Effective Jan. 1, 2014, the Affordable Care Act requires large employers to provide affordable health care coverage to their full-time employees or pay a penalty. Likewise, most individuals will be required to have health insurance or pay a penalty. Our presentation covers: • Which employers are large employers for purposes of this health insurance mandate? • What must an employer health care plan cover? • Which employees must be offered coverage? • How much of employees' health care costs must employers pay? • What options are available to help employers and individuals comply with the Affordable • Care Act and cope with the rising cost of health insurance?

1. Getting Ready to “Pay or Play”:
What Health Care Reform Requires in 2014
Jeffrey J. Bakker Patricia S. Cain Stephanie B. Vasconcellos
312.269.8270 312.269.8032 312.827.1042
jbakker@ngelaw.com pcain@ngelaw.com svasconcellos@ngelaw.com
The contents of these slides should not be construed as legal advice or a legal opinion on any specific fact or circumstance. The slides are intended for general purposes
only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. © Neal, Gerber & Eisenberg LLP 2013

2. Brief History of Affordable Care Act
 March 2010 – Patient Protection and
Affordable Care Act signed into law.
 Effective September 2010
– Insurers prohibited from imposing lifetime dollar limits on
essential benefits.
– Dependent coverage up to age 26 mandated.
– Cost sharing obligations for preventive services prohibited.
– Pre-existing condition exclusions for children prohibited.
– Insurers prohibited from dropping policy holders.
1

3. Brief History of Affordable Care Act
 Effective January 2011
– Large group insurers must spend 85% of premium
dollars on health costs and claims (80% for
individual and small group insurers).
– FSAs, HRAs and HSAs generally cannot be used to
pay for over-the-counter drugs.
2

4. Brief History of Affordable Care Act
 June 2012 – Supreme Court decision
– Upholds individual mandate to buy health
insurance as a constitutional exercise of Congress’s
taxing power.
– Significant expansion of Medicaid was not a valid
exercise of Congress’s spending power, as it would
coerce states to either accept the expansion or risk
losing existing Medicaid funding.
3

5. Brief History of Affordable Care Act
 Effective January 2013
– New Medicare taxes.
– Pre-tax contributions to FSAs capped at $2,500 per
year.
– Most medical devices subject to a 2.3% excise tax.
4

6. What’s New in 2014
 Large employers must provide health care
coverage or pay penalty.
 Individuals must have health care coverage or pay
penalty.
 90 day limit on waiting periods.
 Creation of state or federal health insurance
marketplaces, also known as exchanges.
 Expansion of Medicaid.
5

7. What’s New in 2014
 Other provisions impacting health plan
benefits, including:
– No pre-existing condition exclusions.
– Annual cost-sharing limitations (non-grandfathered
plans only).
– Increase in wellness reward.
– Certain patient protections.
6

8. Overview of Presentation
 What rules apply to health plan waiting periods?
 What penalties apply if a large employer does not provide
health insurance?
 What type of health insurance must a large employer provide
to avoid penalties?
 How will the federal and state marketplaces operate?
 What does the Medicaid expansion mean for employers?
 What options do employers have to comply with the Affordable
Care Act?
 What must an employer do to get ready for the Affordable Care
Act?
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9. Waiting Periods
 A waiting period is the period of time that must
pass before coverage for an employee or a
dependent who is otherwise eligible to enroll
under the terms of the plan can become
effective.
 For this purpose, being eligible for coverage
means having met the plan’s substantive
eligibility conditions (such as being in an
eligible job classification).
8

10. Waiting Periods
 Effective January 1, 2014, group health plans
and insurers are generally prohibited from
applying a waiting period that exceeds 90 days.
– Applies to all group health plans, regardless of the
size of the employer.
– Grandfathered plans must also comply with the
waiting period requirements.
9

11. Waiting Periods
 Other conditions for eligibility are generally
permissible unless the condition is designed to
avoid compliance with the 90-day waiting
period.
 Examples:
– Employee is required to complete enrollment
forms.
– Employee must be full-time. (If originally part-time,
90-day period starts when employee becomes full-
time.)
10

