fully insured and self-funded groups For fully insured groups, this fee is paid by the carrier. For self-funded groups, the fee is either paid by the ASO TPA or the employer.

The transitional reinsurance program is intended to help stabilize premiums for coverage in the individual market during the first three years of Exchange operation (2014 through 2016) when individuals with higher-cost medical needs gain insurance coverage. This program will impose a fee on health insurance issuers and self-insured group health plans.

The reinsurance program’s fees will be based on a national contribution rate, which HHS will announce annually. For 2014, HHS announced a national contribution rate of $5.25 per month ($63 per year).

The 2013 final rule provides that an issuer’s or plan sponsor’s reinsurance fee is calculated by multiplying the number of covered lives (employees and their dependents) during the benefit year for all of the entity’s plans and coverage that must pay contributions, by the national contribution rate for the benefit year.

States operating reinsurance programs may elect to collect additional contributions in addition to the federal contribution rate to cover administrative expenses or additional reinsurance payments. (The 2013 final rule notes that neither ACA nor the regulations give a state the authority to collect additional contributions from self-insured plans covered by ERISA.)

Under the 2013 final rule, HHS will collect the reinsurance fees from issuers and plan sponsors in all states, including states that elect to operate their own reinsurance programs. These collections by HHS will be made based on a national, uniform calendar.

The 2013 final rule requires issuers and plan sponsors to submit an annual enrollment count to HHS no later than November 15 of 2014, 2015 and 2016 based on enrollment data from the first nine months of the year. Within 30 days of this submission or by December 15, whichever is later, HHS will notify each issuer or plan sponsor of the amount of its required reinsurance contribution. The issuer or plan sponsor would be required to remit this amount to HHS within 30 days after the date of HHS’ notification.

The Internal Revenue Service (IRS) issued a set of FAQs to address the tax treatment of ACA’s reinsurance fees.

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Generally, an employer is considered a Small Employer if it has less than 50 full-time employees. However the definition of Small Employer does vary by ACA requirement. While small employers are not subject to the potential penalties/fees of ACA, small employers still have responsibilities with respect to plan features and communication requirements.

Beginning in 2014, Health Care Reform requires non-grandfathered plans in the individual and small group markets to offer a comprehensive package of items and services, known as essential health benefits. This requirement applies to plans offered inside and outside of the state insurance exchanges (Exchanges/Market Place), which are scheduled to become effective in 2014.

To meet the essential health benefits, health benefits must include items and services within at least the following 10 categories:

Ambulatory patient services;

Emergency services;

Hospitalization;

Maternity and newborn care;

Mental health and substance use disorder benefits, including behavioral health treatment;

Prescription drugs;

Rehabilitative and habilitative services and devices;

Laboratory services;

Preventive and wellness services and chronic disease management; and

Pediatric services, including oral and vision care.

HHS has finalized its benchmark approach for defining essential health benefits. Under this approach, each state selects a benchmark insurance plan that reflects the scope of services offered by a typical employer plan in the state. States can select their benchmark plan from the following options:

One of the three largest small group plans in the state by enrollment;

One of the three largest state employee health plans by enrollment;

One of the three largest federal employee health plan options by enrollment; or

The largest HMO plan offered in the state’s commercial market by enrollment. If a state does not select a benchmark plan, the default benchmark selected by HHS is the small group plan with the largest enrollment in the state. For Florida, it is believed the benchmark plan will include the following In-Network benefits:

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Expected Benchmark Plan Florida

Deductible $500 / $1,500

OOP $2,500 / $5,000

Coinsurance 20%

Office Visits $15 PCP / $35 Specialist

Urgent / Emergency $40 / $100

Health insurance carriers in the individual and small group markets must consider all enrollees in all non-grandfathered health plans issued in a particular state to be members of a single risk pool when developing rates and premiums for plan years effective on or after January 1, 2014. Each carrier must have one individual market pool and one small group market pool in each applicable state. Health carriers may vary the premium rate charged to a specific non-grandfathered individual or small group from the rate established for that particular plan only based on the following factors: family size (individual or family), geography (rating area), age (within a ratio of 3:1 for adults) and tobacco use (within a ratio of 1.5:1). Because of the revision of rating for small group, census requirements will be more stringent and include the ages of dependents.

Family rating - The final rule clarifies that the cap on rating no more than the three oldest individuals under the age of 21 only applies to "covered children." Employees and spouses who are under the age of 21 will be separately rated.

