PRESENTED BY:

Maria Robles Meyers Legal Counsel The Kempton Group Jay Kempton President & CEO The Kempton Group

ACA • Benefit Changes • Supreme Court Same Sex Marriage Case • Supreme Court Subsidy Case

Taxes • Individual Responsibility • Employer Responsibility • Plan Responsibility

Reporting • Employer Responsibility • Individual Responsibility • Kempton / Employer Reporting Solutions

AGENDA

Market Reforms to Expand

- Quantity (EHB)

- Quality of Coverage

- Shift more costs to Employers

Federally subsidized coverage on Exchanges

Forced universal participation:

- Individual tax

- Employer taxes

ACA – THREE LEGGED STOOL

“SPOUSES”

• Obergefell et al. v. Hodges, Director, Ohio Department of Health, et al. (576

U.S. _____, 2015) held marriage is a fundamental right protected by 14th

Amendment to U.S. Constitution

• Same sex spouses will be recognized as spouses in all health plans and all other

employee benefits effective July, 2015

• Oklahoma already had recognized same sex marriages

• Texas will now also do the same

• Issue with common law marriage recognized in Texas and Oklahoma

• Further challenges unlikely to succeed

ACA - BEGINNING IN 2015

FEDERAL OUT-OF-POCKET NO HIGHER THAN:

• In 2015, $6,600 single/$13,200 family • In 2016, $6,850 single/$13,700 family

• New “interpretation” of rule for 2016 – single limits apply to each individual in a family unit

• IN NETWORK ONLY

• Includes deductibles, co-pays medical and RX, and plan out-of-pocket requirements

• Note – plans can have a lower out-of-pocket and keep accumulating total costs until the covered person has met the “Federal” out-of-pocket limit

Note: Qualified HDHPs have lower maximum 2015: $6,450 individuals/$12,900 family 2016: $6,550 individual/$13,100 family

ACA - PLAN YEARS BEGINNING IN 2015

ACA - PLAN YEARS BEGINNING IN 2015

*$500 deductible +

*$2,000 out-of-pocket _____________________ $2,500 total out of pocket Can continue to have employee pay copays until total is $6,600

Plan 1

*$3,000 deductible + *$3,000 out-of-pocket _____________________ $6,000 total out of pocket Employees will hit “Federal” out-of-pocket much more quickly

Plan 2

INDIVIDUAL SUBSIDIES

WHAT ARE THEY AND WHY THE BIG FUSS?

• Subsidies are financial assistance from the Federal government to help individuals pay for health coverage that is purchased on an exchange (marketplace) or to pay certain out of pocket costs.

• The amount of is based on household income and family size.

• There is a premium tax credit to pay the premium.

• There is a cost-sharing subsidy to pay out of pocket costs.

SUPREME COURT VALIDATES SUBSIDIES KING ET AL. V. BURWELL, SECRETARY OF HEALTH AND HUMAN SERVICES, ET AL. 576 U.S. __ (2015)

• Statute provides that credits and subsidies are available to individuals who obtain coverage in “an

Exchange established by the State under [42 U.S.C. §18031]” .

• Court held that term is “properly viewed as ambiguous.”

• It determined that an Exchange “established by the State” also means an Exchange “not

established by the State” – federal exchanges.

• “Those credits are necessary for the Federal Exchanges to function like their State Exchange

counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.” pp.

20-21.

• “Congress passed the Affordable Care Act to improve health insurance markets, not to

destroy them. If at all possible, we must interpret the Act in a way that is consistent with the

former, and avoids the latter. Section 36B can fairly be read consistent with what we see as

Congress’s plan, and that is the reading we adopt.” p. 21 (Emphasis added).

THE PREMIUM TAX CREDIT HELPS LOWER MONTHLY EXPENSES:

• Who’s eligible: people with family incomes between 100% and 400% of the poverty level who

buy coverage through any Exchange (Marketplace).

• Pay no more than 2.01% - 9.56% of their incomes for a mid-level plan (“silver”) premium.

• Government pays the rest.

