THE AFFORDABLE CARE ACT: AN OVERVIEW OF THE EMPLOYER MANDATE Presented By : James W. Kaminski and Mark L. Phillip

1. THE AFFORDABLE CARE ACT:AN OVERVIEW OF THE EMPLOYER MANDATEPresented By: James W. Kaminski and Mark L. Phillips NLKJ Newby, Lewis, Kaminski & Jones, LLP 916 Lincolnway La Porte, Indiana 46350 219-362-1577 jwkaminski@nlkj.com mlphillips@nlkj.com

2. A History of Healthcare Leading to theAffordable Care Act / The Basics of the AffordableCare Act, includingthe Employer Mandate

3. 1776 to 1900 • Few hospitals for those communities with hospitals, doctors often treat patients without charging a fee • Doctors are generalists; many also practice as veterinarians • Treatment of most illnesses at home • No real diagnostic or disease management • Doctors often paid through bartering

4. 1900 to 1940 • Before 1920, costs associated with health care was not medical expenses, but loss of work wages due to illness (Bureau of Labor Statistics) • Technology and pharmacy breakthroughs begin with such things as: • The invention of X-ray Penicillin • Understanding of bacteria to develop immunology technique • Hospitals increase with understanding of antiseptic treatments

5. 1900-1940 • People seek medical help at hospitals and doctor’s homes / offices • American Medical Association formed and lobby for doctors • Consumers recognize need to treat illness, and with higher wages, consumers pay more for medical services on a fee for service basis (Journal of American Medical Association, 1922) • 1930 – Dallas teachers’ contract with Baylor University for Health Insurance; Blue Cross-Blue Shield is born; pay fixed rate, per day, for hospital services

6. 1900 to 1940 • 1939 – California Physicians Service is first prepayment plan to cover physicians services; physician plans with a fixed fee for service payment system are incorporated into Blue Cross-Blue Shield (Monthly Labor Review, 1944) • American Medical Association opposes health insurance programs as “bureaucratic” and “freedom limiting”; strongly opposes President Theodore Roosevelt’s suggestion of a nationalized health insurance

7. 1940 to 1960 • During World War II, federal government implements wage controls so many employers offer health insurance as an added benefit • Blue Cross-Blue Shield is not-for-profit and to uphold its charity status, must rate “community” – both sick and healthy to set rates on a payment by service • Commercial insurance is born; carriers can pick better risk pool and thus offer lower premiums than Blue Cross-Blue Shield, causing a “boom” of commercial insurance • President Truman’s plan for National Health Insurance for all citizens fails; criticized by American Medical Assc.

8. 1960 to 2000 • 1965 – President Johnson signs into law Medicare, provides federally funded health coverage for all citizens over age 65, regardless of health status; Part A – hospital services; Part B – physician • Medicaid, a federal/state program for impoverished also begins • Rates to providers charged by Medicare at “usual, customary and reasonable rate” from 1965 to 1983 • 1983 – Medicare adopts a prospective payment system based on diagnosis and type of treatment; pay fixed fee for diagnosed illness, not just paying a fee for each service encounter

9. 1960 to 2000 • 1980 sees explosion of “private” health care businesses (i.e., “for profit” entities) • 1990 – cost of health care exploding, managed care model developed to mitigate costs (HMOs) • By 2000, health care costs deemed a crisis by most employers • Medicare’s annual fee schedule increasingly ignores the actual costs Medicare providers incur while providing treatment

10. 1960 to 2000 Trends • Prescriptive drug and diagnostics exploding, increasing cost of care • With costs of care increasing, all insurance premiums increased, leading to increase of uninsured population • Insurers decreasing coverage to manage risk

11. 1960 to 2000 Trends • Medicare reimbursement not rising with costs; Medicare paying increasingly larger amount for care in the last year of life of participants • Cost shifting to private insurers by health care providers

12. Affordable Care ActGoals / Highlights • Cover more lives • Extend coverage to “working Americans” who otherwise would not be insured • Poverty ridden citizens – stay on Medicaid • Low income – 133% to 400% offered tax credits to pay for private insurance and won’t pay more than 6.3% of income on premiums • If low income does not opt to participate, tax penalty assessed • Some employers mandated to provide coverage or pay penalty

13. Affordable Care ActGoals / Highlights • Provide more coverage terms to public: • Insurance companies not allowed to discriminate based on pre-existing conditions • Can rate based on age, family composition, tobacco use and rating area, but plans must offer basic health coverages

14. Individual Mandate • Requires a taxpayer to obtain “minimum essential coverage” for health insurance or else pay a “shared responsibility payment” (in the form of an excise tax) • Mandate begin 01/01/2014

15. Individual Mandate:Minimum Essential Coverage • To qualify, an individual must have coverage through: • Employer sponsored coverage, including COBRA, retiree coverage and health flex plans (Employer plans required to have) • Government sponsored programs, like Medicare / Medicaid, CHIP (Children’s Health Insurance Program) • Individual plans, including plans purchased on exchanges • Health plans certified by Health & Human Services

16. Individual Mandate:Exemptions from Coverage Requirements • If cost of minimum coverage exceeds 8% of total household income or if income is so low that no return is required to be filed – exempt: • Native Americans: exempt in federally recognized tribes • Certain religious objections: exempt and must request exemption (i.e. Amish; Mennonites; etc) • Illegal immigrants • People with coverage gaps lasting less than 3 consecutive months

17. General Board of Pension and Health Benefits

18. Individual Mandate:Penalties • Tax penalty which is the greater of: • 2014: $95.00 per uninsured person (up to 3 individuals) in household or 1% of taxable income • 2015: $325.00 per uninsured person or 2% of taxable income • 2016: $695.00 per uninsured person or 2.5% of taxable income • Compliance will be monitored through federal tax returns.