12. Waiting Periods
 90-day limitation does not mean the first of the
month after 90 days elapse.
 Part-time and variable hour employees:
– If the plan conditions eligibility on working a specified
number of hours per period (or working full-time); and
– it cannot be determined whether a newly-hired employee is
expected to work the required number of hours; then
– the plan may take a reasonable period of time to determine
whether the employee meets the plan’s eligibility condition.
(First of the month following 13 months after start date
generally considered reasonable.)
11

13. Shared Responsibility
 Under the Affordable Care Act:
– the Federal government;
– State governments;
– insurers;
– employers (large); and
– Individuals
are given shared responsibility to reform and
improve the availability, quality and affordability of
health insurance coverage in the United States.
12

14. Who is a large employer?
 Generally, a large employer has 50 or more full-
time employees, including full-time equivalent
(FTE) employees.
 Who is an employee?
– Facts and circumstances.
– Common law standard – An employer can direct and control
individual performing services not only as to the result, but
also the means to accomplish it.
13

15. Who is a large employer?
 To determine whether the 50-employee
threshold is met, generally the total number of
full-time employees is determined for each
calendar month in the preceding year.
 Full-time employee generally averages 30 hours
per week or 130 hours per month.
 Non-US hours generally not included.
14

16. Who is a large employer?
 Number of FTE employees =
– Total hours of service among non-full-time
employees / 120.
– Example:
• 60 part-time employees work 1,500 hours in the aggregate
for a month. FTE employees = 1,500/120 = 12.5.
• If employer were to average 38 full-time employees and 12
FTE employees a month, it would be a large employer.
15

17. Who is a large employer?
 For determining the number of employees,
exclude:
– Leased employees
– Sole proprietors
– Partners
– 2% S corporation shareholders
 Seasonal employees can be excluded if they
only work up to 4 months or 120 days in a year.
16

18. Who is a large employer?
 Employers who are members of a controlled
group or affiliated service group must count all
employees in group to determine if it is a large
employer.
 Example:
– Corporation X owns 100% of:
• Subsidiary A (36 employees)
• Subsidiary B (30 employees)
• Subsidiary C (24 employees)
– Subsidiaries A, B and C are all large employers, because
controlled group has >50 employees.
17

19. Who is a large employer?
 A new employer will be treated as a large
employer if it is reasonably expected to employ
50 full-time employees and FTE employees and
it does so.
 Tax-exempt entities and governmental entities
can be large employers.
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20. Shared Responsibility Penalties
 Small employer not subject to shared
responsibility penalties.
 Large employer may be subject to:
– Availability penalty; or
– Affordability penalty.
19

21. Shared Responsibility Penalties
 Availability penalty (2 elements)
– Large employer fails to provide minimum essential
coverage to at least 95% of full-time employees and
their dependents.
• Exception: if the employer has < 100 employees,
Availability penalty avoided if coverage offered to all but 5
employees and their dependents.
– At least one employee receives a premium tax
credit or cost-sharing subsidy in a government
marketplace.
20

22. Shared Responsibility Penalties
 Premium tax credit = A tax credit to offset the
cost of an individual’s health insurance
premiums. Generally available for coverage for
employees who:
– are between 100% and 400% of the federal poverty
level and enroll in a government marketplace;
– are not eligible for Medicaid; and
– are not eligible for employer-offered coverage, or
are eligible only for coverage that is unaffordable or
that does not provide minimum value.
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23. Shared Responsibility Penalties
 Cost-sharing reduction = A reduction in the
individual’s out-of-pocket-limits under a health
plan. Generally available for employees who:
– meet the requirements for the premium tax credit
(expected to have household income that does not
exceed 250% of the federal poverty level); and
– enrolled in the silver level of coverage under a
government marketplace.
22

24. Shared Responsibility Penalties
 Availability (monthly) penalty =
($2,000/12)
x (Number of full-time employees - 30).
23

25. Shared Responsibility Penalties
 Availability penalty example:
– Employer does not offer health coverage.
– 90 full-time employees.
– 60 part-time employees (40 FTE employees).
– One employee receives a cost-sharing subsidy in a
state-run marketplace.
– Monthly penalty = ($2,000/12) x (90-30) = $10,000.
24

26. Shared Responsibility Penalties
 Availability penalty:
– Part-time employees / FTE employees do not factor
into amount of penalty.
– Penalty is non-deductible.
– Penalty is indexed for future years.
– HHS/IRS will inform employer that an employee has
received subsidized exchange coverage and give the
employer a chance to respond before the IRS issues
a notice for demand and payment.
25

