Healthcare Reform Primer

GE Capital Spring 2013 Healthcare Reform Primer Essential Employer Requirements of the ACA Beginning on January 1, 2014 many of the major requiremen...
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GE Capital Spring 2013

Healthcare Reform Primer Essential Employer Requirements of the ACA

Beginning on January 1, 2014 many of the major requirements of the Affordable Care Act (ACA) will take effect, including the employer healthcare insurance mandate. Regardless of whether they choose to offer coverage, all employers should be aware of the legal and administrative requirements of the law. We outline key considerations of the ACA for employers as they seek to be compliant with the law.*

Contents Overview of the ACA......................................................................................................................................................... 2 Employer Basics................................................................................................................................................................. 3 Employer Requirements Around the Health Insurance Mandate........................................................................ 3 Common/Joint Ownership – Controlled Group Rules............................................................................................. 7 Selected Administrative Requirements and Fees..................................................................................................... 8 ACA Employer Support/Subsidies for Small Business............................................................................................. 9 Glossary..............................................................................................................................................................................10 Resources/LInks...............................................................................................................................................................14

*Please see important disclaimer on bottom of page 2. Industry Research Monitor: Commodities Outlook 1 Explore Financing Solutions at www.gecapital.com/americas © Copyright 2013 General Electric Corporation, All Rights Reserved. To sign up to receive an electronic copy of this Industry Research Monitor, please visit www.gecapital.com/IRM

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Overview of the Affordable Care Act Following months of intense debate, on March 23, 2010 the Patient Protection and Affordable Care Act (better known as the “ACA” or “Affordable Care Act”) was passed and signed into law. Actually comprised of two bills, the ACA broadly expanded health insurance coverage and made a number of dramatic changes to the delivery and payment of healthcare services in the United States. First and foremost the ACA is expected to expand coverage to an estimated 30 million of 54 million uninsured Americans by requiring individuals purchase health insurance coverage or have it provided by their employer or face a penalty. The ACA also imposed a number of changes on the health insurance industry including requiring plans to provide a standard set of “essential health benefits” as well as the formation of Health Insurance Marketplaces (“Marketplaces”) whereby individuals and small business could comparatively shop for health insurance and take advantage of government subsidized coverage. Lastly, the legislation also implemented a number of changes to the healthcare delivery system in the U.S. in order to help address the rapid growth in healthcare costs.

Healthcare Reform Timeline

SELECTED KEY TERMS IN ACA Affordable: Coverage is deemed to be “affordable” if it costs no greater than 9.5% of employees W-2 income with that employer Applicable large employer: Employers with an average of 50 or more full-time employees in a calendar year. In determining whether an employer is an applicable large employer, part-time employee’s hours are counted using a full-time equivalency calculation. However, while part-time employees are included in determining whether an employer is an applicable large employer, for purposes of calculating any potential employer penalties, only full-time employees are included. Employee:

2010 – 2012 Insurance Reform

2013-2014 Coverage Expansion

2015 – 2020 Delivery Reform

Anyone who performs services for you if you can control what will be done and how it will be done. Employer-sponsored health insurance:

Insurance

• Dependent coverage to 26 • Preventive coverage • Elimination of pre-existing conditions exclusions • Elimination lifetime annual limits

Payment Reform

• Launch of CMS ACO program • Comparative effectiveness

Insurance

• Expansion of coverage to uninsured • Employer healthcare coverage mandate • Health Insurance Marketplaces • Individual mandate, subsidies

Payment Reform

• Value-based purchasing program launch (quality)

Other

Other

• Fee on pharma companies • Health insurer industry fee

• Medical device tax

Insurance

• High-cost plan excise tax • Medicare “Donut Hole” fixed

Payment Reform • CMS Ind Payment Advisory Board • Value-based purchasing expansion • Bundled payment expansion

Other

• Penalties for not adopting Electronic Medical Records (EMR)

SOURCE: GECA, Research, PPACA

Nearly 55 percent of Americans who get healthcare insurance secure that coverage through an employer-sponsored plan, often called group health insurance, according to the U.S. Census Bureau. Essential health benefits: A package of benefits set by the Secretary of Health and Human Services (HHS) that insurers will be required to offer under the Marketplaces.

Source : GECA Research: PPACA

As illustrated in the chart above, the ACA is generally being enacted in three phases. In the first phase, which began in 2010, broad insurance market reforms were implemented, including guaranteed issue; elimination of lifetime maximums/pre-existing condition exclusions and restrictions on the amounts premiums can vary based on age and health. In the second phase, which is beginning this year, broad based changes including the expansion of Medicaid to those up to 133% of the Federal Poverty Level and the Disclaimer: Copyright © 2013 GE Capital Corporation. All rights reserved. “GE”, “General Electric Company”, “General Electric”, the GE Logo, and various other marks and logos used in this publication are registered trademarks, trade names and service marks of General Electric Company. You may reprint or forward this presentation to others provided that it is reproduced or distributed in its entirety, including this disclaimer. This presentation provides general information and should not be used or taken as legal, regulatory, business, financial, tax, accounting or other advice, or relied upon in substitution for the exercise of your independent judgment. For your specific situation or where otherwise required, expert advice should be sought. Although GE believes that the information contained in this presentation has been obtained from and is based upon sources GE believes to be reliable, GE does not guarantee its accuracy and it may be incomplete or condensed. GE makes no representation or warranties of any kind whatsoever in respect of such information. GE accepts no liability of any kind for loss arising from the use of the material presented in this presentation.

