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July 2, 2007

MULTIEMPLOYER PLAN CONSIDERATIONS AS MASSACHUSETTS HEALTH CARE REFORM BEGINS TO TAKE EFFECT

There have been many significant new developments concerning the Massachusetts Health Care Reform Act¹ since The Segal Company published its February 22 Capital Checkup on this groundbreaking piece of legislation.² The effective date for several requirements was July 1, 2007. This Capital Checkup highlights the major recent changes in this important and evolving State law initiative as it affects multiemployer health plans, including:

• On June 20, 2007, the State's Division of Health Care Finance and Policy (DHCFP) issued emergency regulations to be effective July 1, 2007 concerning the employer free rider surcharge, and the employer and employee Health Insurance Disclosure Responsibility (HIRD) requirements.³ The employer HIRD disclosure is due November 15, 2007.
• The Board of the Commonwealth Health Insurance Connector Authority (the "Connector"), the entity that is implementing many of the Massachusetts Health Care Reform Act's provisions and will provide access to private health insurance for individuals and small businesses, issued final regulations governing the requirements for "minimum creditable coverage" (MCC), but delayed implementation of any MCC standards until January 1, 2009.⁴
• The Connector also approved final regulations for determining whether MCC is "affordable" and thus, must be carried by State residents.⁵
• The Connector has also adopted final regulations governing the requirement that most employers with 11 or more Massachusetts employees adopt an Internal Revenue Code (IRC) Section 125 cafeteria plan by July 1, 2007, including an exemption that affects multiemployer plans.⁶
• The Connector issued an "Employer Handbook" designed to highlight the key issues regarding health care reform for employers and assist them in understanding their obligations.⁷.
• On April 6, 2007, the Massachusetts Division of Insurance issued Bulletin 2007-04 providing further guidance on the law's non-discrimination provisions.⁸

The Individual Mandate: Minimum Creditable Coverage, Affordability and Effect on Contributing Employers and Multiemployer Plan Sponsors

Under the Massachusetts Health Care Reform Act, by July 1, 2007, all adult residents of Massachusetts age 18 or older are required to have health coverage that qualifies as "creditable coverage" as long as it is deemed affordable by the Connector. "Creditable coverage" is defined to include individual and group health plan coverage that meets the definition of MCC as established by the Connector Board.

Under the final rule, an MCC plan must provide coverage for a broad range of medical benefits, including preventive and primary care, emergency services, hospitalization, ambulatory services, prescription drugs and mental health services. The plan may impose various levels of copayments, deductibles and co-insurance, as long as they are disclosed to covered persons; the in-network deductible does not exceed $2,000 per person/$4,000 per family; and any separate deductible for prescription drugs does not exceed $250 per person/$500 per family. If a plan has deductibles or coinsurance for in-network core services, the out-of-pocket plan maximums for those services cannot exceed $5,000 per person/$10,000 per family.

Also under the final rule, an MCC-compliant plan cannot impose an annual maximum benefit or per-illness benefit annual maximum on covered core services, defined as "physician services, inpatient acute care services, day surgery, and diagnostic tests and procedures."

Importantly, the MCC final regulations will not be implemented until January 1, 2009. In the interim, MCC will be deemed to be any insured plan that meets Massachusetts' insurance requirements or any self-funded health plan that provides medical, surgical, or hospital benefits. The Board has also approved final regulations for determining whether MCC is affordable for Massachusetts residents. By June 1 each year, the Board will issue an Affordability Schedule that establishes the percentage of an individual's adjusted gross income that he or she can be expected to contribute towards the cost of health insurance that meets MCC standards. The Board is also required to adopt a Premium Schedule that establishes the lowest level of premiums to be available for MCC for the calendar year.