• Tax credit is based on the price of a silver plan but can be used to buy any Marketplace plan,

(bronze, gold, and platinum).

• Individual chooses to have to tax credit paid directly to the insurance company or to get it as a

refundable tax credit in a lump sum when 1040 tax return is filed.

HOW SUBSIDIES WORK

COST-SHARING SUBSIDIES:

• Available to people purchasing their own insurance who make between 100% and

250% of the poverty level (and some Native Americans).

• Need to sign up for a silver plan to take advantage of it.

• Unlike the premium tax credit (which can be used for other “metal

levels”), cost-sharing subsidies only work with silver plans.

• With a cost-sharing subsidy, individual gets the subsidy to pay a low monthly rate

for silver plan, AND subsidy to pay out of pocket costs.

• Federal government pays for most of the deductible and cost sharing that

individual normally pays.

HOW SUBSIDIES WORK

HOW SUBSIDIES WORK

HOW IS IT RECONCILED?

• If the individual received too much – required to repay the extra amount to the government

• If the individual received too little – get refundable credit

• GAO report June 2015 indicates HHS has not and cannot reconcile what is paid to insurance

companies for any person

• HHS has no process in place to reconcile payments

• IRS will waive the underpayment and late penalties for 2014 if they resulted from repayment

of excess advance payments of the premium tax credit for Exchange coverage. (IRS Notice

2015-09).

WHY SUCH AN UPROAR? WHAT IS THE IMPACT OF THE SUPREME COURT DECISION IN KING V. BURWELL?

• It VALIDATES the employer play or pay tax on employers (Section 4980H of the Code)

• Employer pay or play tax is effective only if an individual obtains coverage on the exchange and

gets a subsidy

• If the credits and subsidies did not apply in the 36 -37 states that did not set up state

exchanges, employers in those states would have never been subject to the tax.

TAXES

• EMPLOYER PAY OR PLAY IRC 4980H

• Taxes – ALL LARGE employers

• Reporting – ALL employers, 1095-C

• INDIVIDUAL TAX (MANDATE)

• Taxes – On individuals

• Reporting – By ALL employers or insurance companies

• 1095-B employers less than 50

• 1095-C employers more than 50

**REMEMBER THAT PENALTIES APPLY FOR FAILING TO FILE**

THE PAY OR PLAY TAX APPLIES TO ALL “EMPLOYERS” WITH 50 OR MORE FULL TIME AND FULL TIME EQUIVALENTS.

• The control group rules under Sections 414(b), (c), (m) or (o) of the Code apply. Same rules that apply to retirement plans

• Entities under common control include parent-subsidiaries

• Entities under common control include brother-sister entities which are owned by

the same people even if they are operated as distinct business

• Must ensure that you determine what entities are considered part of the “single

employer.”

• Total employee count based on “control group” employer.

• Liability for tax imposed on each entity of the control group.

TAXES - EMPLOYER RESPONSIBILITY

REQUIRED OF SELF-FUNDED EMPLOYERS - Pay or Play Taxes

Minimum Essential Coverage (MEC) – “Sledgehammer” • All employers with 50 or more full time plus full time equivalents must offer Minimum Essential

Coverage to all full time employees who work at least 30 hours a week or pay $2,000 non-

deductible tax for each full time employee (less a designated number) if at least one full time

employee obtains a credit on any exchange.

Minimum Essential Coverage means any employer self funded plan that provides, at a minimum, ACA designated preventive services, and has no annual or lifetime maximum benefit limitations.

