THE AFFORDABLE CARE ACT: PAST, PRESENT & FUTURE October 20, 2015

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1 HEALTH WEALTH CAREER THE AFFORDABLE CARE ACT: PAST, PRESENT & FUTURE October 20, 2015 CHERYL RISLEY HUGHES WASHINGTON, DC

2 Key Elements of Health Care Reform for Employers 2010 Accounting impact of change in Medicare retiree drug subsidy tax treatment Medicare prescription drug donut hole beneficiary rebate Break time/private room for nursing moms 2011 MERCER Change in tax treatment for over-age child coverage Early retiree medical reinsurance Child coverage to 26 (grandfathered plans may limit to children without access to other employer coverage, other than parent s coverage) 1 No pre-existing condition limitations for enrollees up to age 19 1 and no rescissions 1 No health FSA/HRA/HSA reimbursement for nonprescribed drugs (except insulin) Increased penalties for non-qualified HSA distributions Additional standards for non-grandfathered health plans, including preventive care in-network with no cost-sharing, coverage of emergency services inand out-of-network, appeal and external review, provider choice, and non-discrimination rules for insured plans 3 Income-based Medicare Part D premiums Pharmaceutical importers and manufacturers fees start Insurers subject to medical loss ratio rules 2012 No lifetime dollar limits on essential health benefits 1 Restricted annual dollar limits on essential health benefits; phased amounts until Form W-2 reporting for health coverage (track in 2012 for W-2 form provided in early 2013) 4 Coverage for additional women's preventive care services Employers to distribute uniform summary of benefits and coverage (SBC) to participants 60-day advance notice of mid-year material modifications to SBC content Health insurance exchange coverage begins Individual coverage mandate 5 Financial assistance for exchange coverage of low- and middle-income individuals State Medicaid expansion (only in some states) Child coverage to age 26 for any covered employee s child 2 No annual dollar limits on essential health benefits 2 (generally banning stand-alone HRAs for active employees) No pre-existing condition limits 2 No waiting period over 90 days (plus 1-month employment-based orientation period) 2 $2,500 (indexed for inflation) per plan year health FSA contribution cap (plan years on or after January 1, 2013) Comparative effectiveness research (PCORI) fees first due (7/31) for calendar year plans (and 11/1 and 12/1 plans) Employers notify employees about exchanges by Oct. 1, 2013; to new hires thereafter Medical device manufacturers fees start Higher Medicare payroll tax on wages exceeding $200,000/individual; $250,000/couples Change in Medicare retiree drug subsidy tax treatment takes effect Health Insurance exchanges initial open enrollment period (10/1/13 3/31/14) Wellness limit increase allowed 2 Health insurance industry fees Additional standards for non-grandfathered health plans, including limits on in-network out-of-pocket maximums, provider nondiscrimination, and coverage of routine patient costs of clinical trial participants Small market, non-grandfathered insured plans must cover essential health benefits using a form of community rating Insurers must apply guaranteed issue and renewability to nongrandfathered plans of all sizes Health Insurance exchanges 2015 open enrollment period (11/15/14 2/15/15) Comparative effectiveness research (PCORI) fees first due (7/31) for non-calendar year plans (except 11/1 and 12/1 plans) & Employer shared responsibility 6 Transitional reinsurance fees first due in early/late 2015 Additional employer and insurer reporting and disclosure (reporting due in early 2016) 40% excise tax on high cost or Cadillac employer-sponsored health coverage Footnotes 1. Applies to all plans, including grandfathered plans, effective for plan years beginning on or after 9/23/2010 (1/1/2011, for calendar year plans). 2. Applies to all plans, including grandfathered plans, effective for plan years beginning on or after 1/1/ Applies to non-grandfathered plans, effective for plan years beginning on or after 9/23/2010, except that insured plan discrimination ban is delayed until regulations issued. 4. A temporary exemption applies to certain categories of employers. 5. A temporary exemption applies to employees of employers with noncalendar-year plans, as well as individuals who enroll in an Exchange plan by 3/31/2014. Other exemptions may also apply. 6. Effective 2015 for applicable large employers with 100 or more full-time employees; effective 2016 for applicable large employers with 50 or more full-time employees. Transition relief for non-calendar year plans may apply.