Small group rating - Carriers will use the per-member rating methodology in the small group

market. States may require issuers to give small groups an average premium amount for each employee in the group, provided that the total group premium equals the premium that would be obtained through the per-member rating approach.

Geographic rating - The final rule clarifies that states may establish different rating areas for the individual or small group markets, but rating areas must apply uniformly within each market and may not vary by product. In addition, the final rule allows much more flexibility for states in terms of what rating area configurations will be presumed adequate. If a state does not establish rating areas, the default will be one rating area for each metropolitan statistical area (MSA) in the state and one rating area for all other non-MSA portions of the state.

Age rating - The maximum 3:1 ratio for age rating applies to adults age 21 and older. The final rule retains the single band for children age 0-20 and a single age band for individuals 64 and older. Age for rating purposes continues to be determined based on the date of policy issuance and renewal; however, individuals who obtain coverage other than at issuance or renewal may be rated as of the age that they are added.

No state exceptions to the uniform age bands are allowed under the final rule. States can still set their own age curve within these bands. States may also establish separate age curves for individual v. small group markets.

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Tobacco rating - The final rule defines "tobacco use" as use of tobacco an average of four or

more times per week within no longer than the past six months, including all tobacco products but excluding religious and ceremonial uses of tobacco. Tobacco use will be based on when a tobacco product was last used. Carriers may vary rates for tobacco only based on individuals who may legally use tobacco under federal and state law (i.e., no tobacco rating for individuals under age 18). If an enrollee provides false or incorrect information about their tobacco use, a carrier may retroactively apply the appropriate tobacco use rating factor to the enrollee's premium, but may not rescind the coverage. The final rule retains the rating for tobacco use within a ratio of 1.5:1. Carriers may vary tobacco rating by age, as long as the tobacco use factor does not exceed 1.5:1 for any age band. The small group market may apply the tobacco rating factor only in connection with a wellness program, allowing a tobacco user to avoid paying the full amount of the tobacco factor by participating in a tobacco cessation program.

Still Effective The July 2, 2013 delay in the Employer Mandate requirement does not affect the insurance market reforms. This means these requirements are still scheduled to go into effect as of the start of the 2014 plan year. These requirements apply to all plans except as noted:

For small insured plans, whether in or outside the exchange/marketplace, coverage must include the essential health benefits, at the bronze, silver, gold or platinum level, with a deductible of not more than $2,000 for individual and $4,000 for family coverage (carriers who offer non-compliant plans will be responsible to pay a penalty of $1,000 per member per day).

For small insured plans, whether in or outside the exchange/marketplace, modified community rating (rating classes are limited to age, tobacco use, family size and geographic area), guaranteed issue and guaranteed renewal (with some limitations) will apply.

W-2 – A small employer for purposes of W-2 reporting would be any group that had less than

250 Forms W-2 for the prior calendar year. Currently W-2 reporting is not applicable. Small employers may be subject to this reporting in the future. The IRS has delayed the reporting requirement for small employers by making it optional for these employers until further guidance is issued.

Summary of Benefits and Coverage – Same Requirements as Large Group (See page 13) Notification of Exchange – Same requirements as Large Group (See page 13)

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Non Discrimination - Fully-insured group health plans will have to comply with federal

nondiscrimination rules related to compensation. Currently, the State of Florida insurance regulations prohibit discrimination for groups under 50. This rule prohibits discrimination in favor of highly-compensated employees. Under ACA, these plans will have to follow rules similar to the nondiscrimination rules applicable to self-funded plans. These rules are found in Internal Revenue Code section 105(h) and require plans to pass both an eligibility test and a nondiscrimination test. A highly compensated individual for purposes of these rules is an individual who is:

One of the five highest paid officers;

A shareholder who owns more than 10 percent in value of the stock of the employer; or

One of the highest paid 25 percent of all employees (other than an employee excludable).

Waiting Period - prohibits group health plans and group health insurance issuers from applying

any waiting period that exceeds 90 days. ACA’s 90-day waiting period limit does not require an employer to offer coverage to any particular employee or class of employees, including part-time employees. It only prevents an otherwise eligible employee (or dependent) from having to wait more than 90 days before coverage under a group health plan becomes effective.

On March 21, 2013, the Departments of Labor, Health and Human Services and the Treasury (Departments) issued a proposed rule on ACA’s 90-day waiting period limit. The proposed rule would apply to plan years beginning on or after January 1, 2014.

