v Overview: Key Components of Health Reform v Health Insurance Exchanges v Determining Full-Time Employees v Play-or-Pay Penalties v Actuarial Modeling and Strategies

1. 1
Today’s Agenda
v Overview: Key Components of Health Reform
v Health Insurance Exchanges
v Determining Full-Time Employees
v Play-or-Pay Penalties
v Actuarial Modeling and Strategies
v Final Thoughts

2. 2
• No lifetime maximum dollar
limits on essential health
benefits
• Children eligible to age 26
• No preexisting condition
restriction for enrollees
under age 19
• OTC medication not eligible
for FSA or HRA
reimbursement without a
prescription
2011 2012 2013 2018
• Individual Mandate
• Employer Mandate
• Health Insurance Exchanges
for Individual and Small
Group Market
• No annual dollar limits on
essential health benefits
• Waiting periods limited to 90
days
• Transitional reinsurance fee
• Automatic enrollment
(deferred)
• Employer reporting
obligations (re: offer of
coverage)
• Increase in wellness awards/
penalties
• Health FSA benefits capped
at $2,500
. Taxes on high wage earners
• Elimination of deductibility
of Medicare Part D subsidies
• Excise tax on medical device
manufacturers
2014
Health Reform Impact Timeline
Cadillac Tax
• Summary of Benefits Coverage
• Medical Loss Ratio Refunds
. W-2 Reporting of Health Coverage
• Comparative Effectiveness
Research Fees
• HCR Preventive Care Benefits

3. 3
2014 HCR Impacts - Key Pieces of the Puzzle
• Everyone must have “minimum essential
coverage” (MEC) or potentially pay a modest
penalty*
Individual
Mandate
• Employer must offer MEC to at least 95% of FTEs
in the company (EIN), and their children to age 26,
or risk Tier 1 penalties; FTE = 30+ hours/week
• If MEC is not also Qualifying (“Minimum Value”)
and Affordable, the employer risks Tier 2
penalties
Employer
“Play or Pay”
Mandate
• Subsidized and unsubsidized coverage
• Subsidies are only available if the employer doesn’t
offer Q&A coverage
Health
Insurance
Exchanges
* The federal penalty is the greater of $95/year per single or 1% of household income in 2014.

4. HEALTH REFORM ADVISORY PRACTICE
Health Insurance
Exchanges*
* Per HHS, now referred to as “Marketplaces”

5. 5
What Is a Health Insurance Exchange?
v A transparent, regulated, competitive marketplace for individuals to purchase
health insurance coverage for themselves and their families
Ø Each Exchange must offer a basic level of comprehensive benefits called “essential
health benefits,” as defined by HHS based on “typical” employer plan
² Bronze (60% actuarial value)
² Silver (70% actuarial value)
² Gold (80% actuarial value)
² Platinum (90% actuarial value)
v Small employers (100 or fewer employees) may leverage Exchanges to
provide coverage to their employees
Ø States may extend this option to larger employers beginning in 2017
v Premium and cost-sharing subsidies available for exchange coverage for
individuals who do not have access to qualifying and affordable (Q&A)
employment-based coverage
Ø Applies to persons between 1X and 4X federal poverty level
Ø E.g., up to family income of $92,200 (2013) for family of four

6. 6
State Progress on Health Exchanges
Source: Kaiser Family Foundation - February 15, 2013

7. 7
Why Exchange-based Coverage Is Expected to Be More
Costly
v Self-funded Employer:
† Administrative fees typically less than 5% of overall costs. No profit, risk charges, or
state taxes.
† Tax-deductible expense for company and pre-tax contributions for employees.
† Available to actively-at-work employees and their families who are healthier than the
general population.
† Employee contributions based on salary, not age.
v Health Insurance Exchanges:
† 3.5% user fee for federally-facilitated exchange coverage
† Insured premiums includes profit, risk charges, and state taxes.
† Pool includes adverse selection because healthy lives purchase only as needed.
† Premiums after-tax and age-based with a maximum spread of 3 to 1.
† Insurers subject to billions in additional taxes and charges.

