E-Alerts
July 1, 2007 Compliance Deadline: Are You Ready For The Massachusetts Health Care Reform Law?
Are you ready? July 1, 2007, the compliance deadline for several significant provisions of the new Massachusetts Health Care Reform law, is fast-approaching. The following is a brief summary of the provisions of the new Health Care Reform Law (An Act Providing Access to Affordable, Quality, Accountable Health Care) (the “Act”) that have an effective date of July 1, 2007. In addition to the issues raised below, we encourage all Massachusetts employers to analyze their potential obligation to provide health insurance pursuant to the Act. (For instance, effective October 1, 2006, Massachusetts employers with eleven (11) or more full-time equivalent employees must make a “fair and reasonable premium contribution” toward the health insurance costs of those employees or pay an annual per employee “fair share contribution,” not to exceed $295 per year.)
1. Section 125 Plan Requirement
Massachusetts employers with 11 or more employees must: (1) adopt and maintain a Cafeteria Plan or Cafeteria Plans that satisfy Internal Revenue Code Section 125 and the regulations of the Connector; and (2) file a copy of the Plan(s) with the Connector by July 1, 2007. Otherwise, covered employers will be subject to the Employer Surcharge for State-Funded Health Costs for employees or dependents who receive state-funded health services, commonly referred to as the “Free Rider Surcharge.” The Free Rider Surcharge is a percentage assessment that is unpredictable and could lead to significant costs for employers. Thus, we strongly encourage all covered employers to promptly comply with the Section 125 mandate.
An employer will be considered to have 11 or more employees, and thus be subject to the Section 125 Plan requirements as of July 1, 2007 (a “151F employer”), if the sum of total payroll hours for all employees during the period from April 1, 2006 through March 31, 2007, divided by 2,000, is greater than or equal to 11. In calculating total payroll hours, the employer must include the payroll hours of all full-time, part-time, temporary, and seasonal employees employed at a Massachusetts location, regardless of whether the employees are Massachusetts residents. For each employee with more than 2,000 payroll hours, the employer need only include 2,000 payroll hours for purposes of the calculation. Payroll hours include all hours for which an employer paid wages, including regular and overtime hours, vacation, sick and holiday time, paid leaves of absence, short term disability and long term disability.
Notably, there are exemptions: (1) non-profit entities, exclusively staffed by volunteers, and (2) employers that pay the full monthly cost of medical coverage for all of their employees. These entities are not considered 151F employers, and are thus exempt from the Section 125 obligations.
After implementing the required Section 125 Plan, a covered employer may specifically exclude from eligibility to participate in its Section 125 Plan the following classes of employees: (1) employees who are less than 18 years of age; (2) temporary employees (as defined by the regulations); (3) part-time employees working, on average, fewer than 64 hours per month; (4) employees who are considered wait staff, service employees or service bartenders (as defined in Mass. Gen. Laws ch. 149, §152A) and who earn, on average, less than $400 in monthly payroll wages; (5) student employees who are employed as interns or as cooperative education student workers; and (6) seasonal employees who are international workers with either a J-1 student visa or an H2B visa and who are also enrolled in travel health insurance.
For additional details regarding an Employer’s Section 125 Plan obligations, please see our recent e-alert entitled Connector Clarifies Section 125 Cafeteria Plan Requirements and Other Updates from the Connector: http://www.shpclaw.com/news/eAlertsDetail.php?id=408.
2. Health Insurance Responsibility Disclosure (HIRD) Forms
Effective July 1, 2007, Massachusetts employers with 11 or more employees will be required to submit an Employer HIRD Form. The Division of Health Care Policy and Finance (“DHCPF”) is still finalizing the form, but the HIRD form will likely ask for information such as: the Employer’s Federal Employer Identification Number, Division of Unemployment Assistance (DUA) Account Number, number of employees, whether the employer offers subsidized health insurance to its employees, and whether the employer has implemented a Section 125 Plan that complies with the regulations of the Connector.
Also, effective July 1, 2007, Massachusetts employers with 11 or more employees will be required to collect and retain, for 3 years, a signed Employee HIRD form for each employee who declines the employer-sponsored health plan and/or declines to participate in the employer’s Section 125 Plan.
The DHCPF has not yet finalized the HIRD forms or the relevant regulations providing guidance on the implementation of HIRDs, including the actual due date for filing HIRD forms. We will send an e-alert with the HIRD forms once they are available.
3. Individual Mandate
Under the individual mandate of the Act, all Massachusetts residents age 18 years and older must obtain and maintain health care plan coverage that constitutes “minimum creditable coverage” by July 1, 2007, or face financial penalties. The Massachusetts Department of Revenue will enforce this individual mandate through the personal income tax collection process. With some exceptions, Massachusetts residents who are unable to show proof of health insurance coverage that meets the standard of minimum creditable coverage by December 31, 2007, will lose their personal income tax exemption when filing their income tax returns. Failure to meet the individual mandate in 2008 will result in a fine for each month the individual lacks minimum creditable coverage. The fine will equal 50% of the least costly, available insurance premium that meets the standard for minimum creditable coverage.
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We strongly encourage employers to adopt and file a Section 125 Plan(s) with the Connector by July 1, 2007. In addition to the issues raised above, we encourage all Massachusetts employers to analyze their obligation to provide health insurance pursuant to the Act. We are available to assist with Section 125 Plan compliance issues, as well as to address any and all compliance issues that may arise regarding the Act.
