Affordable Care Act County of Sacramento September 26, 2012

1. Affordable Care ActCounty of SacramentoSeptember 26, 2012

2. Employer Timeline & Compliance 2012 – 2015+ Employee Timeline 2014 and Group Insurance California Health Benefits Exchange Wrap-Up Agenda

3. Employer Timeline & Compliance2012 – 2015+

4. Employer’s Timeline & Compliance

5. Summary of Benefits and Coverage Effective for open enrollments and plan years beginning on or after September 23, 2012 Applies to every group health plan (excluding excepted benefits such as dental and vision) Must be provided to eligible employees and family members Must be provided in a culturally and linguistically appropriate manner Electronic delivery permitted but paper copy must be made available free of charge Carve out plans have special challenges 2012– Summary of Benefits and Coverage and Related Documents

8. Uniform Glossary Same model document for everyone Found at DOL and HHS websites Employer may post on its intranet but inform employees of this fact in the SBC and advise that a paper copy is available free of charge 60-Day notice of material change to SBC Any material change to a plan during the plan year that would cause a change to the SBC requires 60 days advance notice before change becomes effective 2012– Summary of Benefits and Coverage and Related Documents

10. 2012 Preventive Care for Women • Preventive Care for Women (NGF Plans) • Effective for Plan Years on/after 8/1/12 • Well women visits • Screening for gestational diabetes • Human papillomavirus testing • Counseling for STDs • Counseling and Screening for HIV • All FDA approved contraceptive methods except vasectomies • Breastfeeding support and counseling • Screening and counseling for domestic violence • Market these benefits – You have paid for them • Value-Based Designs are permitted

11. Not a tax – just a reporting Report value of 2012 health coverage by January 31, 2013 Includes employer and employee portion of: Major medical and Rx; wellness, EAP and on-site medical clinics if COBRA; employer contribution to Health FSA Pre-tax payments for voluntary benefits, or if paid by employer (e.g. cancer insurance) Use unsubsidized COBRA rate to calculate value (minus administrative fee) Issues to address: Reporting on employees who leave mid-year Off-month payroll cycle – final payroll Information obtained after the close of the plan year Non-calendar year plans Mid-month changes Optional reporting 2012– Planning for W-2 Reporting

12. 2012– Planning for W-2 Reporting

13. $2 million overall aggregate annual dollar limit on “Essential Health Benefits” $2,500 contribution cap to Health Flexible Spending Arrangements (“Health FSA”) Report value of health coverage on IRS 2012 Form W-2 Notice of Exchange Clinical Effectiveness Research Fee for 2012 .9% HI FICA withholding on wages exceeding $200,000 ACA Compliance 2013

14. $2 million overall aggregate annual dollar limit on Essential Health Benefits Effective for Plan Years beginning on/after January 1, 2013 Plan Amendment required Review your definition of Essential Health Benefit Consider converting dollar limits to visit limits 2013– Annual Dollar Limit Floor Rises

15. Self-insured plans and fully-insured large group health plans will not be required to offer Essential Health Benefits, but, if they do offer an EHB, the definition applies to: Lifetime limits Annual limits Sponsors may continue to use good faith effort to define what is, and what is not, an Essential Health Benefit until guidance is issued. Likely that the definition will be effective for 2014 Examples: acupuncture, TMJ, durable medical equipment 2013– Definition of Essential Health Benefits

16. $2,500 salary reduction cap to Health FSAs Effective for plan years beginning on or after January 1, 2013 $2,500 limit applied on an employee-by-employee basis Plan amendment required but no later than December 31, 2014 retroactive to 2013 provided that the plan is operated in compliance for the 2013 Plan Year 2013– Health FSA Cap

17. Plan Sponsor must deliver to employees no later than March 31, 2013 Anticipate a model form for 2013 Informs employees of availability of health coverage on the Exchange Advises of the potential for government subsidies and reduced cost-sharing Advises of penalties for failure to have Minimum Essential Coverage 2013– Notice of Exchange

