The Affordable Care Act – Developments and Implications for Cities and Counties

1. The Affordable Care Act – Developments and Implications for Cities and Counties South Central Service Cooperative August 30, 2013

2. Introduction • The Patient Protection and Affordable Care Act (ACA) faces ongoing challenges • Federal agencies have been unable to meet timelines for issuing required guidance on key issues • Technical and logistical issues challenge exchanges • Political opposition continues; debt ceiling fight looms in September • Key provisions delayed

3. Delay in Employer Penalties to 2015 • No penalties will be assessed against “applicable large employers” in 2014 for failing to offer coverage in compliance with federal standards. Until 2015, • Employers will not be assessed $2,000 per full-time employee (less the first 30) for failing to offer coverage to 95% of their full-time employees • Employers will not be assessed $3,000 for each employee who becomes entitled to a subsidy on the exchange because employer-sponsored coverage is not “affordable” or does not provide “minimum value” • Reprieve is temporary; penalty scheme applies in 2015 • Other provisions of the ACA will continue on track

4. Concerns Remain • Pay or Play rules have been delayed but not suspended: many public employers face an unfunded mandate • Unions concerned over reduction in hours to avoid new coverage mandates. James Hoffa of the Teamsters expressed these concerns in a recent letter to Pelosi and Reed: Right now, unless you and the Obama Administration enact an equitable fix, the ACA will shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class. • Anecdotal reports of hours reduction throughout public sector (i.e., State of Virginia cutting hours for 7,000 government workers to 29 hours a week)

5. Applicable Large Employers • Status based on prior calendar year • 50 full-time employees or full-time equivalents (FTEs) • Employers at or near this level should start tracking hours on January 1, 2014 • Controlled group rules must be taken into account in determining whether employees of more than one entity must be counted • Public employers may have opportunity to modify controlled group status by changing makeup of boards of directors • Analysis required for leased employees, independent contractors, seasonal workers

6. Measurement and Stability Periods • Without planning, pay or play penalties may be incurred on a monthly basis in 2015 as employees move in and out of eligibility for subsidies based on hours worked • Safe harbor rules allow employers to identify full-time employees over “look back measurement periods” and offer coverage during “stability periods” • Employers with calendar year plans need to establish these policies now for 2015

7. Sample Measurement Periods for Ongoing Employees in Calendar Year Plan • First stability period: • January 1, 2015 through December 31, 2015 • Administrative period (open enrollment): • October 15, 2014 through December 31, 2014 • First lookback measurement period • October 15, 2013 through October 14, 2014 • Transition rules in proposed regulation allowed initial 6-month lookback measurement period with 12-month stability period. • Transition rule may not be included when regulations are finalized – not needed.

8. Variable Hour and Seasonal Employees • Measurement period begins on date of hire (or first day of calendar month following hire date) • Employers may prefer longer measurement period to delay cost increase (up to 12 months permitted) • Administrative period can be shorted to 1 month • Stability period may not be shorter than measurement period

10. Same-Sex Marriage and Benefits • Defense of Marriage Act (DOMA) found unconstitutional in United States v. Windsor • Minnesota legalized same-sex marriage effective August 1, 2013 • Same-sex spouses in Minnesota will be entitled to coverage in public employer group health plans, whether insured or self-insured • Same-sex spouses in Minnesota will be treated the same as opposite-sex spouses for all other benefits in public employer plans • Benefits provided to same-sex spouses in Minnesota will receive favorable tax treatment on both the state and federal level

11. Collective Bargaining Reopeners • “Final regulations have not been issued under many provisions of the Patient Protection and Affordable Care Act (ACA). This creates considerable uncertainty regarding the Employer’s financial obligations. This agreement may be reopened and all material terms of compensation, hours, and fringe benefits (include health benefits) may be subject to negotiation and change as reasonably necessary to comply with the ACA and to address any increase in cost that the ACA may require.” • Some state laws prohibit reopening collective bargaining agreements (e.g., Minn. Stat. Sec. 179A.20).

12. 2013 RFP – Major Medical • Public Notice in seven regional newspapers and Star Tribune • Outreach to other Minnesota health insurance carriers and third party administrators • Incumbent BCBS submitted only bid • Other potential bidders declined to bid. Reasons included: • Focus on ACA compliance burdens • Perceived difficulty to win on price alone • Service Cooperatives committed to improving ties with competitors outside RFP process

13. BCBS Bid Highlights • Overall increase in administrative fees of 6%; maximum 5% increase in years 2 and 3 • Actual administrative fees will vary based on plan type • Impact moderate because administrative fees are a small portion of total expensive (approximately 5%) • New provider contracts focus on accountable care • Potential for decrease in trend for claims (representing approximately 95% of costs) due to focus on quality and cost efficiency

14. 2013 RFP on VEBA, HSA, HRA, FSA • Initial bid by SelectAccount increased administrative fees by more than 80% • HealthEquity offered much lower rates, but paid less interest on cash balances in VEBA and HSA • Responding to competition, SelectAccount lowered fees and HealthEquity increased interest payable • Taking into account both rates and interest payable, SelectAccount offered statewide advantage of approximately $189,000 per year • Bid awarded to SelectAccount; HealthEquity remains viable future prospect

15. 2013 RFP on VEBA, HSA, HRA, FSA • Administrative fees for multiple stacked accounts (VEBA, HSA, HRA and/or FSA) increased from $1.83 to $2.11 per employee per month (pepm) • Lower fees apply to standalone Thrift or Basic VEBA or HSA • Slightly higher fees will apply after 2014 for groups that do not utilize web-based enrollment tool, ACH deposits, and debit cards or crossover

16. Notice Pursuant to Treasury Department Circular 230, and Disclaimer To comply with certain Internal Revenue Service ("IRS") rules, we must inform you that any U.S. federal tax advice contained in this presentation, including handouts or verbal explanation, is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the IRS. Under IRS rules governing tax advice, a taxpayer may rely on professional advice to avoid federal tax penalties only if that advice is provided in a tax opinion that conforms with extensive federal requirements. We understand that you do not intend to use or refer to anything contained in this presentation to promote, market, or recommend any particular entity, investment plan, or arrangement. DISCLAIMER: This presentation is intended for general information purposes only. It does not create an attorney-client relationship and should not be construed as legal advice or legal opinions on any specific facts or circumstances.