Executive Brief. Understanding the Impact of Health Care Reform on Your Business in 2013

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1 Executive Brief Understanding the Impact of Health Care Reform on Your Business in 2013 Developed by: The Personnel & Benefits Administration Board Contributing Members: The Grocer Exchange, LLC Founders Assurance Mutual, LLC The Engage PEO The Grocer Exchange, LLC 54 Shaw Farm Road Canton, MA

2 Table of Contents General Overview of Health Care Reform Critical Decisions and Considerations for 2013 Individual Mandate Employer Shared Responsibility (Play or Pay) Reporting Costs, Taxes & Fees State Exchanges Your Business Strategy Why Founder Assurance Mutual

3 General Overview of HCR What is health care reform? The Patient Protection and Affordable Care Act (commonly referred to as PPACA or health care reform) was enacted March 23, Its primary goal is to provide access to quality, affordable health care for all Americans. Implementation is scheduled to continue through Key provisions of health care reform* Improving access to affordable coverage Improving the quality of coverage New employer responsibilities Greater accountability by insurers New taxes and fees *See appendix for full details.

4 The Individual Mandate When, how, and with what penalties? Effective January 2014, all individuals (with limited exceptions) must purchase qualifying health coverage. Penalties for failure to comply are collected through the filing of an individual s tax return. Penalties are as follows*: 2014 $95/adult and $47.50/child (up to $285/family) per year OR 1% of annual household income, whichever is greater 2015 $325/adult and $162.50/child (up to $975/family) per year OR 2% of annual household income, whichever is greater 2016 $695/adult and $347.50/child (up to $2,085/family) per year OR 2.5% of annual household income, whichever is greater 2017 & Beyond Increased by the cost of living * Penalty is lesser of above amount or the national average for the cost of bronze level coverage in the state exchanges.

5 Employee Q&A Preparation Critical considerations Are you prepared to answer employees questions? Will the penalty change your employees behavior? Will more employees enroll in your health insurance offering? ACA Penalties Forecast: Although the program reconciliation and auditing procedures shall be in full effect, the individual mandate penalties are not expected to be effective during 2014.

6 Individual Mandate Impact Impact to you and your business May increase participation in your health insurance offering Potential plan design modifications Possible increases in cost

7 Employer Shared Responsibility (Play or Pay) When, why, how, & who? Beginning in 2014, businesses with 50 or more full-time employees (FTEs), including full-time equivalents (FTEQs*), must offer all FTEs the opportunity to enroll in qualified health coverage or risk a penalty. Penalties apply if certain minimum requirements (coverage, value and affordability) are not met AND one one or more FTEs obtains coverage through a state exchange and receives a subsidy. Penalties are as follows*: Coverage Offered? No Yes, but minimum value & affordability not met Penalty Calculation $2,000 for all FTEs (less first 30) if any FTE receives a subsidy for state exchange coverage $3,000 for each FTE who receives a subsidy for state exchange coverage OR the penalty for not offering qualified coverage, whichever is less *Full-time equivalents: individual(s), not treated as full-time employees, who in combination are counted as a full-time employee based on number of hours worked during a fixed time period.

8 Employer Shared Responsibility (Play or Pay) Critical considerations Do you offer health insurance? Does your health insurance offering meet the minimum value and affordability requirements? How many full-time employees do you have under the health care reform calculation? Do you think any of your full-time employees will receive a subsidy for state exchange coverage? What is your exposure to play-or-pay penalties? Defining Areas of Key Concern: The definition of a full-time employee under health care reform is unusual, the calculations are complex, and making a mistake can have severe ramifications.

9 Employer Shared Responsibility (Play or Pay) Impact to you and your business No play-or-pay penalties if you have fewer than 50 full-time employees (including FTEQs) as defined by the unconventional rules of Health Care Reform. Failure to offer qualified coverage could put you at risk for play-or-pay penalties. Incorrect calculation of full-time employees (including FTEQs) under health care reform could trigger significant play-or-pay penalties. Failure to continuously monitor employment status and eligibility for all employees could unknowingly subject you to play-or-pay penalties.

10 Reporting What is it? Health care reform introduces substantial, new reporting requirements for employers, insurance carriers and health care providers. Some Element of Required Employer Reporting to the IRS FTEs employed each month Name, address and TIN of each FTE during the calendar year and the months (if any) during which such employee (and dependents) were covered under health plans Length of any waiting periods Certify coverage offered to FTEs and dependents Months employer sponsored plan was available Monthly premium for the lowest cost options Share of the total allowed costs of benefits

11 Reporting Critical considerations Are you prepared to comply with existing or future reporting requirements? Are your payroll processing, benefits administration and HR services managed by multiple systems and/or vendors? How will you coordinate the tracking of necessary information and submit the appropriate reports on a timely basis? Potential New Requirements for All Employers State/Local Reporting State Exchange Reporting Employment and Plan Offering Verifications Penalty Appeals

12 Reporting Impact to you and your business No specific federal reporting requirements if you have fewer than 50 full-time employees (including FTEQs) as defined by the unconventional rules of health care reform. Rapidly changing landscape may result in new reporting requirements for your business. You will be required to devote resources to continually track, develop and file reports, and also respond to agency requests. Failure to file required reports will put you at risk for significant penalties. Reports Wisdom: Most businesses are not prepared to efficiently coordinate the necessary data for reporting requirements.

