Last week, the Massachusetts Division of Health Care Finance & Policy issued new regulations defining what is "a fair and reasonable" contribution by an employer towards health insurance under the Massachusetts Health Care Reform Law. Under that law, the state is permitted to assess an annual per-employee fee called the Fair Share Contribution (FSC) against non-contributing employers with 11 or more full-time equivalent employees. The fee can be as much as $295 per employee. To avoid the fee, the law requires an employer to offer a group health insurance plan and to make a "fair and reasonable" premium contribution towards that insurance. The new regulations make this test more stringent in order to increase the number of employers who are subject to the FSC.
Under prior regulations, an employer satisfied the "fair and reasonable" requirement by passing either the Primary or the Secondary test. An employer met the Primary Test if on an annual basis, 25% of its full-time employees were enrolled in its group health care plan. "Full-time" meant 35 hours per week or more. Under the Secondary Test, an employer satisfied the "fair and reasonable" requirement if it offered to pay for 33% of the premium contribution for full-time employees that were employed at least 90 days. If an employer met either test, then it was not subject to the FSC.
Under the new regulations, if an employer has 50 or fewer full-time equivalent employees, then the test remains unchanged. The employer will not be subject to the FSC if it satisfies either the Primary or the Secondary Test.
For employers with more than 50 full-time equivalent employees, the new regulations require that the employer satisfy both the Primary and the Secondary tests. 25% of its full-time employees must be enrolled in the group health plan, and the employer must offer to pay at least 33% of the premium contribution for full-time employees, no later than 90 days after hire. The Primary Test must be calculated and satisfied on a quarterly basis. The regulations do create an exception to meeting both tests if the employer can show that at least 75% of its full-time employees are enrolled in the plan. However, since most insurance carriers require an employer to pay at least 33% of premium costs, this exception may not be meaningful.
For all employers, the regulations redefine what is "full-time" employment. "Full-time" is defined as the lower of (1) 35 hours per week or (2) the number of hours per week required for full-time health benefits under the employer's health insurance plan. For example, if the plan provides that anyone who works at least 20 hours per week is eligible for benefits, then that definition will control. This could make it more difficult for employers to satisfy the Primary Test, because employees who work fewer hours and earn less per week are more likely to decline health insurance coverage, even if eligible.
The sole purpose of the new regulations is to increase the number of employers who must pay the FSC. Massachusetts estimates that about 1100 employers will now be required to pay $30 million in fees. The regulations took effect on October 1, but the requirement that a larger employer satisfy both the Primary and Secondary tests will not become effective until January 1, 2009.
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