Presented By: Dennis Tumminia, LUTCF, PHIAS

1. 2013 Round Table Owners Association Affordable Care Act – What Employers Should Know and Do Now!March 19, 2013 Presented By: Dennis Tumminia, LUTCF, PHIAS

2. What We’ll Discuss • Affordable Care Act (ACA) timeline – 2013-2014 • What is qualifying coverage at an affordable cost/shared responsibility – 95% • “Pay or Play” rules, penalties • Operator Administrative Challenges • Regulations awaiting guidance • Business strategies – 30 hours – core team • Transitional Relief – Plan Year – December 27, 2013 • Benefit strategies – Plan Design Considerations • Eligibility Challenges 2014 – Tracking/Accountability • Appendix

3. ACA – Timeline of Action Required 2012: – Completed • 2012 W-2 reporting deadline is January 31, 2013 - 250 + W-2s in 2011 • Summary of Benefits and Coverage (SBCs) 2013: • Medicare tax increase by .9% for high-income wage earners • New 3.8 % tax on certain unearned income for higher-income taxpayers • Contributions to health care FSA limited to $2,500 • Minimum threshold for claiming deductions for medical expenses will increase from 7.5% to 10% of adjusted gross income • Employer tax deduction for subsidizing Medicare Part D • Employee notification of exchanges due on March 1, 2013 – (on hold) • Patient-Centered Outcomes Research Fee • Clinical Effective Research Trust Fee (CER) - $1 per covered life due on plan renewals prior to 10/1/2013 – Plan renewals after $2 per covered life due July 31, 2013 (IRS Form 720) Not paid by the plan!

4. ACA – Timeline of Action Required 2013: Continued: • Transitional Reinsurance Contributions – 2014, 2015, & 2016 only - $63/PPM - $45/PPM - $23/PPM (estimates) 2014: • Employer “Pay or Play” mandate takes effect • Insurance marketplaces implemented – CA not approved • Non-discrimination rules implemented (guidance pending) • Auto enrollment for employers >= 200 employees • No annual limits on essential health benefits • Mini med plans no longer valid • No pre-existing condition exclusions over age 19 • Wellness incentives increased to 30% • Health habit premium surcharges by individual states – pending clarification

5. “Pay or Play” Rules Employer “Pay or Play” Mandate • Employers must offer affordable, qualifying coverage to all employees working 30+ hours or pay a penalty • “Affordable” means the employee contribution can’t exceed 9.5% of household income – safe harbor rule – employee only • “Qualifying coverage” means the plan provides a minimum value => 60% of the actuarial value • Applicable to employers with 50 or more FTEs • Eligible employees include “part-time,” temporary, and seasonal • Controlled group issues (see appendix) • New guidance issued • Provides flexibility (and complexity) to employers in determining full-time employees • Introduces new terminology and tracking periods • Look back period 6 consecutive months – first 6 or last 6 months

6. What is Qualifying Coverage/Affordable Cost Does the coverage you offer meet requirements under the new law? ACA requires: • Minimum Essential Coverage • Minimum value requirement – actuarial value of at least 60% (not yet defined) • Essential Health Benefits: Ten types of coverages • Fully-insured must offer all ten • Self-insured do not need to provide all ten (more flexibility) What is an affordable cost? • Premium contribution by employee must be less than 9.5% of household income or (safe harbor) using only the employees W-2 earnings • $95/month for minimum wage employee working 30 hours weekly • Applicable to employee-only coverage – no dependent coverage rules Coverage considered “affordable” if these requirements are met

7. Determining Employee Eligibility Who is eligible for coverage? Full-time employees • New hire – reasonably expected to work full-time (30+ hours) at date of hire • Waiting period of up to 90 days applicable • Ongoing – if an employee averages 30+ hours weekly over an employer established “measurement period” then the employee is considered full-time during a future “stability period” • “Administrative period” – no more than 90 days – optional • “Variable hour” employees • “Seasonal employees” – same period (season) each year – not defined as a temporary or fill-in employee!