Although the rule is not in final form, the Departments will consider compliance with the proposed rule as compliance with ACA’s 90-day waiting period limit at least through the end of 2014. To the extent a final rule or other guidance is more restrictive on plans and issuers than the proposed rule, the final rule or other guidance will not be effective prior to January 1, 2015.

Under ACA, eligibility conditions that are based solely on the lapse of time are permissible for no more than 90 days. Other conditions for eligibility are permissible under ACA as long as they are not designed to avoid compliance with the 90-day waiting period limit.

Variable Hour Employees

A special rule applies if a group health plan conditions eligibility on an employee regularly working a specified number of hours per pay period (or working full time), and it cannot be determined that a newly hired employee is reasonably expected to regularly work that number of hours per period (or work full time). In this type of situation, the plan may take a reasonable period of time to determine whether the employee meets the plan’s eligibility condition. This may include a measurement period of not more than 12 months that begins on any date between the employee’s start date and the first day of the first calendar month following the employee’s start date.

The time period for determining whether a variable hour employee meets the plan’s eligibility condition will comply with ACA’s 90-day waiting period limit if coverage is made effective no later than 13 months from the employee’s start date, except where a waiting period that

21

exceeds 90 days is imposed after the measurement period. If an employee’s start date is not the first of the month, the time period can also include the time remaining until the first day of the next calendar month.

Cumulative Service Requirement

Under the proposed rule, if a group health plan or issuer conditions eligibility on any employee’s (part-time or full-time) having completed a number of cumulative hours of service, the eligibility condition does not violate ACA’s 90-day limit on waiting periods if the cumulative hours-of-service requirement does not exceed 1,200 hours.

The proposed rule provides that the plan’s waiting period must begin once the new employee satisfies the plan’s cumulative hours-of-service requirement and may not exceed 90 days. Also, this provision is designed to be a one-time eligibility requirement. The proposed rule does not permit a plan or issuer to reapply the hours-of-service requirement to the same individual each year.

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Employees may satisfy the individual mandate by purchasing acceptable coverage through their workplace or an insurance exchange. If coverage is not purchased, the individual penalty will be imposed. This penalty is the greater of 1.0 percent of an individual’s adjusted gross income or $95 per person in 2014, 2.0 percent or $325 per person in 2015, and 2.5 percent or $695 per person in 2016. The family penalty cap is 300 percent of the individual penalty, or $2,100 by 2016. The penalty for dependent children without coverage is half the amounts listed above.

Exemptions to the mandatory coverage requirement apply if the premium for an employee’s employer-provided health coverage is more than eight percent of the employee’s modified household income. Exceptions also apply for financial hardship, individuals exempt from filing an income tax return, members of Indian tribes, illegal aliens, those with a religious opposition to healthcare and those with short term (three months or less) coverage gaps. ACA recently released transition rules that do not penalize an individual waiting to enroll in a non-calendar year plan during 2014.

To be eligible for a premium tax credit, an individual:

Must have a household income for the taxable year between 100% and 400% of the federal poverty line (FPL) for the individual’s family size;

May not be claimed as a dependent by another taxpayer; Must file a joint return, if married (regardless of personal situations – e.g. Separated); Must be a citizen / legal resident; and Ineligible for a government policy such as Medicare, Medicaid, TRICARE, CHIP, or VA.

In addition, to receive the premium assistance a taxpayer must enroll in one or more qualified health plans through an Exchange and the taxpayer cannot be eligible for minimum essential coverage through an employer’s plan. The amount of the tax credit that a person can receive is based on the premium of the second lowest cost silver plan in the exchange and area where the person is eligible to purchase coverage. (A silver plan is a plan that provides the essential benefits and has an actuarial value of 70%.) The amount of the tax credit varies with income such that the premium that a person would pay for the second lowest cost silver plan would not exceed a specific percentage of their income (adjusted for family size).