Federal poverty level: For 2013 the Federal Poverty Level is $11,170 for a single individual and $23,050 for a family of four. Part-time employee: An employee who works on average less than 30 hours per week for a single employer. If based on the based on facts and circumstances at time of hire the employee is reasonably not expected to work an average of at least 30 hours per week (or the employee’s expected average weekly hours are uncertain) over the company’s “initial measurement period,” they are determined to be part-time until they have their hours tracked and measured at the end of the initial measurement period. Industry Research Monitor: Healthcare Reform Primer 2

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formation of State, Federal or partnership based Marketplaces to facilitate pooling of purchasing power and purchase of subsidized coverage beginning in October 2013 (for CY 2014). Moreover, the law requires that beginning January 1, 2014 employers of over a certain size begin offering and paying for employee coverage or face a penalty. Lastly, 16pt font, 50% black 6 tint following a number of pilot programs, the ACA will Lines=25% enact ablack number of on reforms in the 6, 1pt weight stroke Bars=PMS485 delivery of healthcare including Accountable Care Lines=50% Organizations, value-based purchasing, black6, 3pt weight on stroke bundled payments to providers and patient cost/quality metrics to help limit the pace of healthcare cost growth.

HEALTH INSURANCE COVERAGE – SOURCES: Employer sponsored health insurance (ESI) has long been the predominant source of coverage in the U.S. but has been declining in recent years in-part due to the recession of 2007 and it’s after-effects on employment. Employer Based

Employer Basics:

70%

Effective January 1, 2014 any employer who employed an average of 50 or more full-time and/or full-time equivalent employees in a calendar year is required to offer coverage to 16pt font, 50% 6 tint its employees or pay a penalty. If an employer employs 49black or fewer full-time and/or fullLines=25% black 6, 1pt weight on stroke Bars=PMS485 time equivalents in a calendar year, it is exempt from penalties and may in-fact be eligible Lines=50% black6, 3pt weight on stroke for certain types of subsidized coverage. Under the law, coverage must include minimum “essential health benefits” as defined by the law and any penalties incurred in lieu of providing health insurance coverage are NOT deductible for tax purposes.

65%

64%

60%

55%

55% 50% 45% 40% 35% 1999

2001

2003

2005

2007

2009

2011

Medicare 16pt font, 50% black 6 tint Lines=25% black 6, 1pt weight on stroke Bars=PMS485 Lines=50% black6, 3pt weight on stroke

Individual Mandate Requirements – Cont. Penalties for Employers that DO NOT Offer Coverage • Effective 1/1/2014 • Employers with an average of at least 50 full-time employees, that do not offer “minimum

15.5%

14.5% 14.0% 13.5% 13% 13.0% 1999 2001 2003 2005 2007 2009 2011

essential coverage” as defined under law

• Employer subject to penalty of $2,000/yr. per each full-time employee, first 30 employees exempt from penalty • Calculated based on total # full-time employees only

15%

15.0%

Medicaid 16%

17% 16pt font, 50% black 6 tint

SOURCE: PPACA; Proposed Under Section 4980H Lines=25% black 6, Treasury 1pt weight Regulations on stroke Bars=PMS485 Lines=50%Source: black6, 3pt IRS weight stroke PPACA; Noticeon 2011-36; IRS Notice 2011-73

Employer requirements around the health insurance mandate: If an employer employs an average of at least 50 full-time employees in a calendar year and does not offer minimum essential coverage under the law that employer has failed to meet its “shared responsibility obligation” and is subject to a penalty under the law. As noted above, an employer of an average of 50 full-time employees in a calendar year, that does not offer minimum essential coverage as defined by law, has failed to meet its shared responsibility obligation and is subject to a penalty of $2,000/employee (excluding the first 30 employees).

15% 13% 11% 10% 9% 1999

2001

2003

2005

2007

2009

2011

Uninsured 17% 16%

16% 15% 14% 14% 13% 1999

2001

2003

2005

2007

2009

2011

SOURCE: U.S. Census Bureau Industry Research Monitor: Healthcare Reform Primer 3 Explore Financing Solutions at www.gecapital.com/americas © Copyright 2013 General Electric Corporation, All Rights Reserved. To sign up to receive an electronic copy of this Industry Research Monitor, please visit www.gecapital.com/IRM

16pt font, 50% black 6 tint Lines=25% black 6, 1pt weight on stroke Bars=PMS485 Lines=50% black6, 3pt weight on stroke

GE Capital

Spring 2013

For example, say an employer, ABC Manufacturing, employs 100 full-time time employees, it is determined to be an applicable large employer under the law. Assuming that 20 of ABC’s employees receive subsidized coverage through a Marketplace then ABC would be subject to a penalty. The penalty calculated as follows: 100 employees – the first thirty who are exempt from any penalty, leaves 70 employees subject to the penalty. Multiplying those 70 employees by the penalty of $2,000 each, results in a total penalty of $140,000 for ABC. It is important to note, that although employers have to use a full-time equivalency calculation to determine whether they50% areblack subject 16pt font, 6 tint to the health insurance coverage Lines=25% black 6, 1pt weight on strokeis applied based only on the requirement of the law, once that is determined, the penalty Bars=PMS485 number of full-time employees. Lines=50% black6, 3pt weight on stroke On the other hand, even in certain situations where employers offer healthcare coverage under the ACA, if that coverage does not meet certain specific requirements in terms of affordability or required levels of benefits, they could be subject to certain penalties.