8. 8
Sample Projected Exchanges Rates – 2014
v Anticipated exchange-based premiums were developed from the Kaiser Family Foundation Health
Subsidy Estimator model and validated from several additional sources including recent premiums
under Massachusetts's individual exchange as well as CBO projections.
v An individual-employee rate was developed for each employee’s age, coverage category and location
based on demographic and area factors.
v Federal subsidies were calculated using two methods 1) that consider only the employee’s salary for
determining household income and 2) a spousal income generator (RSIG) that randomly assigns
income based on gender, wage and age of the employee.
Kaiser Family Foundation 2009 Trended 9% to 2014
Boston Area
Rates trended to
2014
Age Single Emp + Sp Emp + Chld Emp + Fam Emp + Fam
30 $4,117 $8,235 $8,235 $12,097 $16,414
40 $5,385 $10,770 $10,770 $14,517 $20,202
50 $8,352 $16,703 $16,703 $20,174 $24,865
60 $12,172 $24,344 $24,344 $28,772 $31,081
CBO Average -All
Ages $4,264 $11,562

9. HEALTH REFORM ADVISORY PRACTICE
Who are full-time
employees?

10. 10
Determining and Dealing with Full-Time Employees
v Who Are FTEs*?
† Individuals working at least 30 hrs/wk, on average
² May use 130 hrs/month as an equivalency
† But not:
² True independent contractors
÷ Contrast with “common law employees,” to wit, individuals with
respect to whom the employer not only has the right to say what is
to be done, but how it is to be done
² Leased employees
² Partners
² More than 2-percent shareholders in an S corporation, and
² Employees without US-source income
* Employer is at-risk for penalties if FTEs get subsidized exchange-based coverage

11. 11
Determining and Dealing with Full-Time Employees
v What’s the Deal with Full-Time Employees?
† Regular (non-seasonal) full-time: Offer coverage prior to end of the employee’s “initial
three full calendar months of employment,” or risk penalties
† Seasonal/Variable Hour:
² Track hours over a “measurement period” of 3-12 months
² Get ducks in a row during a brief “administrative period”
² Offer coverage, to those emerging from the measurement period with an average of 30 hrs/week or
130 hrs/month, through a “stability period” of at least 6 months, and no shorter than the
measurement period
Look-Back
“Measurement” Period
Prospective
Stability Period

12. 12
Regular
Full-Time
Seasonal/
Variable
Hour
v So…in Which Bucket Do We Place a New Employee?
† On start date, employee expected to work 30+ hrs/wk for indefinite period
† On start date, employee is reasonably believed to be seasonal
† On start date, employee expected to work <30 hrs/wk for indefinite period
† On start date, employee expected to work indefinitely, but we can’t reasonably
determine if will average 30+ hrs/wk over an entire measurement period
Determining and Dealing with Full-Time Employees

13. 13
Regular
Full-Time
Seasonal/
Variable
Hour
v So…in Which Bucket Do We Place a New Employee?
† On start date, employee hired for indefinite term, expected to work 30+ hrs/wk for a
while, but then hours will diminish so can’t determine if will average 30+ hrs/wk
over an entire measurement period
† On start date, non-seasonal employee expected to work 30+ hrs/wk, but term of
employment will end before the end of the measurement period
² Disregard high turnover rate
† Staffing/temporary employees whose assignments, duration of assignments, and
hours per week at assignments are all uncertain
Determining and Dealing with Full-Time Employees

14. 14
Determining and Dealing with Full-Time Employees
v Counting Hours
† What hours are taken into account? (Proposed
regulations)
² Hours paid, whether working or not (count all hours for work
within controlled group)
² Disregard hours worked outside the U.S. (i.e., foreign-source
income)….

15. 15
= Averaged 30+ hours
during initial measurement
period
= Averaged < 30 hours
during initial measurement
period
New Hire Initial Measurement Period
Start Date
June 25,
2014
July 1, 2014
June 30,
2015
New Hire Initial Stability Period
August 1,
2015
Dec. 31,
2015
July 31,
2016
Determining and Dealing with Full-Time Employees
Optional Administrative
Periods
Example of Initial Measurement and Stability Periods
Assume standard measurement periods run November 1 – October 31, standard administrative periods run November 1 –
December 31, and standard stability periods run Jan 1 – Dec 31.
Green arrow shows length of initial stability period for an employee
averaging 30+ hours per week/130 hours per month over his initial measurement period.
Red arrow shows the initial stability period for an employee averaging fewer than 30 hour per week/130 hours
per month over his initial measurement period. Note how the initial stability period ends prematurely, as the
employee’s first standard stability period begins. The employee’s FT or non-FT status in that standard stability
period beginning January 1, 2015, is based on the hours per week or month he averaged over the standard
measurement period that overlapped his initial measurement period (e.g., the standard measurement period that
ran November 1, 2013 – October 31, 2014).

