The Massachusetts Health Care Reform Act (Act) was enacted in April 2006 to provide nearly universal health care coverage for Massachusetts residents. To carry out this objective, the Act created an individual mandate, employer coverage requirements, government subsidies, and expanded insurance options.
Enacted in March 2010, the federal health care reform law—the Affordable Care Act (ACA)—includes numerous reforms aimed at improving the U.S. health care delivery system, controlling health care costs, and expanding health coverage.
This Employment Law Summary provides an overview of Massachusetts’ health care reform law and selected ACA reforms implemented by state governments.
Massachusetts health care reform act
The Act requires all Massachusetts residents age 18 and older to have health coverage if affordable coverage is available. The coverage must meet “minimum creditable coverage” (MCC) standards, which generally means that a plan must cover a broad range of medical services, limit a subscriber’s out-of-pocket costs and impose no limits on certain benefits. Employers and insurers can apply for MCC Certification if they have a comprehensive health plan that does not quite meet all MCC requirements.
Residents without MCC may face a tax penalty for each month of noncompliance. The penalty cannot exceed one-half of the least expensive monthly premium available through the Massachusetts Health Connector (Connector), an online exchange to help residents locate affordable health insurance. However, the penalty does not apply to individuals with incomes less than 150 percent of the Federal Poverty Level (FPL) or those with a religious exemption.
The penalty amounts vary by age and income based on FPL percentages. For example, for 2015, penalties for individuals with incomes greater than 300 percent FPL are:
- Ages 18-30: $60 per month, or $720 per year; and
- Ages 31 and above: $91 per month, or $1,092 per year.
In addition, the state’s individual mandate requirement remains in effect for 2014 and later years, even though the ACA’s federal individual mandate requirement became effective in 2014. The Connector has approved an approach for applying the state’s individual mandate penalty so that an individual will not be required to pay the full state penalty when he or she is also subject to a federal penalty. Under this approach, an individual who is subject to both penalties will be able to offset the state penalty by the amount of the federal penalty, and will only be responsible for paying the excess amount (if any) of the state penalty.
Employer Medical Assistance Contribution
Massachusetts enacted an Employer Medical Assistance Contribution (EMAC), effective Jan. 1, 2014, to fund a state trust for uninsured residents. This fee applies to employers with more than five employees in a calendar year, regardless of whether or not they provide health insurance, and is equal to 0.34 percent of the same wage base that applies for Massachusetts unemployment taxation purposes.
On Aug. 1, 2017, Massachusetts enacted a new law, entitled “An Act Further Regulating Employer Contributions to Health Care” (the Act), that temporarily increases the EMAC contribution rate through the 2019 calendar year.
The increased EMAC contribution rates under the Act are as follows:
- In general, the EMAC contribution rate increased from 0.34 percent of an employee’s wages to 0.51 percent of an employee’s wages; and
- For employers that are newly subject to the EMAC requirements, the EMAC contribution rate increased from 0.12 percent of an employee’s wages to 0.18 percent of an employee’s wages.
Beginning with the 2020 calendar year, the EMAC contribution rates will return to their previous percentages (0.34 percent and 0.12 percent, respectively). The Massachusetts Department of Unemployment Assistance (DUA) issued frequently asked questions (FAQs) on the updates in the Employer Health Care Contributions and Experience Rate Schedule Adjustments for 2018-2019.
In addition, effective Jan. 1, 2018, the Act imposes a temporary employer penalty of up to 5 percent of the employee’s wages for each nondisabled employee who receives subsidized health coverage through MassHealth or the Massachusetts Exchange (called Massachusetts Health Connector), instead of enrolling in employer-sponsored coverage.
This employer penalty is also effective only through the 2019 calendar year, and is scheduled to automatically sunset beginning in 2020. By implementing this employer penalty, Massachusetts became the first state to penalize employers whose employees choose to enroll in government-subsidized health coverage. The Act directs state agencies to issue regulations implementing these new provisions, which are expected to be issued shortly.
Reporting Requirements—Health Insurance Responsibility Disclosure
In addition, a supplemental budget bill enacted on Nov. 6, 2017, requires Massachusetts employers with six or more employees to annually submit a related health insurance disclosure. Beginning in 2018, these employers must file a related health care coverage reporting form, called the Health Insurance Responsibility Disclosure (HIRD). This reporting requirement differs from Massachusetts’ previous HIRD form requirement, which was repealed in 2014.
