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Labor, Employment and Employee Benefits
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Employer and Employee Obligation Under the New Health Care Reform Law in Massachusetts
Wednesday, July 05, 2006
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The recent enactment of the Health Care Reform law in Massachusetts imposes the obligation on every adult Massachusetts resident to obtain and maintain health insurance. More importantly for Massachusetts businesses, the new law also creates certain requirements for employers. Specifically, by July 2007, employers with 11 or more employees that do not offer health insurance will be subject to a surcharge that could be as much as $295 per employee. In turn, employees who refuse to accept health insurance offered by their employer and remain uncovered may lose their personal exemption on their individual tax return. While the statute is an attempt to insure those who currently have no health insurance coverage, the new law creates myriad administrative obligations and is sure to change the health benefits landscape in Massachusetts. This article highlights some of the new administrative and financial obligations created by the new law.
Protecting the Un-Insured
More than 500,000 Massachusetts residents are currently uninsured. Recognizing the problems inherent in this situation, not only for those who have no health insurance, but also for the State in bearing the burden of providing free health care, Governor Romney and the Legislature signed the Health Care Reform bill into law. Although the Governor vetoed sections of the original bill, both the House and Senate overrode those objections and passed the bill in full. The new law is meant to facilitate the offer and purchase of affordable health insurance to those who currently depend on free care.
Who is Affected?
The law applies to individuals as well as employers. Effective July 2007, Massachusetts residents who are over 18 years old must obtain and maintain health insurance. The law also places various requirements upon employers, who are charged with administering the new law and communicating its mandates to their employees through mechanisms such as mandatory disclosure forms and the offer of various employee benefit programs. Although not every provision applies to every employer, as indicated below, every employer in Massachusetts is sure to feel the impact of the new legislation in some fashion.
Financial Obligations on Employers with More than 10 Employees
Employers with more than ten employees will be required to provide employees with health insurance, and make a "fair and reasonable" contribution to the cost. Employers who satisfy both of these requirements are called "contributing employers." What constitutes a fair and reasonable contribution amount is to be interpreted by the Division of Health Care Finance and Policy. Regulatory guidance will prove critical for employers wondering whether they must contribute 10 percent, 25 percent, 50 percent or some other amount in order to satisfy their obligation. This contribution level has not yet been determined and should be closely monitored.
Employers who do not comply with this provision will pay a "Fair Share Contribution." The amount of the contribution will vary, but it is capped at $295 per employee. The Fair Share Contribution is designed to reimburse the State for the free health care provided to employees whose employers do not offer insurance (M.G.L. ch. 149 § 187).
Another charge assessed to employers is the "Free Rider Surcharge," imposed where the employer has more than 10 employees, fails to provide health insurance, and whose employees, as a result, depend on free health care. This charge does not occur automatically, but only when (1) an employee obtains free health care at a medical facility more than three times in a year, or (2) employees in the aggregate receive free care on at least five occasions in a year. The amount of the Free Rider Surcharge ranges from 10 percent to 100 percent of whatever it cost the State to serve those employees. However, the charge will not apply if the aggregate cost to the State is less than $50,000 per hospital fiscal year, as anything up to that amount is exempt from this provision (M.G.L. ch. 118G § 18B). Future regulation will hopefully spell out the precise contours of the exemption. It is important to note that an employer will not necessarily know when an uninsured employee or their dependents have met one of these conditions and received care; instead the employer will be informed once the State has registered the free medical care visits.
A third important financial obligation imposed on employers is the mandatory offering of Section 125 plans, also known as "cafeteria plans," which permit employers to provide their employees with the benefit of using pre-tax dollars to contribute to health insurance and various other programs. Under the law, the plans must be filed with the Commonwealth Health Insurance Connector (the "Connector"), the newly established administrative entity charged with oversight of the statute, in accordance with the rules and regulations established by the Connector as well as 26 U.S.C. § 125 (M.G.L. ch. 151F § 2).