Employer sponsored health insurance (ESI) has long been the predominant source of coverage in the U.S. but has been declining in recent years in-part due to the recession of 2007 and it’s after-effects on employment. Annual Healthcare Cost IncreasesFor employers (payors) this has translated into Employer Health Insurance Premiums higher premiums

Annual Healthcare Cost Increases - National Averages 9%

8.5%

8% 7%

6.3%

6.2%

6.0%

6%

4.9%

5% 4% 3%

Individual Mandate Requirements – Cont.

2% 1% 0%

Penalties Applied to Employers That DO Offer Coverage – Cont.

2009

2010

2011

2012

2013 (Projected)

SOURCE : Hewitt Associates

• Employer can fail to meet “shared responsibility” obligation in two ways: 1. Coverage “unaffordable” as defined by the law,

tint weight on stroke

Avg. Annual Employer Contribution Average Annual Employer Contribution totoPremiums (PPO) Premium (PPO)

Annual Healthcare Cost IncreasesOR For employers (payors) this has translated into higher premiums

2. Employers plan doesn’t cover at least 60% of the (actuarial) cost of the benefits of the Annual Healthcare Cost Increases - National Averages plan

weight on stroke

9%

14,000 12,000

8.5%

8%

• Total penalty capped

4% 3% 2%

SOURCE: PPACA; Proposed Treasury Regulations Under Section 4980H

2009

2010

2011

2012

2013 (Projected)

6.3%

 

Coverage is deemed “unaffordable” under 8,000 the ACA if the employee’s portion of the health 4.9% insurance premium for employee only 6,000 coverage is greater than 9.5% of their household $4,848 $4,219Act,$4,582 $4,071 $4,116 income. For purposes of determining affordability under the “household income” has 4,000 been interpreted to be that particular employee’s W-2 income with a particular employer 2,000 2011

2012

2013 (Projected)

$9,593

$11,333 $10,249

0

2008

2009

2010

2011

2012

SOURCE : Kaiser/HRET 2012 Employer Heath Benefit Survey

$11,947

$10,210

6,000 Source: PPACA; IRS Notice 2011-36; IRS Notice 2011-73

1% 0%

Family

8,000

4.9%

5%

Single CAGR (08-12): Single: 3.6% Family: 4.5%

10,000

7%per each full-time employee who receives subsidized • Subject to penalty of $3,000/yr. 6.3% 6.2% 6.0% 6% coverage through anMarketplace. Exchange.

As illustrated above, employers who do :offer are also subject to penalties SOURCE Hewitt coverage Associates under the ACA if the following multiple conditions are met: 1) at least one or more of the employer’s full-time employees must receive subsidized healthcare coverage through a Marketplace, and 2) the coverage offered by the employer must a) be deemed Annual Employer Contribution b) is determined to fail to meet the minimum st Increases-unaffordable as defined by the ACA, orAverage to Premium (PPO) this has translated into essential benefits requirement of the law. In terms of the second condition above, once Single Family an employer has met the first condition by having an employee who receives subsided 14,000 e Cost Increases - National Averages CAGR (08-12): Single: 3.6% $11,947 coverage through the Marketplace, the employer’s healthcare coverage must fail to meet 12,000 Family: 4.5% $11,333 8.5% $10,249 $10,210 only one of the two following conditions to make them subject the penalties. $9,593 10,000

ociates

COSTS OF COVERAGE: PREMIUMS & CONTRIBUTONS

4,000

$4,071

$4,116

$4,219

$4,848

$4,582

2,000 0

2008

2009

2010

2011

2012

SOURCE : Kaiser/HRET 2012 Employer Heath Benefit Survey

Avg. Annual Contribution Average AnnualWorker Worker Contribution - PPO to Premium to Premiums (PPO) 5,000 4,500 4,000 3,500

Single CAGR (08-12): Single: 6.5% Family: 5.7%

$3,344

Family $4,410 $3,823

$4,072

$3,470

3,000 2,500 2,000 1,500 1,000 $731 500 0

2008

$806

2009

$905

2010

$1,002

$1,002

2011

2012

SOURCE : Kaiser/HRET 2012 Employer Heath Benefit Survey

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Determining full-time employees: Given the potential for hourly, seasonal and other variable hour employee’s hours to fluctuate over time the IRS created a safe-harbor in order to allow employers to determine a particular employee’s status. In its interpretive guidance the IRS defined three time periods for employers to use in determining the status of employees: measurement periods; stability periods; and, administrative periods.

