By Jenifer M. Pinkham, Esquire
As we discussed in a previous article, Massachusetts businesses must make health insurance available to employees. Over the past few months, the legislature and the Executive Office of Health and Human Services have revised and updated the law, which shed light on the impact to business owners. Here are the provisions that may impact your business:
This provision applies only to employers with more than ten (10) full time employees, and only to employers who are defined as "non-contributing" under regulations recently promulgated by the Division of Health Care Finance and Policy (DHCFP). Employers who make a "fair and reasonable premium contribution" are exempt from the fair share requirement, as they are contributing. If an employer does not make a fair and reasonable contribution to a group health plan, then it will be deemed "non-contributing" and must pay a fair share contribution of up to $295 per employee.
To be considered "contributing", an employee must:
* Offer health insurance to employees, and
* Have at least twenty five (25%) percent of full time employees enrolled in the employer-sponsored insurance plan. If an employer does not meet the twenty five (25%) percent threshold, but has offered to pay thirty three (33%) percent or more of the premium cost, it is considered a contributing employer. Part time, temporary, and seasonal employees do not count in this calculation. Thus, an employer who meets the above test for its full-time employees, but does not provide insurance for seasonal, part time or temporary employees would not have to pay the fair share contribution.
The fair share contribution went into effect October 1, 2006.
This surcharge will be imposed on employers that employ more than ten (10) employees and who do not pay or arrange for the purchase of their employees' health insurance (it includes full time and part time employees). An employer can avoid the surcharge by either of the following: 1. Offering a group health insurance plan; or 2. Establishing a section 125 cafeteria plan, which satisfies the "arrange for" requirement. It is important to note that no employer contribution to a health insurance plan is required to avoid the "Free Rider" surcharge. Imposition of the surcharge will be triggered if an employee receives free care more than three times or a company has five or more instances of employees receiving free care in one year. The surcharge will range from 10% to 100% of the state's costs of services provided to the employees with the first $50,000 exempted. This requirement is slated to go into effect on January 1, 2007. This fee is independent of the fair share contribution, so merely offering a plan with no contribution will not relieve a business of the obligation outlined in section 1.
The new law mandates that every employer regardless of size establish a Section 125 Plans or "cafeteria plans" in accordance with federal law. Such a plan gives employees the opportunity to pay for health coverage in pre-tax dollars. The employer is not required to contribute to the premium cost, but must file a copy of the plan with the Commonwealth Health Insurance Connector. This requirement will go into effect on July 1, 2007.
The Department of Health Care Finance and Policy will be creating a form entitled "Health Insurance Responsibility Disclosure Form." Every employer will be required to fill out the form and the form will tell the government whether or not the employer has arranged and/or provided health insurance and whether or not the employee has accepted the coverage and if the employee has other coverage. As more information becomes available about this form, we will update you.
Each individual residing in the Commonwealth of Massachusetts is now required to have health insurance. They will indicate their insurance policy number on their state tax return. If the individual does not have health insurance, they will lose their personal tax exemption. As a result, the law requires employers to distribute to each employee whom it provided with creditable health coverage a written statement with information such as dates of coverage and names of those covered by the plan. This statement would be similar to other statements provided to taxpayers (such as a 1099 statement), and would be used by the employee to show compliance with the individual mandate when filling out tax forms. While the employers bear the primary responsibility for issuing this form, the law envisions that they will work cooperatively with insurance providers to collect the necessary information. The individual mandate goes into effect in July, 2007, so businesses will need to issue this statement early in 2008 for taxpayers to use when filling out their 2007 tax forms.
If group health coverage is provided to full time employees, then all full time employees who live in Massachusetts must be included and each employee must receive the exact same contribution from the employer despite their position, tenure or salary. This may require some businesses to restructure how insurance benefits are paid.
On another note, the new law established the Connector which is a resource to connect people to health insurance -- it also assists small businesses access private insurance products at a competitive rate. Businesses with fewer than 50 employees will be able to purchase insurance coverage through the connector. If you would like more information about the Connector, please visit www.mass.gov/connector.
As additional regulations are promulgated or technical corrections are made, we will provide you with updates. Please feel free to contact us with any questions.