The Affordable Care Act The Financial Risks, Costs & Rewards In an Evolving Marketplace

1. The Affordable Care ActThe Financial Risks, Costs & RewardsIn an Evolving Marketplace Presented by: Kate Grangard, CPA, CFO January 28, 2014

2. PPACA Highlights Timeline

3. A Time of Transition for Employers Unknown Risk & Costs Planning • ESRP • Industry AV Losses • Emerging Markets • Elections • DOL/IRS Audit Risk • Cost Shifting Effect • Moving from a period of Disclosures to Exposures Quantifiable Risk & Costs Compliance • Employee Notices • Tax & Entity Reporting • Costly Mandates • Mandated Plan Changes • Fees, Fees, Fees

4. Employer Conundrum • Employer’s Face a Catch-22 • Offer Affordable & Comprehensive Coverage to Employees & Children Dependents • Penalty Exposure – Pay or Play – ESRP • Demographic & Cost Pressures • Attract/Retain Talent • Health Insurance remains greatest tax favored employee benefit • Saves employee tax – Federal, Medicare, FICA • Saves employer tax – Medicare, FICA, Federal • Employees are often confused • Small group pricing change ramifications

5. Employer Conundrum • Offer Affordable & Comprehensive Coverage • to Employees & Children Dependents • Rising Costs & Fees • Medical Inflation • PPACA Fees & Taxes • 2014 Sample Budget Fees

6. Employee Conundrum • Employee’s Face a Potential Penalty & More Tax • Individual Shared Responsibility Payment Exposure – MEC to Dependents • 3.8% Net Investment Income Tax on Investment & Passive Income • Two worker homes face 2 plans to coordinate • .9% Medicare Cost • Cost Pressures due to Increasing Premiums • Employees are often confused • Sophistication of Insurance • Partial or Misleading info in the media& from friends

7. Provider Conundrum Providers face influx of patients, new technology, more oversight, and less predictable revenue Risk based payment models from carriers ACO’s / PCMH EHR PCORI Medicare Payment changes Hospital readmission reductions Mega-merger pressure

8. Carrier Conundrum Carrier’s Face Uncertain Risk, Reporting Demands, and New Competition Slow and older demographic exchange enrollment Pricing for 2015 due in May Reporting to/from the HUB & Exchanges Compliance Reporting - HIF Rate review & Market Selection Provider payment models Direct ACO, Bundled Rate, Local Providers, and Coops emerging Creative plan design within the ACA

9. Government Conundrum • Financial Pressure – Delay ESRP, Exceptions ISRP, on-going negotiations budget, debt ceiling, sequestration, add’lmedicaid funding • Delayed Guidance & Forms – ESRP, Discrimination Rules, Tax Forms ex: Instructions NIIT – Form 8960, TRF, 6056 • Higher Regulatory Presence - Rate Review, PCORI • Marketplace HUB Platform Issues • Image Concerns

10. Evaluating Employer Options • Public Marketplace - SHOP • Small group and individual marketplace only until 2017 • Sole Source for elusive small employer credit • Sole Source for APTC and Subsidy for Individuals • Employees (& dependents) ineligible for subsidy as long as ER provides MV, and affordable coverage • Limited carrier availability • Limited plan design availability & capability • Limited availability of richer AV plans • Limited network availability • Provider disruption • Unknown risk – superficially suppressed rates • Risk adjustment paid to carriers • Immature Claims & Premature pricing • PCIP & Older Demographic Enrollment

11. Evaluating Employer Options Public Exchange - Florida’s Marketplace (sample) Plans:

12. Evaluating Employer Options • Private Exchanges • Broker • Risk sharing • Multi carrier • Single carrier • Carrier • Defined contribution model • Enrollment & Support • Demographically & experience rated • Risk of cost spikes • Additional Market

13. Evaluating Employer Alternatives • Reviewing the Alternatives • Offer affordable MEC • Large ER group coverage w/preventative is MEC • Avoid $2,000 Per Employee Penalty • Not MV (60%) so employees MAY qualify for APTC & Subsidy in Marketplace • Considerations • Talent retention • Loss of greatest tax free benefit • Expectation for additional compensation (taxable) • Lack of comparable rich plan in marketplace • Employees may still be forbidden from APTC & Subsidy due to spousal ER coverage • “Great deal” discontent

14. Evaluating Employer Alternatives • Reviewing the Alternatives • 2. Offer No Coverage – increase income • Employee Receives no ER coverage for self & family • Pay $2,000 Per Employee Penalty • Considerations • Talent retention • Loss of greatest tax free benefit • Employee potential tax rate increase • Expectation for additional compensation (taxable) • Lack of comparable rich plan in marketplace • Employees may still be forbidden from APTC & Subsidy due to spousal ER coverage

15. Evaluating Employer Alternatives • Reviewing the Alternatives • 3. Continue ER Sponsored Coverage • Employee Receives affordable coverage • Coverage available to child dependents • Spousal Coverage • Plan design flexibility to control costs • Considerations • Greatest tax free benefit • Increased costs due to ACA • Compliance • Employment tax savings • Richer benefits including integration of clinics, wellness • Ability to affect Access and therefore productivity

16. Evaluating Employer Alternatives

17. Evaluating Employer Alternatives

18. Evaluating Employer Alternatives • Post ACA Employer Survey Results

19. OPPORTUNITIES • With Change Comes Opportunity • Plans with accumulated max OOP and max deductibles • Consumer refocused on cost/value • Some increased transparency in buying – AV & SBC & Exclusions • Premium Assistance & Subsidies • Age 26 – Tax Free • Affordable Coverage for Early Retirees • Outreach to get Poor & Uninsured Covered • Incentives for Wellness; No pay Preventative • No Pre-Ex Exclusions • Emerging Markets & Providers • ACOs, Local Provider Plans, Private Exchanges, telemedicine • MEC Plans, Self Group Self Insured Products, HMO

20. Looking Forward What Employers Can Do to Plan toward the Future • Surround yourself with great team • Internal & external – committed, current • Creative, resourceful, forward thinking • Review workforce for ESRP Planning • Verify Small Business Credit Eligibility • Review various funding alternatives • Review various provider options • Offer less rich, lower cost options • Budget for ACA Fees • Comply & document • SBC, Notice of Coverage, 125 plan amend, imputed income, DOMA, W-2, 720, TRF, 6055 & 6056 reporting

21. Balancing Risk, Costs & Rewards QUESTIONS ? kate.grangard@gehringgroup.com561-626-6797