A. Measurement Periods: • Are between 3 & 12 months (selected by the employer) • For new employees NOT EXPECTED TO WORK FULL-TIME, employers can employ personnel for “initial measurement period” (defined below) without employer being required to offer healthcare coverage. • Used by employer to track and record employee hours for evaluation of full-time or part-time status. • For each employee that works an average of 30 hours/ week or more, - Employer must offer coverage for subsequent “stability period” (defined below). • “Initial Measurement Period” time period from date employee hired until that employees first “administrative period” • “Standard Measurement Period” a standard, pre-determined period of between 3 & 12 months, selected by employers to track ongoing employee hours and determine eligibility status of variable hour employees under the ACA.

B. Stability Periods: • A period of at least 6 months but no less than the “initial measurement period” during which the employee’s status (full-time/part-time) is applied to offers of coverage. • Any employee determined to be full-time during stability period must be offered healthcare coverage during subsequent stability period. • Stability period begins after initial measurement and administrative period (for new employees) and standard measurement and administrative period (for ongoing employees).

C. Administrative Periods: • A period of up to 90 days, between the Measurement and Stability periods, used to:

i. Determine eligibility, notify and enroll employees in coverage.



ii. Covering all periods between the employees start date and the date when the employee is offered healthcare coverage.

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Determining full-time employees: special circumstances While certain industries may employ full-time employees who are hired for limited periods of time or who may not work what are thought of as traditional full time roles, the ACA allows very few exceptions to its rules for these special circumstance positions. For example, the ACA does not have any special provisions for short-term full-time employees, or full-time employees who work in traditionally high-turnover positions (ex: in the retail and hospitality industries). In these instances if an employee is determined to be a full-time employee under the ACA even though there is the possibility they may not remain that way for a particular employer’s entire stability period, the employer still must offer them coverage (i.e., a person hired to work 8 months by an employer with a 6 month Standard Measurement period). In addition, in the case of commissioned sales people, where compensation is based on some sort of pre-set goal or target (sales, number of sales calls, actual face-to-face customer meetings) and not hours of service per se, the ACA holds employers to what is called an “anti-abuse standard”, whereby employers must use any reasonable method of crediting them hours. Conversely, the ACA has special, detailed rules for employees who may have returned to service after an unpaid leave or break, or who are rehired (i.e., teachers or other employees of educational institutions). Lastly, as of the date of this publication, the Treasury and HHS have requested comments on approaches to handling employees of temporary staffing agencies. Among the agencies primary concern is manipulation by employers to evade the employer mandate for example by hiring an employee as a so-called “common law employee” for a limited number of hours and then hiring the same employee through a temporary staffing agency for a limited number of hours, both of which are in the service of the same employer and when combined would otherwise, effectively make that employee a fulltime employee. Separately, since employees of temporary staffing agencies may often have numerous short-term assignments with long-periods of being not assigned by the temporary agency, this raises the issue of how to determine separation dates for any given employee.

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GE Capital Common/Joint Ownership – The Controlled Group Rules

Spring 2013

• Parent-Subsidiary (Child) controlled group: According to the IRS, a parent-subsidiary controlled group exists when one or more chains or corporations are connected through stock ownership with a common parent; and, (i) 80% of the stock of each corporation, (except the common parent) is owned by one or more corporations in the group; and (ii) the parent corporation must own 80% of at least one other corporation.

• Brother-Sister controlled group: According to the IRS a brother-sister controlled group is a group of two or more corporations, in which five or fewer common owners (individual, trust or estate) directly or indirectly own a controlling interest of each group and have “effective control”. Under this application of the controlled group rules (i)”controlling interest” generally means 80% or more of the stock of each corporation (but only if the common owners own stock in each corporation); and, (ii) “effective control” generally means more than 50% of the stock of each corporation, but only to the extent such ownership is identical with respect to such corporation. In other words, for the first part of the test, the same five or fewer common owners must own more than 80% of the stock or some interest in all members of the controlled group; and, the same five or fewer common owners must own more than 50% of each corporation, taking into account the identical owner’s stock in each of the respective corporations. • Affiliated Service Group: an affiliated service group is a group of related employers where two or more organizations have an interconnected service relationship as well as an ownership relationship. Industry Research Monitor: Healthcare Reform Primer 7 Explore Financing Solutions at www.gecapital.com/americas © Copyright 2013 General Electric Corporation, All Rights Reserved. To sign up to receive an electronic copy of this Industry Research Monitor, please visit www.gecapital.com/IRM

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Selected administrative requirements & fees under the ACA: In addition to the health insurance coverage mandate required by the ACA, the ACA also establishes a number of administrative requirements and fees on employers which they need to be aware of regardless of how they choose to approach the coverage decision. These are described below, in the order of the year in which they go into effect: Effective 2012: 1. Uniform “Summary of Benefits & Coverage (SBC)” Notice: An eight page standardized summary of employers healthcare insurance options that must be given to plan participants for companies with plans whose first open enrollment period occurs on or after 9/23/12. The regulations specify a very specific format, including font size for the SBC. 2. W-2 Reporting of Cost of Employer-Sponsored Coverage: Beginning with W-2’s issued in January 2013, covering employer’s insurance coverage in 2012. Effective 2013:

SELECTED ADMINISTRATIVE REQUIREMENTS OF THE ACA Uniform “Summary of Benefits & Coverage (SBC)” Notice: • An 8 page standardized summary of employers health insurance options • Applicable for plans with first open enrollment on or after 9/23/12.