ALL AHP plans include Minimum Essential Coverage

TAXES - EMPLOYER RESPONSIBILITY

REQUIRED OF SELF-FUNDED EMPLOYER - Pay or Play Taxes

Minimum Essential Coverage (MEC) – “Sledgehammer” • An offer of coverage must be made at least once a year – open enrollment

• Tax applies in 2015 to employers with at least 100 full time plus full time equivalents in 2015

• Must offer coverage to at least 70% of actual full time employees (30+ hours) • Will be 95% in 2016 (all FT EEs less 5 if under 100) • The classes of employees who need not be included has been expanded; i.e.

seasonal

• Tax is Delayed until 2016 for employers with less than 100 full time plus full time equivalents

TAXES - EMPLOYER RESPONSIBILITY

REQUIRED OF SELF-FUNDED EMPLOYERS - Pay or Play Taxes

Coverage that is Minimum Value & Affordable – “Tackhammer” • Full time = average of 30+ hours a week - used only to determine if penalties will apply

• Non-deductible tax assessed of $3,000 for EACH full time employee that receives a subsidy on any Exchange ($250 a month for each month) if the coverage offered does not meet the minimum value or is not affordable.

In 2015 - Large employers must offer coverage that is:

• Minimum Value – determined by calculator – 60% standard is based on an “average” set of benefits for a “standard” population

• Must be noted on the SBC • Includes integrated HRA & employer HSA contributions

ALL AHP plans meet Minimum Value requirement

• Affordable (9.5% or less of household adjusted income) • Each employer determines affordability based on the lowest cost minimum value

plan for employee only, using available safe harbors • Only IRS will know actual adjusted household income

Only YOU can determine affordability

TAXES – EMPLOYER RESPONSIBILITY

REQUIRED OF SELF-FUNDED EMPLOYERS - Pay or Play Taxes

Coverage that is Minimum Value & Affordable – “Tackhammer” • Employer determines affordability based on the lowest cost, minimum value

plan, employee-only cost

• Safe Harbor – 9.5% of employee’s taxable wages (same as box 1 W-2)

• Rate of Pay Safe Harbor –

• For an hourly employee, 9.5% of the employee’s hourly rate of pay as of the first day of the

coverage period multiplied by 130 hours (example: If an employee earns $10 per hour, the

employer will be safe-harbored if it offers coverage that costs less than $10 x 130 x 9.5

percent, or $123.50 per month)

• For a salaried employee - 9.5% of the employee’s monthly wage

• Federal Poverty Level ("FPL") Safe Harbor - must not exceed 9.5% of the most

recently published federal poverty level for a single individual.

• 2015 single poverty level $11,770 (cost of self-only coverage is less than $11,770 x 9.5

percent /12 months = $93.18 per month)

• 2016 single poverty level not yet available

TAXES – EMPLOYER RESPONSIBILITY

Unsure of average weekly hours (variable hour, part time, and seasonal)

Use look back or monthly measurement option

Enroll eligible employees within stated timeframes

Employee Types • Measure ALL employees and use caution. Incorrect measurement can result in penalties.

• Measure employees monthly to determine if they work at least 130 hours per month. If so,

they must have been offered coverage for that month.

Always work or reasonably expected to work 30+ hours a week.

No look back measurement option

Use monthly measurement option

Offer coverage by the 1st day of the 4th calendar month of eligibility (90 calendar days)

Full-Time

No federal requirement to offer coverage to anyone who averages less than 30 hours per week

TAXES – EMPLOYER RESPONSIBILITY

HOW WILL THE IRS KNOW WHO IS REQUIRED TO PAY TAXES?

• Complicated new filing obligations with significant personal identifying information!

Forms 1095 B and C beginning 2016.

• So why does IRS require your personal identifying health information?

• Simply put, there is no way for the IRS to enforce the ACA employer pay or play tax

or the individual tax without such an invasive reporting scheme.

TAXES – EMPLOYER RESPONSIBILITY

EMPLOYER REPORTING OBLIGATIONS NEW REPORTING TO EMPLOYEES DUE JAN. 31, 2016

• IRC 6055 – THIS APPLIES TO ALL EMPLOYERS THAT HAD TWO OR MORE

EMPLOYEES NOT JUST THE OVER 50 OR OVER 100 (used by employees to avoid

individual tax)

