Small Business ACA Seminar:

Health Care Reform: “Pay or Play”?

“What Here Applies to ME?”

These slides are for educational purposes only and are not intended, and should not be relied upon, as tax or legal advice. Recipients of this document should

seek advice based on their particular circumstances from an independent health insurance broker, tax advisor or legal counsel.

The “Small Business ACA Seminar: - 05/15/2013 © 2013 - B2B CFO® - All Rights Reserved.

By: Jim Merski, B2B CFO®

Patient Protection and Affordable Care Act

President Obama signing the Patient Protection & Affordable CareAct (the “ACA”) on March 23, 2010.

The ACA has stated two main goals: 1. Expansion of Health Ins via

Exchanges/Marketplace 2. Implement Cost Control Measures

Goals of this ACA Presentation:

1. Make the ACA more “Understandable & Practical” to the Small Business Owner.

2. Define: “What Decisions Do You Need to Make” for your Employees & Business re: the ACA.

3. Determine the provisions of the ACA that will impact your business.

4. Provide you some information and tools needed to make appropriate decisions.

The Individual Mandate• Individuals must obtain “Minimum Essential

Coverage” or pay Tax (See Individual Tax Chart) • Coverage can be with:

– Employer– An individual Qualified Health Plan– Government Plan (Medicare, Medicaid or Tricare)

• If any individual does NOT obtain Minimum Essential Coverage they pay a Tax/Penalty.

YEAR Flat Tax Penalty % of Income Tax Penalty

2014 $95 1.0%

2015 $325 2.0%

2016 + $695 (indexed) 2.5%

ACA ER Mandates Vary Widely

The ACA will impact businesses differently; Three Key ACA Drivers are:

1. Number of Employees (“EEs”) in Business.

2. Average salary per EE

3. Was Health Ins Plan in place at 03/23/2010?

Decision Process

1. SET YOUR VISION!

Examine Pay or Play Criteria. Do You Need a Plan?

2 EVALUATE THE

FINANCIAL /NON FINANCIAL

FACTORS. (# of EEs, Plan

Benefits, EE Needs)

3. DEVELOP & TEST POSSIBLE

OPTIONS. (Financial and

Strategic Impact)

4. REDESIGN & EVAL PLAN.

Does the new plan meet the vision?

Where do I think I am and Where do I want to end up?

Number of Employees(EEs)

Series of General Provisions that apply to all Employer (ER) Sponsored Health Plans--Regardless of No. ofEEs.(See Separate page for list.)

10 or Less

No Pay or PlayTax Credits arepossible

11 to 24

No Pay or PlayTax Credits may bepossible depending on# ofEEs and Ave. Salary

25 to 49

No Pay or PlayNo tax Creditsavailable due to # ofEEs

50 to 100

Enforced PAY OR PLAYCoverage must be Affordable,ProvideMEC and Sustainable for allEEs OR-- PAY ER TaxSHOP Exchange/ Marketplace: 2016Small Group 2016 must haveEHBs

101 to 249

Enforced PAY OR PLAYSHOP Exchange/Marketplace: 2017Auto EnrollEEsEHB Not Required

250 or More

Enforced PAY OR PLAYReportHC Cost onW-2sEHB Not Required

Credits for 2010-2013 are up to 35% (For Profit Corps) & up to 25% for Not-for-Profit Companies.

“PAY OR PLAY”The ACA originally targeted 10/1/2013, as the start date for Individuals and small businesses to obtain Health Insurance in the new “Health Insurance Marketplace” also called Healthcare Exchanges. (See Healthcare.gov) On 4/1/2013, the Health & Human Services announced a delay in the full implementation of the SHOP Exchanges until 1/1/2015. In 2014 ERs can only offer one plan for enrollment thru the SHOP Exchange

The Solution: The ACA Made Easy….

10 (or less) Employees:Tax Credits: for Health Ins Premiums Paid

YES

YES

Special "Grandfathered"provisions apply, allowing yourCompany's Plan to be exempt

from certain requirements and canmake routine health plan changes.See list of Health Plan Changes.

Was the Plan inplace prior to03/23/2010?

Does Companyhave an existingHealth Ins. Plan?

Startfor Less than 10EEs

NONo Requirement for

Company to Institute aHealth Insurance Plan

NONONo Tax Credit

AvailableAre Ave. Wagesper EE < $50 K?

Renewal Plan mustcomply with the

General Provisions ofthe ACA.

YES

Yes

Eligible for a Tax Credit of 35%of Health Insurance Premiums

(For Profit) or 25%NFP foryears 2010-2013. In 2014 and

beyond, Tax Credit may be 50%.

Are the Ave.Wages per EE <

$25 K?

Eligible for a Sliding ScalePartial Tax Credit of up to35% (25%NFP) of Health

Insurance Premiums.