HAVING A BABY (NORMAL DELIVERY)

Amount owed to providers: $7,540 Plan pays $5,490 Patient pays: $2,050 Sample care costs: Hospital charged (mother)

$2,700

Routine obstetric care

$2,100

Hospital charge (baby)

$900

Anesthesia

$900

4. Medicare Tax Increase (Employee Portion): Starting January 1, 2013, the employee portion of the Medicare tax will increase 0.9% (to 2.35%) on wages over $200,000 ($250,000 if married filing jointly; $125,000 if married filing separately).

Laboratory tests

$500

Prescriptions

$200

Radiology

$200

5. Comparative Effectiveness or Patient Centered Outcomes Research Institute (“PCORI”) Fee: For plan years between 2012 and 2018, self-funded plan sponsors and insurers must pay a fee to fund comparative, clinical effectiveness research (payable July of the following year). Fee will total $1/average number of beneficiaries for year 1, increasing to $2/average number of beneficiaries in year 2, and then increasing with inflation for years 3 and forward.

Vaccines, other preventive

3. Cap on Employee FSA Contributions: Effective with an employer’s first plan year beginning in 2013, typically January 1, 2013 for most employers since they are on a calendar year, companies are required to limit employee pre-tax health flexible spending account (FSA) contributions to $2,500 or less.

Effective 2014: 6. Reinsurance Fee: Beginning in 2014 employers are required to pay an annual feel to fund the transitional reinsurance program to help stabilize premiums in the individual insurance market for the first three years (the fee runs from 2014-2016). The Department of Health and Human Services (HHS) has set the fee at approximately $63 per covered life for 2014 ($5.25 per enrollee per month), but has indicated they expect it to be lower for 2015 and 2016. This fee will be calculated on a calendar year (not plan year) basis, with employers providing HHS with a count of enrollee in November of each year and HHS then notifying employers of their required fee in December of that year. Employers with then have 30 days to pay. This fee is actually imposed on the health insurance plan and the plan may pay it with plan assets, however, if the sponsoring employer pays the fee it will be deductible to the employer.

Total

$40 $7,540

Patient pays: Deductibles Co-pays Coinsurance Limits or exclusions Total

$700 $30 $1,320 $0 $2,050

W-2 REPORTING OF COST OF EMPLOYER SPONSORED COVERAGE Beginning with 2012 W-2s, the ACA requires employers to report the cost of health plan coverage in Box 12, code DD, of employees W-2s

SOURCE: U.S. U.S. Department of Health and Human Services (HHS); U.S. Department of Treasury Industry Research Monitor: Healthcare Reform Primer 8 Explore Financing Solutions at www.gecapital.com/americas © Copyright 2013 General Electric Corporation, All Rights Reserved. To sign up to receive an electronic copy of this Industry Research Monitor, please visit www.gecapital.com/IRM

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Effective 2015: 7. Health Insurance Coverage Information Return with the IRS: Beginning in 2015 (for 2014 coverage) employers are required to file a health insurance coverage return with the IRS. Effective 2018: 8. Excise Tax on High Value Plan (“Cadillac Tax”): Beginning in 2018 the ACA imposes an excised tax on high-cost plans whose actuarial value exceeds certain levels. For 2018 plans whose value exceeds $10,200 for individuals and $27,500 for families will be subject to the tax. This tax will be increased by 1% plus the inflation rate in 2019 and then indexed for inflation in 2020 and thereafter. Vision and dental benefits are not counted against this threshold.

ACA IMPLEMENTATION - PARTIAL TIMELINE 2010 • ACA Passed • Lifetime benefit limits prohibited; annual limits restricted • Dependent coverage to age 26 • Limited small business tax credits established 2011 • Medical loss ratio (MLR) limits on insurers • Grants to states for Health Insurance Marketplace implementation planning

Still Awaiting Final Regulations: 1. Automatic Enrollment of New and Existing Employees?: Under the ACA employers with more than 200 full-time employees who choose to provide healthcare coverage must automatically enroll new and existing employees in one of their plan options. After being given notice of automatic enrollment, employees may opt out of coverage. Originally scheduled to go into effect in 2014, in 2012 implementation of these regulations was delayed until final regulations were released by the Secretary of Labor which has not occurred as of publication date.