The Massachusetts Department of Revenue (DOR) will enforce the individual coverage mandate through State income tax filings. For 2007, residents who do not comply will lose their personal exemption (subject to appeal). For 2008 and beyond, noncompliance results in a penalty of up to 50 percent of the monthly minimum insurance premium for creditable coverage for that resident. In addition, although the individual coverage mandate goes into effect on July 1, 2007, as long as an individual can certify on his or her 2007 State income tax return that as of December 31, 2007 he or she had coverage, the Connector has clarified that penalties will not be assessed for this year.

Contributing employers and sponsors of multiemployer health plans are not required to provide health coverage that meets the MCC criteria. However, they should pay close attention to these criteria, because the MCC standards may indirectly affect the benefits that they choose to offer to their multiemployer plan participants. For example, since individuals must have MCC by January 1, 2009, contributing employers (or plan sponsors) may be asked by participants whether the health coverage they provide meets these standards, and if not, whether the plan's benefits, cost-sharing provisions or other terms can be amended to comply with the MCC requirements.

In order to be prepared to respond to this request, contributing employers and plan sponsors should review their coverage for 2007 and 2008 to determine whether it would satisfy MCC, and then decide whether to change the coverage for the 2009 plan year. (To return to the list of developments at the top of this Capital Checkup, click here.)

Fair Share Contribution Requirement

Massachusetts requires employers with 11 or more full-time equivalent employees in Massachusetts to pay an annual fee of up to $295.00 (the fair share contribution or FSC) per employee to the State if they offer no health plan at all, or fail to make a fair and reasonable premium contribution to their plan. The DHCFP has issued final regulations that set out the tests to be used by employers to determine what is a fair and reasonable premium contribution.⁹ The fair share contribution tests are discussed in more detail in Segal's February 22, 2007 Capital Checkup.²

Separately, employers are required to file a report with the State Division of Unemployment Assistance (DUA) to determine their liability for the FSC. According to draft regulations issued by the DUA in April 2007, employers must file this report by November 15 each year. Other DUA guidance indicates that the report will encompass payroll, employment and health insurance data for the 12-month period ending the prior September 30. DUA is currently developing a Web-based online application for these reports. Final regulations for determining when an employer is liable for the FSC and procedures for filing reports and paying the FSC are expected by the end of July.

There are no special rules concerning multiemployer plans and the FSC. Presumably, each contributing employer to a multiemployer plan that has 11 or more full-time equivalent employees is required to determine separately whether it makes a fair and reasonable premium contribution and provide the required reporting based on coverage provided through the plan. There are still open questions concerning how the fair share contribution tests will apply to contributing employers. For example, one of the tests, the "25 percent" test, would be met if 25 percent of the employer's employees are enrolled in the group health plan. It is not clear when employees in the multiemployer plan should be counted as enrolled in the plan for purpose of this test, since some individuals may only have coverage during certain periods in a year, depending upon whether they have accumulated enough hours to be eligible to receive benefits. More guidance is needed. Multiemployer plan administrators will have to work with contributing employers in performing the necessary tests, and in providing information for the FSC reporting. (To return to the list of developments at the top of this Capital Checkup, click here.)

Health Insurance Responsibility Disclosure (HIRD) Requirements and Other Disclosures

Effective July 1, 2007, Massachusetts employers with 11 or more full-time equivalent employees must file information each year with the DHCFP about the health insurance that they offer to their employees.¹⁰ Emergency regulations issued on June 20, 2007 by the DHCFP specify the type of information employers are required to report.¹¹ Employer HIRD information must be submitted annually based on information as of July 1 of that year.

There will be no separate Employer HIRD form. Instead, employers will be required to submit HIRD information together with their fair share contribution filing to the DUA in a single on-line filing. Employer HIRD information must be filed by November 15, 2007. Information on the filing details will be forthcoming in the near future.

Employers must also provide and collect an Employee HIRD form from employees who decline employer health coverage or decline to use the employer's §125 cafeteria plan. Employers may use this form, or their own alternative form to collect the required information from employees. Signed forms must be obtained by 30 days after the close of the applicable open enrollment period for the employer's health insurance or cafeteria plan or by September 30 of the reporting year, whichever is earlier. Employees who terminate participation in the plan must sign an Employee HIRD form within 30 days of the date participation in the plan ended.

