1. PPACA Pay or Play? Brett S. Morris, Fox Everett Inc. 1

3. Pay or Play Buy insurance or play the penalty? 3

4. Pay Tax vs. Provide Coverage? Penalty applies to every full-time employee (after the first 30). If no coverage is offered Penalty is avoided by offering affordable coverage with minimum value, even if employee declines. Cost of coverage applies only to those who take it.

5. Example Assumptions Percentage of EE's Covered 75% EE Share of EE Only Cost 25% EE Share of Dependent Cost60%

6. Example – Cost of Health Plan Group Plan ER & EE Total Annual Cost Employee Only 3,900.00 Employee & Spouse8,700.00 Employee & Child8,300.00 Family11,940.00 Assumptions Percentage of EE's Covered 75% EE Share of EE Only Cost 25% EE Share of Dependent Cost60%

7. Example – Cost of Health Plan Group Plan ER & EE Total Annual Cost EE Part of Annual Cost Employee Only 3,900.00 975.00 Employee & Spouse8,700.00 3,855.00 Employee & Child8,300.00 3,615.00 Family11,940.00 5,799.00 Assumptions Percentage of EE's Covered 75% EE Share of EE Only Cost 25% EE Share of Dependent Cost60%

8. Example – Cost of Health Plan Group Plan ER & EE Total Annual Cost EE Part of Annual Cost ER Part of Annual Cost Employee Only 3,900.00 975.002,925.00 Employee & Spouse8,700.00 3,855.004,845.00 Employee & Child8,300.00 3,615.004,685.00 Family11,940.00 5,799.006,141.00 Assumptions Percentage of EE's Covered 75% EE Share of EE Only Cost 25% EE Share of Dependent Cost60%

9. Example 1 – Cost of Health Plan Group Plan ER Part of Annual Cost EE #Totals Employee Only 2,925.00 164 479,700.00 Employee & Spouse 4,845.00 66 319,770.00 Employee & Child 4,685.00 47 220,195.00 Family 6,141.00 98 601,818.00 Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500

10. Example 1 – Cost of Health Plan Group Plan ER Part of Annual Cost EE #Totals Employee Only 2,925.00 164 479,700.00 Employee & Spouse 4,845.00 66 319,770.00 Employee & Child 4,685.00 47 220,195.00 Family 6,141.00 98 601,818.00 Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 Value of Tax Deduction @ 35% (567,519.05)

11. Example 1 – Cost of Health Plan Group Plan ER Part of Annual Cost EE #Totals Employee Only 2,925.00 164 479,700.00 Employee & Spouse 4,845.00 66 319,770.00 Employee & Child 4,685.00 47 220,195.00 Family 6,141.00 98 601,818.00 Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 Value of Tax Deduction @ 35% (567,519.05) §125 Plan Payroll Tax Savings (88,169.08)

12. Example 1 – Cost of Health Plan Group Plan ER Part of Annual Cost EE #Totals Employee Only 2,925.00 164 479,700.00 Employee & Spouse 4,845.00 66 319,770.00 Employee & Child 4,685.00 47 220,195.00 Family 6,141.00 98 601,818.00 Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 Value of Tax Deduction @ 35% (567,519.05) §125 Plan Payroll Tax Savings (88,169.08) After Tax Cost 965,794.87

13. Example 1 – Cost of No Plan Group Plan ER Part of Annual Cost EE #Totals Free Rider Penalty Employee Only 2,925.00 164 479,700.00 Employee & Spouse 4,845.00 66 319,770.00 Employee & Child 4,685.00 47 220,195.00 Family 6,141.00 98 601,818.00 Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 Value of Tax Deduction @ 35% (567,519.05) §125 Plan Payroll Tax Savings (88,169.08) After Tax Cost 965,794.87

14. Example 1 – Cost of No Plan Group Plan ER Part of Annual Cost EE #Totals Free Rider Penalty Employee Only 2,925.00 164 479,700.00 Employee & Spouse 4,845.00 66 319,770.00 Employee & Child 4,685.00 47 220,195.00 Family 6,141.00 98 601,818.00 Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (567,519.05) §125 Plan Payroll Tax Savings (88,169.08) After Tax Cost 965,794.87

15. Example 1 – Cost of No Plan Group Plan ER Part of Annual Cost EE #Totals Free Rider Penalty Employee Only 2,925.00 164 479,700.00 Employee & Spouse 4,845.00 66 319,770.00 Employee & Child 4,685.00 47 220,195.00 Family 6,141.00 98 601,818.00 Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (567,519.05)0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 965,794.87

16. Example 1 – Cost of No Plan Group Plan ER Part of Annual Cost EE #Totals Free Rider Penalty Employee Only 2,925.00 164 479,700.00 Employee & Spouse 4,845.00 66 319,770.00 Employee & Child 4,685.00 47 220,195.00 Family 6,141.00 98 601,818.00 Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (567,519.05)0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 965,794.87940,000.00