ACA Employer Support/Subsidies for Small Business:

• Annual fee of pharmaceutical manufacturers to help fund ACA begins • Grants to small employers to establish wellness programs 2012 • Accountable Care Organization (ACO) pilot programs begin • Medicare value based purchasing • Medicare reimbursement penalties for hospital readmissions • Employer reporting value of employer sponsored insurance on W-2 2013 • Employee health FSA contributions limited to $2,500 • Increase in Medicare tax on upper-income earnings • Annual fee on medical device sales to help fund ACA • Medicare bundled payment program 2014 • Employer & individual health insurance coverage mandates • Individual tax credits/subsidies; small employer tax credits (via Marketplaces) • Standardized “minimum essential benefits” • State/Federal & jointly run Health Insurance Marketplaces • Medicaid expansion (subject to state participation) 2015 & beyond: • Health insurance coverage return for employers • High value plan excise tax SOURCE: GECA Research; PPACA Industry Research Monitor: Healthcare Reform Primer 9

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Beginning in 2010, employers with 25 or fewer “full-time equivalent employees” and, average annual wages of $50,000 or less will qualify for tax credits. For the period from 2010-2010, for-profit employers will qualify for a tax credit of 35% of the employers contributions to healthcare insurance premiums for their employees, provided that employers contributions to healthcare insurance premiums is equal to or greater than 50% of the cost of the benefits. Effective January 1, 2014 small employers, which are defined by the ACA as those with 16pt font, 50% black 6 tintthrough the Small Business Health 100 employees or fewer, can purchase insurance Lines=25% black 6, 1pt weight on stroke Options Program (SHOP) insurance Marketplaces. It should be noted that while the ACA Bars=PMS485 defines small business as those with 100 or fewer employees, Lines=50% black6, 3pt weight on stroke individual states can opt to define small business as those with 50 or fewer employees for 2014 and 2015 (in 2016 the definition of small business under the ACA will be broadened for all states to include all those with 100 employees for fewer). Beginning in 2014 eligible for-profit small employers may get a credit of up to 50%of the employer’s contribution to premiums and will be eligible for a tax credit for two years. The exact amount of this tax credit each small business receives will be a function of the number of employees for that employer and their average wages. Lastly, beginning in 2014, the $50,000 employee average annual wage limit will be indexed to inflation. Please note this list is not meant to beAnnual exhaustive are only select Average Growthand Ratesthese for Health Spending and requirements of the law. Please make sure to consult with appropriate experts or GDP Per Capita your own professional advisors to make sure you are aware of all requirements and GDPmay Per Capita NHE Perto Capita 9% they regulations of the ACA and how apply your specific situation. 8.2%

Average Annual Growth Rates for

Average Annual Growth Rates for Health Health Spending and Spending and GDP Per Capita GDP Per Capita GDP Per Capita

9%

NHE Per Capita

7% 6%

6 tint pt weight on stroke

6%

Glossary: pt weight on stroke

5%

5.6%

5.4%

4.0%

4%

2.9%

3% 2% 1% 0%

1990s

2000-2010

4.0%

4%

2.9%

3% Accountable Care Organization (ACO): A network of health care providers that 2% band together to provide the full continuum of health care services for patients. The 1% network would receive a payment for all care provided to a patient, and would be held 0% 1990s 2000-2010 1970-2010 2011-2021 Projected accountable for the quality and cost of care. Proposed pilot programs in Medicare and Historical data from Centers for Medicare and Medicaid would provide financialSOURCE: incentives for these organizations to improve quality Medicaid Services, Office of the Actuary, National Health Statistics Group. and reduce costs by allowing them to share in any savings achieved as a result of these efforts.

Administrative Period: A period of up toProjected 90 daysNational between measurement Health Expenditures and stability in the United States period. Used to determine, notify and enroll employees in healthcare coverage. Initial Growth Rates for (by Source of Payment, 2010) measurement period and administrative period combined cannot last longer than the and final day of the first calendar month of anniversary of employees start date. Private Health Insurance

NHE Per Capita

5.6%

9%

2000-2010

8.2% Selection: The separation of healthier and less-healthy people into different Adverse 32% insurance arrangements and premium pools.

1970-2010

2011-2021 Projected

SOURCE: Historical data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group.

Projected National National Health Expenditures Projected Health Expenditures in in the United States(by Source of Payment, the United States (by Source of Payment, 2010) 2010) Private Health Insurance

32%

7%

5.0%

4.3%

5.0%

4.3%

Other Private Spending

5.8%

5.8%

5.6%

5.4%

5%

8% 7%

8.2%

8%

21%

Medicare

11%

Out-of-Pocket Payments

12%

16%

Other Public Spending

Medicaid and CHIP 1

Total National Health Expenditures, 2010 = $2.6 Trillion SOURCE: Kaiser Family Foundation

Number NonelderlyUninsured Uninsured Americans, Number of of Nonelderly Americans, 2007 – 2011 2007-2011 50 43.4

44.2

2007

2008

44.7

49.2

47.9

2009

2010

2011

Other Private Spending

5.8%

21% Medicare 5.0% Affordable: Coverage is deemed to be “affordable”7%if “employee only coverage” costs no 4.0% more than 9.5% of employees W-2 income with that11% employer. Out-of-Pocket

25

Payments

16%

12% Commercial/Private Health Insurance: Insurance plans marketed by the private health Other Public Medicaid and insurance industry. Currently, approximately two-thirds of the non-elderly population is Spending CHIP 1970-2010 by private 2011-2021 health insurance. covered Total National Health Expenditures, 2010 = $2.6 Trillion 1

Projected

a from Centers for Medicare and Employer: The ce of the Actuary, National Health

employer as the person(s)SOURCE: who Kaiser haveFamily theFoundation right to tell the employee what to do, how, when, and where to do the job.

