Domino s Pizza Franchisee Association

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1 Domino s Pizza Franchisee Association March 18, 2013 Presented by Trey Darby L O C K T O N C O M P A N I E S

2 Time for Action This insurance mandate will cost the franchise industry $6.4 billion and put 3.2 million jobs at risk Hudson Institute Study Many stores will have to cut worker hours out of necessity. It could be the difference between staying in business or going out of business. Stephen Caldiera, President of the International Franchise Association 1

3 Time for Action Pessimism becomes a self-fulfilling prophecy; it reproduces itself by crippling our willingness to act. Howard Zinn, You Can t Be Neutral on a Moving Train: A Personal History of Our Times 2

4 Patient Protection & Affordable Care Act Basics

5 Health Reform Discussion Objectives 4

6 Health Reform What are the Rules?

7 Big Picture Employer Mandates ( ) * Benefit & Eligibility Provisions Communication & Documentation Reporting Employee Mandates (2014) Individual Coverage * Illustration highlights major categories and does not list all mandates Healthcare Reform Liability: Pay or Play Decisions Highly Compensated Employees: 0.9% Medicare tax 3.8% passive income tax FSA limit ($2,500) 40% excise tax ( Cadillac tax ) 6

8 Overview of Mandates and Taxes Children to 26 MANDATES Removal of lifetime and annual limits Limit on waiting periods 100% coverage for preventive Women s health services (including contraceptives) Obesity screening and counseling New appeals process W2 reporting of plan values SBCs Emergency room coverage Non discrimination for Fully Insured (postponed) OBGYN treated as primary TAXES Limit of FICA tax deduction on healthcare FSAs No tax deduction for nuclear penalty No tax deduction for individuals buying coverage on the exchange Medicare payroll tax increasing (salary $200,000+) Patient-Centered Outcomes Research (PCORI, aka Consumer tax) Tax on pharmaceutical manufacturers Tax on medical device makers Transitional Reinsurance Tax on health insurance carriers (est. 2.2%) Tax on federal exchange (new 11/30/12) Auto enrollment (deferred) Coverage for clinical trials Out of Pocket maximums limited 7

9 State Actions to Address Health Insurance Exchanges as of February 2013 Source: National Conference of State Legislatures 8

10 Individual Mandate All Individuals Must Have Minimum Essential Coverage Minimum Essential Coverage is a relatively low bar. Can be met through: Medicare Medicaid Some limited medical plans CHIP TRICARE VA coverage Any public exchange-based plan, OR Any employer s medical plan Tax Year Tax/penalty for no coverage Individual Mandate Tax/Penalty: The Greater of A or B A % of Income Per Adult Per Child B FamilyCap % $95 $48 $ % $325 $163 $ % $695 $348 $2,085 9

11 Employer Play or Pay Quick Review Applies in 2014 Applies to employers who averaged at least 50 full-time/full-time equivalent employees in the controlled group on business days of prior calendar year FTEs (30 hours per week) for each month FTEq for each month (total PT hours/divided by 120)* Divide by 12 * Don t count more than 120hrs/month for any PT employee Disregard seasonal employees if employer exceeded 50 FTE/FTEq for 120 days/four months or less, due to seasonal employees 10

12 Employer Play or Pay Pay option: No coverage is offered, employer subject to penalty $2,000 penalty applies if: The employer does not offer coverage to 95% of FTE s & their dependent children Children up to age 26 (biological, step, foster, adopted) Does not include spouses Non tax-deductible The $2,000 penalty is: Charged for all FTE s (minus the first 30) Penalty applied by Employer Identification Number (EIN, not control group) Play or Pay penalty EIN Minus 30 to calculate penalty Controlled Group prorated 11

13 Employer Play or Pay Qualifying & Affordable Coverage: May be offered in order to avoid Penalty ($3k) Must be offered to employees and dependent children Employer s Play or Pay Must be affordable based on 9.5% of W-2 or Federal Poverty Level Affordable Cost: 9.5% W-2 or FPL 12