This Massachusetts employer reporting requirement is imposed in addition to the ACA’s federal employer reporting requirements under Internal Revenue Code (Code) Section 6055 and Section 6056. Employers in Massachusetts that are subject to both the federal and state reporting must comply with all applicable requirements in order to avoid penalties.
The HIRD reporting is administered by MassHealth and the Department of Revenue (DOR) through the MassTaxConnect (MTC) web portal. Under this new reporting requirement, covered employers must annually complete and submit a health care coverage form under oath, reporting:
- Whether the employer offered to pay or arrange for the purchase of health insurance; and
- Certain information about the health insurance offered (such as the premium cost, benefits offered, cost sharing details, eligibility criteria and other information deemed necessary).
The DOR issued frequently asked questions (FAQs) that provide more information on the HIRD requirement.
Reporting Requirements—Form 1099-HC
Employers that sponsor an employer-sponsored health plan must also provide Form 1099-HC by Jan. 31 of each year to each individual who was covered in the previous calendar year. In Massachusetts, most insurance carriers will issue this form on behalf of employers and send a report to the DOR listing all the Forms 1099-HC they issued. However, employers issuing Forms 1099-HC directly to their employees must separately file a report electronically with the DOR.
If the insurance company isn’t filing the Form 1099-HC on the employer’s behalf, the employer can submit health care data to the DOR in the following two ways:
- XML: The employer can upload XML files through MTC. There is no particular software required. If the employer is creating the XML file in-house, there are many XML development tools available. Commercial vendors are also available. The DOR provides additional information about filing requirements, XML schema and how to file on their website.
- Mapped Data Upload: This method is for businesses and carriers with less than 500 Forms 1099-HC to submit. Employers can cut and paste data from a digital spreadsheet into a web page to submit data. The data in each column is “mapped” before it is sent to the DOR. The DOR provides additional information about the spreadsheet requirements on their website. Registered MTC users will see a new Healthcare Reporting link displayed on the MTC home page after logging in, which leads to the Form 1099-HC Mapped Data Upload.
The Form 1099-HC serves as proof of health insurance coverage for Massachusetts residents, and is intended to help Massachusetts residents complete their state tax filings. The information on this form helps individuals complete Schedule HC, which is used to verify the individual’s compliance with the Massachusetts individual mandate requirement as part of the income tax filing process.
There is no standardized format for the Form 1099-HC, and the particular form may vary depending on the carrier or employer issuing the form. However, the information fields must be consistent and must convey the information that the taxpayer needs to transcribe over to the Schedule HC. Specifically, Form 1099-HC must include the following information:
- The name of the carrier or employer;
- The name of the covered individual and covered dependents;
- Identifying information for the insurance policy or similar numbers; and
- The dates of coverage during the year.
Employers that fail to provide Form 1099-HC to covered individuals or to report to the DOR as required may be subject to a penalty of $50 per individual to which the failure relates, up to $50,000 per year per violator.
Repealed Employer Coverage Requirements
The Act also included a number of employer coverage requirements that have since been repealed.
- Fair Share Contribution—Repealed June 30, 2013. The Act required certain Massachusetts employers to make a “fair and reasonable” contribution toward their employees’ health coverage or pay a penalty of up to$295 per full-time equivalent employee. However, the “fair share contribution” requirement was eliminated, effective June 30, 2013, to avoid duplication between the state’s employer coverage requirements and the ACA’s employer shared responsibility rules.
- Section 125 Plans—Repealed March 17, 2014. The Act required employers with 11 or more full-time equivalent employees to offer a Section 125 plan, which allows employees to pay for their health coverage with pre-tax dollars. Under the Act, individuals who were ineligible for employer-sponsored group health plan coverage must have been offered access to individual market coverage using pre-tax contributions under the employer’s Section 125 plan. Employers that violated this Section 125 plan requirement were subject to a “free rider” surcharge if their employees (or their employees’ dependents) obtained state-funded medical care. The Section 125 plan requirement and the free rider surcharge were repealed on March 17, 2014.