0

SOURCE: “Income, Poverty, and Health Insurance Coverage in the United States: 2011”. United States Census Bureau. Issued September 2012

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Employer-Sponsored Health Insurance/Employer-Based Coverage: Nearly 55 percent of Americans who get healthcare insurance secure that coverage through an employersponsored plan, often called group health insurance. Group health plans are guaranteed issue, meaning that a carrier must cover all applicants whose employment qualifies them for coverage. In addition, employer-sponsored plans typically are able to include a range of plan options from HMO and PPO plan to additional coverage such as dental, life, shortand long-term disability. Essential Health Benefits: A package of benefits set by the Secretary of Health and Human Services that insurers will be required to offer under the Marketplaces. Full-Time Employees: Employees who work an average of at least 30 hours per week. The calculation includes each hour the employee is paid for work and each hour employee is entitled to payment during which no duties were performed (vacation, holiday, illness, jury duty, etc.). Guaranteed Issue: Refers to health insurance coverage that is guaranteed to be issued to applicants regardless of their health status, age, or income – and guarantees that the policy will be renewed as long as the policy holder continues to pay the policy premium. Healthcare Delivery System Reforms: Changes to method and systems of healthcare delivery under the ACA. Examples include accountable care organizations (ACOs), patient centered medical homes, home care, value-based purchasing. Health Insurance Marketplace (formerly Exchange)/Connector: A purchasing arrangement through which insurers offer and smaller employers and individuals purchase health insurance. State, regional, or national Marketplaces could be established to set standards for what benefits would be covered, how much insurers could charge, and the rules insurers must follow in order to participate in the insurance market. Individuals and small employers would select their coverage within this organized arrangement. An example of this arrangement is the Commonwealth Connector, created in Massachusetts in 2006. Individual Mandate: A requirement that all individuals obtain health insurance. A mandate could apply to the entire population, just to children, and/or could exempt specified individuals. Massachusetts was the first state to impose an individual mandate that all adults have health insurance.

INTERESTING FACTS: According to the HHS, currently 98% of employer sponsored health plans meet the 60% actuarial value requirement set forth under the law. ACA, Essential Health Benefits Final Rule, 78 Fed-Reg-12834 (Fed 25, 2012) Per a study from the ADP Research Institutesm only 8.6% of employees currently spent greater than 9.5% of their income on health benefits, the threshold for affordability under the ACA. (Planning for Healthcare Reform: How Income Impacts Employee Health Benefits Participation, 2012) 60% of employers stated they were “not at all likely” to replace health care plans for active employees and direct employees to the Marketplaces with a financial subsidy in the next five years (2013 Towers Watson/ National Business Group on Health Employer Survey on the Value of Purchasing Health Care) According to PricewaterhouseCoopers’ anywhere from $303 billion to $493 billion of healthcare spending is wasted due to manageable behaviors such as: • Obesity/weight control - $200B • Smoking - $567M to $191B • Lack of adherence to treatment or medicine programs -$100B • Alcohol abuse $2B (PricewaterhouseCoopers’ Health Research Institite: The Price of Excess, 2010)

Managed Care: A medical delivery system that attempts to manage the quality and cost of medical services individuals receive. Most managed care systems offer HMOs and PPOs that individuals are encouraged to use for their health care services. Some managed care plans attempt to improve health quality, by emphasizing prevention of disease. Recent statistics show that about 90 percent of the insured population uses some form of managed care, according to America’s Health Insurance Plans (AHIP). Massachusetts Health Connector: www.mahealthconnector.org An independent state agency that helps Massachusetts residents find health insurance coverage and avoid tax penalties. Measurement Period: A safe harbor method an employer would use to determine employees’ status (FT or PT) by looking back at a defined period of no less than 3 but no more than 12 consecutive calendar months, as chosen by employer.

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GE Capital Medicaid: Enacted in 1965 under Title XIX of the Social Security Act, Medicaid is a federal entitlement program that provides health and long-term care coverage to certain categories of low-income Americans. States design their own Medicaid programs within broad federal guidelines. Medicaid plays a key role in the U.S. health care system, filling large gaps in the health insurance system, financing long-term care coverage, and helping to sustain the safety-net providers that serve the uninsured. Learn more about Medicaid at www.medicaid.gov.