13 Costs, Taxes, & Fees What are they? Taxes and fees on insurers and the broader health care industry will increase costs for most businesses by approximately percent or $400 per employee per year. Premiums in the small group and individual markets will be heavily regulated at a state level. Adjusted community rating will limit variations in pricing to age, family size, geography and tobacco use (some states may further limit variations or eliminate altogether). Other rating factors, such as prior claims experience, health status, gender, industry and duration of coverage, will be prohibited. Examples and Estimated Impact of Taxes and Fees in 2014 Insurer Excise Tax 2.3% of premiums for fully insured plans Transitional Reinsurance Fee Patient Centered Outcomes Research Initiative Fee Pharmaceutical Manufacturer Excise Tax $63 per covered life per year $2 per covered life per year $4 per covered life per year Medical Device Sales Tax $2 per covered life per year

14 Costs, Taxes, & Fees Critical considerations How will new small group pricing regulations impact your cost structure? How will taxes and fees impact your cost structure? How can you modify your plan designs to offset expected cost increases? Should you adjust employee contributions to offset expected cost increases? Can you adjust your product or service prices to cover your expected cost increases? The Benefit of Preparing Now: As the health insurance marketplace is expected to be volatile and costs are anticipated to increase significantly in 2014, making certain that proper advice and guidance are acquired soon is recommended.

15 Costs, Taxes, & Fees ACA s impact on you and your business Plan for the cost of your health insurance coverage to rise significantly due to pricing compression in the small group health insurance marketplace. Increased health insurance costs may impact your cost structure and negatively affect profitability. Plan design modifications could impact your employees satisfaction and/or loyalty. Increased employee contributions for health insurance could impact your employees satisfaction and/or loyalty.

16 State Exchanges What are they & how do they work? Health care reform mandated the creation of state exchanges to provide access to health insurance coverage. These exchanges are required by law to be fully operational Jan. 1, A state exchange is a marketplace where individuals and small businesses (SMBs) can view, compare and purchase health insurance. Some businesses and lower-income individuals may qualify for tax credits and subsidies by obtaining state exchange coverage. State Exchange Medical Plans: Individuals SMBs< Plan Level Plan Value* Bronze Silver Gold Platinum Group Plans 60% 70% 80% 90% 60% minimum *Percentage of minimum essential benefits costs covered by the plan.

17 State Exchanges Critical considerations Are you prepared to provide your employees with the required notifications and answer their questions? Do you understand the demographics of your employee base well enough to determine if any of your employees will be eligible for subsidies? Are you aware that some of your employees could incur greater costs by purchasing coverage through state exchanges? Are your employees prepared to purchase insurance on their own? Do you know if the state exchanges will offer competitive products? Don t be caught off-guard: Employers who rely on the state exchanges for employees medical coverage may be at a disadvantage in attracting and retaining better performing employees versus those competitors who sponsor comprehensive benefits packages.

18 State Exchanges Impact to you and your business Offering exchange products may adversely affect your ability to attract and retain quality employees. Your employees may perceive state exchange medical plans as a lower-quality solution. State exchanges may not provide a consistent health insurance solution for employees across multiple states. State exchange products may initially be limited to medical and Rx only, requiring you to seek other solutions for ancillary insurance products (e.g., dental, vision, life).

19 Your Business Strategy How does health care reform influence your strategy to care for your employees and ensure the continued growth and success of your business? Strengths Weaknesses Threats Opportunities Your role as a business owner, not as an employer Your comprehensive benefits offering Your workforce Limited understanding of regulations and their impact No infrastructure/processes to manage reporting burden Inadequate resources for staying abreast of changing landscape Cost volatility Better prepared competitors Potential penalties (play or pay, reporting) Seek a competitive advantage through a superior benefits strategy

20 Founder Assurance Mutual Here for you now with knowledge & experience As the newest Grocer Exchange Member Services Provider, Founder Assurance Mutual, in association with Engage PEO, powerfully and effectively provides large-company benefits and employment administration for America s best small and midsize businesses. Here s what we can do for your business: ENSURE COMPLIANCE: Minimize risk of fines and penalties through continuous monitoring of changing federal and state regulations. ELIMINATE COMPLEXITY: Reduce administrative burdens through a dedicated service team and best-in-class technology infrastructure that monitors and captures data for required reporting. MANAGE COSTS: We stabilize health care costs through our fully insured health plan and its low-cost structure. GEX/FAM/Engage PEO effectively & efficiently provides solutions that directly address the challenges of compliance, complexity and costs resulting from health care reform.

21 Key Reference Notes Key provisions of health care reform Improving access to affordable coverage Tax credit to encourage small businesses to offer coverage Extended coverage for dependents until age 26 Length of waiting period restricted to 90 days maximum Coverage available to individuals/small employers from new state exchanges Premium subsidies for exchange coverage available to qualifying individuals Improving the quality of coverage Preventive care provided without cost sharing Coverage rescissions prohibited Elimination of pre-existing condition exclusions Elimination of annual and lifetime dollar limits on essential health benefits Cost-sharing limits on deductibles and out-of-pocket maximums New employer responsibilities Report cost of employer-provided health coverage on Form W-2 Large employers must offer qualifying coverage to full-time employees or pay penalties Large employers must file annual reports on sponsored health plans Greater accountability by insurers Medical loss ratio rules Rate review rules Enhanced rules for claims and appeals New taxes and fees New fees/taxes on carriers and medical-related industries New limits for health care flexible spending accounts Tax penalty for individuals who fail to maintain health coverage Payroll tax increase on high-wage earners New tax on high-cost ( Cadillac ) coverage

22 Founder Assurance Mutual Here for you now with knowledge & experience For precise information on ACA compliance, ACA program management services for your firm and best rates, we invite you to please contact us at your convenience. John Cataldo Vice President of Sales Engage PEO (737) Ethan Charas President & COO Founders Assurance Mutual, LLC (914) ext 318 Legal Notice The information provided in this communication is for educational and informational purposes only, and is not legal advice. IRS Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from an independent tax advisor with respect to any federal tax transaction or matter addressed herein.