Alert
November 1, 2007

Massachusetts Health Care Reform Law: Reporting Deadline Approaches; Additional Guidance Issued on Cafeteria Plan Requirements

The Goodwin Procter Employee Benefits Updates for June 2007 and August 2007 highlight select issues for employers under the Massachusetts Health Care Access and Affordability Act (the “Mass Health Law”). The requirements continue to be refined and revised in the applicable regulatory guidance. This Employee Benefits Update highlights the mandatory reporting for the fair share contribution test and Employer HIRD Form and describes additional guidance issued by the Commonwealth Health Insurance Connector (the “Health Connector”).

Fair Share and Employer HIRD Reporting Deadline Approaches

As described in the June 2007 Goodwin Procter Employee Benefits Update, the Mass Health Law requires employers to make a “fair share contribution” toward its Massachusetts employees’ medical care coverage or to pay an annual surcharge to the Commonwealth. The deadline is fast approaching – the first report demonstrating compliance with the fair share contribution must be completed by November 15, 2007 and will cover the period from October 1, 2006 – September 30, 2007. Employers must complete and file their reports online at https://fsc.detma.org. This online process also covers the filing of information required for the Employer HIRD Form.

The online filing will require employers to first enter data with respect to the “25% take-up rate” test, and only if that test is not passed to enter data with respect to the “33% employer contribution” test. The Division of Unemployment Assistance (the agency responsible for administering the fair share contribution program and collecting the fair share contribution) has simplified the calculation of the take-up rate so that the calculation is no longer based on total payroll hours but rather on the average number of full-time employees enrolled in the employer’s health plan. More detailed instructions are available online.

Employee HIRD Form Required

For 2008, the Employee HIRD Form should be collected as part of the employer’s open enrollment process. Each Massachusetts employee who declines employer health coverage in 2008, as well as each Massachusetts employee who declines to enroll in the employer’s Mass Health Law cafeteria plan for benefits ineligible employees, generally must complete and return the Employee HIRD Form within 30 days of the close of open enrollment.

Section 125 Cafeteria Plan Filing Requirement Eliminated

The mandatory filing of Section 125 plans with the Health Connector is eliminated. Instead, Section 125 plans are to be filed with the Health Connector by employers upon request of the Health Connector. Once requested, an employer has seven business days to file its Section 125 plans with the Health Connector. The guidance also clarifies that Section 125 plans that are not available to Massachusetts employees are not required to be furnished to the Health Connector.

Additional Students Under Section 125 Plans Excluded

Mass Health Law requirements permit Section 125 plans to exclude students who are employed as either interns or cooperative education students. Under new guidance, also excludible are students who are both part-time employees of the educational institution they attend and who are required by that educational institution to participate in a qualifying student health insurance program (or health plan with comparable coverage). Section 125 plans that have already been established or amended to meet the Mass Health Law Section 125 plan requirements will need to be amended if the employer wishes to add this new exclusion to its plan.

Definition of Independent Contractor Under Section 125 Plans Expanded

An individual who is an independent contractor is not eligible for participation in a Section 125 plan. Previously, for Mass Health Law requirements an individual was considered to be an independent contractor only if he or she met the narrow Massachusetts definition of independent contractor. Under new guidance, the definition of independent contractor excludable for Mass Health Law Section 125 plan purposes is expanded to also include individuals who meet the IRS definition of independent contractor (generally a 20 factor test). Section 125 plans that have been established or amended to meet the Mass Health Law Section 125 plan requirements will need to be amended to include this newly expanded definition of independent contractor. This expanded definition of independent contractor also applies in determining whether an employer has 11 or more Massachusetts location employees and thus is subject to the Mass Health Law Section 125 plan requirements.