14 Percent Subsidy Option 1: PAY Move ALL employees to public exchange Medicaid $3,000/year is less than $7,000/year spend Save employer money Transfer costs from employer to employees 100% Lower income employees benefits from exchange based on subsidy Public Exchange Higher income employees pay more personally Today 15:1 rate differential :1 rate differential 0% $0 $20 $40 $60 $80 $100 $120 $88k Income (k) 13

15 Subsidy Eligibility Impacts Penalties & Surcharges Employer PLAYS... Exposure to a $3,000 surcharge for each FTE, if: The FTE s income is < 400% Federal Poverty Level (FPL) The employee is not offered affordable coverage by employer, AND The employee obtains coverage on a federally subsidized basis on the public exchange The Employee s Insurance Exchange Subsidy Household income between % of Fed Poverty Level 14

16 Comparison: Gold, Minimum Value & Minimum Essential Coverage Actuarial Value Est. Gross Annual Cost Preventive Deductible Office Visits Coinsurance OOP Maximum Gold 85% $9,000 No OOP Cost $250 $25 20% $2,000 Minimum Value 60% $5,000 No OOP Cost $3,500 40% 40% $6,350 Minimum Essential Coverage (MEC) 40% $2,000 Self-Funded No OOP Cost $1,500 MEC Insured Indemnity $60 indem, 6 max $500/day, 10 day max n/a 15

17 Pay or Play: Affordability Expanded Affordability Safe Harbors W-2 Pay (old safe harbor) New Employee s (Ees) rate of pay, advantages: W-2 s don t include pre-tax deductions Ees reducing hours = reduced pay Federal Poverty Level in the state the employee works 16

18 Legal Traps Worker Misclassification Overbroad use of look-back rules ERISA 510 Impermissible interference with benefits Grandfathered status Controlled Group complexities Violations of ACA mandates Cadillac Tax 17

19 Other Penalties Any other failure to comply can result in excise tax $100/day with respect to each individual to whom such failure relates Maximum for unintentional failure is the lesser of: 10% of the total spend of the group health plan for preceding year; or $500,000 E.g., Hobby Lobby $1.3 million per day 18

20 Health Reform - Industry Impact

21 Cost Impact by Industry Cost of Health Reform Not Including Trend SECTOR Mandates Grandfathered Mandates Taxes Total through 2013 Mandates Grandfathered Mandates Taxes New Entrants Penalties Total 2014 Construction 1.4% 2.3% 0.0% 3.7% 0.0% 3.1% 3.1% 5.6% 0.0% 15.7% Energy 1.7% 2.3% 0.0% 4.0% 0.0% 3.1% 0.9% 2.4% 0.0% 6.4% Government 1.0% 2.3% 0.0% 3.3% 0.0% 3.0% 2.7% 1.6% 0.0% 7.9% Hospitals 1.3% 2.3% 0.0% 3.6% 0.0% 3.0% 3.0% 9.0% 0.0% 13.3% Manufacturing 1.5% 2.3% 0.0% 3.8% 0.0% 3.1% 2.3% 4.6% 0.0% 10.2% Professional 1.0% 2.3% 0.0% 3.3% 0.0% 3.0% 2.8% 5.1% 0.0% 10.8% Education 0.3% 2.3% 0.0% 2.5% 0.0% 3.1% 3.1% 4.4% 0.0% 10.5% Transportation 1.4% 2.3% 0.0% 3.7% 0.0% 3.1% 1.2% 5.1% 0.0% 13.0% Restaurant 1.2% 2.3% 0.0% 3.5% 0.0% 3.1% 3.0% 14.5% 1.9% 25.0% Restaurant (limited med or no coverage) Restaurant (traditional coverage for all) 1.2% 2.3% 0.0% 3.5% 0.0% 3.2% 3.1% 60.7% 45.0% 135.6% 1.2% 2.3% 0.0% 3.5% 0.0% 3.1% 1.6% 6.3% 0.1% 14.2% Based on a January 1 effective date (non calendar year plans will have the impact hit at different times) All %s are compared to projected cost for these years had reform not happened is showing all changes required through shows the incremental cost over what happened in Taxes in 2014 will vary between 1.5% and 4% depending if the group is self funded or fully insured (the large impact applying to fully insured). The impact could be more for small groups. 20