• Employer must provide notice to employees of the coverage they actually had in

place at any time during the year

• Identify each month in which coverage was available

• Identify every dependent covered with name, social security numbers,

dates of coverage

• Used by employee to certify on Form 1040 if had coverage – avoid

individual tax

• Employers with less than 50 FT/FTE use Form 1095B

• Employers with 50 or more FT/FTE use Form 1095C

EMPLOYER REPORTING OBLIGATIONS NEW REPORTING TO IRS – DUE FEB. OR MARCH 2016

• IRC 6056 – THIS APPLIES TO ALL EMPLOYERS THAT HAD 50 OR MORE

EMPLOYEES

• Used by IRS to assess tax liability on employer

• Used by IRS to identify individual eligibility for Exchange subsidies and

those that owe individual tax

• For Employers with >100 FT/FTE, the reporting is combined on Form

1095C so that only one form is completed and provided to the

employee and to the IRS.

EMPLOYER REPORTING OBLIGATIONS NEW REPORTING – TO BE FILED FEB. OR MARCH 2016

• IRC 6056 – THIS APPLIES TO ALL EMPLOYERS THAT HAD 50 OR MORE FT/FTE EMPLOYEES

• Employer must file an information return with the IRS to:

• Identify itself as an “applicable large employer” (ALE) (one with 50 or more

FT/FTE on a control group basis)

• Identify members of the control group (ALEs) – 1094-C

• Identify every employee – 1095-C

• Indicate if coverage was offered by employee • Identify the coverage each employee had during the year • Identify the cost of the lowest cost minimum value plan • Identify reason for not offering coverage month by month • Identify any transitional rules that apply to it

• Fiscal year plan • Certification if more than 50 but less than 100 FT/FTE

EMPLOYER REPORTING OBLIGATIONS

NEW REPORTING – TO BE FILED FEB/MARCH 2016

• Employer will not pay a tax with a return

• FYI IRS calls the tax “an assessable amount”

• IRS will determine amount of tax and notify employer after it matches

information for individuals who received a subsidy on any Exchange

• IRS has to wait until after individuals, employers and insurance companies file

returns to figure it out

• Timing on when the assessment will be mailed not yet certain

• Assessment of tax is based on months

• Employer will have opportunity to respond before assessment

• IRS will send a notice and demand after assessment

WHAT ARE INDIVIDUALS REQUIRED TO DO TO COMPLY WITH ACA?

• File form 1040 indicating if they had health coverage 2015

• Use the 1095 B or C provided by employer or the 1095-A provided by Exchange to

file 2015 return

• All years – indicate hardship exemptions on IRS form

• There are many “hardship” exemptions that are likely to result in broad deferral of

mandates until 2016

• Indicate tax due for not having coverage

TAXES – INDIVIDUAL RESPONSIBILITY

INDIVIDUAL TAX (MANDATE) DUE BEGAN IN 2014

• Good faith used in 2014 return to indicate coverage

• 1095 forms will be used in 2015

• Pay the tax – the greater of a flat annual dollar amount or a percentage of annual family income.

• Child rate applies only for child under 18

TAXES – INDIVIDUAL RESPONSIBILITY

INDIVIDUAL TAX (MANDATE) STARTED IN 2014

The IRS in FAQ notes that “[t]he IRS routinely works with taxpayers who owe

amounts they cannot afford to pay. The law prohibits the IRS from using liens or

levies to collect any individual shared responsibility payment. However, if you owe

a shared responsibility payment, the IRS may offset that liability against any tax

refund that may be due to you.”

Federal government has not been able to ascertain how much was paid or if it

was paid properly.

TAXES – INDIVIDUAL RESPONSIBILITY

INSPECTOR GENERAL REPORT ON PAYMENT OF PREMIUMS AND SUBSIDIES

In its June, 2015 report, the Inspector General determined that: “CMS’s internal controls (i.e., processes put in place to prevent or detect any possible substantial errors) for calculating and authorizing financial assistance payments were not effective. Specifically, we found that CMS:

• relied on issuer attestations that did not ensure that advance CSR payment rates identified as

outliers were appropriate,

• did not have systems in place to ensure that financial assistance payments were made on behalf of confirmed enrollees and in the correct amounts,

• did not have systems in place for State marketplaces to submit enrollee eligibility data for financial assistance payments, and

• did not always follow its guidance for calculating advance CSR payments and does not plan to perform a timely reconciliation of these payments.”

