Wednesday, August 16, 2006
Client Alert - Mass Healthcare Reform Act (PDF) By Michael J. Radin, Esq.
Governor Mitt Romney recently signed into law a landmark health care reform bill: “An Act Providing Access to
Affordable, Quality, Accountable Health Care” (the Act). The bill itself is merely a broad outline for the goal of
getting 95% of the Commonwealth’s population insured. The details were left to be worked out later. Draft
regulations were just released. We have awaited guidance before sending you an alert.
On July 26, 2006, federal officials approved the new health insurance program, allowing the Commonwealth
to continue receiving $385 million annually that will provide premium assistance for the working poor to insure
themselves. The Division of Health Care Finance and Policy (DHCFP) released Proposed Regulations on
June 30, 2006 that offer some clarification of the new statute. Until the details are finalized over the next
several months, it is difficult to know exactly the full implications for employers. It is important at this point to
be aware of who the Act covers, what major aspects of the Act are, when they become effective, and how the
Act will impact employers. Importantly, employers with 10 employees or less are completely exempt from the
Important Background Information: The Connector
The goals of the Act are to expand health insurance coverage, increase choice for employers and individuals,
stimulate competition among providers, and reduce the current burden on taxpayers. The main method to reach
these goals (based on a free market approach) is to increase demand for insurance, thereby increasing competition
among insurers, who in turn are expected to use their market “clout” to constrain prices. Importantly, there is
nothing in the Act that deals with rising costs or cost control: the focus is on using the insurance market as a tool
to expand coverage.
The Act formed the Commonwealth Health Insurance Connector, (the “Connector”) to help individuals and small
businesses connect with health insurance products. It is, in essence, an insurance marketplace for employers
and employees. The Connector is to “certify” that insurance policies meet certain standards of value and quality.
Employees can purchase insurance (using pre-tax dollars under so-called “cafeteria” plans) and can access products
of their choice within the Connector.
Any Massachusetts employer with 50 or fewer employees can designate the Connector as its group health plan.
Employer-sponsored group health plans can choose to contract only with certain providers within the Connector if
the products are Connector-approved.
The Employer Mandate and the “Fair Share Contribution”: § 47 Effective 10/1/06
Employers with 11 or more full time employees (FTEs) who are NOT “contributing employers” must make an annual
“fair share contribution” of up to $295 for each FTE. An FTE is an employee that works at least 35 hours per
week. A “contributing employer” is an employer that makes a “fair and reasonable premium contribution” to the
health insurance cost of its employees.
101 Huntington Avenue | Prudential Center |Boston, MA 02199 |617.218.2000 | 617.261.7673 Fax| www.tbhr-law.com
Massachusetts Health Care Reform:
“An Act Providing Access to Affordable, Quality, Accountable Health Care”
Focused on Chapter 58
Under the DHCFP’s proposed regulations, determining
whether an employer makes a “fair and reasonable premium
contribution” is based on the following two-part test:
1) If at least 25% of the employer’s FTE’s are enrolled in a
health plan sponsored by the employer, then the employer
is deemed to be making a “fair and reasonable premium
contribution.” The employer is required to calculate its
enrollment percentage by dividing the total annual payroll
hours of enrolled FTEs by the total annual payroll hours of
2) If the employer fails the 25% test, it may demonstrate
that it makes a “fair and reasonable premium contribution”
if it offered to pay at least 33% of the premium cost
toward an Individual Health Plan for FTEs employed at
least 90 days during the year.
Both tests are based on FTEs only and exclude part-time,
seasonal, and temporary employees. A seasonal employee
is an employee who works four months or less during the
year, while a temporary employee is an employee who works
full time for less than 90 days during the year.
If an employer fails both tests, it must pay the “fair share
Free Rider Surcharge: § 44 Effective 10/1/06
The “free rider surcharge” is imposed only when a “nonproviding”
employer’s employees (or their dependents) receive
free care from the Uncompensated Care Pool (statefunded
care) more than three times a year, or when a “nonproviding”
employer’s company has five or more instances
of employees or their dependents receiving free care in a
year. The surcharge ranges from 10% to 100% of the
state’s costs of services provided to the employees or their
dependents that is more than $50,000. Under the DHCFP’s
proposed regulations, the surcharge percentage amount is
determined based on the number of employees, the number
of admissions and visits for free care, the percentage of
employees for whom the employer provides health insurance,
and the employer’s compliance with the Health Insurance
Responsibility Disclosure Requirement (discussed below).
This surcharge could be a very significant amount.
A “non-providing employer” is an employer (i) of more than
10 employees who (ii) does not offer to contribute toward or
arrange for the purchase of health insurance for its employees,
and (iii) fails to maintain a cafeteria plan.