16. 16
= Averaged 30+ hours
during initial measurement
period
= Averaged < 30 hours
during initial measurement
period
New Hire Initial Measurement Period
Start Date
June 25,
2014
July 1, 2014
June 30,
2015
New Hire Initial Stability Period
August 1,
2015
Dec. 31,
2015
July 31,
2016
Determining and Dealing with Full-Time Employees
Optional Administrative
Periods
Ongoing Assoc. Standard Stab. Period
Dec. 31,
2015
Oct. 31,
2014
Jan. 1,
2015
Ongoing Assoc. Std. Meas. Period
Nov. 1
2013
Ongoing Assoc. Std. Meas. Period Standard Stability Period
Nov. 1,
2014
Oct. 31,
2015
Jan. 1,
2016
Dec. 31,
2016

17. 17
Determining and Dealing with Full-Time Employees
v Averaging Periods for Determining FTEs
† Ongoing employees
² Standard Measurement Periods:
÷ 3-12 consecutive months (earlier guidance said calendar months)
÷ May be followed by Standard Administrative Periods of up to 90 days (Caution…not necessarily 3 months)
² Standard Stability Periods:
÷ Greater of 6 months or length of the Standard Measurement Period
÷ For 2013, may have a Standard Measurement Period of 6 consecutive months, followed by a Standard Stability
Period beginning in 2014 of 12 months; measurement period must start by July 1, 2013
ú Note that for non-CY plans to take advantage of this special rule, the measurement period may have to be longer than 6 months in order
to apply 12-month stability period…the measurement period must start not later than July 1, 2013 and end no more than 90 days before
the stability period

18. 18
Determining and Dealing with Full-Time Employees
Ongoing Assoc. Standard Stab. Period
Dec. 31,
2015
Oct. 31,
2014
Jan. 1,
2015
Ongoing Assoc. Std. Meas. Period
Nov. 1
2013
Ongoing Assoc. Std. Meas. Period Standard Stability Period
Nov. 1,
2014
Oct. 31,
2015
Jan. 1,
2016
Dec. 31,
2016
Watch for
record-keeping
requirements!
Note how coverage
continues through the
2015 Administrative Period
that the 2015 Stability
Period overlaps

19. 19
Determining and Dealing with Full-Time Employees
v Averaging Periods for Determining FTEs
† Ongoing employees
² Variations : May use different standard Measurement, Administrative and Stability Periods for certain
different groups:
÷ Employees in different bargaining units covered by separate bargaining agreements
÷ Collectively-bargained and non-collectively bargained employees
÷ Salaried and hourly employees
÷ Employees whose primary places of employment are in different states
÷ Employees in different companies (because “play or pay” is applied separately)
² Same flexibility for Initial Measurement, Administrative and Stability Periods?

20. 20
Determining and Dealing with Full-Time Employees
v Averaging Periods for Determining FTEs
† Special Rules Affecting Measurement, Administrative
and Stability Periods
² Rehires and Returns to Service After Unpaid Leave/
Layoff (after 2014?)
÷ If period of break (no paid/unpaid hours of service) is at least 26
weeks, the rehired/returning employee may be treated as new
employee, for “play or pay” purposes, or
÷ If period of break is at least four weeks, and longer than the
preceding period of employment, the rehired/returning employee may
be treated as a new employee for “play or pay” purposes
÷ If the employee can’t be treated as a new hire, upon his return he
picks up where he left off (e.g., if he returns in a stability period
for which he must be treated as a FTE, coverage must be offered on
his first day back or as soon as administratively practicable)

21. 21
Determining and Dealing with Full-Time Employees
v Averaging Periods for Determining FTEs
† More Special Rules Affecting Measurement, Administrative and Stability Periods
² Adjustment to Measurement Period to Account for Special Unpaid Leave
÷ If an employee returns from a period of “special” unpaid leave, and cannot be treated as a new hire (i.e., he hasn’t
been gone long enough), the period of unpaid leave is either:
ú Disregarded in determining average hours (i.e., the measurement period is shortened), or
ú Credited the employee with hours at the weekly rate he averaged during the weeks in the leave that were not
special unpaid leave
÷ Special unpaid leave is unpaid leave under FMLA, USERRA or for jury duty
÷ Only required to apply this rule for employees who, upon return, must be treated as rehired/returning employees,
as opposed to new employees