22 Value of Plan* Where Do Restaurant Franchises Fit In? Professional Firms Characteristics of Service Firms Mix of FT and PT employees In some instances, not all employees qualify for coverage Manufacturing Firms Lower-paid workforce Average actuarial value health plans Financial Impact of Health Reform Services Firms More moderate employer-subsidized health plans Low participation Low cost PEPY *Value determined by actuarial plan value, level of employer subsidy, level of wages and employee uptake of plan. The higher all four, the greater the value. 21

23 What s Next? Modeling your Options

24 Three Key Items 1. Get Started! Lead the team Planning reduces fear Get it off your plate or start making changes 23

25 Three Key Items 2. Quantify Before You Modify! Know the numbers Assess the impact Strategically make business decisions Reevaluate the numbers 24

26 Three Key Items 3. Potential Outcomes Build employee loyalty Reduce turnover Attract key employees Balance cost of compliance with business goals 25

27 What is the Impact to Your Workforce & Growth? Your workforce demographics Your growth plans Your competitive employment environment Health Reform Solution The cost pressures of Health Reform There is an opportunity for franchisees to proactively plan rather than simply adjust to health care costs 26

28 Planning a Path to Compliance

29 Why Pay, Play, or Optimize? 2013 Before Reform Pay Play Optimize $62,400 $220,000 $728,000 $185, managers x $5, FTE (minus 30) $2,000 penalty 110 x $2, managers 340 total EEs 140 FTE (minus 30) 140 x $5, total EEs x $3,500 Restaurant Profile Four restaurants 12 managers 140 full-time employees 340 total employees 28

30 How Many Employees Likely to Enroll in Coverage? Total # of full-time employees Employer mandate requires coverage offered to full-time employees (work 130 hours per month/30 hours per week) Less # in Measurement Period Variable and Seasonal employees may be eliminated from offering until full time status is determined Less # of <26 years who opt out Less # eligible for government programs Less # other opt-outs # covered by plan Employees less than 26 years old may elect to get coverage under parent s plan Employees eligible for Government programs (i.e. Medicaid, Medicare, Tricare, Indian Nation) not likely to elect employer coverage Other employees may opt out due to cost or availability of coverage through spouse; employer only required to offer coverage Determine number of employees likely to elect employer coverage or to purchase coverage on exchange 29

31 When Must New Employees be Offered Coverage? Offer of coverage effective within three months of hire Variable hour position may not need to offer coverage until 13 months after hire, if at all Can apply 12 month look-back period Does employee work average of 130 hours/month during 12 months? YES eligible for coverage for next 12 months (Offer coverage within 13 months of hire) NO need not offer coverage for next 12 months 30

32 What is a Variable Hour Position? Based on facts and circumstances at date of hire, and Cannot determine that employee is reasonably expected to work, on average, at least 30 hours per week (or 130 hours per month) Examples* Part-time employees Hourly employees with fluctuating schedules * These are merely examples of individuals that might be considered variable hour new hires. Facts and circumstances may limit an employer s ability to treat these employees as variable hour new hires The IRS may disagree with determination and impose penalty if every crew member is labeled as variable hour but many end up working full-time 31

33 What are Your Employee Options? Employee Options Employer Plans Individual Options Private Plan Minimum Essential Benefits Public Exchange No Coverage 32

34 How Many Employees Likely to Enroll in Coverage? Total # of full-time employees Employer mandate requires coverage offered to full-time employees (work 130 hours per month/30 hours per week) Less # in Measurement Period Variable and Seasonal employees may be eliminated from offering until full time status is determined Less # of <26 years who opt out Less # eligible for government programs Less # other opt-outs # covered by plan Employees less than 26 years old may elect to get coverage under parent s plan Employees eligible for Government programs (i.e. Medicaid, Medicare, Tricare, Indian Nation) not likely to elect employer coverage Other employees may opt out due to cost or availability of coverage through spouse; employer only required to offer coverage Determine number of employees likely to elect employer coverage or to purchase coverage on exchange 33

35 Pay or Play: Modeling your Options

36 Your Options Primary Go To Options PAY PLAY Workforce Management Program Modifications; Health Risk Solutions Add 60% Plan Offer Only 60% Plan Add MEC Option 35