3 MISCELLANEOUS REGULATORY DEVELOPMENTS MERCER MERCER

4 Proposed overhaul of form 5500 key changes affecting H&B Plans Form 5500 NEW Schedule J - All group health plans, regardless of size, must complete Small insured or unfunded group health plans lose exemption Sch. J information reporting includes questions about: Plan features Examples: individuals offered coverage (including COBRA), types of benefits, whether benefits are insured Service provider and stoploss insurance information Examples: service providers not otherwise reported like mental health benefit managers and wellness program managers, premiums for stop-loss, stop-loss attachment points Financial information Examples: employer and employee contributions, failures to transmit participant contributions timely Health benefit claims processing and payment Examples: number of claims processed and status, whether benefit determinations and appeal decisions made timely Compliance information Examples: certify compliance with plan asset rules; SPD, SMM, SBC requirements; HIPAA and ACA MERCER

5 Proposed overhaul of form 5500 key changes affecting H&B Plans DOL considering whether to require plans to report more information on denied claims (including valuing them, providing denial codes) DOL asking for comments on whether Sch. J can be used to satisfy ACA transparency and quality of care reporting DOL considering a claims database with specific data on claims payment and plan finances MERCER

6 ACA Reporting update IRS issued proposed regulations on MEC reporting 2015 MEC Corrections Accepted with errors has been common through AIR system and usually due to TIN mistakes But appears that IRS error message doesn t trigger TIN solicitation process to correct Employers may still want to develop strategy for dealing with error messages, even if not formal TIN solicitation process 2016 MEC Reporting Make sure complying with TIN solicitation process for initial requests and subsequent requests Duplicative and supplemental MEC (same as prior guidance) MERCER

7 Overview: ACA nondiscrimination rules ACA Section 1557 bars discrimination on the basis of RACE, COLOR, NATIONAL ORIGIN, AGE, DISABILITY OR SEX in health programs or activities receiving federal financial assistance from HHS Applies existing civil rights laws. Regulations apply existing rules under several civil rights laws, including title VI (race, color, national origin) and title IX (sex) of the Civil Rights Act of 1964, the Rehabilitation Act (disability), and the Age Discrimination Act (age), to employer subject to the rules. Health programs or activities. Includes the provision/administration of health-related services or coverage. Federal financial assistance from HHS. HHS funds include grants, loans, subsidies etc. other than a procurement contract but including a contract of insurance. Includes payments or subsidies from HHS, including premium tax credits provided to insurers on public exchanges. Generally PROVISION Regulations most provisions July 18, 2016 Required notice posting and taglines Oct. 16, 2016 EFFECTIVE DATE Statutory provision has been in effect since ACA passed Required changes to plan design Plan years beginning on/after Jan. 1, 2017 MERCER

8 Specific protections in 1557 final rules key provisions for employers ADMINISTRATIVE STANDARDS Covered entities with at least 15 employees must designate an employee responsible for coordinating compliance; adopt grievance procedure (model available) Posting and notice of rules in significant disclosures (a general nondiscrimination statement; a longer more specific statement); tagline rules; models available PROHIBITS NATIONAL ORIGIN DISCRIMINATION Covered entities must provide meaningful access to information to those with limited English proficiency (e.g., language assistance) PROHIBITS DISABILITY DISCRIMINATION Covered entities must provide effective communication and access for individuals with disabilities (e.g., auxiliary aids and services; access to facilities & to electronic and information technology) PROHIBITS SEX DISCRIMINATION Discrimination based on gender identity is sex discrimination. Also includes discrimination based on pregnancy MERCER

9 Opt-outs proposed rule Transition rule may apply until opt-out rules are final MERCER

10 APPENDIX LIST OF SELECTED ACA REQUIREMENTS: PAST, PRESENT, AND FUTURE MERCER MERCER

11 Beginning in 2010 Health plan standards all plans Effective for plan years beginning on or after Sept. 23, 2010 Insured and self-insured plans: If coverage is offered to covered employee s sons, daughters, stepchildren, foster children, adopted children or children placed for adoption, that coverage must be offered to age 26 (regardless of whether tax dependent, student, married, or residing with employee) If grandfathered, can limit offering to those adult children without access to other employer coverage until 2014 except for other parent coverage Treat the coverage as federally tax-free until the end of the year in which the child turns age 26 (effective March 30, 2010) No lifetime dollar limits on essential health benefits Restrict annual dollar limits on essential health benefits Some plans (e.g., mini-meds) had waivers until 2014 No pre-existing condition exclusions for any enrollee under age 19 No rescissions of coverage 10

