Tax Article - Employer Obligations Under Massachusetts Healthcare Reform

As you likely have read, Massachusetts’ landmark Health Care Reform Law mandates that all Massachusetts residents age 18 and over obtain and maintain health care coverage beginning July 1, 2007. The primary goal of the law is to increase access to health insurance to individuals and employers. Individuals, employers, health plans and state agencies are sharing this responsibility. This is a very complicated law and this summary is solely intended to remind you of some basic rules. This summary should not be substituted for consulting your health insurance broker.

The state has established the “Commonwealth Connector” as an independent public authority to facilitate the purchase of health insurance for individuals and small businesses. Please refer to their website at www.mahealthconnector.org.

Individual Obligation

Individuals who fail to obtain the required health care coverage by December 31, 2007 will lose their personal income tax exemption ($4,125 for a single person) when filing their 2007 Massachusetts state tax return. Furthermore, individuals who do not satisfy the individual mandate in 2008 will pay this tax penalty AND be required to pay up to 50% of "minimum insurance premium for creditable coverage" for each month without coverage. 

Employer Obligations

Special Open Enrollment

Because of the individual mandate to obtain health insurance by July 1, 2007, many employers should have held special open enrollment periods to allow employees who have previously waived coverage to enroll in employer-sponsored plans. Previously determined ineligible dependents may now be eligible for family coverage. Contact your health carrier or broker for more information about this requirement.

Section 125 Plan/Free Rider Surcharge

Effective July 1, 2007, employers with more than 10 employees must adopt and maintain a Section 125 plan, to allow for pre-tax premium contributions, whether or not the employer offers health insurance to his/her employees. Employers who do not offer a Section 125 Plan that meets the regulations of the Connector, and that have employees who receive state funded health services, may be subject to the free rider surcharge that could be costly. The employer could be responsible for paying up to 100% of the state funded medical costs over $50,000. Therefore, we recommend that you set up a Section 125 plan.

Employee HIRD Form

Effective July 1, 2007, each employee of a Massachusetts employer with more than 10 employees must sign a Health Insurance Responsibility Disclosure Form if he or she declined to enroll in an employer-sponsored health plan that is offered and/or if he or she declined to participate in the employer’s Section 125 plan. The employer should collect these forms during annual open enrollment (or special open enrollment) and retain them for 3 years regardless if the employee is no longer employed with the company. For a copy of the form, visit www.mahealthconnector.org. 

Fair Share Contribution

Employers with 11 or more full-time equivalent employees (35 hours or more per week) that do not make a “fair and reasonable” premium contribution for their employees’ health insurance will be subject to pay a Fair Share Contribution of no more than $295 per employee per year. Liability is based on data from October 1, 2006 to September 30, 2007. An employer will make a “fair and reasonable” premium contribution if it passes either of two tests:

Primary test – at least 25% of full-time employees are enrolled in the employer’s health insurance plan and the employer is making a financial contribution to it; or

Secondary test – the employer offered to pay at least 33% of the premium cost of its health insurance plan offered to all full-time employees who are employed at least 90 days during the period of October 1, 2006 to September 30, 2007.

Dependent Coverage (fully-insured plans only)

The definition of dependent coverage was expanded as of January 1, 2007. Carriers with insured health benefit plans that provide for dependent coverage must make coverage available up until age 26 or up to 2 years after loss of dependent status, per IRS code, whichever comes first. Contact your health plan or broker for more information. 

Nondiscrimination

Employers must offer the same coverage to all full-time (defined as 35 hours and above) employees and cannot make a lower premium contribution to lower-paid full-time employees than is made to higher-paid full-time employees. This applies only to fully-insured groups and there are exceptions for union employees. See www.mass.gov and search for equal contribution by employers for a bulletin providing more details. 

Visit www.mahealthconnector.org (and click on Employers) to download the HIRD form and the Employer Handbook which details employer obligations. 

Again, we urge you to contact your health insurance broker to learn the specifics of this very complicated law.

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