17. Example 1 – Cost of No Plan Group Plan ER Part of Annual Cost EE #Totals Free Rider Penalty Employee Only 2,925.00 164 479,700.00 Employee & Spouse 4,845.00 66 319,770.00 Employee & Child 4,685.00 47 220,195.00 Family 6,141.00 98 601,818.00 Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (567,519.05)0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 965,794.87940,000.00 Savings (25,794.87)

18. Example 1 – Effect on High Income Employee Employee Only Annual EE Portion of Group Plan Cost975.00

19. Example 1 – Effect on High Income Employee Employee Only Annual EE Portion of Group Plan Cost975.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.66

20. Example 1 – Effect on High Income Employee Employee Only Annual EE Portion of Group Plan Cost975.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.66 Estimated Annual Individual Policy Cost5,850.00

21. Example 1 – Effect on High Income Employee Employee Only Annual EE Portion of Group Plan Cost975.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.66 Estimated Annual Individual Policy Cost5,850.00 Additional After-Tax Cost to EE5,271.34

22. Example 1 – Effect on High Income Employee Employee Only Annual EE Portion of Group Plan Cost975.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.66 Estimated Annual Individual Policy Cost5,850.00 Additional After-Tax Cost to EE5,271.34 Additional Cost to EE With Tax Gross-Up8,881.78

23. Example 1 – Effect on High Income Employee Employee Only Employee & Spouse Employee & ChildFamily Annual EE Portion of Group Plan Cost975.003,855.003,615.005,799.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.662,287.942,145.503,441.71 Estimated Annual Individual Policy Cost5,850.0010,800.009,000.0013,800.00 Additional After-Tax Cost to EE5,271.348,512.066,854.5010,358.29 Additional Cost to EE With Tax Gross-Up8,881.7814,342.1411,549.2817,452.90

24. Example 1 – Effect on High Income Employee Employee Only Employee & Spouse Employee & ChildFamilyTotal Annual EE Portion of Group Plan Cost975.003,855.003,615.005,799.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.662,287.942,145.503,441.71 Estimated Annual Individual Policy Cost5,850.0010,800.009,000.0013,800.00 Additional After-Tax Cost to EE5,271.348,512.066,854.5010,358.29 Additional Cost to EE With Tax Gross-Up8,881.7814,342.1411,549.2817,452.90 EE's Earning over 400% of FPL22961350

25. Example 1 – Effect on High Income Employee Employee Only Employee & Spouse Employee & ChildFamilyTotal Annual EE Portion of Group Plan Cost975.003,855.003,615.005,799.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.662,287.942,145.503,441.71 Estimated Annual Individual Policy Cost5,850.0010,800.009,000.0013,800.00 Additional After-Tax Cost to EE5,271.348,512.066,854.5010,358.29 Additional Cost to EE With Tax Gross-Up8,881.7814,342.1411,549.2817,452.90 EE's Earning over 400% of FPL22961350 Total Added EE Cost with Gross-Up195,399.20129,079.2269,295.68226,887.64620,661.74

26. Example 1 – Effect on High Income Employee Employee Only Employee & Spouse Employee & ChildFamilyTotal Annual EE Portion of Group Plan Cost975.003,855.003,615.005,799.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.662,287.942,145.503,441.71 Estimated Annual Individual Policy Cost5,850.0010,800.009,000.0013,800.00 Additional After-Tax Cost to EE5,271.348,512.066,854.5010,358.29 Additional Cost to EE With Tax Gross-Up8,881.7814,342.1411,549.2817,452.90 EE's Earning over 400% of FPL22961350 Total Added EE Cost with Gross-Up195,399.20129,079.2269,295.68226,887.64620,661.74 Savings Used to Cover Added EE Cost 8,120.845,364.572,879.959,429.5125,794.87

27. Example 1 – Effect on High Income Employee Employee Only Employee & Spouse Employee & ChildFamilyTotal Annual EE Portion of Group Plan Cost975.003,855.003,615.005,799.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.662,287.942,145.503,441.71 Estimated Annual Individual Policy Cost5,850.0010,800.009,000.0013,800.00 Additional After-Tax Cost to EE5,271.348,512.066,854.5010,358.29 Additional Cost to EE With Tax Gross-Up8,881.7814,342.1411,549.2817,452.90 EE's Earning over 400% of FPL22961350 Total Added EE Cost with Gross-Up195,399.20129,079.2269,295.68226,887.64620,661.74 Savings Used to Cover Added EE Cost 8,120.845,364.572,879.959,429.5125,794.87 Pay increase from Savings per person 369.13596.06479.99725.35