Income Level Premium as a Percentage of Income Up to 133% FPL 2% of income

133 – 150% FPL 3-4% of income

150 – 200% FPL 4 – 6.3% of income

200 – 250% FPL 6.3 – 8.05% of income

250 – 300% FPL 8.05 – 9.5% of income

300 – 400% FPL 9.5% of income

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Premium tax credits should be refundable and advanceable. A refundable tax credit is one that is available to a person even if they have no tax liability. An advanceable tax credit allows a person to receive assistance at the time they purchase insurance rather than paying their premium out of pocket and waiting to be reimbursed when filing their annual income taxes. PPACA requires exchanges to provide information to prospective enrollees about their eligibility for premium tax credits. The process through which people apply for premium tax credits will likely be established by the Secretary of Treasury through regulation. Example illustrating premium tax credits:

John Doe is a 45 year old and he has an income in 2014 that is 250% of poverty (approximately $28,735)

The cost of the second lowest cost silver plan in the Exchange in John’s area is projected to be about $5,733

Under ACA, John would not be required to pay more than 8.05% of income, or $2,313, to enroll in the second lowest cost silver plan

The tax credit available to John would be $3,420 ($5,733 premium minus the $2,313 limit on what John must pay).

Because health insurance premiums have typically grown more rapidly than income, ACA adjusts the percent of premium that people are required to pay to reflect the excess of the premium growth over the rate of income growth.

The “Family Glitch” – Under ACA, Individuals are not eligible for a subsidy if they are offered group coverage that meets the 60% MV and is deemed affordable, meaning it does not exceed 9.5% of the employee’s income. (Initially the 9.5% was to apply to household income, however it was later determined only the employee’s income was necessary.) With this change, what counts as affordable is keyed to the cost of self-only coverage offered to an individual worker, not his/her family. A typical workplace plan costs about $5,600 for an employee, but the cost of family coverage is nearly three times higher, about $15,700, according to the Kaiser Family Foundation.

If an employer does not contribute towards the coverage for dependents, some families will fall in to the “Family Glitch” where they cannot afford the group plan offered through the employer, and they are not eligible for a subsidy because the plan offered to them meets the MV and affordability test.

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Effective January 1, 2013, ACA increased the Medicare hospital insurance tax rate by 0.9 percentage points on wages over $200,000 for an individual ($250,000 for married couples filing jointly).

FILING STATUS THRESHOLD AMOUNT

Married filing jointly $250,000

Married filing separately $125,000

Single $200,000

Head of household (with qualifying person) $200,000

Qualifying widow(er) with dependent child $200,000

There is no employer portion corresponding to the amount payable by the employee. All wages that are currently subject to Medicare Tax are also subject to the additional Medicare tax, including noncash fringe benefits, tips and other noncash wages. An employer must withhold Additional Medicare Tax from wages it pays to an individual in excess of $200,000 in a calendar year, without regard to the individual’s filing status or wages paid by another employer. An individual may owe more than the amount withheld by the employer, depending on the individual’s filing status, wages, compensation and self-employment income. In that case, the individual should make estimated tax payments and/or request additional income tax withholding using Form W-4, Employee's Withholding Allowance Certificate. If an individual anticipates that they will owe Additional Medicare Tax but will not satisfy the liability through Additional Medicare Tax withholding and did not request additional income tax withholding using Form W-4, they may need to make estimated tax payments. Individuals should consider their estimated total tax liability in light of their wages, other compensation and self-employment income, and the applicable threshold for their filing status when determining whether additional estimated tax payments are necessary. For additional information regarding the payment and calculation of the Additional Medicare Tax, it is advised individuals speak with their personal tax advisor / consultant.

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The ACA calls for the creation of state-based competitive marketplaces, known as Affordable Health Insurance Exchanges (Exchanges), for individuals and small businesses to purchase private health insurance. For purposes of this section, Exchange will refer only to the Federally run marketplace. According to the Department of Health and Human Services (HHS), the Exchanges will allow for direct comparisons of private health insurance options on the basis of price, quality and other factors and will coordinate eligibility for premium tax credits and other affordability programs. ACA requires the Exchanges to become operational in 2014. Due to a number of factors, states’ progress toward developing the Exchanges has been far from uniform. There has also been uncertainty surrounding the structure of the Exchanges and the role of entities that have been traditionally involved with the insurance placement process, such as brokers and agents. Regulations allowed states to determine how they wanted to comply:

State Based Exchange - Oregon, Colorado and Maryland, plus the District of Columbia have already established Exchanges and received HHS’ conditional approval for their Exchange plans. Other states that intend to operate their own Exchanges starting in 2014 include Kentucky, New York, Connecticut, Washington, Nevada, Idaho, Utah, New Mexico, Minnesota, California, Vermont and Rhode Island. State Exchanges are fully regulated by each state under the guidelines established by the federal government.