8. Variable Hour and Seasonal Employees Variable hour employees • New employees – variable hour if, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week • “Measurement period” – Employer established measurement periods of three to twelve months to determine whether an employee is full-time • May have two measurement periods – an “initial” period for new hires and a “standard” period for ongoing employees “Administrative period” (optional) – 90 days maximum, used to notify, enroll employees. Cannot reduce or lengthen the measurement or stability periods. • “Stability period” (benefit period) - If the employee is deemed to be full-time during the measurement period, the employee will remain a full-time employee during a future stability period and benefit eligible provided the employee remains employed regardless of hours worked • The stability period is the greater of six months or the measurement period

9. Variable Hour and Seasonal Employees Seasonal employee definition: • A “seasonal employee” is defined as a worker who performs labor or services on a seasonal basis, such as during the summer harvest season or the winter holidays. Variable Hour/Seasonal Employee Test: • FIRST, when determining whether the employee is a “large employer” – employed more than 50 full-time/full-time equivalent employees during the prior calendar year – the employer can exclude entirely all seasonal employees who were employed on no more than 120 days during the prior calendar year. If the employer employs less than 50 full-time/full-time equivalent employees during the prior calendar year (thus, not a “large employer”), the employer is not subject to the shared responsibility rules and thus, not required to provide health coverage under the ACA. • Second, if the employer is still a “large employer”, than the question of whether a seasonal employee has to be considered when deciding who must be offered minimum essential medical coverage turns on the same analysis used for variable part-time employees that is described above.

10. Penalties if Employer Does Not Offer a Qualified Plan • Small employer (< 50 FT employees) • No penalty applies • Large employers (>= 50 FT employees) • Penalty is triggered as soon as one full-time employee receives a health insurance tax credit • $2,000 annual penalty per full-time employee in excess of 30 employees • Based on full-time employees not FTE’s • Penalties are not tax deductible

11. Penalties for Not Offering Qualifying Coverage EXAMPLE 1 • An operator has four restaurants with 20 managers and 120 maintenance and crew. In total there are 70 full-time workers (including variable hour employees averaging at least 30 hours per week) and 70 part-time workers (working less than 30 hours per week). The employer does not offer qualifying coverage to employees. At least one employee obtains subsidized coverage through a state marketplace. Penalty for not offering coverage: • $2,000 x [70 – 30] = $80,000/year

12. Penalties if Employer Offers Qualified Plan but not at Affordable Price • Small employer (< 50 FT employees) • No penalty applies • Large employers (>= 50 FT employees) • Penalty is triggered as soon as one full-time employee receives a health insurance tax credit • $3,000 annual penalty per full-time employee, not to exceed the total penalty due if didn’t offer a plan • Based on full-time employees not FTE’s • Penalties are not tax deductible

13. Penalties for Not Offering Affordable Coverage EXAMPLE 2 • An operator has four restaurants with 20 managers and 120 maintenance and crew. In total there are 70 full-time workers (including variable hour employees averaging at least 30 hours per week) and 70 part-time workers (working less than 30 hours per week). The employer makes an offer to their employees of qualifying coverage, but for six employees the coverage is unaffordable and they obtain subsidized coverage through a state marketplace. Penalty for offering coverage that is not affordable is the lesser of: • $3,000 x 6 = $18,000/ year, or • $2,000 x [70 – 30] = $80,000/year The employer penalty is the lesser of the two… or $18,000/year

14. EPIC “Pay or Play” Support • Calculator to help you assess costs of alternatives • Tax ramifications • Medical premiums are deductible • Penalties are not tax deductible • Complex ownership holdings evaluated • ERISA counsel and support

15. Regulations Awaiting Further Guidance Regulations Requiring Guidance/Clarification • Non-discrimination rules • Defining essential health coverage • Determination of minimum value • Auto-enrollment regulations Future Considerations • Cadillac tax - 2018

16. Business Strategies • 2013/2014 • Plan now for 2014 • Identify “benefits goals” for 2014 (offer coverage or not) • Assess staffing model in the context of benefits goals • Establish measurement, administrative, and stability periods • Review recordkeeping of hours worked, benefit waivers, etc. • Evaluate reporting capabilities of recordkeeping systems • Reduce part-time staff to 25 hours/week (depending on measurement period used) • Implement changes to recordkeeping (if needed) • Evaluate benefits alternatives as guidance published

17. Benefit Strategies - EPIC Partnership • Plan now for 2014 impact • Be ready to begin implementation post elections • Closely monitor all ACA clarifications and state specific regulations which will continue well into 2014 • Caution in considering “solutions” being marketed now • Fully insured, self-insured, limited medical, and combinations – which will increase as more service providers/carriers begin marketing efforts • Alternative funding considerations (captive, self-funded plan) • Preventive care carve out option

18. Q&A and Thank You Dennis L. Tumminia, LUTCF, PHIAS Principal – Employee Benefits 415.356.3914 – Office 415.350.0429 – Mobile dtumminia@edgewoodins.com Edgewood Partners Insurance Center 135 Main Street, 21st Floor San Francisco, CA 94105