In addition, the Health Care Reform law includes an anti-discrimination measure, which expressly prohibits an employer from penalizing any employee who receives free health care or provides notice of the need for such care, and as a result causes the employer to have to reimburse the State for the services received (M.G.L. ch. 149 § 6D ½).
Another provision that will require substantial regulatory interpretation in the near future prohibits employers from making different health care contributions for different groups of employees, unless part of a collective bargaining agreement. On its face, the statutory language seems to prevent employers from making higher contributions for executives and other high level employees. How this provision will be interpreted and practically applied remains to be seen.
Employer/Employee Joint Responsibilities
Employers and employees will be jointly accountable for completing the "Health Insurance Responsibility Disclosure" form. "Every employer and employee doing business in the commonwealth" must sign this form under oath (M.G.L. ch. 118G § 6C). The form is meant to ensure that the employer has communicated its responsibilities to pay for or arrange for the purchase of health insurance, as well as verify whether the employee has accepted or declined the employer's offer. This is a clear example of how the Commonwealth will rely on employers to communicate the provisions of the new law to Massachusetts's residents. An employee who declines health insurance through his or her employer must indicate whether he or she has alternative coverage, as well as acknowledge that by declining such offer, the employee will be legally responsible for his or her own health care expenses. Furthermore, sanctions may be imposed pursuant to chapter 111M as described below (M.G.L. ch. 118G § 6C).
Employee Financial Responsibilities
One of the most significant new requirements under the statute is that all Massachusetts residents who can afford it must obtain health insurance by July 2007. Individuals must have "creditable coverage" which is defined as any of the qualifying health plan types listed in the statute, and is to be further defined by regulation (M.G.L. ch. 111M § 12). To ensure compliance, the State will require residents to confirm their coverage on their state income tax returns in 2008. Coverage will be tracked and verified through an insurance coverage database for all individuals. Those who fail to comply with these new rules will suffer financial penalties, such as loss of the personal exemption on their taxes (M.G.L. ch. 111M § 2(a)-(b)).
The New Health Insurance Connector — Administrative Oversight
A final word about the new law is to note its creation of a new State entity, the Commonwealth Health Insurance Connector. The Connector's purpose is to provide means for the uninsured to obtain affordable health insurance. Eligible individuals and eligible small groups (entities actively engaged in business that, on at least 50 percent of working days during the preceding year, employed between 1 and 50 employees) may purchase affordable health care insurance through the Connector.
For an eligible small group to participate in the program, it must execute a binding agreement with the Connector that requires the employer to:
Refrain from offering its employees competing health plans;
Set forth and maintain employee eligibility and enrollment criteria as well as amounts of employer contributions;
Participate in a payroll deduction program; and
Make relevant documents available for confidential review by the Connector.
In exchange for satisfying these conditions, the Connector provides a feasible option for smaller employers to make contributions to employee health plans and to participate in the State's health care reform initiative. However, if coverage is cancelled under new M.G.L. ch. 176J § 4 (modifying current requirements of insurance carriers to offer health benefit plans), the individual or small group may no longer participate in the Connector's programs. (M.G.L. ch. 176Q).
Developing Situation
The new law creates obligations for employers and employees alike, in an effort to provide health care coverage to the thousands of currently uninsured Massachusetts's residents. However, with these new rules come questions of interpretation. As discussed above, several of the provisions will require regulatory clarification before their practical meaning and applicability can be clearly identified. Until then, employers and employees should do their best to understand their new obligations and take steps toward satisfying those obligations by the July 2007 deadline.
This article is intended to serve as a summary of the issues outlined herein. While it may include some general guidance, it is not intended as, nor is it a substitute for, legal advice. Your receipt of Good Company or any of its individual articles does not create an attorney-client relationship between you and Sheehan Phinney Bass + Green or the Sheehan Phinney Capitol Group. The opinions expressed in Good Company are those of the authors of the specific articles.
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