"Grandfathered' Plans are eligible(Subject to the Additional

constraint of Ave. Wages per EE)for Tax Credit with adjustment to

both # ofEEs and Ave. Wages.

YES

YES

Special "Grandfathered"provisions apply, allowing yourCompany's Plan to be exempt

from certain requirements and canmake routine health plan changes.See list of Health Plan Changes.

Was the Plan inplace prior to03/23/2010?

Does Companyhave an existingHealth Ins. Plan?

Startfor 11 to 24EEs

NONo Requirement for

Company to Institute aHealth Insurance Plan

NONONo Tax Credit

AvailableAre Ave. Wagesper EE < $50 K?

Renewal Plan mustcomply with the

General Provisions ofthe ACA.

YES

Yes

Eligible for a Tax Credit of 35%of Health Insurance Premiums

(For Profit) or 25%NFP foryears 2010-2013. In 2014 and

beyond, Tax Credit may be 50%.

Are the Ave.Wages per EE <

$25 K?

Eligible for a Sliding ScalePartial Tax Credit of up to35% (25%NFP) of Health

Insurance Premiums.

11 To 24 Employees:Tax Credits: On A Sliding Scale

What Small Businesses “Need to Know”Tax credits:

– Up to 35% of Health Ins Prems to qualified small ERs (25 % for NFP ERs) for years: 2010 to 2013.

– 2014 & 2015: 50% tax credit (35% for NFP ERs). NOTE: Only available in SHOP Exchange Insurance

Tax credits are limited by: (1) Number of EEs (not more than 24) & Avg Sal/EE (not more than $50K). See Tax Credit Example on the next slide.

Tax Credit Example

Tax Credit Calculation: ABC, LLC (2014):ABC is a for-profit company has 16 EEs; EEs have average salary of $35K per year.

Maximum Amount of Premium Credit in 2014: 50.0%

Less: Reduction for 6 EEs > Max # of EEs (19.9%)Reduction for Avg Salary > $25K (20.0%)

Recalculated % of the Health Ins Premium Credit 9.90%Rounded % of the Recalculated % Premium Credit 10.00%

Health Ins Premium (Avg Prem is $300/EE/Month) paid by ABC Company: $ 57,600 Recalculated % of the of Premium Credit 10.0%

$ 5,760

YES

YES

Special"Grandfathered"

provisions apply, Seelist of ACA Exemptions.

Was the Health Ins.Plan in place prior

to 03.23.2010?

Does Companyhave an existingHealth Ins. Plan?

Start25 to 49EEs

NO

No ACA Requirement forCompany to start a Health

Insurance Plan. ACA "Pay orPlay" rule does NOT apply.

NO

Health Ins. Plan mustcomply with certain generalprovisions of the ACA. NoER Tax Credits (too many

EEs)

25 To 49 Employees(Tax Credits Not Available, but No “Pay or Play”)

Benefits of a “Grandfathered” Health Plan

Grandfathered Health Plans (in effect on 03/23/210):

Grandfathered Plan are Exempt from:

1. Offering the Essential Benefit Package starting in 2014;

2. Eliminating cost-sharing for preventive services (this year);

3. Reporting on Quality Improvement activities; and

4. Guaranteed access to Emergency, Pediatric & OB-GYN services.

However, Grandfathered Plans Must:

5. Allow adult children on parent’s plan until age 26;

6. Ban Lifetime $ Limits, Rescissions & Waiting Period > 90 days

7. Spend > 80% on Medical Exps (Small Groups); 85% (Large Groups)

To Keep Grandfathered Status, Employer Health Plans Shall Not…

1. Significantly cut benefits to diagnose or treat a particular condition.

2. Increase Cost-sharing (coinsurance) by more than a certain %

3. Increase in a deductible or out-of-pocket maximum by > Medical inflation plus 15%

4. Increase a copayment by > Medical inflation plus 15%

5. Decrease Employer’s contribution to coverage by > than 5%.

6. Imposition of annual limits on the dollar value of all benefits below specified amounts.

ERs with less than 50 EEs: “Pay or Play” Does Not Apply

ERs with less than 50 EEs have more Choices:

1. Not required under the ACA to provide a Health Ins Plan for EEs, but may want to.

2. If Health Plan is in place Must Comply with parts of the ACA

3. May be eligible tax credits: 2010 - 2013 & beyond. (See Glossary for info on Tax Credit Calculator).

The ACA Employer Mandate: Only Applies to

LARGE EMPLOYERS: (> 50 EEs)

Key Driver: Number of Employees. Large ER: > 50 EEs –vs- Small ER < 50 EEs

1. ERs with > 50 EEs are subject to “Pay or Play”

2. ERs with > 100 EEs: SHOP Exchange /Marketplace: 2017; ERs with 50-100 EEs will have access to SHOP in 2016

3. ERs with > 200 EEs: Auto-enroll new EEs

4. ERs with > 250 EEs: Report $ of Health Care (ER + EE costs) Benefit on W-2s

Jan 2014: A Major Decision Point

ERs > 50 FTEEs* must Decide: Do I “Pay or Play?”

