As we reported in a previous post, Massachusetts Governor Charlie Baker in August 2017 signed into law H. 3822, “An Act Further Regulating Employer Contributions to Health Care” (the “Act”). Among other things, the law increases the Employer Medical Assistance Contribution (“EMAC”) and also imposes a tax penalty—or “EMAC supplement”—on Massachusetts employers with more than five employees. The supplement is 5% of a covered employee’s unemployment insurance taxable wages up to the $15,000 per year (i.e., a cap of $750 per covered employee) for each nondisabled employee who receives health insurance coverage through the Massachusetts Division of Medical Assistance (i.e., MassHealth) or subsidized insurance through the Massachusetts Health Insurance Connector Authority (i.e., ConnectorCare).

The EMAC supplement take effect as of January 1, 2018. The Massachusetts Division of Unemployment Assistance (DUA) previously issued a draft regulation, which we discussed in our post of November 20, 2017. The DUA has now issued a final regulation, which is the subject of this post.

Background

The EMAC rules were adopted in 2014 following the repeal of the Massachusetts “fair share contribution” requirement. (The fair share requirement of the historic Massachusetts health care reform law imposed penalties on employers that failed to offer group health plan coverage. Following the enactment of the Affordable Care Act’s employer mandate, the Massachusetts Legislature deemed the fair share requirement, but not the accompanying need for revenue, unnecessary.) EMAC applies to employers with more than five employees in Massachusetts and applies regardless of whether the employer offers health coverage to its employees.

The Act increased the basic EMAC contribution rate to 0.51% from 0.34% up to the annual wage cap of $15,000 (i.e., a maximum of $77 per employee per year). It also added a temporary contribution requirement—the EMAC supplement—that applies when employees who are non-disabled and either obtain health insurance from MassHealth (excluding the premium assistance program) or receive subsidized coverage through the Massachusetts ConnectorCare program (“subsidized coverage”). The EMAC supplement is based on the wages of employees who receive health subsidized coverage. For each such employee, an employer pays 5% of the employee’s annual wages, subject to an annual wage cap of $15,000, for a maximum annual liability of $750 per affected employee. Because the calculation is based on wages and not hours worked, an employer is responsible for each employee with subsidized coverage regardless of whether the employee is part- or full-time.

Collection of EMAC Supplement Payments

According to the DUA, “Information will be available online for each employer after the Employer Medical Assistance Contribution Supplement has been calculated.” (In an earlier post, we cautioned against employers asking employees whether they are receiving subsidized coverage.) Supplemental payments will be included with the employer’s Unemployment Insurance liability. The liability begins January 1, 2018 and lasts through the end of calendar year 2019. Employers will see the change on their first quarter statements in April 2018.

The Final Regulations

The EMAC final regulations generally follow the proposed rule with minor changes. There is little for employers to do until they receive their EMAC supplemental assessment at the end of the first quarter of 2018. It is at that point that the final regulations’ provisions relating to payment and collection of contributions or payments, and the disclosure of information, may need to be consulted.

The final regulation directs the MassHealth and the Connector to provide DUA “with such information as DUA determines necessary to determine liability for the EMAC Supplement” and to administer these rules. DUA must, in turn, “protect the confidentiality of Member Information provided by the MassHealth Agency and the Connector.” DUA is permitted to furnish an employer that it determines is liable for the EMAC Supplement “with access to Member Information for purposes of reviewing and/or appealing such liability,” in accordance with yet-to-be issued procedures established by DUA. Employers that receive member information are further admonished to “maintain the confidentiality of such Information . . . .” In particular, employers are barred from using or disclosing member information to disparage or retaliate against any employee or other individual. Prior to receiving member information, employers are required to sign a written acknowledgement of their obligations to maintain the confidentiality of such information, in such form and pursuant to, again, “such procedures established by DUA.”

The Impact of the HIPAA Privacy Rule

The HIPAA Privacy Rule protects individuals’ individually protected health information (PHI) where that information is held by a covered entity or by a business associate of the covered entity. Enrollment and disenrollment information is generally PHI. State laws that are contrary to the privacy rule are preempted by the Federal requirements, unless a specific exception applies. These exceptions include if the State law, among other things, requires certain health plan reporting, such as for management or financial audits. The final regulation’s treatment of member information appears to fit squarely into this exception.

Conclusion

Employers are right to be concerned about their exposure to liability under the EMAC supplement, particularly since there is little that they can do to control it. If the employers offer generous affordable coverage, employees will not be able to claim subsidized coverage from the Connector. But if an employee chooses to skip the employer’s coverage and instead applies and qualifies for MassHealth, the employer will be subject to penalty. What remains to be seen is the extent to which employers have a sense that the EMAC supplemental assessments seem fair, and if not how difficult or challenging the appeals process might be.