27. Shared Responsibility Penalties
 Availability penalty:
– If employer offers coverage to < 95% of full-time
employees and their dependents, penalty still
based on all employees.
– If employer offers coverage to >= 95%, Affordability
penalty may apply to those not offered coverage.
26

28. Shared Responsibility Penalties
 Availability penalty:
– Controlled group.
• Liability for penalty not assessed on a controlled group
basis; penalty applies to specific entity.
• 30-employee offset prorated.
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29. Shared Responsibility Penalties
 Controlled group example (Availability penalty):
– Subsidiary A – 36 employees
– Subsidiary B – 30 employees
– Subsidiary C – 24 employees
– Assume no subsidiary provides coverage and pay or
penalty applies.
• Sub. A penalty = ($2,000/12) x (36 – (36/90 x 30)) = $4,000
• Sub. B penalty = ($2,000/12) x (30 – (30/90 x 30)) = $3,333
• Sub. C penalty = ($2,000/12) x (24 – (24/90 x 30)) = $2,667
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30. Shared Responsibility Penalties
 Affordability penalty:
– Large employer offers minimum essential coverage to
>= 95% of full-time employees/dependents;
– At least one employee qualifies for a premium tax
credit or cost subsidy under a government-run
marketplace; and
– One of the following:
• Coverage is unaffordable;
• Employer coverage does not provide minimum value; or
• A full-time employee not offered coverage enrolls in a
government-run marketplace.
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31. Shared Responsibility Payments
 Affordability (monthly) penalty = Lesser of:
– ($3,000/12) x (Number of employees who received
a premium tax credit or cost-sharing subsidy under
a marketplace); or
– The amount of the Availability penalty, if it had
applied.
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32. Who must be offered coverage?
 General rule:
A large employer must offer health insurance
to all employees averaging at least 30 hours
of service per week, or pay a penalty.
 Assuming a large employer wants to offer
health insurance in compliance with the law,
how does it determine who should be offered
coverage?
31

33. Who must be offered coverage?
 How are hours counted?
– For hourly employees, count:
• Actual hours of service, and
• Paid hours of
– Vacations/holidays,
– Illness, incapacity and disability,
– Layoff,
– Jury duty,
– Military duty, and
– Leaves of absence
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34. Who must be offered coverage?
 How are hours counted?
– For non-hourly employees, three choices:
• Count in the same way as hourly employees are counted
(i.e., actual hours of service plus other paid hours).
• Use a “days-worked” equivalency, where an employee is
credited with 8 hours per day worked.
• Use a “weeks-worked” equivalency, where an employee is
credited with 40 hours per week worked.
33

35. Who must be offered coverage?
 Method must be chosen in a manner that
would not substantially understate an
employee’s hours of service.
 Employers may use varying methods for classes
of non-hourly employees if classification is
reasonable and consistently applied.
34

36. Who must be offered coverage?
 Special rules for employees:
– who work at academic institutions,
– whose compensation is not
primarily based on hours, or
– whose work is subject to regulatory limits.
 Employers must use a reasonable method for
calculating service.
35

37. Timing
 Measurement Period
– Time during which employee hours are counted.
– Lasts from 3-12 months.
36

38. Timing
 Administrative Period
– Time during which employer can tally hours from
previous measurement period.
– Time for open enrollment.
– Lasts up to 90 days.
37

39. Timing
 Stability Period
– Time during which employees are offered stable
health insurance.
– 6-12 months but no shorter than the measurement
period.
38

40. Timing
 Periods may be changed for subsequent years, but
cannot change for a year once the standard
measurement period has begun.
 Optional Transition Measurement Period (2014).
39

41. Timing: Example
 Measurement Period from October 15, 2013 –
October 14, 2014.
 Administrative Period from October 15, 2014 –
December 31, 2014.
 Stability Period from January 1, 2015 –
December 31, 2015.
 … and so on, with
overlapping periods.
40

42. Who must be offered coverage?
 Ongoing Full-Time Employees
– Employed for at least one standard measurement
period.
– Looking at the prior measurement period; determine
whether an employee was employed on average at
least 30 hours of service per week.
– If yes, considered a full-time employee to whom
insurance should be offered for the entire stability
period as long as she remains an employee.
– If no, considered not a full-time employee for the entire
stability period.
41

