Requirements for Employers Under the Massachusetts Health Reform Law
August 15, 2007
In April, 2006, then Governor Romney signed into law a bill, An Act Providing Access to Affordable, Quality, Accountable Health Care (AQAHC), that is intended to provide nearly universal health insurance coverage in Massachusetts. The new law imposes multiple obligations for both insured and self-insured employers, including those organized, domiciled or headquartered out of state, that have more than 10 employees working in Massachusetts. Specifically, AQAHC increases insurance coverage by instituting reforms that:
• allow individuals and businesses to purchase health insurance, including low cost “Commonwealth Choice” plans, with pre-tax dollars,
• reduce insurance costs for young individuals,
• subsidize coverage for low-income individuals,
• mandate that certain employers contribute a “fair share” to health insurance for employees or else pay fees to the state,
• mandate that certain individuals purchase health insurance or pay penalties; and
• impose a “Free Rider” surcharge on employers who exploit “state-funded health services” by failing to implement a Section 125 plan for their employees.
Despite its July 1, 2007 implementation date, the AQAHC continues to be a work in progress that will be shaped continually by new and changing regulations and bulletins from various state agencies. Employers in particular may have a difficult time navigating the complex regulatory maze that they are forced to traverse, including mandates ranging from the implementation or amendment of cafeteria plans and ERISA plan documents, to filing of Health Insurance Responsibility Disclosure (HIRD) forms, to determining how and how much to contribute to employees’ health plans.
The attached “Holland & Knight Flow Chart” is intended to guide employers in their decision making to create a threshold compliance strategy, to avoid surcharges and penalties, and to maximize the value of the new law for their employees and customers. We would be pleased to assist your corporate benefit/HR manager, counsel or regulatory administrator with any questions or concerns.
For more information, email Jim Jacobson at james.jacobson@hklaw.com or call toll free, 1-888-688-8500.
We would like to acknowledge the assistance of Jonathan Anderman, a summer associate in Holland & Knight’s Boston office, for his contributions to this article.
1 For complete rules for determining number of employees see Commonwealth Connector, “Section 125 Plan Handbook for Employers” at 14 (April 23, 2007) (available at www.mahealthconnector.org/portal/site/connector/ menuitem.5de15e4af5dc94de505da95c0ce08041/?fiShown=default ); see, e.g. 956 CMR 4.06(2).
2 The Section 125 Plan requirements must be followed regardless of whether the employer contributes to health insurance for its employees and regardless of whether it is insured or self-insured.
See Appendix A for further requirements. Most employees must be offered an option to participate in the employer’s Section 125 Plan. The plan must be, at minimum, a premium-only plan offering access to one or more health coverage options. Employers may elect to use Commonwealth Choice health plans that have earned the Health Connector Seal of Approval.
The written plan document must contain:
• A description of the benefits available under the plan
• Eligibility rules regarding participation
• Method and timing and irrevocability of participant elections
• Manner of employer contributions to the plan (if any)
• Maximum amount of employer and employee contributions
• Plan Year
An employer may exclude the following classes of employees from participating in the Section 125 Plan:
• Employees who are less than 18 years of age
• Temporary employees
• Part-time employees working on average, fewer than 64 hours per month per employer
• Wait staff, service employees or bartenders and earn less than $400 in monthly payroll wages
• Student interns and student-cooperative employees
• Employees whose employer is required to contribute to a multiemployer Health Benefit Plan
• Seasonal employees who are international workers and have travel health insurance
For full details on the Section 125 Plan see Commonwealth Connector, supra note 1; 956 CMR 4.00 et seq; An Act Providing Access to Affordable, Quality, Accountable Health Care § 48, M.G.L. c. 151f.
3 Summary Plan Description.
4 “State funded health services” are health services paid for by the state through the Uncompensated Care Trust Fund (“free care pool”) or the Health Safety Net Trust Fund. 114.5 CMR 17.00 et seq. (Dec. 22, 2006).
“Receiving state funded health services” means the total number of hospital or clinic visits during a fiscal year is EITHER:
• more than 3 for a single employee or his/her dependents, OR
• 5 or more for ALL employees and their dependents. See 114.5 CMR 17.03
5 Although the regulations do not specifically address a non-compliant Section 125 Plan, such a plan would likely result in either a potential Free Rider Surcharge or mandatory amendment program with the Connector.
6 The Free Rider Surcharge does NOT apply to employees covered by certain collective bargaining agreements, nor to any employees who participate in the Massachusetts Insurance Partnership program. See Commonwealth Connector, “Employer Handbook” at 5 (May 1, 2007) (available at http://www.mass.gov/Qhic/docs/Handbook_v19_pdf.pdf).