12 Beginning in 2014 Health plan standards all plans Effective for plan years beginning on or after Jan. 1, 2014 Insured and self-insured plans Offer coverage to dependent children to age 26 regardless of access to other employer coverage No preexisting condition exclusions No waiting periods (i.e., eligibility conditions based solely on lapse of a time period) exceeding 90 days Eligibility conditions not based solely on time period are permitted (e.g., being in an eligible job classification or achieving job-related licensure requirements; 1,200 cumulative hours of service), unless the conditions are designed to avoid compliance with the 90-day limitation. Waiting period longer than 90 days may be permitted for certain new hires (i.e., variable hour or seasonal employees) under agency guidance. A reasonable and bona fide employment based orientation period not to exceed one-month may precede the 90 day waiting period. No annual dollar limits on essential benefits HRAs with annual limits (and not otherwise exempt from health plan standards) to be integrated with other group health plan coverage that satisfies the ban on annual and lifetime limits on essential health benefits. Guidance provides detailed rules for determining whether an HRA is "integrated" with group health plan coverage. HRA plan design changes may be needed to ensure that it is "integrated" with group health plan coverage. 11

13 Beginning in 2010 Health plan standards nongrandfathered plans* Effective for plan years beginning on or after Sept. 23, 2010 * See page 8 for the definition of a grandfathered plan. Insured and self-insured plans must: Provide mandated preventive services in-network with no cost-sharing (additional women s preventive services must be included for plan years beginning on or after 8/1/2012) (certain religious exemptions apply for eligible non-profits and closely-held for-profit corporations) Establish and provide notice of internal and external appeals procedure Add to ERISA internal claim and appeal procedures Offer external review satisfying applicable procedures Provide emergency services coverage Cannot be limited to in-network providers Cannot include higher cost-sharing for out-of-network providers Cannot require preauthorization If requiring or providing for primary care physician designation Allow designation of any participating primary care physician or pediatrician Not require preauthorization or referral for OB/GYN services 12

14 Beginning in 2014 Health plan standards nongrandfathered plans* Effective for plan years beginning on or after Jan. 1, 2014 Insured and self-insured plans Mandated coverage of certain costs in connection with clinical trials Annual cost-sharing requirements Limits on annual out-of-pocket expenses, initially tied to the maximum for HDHPs used with HSAs (in 2014, $6,350 for an individual, $12,700 for family coverage; in 2015, $6,600 for an individual, $13,200 for family coverage) Provider nondiscrimination Insured plans guaranteed availability and renewability of coverage Small market insured plans must cover essential health benefits, using a form of community rating *A grandfathered plan is one covering at least one person on March 23, 2010 and has continued to cover at least one person. Plans won t lose grandfathered status for voluntary changes made to increase benefits or adopt consumer protections in the health reform law, or to conform with legal rules. But plans will have only limited ability to decrease covered benefits, increase enrollees contributions or cost sharing, or change annual or lifetime limits without losing grandfathered status. For insured policies taking effect on or after Nov. 15, 2010, changing carriers or policies does not cause a loss of grandfathered status. (Prior to that date, insured plans generally could not change carriers without losing such status.) Coverage subject to a Collective Bargaining Agreement (CBA) ratified before Mar. 23, 2010, generally must comply with the same coverage and cost-sharing standards at the same time non-grandfathered plans must comply. However, insured CBA coverage pursuant to an agreement ratified before Mar. 23, 2010 will be considered grandfathered until the last CBA relating to the coverage expires. 13

15 Effective Date Unclear Insured health plan nondiscrimination rule Effective date unclear Apply only to non-grandfathered insured health plans Self-insured group health plans continue to be subject to nondiscrimination rules in Code Section 105(h) Originally to be effective for non-grandfathered health plans for plan years beginning on or after Sept. 23, 2010, it will not apply until regulations or other guidance is issued Guidance will take effect for plan years beginning a certain period after its publication 14