43. Who must be offered coverage?
 Ongoing Full-Time Employees: Example
– Jared worked 1700 hours from October 15, 2013 to
October 14, 2014, resulting in an average of 32.7
hours per week worked.
– Jared should be offered health insurance from
January 1, 2015 – December 31, 2015 as long as he
is an employee, regardless of hours worked in 2015.
42

44. Who must be offered coverage?
 New Full-Time Employees
– Anyone who is not a seasonal employee and who is
reasonably expected, as of start date, to be
employed on average at least 30 hours of service
per week.
– Considered a full-time employee to whom
insurance should be offered within initial three
calendar months (usually, 90 days) of employment.
– After that, use measurement/administrative/
stability periods.
43

45. Who must be offered coverage?
 New Full-Time Employees: Example
– Julie, on her hire date of August 1, 2013, is expected to work
40 hours per week.
– Julie should be offered health insurance within 90 days of her
hire date.
44

46. Who must be offered coverage?
 New Variable Employees
– Employees that are, based on the facts and
circumstances as of date of hire, not reasonably
expected to average at least 30 hours a week.
– This can include seasonal workers,
who may be expected to work
30 hours a week only for a
limited time period.
45

47. Who must be offered coverage?
 New Variable Employees
– In addition to standard measurement/stability and
administrative period, employer may use an initial
periods that is different from standard.
 Refresher
– Measurement Period (3-12 months).
– Administrative Period (up to 90 days).
– Stability Period (6-12 months but no shorter than
the measurement period).
– However…
46

48. Who must be offered coverage?
 New Variable Employees
– The initial measurement period plus the
administrative period cannot extend longer than
the last day of the first calendar month beginning
on or after the first anniversary of the employee’s
start date.
47

49. Who must be offered coverage?
 New Variable Employees: Example
– Jasmine is hired on August 8, 2013.
– As of Jasmine’s date of hire, her employer cannot
determine whether she will be full time.
– Employer elects to use maximum 1 year initial
measurement period, and measures Jasmine’s
hours from August 8, 2013 to August 7, 2014.
– Employer uses an administrative period of August
8, 2014 to September 30, 2014 to make its
determination.
48

50. Who must be offered coverage?
 New Variable Employees: Example
– Measure Jasmine’s hours during initial
measurement period, and determine whether she
should be offered coverage from October 1, 2014 –
September 30, 2015.
– ALSO measure Jasmine’s hours during the standard
measurement period, and determine whether she
should be offered coverage from January 1, 2015 –
December 31, 2015.
49

51. Who must be offered coverage?
 New Variable Employee: Example
– Initial measurement period: Aug. 8, 2013–Aug. 7, 2014.
– Initial administrative period: Aug. 7, 2014–Sept. 30, 2014.
– Initial stability period: Oct. 1, 2014–Sept. 30, 2015.
– Standard measurement period: Oct. 15, 2013–Oct. 14, 2014.
– Standard administrative period: Oct. 15, 2014–Dec. 31, 2014.
– Standard stability period: Jan. 1, 2015–Dec. 31, 2015.
50

52. Who must be offered coverage?
Avg. weekly Avg. weekly
hours Aug. hours Oct. 15, Results
8, 2013 thru 2013 thru Oct.
Aug. 7, 2014 14, 2014
29 hours/week 29 hours/week •No coverage from Oct. 1, 2014-Dec. 31, 2015
•No coverage from Oct. 1, 2014-Dec. 31, 2014
29 hours/week 31 hours/week
•Coverage from Jan. 1, 2015-Dec. 31, 2015
•Coverage from Oct. 1, 2014–Sept. 30, 2015
31 hours/week 29 hours/week
•No coverage from Oct. 1, 2015–Dec. 31, 2015
31 hours/week 31 hours/week •Coverage from Oct. 1, 2014–Dec. 31, 2015
51

53. Who must be offered coverage?
 Changes in status?
 Beginning administrative period?
 Breaks in service/unpaid leaves?
 Temporary employees?
 High turnover employees?
 Short term, full-time employees?
52

