Effective October 1, 2008, new, more stringent regulations were issued by the Division of Healthcare Financing and Policy that prescribe new rules as to how employers may now meet the contribution requirements under the Massachusetts Health Reform.

An employer with 11 or more full-time equivalent employees who work in Massachusetts must meet certain requirements regarding group health insurance covering its Massachusetts employees. Beginning on January 1, 2009, employers with more than 50 full-time equivalent workers in Massachusetts have a greater burden for providing health insurance for their employees.

Nondiscriminatory Employer Contributions

Under the insurance non-discrimination rules, an employer must make available the same level of co-payments to all similarly situated, full-time employees for whom health insurance is provided under a group policy issued or delivered in Massachusetts. For example, an employer would be required to offer the same premium co-payment for family coverage for all of its full-time employees with families. Failure to do so would affect the employer’s ability to obtain group coverage from an insurer authorized to issue or deliver group medical insurance in Massachusetts, because the carrier is prohibited from selling insurance to a Massachusetts employer with discriminatory co-pays.

Massachusetts also regulates the amount that an employer must contribute toward an employee’s health coverage. An employer with 11 or more full-time equivalent employees working in Massachusetts must either make a “fair and reasonable” premium contribution for its employees or pay the annual “fair share contribution” of $295 per employee. Whether a premium contribution is fair and reasonable is determined by two alternative tests (primary and secondary). Beginning on January 1, 2009 an employer with more than 50 full-time equivalent employees must cover at least 35 percent of its full-time employees and pay certain premiums or enroll at least 75 percent of its full-time employees in healthcare.

Employees who work 35 or more hours per week are counted as full-time under the Massachusetts Health Reform law. An employee who works both full-time and part-time during a calendar quarter is treated as full-time if he or she worked at least 35 hours per week during a majority of the weeks in the quarter. Thus, an employee who works 10 weeks full-time, and two weeks part-time is counted as a full-time employee. If the employee is otherwise treated as full-time and eligible for the employer’s health plan then that employee is counted as well. For example, if an employer’s health plan treats employees who work 30 hours per week as full-time, those employees would be treated as full-time for purposes of the Health Reform tests.

If the employee works in Massachusetts but resides elsewhere, he or she is still counted for applying the fair and reasonable premium contribution tests. Employees working a majority of their time under 35 hours per week are excluded.

Primary Test (25 Percent Coverage)

Prior to the recently enacted changes, all employers have been required to meet either the primary or secondary test for healthcare. This alternative testing continues to apply for employers with 50 or fewer employees in Massachusetts. In order to meet the primary test, an employer’s plan must generally cover at least 25 percent of its countable, full-time employees each calendar quarter and the employer must make some (undefined) contribution toward that coverage. At least 25 percent of the employer’s full-time employees must actually be covered under a medical plan for this rule to apply. No particular level or type of coverage is required, so a stripped-down health plan could qualify for purposes of this test. Seasonal, temporary and part-time employees, as defined above, are excluded from the coverage test.

Secondary Test (33 Percent Contribution)

Under the secondary test, the employer must offer to pay at least one third of the premium cost of the group health coverage offered to all of its full-time employees. For purposes of applying the secondary test, employers may exclude employees who have not worked 90 days since their date of hire and employees who did not perform service for 12 consecutive weeks.

Special Rules Effective January 1, 2009

Effective January 1, 2009, any employer with 50 or fewer full-time equivalent employees in Massachusetts must meet either the primary or secondary test. Effective January 1, 2009, an employer with more than 50 full-time equivalent employees must meet both the primary and secondary test or enroll at least 75 percent of its full-time employees in its healthcare plan.

Free-Rider Surcharge

Failure to meet one of the fair and reasonable premium contribution tests or new rules beginning on January 1, 2009 subjects the employer to a $295 annual tax per employee. It could also subject the employer to a free-rider surcharge if the employer does not have a §125 cafeteria plan and employees obtain subsidized care from the state. A §125 plan allows employees to pay health insurance premiums on a pre-tax basis through payroll deductions.

An employer with more than 10 employees that does not pass a qualifying test and does not adopt and maintain a §125 plan is subject to a free-rider surcharge, if any of its employees received state funded health services that total at least $50,000 in a fiscal year. If an employer adopts and maintains a §125 plan that covers all of its employees and meets the Massachusetts rules, then the employer is not subject to the free rider surcharge. The free rider surcharge, as so revised, went into effect on July 1, 2007. Prior to the revision of the regulation, a greater number of employers were exposed to the surcharge.

Other Penalties

If an employer fails to pay the fair share contribution due under Massachusetts law, the overdue amount is assessed a penalty of 12 percent per annum from the date due until the date paid. In addition, any matter may be referred to the attorney general if the employer has evaded any penalty or contribution due, or has made any false statement to avoid complying with the law.


These rules are peculiar to Massachusetts and, so far, have not been challenged in the courts. Employers without employees working in Massachusetts are not subject to these rules. Unless other state insurance laws apply, an employer doing business outside of Massachusetts is subject only to federal law which imposes neither non-discrimination nor contribution requirements for group health insurance offered by employers. As the law regarding healthcare develops at both the state and federal levels, more changes may be in store for employers.