18. Supports federally mandated research on best practices for most effective treatments $1.00/covered life for the 2012 Plan Year $2.00/covered life for each year thereafter to 2019 Sponsor liability for self-insured plans Insurance carrier liability for fully-insured plans Annual Tax Return and payment Payment due no later than July 31 2013– Clinical Effectiveness Research

19. Plans must offer coverage for all children to age 26 regardless of their eligibility for other coverage No overall aggregate annual dollar limits on Essential Health Benefits No preexisting condition exclusions regardless of age Eligibility waiting periods limited to no more than 90 days Non-grandfathered plans may not prohibit participation in clinical trials and must cover routine services of clinical trials Exchange Reinsurance Program Fee imposed on plans Employer reporting to Exchange Amend FSA by end of 2014 for 2013 $2,500 cap ACA Compliance 2014

20. Plans must offer coverage for all children to age 26 regardless of their eligibility for other coverage Covered under any parent plan Covered under their employer’s plan Covered under their spouse’s plan Coordination of Benefits challenges Mid-Year Enrollment Rights – Need for guidance 2014– Dependent Coverage to age 26

21. No overall aggregate annual dollar limits on Essential Health Benefits Revisit definition of Essential Health Benefits Take advantage of visit limits as compared to dollar limits No need to offer Essential Health Benefits No preexisting condition exclusions regardless of age Certificate of Creditable Coverage may be obsolete 2014– No Annual Dollar Limits

22. Eligibility waiting periods limited to no more than 90 days If eligibility is based on time-served only 90-day period starts when all other requirements satisfied. For example, promotion to new classification Confirm probationary period not tied to eligibility for benefits Check collective bargaining agreement for work rules for full-time employees – may need to re-define FTE Part-Time employees can be required to satisfy an hours-worked requirement before the 90-day period commences. For example, 1250 hours of service for eligibility...then 90-day waiting period begins 2014– Limits on Waiting Periods

23. Non-grandfathered plans must cover routine services for clinical trials Cannot prevent participation in a Clinical Trial if (1) recommended by participant’s physician; or (2) participant makes the case that he/she satisfies the eligibility requirements for the Clinical Trial Must cover all routine costs of Clinical Trial that are covered under group health plan (e.g. blood draw) 2014– Coverage for Clinical Trials

24. Exchange Reinsurance Program Fee imposed on plans from 2014 to 2016 Paid by the (i) carrier; or (ii) TPA on behalf of sponsor To U.S. Department of Health and Human Services Additional amounts may be required by the California Health Benefit Exchange Carrier/TPA reports to HHS Amount has not yet been determined but $60 - $80 per participant has been suggested 2014– Exchange Reinsurance Program Fee

25. 2014 Compliance – Reporting and FSA • Exchange states that employer reporting to the Exchange will be “voluntary” • 2013 amendment for Health FSA must be adopted before the end of 2014, provided the FSA operated in compliance with the $2,500 cap for 2013

26. Employee Timeline2012 – 2015+(ACA From the Employee’s Point of View)

27. Employee Timeline

28. 2013 HR Checklist Regarding Employees • Preparation: Anticipating Employee Behavior • Mass marketing campaign by California Exchange – Questions? • Value of coverage on IRS Form W-2 – Questions? • Notice of Exchange – Questions? • Collective bargaining considerations – Education/Schedule Planning • Individual mandate - Questions • Government subsidies for Exchange coverage - Questions • Adverse selection - Planning • .9% Medicare Payroll Tax on High Earners – Communications • Open enrollment for the California Exchange – Request for plan info • Full-Time Employee - Questions • How to responding to employee questions • Develop communications strategy

29. 2014 and Group Insurance

30. Individual Mandate Exchange health plans become effective Exchange coverage issued on a guaranteed issue basis with no medical underwriting Premium subsidies and cost sharing reductions for low-paid individuals who purchase Exchange coverage New definition of full-time employee Potential tax penalties for employers who for full-time employees: Provide no coverage, Provide unaffordable coverage, or Provide coverage that provides less than minimum value Exchange and Tax Impacts 2014