The Act expanded Massachusetts’ Medicaid program (MassHealth) to cover children with family incomes up to 300 percent FPL. In addition, the Act created subsidized insurance (Commonwealth Care) for adults with income up to 300 percent FPL.
In 2014, Massachusetts expanded MassHealth to cover households with incomes up to 138 percent FPL. As a result, Commonwealth Care ended. Commonwealth Care members were either moved to Medicaid under the MassHealth expansion, or qualified for federal subsidies under the ACA’s Exchanges.
Expanded Insurance Options
Massachusetts created the Connector, which is an insurance Exchange for individuals and small businesses to purchase health insurance. The Connector is an online marketplace where consumers can compare coverage options from Massachusetts’ major insurers. The Connector provides a range of different types of insurance options, all of which have been approved by the Connector board as meeting certain cost and coverage standards.
In addition, the Act merged the small group and individual insurance markets to pool insurance risk and allow for more variety in insurance products.
Federal health care reform law
In addition to the state health care reform requirements, Massachusetts employers must also comply with the ACA. The ACA is a federal law, which means that federal agencies—namely, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury—are primarily responsible for the law’s overall enforcement. However, the ACA also creates significant responsibilities for state governments. A number of the ACA’s key health care reforms will be carried out at the state level.
Health Insurance Exchanges
The ACA requires each state to have a health insurance Exchange (Exchange) to provide a competitive marketplace where individuals and small businesses can purchase affordable private health insurance coverage, effective Jan. 1, 2014. The Exchanges first opened for enrollment on Oct. 1, 2013.
According to HHS, the Exchanges make it easier for individuals and small businesses to compare health plan options, receive answers to health coverage questions, determine eligibility for federal subsidies for private insurance or public health programs and enroll in suitable health coverage.
Individuals and small employers are eligible to participate in the Exchanges. Under the ACA, a “small employer” was defined as an employer with not more than 100 employees. However, for plan years beginning before Jan. 1, 2016, a state could elect to define “small employer” as an employer with not more than 50 employees.
However, on Oct. 7, 2015, President Obama signed into law the Protecting Affordable Coverage for Employees (PACE) Act, which repeals the ACA’s small group market expansion requirement. As a result, states now have the option, but are not required, to expand their small group markets to include businesses with up to 100 employees.
States had the following three main options with respect to their Exchanges.
Create and operate its own Exchange (state-based Exchange)
Have HHS operate a federally-facilitated Exchange (FFE) for its residents
Partner with HHS so that some FFE functions are performed by the state
In addition, a state could elect to partner with HHS so that the state runs the Exchange’s small business health options program (SHOP) component and HHS runs the Exchange’s individual market component. As a default, HHS operates the FFE in states that did not move forward with their Exchange planning or select the partnership model.
Massachusetts created the Connector after the state’s health insurance reform law was passed in 2006 to help individuals find affordable health coverage, which served as a model for the ACA’s Exchanges. In 2012, then-Governor Patrick signed laws to certify the Connector as a state-based Exchange under the ACA and to give it authority to perform key tasks. More information about the Connector is available at: www.mahealthconnector.org.
When it was passed, the ACA required states to expand Medicaid eligibility by providing coverage for adults between ages 18 and 65 with incomes up to 133 percent of FPL, regardless of their age, family status or health. Because of the way this is calculated, it effectively includes individuals with incomes up to 138 percent of FPL. In 2012, the U.S. Supreme Court made it optional for states to expand their Medicaid eligibility.
In addition, the ACA provides federal subsidies for people with incomes between 100 and 400 percent of FPL to help pay for health insurance through an Exchange. Employees who are eligible for Medicaid cannot receive Exchange subsidies.
Starting in 2015, applicable large employers, or ALEs (employers with 50 or more full-time employees, including full-time equivalents), may be subject to an employer shared responsibility penalty if one or more full-time employee receives an Exchange subsidy. ALEs with employees in states that opt out of the expanded Medicaid eligibility may face an increased risk of penalties under the employer shared responsibility rules because fewer employees will be ineligible for subsidies based on Medicaid eligibility.
Massachusetts expanded its Medicaid program in 2014 to cover households with incomes of up to 138 percent of FPL. The FPL guidelines are published by HHS each year.