19. Individual Mandate:Tax Credits • Individuals can get tax credits for premium payments if income is at 400% or less of federal poverty level; the more income – the smaller the credit. • Example: In 2013, a family of 4 with $35,000.00 household income would get a $10,742.00 tax credit to purchase insurance with $12,130.00 premium annually while the same family with $90,000.00 household income would get a $3,580.00 credit. • Tax credit paid directly to insurer.

20. Individual Mandate:Exchanges • Individuals will be able to purchase coverage through Health Insurance Exchanges or market places. • Exchanges will be run by states, federal government or partnership (Indiana is federal). • Essentially, an online purchasing site, operational October 1st of this year!

21. Individual Mandate:Exchanges • Exchanges will offer “essential health benefits” with 10 broad categories: • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substances disorder services, including behavioral health treatment

22. Individual Mandate:Exchanges – Continued • Prescriptive drugs • Rehabilitative and habilitative services and devices • Laboratory services • Preventive and wellness and chronic disease management • Pediatric services, including oral and vision care

23. Individual Mandate:Exchanges Plan costs will vary based on “acturial value” or expected costs plan will cover. Coverages defined as bronze, silver, gold and platinum. • Bronze will have lowest premium, but highest deductible. • Bronze covers 60% of expected costs versus “platinum” which will cover 90% of expected costs.

24. THE EMPLOYER MANDATE

25. NOBODY KNOWS

26. HOPE AND CHANGE

27. ACRONYMS PPACA - Patient Protection and Affordable Care Act ACA - Affordable Care Act HCR - Health Care Reform OBAMACARE HOW ABOUT E-ANA?

28. CHANGES • Individual Mandates • Employer Mandates • Creation of Insurance Exchanges • Subsidized Health Insurance for Poor and Unemployed • Funding Through New “Taxes”

29. PRIMARY EMPLOYER MANDATE

30. COVERED EMPLOYERS MUST OFFER “AFFORDABLE” “MINIMUM VALUE” health insurance coverage to all “FULL TIME” employees and their dependents ORPay a penalty (the free rider tax)

31. SPOUSE OF EMPLOYEE NOT INCLUDED IN DEFINITION OF DEPENDENTS

32. WHO IS A COVERED EMPLOYER?To be covered by the Act, the Employer must meet the definition of “Large Employer”Large Employer means for a calendar year, an Employer who employed 50 or more “Full Time” employees on business days during the preceding calendar year.

33. “Full Time” Employee is one who works an average of 30 hours or more per week or 130 hours or more per month

34. SOME NEW RULES,CONCEPTS, ANDTERMINOLOGY FOR COUNTING EMPLOYEES AND HOURS WORKED

35. Hours worked by part-time employees can be added together to create one or more hypothetical FTE’sExample: two part-time employees who each regularly work two 8-hour days each work week become one “full time” employee for determining if employer is a “Large Employer.”

36. -Determined on a month-to-month basis-Total hours of employees who are not full-time employees are added together each month and divided by 120 to determine the number of FTE’sfor that month Additional Rules to be Used in Determining the Number of Full-Time Employees:

37. -Number of FTE’s for each month are added together and divided by 12 to get average FTE’s for each month-Controlled group members are treated as single employer for purpose of defining employer as a “Large Employer.”

38. -By definition hours worked under ACA include hours not worked but for which employee is entitled to payment. Example: Even if no work is performed, if employee is entitled to pay for holidays, vacations, illness, disability, layoff, jury duty, military leave or other approved leave, those hours count as hours worked under ACA. Special rules apply for worker’s comp. cases.

39. - For hourly paid workers, Employer must track and record actual hours of service, days worked equivalency, weeks worked equivalency.- Additional classifications of employees are created by ACA. In addition to salaried or hourly, exempt or non-exempt, employees must now be classified as either a seasonal employee, a variable hour employee, or a deemed full-time employee

40. A Seasonal Employee is one who generally works in an agricultural position or is a retail employee hired exclusively for a holiday season.If employer has more than 50 employees ≤ 120 days per year andIf more than 50 were seasonal then Employer is not a “Large Employer”

41. Other new concepts, terms, and rules that have been created to “help” employers include:1. Distinguishing between new employees and on-going employees and providing different rules for each

42. 2. Defining start date for new employees - 3. Creating an “Initial Measurement Period” – at least 3 but not more than 12 months measured from individual worker’s start date - used to determine status of new employee

43. 4. Creating a Stability Period – at least 6 months, but not less than Initial Measurement Period – to be used by employer under “look back” rules to determine status of employee

44. 5. Creating an optional “Administrative Period” – a period of time not greater than 90 days after Initial Measurement Period and before the Stability Period to be used by employer to determine if employee averaged 30 or more hours per week during Initial Measurement Period.

45. 6. Allowing different Initial Measurement Periods, Stability Periods, and Administrative Periods for employees in different union groups (mandatory subject of bargaining?), salaried versus hourly workers, and employees in different states.

46. Back to Employer Mandate Covered Employer must offer health coverage under employer’s health plan to a deemed full time employee within 90 days of Start Date or pay penalties.

47. If variable hour or seasonal employee averages 30 hours per week or 130 hours per month during his/her Initial Measurement Period s/he must be treated as a full time employee during the following Stability Period.

48. Employers with 50 or more FTE’s must offer “affordable” “minimum value” health insurance to at least 95% of their “full time” employees or pay an annual penalty (tax), but only if one or more of that employer’s employees purchases health insurance from a state or federal insurance exchange and receives a premium subsidy in order to purchase the insurance.

49. To be affordable, employee’s share of premium costs must not exceed 9.5% of employee’s household income.

50. Household income includes income of employee, employee’s spouse, and all household dependents.