Massachusetts Healthcare Reform Act: Employer Update (July 2006)
By Patrick Haraden, CEBS, CLU, ChFC, REBC
Director, Employee Benefit Services, Longfellow Benefits


Since Governor Romney signed the Massachusetts Healthcare Reform Act into Law (Chapter 58 of the Acts of 2006) on April 12, 2006, there have been several updates and significant developments. On June 30, 2006 the Division of Healthcare Finance and Policy issued proposed regulations regarding the Fair Share Contribution, the Free Rider Surcharge, and the Health Insurance Responsibility Disclosure (HIRD). Additionally, there will be a “technical corrections” bill debated in the legislature this summer, which purports to clarify provisions and better align different effective dates in the Act that are currently incongruous. Each of these will affect employers’ healthcare strategy, reporting and planning beginning October 1, 2006. The updates and potential employer implications are summarized below. We will provide another client briefing once the regulations are finalized, and any “technical correction” legislation is acted upon by the legislature. There will also be future regulations issued regarding registration and filing requirements for compliance with the Act.

A plan’s funding mechanism (e.g., fully-insured, self-insured) will determine which regulations and provisions the plan must be in compliance with. As a general rule, fully insured plans must comply with all regulations and provisions, and self-insured plans have the option to comply with the dependent coverage provisions, but must comply with all others.


Fair Share Contribution

Effective on October 1, 2006 all employers with 11 or more full time employees who do not make a "fair and reasonable" contribution to employee health insurance will be required to pay an assessment. The Assessment will be calculated annually, but cannot exceed $295 per employee per year.

In order to avoid this assessment, an employer must satisfy the “fair and reasonable” contribution tests.

Primary Test
An Employer will be determined to make a Fair and Reasonable Premium Contribution based on the percentage of Employees enrolled in the Employer's Group Health Plan. An Employer with at least 25% of Enrolled Employees, determined in accordance with the criteria below, is exempt from the Fair Share Contribution.

Calculation of Percentage
Each Employer shall calculate its percentage of Enrolled Employees for the period from October 1 to September 30 each year. The percentage of Enrolled Employees is calculated by dividing the Total Payroll Hours of Enrolled Full Time Employees as defined below by Total Payroll Hours of Full Time Employees.

For the purposes of this test, the following definitions/methods apply:

Total Payroll Hours of Enrolled Employees. The Employer shall calculate the total payroll hours for which both wages were paid and the employee was enrolled in the health plan. The sum of the payroll hours for each Enrolled Employee is the total payroll hours of enrolled employees.

Total Payroll Hours of Full Time Employees. The Employer shall calculate the total payroll hours of all full time employees.

• A Full Time Employee is an Employee that works at least 35 hours per week. If an Employee works both part-time and full-time during the year, only the payroll hours of the period in which the employee was full-time should be included.
• A Seasonal Employee is not a Full Time Employee unless the Seasonal Employee works for the Employer more than sixteen weeks during the year.
• A Temporary Employee is not a Full Time Employee unless the Temporary Employee works for the Employer more than 90 days during the year.
• An Independent Contractor is not a Full Time Employee.

Secondary Test
If the percentage calculated is less than 25%, but the Employer offered to pay at least 33% of the premium cost toward an Individual Health Plan for Employees that were employed at least 90 days during the period from October 1, 2006 to September 30, 2007, the Employer shall be exempt from the Fair Share Contribution.

Free Rider Surcharge

Effective on October 1, 2006. This provision applies to employers with 11 or more employees, who do not offer to contribute towards, or arrange for the purchase of health insurance. Employers (that are “Non-Providing”) are to be assessed if its employees access the Uncompensated Care Pool (UCP) a total of 5 times per year or one employee accesses the Uncompensated Care Pool 3 times in one year and the total claims billed to the UCP exceed $50,000.

A Non-Providing employer is an employer that:

Employs more than ten Employees and required to maintain a cafeteria plan in accordance with the rules of the Connector; and
Does not offer to contribute toward or arrange for, the purchase of health insurance for its employees, and does not comply with the requirement to maintain a cafeteria plan in accordance with the rules of the Connector.