State/Federal Partnership - These states include Iowa, Arkansas, Illinois, Michigan, West Virginia, Delaware and New Hampshire. State/Federal Partnerships leverage the Federal Exchange but the State manages the plans and determines appropriate reinsurance.

Federally Facilitated Exchange - Representing the majority of states including Florida, this version passes all administrative responsibilities to the Federal government.

Like many other components of the regulation, eligibility to participate in the Exchange varies by size and representation:

Individuals - All individuals may purchase coverage through the Exchange. Subsidization is dependent on adjusted gross income as well as the availability of acceptable coverage through an employer’s plan and/or other coverage such as Medicare, Medicaid, CHIP, TriCare or VA.

Small Employers - In Florida, employers with less than an average of 100 employees on the business days during the preceding calendar year may elect to offer coverage through the SHOP

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Exchange. Recently, the Federal Government has issued clarification that the SHOP exchanges will be single option plans in 2014.

Large Employers - Beginning in 2017, states may allow large employers to obtain coverage through an Exchange as an alternative to Private Exchanges (see below) or conventional group coverage.

A majority of states will let HHS run an Exchange for their residents starting in 2014, including Arizona, Texas, Louisiana, Wisconsin, Florida, Georgia, Ohio, Pennsylvania and others as listed below:

On April 30, 2013, HHS released three simplified and shortened versions of Exchange applications that will be used by individuals seeking to enroll in health insurance coverage through an Exchange in 2014. HHS has also included an Employer Coverage Tool that Exchanges will use to verify employer-sponsored coverage.

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The Employer Coverage Tool asks employers to provide information on their health plan’s eligibility requirements, applicable waiting periods, premium costs, whether the plan provides minimum value and whether any changes will be made to the plan for the new plan year. Employees will need this information to complete the Exchange application and to determine their eligibility for affordability programs (such as advance payment of premium tax credits, cost-sharing reductions, Medicaid and CHIP coverage).

HHS anticipates that individuals who are applying for tax credits or cost-sharing reductions will ask their employers to complete this one-page form to help the Exchange verify whether the individual is:

Enrolled in employer-sponsored coverage; or

Eligible for employer-sponsored coverage that meets the affordability and minimum value standards.

This is significant as ACA’s shared responsibility penalty for large employers is triggered when a full-time employee receives a premium tax credit or cost-sharing reduction for coverage under an Exchange. Employees who are enrolled in employer-sponsored coverage or eligible for employer-sponsored coverage that meets the affordability and minimum value standards are not eligible for the premium tax credit or cost-sharing reductions.

In order to determine an employee’s eligibility for premium tax credits or cost-sharing reductions, and an employer's potential liability for pay or play penalties, it is important that the Exchange has accurate and complete information regarding the employer’s health coverage.

Employers should familiarize themselves with the information requested on the Employer Coverage Tool. In addition, employers may want to download the final template from an Exchange website and pre-populate it with information about their health coverage and consider providing it with the notice to all employees regarding Exchanges by October 1, 2013.

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The Exchanges will perform a variety of functions, including:

Certifying health plans as qualified health plans (QHPs) to be offered in the Exchange; Operating a website to facilitate comparisons among QHPs for consumers; Operating a toll-free hotline for consumer support, providing grant funding to entities called

“Navigators” for consumer assistance and conducting consumer outreach and education; Determining eligibility of consumers for enrollment in QHPs and for insurance affordability

programs (such as premium tax credits, Medicaid and CHIP state-established basic health plans); and

Facilitating the enrollment of consumers in QHPs. States have flexibility in determining the design of their Exchanges. For example, states may decide whether their Exchanges will be operated by a non-profit organization or a public agency. States may also select the number and type of health plans available in their Exchanges and may determine some of the standards for QHPs, including the definition of required essential health benefits. In addition, states have flexibility to determine a role for agents and brokers, including the use of online brokers, in connection with the Exchanges.

While ACA’s state-based Exchanges are scheduled to be effective in 2014, some private health insurance exchanges targeted at employers are already operational. As a growing trend, these private exchanges create a marketplace for employees to compare options and shop for coverage. At the same time, they allow private health care companies to market their products at a single location to clients throughout the country. Some employers may use the private exchanges to offer employees a defined contribution model of purchasing health coverage. Under this model, employers provide employees with a lump sum amount and direct them to an exchange where they can select a health plan from a large array of options.

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