16 Beginning in 2011 No reimbursement for over-the-counter drugs No reimbursement for over-the-counter drugs from a health plan, health flexible spending account, health reimbursement arrangement, or health savings account Reimbursements limited to physician-prescribed drugs and insulin Increased penalty for nonqualified HSA distributions Tax on pharmaceutical manufacturers Part D premium increase for highincome individuals Medicare Advantage payment reductions Penalty for using health savings account (HSA) funds for nonqualified medical expenses (including over-the-counter drugs) will increase to 20% (in addition to income tax) Annual fee begins for pharmaceutical manufacturers and importers Medicare beneficiaries with high incomes face higher Medicare Part D premiums Medicare Advantage plan payments for 2011 are frozen at 2010 levels, and reductions were scheduled to be phased in starting in

17 Beginning in 2012 Minimum medical loss ratio rules for insurers All insured (but not self-insured) group health plans must meet minimum medical loss ratios (MLR) in states without MLR waivers: 85% if employer has more than 100 employees (large) 80% if employer has 100 or fewer employees (small) Insurer determines for each state, aggregating all small group policies together, and separately aggregating all large group policies together Rebates when loss ratio below minimum threshold Insurers must pay any MLR rebate due to group policyholder (generally, the employer), and insurers must notify the plan participants, by August 1 st following 2011, 2012, and 2013 calendar years (HHS has proposed changing to September 30 th following 2014 calendar year) Employer may have to apply some or all of MLR rebate for benefit of plan participants if employee contribution is required; detailed analysis may be required Relaxed MLR goals progressively increase from 2011 until 2014 for minimed and expatriate plans Expatriate plans have further exemptions until 2016 ERISA plan sponsor must follow applicable DOL guidance in determining how to use MLR rebate (other rules apply to non-erisa plans) 16

18 Beginning in 2012 Form W-2 reporting Uniform summaries of benefits and coverage (SBC) Employers must report the aggregate cost of an employee s health coverage A temporary exemption applies to certain employers filing fewer than 250 Forms W-2 Aggregate cost to be determined using methodology similar to that for determining COBRA premiums (excluding pre-tax health FSA contributions, employee HSA contributions) Reporting first required for 2012 on W-2 forms typically issued in early 2013 Extended transition relief for certain types of coverage and certain employers Short summary of health plan benefits and coverage, prepared according to government-supplied template Compliance required for open enrollments starting on or after 9/23/12 (for new hires and special enrollees for plan years starting on or after 9/23/12) Must provide SBC at initial enrollment and annual enrollment Includes information about covered benefits, exclusions, cost-sharing and continuation coverage In addition to SPD and other currently required disclosures 60-day advance notice of SBC changes Compliance is required when plans begin issuing uniform summaries of benefits and coverage (SBC) Must give 60-days prior notice before making any mid-year material modifications that affect SBC content 17

19 Beginning in 2013 $2,500 health FSA contribution cap Employee contributions to health FSAs capped at $2,500 per plan year Applies to plan years beginning on or after Jan. 1, 2013 $2,500 must be prorated for short plan years Amounts carried over into a grace period do not count against $2,500 for next plan year Unused amounts of up $500 carried over into next plan year do not count against $2500 for next plan year, but prevent any HSA contributions. Plans must be amended by Dec. 31, 2014 Adjusted annually for increases in the cost of living for plan years beginning on or after Jan. 1, 2014; Mercer projects the limit to be $2,550 in Health insurance exchange notice Employers must notify employees about health insurance exchanges, including availability of federal assistance to buy exchange-based coverage if an employer s plan pays less than 60% of covered benefits, and loss of employer contribution for any coverage purchased on the exchange Model notice issued Employers must distribute to employees by Oct. 1, 2013, and upon hire to new employees on or after that date; no annual notice requirement New taxes for high-income households Tax on medical devices 0.9% increase in Medicare payroll tax on wages exceeding $200,000/ individual; $250,000/couples A 2.3% tax applies to medical devices 18

