Employee Benefits and Executive Compensation Advisory, Mintz Levin
12/19/2006
The Impact of Technical Corrections to the Massachusetts Health Care Reform Act on Employers and Employer-Sponsored Group Health Plans The Massachusetts Legislature recently passed, and Governor Romney recently signed, a technical corrections measure—Chapter 324 of the Acts of 2006, An Act Relative to Health Care Access—which makes certain important changes to the Massachusetts health-care reform act (the “Act”). As detailed in our earlier client advisories (Employee Benefits Advisory, Oct. 31, 2006; Employee Benefits Advisory, Oct. 13, 2006; Employee Benefits Advisory, July 28, 2006; and Health Alert, Apr. 13, 2006), the Act radically restructures the delivery and financing of health care in the Commonwealth of Massachusetts through a series of mandates and requirements on individuals, employers, health care providers and health insurance issuers. Many employers and employer-friendly interest groups had hoped for major structural changes to the Act, only to be disappointed. Chapter 324 changes little if anything of substance. It does, however, push back some effective dates and makes a handful of minor adjustments. This client advisory focuses on the impact of technical corrections on employers and employer-sponsored group health plans. The Act contains four new health-care-related requirements imposed directly on employers and another four requirements that, though directed at health insurance issuers, will materially affect the design of employer-sponsored group heath plans. Set out below is a description of each requirement and, where applicable, the related technical correction. The Employer Mandates The Fair Share Contribution Requirement As described at length in a prior client advisory (Employee Benefits Advisory, Oct. 13, 2006), the fair share contribution requirement obligates employers to make a fair share premium contribution to an employer-sponsored group heath plan or pay an annual fee of up to $295 per employee (based on full-time equivalent hours). The Division of Health Care Finance and Policy (DHCFP) of the Commonwealth’s Executive Office of Health and Human Services issued a final regulation implementing the fair share contribution requirement on October 8, 2006 that operates on a fiscal year commencing October 1, 2006 and ending September 30, 2007. This final rule is unaffected by technical corrections. If they have not already begun to do so, employers should begin immediately to understand the rule and collect data. Effective date: October 1, 2006 with first reporting obligation taking place after September 30, 2007. The Free Rider Surcharge The DHCFP issued proposed rules implementing the free rider surcharge on June 30, 2006. Although not entirely clear under the Act, it appeared that this provision was to take effect January 1, 2007. The technical corrections act confirms this to be the case. Effective date: January 1, 2007. The “Health Insurance Responsibility Disclosure” Form The DHCFP issued proposed regulations implementing the “Health Insurance Responsibility Disclosure” or “HIRD” form requirement on June 30, 2006, but it withdrew the proposed rule on September 8th citing the need to coordinate enforcement with other agencies and concerns over privacy. Neither the Act nor the technical corrections bill provided a separate effective date for the HIRD requirement. We understand that a final rule will issue before the end of the year and the rule will take effect January 1, 2007. The Cafeteria Plan Requirement In order to avoid the imposition of the free rider surcharge, the Act requires, at a minimum, that employers adopt a “cafeteria plan” (within the meaning of Section 125 of the Internal Revenue Code), file a copy of the plan with the Massachusetts Health Insurance Connector, and let employees know that they can access care through the Connector with their pre-tax contributions. The technical corrections measure also clarified that that Act contemplates “premium-only” arrangements, i.e., employers need not adopt medical or dependent care flexible spending accounts in order to comply with this rule. Effective date: This requirement was originally slated to take effect January 1, 2007, but it has been pushed back to July 1, 2007. Insurance Mandates Affecting Employer-Sponsored Group Health Plans The Insured Plan Nondiscrimination Requirement Effective January 1, 2007, the Act requires health insurance policies and contracts (including HMO contracts but excluding stand-alone dental arrangements) to include a provision under which employers must provide the same levels of coverage and contributions to all their full-time employees (reverse discrimination is permitted). The effective date is unchanged by technical corrections. Expanded Dependent Coverage Like many other states, the Act requires health insurance contracts and policies to provide dependent coverage beyond the ages at which a dependent ceases to qualify as such under the Internal Revenue Code. The Act extended coverage to the later of age 25 or two years following the loss of dependent status under the Internal Revenue Code. But in an apparent oversight, this rule did not apply to general and blanket policies of insurance. This oversight was fixed in technical corrections. The technical corrections also clarified that the extended coverage was through age 25 as opposed to up to age 25. Effective date: These requirements will all take effect January 1, 2007. Waiting Periods and Creditable Coverage Certificates The Act imposes certain waiting period limitations and also requires the issuance of certificates of creditable coverage similar to those required by the portability provisions of the Health Insurance Portability and Accessibility Act of 1996 (HIPAA). The technical corrections extended the requirement to provide certificates of creditable coverage to employers as opposed to just insurance providers. Additionally, the technical corrections impose penalties of $50 per individual up to $50,000 per year on employers or insurance providers that do not comply with the certificate of creditable coverage requirements. Effective date: The waiting period provisions become effective January 1, 2007. The creditable coverage certificates will be required effective January 1, 2008. Health Status Nondiscrimination Requirements Employers are barred from discriminating against employees because of an employee’s receipt of free care, the employee’s reporting or disclosure of his or her employer’s identity and other information about the employer, the employee’s completion of a Health Insurance Responsibility Disclosure form, or any facts or circumstances relating to free rider surcharges assessed against the employer. Effective Date: These provisions become effective January 1, 2007. Conclusion The adoption of technical corrections to the Act should serve as a sobering reminder to employers that, where health care is concerned, it is not business as usual. To date, both the regulators and various industry and trade associations have not done enough to get the word out. This needs to change. As is the case with any new law, compliance at first appears daunting, but it gets easier with time and experience. With some effective dates already having passed and others looming, employers and their advisors need to begin paying attention to the compliance process.
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