The document summarizes key provisions of the Affordable Care Act that take effect in 2014, including: 1) The Supreme Court upheld the individual mandate and entire Affordable Care Act. 2) State health insurance exchanges will offer plans to individuals and small businesses. 3) Most individuals will be required to have minimum essential health coverage or pay a penalty. Low-income individuals can receive subsidies. 4) Employers with 50+ full-time employees that do not offer affordable coverage may pay penalties. 5) Nondiscrimination rules are expanded to prevent fully insured group health plans from favoring highly-compensated employees.

1. ©2012 CliftonLarsonAllen LLP
Health Care Reform:
The Franchise Operator’s Guide
An Overview of the New Law
October 1, 2012
11 ©2012 CliftonLarsonAllen LLP

2. Supreme Court Examines Constitutionality
U.S. Supreme Court Ruling: June 28, 2012
Individual Mandate
- Constitutional
Entire Affordable
Care Act
- Stands
Medicaid
Expansion
-State Option
2 ©2012 CliftonLarsonAllen LLP

3. Understanding the Health Reform Law –
Overview
• Health Reform law seeks to expand access to health coverage
by:
1) Expanding Medicaid eligibility
2) Developing a new marketplace for purchasing insurance (“Exchange”)
3) Mandating individuals enroll in health insurance
4) Imposing penalties on large employers who do not offer coverage,
or offer coverage that is unaffordable
5) Subsidizing low and middle-income individuals in the Exchange
• The objective is to report on the potential impact specific to
the status quo compared to the health insurance exchange
based off what we know today in the post reform world
• The exchange simulation is based off most current information
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4. 2014: State Health Insurance Exchanges
What is an exchange? Who can participate?
A marketplace for individuals – In 2014, small employers can
and small businesses to shop for offer an Exchange plan as their
employer health plan
insurance.
– Offer a choice of health plans – Individuals: Includes self-
employed or unemployed
– Standardize health plan options individuals (2014)
– Allow consumers to compare plans
based upon price – In 2017, states can allow large
employers to participate
– Intended to provide a more
competitive market • Each state must establish a health
insurance exchange
– Provides consumers with a neutral
party to assist with plan • HHS Secretary to establish the rules
enrollment, information and around exchanges
eligibility determination for any
subsidies
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5. 2014: Exchange Plans
Types of exchange plans to be offered by insurers
– Bronze = 60% actuarial value
– Silver = 70% actuarial value
– Gold = 80% actuarial value
– Platinum = 90% actuarial value
– Catastrophic plan
◊ Only available to individuals < 30 years old, or those exempted from the
individual mandate due to unaffordability or hardship.
◊ Plan must cover:
• “minimum essential benefits”
• a minimum of three primary care visits per year
– All exchange “metal” plans must cover essential health benefits, limit cost-
sharing and have a specified actuarial value
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6. 2014: Individual Mandate
• Individual mandate to obtain health coverage: Beginning in
2014, most individuals must obtain a minimum-level of health insurance
coverage or pay a penalty
• Minimum essential coverage includes:
– Medicare, Medicaid, TRICARE
– Insurance purchased through an Exchange, on the individual market
– Employer-sponsored coverage that is affordable & provides minimum value
– Grandfathered plans (group plan in effect on 3/23/2010)
Hardship exemption
• Penalties for failure to obtain coverage: Premium cost for
– In 2014: greater of $95 or 1.0% of income lowest cost plan > 8%
– In 2015: greater of $325 or 2.0% of income of Household Income
– In 2016: greater of $695 or 2.5% of income
– Penalty is capped at three times the per person amount for a family
– Assessed penalty for dependents is half the individual rate
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7. 2014: Government assistance to help some
individuals obtain coverage
• Medicaid expansion: Expands eligibility
to individuals and families up to 133 % 133% FPL
of the federal poverty level (FPL) Individual =
$14,856
– If cost effective, states can opt to subsidize employer-
sponsored premiums for this group Family of 4 =
$30,656
• Premium and cost share assistance:
– Individuals and families with
household income of 100 - 400 % FPL may 400% FPL:
be eligible for sliding-scale assistance in the Individual=
form of: $44,680
Family of 4=
◊ Tax credits to help pay premiums; and $92,200
◊ Out-of-pocket reductions to help with cost
sharing (e.g., co-payments and co-insurance)
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8. 2014: Potential Large Employer Penalties
Law does NOT require employers to offer health insurance
• Beginning in 2014, employers with FTE = FT employees
50+ FTEs must pay a “shared + FT equivalents
responsibility” penalty if any FT FT employee =
employee receives Exchange works avg. 30 or
subsidies more hours per
week
– Different penalties whether or not FT equivalents =
employer offers affordable, Hours worked in a
“minimum value” to employees month by all PT
employees divided
– Minimum essential coverage = Plan by 120
with 60% actuarial value
– Affordable = Employee premium cost For “minimum essential
< 9.5% of household income
coverage”, see IRS Notice 2012-
31 at: http://www.irs.gov/pub/irs-
drop/n-12-31.pdf
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9. Employer “shared responsibility” penalty
Penalty only assessed if a FT employee
receives Exchange subsidies.
• No or Inadequate Insurance Penalty Employees are not eligible
for Exchange subsidies if
– $2000 x each full-time worker their employer coverage is
(after first 30 workers)
deemed “affordable”
• Unaffordable Employer Coverage Penalty
– At least, $3000 x # of full-time employees who “Affordable” means the
receive exchange subsidies employee premium
– Maximum penalty = $2000 x each full-time contribution under the
employee (except for first 30 full-time workers) employer plan is less than
penalty 9.5% of their household
income
– No penalty for Medicaid eligible employees
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10. Key Provisions of Aug. 12 Proposed Rules
• Affordability for Employee: If employee’s premium cost for self-only
coverage is less than 9.5% of their W-2 wages for the employer, the health
insurance is considered affordable even if they have a family and take
family coverage
– It appears that if coverage is affordable for employee but not their family, the
employer will not pay a penalty.
– Employer’s not subject to penalty if employee receives tax credit but later
employer-sponsored insurance is determined to be affordable.
– Affordability for related individuals: For premium tax credits eligibility =cost
of self-only coverage related to household income; for the individual
mandate penalty = family coverage premiums in proportion to household
income.
• Must file tax return: All individuals receiving an advanced premium
assistance tax credit must file an income tax return, regardless if they are
otherwise required to file.
10 ©2012 CliftonLarsonAllen LLP

