Small Group ( Under 50 Employees ) Large Group ( 50 or more employees ) Resource Guide

1. Small Group (Under 50 Employees)Large Group (50 or more employees)Resource Guide Changes and Considerations

2. Health Care Reform and Employers • Many major provisions take effect in 2014: • Individual mandate • Exchanges • Employer Shared Responsibility (large groups) • Subsidies • Employers will have many new considerations: • Employer mandate: large employers may pay penalties • Calculations for determining full-time equivalent employees • Some tax credits may be available for Small Groups • New reporting requirements

3. Calculating FTEs to Determine Employer Size Total Part-time** Hours / 120 Number of Full-Time* Employees Total Full-Time Equivalent Employees (FTEs) * Full-time employees are defined as those who work at least 30 hours per week ** Part-time exempts seasonal employees (employed fewer than 120 days)

4. Meets Requirements of a Large Employer Example A firm has: • 35full-time employees that work 30+ hours • 20part-time employees who all work 24 hours per week (96 hours per month, per employee) These part-time employees’ hours would be treated as equivalent to 16 full-time employees: 20 employees x 96 hours/120 = 1,920/120 = 16 FTEs 35 Full-time + 16 Full-time equivalents = 51 FTEs

5. Decision Chart for Large Employers Does the cost of coverage exceed 9.5% of an employee’s income (affordable)? Does the value meet “minimum essential” threshold? Do any employees earn below 400% FPL ($44,680)? Does the employer offer coverage? YES YES NO YES NO NO YES NO Potential Penalty No Penalty

6. Minimum Essential and Affordability Requirements • Minimum Essential Plans: Employer or health plan must pay at least 60% of the total allowed cost of benefits • The IRS has proposed three ways of determining that an employer meets the minimum value requirement • Minimum Value (MV) Calculator: allows sponsors of self-funded health plans to input cost-sharing features such as deductibles, co-insurance, and out-of-pocket maximums • HHS or IRS established “safe-harbor checklists”: Each checklist would describe the cost-sharing attributes applicable to four core categories of benefits • Certification of minimum value by American Academy of Actuaries It is not required that you offer Essential Health Benefits, but cost-sharing on any Essential Health Benefits is taken into account in the Minimum Value calculations.

7. Minimum Essential and Affordability Requirements • Affordability The employee’s share of the self-only premium for the employer’s lowest-cost plan that provides minimum value cannot exceed 9.5% of the employee’s household income. If it does, the employee may be eligible for a premium tax credit to purchase Exchange coverage. (For employees to be eligible for this, they must have a household income between 100 and 400% of the federal poverty level.) Note – no tax penalty for employees enrolled in Medicaid. • IRS Safe Harbor Allows employers to calculate affordability based on the employee’s current W-2 wages as opposed to household income, since household income is likely not known or available.

8. Calculating the Amount of the Penalty • Penalty only applies to full-time employees when the employee draws a premium tax credit through the Exchange If the employer does not offer coverage, and the employee draws a premium tax credit: If the employer offers coverage that does not meet the definition of “affordable minimum essential,” and the employee draws a tax credit: • The penalty is: • $2,000 x (number of full-time employees – 30) • The penalty is the lesser of: • $3,000 x total number of employees drawing tax credit or • $2,000 x (number of full-time employees – 30)

9. Reporting Requirements for Large GroupsSource: Ernst & Young LLP 2012 Large Employers (50+) IRS Effective: 1/31/2015

10. Meets Requirements of a Small Employer Example A firm has: • 25full-time employees that work 30+ hours • 10part-time employees who all work 24 hours per week (96 hours per month, per employee) These part-time employees’ hours would be treated as equivalent to 8 full-time employees: 10 employees x 96 hours/120 = 1,920/120 = 8 FTEs 25 Full-time + 8 Full-time equivalents = 33 FTEs

11. Small Group Exemption • Small businesses with fewer than 50 full-time employees (or equivalent full and part-time employees) are EXEMPT from: • Penalties related to the employer mandate provision of the Affordable Care Act (ACA) • ACA requirement to offer affordable coverage

12. Small Business Tax Credits – 25 or Fewer FTEs

13. Calculating Employees and Average Wages for the Small Business Tax Credit Total Number of Hours Paid in Given Year Average Annual Wages Total Wages Paid in Given Year 2080 FTEs FTEs