In addition to collecting the signed Employee HIRD forms by the due date, employers must also:

• Obtain a signed HIRD form from each new hire that declines employer sponsored health insurance and/or §125 cafeteria plan within 30 days of the applicable open enrollment period.
• Retain signed Employee HIRD forms for a period of three years.
• Document the employer's diligent effort to obtain the form where an employee does not comply with a request to return the signed form (and retain this documentation for three years).
• Make signed copies of the forms available to the DHCFP and the DOR for auditing purposes and upon these agencies' request.
• Retain documentation that an individual was not required to sign an Employee HIRD form for a period of three years.
• Provide a copy of their signed Employee HIRD form to the employee. A copy of this form must also be provided upon request for use in filing the employee's Massachusetts tax return.

An employer that knowingly falsifies or fails to file any information required by the DHCFP will be assessed a fine of not less than $1,000 or more than $5,000.

Employers and sponsors of employment-sponsored health coverage must also provide an annual written statement to covered individuals by January 31 of each year concerning their health coverage. In addition, a separate report must be provided to the Commissioner of Revenue that verifies that written statements were provided to covered individuals. The specific content of the written statement and the report will be developed by the Commissioner of Revenue.

There are no special HIRD provisions for employers that contribute to multiemployer plans. Presumably, each contributing employer to a multiemployer plan that has 11 or more full-time equivalent employees is required to provide the employer and employee HIRD. Since some of the HIRD requirements are focused on the plan rather than the employer (e.g., termination requirements), multiemployer plan administrators will need to review the regulations and develop a process for administering any necessary operations. (To return to the list of developments at the top of this Capital Checkup, click here.)

Cafeteria Plan Requirement

Effective July 1, 2007, employers with more than 11 or more employees in the State must adopt and maintain a cafeteria plan that satisfies the requirements of §125 of the IRC and offers employees access to one or more health plans. The cafeteria plan requirement is limited to premium-only arrangements, specifically, a payroll deduction program to facilitate the pre-tax payment of health benefit plan premiums by employees.

Final regulations exempt employers from having to provide a cafeteria plan for employees for whom the employer is required to contribute to a multiemployer health plan based on their employment. This means that employers that contribute to a multiemployer health plan for all their collectively bargained employees do not have to adopt a cafeteria plan for those employees. In addition, the final regulations include an exemption from the cafeteria plan requirement for employers that pay the full cost of health coverage for all of their employees (and if coverage is elected, the employee's dependents). On June 29, 2007, the Connector issued an Administrative Bulletin that postponed the date affected employers must file their cafeteria plan document with the state to October 1, 2007. For more information on the cafeteria plan requirements, and their application to employers that contribute to multiemployer plans, see Segal's May 31, 2007 Capital Checkup, "Massachusetts' Cafeteria Plan Mandate: What Sponsors of Multiemployer Health Plans (and Their Contributing Employers) Need to Know".

The Connector has issued a "Section 125 Plan Handbook for Employers."¹². Included in the handbook are model cafeteria plan documents and forms to enable employers subject to this requirement to adopt a compliant cafeteria plan.

(To return to the list of developments at the top of this Capital Checkup, click here.)

Free Rider Surcharge

Employers with 11 or more full-time equivalent employees that are not in compliance with the cafeteria plan requirement could be assessed a free rider surcharge equal to a percentage of the State's cost in providing free health care to the employer's uninsured employees. However, an employer that is a signatory to a collective bargaining agreement that governs the working conditions of the employee that has obtained free care is not subject to the surcharge. In addition, a surcharge will not be imposed on an employer for free care obtained by an employee who the employer is allowed to exclude from participation in the §125 cafeteria plan under the Connector's cafeteria plan regulations. For more information about the surcharge, see Segal's July 2, 2007 Capital Checkup, "Massachusetts Starts to Implement Landmark Health Care Reform". (To return to the list of developments at the top of this Capital Checkup, click here.)

