Focus on analysis and planning that companies need to do in dealing with Health Care Reform. The purpose is to go beyond simply telling you what the law requires.

1. Let’s Get Serious
About
Health Care Reform
Kelly Hart & Hallman, LLP
1421150_1.PPTX

2. Presenter:
Henry Robinson, Partner
Kelly Hart & Hallman, LLP
201 Main Street, Suite 2500
Fort Worth, Texas 76102
(817) 878-3558
henry.robinson@kellyhart.com
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3. Purpose
Focus on Analysis and Planning That
Companies Need to Do in Dealing with
Health Care Reform. The Purpose is to
Go Beyond Simply Telling You What
the Law Requires.
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4. Disclaimer
This presentation is a public service.
This presentation is not legal advice.
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5. Today’s Topics
1. State/Federal Exchanges and Subsidies: Prerequisite to Understanding
Penalties Against Employers
2. Searching for Ways to Avoid Being Covered by the Employer Mandate
3. How Can an Employer Minimize the Mandate Penalties?
4. What Management Discretion Remains to Allow an Employer to Minimize
Health Care Costs?
5. Why Employers Should Know and Understand the Individual Mandate with
its Premium Tax Credits and Cost-Sharing Reductions?
6. Are Small Employer Tax Credits Worth the Effort?
7. Do We Wait Until 2018 to Get Ready to Deal with the Cadillac Tax?
8. Managing Turning Health Care Reform as a Positive or Negative
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6. This Session Covers Only Part of the
Employer’s Role in the Pervasive
Changes of Health Care Reform
1. Expansion of Scope of Who Has Health
Coverage and Eliminating Coverage Gaps
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7. 2. Incentivizing Employers to Provide
Health Care
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8. 3. Insurance Cost Containment
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9. 4. Medical Cost Containment
and Reduction
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10. 5. Increases in Revenue
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11. 6. Incentivizing Improvements in
Health and in the Quality and
Efficiency of Medical Care
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12. 7. Extending Non-Discrimination
Rules (Tax Code § 105(h)(2))
to insurance plans
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13. 8. Health Care Workforce
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14. 9. Payment Changes
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15. 10. New Protected Category for
Retaliation Suits
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16. TOPIC ONE
State/Federal Exchanges:
Knowledge About Exchanges and
Subsidies Is Prerequisite to
Understanding When Large
Employers May be Subject to
Penalties
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17. Review of Exchanges
Small
Employers
(with 100 or
fewer workers)
may browse
through
policies and
select one or
Insurance more
Negotiate Exchange
Carriers (employers
remain free not
to use services
of Exchange)
Policies must have (1) at least
minimum benefit categories of an Individuals may browse through
essential health benefits package, (2) approved policies and select one
maximum deductibles (individuals remain free not to use
($2,000/$4,000), and (3) cover costs services of Exchange).
at 60%, 70%, 80% or 90% rate Potential Subsidies.
17

18. Government Subsidies Available to Some
of the Individuals Who Obtain Insurance
Through a State/Federal Exchange
Premium Tax Credit: Employee’s receipt of
premium tax credit may lead to penalty against
employer.
Cost-Sharing Reduction: Employee’s receipt of
cost-sharing reduction may lead to penalty
against employer.
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19. Limited Availability to Employers
2014-2016
Limited to employers with
100 or fewer employees.
19

20. Simplicity/Uniformity of Insurance
Policies Offered Through Exchanges
Minimum Specified Benefit Categories
Maximum Annual Deductibles
Standardized Levels of Cost Coverage
20

21. TOPIC TWO
Searching for Ways to Avoid Being
Covered by the Large Employer
Mandate
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22. Review of What May Subject a Large
Employer to an “Assessable Payment”
Covered “large employers” divided into two categories:
1. Those offering employees and their dependents
opportunity to enroll in “minimum essential coverage”
under an “eligible employer-sponsored plan”
1. Those not offering employees and their dependents
opportunity to enroll in “minimum essential coverage”
under an “eligible employer-sponsored plan”
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23. “Assessable Payment” (Penalties or Taxes)
is Hammer for Employer Mandate
Large employers offering and not
offering employees (and their
dependents) the opportunity to
enroll in “Minimum Essential
Coverage” under an “Eligible
Employer-Sponsored Plan” are
potentially subject to an “Assessable
Payment.”
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24. Law for Employer Sponsoring a Plan
“Assessable payment” is imposed on employer
for any month in which at least one full-time
employee is certified as having enrolled in a
qualified health plan with respect to which a
premium tax credit or cost-sharing reduction is
allowed or paid to the employee.
Internal Revenue Code § 4980H(a)
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25. Similar Law for an Employer
Not Sponsoring a Plan
“Assessable payment” is imposed on employer
for any month in which one or more full-time
employee is certified as having enrolled in a
qualified health plan with respect to which a
premium tax credit or cost-sharing reduction is
allowed or paid to the employee.
Internal Revenue Code § 4980H(b)
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26. Qualified Health Plan
Premium Tax Credit
Cost-Sharing Reduction
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27. Translation: Generally, employer
faces potential penalty if an employee
goes to an exchange, takes out
individual or family insurance, and
qualifies for a subsidy.
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28. Purposes of Non-Deductible
“Assessable Payment”
Against Employers?
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29. Efforts to Avoid Being
Covered by Employer
Mandate
29