22. 22
Determining and Dealing with Full-Time Employees
v Averaging Periods for Determining FTEs
† More Special Rules Affecting Measurement, Administrative and Stability Periods
² Proposed Educational Institution Special Rule
÷ Apply the “special unpaid leave” rule to unpaid breaks of at least four consecutive weeks (ignoring FMLA, USERRA
and jury duty unpaid leave) if the unpaid breaks are “related to or arising out of non-working weeks or months
under the academic calendar”
÷ If the employer chooses to credit deemed hours, rather than shrink the measurement period, it’s not required to
credit more than 501 hours
÷ Only required to apply this rule for employees who, upon return, must be treated as rehired/returning employees,
as opposed to new employees
² Uh-Oh…
÷ IRS considering broader application of Educational Institution Special Rule….

23. 23
Determining and Dealing with Full-Time Employees
v What lengths make the most sense?
† Most employers will find a 12-month measurement period works best
v When should they begin and end?
² Probably, end a few weeks prior to open enrollment
² Designate an administrative period to bridge the gap between end of measurement period, and
start of stability period

24. 24
2014 Employer “Play or Pay” Mandate*
• No offer of “minimum essential
coverage” (MEC) to at least 95%
of FTEs (and children) and
• At least one FTE employee obtains
subsidized Exchange-based coverage
Tier 1 Penalty
$2,000 annually
per total number of FTEs in EIN
(minus first 30 EEs, prorated for
controlled groups)
• Offer of MEC but offer is not also
Qualifying and Affordable, and FTE
obtains subsidized Exchange-based
coverage
Tier 2 Penalty
$3,000 annually
per each FTE that receives
subsidies from an Exchange (this
penalty is capped at the maximum penalty
above)
* Applies on EIN-by-EIN basis

25. 25
Minimum Essential
Coverage
Qualifying (“Minimum Value”) Coverage
v Assuming the employer will “play” by offering
minimum essential coverage, it will need to
ensure the offer is Qualifying and Affordable
to avoid the risk of Tier 2 penalties
v How good does Qualifying coverage need to
be?
† 60% actuarial value based on typical self-insured
plans
† Feds issued Excel-based calculator
² http://cciio.cms.gov/resources/files/mv-calculator-
final-2-20-2013.xlsm
v Only the Employee’s Coverage Need be
Qualifying, to avoid potential Tier 2
† Children’s coverage does not; no coverage offer
required for spouses
“Qualifying
Coverage”
H E A L T H R E F O R M
60%

26. 26
Affordable Coverage
v To Satisfy the Tier 2 “Play or Pay” Obligation,
the Employer’s Offer of Coverage to FTEs
Must Also Be “Affordable”
v What Does “Affordable Coverage” Mean?
† Statute merely says coverage can’t cost the
employee (for employee-only coverage) more
than 9.5% of his or her “household income”
² Basically, adjusted gross income; that’s taxable wages
with “above the line” adjustments for things like
alimony, student loan interest, HSA contributions,
farming gains and losses, etc.
† Feds offer a variety of safe harbors: E’ee-only
coverage is affordable if it does not cost more
than 9.5% of:
² W-2 wages (actual Box 1 wages); look-back calc
² Rate of pay at beginning of year, times 130 hours
(monthly premium can’t exceed this number)
² Poverty level for state in which employee works
H E A L T H R E F O R M

27. HEALTH REFORM ADVISORY PRACTICE
Actuarial Modeling and
Strategies for 2014

28. 28
Actuarial Modeling by Industry
GENERAL CONCLUSIONS:
v Most employers can continue to offer coverage with
minimal cost impact due to play-or-pay
v Most employers could save a lot by terminating group
coverage and allowing employees to find coverage in the
insurance exchanges
v Most employees begin to “lose” when shopping in the
exchanges, once household income reaches 2x federal
poverty level
† For now, most employers will continue to offer coverage to
their FTEs

29. 29
Financial Impact of Law Will Vary
Issue OK Possible
Problems
Major
Problems
Current Eligibility=30 hours Yes No but not many
PT workers
No and a large PT
work force
Types of Plans Traditional Limited Medical
Employer Subsidy High Low to mod and
low paid work
force
Low
Current Participation Rate High Low
Wage Spectrum High Low
Regular vs. Seasonal Workers Regular Seasonal
Employer Culture Do they need a plan to attract and retain? Financial savings
of greater value? How does Play or Pay impact their
employees? What will their peer group do?