Dependent Coverage Extension

Under Massachusetts health care reform, the age at which dependents must be covered under their parents' insured group health plans is extended to the earlier of two years following a child's loss of dependent status under the IRC or through age 25. Segal's February 22, 2007 Capital Checkup has more information regarding the dependent coverage extension for insured plans.² (To return to the list of developments at the top of this Capital Checkup, click here.)

Insured Plan Non-Discrimination Requirement

The Massachusetts Health Care Reform Act also sets forth new non-discrimination requirements for health insurance carriers and managed care organizations effective July 1, 2007. However, these rules do not apply to carriers and managed care organizations that contract with employers that establish separate contribution percentages for employees covered by collective bargaining agreements.

Generally, carriers can only enter into health insurance contracts with employers that do not discriminate against lower paid full-time employees living in Massachusetts.⁸ Although the non-discrimination rules apply to all insured group health plan contracts entered into with employers on or after July 1, 2007, carriers' contracts executed prior to July 1, 2007 that go into effect on or after that date are not affected. (To return to the list of developments at the top of this Capital Checkup, click here.)

MA Health Care Reform Compliance Chart

The table below depicts the various requirements mandated by the Massachusetts Health Care Reform Act, as amended, including the responsible parties, effective dates and the status of any guidance issued as of the date of this Capital Checkup:

* Special rules may exempt employers that contribute to multiemployer plans or employers subject to collective bargaining agreements. See individual topics for details.

(To return to the list of developments at the top of this Capital Checkup, click here.)

As with all matters involving the interpretation or application of laws and regulations, clients should rely on their attorneys for authoritative advice regarding Massachusetts Health Care Reform. Segal can be retained to work with plan sponsors and their attorneys on reviewing and editing plan designs, including Summary Plan Descriptions, plan coverage and eligibility rules, and cafeteria plans to ensure compliance with this comprehensive and dynamic health care initiative.

1	For more information about this law (H.B. 4850; Chapter 58 of the Acts of 2006), see The Segal Company's August 2006 Bulletin, "Massachusetts Health Care Reform Affects Employers" and Segal's August 2006 Bulletin, "Massachusetts Health Care Reform May Affect Multiemployer Health Plans". (To return to the Capital Checkup, click here.)
2	To see The Segal Company's February 22, 2007 Capital Checkup, "Massachusetts Moves Forward in Implementing Landmark Health Reform Act," click here. (To return to the Capital Checkup, click here.)
3	To see the emergency surcharge regulation, click here. To see the emergency HIRD regulation, click here. (To return to the Capital Checkup, click here.)
4	To see the Connector Board's final minimum creditable coverage regulations, click here. (To return to the Capital Checkup, click here.)
5	To see the Connector Board's final Affordability regulations, click here. (To return to the Capital Checkup, click here.)
6	To see the Connector Board's final §125 cafeteria plan regulations, click here. (To return to the Capital Checkup, click here.)
7	To see this handbook, click here. (To return to the Capital Checkup, click here.)
8	To see Massachusetts Division of Insurance Bulletin 2007-04, click here. (To return to the Capital Checkup, click here.)
9	To see the Division of Health Care Policy and Finance's final Fair Share Contribution regulations, click here (To return to the Capital Checkup, click here.)
10	An employer has 11 or more full-time equivalent employees if the sum of payroll hours for all employees during the period from October 1 through September 30 divided by 2000 is equal or greater than 11. (To return to the Capital Checkup, click here.)
11	This includes whether the employer has adopted a §125 cafeteria plan, whether the employer contributes to the premium cost of a group health plan for its employees, the employer contribution percentage for each employee category, and the total monthly premium cost for the lowest and highest priced health insurance offered by the employer for an individual and a family. To see these emergency regulations, click here. (To return to the Capital Checkup, click here.)
12	To see this handbook, click here. (To return to the Capital Checkup, click here.)

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