A few weeks ago, the Massachusetts Division of Health Care Finance and Policy (DHCFP) issued proposed regulations relating to the Employer Fair Share Contribution (FSC) rules. The proposed rules make several technical changes to the rules that became effective January 1, 2009 (see  Massachusetts Fair Share Requirement Relaxed and Massachusetts Fair Share Filing – Streamlined).  In summary, the FSC rules impose an annual financial fee assessment ($295 per employee) upon employers who do not provide, or contribute toward, health coverage for their employees.

Of particular note, these regulations propose to clarify the employer’s burden of proof relating to whether it is satisfying the “percentage contribution test” and the “premium contribution test”.  The proposed regulations would require employers to adopt and maintain a written plan document, as well as written documentation provided to employees, explaining the plan and the employer contribution.  This written documentation is important for two reasons. 

• First it would allow the employer to define “full-time employee”, a definition of importance for compliance with the percentage contribution test.  The employer’s definition of full-time employee may differ from the insurance contract definition.  If the employer wants the ability to define full-time employee different from the insurance contract, this would have to be spelled out in the written plan document. 
• Further, the employer contribution would have to be explained.  One of the standards that has been imposed by the DHCFP is some kind of proof that the employer contribution has actually been communicated to the employee.

If these regulations are finalized, employers who have relied on insurance contracts to satisfy ERISA plan documentation requirements may wish to enhance their plan documentation with additional explanations, to ensure that they can satisfy the Massachusetts standard to prove employee eligibility, the offer of plan coverage, and the employer contribution level.  

These regulations also propose that a premium reimbursement plan (a written plan in which the employer agrees to reimburse all, or a portion of an individual health plan cost) could satisfy the offer of coverage requirement.  This design can create some ERISA issues, in that the individual policy, if contributed to by the employer, would become an employer-sponsored plan, subject to laws and regulations, such as:

• COBRA;
• HIPAA, including the certification requirements;
• ERISA, including reporting and disclosure requirements;
• Medicare secondary payer rules; and
• Nondiscrimination rules under Title VII of the Civil Rights Act.

Employers contemplating reimbursing individual health plan premium should proceed with caution and appropriate advice.

Effective Date

Comments on these rules may be submitted by September 18, 2009.  If adopted, the proposed regulations would become effective October 1, 2009.

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