July 5, 2007

Massachusetts Health Care Reform Law: Employer Obligations At-A-Glance

Fair and Reasonable Contribution
Penalty - Fair Share Contribution

Applicability:An employer employing 11 or more full-time employeesi in Massachusetts who sponsors an insured health plan or a self-insured health plan.

An employer must make a fair and reasonable contribution toward the cost of health coverage for its employees.   A fair and reasonable contribution means either:

  • Minimum 25% participation by full-time Massachusetts employees in the employer’s group health plan, and the employer must make some financial contribution toward the coverage; or
  • Employer offers to contribute at least 33% of premium cost for full-time Massachusetts employees who have worked at least 90 days.

Penalties for Noncompliance:If the employer fails to make fair and reasonable contribution, it would pay a Fair Share Contribution to the State, in an amount of up to $295 per employee, per year.

Effective Date: July 1, 2007

Section 125 Plans

Applicability: An employer who employs 11 or more full-time employeesi in Massachusetts, regardless of whether the employer offers health insurance to its employees. 

Excludable Employees:  Employees that can be excluded from participating in an employer’s cafeteria plan include:

  • Employees under age 18;
  • Temporary and certain part-time employees;
  • Wait staff and service employees or bartenders;
  • Student interns and student cooperative employees; and
  • Seasonal employees who are international workers and have travel insurance.

If the employer does not currently sponsor a Section 125 Plan, or if the employer’s Section 125 Plan is not compliant with the Massachusetts requirements, then the employer could adopt one using the sample documents and forms that are available via the Massachusetts Connector website.

If an employer currently sponsors a cafeteria plan, it should make certain that its plan is available to all Massachusetts-based employees, regularly working 64 hours or more per month, and the waiting period under the plan cannot be longer than two months. 

The cafeteria plan must provide for a health plan option; it can be a health plan obtained through the Connector.

An employer can sponsor two separate Section 125 plans; one for traditionally eligible employees, and one to accommodate the Massachusetts-based employees who are required to be covered, but who do not meet the eligibility requirements in the existing employer’s Section 125 plan.

Penalties for Noncompliance: If an employer does not offer a Section 125 plan that meets Connector requirements, then it may be subject to the Free Rider Surcharge.  The Surcharge is assessed against the employer when its employees and/or their dependents receive state-funded health services.

Effective Date: July 1, 2007.  A cafeteria plan document must be filed with the Commonwealth Health Insurance Connector Authority (the “Connector”); however, the initial filing date has been delayed from July 1, 2007 until October 1, 2007.

Health Insurance Responsibility Disclosure (HIRD)

Applicability: An employer who employs 11 or more full-time employeesi in Massachusetts who sponsors an insured health plan, a self-insured health plan, or no health plan. 

Employee HIRD Form

Each employee must sign an Employee HIRD form if he/she:

  • Declined to enroll in the employer-sponsored health coverage; or
  • Declined to participate in the employer’s Section 125 plan.

The employee must also indicate whether he/she has an alternative source of coverage. 

The Employee HIRD form is distributed by the employer, and completed by the employee; then returned to the employer.  The employer is required to give a copy of the form to the employee, and retain a copy of the forms for three years.

Due Date of Employee HIRD Form

The employer must obtain a signed Employee HIRD form from each employee required to sign one, by the earlier of:

  • 30 days following the close of the applicable open enrollment period of the Employer’s plan, or its Section 125 Cafeteria plan; or
  • September 30 of the reporting year.

If the employer’s open enrollment period for 2007-08 ended prior to July 1, 2007, and the employee had signed an employer form acknowledging that he/she was offered and declined employer-sponsored coverage, such employee is not required to sign an Employee HIRD form until the next applicable open enrollment period beginning on or after July 1, 2007.

Employer HIRD Form

There is no formal or separate employer HIRD form; rather, employers are required to submit Employer HIRD information, such as legal or DBA name, address, etc., at the time of their Employer FSC Filing with the Massachusetts Division of Unemployment Assistance. 

Due Date of Employer HIRD Form

Each employer must submit the Employer HIRD form based on information as of July 1 of each year. 

Penalties for Noncompliance:   An employer that knowingly falsifies, or fails to file the information required by the State, could be subject to fines of $1,000 to $5,000.

Individual Mandate

Beginning July 1, 2007, all Massachusetts residents aged 18 and over must obtain and maintain health coverage.  These individuals must provide proof of health insurance coverage to the Massachusetts Department of Revenue by December 31, 2007, or lose their personal income tax exemption when filing their 2007 income taxes (the 2007 personal exemption amount for individuals is $4,125).

Penalties for Noncompliance:  Failure to meet the individual mandate in 2008 would result in a fine for each month the individual does not have coverage.  The fine would be equal to 50% of the least costly available insurance premium that meets the standard for minimum creditable coverage.

Two New Insurance Mandates

  • Nondiscrimination Rules

In April, 2007, the Massachusetts Commissioner of Insurance issued nondiscrimination rules applicable to insured health plans. These rules do not apply to self-funded health plansii

Employers holding health insurance contracts covering individuals in the state of Massachusetts must agree to a nondiscriminatory contract.  Following is a list of types of premium contributions that would be permitted:

  • Establish a fixed dollar amount for all full-time employees;
  • Establish different percentage contributions, or fixed dollar contributions for different plan choices, whether fully insured or self-funded (the percentage or dollar amount may vary from plan to plan, as long as plans are available uniformly, and are not based on salary levels of full-time employees);
  • Establish greater contributions based on years of service, as long as the schedule is part of a formal benefit plan, and is intended to reward longevity, and not as a means to provide a better benefit to highly paid individuals;
  • Offer a premium incentive based on participation in wellness programs; and
  • Establish a contribution schedule for dependents that differs from that for employees, as long as it is applicable to dependents uniformly, and not based on the employee’s salary.

Effective Date:   These rules become effective for contracts entered into on or after July 1, 2007.

  • Extension of Dependent Coverage

The insurance provisions that define individual and group health plans, including HMOs, were amended in the 2006 Legislative Session to extend coverage to certain dependents.  Specifically, coverage under a health plan must be extended to:

  • Children during a pendency of adoption; and
  • Children up to the earlier of attaining age 26, or 2 years following loss of dependent status, as defined under federal law; and
  • Any other individual who is dependent upon the policyholder. 

Effective Date: January 1, 2007

Internet Resources

iA full-time employee is defined as one who works a minimum 35 hours per week.

iiSelf-funded plans are subject to discrimination rules found in IRC §105(h).  These rules state that if a better benefit is provided to highly paid individuals, it will result in a tax consequence to the affected individuals.  Generally, insured plans are not subject to the 105(h) rules. 


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.


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