28. Example 1 – Effect on High Income Employee Employee Only Employee & Spouse Employee & ChildFamilyTotal Annual EE Portion of Group Plan Cost975.003,855.003,615.005,799.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.662,287.942,145.503,441.71 Estimated Annual Individual Policy Cost5,850.0010,800.009,000.0013,800.00 Additional After-Tax Cost to EE5,271.348,512.066,854.5010,358.29 Additional Cost to EE With Tax Gross-Up8,881.7814,342.1411,549.2817,452.90 EE's Earning over 400% of FPL22961350 Total Added EE Cost with Gross-Up195,399.20129,079.2269,295.68226,887.64620,661.74 Savings Used to Cover Added EE Cost 8,120.845,364.572,879.959,429.5125,794.87 Pay increase from Savings per person 369.13596.06479.99725.35 Additional Cost to EE not covered by Savings7,250.9411,708.689,428.6414,248.25

29. Example 1 – Cost of No Plan Group PlanEE #Totals Free Rider Penalty Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (567,519.05)0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 965,794.87940,000.00 Savings (25,794.87)

30. Example 1 – Cost of No Plan Group PlanEE #Totals Free Rider Penalty Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (567,519.05)0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 965,794.87940,000.00 Savings (25,794.87) Pay Increases for Employees Earning Over 400% of FPL 620,661.74

31. Example 1 – Cost of No Plan Group PlanEE #Totals Free Rider Penalty Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (567,519.05)0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 965,794.87940,000.00 Savings (25,794.87) Pay Increases for Employees Earning Over 400% of FPL 620,661.74 Added Employer Payroll Tax 47,480.62

32. Example 1 – Cost of No Plan Group PlanEE #Totals Free Rider Penalty Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (567,519.05)0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 965,794.87940,000.00 Savings (25,794.87) Pay Increases for Employees Earning Over 400% of FPL 620,661.74 Added Employer Payroll Tax 47,480.62 Value of Tax Deduction @ 35% (233,849.83)

33. Example 1 – Cost of No Plan Group PlanEE #Totals Free Rider Penalty Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (567,519.05)0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 965,794.87940,000.00 Savings (25,794.87) Pay Increases for Employees Earning Over 400% of FPL 620,661.74 Added Employer Payroll Tax 47,480.62 Value of Tax Deduction @ 35% (233,849.83) Net Additional Cost 408,497.67

34. Example 1 – Cost of No Plan Group PlanEE #Totals Free Rider Penalty Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (567,519.05)0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 965,794.87940,000.00 Savings (25,794.87) Pay Increases for Employees Earning Over 400% of FPL 620,661.74 Added Employer Payroll Tax 47,480.62 Value of Tax Deduction @ 35% (233,849.83) Net Additional Cost 408,497.67 Total Cost 965,794.87 1,374,292.54

35. Consequences of Gross-Up Pay Additional employer payroll tax Additional retirement plan costs – Profit sharing – 401(k) match – Pension accruals Additional life insurance costs

36. Example 2 – Non-Profit Employer Group Plan ER Part of Annual Cost EE #Totals Free Rider Penalty Employee Only 2,925.00 164 479,700.00 Employee & Spouse 4,845.00 66 319,770.00 Employee & Child 4,685.00 47 220,195.00 Family 6,141.00 98 601,818.00 Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% 0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 1,533,313.92940,000.00 Savings (593,613.92)

37. Example 2 – Non-Profit Employer Employee Only Employee & Spouse Employee & ChildFamilyTotal Annual EE Portion of Group Plan Cost975.003,855.003,615.005,799.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.662,287.942,145.503,441.71 Estimated Annual Individual Policy Cost5,850.0010,800.009,000.0013,800.00 Additional After-Tax Cost to EE5,271.348,512.066,854.5010,358.29 Additional Cost to EE With Tax Gross-Up8,881.7814,342.1411,549.2817,452.90 EE's Earning over 400% of FPL22961350 Total Added EE Cost with Gross-Up195,399.20129,079.2269,295.68226,887.64620,661.74 Savings Used to Cover Added EE Cost 186,789.45123,391.6966,242.35216,890.44593,313.92 Pay increase from Savings per person 8,490.4313,710.1911,040.3916,683.88 Additional Cost to EE not covered by Savings 391.35631.95508.89769.022,301.20

38. Example 2 – Non-Profit Employer Group PlanEE #Totals Free Rider Penalty Total Pre-Tax Cost375 1,621,483.00 Full Time Employees500 1,000,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% 0.00 §125 Plan Payroll Tax Savings (88,169.08) 0.00 After Tax Cost 1,533,313.92940,000.00 Savings (593,613.92) Pay Increases for Employees Earning Over 400% of FPL 620,661.74 Added Employer Payroll Tax 47,480.62 Value of Tax Deduction @ 35% 0.00 Net Additional Cost 74,828.44 Total Cost 1,533,313.921,608,142.36