20 Beginning in 2013 Health insurance exchange enrollment period Initial open enrollment period began on Oct. 1, 2013 for Exchange coverage effective in 2014 For Exchange coverage starting in 2015, open enrollment will run from Nov. 15, 2014 Feb. 15, For Exchange coverage starting in 2016 or later years, open enrollment will likely run from Oct. 7 Dec. 15 of the prior year Fee on group health plans to fund Patient- Centered Outcomes Research Institute (PCORI) Insurers and sponsors of self-insured plans (often the employer) will have until the July 31st of the calendar year immediately following the last day of the plan year to file IRS Form 720 and pay fee (first was due July 31, 2013 for plan/policy year ending on/after Oct. 1, 2012, and before Jan. 1, 2013) The first year s fee is calculated as the average number of covered lives under a policy or plan multiplied by $1. The multiplier increases to $2 for the next plan year, then will rise with health care inflation through plan years ending before Oct. 1, 2019, when the fees are slated to end. IRS has issued final rules on which plans must pay PCORI fees and methods for counting covered lives Plan sponsors of self-insured plans generally can use any reasonable method to determine the average number of covered lives in the first plan year, and will choose from available approaches in later years Used to fund federal research on comparative effectiveness research Sunsets in

21 Beginning in 2014 Health Insurance Exchanges Federal funding for states to create health insurance exchanges to facilitate purchase of insurance by individuals and Small Business Health Options Programs (SHOPs) to facilitate coverage for small groups Federal government will establish ones in states failing to do so or will partner with states to establish and operate Employer size for SHOPs initially limited to employers with fewer than 100 employees (until 2016, states may limit participation to employers with fewer than 50 employees) Federal threshold for SHOPs gradually rises to 100 or more in 2017, with state flexibility to let employers of any size participate HHS has proposed a full-time equivalence method to determine employer size, to be effective in 2016 for state-operated SHOPs and 10/1/13 for federally-facilitated SHOPs Income-based assistance for exchange plans for individuals with household incomes at or below 400% of federal poverty level not eligible for minimum essential coverage Individual coverage mandate Individuals must obtain minimum essential coverage Certain exceptions (e.g., lowest cost plan exceeds 8% household adjusted gross income, no coverage for less than 3 months, income below the income tax filing threshold) Penalty would be the greater of a flat dollar amount ($95 in 2014, $325 in 2015, 20 rising to $695 in 2016) or a specified percentage of income

22 Beginning in 2014 Medicaid Expansion Wellness incentive limit increased to 30% Plan years beginning on or after Jan. 1, 2014 New Industry fees Significant federal funding offered to states to expand Medicaid by including a new group low-income, childless adults and by increasing Medicaid s mandatory income eligibility level from 100% to 133% of the FPL (effectively 138% of the FPL) Supreme Court decision allows states to opt not to expand Medicaid and still receive federal funds for the rest of their Medicaid program. This has resulted in state variation in Medicaid programs A state s failure to expand Medicaid could have a significant impact on employer shared responsibility due to the corresponding increase in subsidized exchange coverage Annual limit on group health plan wellness incentives based on health status increased to 30% (up from 20%) of the total cost of coverage; up to 50% for wellness programs aimed at reducing tobacco use Reasonable alternative standards must be provided for health contingent wellness programs. Conditions relating to the reasonable alternative standards vary for activity-only wellness programs vs. outcome-based wellness programs. Health insurer fees begin 21

23 Beginning in 2014 Transitional reinsurance fees Annual fee from to fund a transitional reinsurance program to help stabilize the individual insurance marketplace, and to provide revenue to the federal government Insurers and sponsors of self-insured plans ( contributing entities ) are liable for fee; ASO may transfer the fee on behalf of self-insured health plan, at plan s discretion $63 per enrollee for 2014; $44 per enrollee in for 2015; Mercer projects the fee to be $25 per enrollee in 2016 Fee paid in either one installment or two (unequal) installments: One in first quarter of calendar year following applicable fee year ($52.50 due in Jan for 2014 calendar year) One in last quarter of calendar year following applicable fee year ($10.50 due in Nov for 2014 calendar year) CMS has stated that contributing entities are allowed to pay the fee in one installment by January 15 Must pay fee on calendar year basis even if non-calendar year plan Mechanism for payment is 22