37 Option 1: PAY Move ALL employees to public exchange The Employee s Insurance Exchange Subsidy Household income between % of Fed Poverty Level 36

38 Percent Subsidy Option 1: PAY Move ALL employees to public exchange Medicaid $3,000/year is less than $7,000/year spend Save employer money Transfer costs from employer to employees 100% Lower income employees benefits from exchange based on subsidy Public Exchange Higher income employees pay more personally Today 15:1 rate differential :1 rate differential 0% $0 $20 $40 $60 $80 $100 $120 $88k Income (k) 37

39 2014 Maximum Exchange Cost and Plan Design 2014 Maximum Cost and Plan Design Under Exchange Percent of Single Family of 4 Poverty Income Max % Cost/Mo. Plan Design Income Max % Cost/Mo. Plan Design 100% $ 11,505 Medicaid 94% $ 23,425 Medicaid 94% 125% $ 14,381 Medicaid 94% $ 29,281 Medicaid 94% 150% $ 17, % $ 58 87% $ 35, % $ % 175% $ 20, % $ 86 87% $ 40, % $ % 200% $ 23, % $ % $ 46, % $ % 225% $ 25, % $ % $ 52, % $ % 250% $ 28, % $ % $ 58, % $ % 275% $ 31, % $ % $ 64, % $ % 300% $ 34, % $ % $ 70, % $ % 325% $ 37, % $ % $ 76, % $ % 350% $ 40, % $ % $ 81, % $ % 375% $ 43, % $ % $ 87, % $ % 400% $ 46, % $ % $ 93, % $ % Trended National Employer Average $ 95 78% $ % With 20% Wellness $ % $ % Your lower income employees may benefit greatly from the exchange! 38

40 Option 2: PLAY Move employees to private plan under new eligibility requirements Employer s Play or Pay Affordable Cost 39

41 Surcharges & Penalties HCR Plan Offering Spectrum Employer Play or Pay Design Options in Choices Option 1 Option 2 Option 3 Option 4 Option 5 Option 6 Play Pay Status Quo Benefit Offerings at qualifying & affordable levels Status Quo Benefit Offerings at qualifying & affordable levels 60% Plan Offered at affordable levels Status Quo Benefit Offerings at qualifying & affordable levels 60% Plan Offered at affordable levels 40% (MEC) Plan Offered at more affordable levels 60% Plan Offered at affordable levels 40% (MEC) Plan Offered at more affordable levels 40% (MEC) Plan Offered at more affordable levels Terminate benefit offerings and employer pays the surcharge and subject to additional taxes Surcharges avoided Surcharges avoided Surcharges avoided Surcharges avoided Surcharges assessed Surcharges avoided Penalties avoided Penalties avoided Penalties avoided Penalties avoided Penalties avoided Penalties assessed Healthcare Reform Terminology Qualified: 60% actuarial value Affordable: Single FTE contribution < 9.5% of employee s W-2 MEC (Minimum Essential Coverage): 40% actuarial value Surcharge: Assessed on each FTE (minus first $2,000 per year Penalty: Assessed on each FTE who enrolls in the $3,000 per year 40

42 Where Do We Go From Here?

43 Where Do We Go From Here? 1. Determine your team making the decision 2. Establish your goals 3. Quantify pay or play 4. Evaluate optimized strategies 42

44 Your Impact & Your Options Employee communication strategy and resources Wellness initiative opportunities Communication Services Health Risk Solutions Evaluation impact, compensation, benefits Eligibility & Workforce Management Franchise Compliance Services Advice and counsel Data analytics, forecasting, plan efficiencies Private Plan Management Actuarial Services Plan valuations, impact studies, modeling, pricing strategies 43

45 Three Key Items 1. Get Started! 2. Quantify Before You Modify! 3. Review Potential Outcomes! 44

46 Questions

47 Contact Trey Darby Lockton Companies Senior Vice President Contact Information: Phone:

48 Our Mission To be the worldwide value and service leader in insurance brokerage, employee benefits, and risk management Our Goal To be the best place to do business and to work Lockton, Inc. All rights reserved. Images 2013 Thinkstock. All rights reserved. 47