Large ERs have 2 Choices, either Provide:

1. Health Plan: Affordable*, provides all EHBs* & meet Min Essential Coverage* (MEC) to Substantially All* (95%) of EEs (* Terms Defined

in Glossary), --OR--

2. Pay the ER Health Ins Penalty/Tax (Non-Deductible)

YES

Is the HealthPlan a "Self

Insured" Plan?

Special "GrandFathered"provisions apply. See List of

ACA Exemptions. Mustapply the General Provisions

of the ACA.

Was the HealthPlan put in place

prior to 3.23.2013?

YES

Does your Companyhave an Existing

Health Plan?

Start 50 to 99EEs

NO

With 50+EEs,"PAY OR PLAY"

rules Apply..

ERs may choose to buyInsurance on Health

Exchange (Market Place)

YES

Your Health Plan must meetor exceed ACA Provisions.

See Schedule X for details ofcriteria. Seek assistance from

a Plan Consultant.

Will your companyoffer "Affordable"and "Adequate"Health Coverage?

NO

Does any (even one)EE turn to theExchange forCoverage?

NONo PenaltyCalculated

YES

PAY1/1/2014 Penalty

(TAX) $2,000 for eachEE over first 30EEs.

NO

YES

NO

>50 EEs: “Pay or Play”

Strategic Decisions @ 1/1/2014

Large ERs: What’s the Cost of “Paying vs. Playing?”

Decision Criteria:

1. What is the new cost of providing a compliant Health Ins Plan? (Limited SHOP Exchange/Marketplace in PA during 2014)

2. What’s the cost of paying the Health Ins Penalty? (Penalties are non-deductible for tax purposes.)

3. What could be the impact on my business of “Paying” vs “Playing”: $ Cost and Key Employees

What Businesses Need to Know

Effective by January 1, 2014

–A $2,000 per EE Penalty imposed on ERs > 50 EEs without health ins to full-time EEs (1st 30 EEs - No Penalty).

–A $3,000 per “subsidized” EE Penalty is imposed if ER’s Health Plan is not: “Affordable” for EE, or does not have “MECs”. (Note: This penalty is per Subsidized EE and does not apply to all EEs)

Major Decision Point: Jan 1, 2014

ERs < 50 EEs: “Pay or Play” Does Not Apply

ERs with less than 50 EEs have more Choices:

1. Not required under the PPACA to provide a Health Ins Plan for EEs, but may want to.

2. If Health Plan is in place Must Comply with parts of the ACA

3. May be eligible tax credits: 2010 - 2013 & beyond. (See Glossary for info on Tax Credit Calculator).

PPACA: Glossary of Terms & Supplemental Information

See handouts in your packet for this additional information.

The world of Health Care Reform will continue to have changes.

Stay Tuned.

QUESTIONS?

Some Important Dates

• Effective September 23, 2010– Children remain on Parent’s Plan to Age 26

– No More “Pre-Existing” Conditions

– Insurers are prohibited from dropping policyholders when they get sick

– All new insurance plans must cover preventive care and medical screenings (New Emphasis on Wellness / Preventive Programs.)

• Effective January 1, 2011– Ins Companies must rebate $ if MLR (paid medical exps)

is < 80% individual plans or <85% large group plans

– Flexible Spending Accounts, Health Reimbursement Accounts & Health Savings Accounts can’t be used to pay for OTC drugs, except insulin.

– Ins Companies subject to “Rate Review”. They must inform public when they want to increase health ins rates for individual/small groups by 10% or more.

Important Dates

• Effective January 1, 2012– Employers must disclose the value (ERs + EEs) of

the benefits they provided beginning in 2012 for each employee's health insurance coverage on the employee's annual Form W-2's.

– Reporting is not required for any employer that was required to file fewer than 250 Forms W-2 in the preceding calendar year.

Important Dates

• Effective January 1, 2013– Individuals earning >$200,000 (from self-employment

and wages) now subject to an additional tax of 0.9%

– Additional Medicare tax of 3.8% will apply to unearned income, specifically the lesser of net investment income or the amount by which adjusted gross income exceeds $200,000 ($250,000 for a married couple filing jointly; $125,000 for a married person filing separately.)[

What Dates are Important?

• Effective by January 1, 2014– Individual Mandate: Persons not covered by an

acceptable insurance policy will be charged Greater Of: (1) An annual penalty of $95, or (2) Up to 1% of income over the filing minimum,

– Medicaid eligibility is expanded (in participating states). Individuals with income up to 133% of the poverty line qualify for MA coverage (Include adults without dependent

children).PA has chosen NOT to participate in MA Expansion as of May 2013.