New Massachusetts Health Insurance
Requirements for Employers

Sweeping changes in health insurance were enacted by the signing of Chapter 58 of the Massachusetts General Law in April 2006. In addition to establishing an individual mandate requiring all residents to have health insurance by July 1, 2007, the law extended subsidized insurance programs to people earning less than 300% of the Federal Poverty level (see Note 1).

Businesses have certain responsibilities under the new health care reform law. The main components of the requirements placed on employers are outlined below.

All employers, regardless of size, have some requirements under the law. If employers offer a health insurance plan:

• The plan must not discriminate by favoring highly compensated employees or by selectively exposing some employees to risk of cancellation of their coverage by the health plan. But the non-discrimination provision does not apply if the employer’s plan is self-funded.

• Employees’ eligible dependents must include children over age 19, for up to two calendar years beyond the year in which they are eligible tax dependents, but not beyond their 26^th birthday.  Also, for any period which the child is not a tax dependent but still insured under the employer health plan as a dependent, the employer must report imputed income for the value of the coverage.  Self-funded plans are exempt from this requirement.

• Employers (or their health plan providers) must give proof of health insurance annually to employees, in the form of a 1099 HC notice. They must also report enrolled plan members to the State of Massachusetts. 

• Starting in 2009, employers must further report whether their enrolled members have minimum creditable coverage (MCC), based on comprehensive standards set by the State. Until 1/1/09 any plan an employer offers is considered to meet the standards.

• Caution:  a) The MCC requirements are imposed directly on individuals in the State, not on their employers;  b) employees of employers who do not offer MCC plans will be subject to income tax penalties.

• Even when an employer is exempt from Fair Share Contribution (FSC) requirements (see below), the employer must still respond to any written communications from the Division of Employment and Training indicating that they must file the FSC report.

• All employers with 11 or more full time equivalent (FTE) employees must meet all of the above requirements (Note 2). And, employers with 11 or more full time equivalent employees must additionally comply with the following:

  • They must offer a Section 125 Plan that meets the Health Connector rules.  A Section 125 “Premium-Only” plan allows an employee to pay their health care coverage premiums on a pre-tax basis, thus lowering their taxable income and, consequently their tax liability.  Premium plans enable an employer to help employees who are not eligible for health benefits, but who obtain coverage on their own, to take the premiums from their paychecks pre-tax, for both the full and the part-time employees of the business (see Note 3).

  • They must pay a penalty to the State if they do not offer an employer sponsored health plan, or if they do offer a health plan, insure less than 25% of their eligible full-time employees on the plan.  However, if they do not meet this participation requirement (known as the primary test), they may still be exempt from the free rider surcharge if they contribute at least 33% towards the cost of health insurance for all full time employees employed at least 90 days (known as the secondary test). The penalty, known as the Fair Share Contribution (FSC) is currently equal to $295 multiplied by the number of FTE employees, as determined by filing the Fair Share Contribution Report annually with the state.

  • Employers must pay a Free Rider Surcharge, calculated as a percentage of the cost of free care received by their uninsured employees and/or their dependents which exceeds $50,000 in the annual reporting period. But employers are exempt from this assessment if they have a pre-tax Section 125 Premium Plan

Employees who decline coverage by their employer, or who waive participation in the Section125 plan, must annually sign a Health Insurance Responsibility Disclosure (HIRD) form. The employer must keep HIRD forms for a period of three years. Additionally, employers must be able to provide a copy of their S-125 plan to the state when requested.

Note:  It is not safe to say that all employers with 10 or fewer Full Time employees are always exempt from these regulations. Employers who have fewer than 11 full time employees may find that they have 11 or more FTEs when they do their FTE calculations, because the calculation takes both part-time status and part-time worked hours into account (see Note 2).

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Note 1: See the Federal Poverty Level 2008 tables at  for more information (click here for link).

Note 2: A simple explanation of the calculation for FTE’s  is obtained dividing the number of hours the person holding a position will work each week by the number of hours worked each week by a full time employee doing that job.  For example, a 10 hour per week position when a full-time employee would work 40 hours would be listed as 0.25 full time equivalents. The actual calculation may take into account additional variables.  Therefore a company with multiple part time workers could have more than 11 FTE’s even though it only has a few full time workers.  This will also apply to companies with seasonal workers.  For additional details, click here and here.

Note 3: MassHealth Connector.org has a complete handbook on the Section 125 Plans.

This review was created for the MSBDC by Rose Soares of the Sylvia Group of Insurance Agencies
500 Faunce Corner Road, Building 100, Suite 120, Dartmouth, MA 02727 
Phone: 508-995-4553   Website: www.sylviainsurance.com