54. Who must be offered coverage?
 Dependents of an employee must also be
offered coverage, defined as:
– a child under 26 years of age:
• Son or daughter,
• Stepson or stepdaughter,
• Eligible foster child,
• Adopted child or child placed for adoption.
 Does not include spouse.
 Transition Rule applies.
53

55. Break!
54

56. Penalties
 Even if an employer provides health insurance
coverage to its full-time employees, it may still
be subject to penalties, unless the coverage:
– is affordable, and
– provides minimum value/
minimum essential coverage
55

57. Is coverage affordable?
 The short answer: it depends.
 Basic test: to be affordable, premium must not
exceed 9.5% of the employee’s household
income.
 Whether coverage is affordable is based on:
– employee cost for self-only coverage.
– under any option offered by the employer.
– that satisfies minimum essential coverage
requirements.
56

58. Is coverage affordable?
 Problem: employers are unlikely to know an
employee’s household income.
57

59. Is coverage affordable?
 Three safe harbors
 If the employee’s:
– calendar year contribution does not exceed 9.5% of
that employee’s W-2 wages from his employer.
– monthly contribution does not exceed 9.5% of 130
hours multiplied by employee’s hourly rate of pay.
– annual contribution does not exceed 9.5% of the
federal poverty level for a single individual (the
2013 federal poverty level is $11,490, so the annual
employee contribution could not exceed $1,091).
58

60. Is coverage affordable?
 Practical tips:
– Look at lowest paid full-time employee and set
employee-only premium coverage at 9.5% of that
employee’s wages.
– Adjust contribution rates for
classes of employees.
59

61. Does coverage provide minimum value?
 A plan provides minimum value if, for a
standard population:
– the plan will pay at least 60% of health care
expenses
– the individual will pay 40% or less of health care
expenses, through:
• deductibles,
• co-pays , and
• co-insurance.
60

62. Does coverage provide minimum value?
 Three options for determining whether a plan
provides minimum value:
– Minimum value calculator*
– Safe-harbor checklists
– Actuarial certification
 According to a Towers Watson simulation, nearly
all employers offered minimum value
coverage, and more than 90% offered
platinum, gold, or silver plans.**
* Available at http://cciio.cms.gov/resources/files/mv-calculator-final-2-20-2013.xlsm
** Towers Watson, What do PPACA Standards Mean for Employer’s Health Plans?, http://www.towerswatson.com/united-
states/newsletters/insider/8283 (October 2012)
61

63. Penalties
 What if the employer offers coverage, but the
employee fails to pay for coverage?
– Generally, employer will be treated as having
offered coverage.
– Grace periods and “close but not quite” payments.
62

64. Penalties
 What if coverage is offered, but not affordable
OR does not provide minimum value?
– Monthly penalty of the lesser of:
• 1/12 of $3,000 ($250) for each full-time employee for
whom coverage is not affordable and who receives a
premium tax credit or cost-sharing reduction towards a
purchase on a state or federal marketplace.
• 1/12 of $2,000 ($166.67) for each full-time employee
(reduced by first 30 full-time employees), provided that at
least one full time-employee is certified as eligible to
receive a premium tax credit or cost-sharing reduction
towards a purchase on a state or federal marketplace.
63

65. Penalties
 Employer has 200 employees:
– 150 full-time; in one month:
• 146 are offered insurance at appropriate times:
– 20 enroll in a state marketplace with a tax credit or cost-
sharing reduction, but coverage is affordable.
– 10 enroll in a state marketplace with a tax credit or cost-
sharing reduction because coverage is unaffordable.
• 4 are mistakenly not offered health insurance and enroll in
a state marketplace with a tax credit or cost-sharing
reduction.
– 50 part-time.
64

66. Penalties
 The penalty that applies for the month is the lesser
of:
– 1/12 * $3,000 * (10 employees
enrolling in government market-
place due to unaffordability
+ 4 employees not offered
health insurance), or
$3,500
– 1/12 * $2,000 * (150 full
time employees -30), or
$20,000
65

67. The New Marketplaces/Exchanges
 Affordable Care Act provides for the creation of
exchanges, now called health insurance
marketplaces, effective January 1, 2014.
 Marketplaces allow individuals and eligible
employers to purchase health insurance from
insurance companies that participate in
marketplace.
66

