MA Fair Share Contribution, HIRD Repealed In FY2014 Budget

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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Governor Deval Patrick recently approved the Commonwealth’s 2014 fiscal year budget, which includes provisions repealing both the Fair Share Contribution (FSC) and the Health Insurance Responsibility Disclosure (HIRD) form requirements. These requirements were part of the landmark Massachusetts health care reform law in 2006. Their repeal resulted from the upcoming implementation of the federal health care reform, the Affordable Care Act (ACA).

Since 2006, Massachusetts employers that did not make a minimum premium contribution toward the health insurance costs of Massachusetts-based employees were required to pay an FSC of up to $295 per employee per year to the Commonwealth. The FSC served as a model for the “play or pay” federal mandate included in the ACA. The repeal of the Massachusetts FSC is effective July 1, 2013, and it was intended to coincide with the introduction of the new ACA mandate. Although the penalties associated with implementation of the ACA mandate have been deferred to January 1, 2015, the FSC repeal remains effective for all periods after July 1, 2013. The Commonwealth retains authority to regulate, enforce, and collect on FSC obligations prior to July 1, and filing requirements for the period ending June 30, 2013 remain in effect.

The 2014 budget also repealed the HIRD form collection requirement. Previously, Massachusetts employers were required to collect a signed form from employees who declined to enroll in the employer’s health insurance plan or participate in the employer’s Section 125 cafeteria plan allowing pre-tax health insurance premium payments. Effective July 1, 2013, collection of HIRD forms is no longer necessary.

Although the new budget repealed the FSC and HIRD, it instituted a new assessment on employers, the Employer Medical Assistance Contribution (EMAC). Effective January 1, 2014, employers with more than five employees in the Commonwealth will be assessed a per-employee fee regardless of whether they offer health coverage to their employees. The fee is calculated as a percentage (.36%) of all wages up to the Massachusetts unemployment insurance taxable wage base (currently $14,000) paid to all employees (approximately $50 per year per employee making $14,000 or more). The rates are reduced during the first two years the EMAC is in effect, but will ramp up to the full amount by 2016 and will affect all Massachusetts employers.

Other major provisions of the Massachusetts 2006 health care reform law, including the individual mandate and cafeteria plan requirements, remain in force. Employers that are required to maintain a Section 125 cafeteria plan now face a new issue. Effective January 1, 2014, the Massachusetts Health Connector’s Voluntary Plan program will terminate pursuant to the ACA. The ACA—unlike the Massachusetts health care reform law—provides for the purchase of health insurance in exchange marketplaces even if an employer-sponsored plan is available to the employee, and it bars the pre-tax purchase of health insurance plans through such an exchange. To comply with the ACA, the Connector will become an after-tax health insurance exchange marketplace.

Yet, Massachusetts employers with 11 or more full-time-equivalent employees still must maintain a Section 125 plan to allow employees who work at least 64 hours a month and who are ineligible for the employer’s group-sponsored health insurance plan to purchase health insurance coverage on a pre-tax basis. (An employer is deemed to have 11 or more full-time-equivalent employees if the sum total of its payroll hours for all Massachusetts employees during a 12-month period divided by 2,000 is greater than or equal to 11.) Many employers have used the Connector’s program to facilitate the pre-tax purchase of health plans for employees participating in their Section 125 plans. As of January 1, 2014, however, the Connector will terminate its pre-tax contribution offering and instead offer plans on an after-tax basis. Nonetheless, the laws requiring Massachusetts employers to offer a pre-tax Section 125 plan will remain in effect. Thus, employers that currently use the Connector as the means to comply with the state law will be exposed to a “Free Rider Surcharge” unless they provide an alternative method for their health plan-ineligible employees to purchase health insurance pre-tax through a re-structured Section 125 plan that does not rely on the Connector.

More changes and issues could be coming in this dynamic situation. Massachusetts is trying to satisfy two goals. First, the Commonwealth does not want its employers to be subject to two sets of “play or pay” requirements, one state and the other federal. Second, the Commonwealth does not want to take away access to a pre-tax premium plan for ineligible employees, or at least not until it is absolutely certain that access to those plans is not useful. Meanwhile, this process of reconciling the state and federal health care reform acts creates new difficulties for employers. It remains to be seen if or how Massachusetts will address the new issues that arise. Employers should continue to monitor for updates in this area and continue preparations to comply with the mandates and requirements of the new ACA. Employers should also review their Section 125 plans, if applicable, to ensure compliance and avoid exposure to a Free Rider Surcharge.

Note: This article was published in the August 30, 2013 issue of the Massachusetts eAuthority.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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