7 Even if an employer can avoid the Free Rider Surcharge at this particular time it is recommended that the employer still adopt a compliant Section 125 Plan in order to avoid future potential Free Rider Surcharges.
8 The “Primary Test;” for more details see Commonwealth Connector, “Employer Handbook” at 3, note 2 (May 1, 2007) (available at http://www.mass.gov/Qhic/docs/Handbook_v19_pdf.pdf); 114.5 CMR 16.03(1)(a).
9 The “Secondary Test;” for more details see Commonwealth Connector, “Employer Handbook” at 3, note 3 (May 1, 2007) (available at http://www.mass.gov/Qhic/docs/Handbook_v19_pdf.pdf); 114.5 CMR 16.03(1)(b).
10 Fair Share Contribution will be no more than $295 per employee per year.
For further details and notes on the Fair Share Contribution, see Commonwealth Connector, “Employer Handbook” at 2 (May 1, 2007) (available at http://www.mass.gov/Qhic/docs/Handbook_v19_pdf.pdf); An Act Providing Access to Affordable, Quality, Accountable Health Care §§ 47 and 134, M.G.L. c. 149, §§ 187-88.
11 There are two HIRD forms required: the Employer HIRD Form and the Employee HIRD Form.
• Employer HIRD Form: (due Nov. 15, 2007)
o Incorporated into an employer’s Fair Share Contribution filing
o Discloses to state whether or not you have a Section 125 Plan
• Employee HIRD Form:
o Employees complete when they decline an employer-sponsored health plan or Section 125 Plan.
o Employees report if they have other health coverage.
o Employers collect the forms and save them for 3 years and must retain documentation that an individual employee was not required to sign a HIRD Form for 3 years.
o The employer must obtain a signed employee HIRD Form from each employee required to sign by the earlier of 30 days after open enrollment for the employer’s health insurance and/or its Section 125 Cafeteria Plan, or September 30 of the reporting year. If open enrollment ended prior to July 1, 2007 and an employee has signed a form stating that he/she was offered and declined employer sponsored insurance, employee does not have to sign HIRD form until the next open enrollment period.
For further details and notes on the HIRD see generally Commonwealth Connector, “Employer Handbook” at 6 (May 1, 2007) (available at http://www.mass.gov/Qhic/docs/Handbook_v19_pdf.pdf); An Act Providing Access to Affordable, Quality, Accountable Health Care § 42, M.G.L. c. 118G, §§ 6B-6C; 114.5 CMR 18.00 et seq.
1 Two new requirements likely will necessitate amendment for compliance: Non-discrimination and Dependent Coverage. The non-discrimination requirement forbids health insurers from entering into agreements for coverage with employers unless employers offer the health benefit to all of its full-time employees living in Massachusetts, and the employer does not make a smaller premium contribution percentage to a full-time employee living in Massachusetts than the employer makes to any other full-time employee living in Massachusetts who receives an equal or greater total hourly or annual salary for the same product. See Massachusetts Division of Insurance Bulletin: Non-discriminating Offer and Equal Contribution by Employees of Insured Group Health Benefit Plan Contracts Pursuant to Chapter 58 of the Acts of 2006, as amended.
The dependent coverage requirement requires insurers to maintain coverage for dependents up to the age of 26 or two years following the loss of dependent status under Tax Code, whichever occurs first. See Massachusetts Division of Insurance Bulletin 2007-01: Amendments Created by Chapters 58 of the Acts of 2006, as amended, related to Eligibility as a Dependent in an Insured Health Plan. These provisions do not apply to self-insured ERISA plans.
2 An employer may exclude the following classes of employees from participating in the Section 125 Plan:
• Employees who are less than 18 years of age
• Temporary employees
• Part-time employees working on average fewer than 64 hours per month per employer
• Wait staff, service employees or bartenders
• Student interns and student cooperative employees
• Employees whose employer is required to contribute to a multiemployer health benefit plan
• Seasonal employees who are international workers and have travel health insurance
3 For example, employers MUST offer, to part-time employees who work 64 or more hours per month, a Section 125 Plan which includes at least one health insurance plan to whose premium employees can contribute as pre-tax income, EVEN IF the employer does not make any contribution to such plan. The 125 Plan requirements appear to apply to self-insured ERISA plans, although such an application is subject to challenge under ERISA’s “deemer” clause.
4 Employers were required to have a Section 125 Plan that complies with state and federal law by July 1, 2007. The date of filing was postponed by the Connector until Oct 1, 2007; however, employers are still required to have a compliant plan and the Connector can request the Section 125 Plan at any point prior. See Administrative Information Bulletin 02-07 (June 29, 2007).