30. 30
Health Reform’s Cost Impact – All Industries (except Retail,
Restaurant, Hotels, Hospitality and Entertainment)
Based on analysis of 199 clients; Summary of Findings
* Employees can opt out, so the impact will depend on how many new employees remain on the plan, for how long, and the size of the ER’s subsidy.
# First number based on employee's salary; second based on estimate of the EE's household income, on which Exchange subsidies will be based.
Reform Requirement Description Average Cost Adjustment
2010/2011
2010/2011 Mandated Benefits
• Remove pre-ex cond’n restriction to 19
• Remove lifetime dollar maximums on EHB’s
• Minimum annual dollar maximums on EHB’s
• Cover children to age 26
1.3%
2014
Waiting Period (WP) Waiting Period cannot be greater than 90 days
From current
180 day WP
4.0%
From current
365 day WP
23.7%
Auto Enroll
(deferred)
Plans must automatically enroll newly eligible FT
EEs and re-enroll existing EEs
4.4%*
PlayorPay
Play Employer continues to offer coverage
Plan Employee
0.4%, in addition to the cost
impacts listed above.
Pay Employer terminates plan -41.4%
98.5% -
152.7% #
2018
Excise Tax If plan value exceeds limits, excess will be taxed. 1.6%
The impact to the EE
varied based on salary
levels and the ER's
contribution.
For example, for a low-
paid workforce where
the ER does not
contribute a significant
portion of premium,
the Ees’ increase is
much smaller than a
higher-paid workforce
with a substantial ER
contribution.

31. 31
Health Reform’s Cost Impact – Retail, Restaurant, Hotels,
Entertainment Industries
Based on analysis of 31 clients; Summary of Findings.
* Employees can opt out, so the impact will depend on how many new employees remain on the plan, for how long, and the size of the ER’s subsidy.
# First number based on employee's salary; second based on estimate of the EE's household income, on which Exchange subsidies will be based.
^This cost is in addition to the cost impacts associated with mandated benefits, waiting period changes, and auto enroll.
Reform Requirement Description Average Cost Adjustment
2010/2011
2010/2011
Mandated Benefits
• Remove pre-ex cond’n
restriction to 19
• Remove lifetime dollar
maximums on EHB’s
• Minimum annual dollar
maximums on EHB’s
• Cover children to age 26
1.2%
2014
Waiting Period (WP)
Waiting Period cannot be
greater than 90 days
From current 180 day
Waiting Period
5.6%
From current 365 day
Waiting Period
8.4%
Auto Enroll
(deferred)
Plans must automatically enroll newly
eligible FT EEs and re-enroll existing
EEs
Groups not offering
qualifying coverage to all
30+ Hour FTEs
Groups offering qualifying
coverage to all 30+ Hour
FTEs
15.2%* 5.2%*
Playor
Pay
Play Employer continues to offer coverage
Plan Employee Plan Employee
91.1%^ 0.4%
Pay Employer terminates plan 67.4% -37%-0.1%# -26.4% 38.4%-80.5%#
2018
Excise Tax If plan value exceeds limits, excess will be taxed. 0.4%
Note: Assumes Limited
Medical Plans get
waiver of annual dollar
maximum requirement.
The impact to the EE
varied significantly
based on salary levels.
For example, one
client’s salaried
employees would see a
73% increase to
purchase through the
Exchange where the
hourly employees
would see a 40%
decrease because of
the governmental
subsidies.

32. 32
Strategies to Mitigate Costs
v Options
† Do nothing; maintain status quo (current offerings, to employees
currently eligible)
† Pay (in whole or in part)
² Terminate plan, or fail to offer coverage to FTEs in one or more subsidiaries
† Play, but utilize workforce management to shrink the universe of newly
eligible full-time employees
† Play, by offering current plan(s) to the newly eligible FTEs
† Play, by offering current plans and an affordable 60% plan
† Play, by offering only a 60% plan
† Play, by offering a 60% plan and an MEC plan
† Offer only non-qualifying coverage, or offer qualifying coverage without
regard to affordability
† Combinations of the above
Individually, these strategies reduce the number of FTEs, or the potential
cost per FTE. Combinations mitigate both risks.
H E A L T H R E F O R M

