Most employers with employees in Massachusetts need to be prepared to comply with the mandates contained in the Massachusetts' Access to Affordable, Quality, Accountable Health Care Act (aka the Health Care Reform Act or Act) as of July 1, 2007. Generally, the Act is an individual mandate which requires that every Massachusetts resident over the age of 18 carry health insurance. However, the Act also contains three basic requirements for employers:
Fair Share Contribution
Employers with 11 or more full-time-equivalent (FTE) employees working in Massachusetts (full-time equals at least 35 hours per week) must make a “fair and reasonable” contribution toward a health insurance plan for their employees. Employers that do not offer health benefits must pay the state a “fair share contribution” of up to $295 per employee, per year. The fair-share contribution amount is pro-rated for part-time employees. If an employer can pass either one of two tests, the employer is not subject to the Fair Share contribution requirement.
Test One: 25% of the employer's Massachusetts full-time employees are enrolled in the employer's medical plan. Employers are not responsible if employees refuse health coverage.
Test Two: The employer offers to pay at least 33% of the premium cost of its medical plan offered to its Massachusetts full-time employees.
Cafeteria Plan / Free Rider Surcharge
Employers with 11 or more FTE employees working in Massachusetts must adopt and maintain a Code Section 125 cafeteria plan that meets the Health Connector regulations. The “Health Connector” is the Massachusetts Commonwealth Health Insurance Connector Authority responsible for oversight activities and issuing implementation rules, forms, etc. Required design elements include permissible waiting periods to enroll in the cafeteria plan and waiting periods for the underlying medical plan(s). The employer is not required to make any contributions to the cafeteria plan and the plan is not required to have a medical reimbursement account feature. All employers subject to the cafeteria plan requirement must file a copy of their cafeteria plan with the Connector by July 1, 2007. However, the format for the filing and the address for submission have not yet been released.
Employers that do not offer a cafeteria plan that meets the Connector's design requirements will be charged a Free Rider Surcharge based on the employer's size and the number of times its employees or their dependents receive state-funded health services, or “free care” as defined in the Act (for example, by receiving services at a local hospital emergency room and not having insurance coverage to pay for such care). This surcharge can be as high as 45% of the cost of the free care in 2007 and is paid to a state pool.
Employer Reporting (HIRD) Requirement
Employers with 11 or more FTE employees working in Massachusetts must complete the Employer Health Insurance Responsibility Disclosure (HIRD) form. This form reports the number of Massachusetts employees, whether the employer offers a qualified Section 125 plan to its employees, whether the employer filed the cafeteria plan with the state and whether the employer offers subsidized medical coverage. There is also an Employee HIRD that employers need to collect when an employee declines enrollment in the employer's Section 125 cafeteria plan or employer-sponsored health insurance.
HIRD reporting is done as of September 30th each year, so employers will need to review their data collection and retention abilities in order to capture the required data as of that date. The data must be filed by December 15, 2007, and annually thereafter.
There may be a reasonable argument that these state-level employer mandates are preempted by ERISA. On the other hand, these mandates do not require that medical coverage be offered or that certain benefit plans conform to a standard design. Reporting requirements and financial contributions may not be sufficiently “related to” an employee benefit plan to enjoy ERISA's preemption protection. Regardless, until a challenge is raised and adjudicated, ERISA preemption is an open issue. For now, the Act is the law of the land.
Additional information about employer obligations, sample forms, reporting requirements, etc., can be found at http://www.mass.gov/Qhic/docs or http://www.mass.gov/connector .
There are very specific rules regarding the calculation of full-time employees (including what types of compensation and hours are included in the calculation), employees that may be excluded from the various tests, etc. For assistance in determining how these rules impact your Massachusetts workforce, further guidance on determining the number of full-time-equivalent employees, calculating the tests under the Fair Share contribution or other issues related to compliance with the Act, contact one of our employee benefits attorneys in the Columbus or Cleveland offices.