31. Works, on average, 30 hours per week (130 hours/month) May use hourly equivalents for salaried individuals FTE under ACA is only for group health coverage Doesn’t affect other work rules or overtime Revisit collective bargaining agreement definition Month-by-month calculation Tracked monthly Part-time employee in one month may be a full-time employee in another month FTE Look-Back/Stability Safe-Harbor is available New Definition of Full-time Employee

32. Why is this important? Employers are encouraged to provide affordable medical coverage of minimum value to FTEs Employer tax penalties are based on a number of FTEs $2000 x number of FTEs for failing to offer coverage Lesser of (i) $3000 x number of FTEs offered coverage who instead gets a premium credit to purchase on the Exchange, or (ii) $2,000 x FTEs in excess of 30 Certain Lower-Paid FTEs are eligible for government subsidies (triggering employer tax penalties for employers with at least 50 FTEs) New Definition of Full-time Employee

33. ACA Full-Time Employee • No penalty tax is imposed on employers who do not provide group medical coverage, or affordable coverage or coverage of a minimum value to: • Part-Time Employees • Independent Contractors • Leased Employees • Seasonal (Temporary) Employees: (New rules regarding these employees) • Newly Hired Full-Time Employees during up to a 90-day waiting period (New rules regarding these employees)

34. “Unaffordable” is based on the cost (to the employee) of the employer’s lowest cost single only coverage as a percentage of an employee’s household income If the employee’s cost is more than 9.5% of the employee’s household income, coverage is “unaffordable” How is an employer to estimate an employee’s household income? Affordability Safe-Harbor Employer Tax Penalties

35. Realign workforce using ACA definition of FTE Articulate a benefits philosophy (i.e. what are you trying to accomplish with your health benefits?) Begin preliminary workforce analysis using ACA definition of FTE Estimate potential tax exposure, if any Continual realignment of workforce benefits to benefits philosophy to FTE workforce Consider realignment of workforce benefits to benefits philosophy to PTE workforce 2014– Group Insurance Strategy

36. Employer cost of medical coverage for the low-paid FTEs may be significantly greater than the tax penalty Employee cost of medical coverage on the Exchange may be significantly less than employer coverage when subsidies are available Decision: eliminate the possibility of government subsidies (and employer tax penalties); embrace them; ignore them; or something else? Depends upon your benefits philosophy, collective bargaining 2014– Group Insurance Strategy

37. Evaluate impact of the Exchange Could it change employee behavior? Employment practices (e.g. cash-in-lieu) relative to the Exchange What behaviors do you want to promote/discourage? Does the Exchange present an opportunity? Would it impact retention of different types of employee? Would employees near Medicare retirement age leave the workforce? 2014– Group Insurance Strategy

38. Give yourself an opener, to be able to adjust to the final guidelines – Flexibility is important Definition of FTE and PTE in CBA/MOU Coverage for Part-Time Employees Opportunities for subsidy-eligible employees Medicare retirees Early retirees 2014– Collective Bargaining

39. California Health Benefits Exchange

40. California Health Benefit Exchange • Has divided California into geographic regions and sub-regions • It has defined “plan” as consisting of Bronze, Silver, Gold and Platinum (“full metal tier”) levels of benefits including a catastrophic plan within a geographic region • A health insurance carrier can bid up to three plans for each geographic location • RFPs issued at end of September • Plans selected early 2013 • Recently received a $195 million grant, a portion of which is for marketing and outreach

41. California Health Benefit Exchange • Exchange is very concerned about: • Impact of adverse selection on it • Must be self-sustaining by January 1, 2015 • Pricing • Marketing and outreach • The California Healthcare Eligibility, Enrollment and Retention System (CalHEERS)

42. Wrap Up

43. Commentary • Health Care Reform is now part of the California landscape and is not going away in California, regardless of the outcome of the elections • Divide into three broad categories • Compliance • Employees • Workforce Strategy • Strategic planning should not be delayed

44. Keenan & Associates is an insurance brokerage and consulting firm. It is not a law firm or an accounting firm. We do not give legal advice or tax advice and neither this presentation, the answers provided during the Question and Answer period, nor the documents accompanying this presentation constitutes or should be construed as legal or tax advice. You are advised to follow up with your own legal counsel and/or tax advisor to discuss how this information affects you. Thank You . . .