Spring 2013

Part-Time Employee: An employee who works on average less than 30 hours per week for a single employer. If based on the based on facts and circumstances at time of hire the employee is reasonably not expected to work an average of at least 30 hours per week (or the employee’s expected average weekly hours are uncertain) over the company’s “initial measurement period,” they are determined to be part-time until they have their hours tracked and measured at the end of the initial measurement period. Patient Centered Medical Home: A health care setting where patients receive comprehensive primary care services; have an ongoing relationship with a primary care provider who directs and coordinates their care; have enhanced access to non-emergent primary, secondary, and tertiary care; and have access to linguistically and culturally appropriate care. Patient Protection and Affordable Care Act (PPACA)/Affordable Care Act (ACA): The landmark health reform legislation passed by the 111th Congress and signed into law by President Barack Obama in March 2010. The legislation includes a long list of healthrelated provisions that began taking effect in 2010 and will “continue to be rolled out over the next four years.” Key provisions are intended to extend coverage to millions of uninsured Americans, to implement measures that will lower health care costs and improve system efficiency, and to eliminate industry practices that include rescission and denial of coverage due to pre-existing conditions. Learn more about PPACA at www. healthreform.gov. Pay-or-Play/Employer Pay-or-Play: An approach that requires employers to offer and pay for health benefits on behalf of their employees, or pay a specified dollar amount or percentage of payroll into a designated public fund. The fund would provide a source of financing for coverage for those who do not have employment-based coverage. Currently, two states, Massachusetts and Vermont, and the City of San Francisco impose pay-or play requirements on employers. Pooling: Combining purchasing power, in this case through state based Marketplaces, to get lower healthcare insurance premiums than otherwise possible in individual or small group markets. Pre-Existing Condition: A medical condition that is excluded from coverage by an insurance company because the condition was believed to exist prior to the individual obtaining a policy from the particular insurance company. Rate Bands: Rate bands set limits on the amounts that insurers can vary premiums based on health status. Rate bands also list and limit other factors that insurers can consider when setting premiums. A rate band essentially sets a floor below and a ceiling above that index rate. That is, a rate band limits the amount by which an insurer can increase premiums above the index rate for people who are in poor health, as well as how much an insurer can discount premiums below the index rate for people who are in excellent health. Industry Research Monitor: Healthcare Reform Primer 12 Explore Financing Solutions at www.gecapital.com/americas © Copyright 2013 General Electric Corporation, All Rights Reserved. To sign up to receive an electronic copy of this Industry Research Monitor, please visit www.gecapital.com/IRM

GE Capital Risk: The chance of loss, the degree of probability of loss or the amount of possible loss to the insuring company. For an individual, risk represents such probabilities as the likelihood of surgical complications, medications’ side effects, exposure to infection, or the chance of suffering a medical problem because of a lifestyle or other choice.

Spring 2013

Shared Responsibility: A plan meets its shared responsibility obligation if: 1) coverage is deemed to be “affordable”, defined cost no greater than 9.5% of employees W-2 income with that employer, OR, 2) if employer plan covers at least 60% of (actuarial) cost of plan benefits. Small Business Health Options Program (SHOP): State Health Insurance Marketplaces that will be open to small businesses up to 100 employees. Stability Period: The period subsequent to the measurement period during which if the employee were determined to be a full-time employee during the measurement period, the employee would be treated as a full-time employee during a subsequent stability period and thus offered health insurance coverage.

SOURCES: Henry J. Kaiser Foundation; Critical Issues in the PPACA, US Chamber of Commerce; healthinsurance.org, http://www.healthinsurance.org/glossary/; Families USA; GECA Research.

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Resources/Links

DID YOU KNOW?

U.S. Treasury Department, Proposed Rule Shared Responsibility for Employers Regarding Health Coverage

GE Capital, Healthcare Financial Services has provided more than $60 billion in financing over the last ten years to companies in over 40 healthcare sectors.

http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf U.S. Department of Labor-Employee Benefits Security Administration (EBSA) http://www.dol.gov/ebsa/healthreform/ (see ACA implementation FAQ’s) Society for Human Resource Management Healthcare Reform Resource Page http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/HealthCareReform.aspx U.S. Government Healthcare Reform Web Site http://www.healthcare.gov/index.html Employee Benefits Research Institute (EBRI) http://www.ebri.org/

GE CAPITAL – AMERICAS INDUSTRY RESEARCH TEAM Richard Aldrich, CFA

646-428-7365

Chemicals & Plastics Metals & Mining Auto & Auto Parts

[email protected]

Ben Abramovitz, CFA

646-428-7129

Media & Telecom

[email protected]

Jeffrey Englander, CFA 646-428-7135 Healthcare Construction Industrial Products & Services

[email protected]

Kimberly Savilonis

480-565-6289

Franchise Finance Restaurants; Hospitality

[email protected]

http://ebn.benefitnews.com/

Loren Trotta

203-229-1877

Food, Beverage & Agribusiness Financial Services

[email protected]

Healthinsurance.org

Michael Zimm, CFA

646-428-7015

Technology & Business Services Aerospace & Defense Transportation

[email protected]

National Business Group on Health http://www.businessgrouphealth.org/ Employee Benefit News

http://www.healthinsurance.org/glossary

Special thanks for their assistance to: Disclaimer: Although General Electric Capital Corporation (“GE”) believes that the information contained in this newsletter has been obtained from and is based upon sources GE believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. GE makes no representation or warranties of any kind whatsoever in respect of such information. GE accepts no liability of any kind for loss arising from the use of the material presented in this newsletter. This newsletter is not to be relied upon in substitution for the exercise of your independent judgment or legal advice.

Joel White JC White Consulting

Garrett Fenton Miller & Chevalier Chartered

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