11. Nondiscrimination Rules
• Health Care Reform expands the nondiscrimination rules of
IRS Code Section 105(h) to cover fully insured group health
plans
– Also includes Health Reimbursement Arrangements (HSAs) or stand
alone Medical Reimbursement Plans
– Affects those plans that do not have grandfathered status for plan
years beginning on or after September 23, 2010
– Effective date has been delayed until regulations are issued
11 ©2012 CliftonLarsonAllen LLP

12. Nondiscrimination Rules (continued)
• IRS Section 105(h) Requirements
– A self-insured health plan must not discriminate in favor of highly-
compensated employees with respect to eligibility to participate or
benefits provided
– Highly-compensated employees must include the value of the
discriminatory benefits received in their taxable income for any tax
year in which the self-insured plan fails to satisfy discrimination
• Definition of highly-compensated employee
– Among the 5 highest paid officers
– A 10% or more shareholder of the company’s stock
– Among the highest paid 25% of all employees
12 ©2012 CliftonLarsonAllen LLP

13. Nondiscrimination Rules (continued)
• Eligibility test - the plan must pass one of the following
coverage tests:
– 70% of all employees must benefit under the plan.
– 80% of eligible employees benefit and 70% of all
employees are eligible.
– The plan benefits a nondiscriminatory classification of
employees as determined by the employer based on facts
and circumstances conducted on the basis of plan
participation.
13 ©2012 CliftonLarsonAllen LLP

14. Nondiscrimination Rules (continued)
• Benefits test – the plan must meet these requirements:
– Provide the same benefits to both highly-compensated and non-highly
compensated employees, including benefits for dependents of highly-
compensated employees provided on the same basis for dependents
of all other employees.
– The benefits subject to reimbursement are in proportion to
compensation
– Not discriminate in favor of highly compensated employees.
– Optional benefits (e.g. dental) are available to all eligible employees to
elect coverage with the same premium charged for all employees.
Members of a control group or affiliated service group are
considered a single employer for purposes of 105(h) rules
14 ©2012 CliftonLarsonAllen LLP

15. Nondiscrimination Rules (continued)
• Excludable Employees (if not participating)
– Employees with less than 3 years of service
– Employees that have not attained age 25
– Part-time or seasonal employees
– Employees covered under a collective bargained agreement
– Employees who are nonresident aliens or receive no U.S. earned
income
15 ©2012 CliftonLarsonAllen LLP

16. Nondiscrimination Rules (continued)
• Penalties
– An employer who sponsors a discriminatory insured group health plan
will be subject to an excise tax liability of $100 per day per employee
affected with a maximum penalty of $500,000
– The law does not address if a discriminatory non-grandfathered
insured plan will result in an income tax liability for highly-
compensated employees as it would for a discriminatory self-insured
plan
16 ©2012 CliftonLarsonAllen LLP

17. Health Insurance and Penalty (HIP)
Calculator
www.cliftonlarsonallen.com/HIP
17 ©2012 CliftonLarsonAllen LLP

18. Questions?
Anita F. Baker Bob Churchwell
Managing Partner Franchise Workforce Consultant
Employee Benefit Plans Employee Benefits Specialist
CliftonLarsonAllen LLP Franchise Workforce
anita.baker@cliftonlarsonallen.com bob.churchwell@franchiseworkforce.com
480-615-2410 240-423-8682
For more information on health reform,
go to our Health Care Reform Center: www.cliftonlarsonallen.com/healthreform
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