30. Effort #1 to Avoid Coverage
of Employer Mandate: Divide Company
Into Multiple Companies So No Company
Will Have 50 Employees
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31. Problem With Effort #1: Control Group Test
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32. Effort #2 to Avoid Coverage
of Employer Mandate: Have Only
Part-Time Employees
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33. Problem With Effort #2: Full-
Time Equivalent Formula that
Includes Part-Time Employees
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34. Effort #3 to Avoid Coverage
of Employer Mandate: Convert
All Employees to Independent
Contractors
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35. Problem With Effort #3: Calling
a Person an Independent
Contractor Does Not Mean the
Person is Not an Employee.
35

36. TOPIC THREE
How Can a Covered Large Employer
Avoid or Minimize Mandate
Penalties? Will They Become an
Acceptable Part of Doing Business?
36

37. Overview of Formula for Calculation of
Monthly Penalties for Different
Categories of Covered Employers
Employer Not Offering Minimum Essential Coverage (Calculation based
on total of full-time employees, not based on full-time equivalents)
(1/12 x $2,000) x (Number of Full-Time Employees – 30)
Employer Offering Minimum Essential Coverage (Calculation based on
total of full-time employees, not based on full-time equivalents)
(1/12 x $3,000) x (Number of Employees Allowed or Paid
Premium Tax Credit and/or Cost-Sharing
Reduction)
[aggregate is capped at number of
employees allowed or paid premium tax
credit and/or cost-sharing reduction – 30]
26 USC § 4980H
37

38. Choice One of Two Choices: Do
Not Offer Minimum Essential
Coverage
Likely consequence: Pay a
penalty and bear indirect costs
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39. Choice Two of Two Choices: Offer
Minimum Essential Coverage and
Try to Minimize Any Penalties
With this alternative, options are
available to try to minimize
penalties.
39

40. What are the Available Options to Try to
Minimize Penalties for Employers Who Offer
Minimum Essential Coverage?
Employers have not lost all discretion.
Significant options remain available to curtail
costs. We will cover five examples.
40

41. Example One: Adjust Wages of
Lowest Paid, Full-Time Employees
So Their Premium Payment is
“Affordable” as Defined in the
Health Care Reform Law.
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42. Example Two: Adjust
Employer Premium
Contributions for Lowest
Paid, Full-Time Employees So
That those Employees’
Premium Contribution
Becomes “Affordable,” as
Defined in the Health Care
Reform Law
42

43. Example Three: Offer Multiple
Products and Ensure that One is
“Affordable” for Low-
Wage, Full-Time Employees
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44. Example Four: Ensure that
Lowest-Paid Employees are
Part-Time
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45. Example Five: Ensure
that Low-Wage, Full-Time
Employees Come from
Families Having
Household Income Above
400% of the Federal
Poverty Level
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46. TOPIC FOUR
What Management Discretion
Remains to Allow an
Employer to Minimize its
Health Care Costs?
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47. Management Discretion A
Transfer Premium Costs to
Employees
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48. Practical Limitations
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49. Management Discretion B
Decrease percentage of covered
expenses that the plan will pay
(e.g., from 90% to 70%).
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50. Limit and Disadvantage
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51. Management Discretion C
Increase the deductible.
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52. Limitations and Disadvantages
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53. Management Discretion D
Sponsor a plan that covers
a narrower range of
categories or types of
medical expenses.
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54. Limits and Risks
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55. Management Discretion E
Private Exchange.
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56. Risk
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57. Management Discretion F
A Professional Employer
Organization (PEO)
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58. Risk
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59. TOPIC FIVE
Individual Mandate’s
Impact on Employers
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60. Review of Individual Mandate
• Individual and applicable dependents
must have minimum essential coverage
for each month.
• If no minimum essential coverage during
a month, individual pays penalty/tax.
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61. One Potential Impact on
Employer: Disappointed
Employee Expectations
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62. Another Potential Impact
on Employer: Individual
Mandate Will Drive
Employees to Engage in
Acts that May Lead to
Penalties Against
Employers.
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63. TOPIC SIX
Are Small Employer Tax
Credits Worth the Effort?
63