Exemptions

An Employer is not a Non-Providing Employer if it is a signatory to or obligated under a negotiated, bona fide collective bargaining agreement that governs the employment conditions of the State-Funded Employee (an employee that access the UCP); or
It participates in the Insurance Partnership Program.
The amount of the surcharge is a percentage of the cost of the care (based on number of visits and employer size). The effective date of this provision is October 1, 2006.


Health Insurance Responsibility Disclosure (HIRD)
The Act imposes reporting responsibilities on both the employer and employee. The employer’s responsibilities are as follows:

Employer Requirements
Employer HIRD Form. Each Massachusetts Employer shall report to the Division
the following information in a HIRD Form specified by the Division:

Employer Information

1. Employer Legal Name
2. Employer DBA Name
3. FEIN
4. Division of Unemployment Assistance Account Number
5. Number of Employees
6. Whether Employer offers access to an Employer-Sponsored Health Plan
7. Whether the Employer offers to arrange for the purchase of health insurance for its employees, including maintaining a cafeteria plan
8. Whether Employer's Plan is a self-insured plan
   

Employee Information
For purposes of filing the HIRD Form, an Employee is any full time, part time, seasonal and temporary employees. An independent contractor is not an employee.

1. Name of Employee
2. Employee Social Security Number
3. Whether Employee was offered access to employer-sponsored insurance
4. Whether Employee accepted or declined
5. If Employee accepted, whether Individual or Family plan
6. If the Employee declined, whether the employee has access to alternative coverage
7. Whether the Employer offered to arrange for the purchase of health insurance
8. Whether the Employee accepted or declined such arrangement

Required Filings

Initial HIRD Form. All Employers must submit all general employer information and employee information about all employees employed as of April 15, 2007. The Initial HIRD Form is due on May 15, 2007.

Quarterly HIRD Form. Employers with fifty or more Employees must submit information quarterly concerning changes to its general employer information, new employees, employees that no longer employed by the Employer, whether the new employee was offered access to insurance, and if the employee accepted insurance, and whether the employee accepted an individual or family plan. The Quarterly HIRD Form is due 45 days after the end of each quarter.

Annual HIRD Update. All Employers must submit information annually concerning changes to its general employer information, new employees, employees no longer employed by the Employer, whether the new employee was offered access to insurance, if the employee accepted insurance; whether the employee accepted an individual or family plan. The Annual HIRD Update is due on May 15 of each year.

New Employers. New Employers must register with the Division upon registration with the Division of Unemployment Assistance.

• All Employer filings shall be made under the pains and penalties of perjury.
• An Employer must designate a responsible individual authorized to verify and certify the accuracy of the employer information submitted.

Filing Requirements. The Employer must report Employer HIRD information in a manner specified by the Division. The Division will specify reporting requirements from time to time by administrative bulletin.


Section 125 (or Cafeteria) Plans

Effective on January 1, 2007, all employers with 11 or more employees must establish a Section 125 (or Cafeteria) Plan. The plan must be filed with the Commonwealth Connector. Employers do not need to make a contribution to the Section 125 plan, but must arrange for the payroll deduction.

Some interpreters of this provision feel that an employer who establishes a Section 125 plan (i.e., arranges for the purchase of insurance) can escape liability for the “free rider” assessment. This is still the subject of debate and may be further defined in the final versions of the regulations or in the “technical correction” legislation that is proposed.

Technical Correction Legislation

A bill has been introduced that will better align the effective dates of some of the provisions as well as change the dependent coverage definition under the Act. The dependent coverage provisions would be effective on January 1, 2007.

Current Dependent Coverage Provision
Increases age limit for coverage of dependent children through age 25 or for 2 years following loss of dependent status under the Internal Revenue Code, whichever occurs first.

Proposed Dependent Coverage Provision
Increases the age limit to cover dependent children through age 26 (day before 27th birthday) or for 2 years following loss of dependent status under the Internal Revenue Code, whichever occurs first.



Note: This article is a summary of the proposed regulations and is not meant to be a complete compliance guide. Employers should refer to the specific regulations (current, proposed, and final) and the Act for their specific responsibilities and requirements. This article is also not meant to provide legal advice or meant to be relied upon on its own.