68. The New Marketplaces/Exchanges
 Status of marketplaces:
– 17 states and the District of Columbia have
elected to operate marketplaces.
– 6 states, including Illinois, have elected to
operate a marketplace in partnership with the
federal government.
– Federal government will operate a marketplace
in the other states.
67

69. The New Marketplaces/Exchanges
68

70. The New Marketplaces/Exchanges
 Marketplaces will be open to:
– Employers with fewer than 100 employees (or fewer
than 50 employees, depending on state); and
– Individuals and families.
– Open enrollment begins October 1, 2013.
 May be available to large employers beginning in
2017.
 Employers will be required to notify employees of
availability of government marketplace.
69

71. The New Marketplaces/Exchanges
 Four standardized plans will be available
through government marketplaces:
– Platinum – covers 90% of cost
– Gold – covers 80% of cost
– Silver – covers 70% of cost
– Bronze – covers 60% of cost
 Allows consumers to choose between:
– higher premiums and less costs for health care; or
– lower premiums and more costs for health care.
70

72. The New Marketplaces/Exchanges
 Premium subsidies and cost sharing reductions are
available for individuals and families with income from
133% to 399% of the federal poverty level ($31, 321 to
$93,964 for a family of four in 2013).
 Premium subsidies limit the percentage of income
that must be paid for coverage under a silver plan.
 Federal government also provides subsidy to lower
out of pocket maximums
71

73. The New Marketplaces/Exchanges
Premiums and Cost Sharing Subsidies Under the Affordable Care Act*
Reported Income Max Premium Subsidies Actuarial Value Out-of-Pocket
% Poverty Level % of Income Cap
<133 0% 100% —
133–149 3%–4% 94% $1,983
150–199 4%–6.3% 87% $1,983
200–249 6.3%–8.05% 73% $2,975
250–299 8.05%–9.5% 70% $2,975
300–399 9.5% 70% $3,967
Families with incomes from 133 percent to 399 percent of the federal poverty level ($31, 321 to $93,964 for a
family of four) can obtain coverage under a silver plan by paying the percentage of their income shown in the
column titled “Premium Subsidies % of Income Cap” and the government will pay the remaining costs.
*J. Gruber and I. Perry, “Realizing Health Reform’s Potential: Will the Affordable Care Act Make Health Insurance Affordable?,” April
27, 2011, available at http://www.commonwealthfund.org/Publications/Issue-Briefs/2011/Apr/ACA-Health-Insurance-
Affordable.aspx, last visited on March 1, 2013.
72

74. The New Marketplaces/Exchanges
 Age rating for individuals cannot exceed 3:1, e.g. premium for
older individual cannot exceed 3 times that for younger
individual:
– Will result in higher premiums for younger individuals.
– Some talk about allowing greater spread initially.
 Affordable Care Act provides a temporary reinsurance program
(2014-2017) that will provide subsidies for plans that suffer
catastrophic losses.
– Funded by annual fee of $63.00 per covered life to be paid by insurer or
group health plan.
– Affordable Care Act includes two other premium stabilization programs.
73

75. The New Marketplaces/Exchanges
 California is first state to provide out of pocket and
other specifics about policies offered on its health
insurance marketplace
http://www.coveredca.com.
 California is requiring insurers that offer coverage
through its marketplace to offer same coverage
and premiums outside the marketplace.
74

76. The New Marketplaces/Exchanges
 Illinois is projecting that 486,000 persons will buy
coverage through its marketplace.
 Premium tax credits, which can be advanced, and
cost sharing reductions only available through
government marketplaces.
75

77. The New Marketplaces/Exchanges
 Premiums for plans offered on Health Insurance Marketplaces
are critical to marketplace sustainability.
 Many factors make pricing difficult:*
– Mandated health coverage is greater than what one-half of
individual plans cover.**
– How will previously uninsured utilize benefits?
– Who will purchase coverage through government marketplace?
– How will risk mitigation program work?
* A. Rosenblatt, “The Challenges of Pricing Health Insurance for the 2014 Exchanges,” available at www.nihcm.org, last visited February 23, 2013.
** Gabel J. R., Lore, R., McDevitt R. D., et al. “More than Half of Individual Health Plans Offer Coverage that Falls Short of What Can be Sold Through Exchanges as of
2014,” Health Affairs, 31:1339-48, June, 2012.
76

