A June 2007 Goodwin Procter Employee Benefits Update highlighted mandates imposed on employers by the Massachusetts Health Care Access and Affordability Act (the “Mass Health Law”). This Employee Benefits Update describes additional guidance issued by Massachusetts regulatory authorities responsible for the oversight and administration of the Mass Health Law. It also highlights imputed income issues that arise from the mandatory extension of dependent coverage under group health plans insured through a Massachusetts insurer.
October 1, 2007 Filing Deadline Mandated for Section 125 Cafeteria Plan
The Commonwealth Health Insurance Connector (the “Health Connector”) has published guidance postponing the original filing deadline for employers’ Section 125 plans from July 1, 2007 to October 1, 2007 (but not before September 1, 2007). This delay in the filing date does not affect the requirement that an employer have one or more Section 125 plans in place for all Massachusetts employees (benefits eligible and benefits ineligible) effective July 1, 2007.
The Health Connector guidance does not include any instruction on how to make the Section 125 plan filing. It is expected that the Health Connector will make this information available on its website (www.MAhealthconnector.org) prior to October 1, 2007. In the interim, Massachusetts employers are required to provide a copy of their Section 125 plans upon request.
Definition for Excludable Part-Time Employees Clarified
Under the Mass Health Law, employers may exclude from participation in any Section 125 plan, part-time employees who work, on average, fewer than 64 hours per month. New Health Connector guidance provides rules for determining whether an employee may be excluded under this part-time exception.
- For existing employees, the determination is to be made based on the employee’s employment history for the 180-day period prior to the special or annual open enrollment period for the employee (the “applicable open enrollment period”). For example, a calendar year cafeteria plan with an annual open enrollment period beginning December 1, 2007 should make the determination based on employment records during the period June 4, 2007 through November 30, 2007.
- For new hires, the determination is made as of the date of hire based on a reasonable, good faith determination of whether the new hire will be scheduled or expected to work on average less than 64 hours per calendar month during the first 180 days of employment. This determination applies for 180 days or, if later, until the next applicable enrollment period. For example, assume the employer sponsors a Section 125 plan with a calendar year plan year, and with an open enrollment period for the 2008 plan year beginning December 1, 2007. Also assume an employee is hired November 1, 2007 and the employer determines at that time the employee can be excluded as a part-time employee. This employee remains excludable until the next applicable open enrollment period.
The Health Connector guidance provides that average hours are determined by dividing gross payroll hours during the 180-day period by six. It also clarifies that the 64-hour standard used for determining part-time status may be reduced by an employer. Any such reduction should be reflected in the employer’s cafeteria plan.
Definition of Excludable Wait Staff Employees Clarified
In complying with the Mass Health Law requirements, employers may exclude certain wait staff employees from any Section 125 plan. Specifically, employees are considered wait staff employees if they are wait staff, service employees or service bartenders (as defined in M.G.L. c.149, section 152A) “who earn, on average, less than $400 in monthly payroll wages.” New Health Connector guidance clarifies that in determining monthly payroll wages, tips are excluded.
Additional Information Provided on Employer Reporting
The Division of Unemployment Assistance (“DUA”) has announced that an on-line process will be implemented for employers to report their compliance with the fair share contribution test. (See June 2007 Employee Benefits Update). For the reporting period October 1, 2006 – September 30, 2007, the DUA will make an online system available from October 1, 2007 through November 15, 2007 for employers to report their compliance with the fair share contribution test. The DUA has also indicated that the information required by the Employer Health Insurance Responsibility Disclosure Form (the “Employer HIRD Form”) will be incorporated into the online fair share contribution test report. Thus, employers will not have to separately file the Employer HIRD Form with the Division of Health Care Finance and Policy.
Additional Information Provided on Employee HIRD Form
Emergency regulations adopted by the Division of Health Care Finance and Policy provide additional guidance on the content of the Employee Health Insurance Responsibility Disclosure Form (the “Employee HIRD Form”).
For the Employee HIRD Form, the emergency regulations provide as follows:
- Employees required to complete an Employee HIRD Form include: (a) those who are eligible to, but decline to, enroll in employer sponsored health insurance; (b) those who are eligible to, but decline to, purchase health insurance (employer sponsored or not employer sponsored) through the employer’s Section 125 plan(s); and (c) those who participate in employer sponsored health insurance and whose participation terminates for any reason. For this purpose, employer sponsored health insurance may be insured or self-insured.
- The time limitation for completing the Employee HIRD Form is not later than 30 days after the end of the applicable open enrollment period (annual or new-hire).
- For employees whose participation in employer sponsored health insurance terminates, the Employee HIRD Form must be completed within 30 days after participation terminates. (Further guidance is needed to clarify whether this requirement applies to employees who lose coverage in connection with a termination of employment.)
- A special timing rule applies in 2007. If the open enrollment period for the plan year beginning in 2007 ended before July 1, 2007, an employee who would otherwise be required to sign an Employee HIRD Form for the 2007 plan year will not have to do so if the employee previously signed an employer form acknowledging he or she was offered and declined employer sponsored health insurance. Otherwise, such an employee must complete and provide to the employer an Employee HIRD Form as soon as possible but no later than September 30, 2007.
- A copy of the completed Employee HIRD Form must be given to the employee upon request for use in filing his or her Massachusetts income tax return.
- Completed Employee HIRD Forms must be available for inspection and audit by the Division of Health Care Finance and Policy and the Department of Revenue. In addition, a copy must be provided to such agencies upon request.
- Employers must maintain completed Employee HIRD Forms for at least three years.
- For employees not required to complete an Employee HIRD Form, the employer must maintain documentation, verifying the reason the form is not required, for at least three years. No examples of relevant documentation are given. However, retaining an employee’s election to purchase medical insurance through a Section 125 plan should suffice.
- Employers may have employees complete Employee HIRD Forms on paper or via other media, such as electronically. The information on the Employee HIRD Form cannot be altered. A copy of the Employee HIRD Form can be obtained on the Health Connector website (www.MAhealthconnector.org) by clicking on the link for employers.
- If an employee fails to comply with the employer’s initial request that the employee complete an Employee HIRD Form, the employer must use reasonable efforts to obtain the completed form. These efforts must be documented, and such documentation must be retained by the employer for at least three years.
Imputed Income of Non-Tax Dependent Coverage in Employee’s Health Plan
Under the Mass Health Law, insurance contracts that provide for dependent coverage must make coverage available for individuals through the earlier of their 26th birthday or two years following loss of dependent status. The date a person loses dependent status for Mass Health Law purposes is December 31 of the last federal tax year for which the individual is claimed as a dependent on the employee’s federal tax return.
This extended coverage can have income tax consequences for an employee. If a covered child cannot be claimed as a dependent on the employee’s federal income tax return, the value of the health coverage for the child will be imputed as income to the employee, if the employee provides less then half the child’s support for the calendar year. The amount of imputed income must be reported on the employee’s Form W-2 and is subject to withholding and employment taxes.