A “non-providing employer” excludes an employer that (i)
offers to contribute or arrange for health insurance
(including through the Connector), (ii) employs fewer than
10 individuals (note that it is unclear if this means 10 FTEs),
(iii) is a signatory to bona fide collective bargaining agreepage
ment, or (iv) participates in the Commonwealth’s Insurance
Partnership (a program of state subsidies that helps qualified
small businesses and lower-income employees pay for
Internal Revenue Code § 125 “Cafeteria Plan” Mandate:
§ 48 Effective 10/1/07
Internal Revenue Code § 125 “cafeteria plans” permit employees
to purchase their health insurance with pre-tax dollars.
Each employer with more than 10 employees will be
required to adopt and maintain a plan that satisfies § 125
and to file a copy of the plan with the Commonwealth in order
to avoid being a “non-providing” employer. The employer
will also need to provide access to group health coverage
either under its own group health plan or through the
Connector. This part of the Act is intended to shift some of
the responsibility to employees as they will be able to use
pre-tax dollars to pay for health insurance and health care
Health Insurance Responsibility Disclosure Form: § 42
Effective upon enactment but awaiting proposal of the
actual HIRD Form
Employers are required annually to complete and sign, under
oath, the “Health Insurance Responsibility Disclosure
Form” (HIRD Form). The form indicates if the employer has
offered to pay or arrange for the purchase of health insurance
(including maintenance of a cafeteria plan) and if each
employee accepted or declined such coverage.
Employees that either are not offered or decline employersponsored
insurance or the employer’s offer to purchase
insurance are required to sign, under oath, an Employee
HIRD Form indicating whether the employer offered insurance
or to arrange for the purchase of it, and, if the employee
declined, whether the employee has alternative insurance
Employers must submit an Initial HIRD Form by May 15,
2007 and must submit updates annually. Employers with
50 or more employees must submit quarterly updates.
Compliance will require coordination between employers
Employer Coverage and Contributions – Non-discrimination:
§§ 52, 55, and 59 Effective upon enactment
If an employer provides group health coverage to FTEs, then
all FTEs who live in Massachusetts must be included. Employers
are no longer allowed to make different health insurance
premium contributions to different groups of employees.
This mandate applies to BC/BS, PPOs, and HMOs.
Dependent Coverage: § 53 Effective 1/1/07
The Act requires family policies to provide extended coverTBH&
age for dependents. At this level, there is a lurking income
tax issue. Children are allowed to remain on their parents’
health insurance plan until the first of turning 25 or 2 years
past the loss of dependent status Notably, Internal Revenue
Code § 152(c)(3) indicates that dependent status terminates
earlier- at age 19 or 24 for students. Thus, children’s
health insurance costs could receive inconsistent treatment
under federal and state tax law. Parents will be able to deduct
the cost of a child’s health insurance for state income
tax purposes, but may not be able to deduct those costs for
federal income tax purposes.
Individual Mandate: Effective 7/1/07
The individual mandate requires that, starting July 1, 2007,
all residents of the Commonwealth over the age of 18 obtain
and maintain “creditable coverage”, a minimum level of
health insurance coverage, based on a premium schedule
published every December 1 that will have variations for age
Residents who fail to provide evidence of such coverage on
their income tax return and do not qualify under an exception
will lose their personal tax exemption. Failure to comply
with the individual mandate for 2008 and beyond will result
in a penalty of up to 50% of the monthly minimum insurance
premium for creditable coverage.
A resident does not need to obtain coverage in compliance
with the individual mandate where his or her refusal to do
so is based on religious beliefs, a hardship based on criteria
established by regulation, or a determination that no affordable
coverage is available.
Some concluding points are worth noting. First, employers will undoubtedly incur some administrative costs to comply
with the new law. Additionally, there is a real question whether the employer mandate will survive a challenge based
on ERISA remains an open issue. Recently, a Maryland law was overturned by a trial court based on an ERISA challenge,
and it is expected that appeals will be filed in that case. Third, the Act imposes a moratorium on the creation of
new health insurance mandated benefits through 2008. Finally, the DHCFP will hold a public hearing on August 8,
2006 relative to the adoption of the regulations pertaining to the “Fair Share Contribution” and the Free Rider Surcharge.
The DHCFP will hold a public hearing on August 15, 2006 relative to the adoption of the regulation pertaining
to the HIRD Form.
We will continue to update you about this important legislation as it comes into focus.
Tarlow Breed Hart & Rodgers, P.C. was formed in 1991 and from inception,
has dedicated its services to small and family-owned businesses providing
clients with personalized, prompt and effective services. The firm’s multidimensional
practice offers experienced counsel in the areas of corporate,
litigation, real estate and tax and estate planning as well as hospitality,
intellectual property, municipal, secured lending and securities law.
This Update is published by the firm of Tarlow Breed Hart & Rodgers, P.C.
as a service to our clients and friends. The information contained in this
Update should be viewed as informational and not as a substitute for legal
advice. Please consult your attorney on specific legal questions.
101 Huntington Avenue | Prudential Center |Boston, MA 02199 |617.218.2000 | 617.261.7673 Fax| www.tbhr-law.com