24 Beginning in 2014 Transitional reinsurance fees (continued) Timeline for 2014 payment By Nov. 15, 2014 contributing entity submits to HHS the average number of covered lives Once the average number of coverage lives enrollment count is submitted, HHS notifies contributing entity of the fee amount due By Jan. 15, st installment payment due to HHS By Nov. 15, nd installment payment (if elected) due to HHS has issued guidance on which plans must pay the temporary insurance fees and methods for counting covered lives 23

25 Employer shared responsibility penalties in 2015 Employer Shared Responsibility in 2015 In 2015, shared responsibility provision applies to employers with 100 or more full-time and full-time equivalent employees. For purposes of determining whether employer has 100 or more full-time and full-time equivalent employees, full-time equivalents based on separate statutory formula. Employers not offering coverage to at least 70% of its full-time employees ( FTEs ) pay an assessment Up to $2,080*** for every FTE if at least one FTE receives income-based premium tax credit to buy coverage through new public health insurance exchanges Assessments do not apply to first 80 FTEs. Employers offering coverage to at least 70% of FTEs (and their children through the end of the month in which they turn age 26) that is unaffordable (i.e., employee* contribution constitutes more than 9.5% of household income or affordability safe-harbor) or pays less than 60% of benefits** covered by the plan (i.e., 60% minimum actuarial value) may be subject to an assessment Up to $3,120*** for each FTE receiving income-based premium tax credit to buy coverage through public health insurance exchanges Assessments capped at $2,080*** times total number of FTEs - not counting first 80 FTEs *Affordability measured using self-only contribution rate for lowest-cost plan that provides minimum value **Minimum value determined using calculator or actuarial certification; guidance states that insured plans in the large market and self-insured plans are not required to offer essential health benefits. ***Mercer estimate based on 2015 HHS inflation adjustment. Payments will increase annually to reflect the projected average national increase in health insurance premiums. 24

26 Employer shared responsibility penalties in 2016 and beyond Employer Shared Responsibility in 2016 and Beyond In 2016, shared responsibility provision applies to employers with 50 or more full-time and full-time equivalent employees. For purposes of determining whether employer has 50 or more full-time and full-time equivalent employees, full-time equivalents based on separate statutory formula. Employers not offering coverage to at least 95% of its full-time employees (FTEs) pay an assessment Up to $2,080 (indexed)*** for every FTE if at least one FTE receives income-based premium tax credit to buy coverage through public health insurance exchanges Assessments do not apply to first 30 FTEs. Employers offering coverage to at least 95% of FTEs (and their children through the end of the month in which they turn age 26) that is unaffordable (i.e., employee* contribution constitutes more than 9.5% of household income or an affordability safe-harbor) or pays less than 60% of benefits** covered by the plan (i.e., 60% minimum actuarial value) may be subject to an assessment Up to $3,120 (indexed)*** for each FTE receiving income-based premium tax credit to buy coverage through public health insurance exchanges Assessments capped at $2,080 (indexed)*** times total number of FTEs - not counting first 30 FTEs *Affordability measured using self-only contribution rate for lowest-cost plan that provides minimum value **Minimum value determined using calculator or actuarial certification; guidance states that insured plans in the large market and self-insured plans are not required to offer essential health benefits. ***Mercer estimate based on 2015 HHS inflation adjustment. Payments will increase annually to reflect the projected average national increase in health insurance premiums. 25

27 Employer Shared Responsibility in 2015 and Beyond Employer shared responsibility Final regulations explain what it means to offer coverage Offering coverage to all but 70% of its full-time employees in 2015 and all but 95% of its full-time employees in 2016 and beyond. Offering coverage to employee s children through the end of the month in which they attain age 26 (as defined in the tax code which includes biological and adopted children but not stepchildren and foster children) Offer to spouses or domestic partners not required Effective opportunity to enroll at least once per year Full-time employees (FTEs) defined as employees working 30 or more hours per week on average in a month. Two options to measure who is a FTE: Monthly Method Look-Back Method For both the Monthly Method and Look-Back Method, 30-hour per week is converted to 130 hours per month (with some flexibility to use four or five week periods for monthly method and payroll periods for look-back method). 26

