0 PPACA: What’s in Store for 2013 and Beyond Friday, October Employment Law Summit PW SHRM Presented by Brian Neary Mark Holloway Lockton Companies, LLC

1 No lifetime maximum dollar limits on essential health benefits Children eligible to age 26 No preexisting condition restriction for enrollees under age 19 OTC medication not eligible for FSA or HRA reimbursement without a prescription No lifetime maximum dollar limits on essential health benefits Children eligible to age 26 No preexisting condition restriction for enrollees under age 19 OTC medication not eligible for FSA or HRA reimbursement without a prescription Individual Mandate Free-rider surcharge Health Insurance Exchanges for Individual and Small Group Market No annual dollar limits on essential health benefits Waiting periods limited to 90 days Automatic enrollment (deferred) No preexisting condition restriction for any enrollee Individual Mandate Free-rider surcharge Health Insurance Exchanges for Individual and Small Group Market No annual dollar limits on essential health benefits Waiting periods limited to 90 days Automatic enrollment (deferred) No preexisting condition restriction for any enrollee Health FSA benefits capped at $2,500. Taxes on high wage earners Elimination of deductibility of Medicare Part D subsidies Excise tax on medical device manufacturers Health FSA benefits capped at $2,500. Taxes on high wage earners Elimination of deductibility of Medicare Part D subsidies Excise tax on medical device manufacturers 2014 Health Reform Impact Timeline Cadillac Tax Summary of Benefits Coverage Medical Loss Ratio Refunds. W-2 Reporting of Health Coverage Comparative Effectiveness Research Fees HCR Preventive Care Benefits Summary of Benefits Coverage Medical Loss Ratio Refunds. W-2 Reporting of Health Coverage Comparative Effectiveness Research Fees HCR Preventive Care Benefits

What’s New?

3  Supreme Court upheld the law and the individual mandate (5-4)  States will need to decide whether to expand Medicaid coverage  Now the dust has settled and regulators are turning the crank on critical issues for 2014  How to determine who is a full-time employee (guidance issued last month)  Guidance still needed on many critical issues  And the clock is ticking  Practical issue: will the State exchanges be ready for 2014? filepath... SCOTUS Decision

4 Summaries of Benefits and Coverage (SBCs)  Summary of Benefits Coverage  Plans must distribute “plain English” summary in a standard format of no more than four double-sided pages, 12-pt font  Up to a $1,000 fine, per violation, for failure to meet requirements  Applies with first open enrollment beginning on or after 9/23/2012  New guidance allows electronic distribution for current enrollees if plan uses on-line enrollment  Good news!  Accelerated notice of midyear plan changes

5 Preventive Care Benefits (Non-GF Plans)  Wide variety of well-woman care, including contraception  Plan years beginning on or after August 1, 2012  Obesity screening and counseling (if BMI > 30)  Plan years beginning on or after July 1, 2013  About 30% of population qualifies as obese  Cover 12 – 26 weight management sessions for first year  But no requirement to cover surgery or drugs for weight loss

Cost Impact of “Pay or Play”

7 Employer “Play or Pay” (a.k.a. Free Rider Surcharge) QUICK REVIEW  Applies in 2014  Applies to employers with at least 50 full- time equivalent employees in the “controlled group”  Controlled group = 80% common ownership

8 Employer “Play or Pay” Full-time employees & dependants Qualifying Coverage Affordable Cost The Employer’s “Play or Pay” Puzzle  Offer…  Full-time employees (and their dependents)…  FTE = 30+ hours per week  Qualifying coverage…  “Minimal essential coverage” that satisfies a “minimum value” requirement  At an affordable cost  Not more than 9.5% of W-2 pay  …or risk penalties…

9 Financial Impact of Law Will Vary IssueOKPossible Problems Major Problems Current Eligibility=30 hoursYesNo but not many PT workers No and a large PT work force Types of PlansTraditionalLimited Medical Employer SubsidyHighLow to mod and low paid work force Low Current Participation RateHighLow Wage SpectrumHighLow Regular vs. Seasonal WorkersRegularSeasonal Employer CultureDo they need a plan to attract and retain? Financial savings of greater value? How does Play or Pay impact their employees? What will their peer group do?

10 Employer “Play or Pay” EMPLOYER’S OTHER OPTIONS:  Drop all coverage for all companies in corporate family tree (controlled group)  PAY: $2,000 annual nondeductible penalty x (all FTEs – 30)

11 Employer “Play or Pay” EMPLOYER’S OTHER OPTIONS:  Controlled group offers coverage to all FTEs, but it’s not qualifying and/or affordable to some:  Pay $3,000 annual nondeductible penalty for each such FTE who obtains subsidized, Exchange-based coverage

12 Employer “Play or Pay” EMPLOYER’S OTHER OPTIONS:  Controlled group offers coverage to some but not substantially all FTEs:  Penalty not yet clear; IRS is considering this, but may be leaning toward assessing the $2,000 penalty x all FTEs  The “nuclear option”

13 Employer “Play or Pay” GOOD NEWS!  How to determine “FTEs”  Average employee’s hours over a “look back period” of up to 12 months  Would save the bacon of seasonal employers  Would help employers with fluctuating work hours  Would help, to some extent, “vulnerable” non-seasonal employers  Details still to be ironed out

Actuarial Modeling and Strategies for 2014

15 Actuarial Modeling by Industry GENERAL CONCLUSIONS:  Most employers can continue to offer coverage with minimal cost impact due to play-or-pay  Most employers could save a lot by terminating group coverage and allowing employees to find coverage in the insurance exchanges  Most employees begin to “lose” when shopping in the exchanges, once household income reaches 2x federal poverty level

16 Strategies to Mitigate Costs – The Art of Fine Tuning Dual Option Input Controlled Group Input Wellness Surcharges Min. Essential Coverage

17 Strategies to Mitigate Costs  Restructure work force  Could raise eyebrows with DOL  Can it be done in your business?  Cost increase to job share  Offer all FTEs current plans plus a 60% plan that is affordable  Eliminates worry over penalties  Still a cost increase (may be more expensive than the Pay option depending on the # who enroll and the PEPY net cost)  Keeps lower paid “winners” from getting subsidized coverage in Exchange so is it the right thing to do?  Help mitigate effect of auto-enrollment

18 Strategies to Mitigate Costs (cont.)  Offer all FTEs current plans plus a “minimum essential plan” that costs less than the Exchange subsidized premium  Plan will have to be very “skinny”  Could still be cost increase to plan but less than penalty  How many Ees will buy this coverage? How many Ees will still go to Exchange?  Offer coverage to all or substantially all FTEs, but do not worry about making it affordable  Some employees for whom it is unaffordable will not seek subsidized coverage in an exchange  For those that do, it might be cheaper for the employer to pay the penalty than to subsidize the coverage

19 Predictions: 2014 and Beyond  Most employers will continue to provide medical coverage to their full-time employees  With possible exception of retail/restaurant/hospitality  But things could change if there is a weak job market coupled with robust state exchanges  State exchanges will be off to a rocky start in 2014  Unclear if they will become robust in future years  Pre-65 retiree medical will be extinct soon after exchanges go on-line

20 Any Questions? Mark C. Holloway, Senior Vice President Lockton Benefit Group  Brian Neary Vice President Lockton Companies, LLC 