33. 33
Strategies to Mitigate Costs – Status Quo
v Do Nothing New (Maintain Current Plan Design and Eligibility)
† Maintain current plan design, and continue to offer the plan to the
class of employees currently eligible; ignore the employees
considered “full-time” under health reform who are not eligible now
† Little or no workforce management to shrink the universe of newly-
designated “full-time” employees
v Why it Works, or Doesn’t:
† Not a cost effective option in vast majority of cases; penalties are
too severe, particularly in light of cost-effective and efficient
alternative strategies
H E A L T H R E F O R M

34. 34
Strategies to Mitigate Costs - Pay
v Pay
† Offer no coverage to more than 5% of FTEs
v Why it Works, or Doesn’t:
† Won’t work for employers who need to attract and retain employees.
† For employers in restaurant/retain industries, many employers cannot
afford to pay a $2k nondeductible penalty on behalf of all FTEs,
particularly where the employer has:
² A significant number of FTEs to whom it effectively must offer coverage
(executives and other corporate staff, managers, etc.) and/or
² A significant number of FTEs to whom the employer does not offer coverage
(or only limited coverage) today
² But, consider possibility of isolating groups of employees, to whom you do not
want to offer coverage, under separate EIN
H E A L T H R E F O R M

35. 35
Strategies to Mitigate Costs – Workforce Management
v Play, but Utilized Workforce Management to Minimize the
Universe of Newly Eligible FTEs
† Manage some full-time employees to part-time
† Employ “measurement period” concept to seasonal and variable hour
employees
† Identify up to 5% of FTEs who won’t receive a coverage offer
† Engage Medicaid- or Medicare-eligible employees
v Why it Works, or Doesn’t
† Reduce potential cost by minimizing the number of newly eligible FTEs
to whom you must make a coverage offer
† Are you able to substitute part-time labor for full-time? Can you shave
hours from one group and have another pick up the slack?
† Conform HR policies, practices, publications and contracts to notion
that you hire part-time employees
H E A L T H R E F O R M

36. 36
Example – Workforce Management Strategy
v Reducing Hours to <30 – Where to Draw the Line?
-
50
100
150
200
250
300
350
400
450
30 31 32 33 34 35 36 37 38 39 40+
HourlyEmployeeCount
Hours Per Week
Before Reduction
After Reduction
Managing hourly workers
from 32 hrs/wk to under
30 removes 598 hourly
employees from the
equation…
…but can employees with
33+ hrs/week take up the
slack, or will Company
ABC need to hire
additional part-time
workers? What is the
impact on hiring and
training costs, loyalty,
etc.?

37. 37
Strategies to Mitigate Costs – Offer Current Plans
v “Play” by Offering Current Plan(s) to All FTEs
† In other words, maintain status quo offerings and offer them to the
new universe of eligible FTEs
v Why it Works, or Doesn’t:
† Usually it doesn’t. Coverage tends to be generous, and would have
to be offered at very modest cost (to satisfy “Affordability”) to the
new universe of eligible FTEs
† The take-up rate may be too high to be acceptable (financially);
plan will attract:
² Unhealthy employees in greater numbers
² Employees driven by the individual mandate—particularly the more highly
paid (due to increase in individual mandate penalty)
² Individuals who lose coverage under spouse’s plan
H E A L T H R E F O R M

38. 38
Strategies to Mitigate Costs – Offer Current & 60% Plan
v “Play” by Offering All FTEs Current Plans, Plus a New 60%
“Qualifying” Option
† Add a 60% actuarial value (i.e., minimum value) offer of Qualifying
coverage to the current offerings, price the 60% plan so it’s
“Affordable” to all FTEs, and offer all options to all FTEs, including
the universe of newly eligible FTEs
v Why it Works, or Doesn’t:
† Eliminates any worry over penalties, because you’ve made an offer
of Qualifying and Affordable coverage to your FTEs
† OK to price the more generous plan at “unaffordable” levels, as long
as the 60% plan is “Affordable”
† Cheaper plan may cause migration of your best risks into the less
expensive 60% plan
† May need to created “salary-banded” contribution rates
H E A L T H R E F O R M