39. Example 3 – 100 Employees Group Plan ER Part of Annual Cost EE #Totals Free Rider Penalty Employee Only 2,925.00 2573,125.00 Employee & Spouse 4,845.00 524,225.00 Employee & Child 4,685.00 1570,275.00 Family 6,141.00 1592,115.00 Total Pre-Tax Cost 60259,740.00 Full Time Employees100 200,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (90,909.00) 0.00 §125 Plan Payroll Tax Savings (14,141.79) 0.00 After Tax Cost 154,689.21 140,000.00 Savings (14,689.21)

40. Example 3 – 100 Employees Employee Only Employee & Spouse Employee & ChildFamilyTotal Annual EE Portion of Group Plan Cost 975.003,855.003,615.005,799.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.662,287.942,145.503,441.71 Estimated Annual Individual Policy Cost 5,850.0010,800.009,000.0013,800.00 Additional After-Tax Cost to EE 5,271.348,512.066,854.5010,358.29 Additional Cost to EE With Tax Gross-Up 8,881.7814,342.1411,549.2817,452.90 EE's Earning over 400% of FPL 421310 Total Added EE Cost with Gross-Up 35,527.1328,684.2711,549.2852,358.69128,119.36 Savings Used to Cover Added EE Cost 4,073.283,288.721,324.156,003.0614,689.21 Pay increase from Savings per person 1,018.321,644.361,324.152,001.02 Additional Cost to EE not covered by Savings 7,863.4612,697.7710,225.1315,451.8846,238.24

41. Example 3 – 100 Employees Group PlanEE #Totals Free Rider Penalty Total Pre-Tax Cost 60259,740.00 Full Time Employees100 200,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (90,909.00) 0.00 §125 Plan Payroll Tax Savings (14,141.79) 0.00 After Tax Cost 154,689.21 140,000.00 Savings (14,689.21) Pay Increases for Employees Earning Over 400% of FPL 128,119.36 Added Employer Payroll Tax 9,801.13 Value of Tax Deduction @ 35% (48,272.17) Net Additional Cost 74,959.11 Total Cost 154,689.21229,648.32

42. Example 4 – 60 Employees Group Plan ER Part of Annual Cost EE #Totals Free Rider Penalty Employee Only 2,925.00 1646,800.00 Employee & Spouse 4,845.00 629,070.00 Employee & Child 4,685.00 523,425.00 Family 6,141.00 955,269.00 Total Pre-Tax Cost 36154,564.00 Full Time Employees60 120,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (54,097.40)0.00 §125 Plan Payroll Tax Savings (8,338.19)0.00 After Tax Cost 92,128.4160,000.00 Savings (32,128.41)

43. Example 4 – 60 Employees Employee Only Employee & Spouse Employee & ChildFamilyTotal Annual EE Portion of Group Plan Cost 975.003,855.003,615.005,799.00 Net After-Tax EE Cost @ 40.65% Fed-State Tax % 578.662,287.942,145.503,441.71 Estimated Annual Individual Policy Cost 5,850.0010,800.009,000.0013,800.00 Additional After-Tax Cost to EE 5,271.348,512.066,854.5010,358.29 Additional Cost to EE With Tax Gross-Up 8,881.7814,342.1411,549.2817,452.90 EE's Earning over 400% of FPL 31126 Total Added EE Cost with Gross-Up 26,645.3514,342.1411,549.2834,905.7987,442.55 Savings Used to Cover Added EE Cost 9,790.115,269.634,243.4712,825.1932,128.41 Pay increase from Savings per person 3,263.375,269.634,243.476,412.60 Additional Cost to EE not covered by Savings 5,618.419,072.507,305.8111,040.3033,037.02

44. Example 4 – 60 Employees Group PlanEE #Totals Free Rider Penalty Total Pre-Tax Cost 36154,564.00 Full Time Employees 60120,000.00 First 30 Employees (60,000.00) Value of Tax Deduction @ 35% (54,097.40)0.00 §125 Plan Payroll Tax Savings (8,338.19)0.00 After Tax Cost 92,128.4160,000.00 Savings (32,128.41) Pay Increases for Employees Earning Over 400% of FPL 87,442.55 Added Employer Payroll Tax 6,689.36 Value of Tax Deduction @ 35% (32,946.17) Net Additional Cost 29,057.33 Total Cost 92,128.41121,185.74

45. Strategies 45

46. Multiple Plan Options – Bronze Plan – Higher tiered option Test the waters with a noncompliant plan – Tin Plan Individuals may owe individual penalty – Affordability test