14. BCBSNC Tax Credit Calculator http://www.bcbsnc.com/content/campaigns/taxsavings/index.htm

15. Reporting Requirements Source: Ernst & Young LLP 2012 • Employer requirement to inform employees of coverage options • Reporting of enrollment in health insurance coverage Employers subject to Fair Labor Standards Act Self-insured employers, insurers IRS • Distributed to Employees TBD – Delayed until future guidance issued Effective 1/31/2015

16. Fees & Assessments • Health Insurer Tax Fee • New sales tax on health insurers • 2014 tax amount = $8 billion • 2018 tax amount increases to $14.3 billion • Tax increased based on premium trend thereafter • Reinsurance Fee • Applies to all issuers and self-insured group health plans • Fees will fund reinsurance program 2014 – 2016 to stabilize premiums in individual insurance market • Proposed annual fee is $63 per enrollee in plan

17. Fees & Assessments, continued • Comparative Effectiveness Research Fee (PCORI) • Applies to insurers and self-insured for policies or plan years ending after 9/30/12 thru 10/1/19 • Funds research on effectiveness of medical treatments and prescription drugs • FY2013 $1 per covered life • FY2014 $2 per covered life • FY2015 on – indexed • Tax on “High Value Plans” (“Cadillac” Plans) • Beginning in 2018 • 40% excise tax imposed on insurer & self-insured on total annual value of employer-sponsored coverage that exceeds $10,200/single, $27,500/family (value includes employer/employee contributions)

18. Employer Considerations Dropping Coverage Keeping Coverage Penalty Replacement Cost Medical Trend New ACA Requirements Employee perception of value lost

19. Coverage Options ACA Compliant Plan Defined Contribution Plan Exchange Employer continues offering coverage that is compliant with ACA Employer provides funding that employee uses to purchase their choice of health insurance • Employer uses Exchange to provide health insurance coverage • Small Employers 2014-2016 (50 and below) • Small Employer 2016 (100 and below) • Large Employers in 2017 (State option) Source: Deloitte Consulting LLP: HR Executive Series 7/11/12

20. Existing Provisions (Already in Effect)

21. Future Provisions

22. Future Provisions

23. Essential Health Benefits • ONLY non-grandfathered small group and individual plans must cover • 10 categories • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substance use disorder services, including behavioral health treatment • Prescription drugs • Rehabilitative and habilitative services and devices • Laboratory services • Preventive and wellness and chronic disease management; and • Pediatric services, including oral and vision care

24. Other Considerations • Exchanges and premium tax credits may make individual coverage more affordable for a firm’s employees • Recruitment and retention may be more difficult if employers don’t offer coverage • ACA includes several provisions to help employers establish or continue wellness programs: • In 2014, employers are allowed to apply up to a 30 percent premium contribution differential (HHS may raise this to 50%). • In 2014, $200 million over a 5 year period will be available for wellness grants for employers with fewer than 100 employees that work 25 hours or more per week.

25. Key Considerations & Next Steps for Employers • Assess impact of health care reform provisions on workforce • Do your employees value your company differently, if it doesn’t provide health insurance as a benefit? • Determine applicability of employer penalties • Small Employer Groups (fewer than 50 full time employees) are EXEMPT • Consider other financial and tax implications • Assess your current benefit designs • Prepare for complying with tax and other reporting requirements

26. Next Steps for Employers (Large Groups) • Assess impact of health care reform provisions on workforce • How does my employee value proposition change if I as an employer do not provide coverage? • Assess your current benefit designs • Does your plan meet the affordability mandate? • Project impact of employer penalties and taxes (play vs. pay) • Employer could save money by NOT providing coverage to full-time employees and paying penalty. • Prepare for complying with tax and other reporting requirements

27. Key Provisions Impacting Insurers 2012-2014 • Employer Administrative Requirements • Employer Mandate • Uniform Coverage Documents • Medicare Advantage • Taxes • Exchanges • Subsidies • Premium Tax Credit • Cost Sharing Reduction • Rate Review • MLR Reporting & Rebates • Comparative Effectiveness Fee • Essential Health Benefits • Minimum Actuarial Value • The 3 R’s • Reinsurance • Risk Corridor • Risk Adjustment • Modified Community Rating • Individual Mandate

28. Still A Lot of Work To Do … • Awaiting numerous regulations/guidance documents • Exchanges, Exchanges, Exchanges • Continued Monitoring of Legislative Action at federal & state level

29. This document is for educational and discussion purposes only and is NOT intended to provide legal advice.    This document reflects information gathered to date.  Please note that due to the changing nature of health care reform, BCBSNC recommends continued monitoring of legislation and regulations related to the topics contained herein. Thank You!