78. Medicaid Expansion
 Individuals under age 65 with income that is
less than 133% of the federal poverty level are
eligible for Medicaid if state opts in.
 133% of federal poverty level for 2013 is
$15,282 for an individual and $31,322 for a
family of four.
 24 states have opted in, including Illinois.
 Relieves burden on employers with low wage
employees.
77

79. Medicaid Expansion
78

80. Options for Compliance
 Employers that currently provide health care
benefits:
– Employers have traditionally provided health care
benefits voluntarily to attract and retain employees
and to ensure a healthy workforce.
– 84% of U.S. Employers state they are likely to
provide health coverage in 2014.*
* International Foundation of Employee Benefit Plans, available at http://www.ifebp.org/AboutUs/PressRoom/Releases/
last visited February 23, 2013.
79

81. Options for Compliance
 Employers that currently offer health insurance
are likely to experience higher costs because of
Affordable Care Act:
– Employer will be required to offer coverage to all
employees who work at least 30 hours of week to
avoid penalties.
– Employees who previously opted not to be covered
may elect coverage.
– Waiting period cannot be greater than 90 days.
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82. Options for Compliance
 Employer options to mitigate costs:
– Opt to pay penalty for:
• Newly eligible employees (e.g. those employees who work
at least 30 hours a week and were previously ineligible for
coverage).
• Employees for whom coverage does not meet affordability
requirements.
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83. Options for Compliance
 Employer Options to Mitigate Costs (cont’d)
– Decrease coverage paid by employer to offset
additional costs.
• Could create HR issue with employees whose coverage is
being reduced.
• Currently covered employees could be allowed to buy up
coverage and be paid more to cover additional cost.
– Reduce hours of employees to less than 30 hours
per week.
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84. Options for Compliance
 Defined Contribution Approach
– Give employee a set amount to obtain heath insurance
(defined contribution), instead of providing a health
plan with certain benefits (defined benefit).
– Offer employees a variety of health plan options. May
use an on-line exchange (think websites that offer
multiple flight options).
– If employee wants option that costs more than
employer subsidy, employee would pay incremental
cost.
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85. Options for Compliance
 Some employers, such as Sears and Darden Restaurants,
have elected the defined contribution approach.
 Will health plans follow the same path as retirement
plans?
– 1998 – 90% of Fortune 100 employers offered defined
benefit retirement plans to salaried workforce.
– 2012 – Only 30% of Fortune 100 employers offered defined
benefit retirement plans to new salaried employees.*
* http://www.towerswatson.com/en/Insights/Newsletters/Americas/insider/2012/retirement-plan-type-of-
fortune-100-companies-in-2012, last visited on February 23, 2013.
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86. Options for Compliance
 For employers who do not currently offer health care
benefits to employees:
– Penalty is likely less than cost of providing health insurance,
but must compare on after-tax basis.
– Penalty is not deductible.
– Any compensation paid to make-up for lack of coverage is
subject to FICA taxes (7.65%).
 Implementation of Affordable Care Act may make
more health insurance options available to employers.
 Employers with less than 25 employees may get tax
credits that offset premium cost.
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87. Options for Compliance
 Each employer needs to evaluate costs of its
options and decide what option fits with its
culture and employees.
 Any changes that impact collectively bargained
employees will likely require negotiation with
union.
 Evaluation should begin now.
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88. Getting ready for 2014
 Establish an internal working group with HR,
payroll, tax, and finance employees.
 Evaluate what changes need to be made to your
health care plan:
– does waiting period need to be shortened?
– do eligibility provisions need to be changed?
(expanding coverage to 30 hour employees)?
– are employee premiums affordable at all income levels?
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89. Getting ready for 2014
 Evaluate whether changes should be made to your
workforce.
– Decrease number of employees who work at least 30 hours
per week.
– Reduce number of employees by increasing hours (but
watch out for FLSA).
 Prepare a financial analysis of the impact of the 2014
changes:
– What will it cost to expand coverage?
– Should additional cost be recaptured through changes in
health care program?
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90. Getting ready for 2014
 Prepare financial analysis (cont’d)
– Does it make sense to pay penalty for certain
groups of employees?
 Delegate responsibility for ongoing
administration:
– Who will be responsible for monitoring employee
hours?
– Who is responsible for health insurance
enrollment?
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91. Questions?
Thank you!
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