28 Employer Shared Responsibility in 2015 and Beyond Employer shared responsibility Using the Monthly Method, employers determine whether an employee is full-time in real time. Count hours of service each month. Some flexibility for employers who want to measure hours of service on a weekly basis. Using the Look-Back Method, Employer may choose a lookback measurement period (of 3 to12 months) to determine whether ongoing and newly hired variable hour or seasonal employees work more than 30 hours per week Stability period of at least 6 months (and no shorter than measurement period) follows during which this determination governs FTE status (and whether employees must be offered coverage) Employers have the option of taking up to 90 days between a measurement and a stability period to facilitate enrollment (an administrative period ) An initial transition measurement period that is shorter than the 2015 stability period may be permitted if the measurement period (1) begins no later than July 1, 2014 and ends no later than 90 days before the first day of the 2015 plan year, and (2) is not less than 6 consecutive months. 27

29 Beginning in 2015 Employer reporting requirements Employers required to report certain information on employer-provided health coverage. Minimum Essential Coverage Reporting ( 6055; Forms 1094-B and 1095-B) used to administer individual mandate penalties Entities that provide minimum essential coverage (including employers sponsoring self-insured plans, insurance issuers and government sponsored plans) must report information about the plan and each enrollee. Employer Share Responsibility Reporting ( 6056; Forms 1094-C and 1095-C) used to administer employer shared responsibility penalties and to assist individuals in determining eligibility for premium tax credits. Large employers must report monthly counts of full-time employees and information about any health coverage offered to each full-time employee. The first IRS filings and employee statements with 2015 information will be due in early Employee Information Statements due by January 31 of the year following the year of coverage IRS Reports due by March 31 for e-filers (February 28 for paper filers) of the year following the calendar year of coverage. The IRS has issued updated 2016 forms and instructions 28

30 Beginning in 2020 Excise tax on high cost coverage Effective for all plans in % excise tax starting in 2018 on high cost employer sponsored coverage. Employees include former employees and surviving spouses. Tax is on the excess benefit (the amount over the below dollar caps.) Initial cap set at $10,200/single and $27,500 family Higher thresholds ($11,850/$30,950) for retirees age and workers in high-risk professions Higher threshold ($27,500) for single multiemployer plan coverage Indexed to CPI (for 2019 only, CPI+1%) Aggregate cost determined using a methodology similar to that used for determining applicable COBRA premiums Employers must determine aggregate cost; each coverage provider owes the tax on its applicable share of the excess benefit (insurers and benefit administrators will likely pass the cost of this tax on to employers). Coverage providers are Insurers for insured coverage. Person that administers the plan benefits for self-insured coverage. Employers for employer contributions to HSA or Archer medical savings account (MSA). No guidance has been issued yet. 29

31 Beginning in 2020 Excise tax on high cost coverage (continued) Effective for all plans in 2020 Coverage considered in determining if the high cost threshold is exceeded includes: Employee and employer share of group health plan premium (including executive medical benefits and possibly international plans); Contributions to (and certain reimbursements from) a health FSA Employer contributions to a HSA or an Archer MSA. HRAs. Most employer sponsored on-site clinics. Employee Assistance Programs w/ counseling Further guidance needed to determine whether the following coverage is included: Employee HSA or Archer MSA contributions if made through pretax salary reduction; Stand alone, self-insured dental and vision plans Excise tax will not apply to the following types of coverage: Stand alone, insured dental and vision plans; Specified disease or illness coverage, or hospital or other fixed indemnity insurance, if employee-pay-all on an after-tax basis; Long-term care; Accident or disability insurance; Liability insurance, including any automobile or supplemental liability insurance; Workers compensation; and Automobile medical payment insurance. 30

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33 Attendee understands that Mercer is not engaged in the practice of law and this presentation, which may include commenting on legal issues or regulations, does not constitute and is not a substitute for legal advice. Accordingly, Mercer recommends that Attendee secures the advice of competent legal counsel with respect to any legal matters related to this presentation or otherwise. The information contained in this document and in any attachments is not intended by Mercer to be used, and it cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or imposed by any legislative body on the taxpayer or plan sponsor. MERCER 32