64. Review: Small Employer Tax Credits
• Covered small employer:
˃ Fewer than 25 full-time employees
˃ Average annual wage: less than $50,000 per
full-time employee
˃ Employer pays at least 50% of premium cost
• Maximum credit: 35% of employer’s contribution
• Tax credit phased out as wages and number of
employees increase (employers with 10 or fewer
FTEs get full 35%) [Non-profits get only 25%.]
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65. Relatively Few Small Employers are
Taking Advantage of the Tax Credits
• Over 90% do not use
˃ Federal government estimated that for
2010, 1.4 to 4.0 million small employers were
eligible for small employer tax credits.
˃ 170,300 small employers claimed a tax
credit.
• Average credit claimed: $2,700
(GAO-12-549, May 2012)
65

66. Statements Reported in GAO Report Raise
a Question as to Whether Small Employer
Tax Credits Are Worth the Effort
• Small employers with low paid employees and
low profit margins generally do not pay 50% of
premium costs.
• The claim form is too complicated for the credit.
• Small employers get excited but then do the
phase out calculations and eventually do not
file because the amount is not worth the effort.
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67. TOPIC SEVEN
Should Companies Wait Until 2018 to
Think About the Excise Tax on High-Cost
Plans (Cadillac Tax)?
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68. Amount of Excise Tax
40% of aggregate value that
exceeds threshold amounts.
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69. Threshold Amounts to
Qualify as a High-Cost Plan
Persons 55+ and/or high-risk professions
Individual coverage: $11,850
Family coverage: $30,950
Other Persons
Individual coverage: $10,200
Family coverage: $27,500
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70. Potential Significance
Example: Company with 1,000 employees, of which 500
employees have individual coverage at premium rate of $15,000
per year, and 500 have dependent coverage at $30,500 per year:
Individual Dependent
$15,200 - $10,200 = $5,000 $30,500 - $27,500 = $3,000
x .4 x .4
$2,000 $1,200
$2,000 x 500 employees = $1,200 x 500 employees =
$1,000,000 $600,000
Summary: $1,600,000 (which is on top of any contribution
employer has already contributed toward premiums).
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71. Project Your Circumstance
Every company should project whether its premium costs
are likely to cross the threshold amount in 2018.
2012 Averages According to Kaiser:
Individual: $5,615
Family: $15,745
Average does not tell the story because of the wide ranges
of premiums for individual and family coverage. Within that
range, there is a broad distribution. As a result, many
companies are expected to be hit by Cadillac Tax.
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72. Four Options for
Reacting to Cadillac Tax
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73. Option 1: Wait until 2018 and then
make one big change all at once.
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74. Option 2: Over the next five
years, plan and implement an
incremental change that ratchets
down your plan costs to a level
likely to be below the high-cost
threshold.
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75. Option 3: Continue with your
high-cost plan and pay the
excise tax starting 2018.
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76. Option 4: Terminate
health coverage.
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77. TOPIC EIGHT
Managing Effectively
When Dealing with
Health Care Reform
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78. How You Manage Health Care
Reform Will Impact Image
1. Drag your feet and curse and scream but comply.
2. Silently comply.
3. Inform employees about each coming change and
give the impression of making every effort to
comply.
4. Refuse to comply with anything, challenge the
government to come after you, and fight to your
death.
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79. Not Realistic to Hope You
Will Not Be Caught
Reporting requirements starting
2014
W-2 must show cost of coverage.
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80. Suggestion 1: Consider
Employee Perception of
Management Leadership
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81. Suggestion 2: Consider
Impact on Future Legal
Issues
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82. Suggestion 3: Examine Each
Change in Terms of Whether it
is an Advantage or
Disadvantage to the Employee
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83. Detailed Paper on “Health Care
Reform for Employers”
If you want a copy:
Contact Mary Schlegel
Mary.Schlegel@kellyhart.com
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