19. Appendix • Calculating full time equivalent (FTE) employees • Controlled group defined • Exchange defined • Individual penalties outlined

20. Calculating Full-Time Equivalent Employees Determining Number of FTEs • Number of FTEs determined by dividing total number of hours for which the employer pays wages to employees during the year (not more than 2,080 hours for any employee) by 2,080. If not whole number, rounded to the next lowest whole number. • For example: for 2010 tax year, an employer pays five employees wages for 2,080 hours each, three employees wages for 1,040 hours each, and one employee wages for 2,300 hours. FTEs would be calculated as follows: • 10,400 hours for the five employees paid for 2,080 hours each (5 x 2,080) • 3,120 hours for the three employees paid for 1,040 hours each (3 x 1,040) • 2,080 hours for the one employee paid for 2,300 hours (lesser of 2,300 and 2,080) • 10,400 + 3,120 + 2,080 = 15,600 hours divided by 2,080 = 7.5 FTEs

21. Controlled Group Defined • A "parent-subsidiary" controlled group exists wherever a parent organization owns 80% or more of the equity in a subsidiary organization. (For corporations, the 80% + test is based on attaining that level of voting power or total value based on all classes of stock; for partnerships, the 80% + test is based on attaining that level of profits interest or capital interest; for trusts and estates, actuarial interests are used.) • A "brother-sister"/common control group exists wherever the same five or fewer persons (counting individuals, estates and trusts as "persons") (i) collectively own 80% or more of the equity in two separate trades or businesses, and (ii) taking into account the level of ownership each of those five persons holds in each of the two organizations (using a lowest common denominator approach) collectively own more than 50% of the equity in both of the trades or businesses. • An "affiliated service group" exists wherever several organizations regularly collaborate in the services they provide to the public (typically, integrated services), and the several organizations are linked by a material level of cross-ownership.

22. Health Care Marketplace Defined • By 1/1/2014, all 50 states must establish (or defer to feds) • An American Health Benefits Marketplace (ABHM) • Eligible users: Individuals • A Small Business Health Options Program Marketplace (SHOP) • Eligible users: Small employers of less than 50/100 employees (state specific). • Employee notifications March 1, 2013, HOLD, OE October 2013 HOLD • Expansion of Marketplace in 2017 to 100 plus employees • Marketplace perform 5 basic services: • Certify health plans meet "essential health benefits package" standards • Offer certified plans for purchase to qualified individuals & employers • Provide assistance evaluating and enrolling in a plan • Facilitate application for federal premium assistance tax credits and cost-sharing reductions • Serve as single, streamlined access point for eligibility determination and enrollment in ALL subsidized state health coverage programs • Medicaid, SCHIP, Marketplace plans, etc.

23. Individual Mandate: Annual Penalty • Effective January 1, 2014 • Penalty based on 2015 individual tax return • $95 per person 2014, $325 in 2015, and $695 or up to 2.5% of income in 2016 • After 2016, penalties will be indexed • Working poor may qualify for subsidies

24. RTOA Questions? • What will be the HR/Administrative impact on employers to maintain compliance with ACA? • What is the scope of information we must track/supply in addition to insurance coverage provided that will be required? B.) How will this information be audited by the government ? • How do we transition into ACA if our current plan expires on March 31, 2014? • Are we able to offer two plan levels; one for management and another for hourly employees that work over 30 hours?

25. RTOA Questions ? – continued • A small business currently covers 9 managers with full coverage (including spouse and dependents) and 2 assistant managers with self-coverage. Adding the additional 30 full time employees that work between 30 and 40 hours a week, what is your best estimate at the additional cost this could be to a small business?

26. RTOA Questions? – continued • What is the highest percent that we can require an employee to pay and can we have management contribute a lesser percent? • Basically can we have any carve outs or do we have the same plans to all employees regardless of their position? • What if an employee opts out of the plans we offer and decides to purchase a plan from the state exchange, do we pay a penalty? • If we decide not to offer any health care and send all full time employees to the state exchange, can we reimburse management for their out of pocket purchase of health care through the exchange?

27. RTOA Questions? - continued • Can this be done in a FSA, HAS or other method were it is not considered taxable income • Does it make sense to manage all full-time employees down to 30 and not offer any coverage? No penalty paid and everyone buys coverage from the exchanges? • Have you had a chance to look at the “Covered California” site and what is your opinion on the plans they offer? • We all hear that the preventative and some other provisions will reduce LONG-TERM health care costs. Does Dennis think that is true, and if so, how long before we should see savings?