39. 39
Strategies to Mitigate Costs – Offer Only 60% Plan
v “Play” by Offering All FTEs a New 60% “Qualifying” Option
Only
† Substitute a “Qualifying” 60% actuarial value (i.e., minimum value)
coverage offer for the current plan(s), price it at “Affordable” levels,
and make it the only offering to FTEs
v Why it Works, or Doesn’t:
† Reduces premium cost immediately; OK to soften the transition to
higher deductibles (coverage may have a $3,500 or larger
deductible) through bonuses to key employees
† Potential for penalties is eliminated because of the offer of Qualifying
and Affordable coverage
† Minimize the take-up rate, particularly among the universe of newly
eligible FTEs, via contribution rates (even for “Affordable” coverage);
can minimize it further via plan design (i.e., increasing deductibles)
† Note: The offer freezes employees out of subsidized coverage in an
Exchange; thus they cannot satisfy the individual mandate or have
insurance unless they buy the 60% plan
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Strategies to Mitigate Costs – Potential 60% Plan Designs
Plan
Actuarial
Value
Deductible Coinsurance
Out of
Pocket
Maximum
Bronze 1* 60% $4,375 20% $6,350
Bronze 2* 60% $3,475 40% $6,350
Bronze 3 60% $6,350 0% $6,350
* Kaiser Family Foundation April 2012 http://www.kff.org/healthreform/upload/8303.pdf

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Strategies to Mitigate Costs – Offer 60% & MEC Plan
v Offer All FTEs a 60% and Affordable Plan (and Maybe Current
Plans Too), Plus a Skinny and Inexpensive “Minimum Essential
Coverage” (MEC) Plan
† Couple a 60% offering with an MEC plan that would look/feel much
like contemporary “limited medical” plans
† Coverage would be very inexpensive to employees, and employer
(might even be employee-pay-all)
v Why it Works, or Doesn’t:
† If the 60% plan is designed to minimize the take-up rate, the MEC
coverage solves a variety of issues:
² Coverage will be inexpensive
² Coverage satisfies their individual mandate
† Note: No guidance yet on how skimpy an MEC plan may be
† May be a challenge to adequately differentiate the MEC plan from the
60% plan (from a contribution standpoint) if employer doesn’t
subsidize the MEC plan
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Self-Funded Preventive Care Only
+ Richer Fully Insured Indemnity
Supplemental Plan
† Inpatient Indemnity Benefits:
² $1500 Hospital Admission
² $500/Day Inpatient Misc (10 day max)
² Surgical and Anesthesia Benefits
† Outpatient Indemnity Benefits:
² $60 per OV, up to 6 per year
² $60 per Outpatient DXL, up to 6 per year
² Rx
Total Monthly Cost (Single)
Self-Insured Prev Care $30
Insured Supplemental $140
Total: $170
*Gross cost of Indemnity plan potentially reduced if ER contributes >50%.
Self-Funded Preventive Care Only
+Cheaper Fully Insured Indemnity
Supplemental Plan
† Inpatient Indemnity Benefits:
² $800 Hospital Admission
² $300/Day Inpatient Misc (10 day max)
² Surgical and Anesthesia Benefits
† Outpatient Indemnity Benefits:
² $60 per OV, up to 3 per year
² $60 per Outpatient DXL, up to 3 per year
Total Monthly Cost (Single)
Self-Insured Prev Care $30
Insured Supplemental $65
Total: $95
What Might an MEC Plan Look Like?

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Strategies to Mitigate Costs – Offer Unaffordable Coverage
v Offer Qualifying Coverage to All or Substantially All FTEs, But
Do Not Worry About Making it Qualifying or Affordable
† Offer only an MEC plan
† Offer Qualifying 60% coverage but don’t worry about affordability
† Make coverage deliberately unaffordable
† Use wellness surcharges to trigger unaffordability
v Why it Works, or Doesn’t:
† Some employees will not seek subsidized coverage in an Exchange
(they’ll object to the mandate, have coverage elsewhere, or won’t
care)
† It might be cheaper for the employer to pay the penalty than to
subsidize the coverage
† It may be better for the employee, too, to reap subsidies
† Enticing unhealthy employees to bolt for Exchange-based coverage
will almost always be a “win” for the employer, even with penalties
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Any Questions?
Mark C. Holloway, JD Rob Ruotolo, MBA
Lockton Benefit Group Lockton Companies – New York
mholloway@lockton.com rruotolo@lockton.com
816-960-9567 646-572-3962

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