United States: Massachusetts is Poised to Implement Sweeping Health Insurance Legislation

The Massachusetts House of Representatives recently passed broad health care legislation that, if signed into law, will affect nearly every business with employees in the state. The Massachusetts Senate passed a more limited bill that will increase costs only for employers that do not offer health insurance benefits. The two chambers will negotiate a compromise in the coming weeks, which gives employers an opportunity to weigh in on the proposals before a new law is enacted.

The Massachusetts House of Representatives recently passed broad health care legislation that, if signed into law, will affect nearly every business with employees in the state. The Massachusetts Senate passed a more limited bill that will increase costs only for employers that do not offer health insurance benefits. The two chambers will negotiate a compromise in the coming weeks, which gives employers an opportunity to weigh in on the proposals before a new law is enacted.

The House bill contains a comprehensive plan for expanding health insurance coverage for all residents of Massachusetts. By blending an expansion of the state’s Medicaid program that offers insurance to low-income residents, a mandate that each person obtain health insurance, and a requirement that employers contribute to the cost of health insurance, the proposal should result in every person having health insurance.

The Senate bill provides for a smaller expansion of the Medicaid program and includes a cost-shifting mechanism that applies to employers that do not provide health insurance.

The House legislation would require each business with more than 10 employees to provide health insurance to its employees or contribute a percentage of its payroll to a fund, known as the "Commonwealth Care Fund," that will provide subsidized insurance to low-income residents. An employer with 10 or fewer employees would be exempt from this requirement.

When fully implemented on July 1, 2007, the bill would require employers with 11-100 employees to contribute 5% of their payroll each quarter to the Commonwealth Care Fund. Employers with more than 100 employees would be required to contribute 7% each quarter. Employers would receive a credit for their health insurance expenses.

As a result of the credit, employers who provide health insurance coverage would likely pay nothing more since their costs are typically greater than 5% or 7% of their payroll.

Some businesses that provide health insurance have a large number of highly paid employees and, consequently, pay less than 5% or 7% of their payroll to provide health insurance. To ensure that these employers are not obligated to contribute to the Commonwealth Care Fund, only the first $94,200 of an employee’s wages would be used to calculate an employer’s payroll. This amount, the salary cap for Social Security, would be adjusted annually.

Part-time workers are included when calculating the number of employees. Seasonal workers are included in the quarter in which they worked. Temporary workers and independent contractors are not counted. A note of caution: Massachusetts has significantly tightened the rules on who qualifies as an independent contractor, so employers should use extra care in classifying anyone as an independent contractor.

Employers with 50 or more employees that do not offer insurance would be required to cover the full cost of care if their employees seek health care services from hospitals and community health centers. The Senate bill also includes an assessment on employees who decline insurance coverage and then receive treatment for which they do not pay.

Today, when a person without health insurance receives care in an emergency room, the hospital seeks payment for the services from the Uncompensated Care Pool. The Pool is partially funded by a $160 million annual surcharge on health insurance companies and employers that are self-insured.

The insurance companies and self-insured employers pass along the cost of the surcharge by increasing health insurance premiums. This means that employers who provide health insurance for their employees pay twice: once for their employees’ insurance and then for the surcharge.

The House of Representatives proposes to eliminate the $160 million annual surcharge on insurance companies and self-insured employers and to eliminate the Uncompensated Care Pool. The bill instead creates the "Health Safety Net Fund" to reimburse hospitals and community health centers for treating those who do not have insurance. By eliminating the surcharge, the intent of the legislation is to level the playing field so all employers contribute to the cost of health insurance, and no company pays twice as in the current system.

The Senate proposes no changes to the employer surcharge and the Uncompensated Care Pool.

Finding an affordable health care plan is one of the many challenges small companies experience. To help these companies offer insurance to their employees, the House bill would establish the "Commonwealth Health Insurance Connector." The Connector, operated by the state and overseen by a board of public and private-sector representatives, would certify and offer health insurance products that are of high value and good quality to companies with 50 or fewer employees. Employers who participate could contribute any amount toward an employee’s health insurance, and participating employees could pay using pre-tax dollars. The amount, if any, that an employer contributes would be deducted from the 5% or 7% contribution the employer would owe to the state.

The Senate bill includes a similar mechanism for linking consumers with health insurance plans.

The House bill provides that all residents of the Commonwealth must maintain health insurance coverage if affordable health insurance products are available. The state would establish a sliding scale of affordability based on income. Individuals for whom affordable products are not available on the market will not be penalized for failing to have coverage. The Connector described above would certify a range of affordable health insurance products for individuals to purchase. The Senate proposal does not include this mandate.

In the House bill, people who earn less than 300% of the federal poverty level and who are ineligible for MassHealth, the state’s Medicaid program, would be eligible to participate in a subsidized health insurance program. This new program would be operated through the Health Insurance Connector. Companies that employ people who participate in this program would be required to contribute to the cost of their participating employees’ insurance if they do so for other employees.

Both bills expand MassHealth coverage for parents and childless adults. Currently, many parents and adults without children do not have access to insurance or cannot afford the insurance offered to them through their employer. By expanding MassHealth eligibility, more adults will be eligible to participate in the program. Employers do not contribute to the costs of this coverage (even if they want to do so).

In the House bill, the Commonwealth Health Insurance Connector allows for portability of insurance as individuals move from job to job and permits more than one employer to contribute to an employee’s health insurance premium. The portability provision should help companies with recruitment since changing jobs will not cause someone to lose health insurance coverage. Moreover, the ability of two or more companies to contribute to the health insurance premium of a part-time employee may enhance recruitment for businesses that have trouble filling part-time positions.

Both the House of Representatives and the Senate assert that ERISA does not pre-empt these bills. The issue is one Littler will watch as the final bill is negotiated.

• Contact the State Representative and Senator who represent the company’s locations. Phone numbers and email addresses can be found at www.mass.gov/legis.

• Employees in Massachusetts can contact their own State Representative and Senator.

• Some chambers of commerce and other groups representing business interests are lobbying the legislature. Find the group that shares your view and support its efforts.

Martha M. Walz is Of Counsel in Littler Mendelson's Boston office. Ms. Walz advises and represents employers in a broad range of employment law matters, including discrimination and harassment, wrongful termination, wage and hour law, workplace policies, employee discipline, and training. Ms. Walz also is a member of the Massachusetts House of Representatives.

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