TAXES – INDIVIDUAL RESPONSIBILITY

How Will You Comply?

1. Have your own solution

• Payroll vendor, i.e. PayCom, ADP

• Find a stand alone solutions provider, i.e. Greatland, Thompson Reuters OneSource

• Contact your Account Manager to discuss your needs for data on covered persons • Custom data solutions may incur additional fees • YOU are responsible for preparing 1095B or C, direct mail to employees, and

e-file employer return with a 1094 B or C

2. Use Kempton certified vendor partner (additional service fees will apply)

• Greatland • Verified data interoperability / compatibility • Under 50 - Kempton will have all required data • Over 50 – Employer will have to provide some data on non-covered persons • Kempton / Greatland will prepare 1095 B or C, direct mail to employees, and e-

file employer return with a 1094 B or C

In ALL cases, you will be required to certify accuracy

REPORTING BY EMPLOYERS - SOLUTIONS

• Enrollment for 2016 on Exchanges will start November 1, 2015 ends January

31, 2016

• Automatic enrollment for employers 200 or more full time employees–

Delayed until DOL issues final regulations. Not yet available.

• Deliver 1095 B or C by January 31, 2016 (same timetable as W-2s)

• File 1095B/C with transmittals by February 28, 2016 or March 31, 2016 if

filing electronically

• Watch for extension of time to file returns in 2016!

2016 & BEYOND…

• Remaining issues regarding religious objections to the contraception mandate filing with HHS to indicate its religious status. Final regulations issued July 10, 2015

• 36 states have not expanded Medicaid; this leaves those under 100% of poverty

level with no coverage, no subsidy on the exchanges.

• How many people have enrolled for 2015?

• EEOC position on same sex spouse protected under Title VII

INSIDER INFO

OKLAHOMA EXCHANGE *

• 126,115 people enrolled in Oklahoma for 2015

• 54% of the 2015 enrollees were new to the exchange for 2015, while 46% already

had a plan in 2014.

• 81% of the Oklahoma enrollees were eligible for premium subsidies for 2015

• Blue Cross Blue Shield Oklahoma is seeking average rate increases of 31% for 2016. ** It

has over 80% of the market. The rate increases filed with healthcare.gov for three product

classes were 22.64%. 33.83% and 43.95% for 2016.

* Source: “Oklahoma health insurance exchange / marketplace Subsidies safe for 86k; three carriers offering plans in OK exchange for 2016” Louise

Norris healthinsurance.org, contributor June 28, 2015

** Source CNN: “Blue Cross and Blue Shield of Oklahoma insurance rates might go up 31 percent in 2016: Report” www.cnbc.com Published: July 7,

2015

INSIDER INFO

TEXAS EXCHANGE*

• 1,205,174 people enrolled in Texas for BUT by end of March, 966,412 people in Texas

had effectuated coverage through the exchange enrolled in private plans through the

Texas exchange during the 2015 open enrollment period – the third highest in the

country, trailing only Florida

• 57% are new to the exchange for 2015, while 43% already had a plan in 2014

• 86% of Texas enrollees are receiving premium subsidies

• 60% of Texas enrollees are receiving cost sharing subsidies

• Blue Cross Blue Shield of Texas lost up to a $400 million on individual, Obamacare-

compliant plans, according to filings disclosed earlier this week by the federal government.

Seeking 19.97% rate hike.**

* Source: “Texas health insurance exchange / marketplace Exchange enrollees to be identified on ID cards; nearly half of exchange

carriers request rate hikes under ten percent” Louise Norris healthinsurance.org, contributor June 28, 2015

** Source: Healthcare.gov Texas Rate Review Submissions

INSIDER INFO

This presentation provides information of a general nature. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues. Additional facts and information or future developments may affect the subjects addressed in this presentation. You should consult with a lawyer about your particular circumstances before acting on any of this information because it may not be applicable to you or your situation.

BECAUSE MARIA SAID SO…

QUESTIONS