Expansion of Small Group Market
To make health insurance coverage for small groups more affordable and apply additional consumer protections (for example, the restrictions on using health status factors in setting premium rates), the ACA called for the small group market to be expanded. Under the ACA, a “small employer” was defined as an employer that employed an average of at least one but not more than 100 employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year.
For plan years beginning before Jan. 1, 2016, a state could elect to define “small employer” as an employer that employed an average of at least one but not more than 50 employees on business days during the preceding calendar year. Thus, states had the option to delay the ACA’s expansion of the small group market. Most states have traditionally defined a small employer as one with 50 or fewer employees.
However, on Oct. 7, 2015, President Obama signed the PACE Act into law, which repeals the ACA’s small group market expansion requirement. As a result, states now have the option, but are not required, to expand their small group markets to include businesses with up to 100 employees.
Massachusetts has not expanded its small group market. Under Massachusetts law, a “small employer” is defined as an employer with 50 or fewer eligible employees on at least 50 percent of its working days during the preceding year. An “eligible employee” is an employee who:
- Works on a full-time basis with a normal work week of 30 or more hours; and
- Is hired to work for a period of not less than five months.
Insurance Rate Review
To help hold insurance companies accountable for their proposed rate hikes, the ACA requires HHS to establish a process to review the reasonableness of certain premium increases. Effective Sept. 1, 2011, insurers seeking rate increases of 10 percent or more for non-grandfathered plans in the individual and small group markets must publicly disclose the proposed increases, along with justification for the increases. After 2011, states may work with HHS to set state-specific thresholds for disclosure of rate increases, using data and trends that reflect cost trends particular to a state.
The proposed increases must be reviewed by either state or federal experts to determine whether they are unreasonable. States with effective rate review systems will conduct their own reviews, but if a state does not have the resources or authority to conduct rate reviews, HHS will conduct them.
According to HHS, Massachusetts has an effective system for reviewing insurance rates. The Massachusetts Division of Insurance conducts rate reviews for the individual and small group markets.
Medical Loss Ratio Rules
Effective in 2011, the ACA established the medical loss ratio (MLR) rules to help control health care coverage costs and ensure that enrollees receive value for their premium dollars. Under the MLR rules:
- Health insurance issuers in the large group market must spend at least 85 percent of premiums on medical care and health care quality improvement activities.
- Issuers in the small group and individual markets must spend at least 80 percent of premiums on these items.
Issuers that do not meet the applicable MLR standard must provide rebates to consumers.
Under the ACA, states also have the flexibility to set higher MLR standards than the federal 80/85 percent thresholds. Effective in 2015, Massachusetts has a higher MLR threshold of 88 percent for merged markets (a combination of the individual and small group markets). Even if Massachusetts issuers meet the federal MLR thresholds, they still need to pass the state’s merged market requirements to avoid issuing rebates.
Essential Health Benefits
Beginning in 2014, the ACA requires non-grandfathered plans in the individual and small group markets, both inside and outside of the Exchanges, to offer a core package of items and services. This core package is known as essential health benefits (EHBs), and includes items and services in 10 general benefit categories (such as hospitalization, maternity and newborn care, mental health and substance use disorder services and prescription drugs).
The ACA also directs that EHBs should be equal in scope to benefits offered by a typical employer health plan. To meet this requirement in every state, HHS further defines EHBs based on a state-specific benchmark plan. States could select a benchmark plan from among the following options:
- The largest plan by enrollment in any of the three largest products by enrollment in the state’s small group market;
- Any of the largest three state employee health benefit plans options by enrollment;
- Any of the largest three national Federal Employees Health Benefits Program (FEHBP) plan options by enrollment; or
- The HMO plan with the largest insured commercial non-Medicaid enrollment in the state.
If a state did not select a benchmark, HHS selected the largest plan by enrollment in the largest product by enrollment in the state’s small group market as the default benchmark plan.
Massachusetts selected a plan from the largest small group product (HMO) as its benchmark—Blue Cross and Blue Shield of Massachusetts HMO Blue, Inc. More information on Massachusetts’ benchmark plan is available on the Center for Consumer Information & Insurance Oversight (CCIIO) website.
Enforcement of Insurance Market Reforms
Effective for 2014, the ACA requires health plans and health insurance issuers to comply with an additional set of insurance market reforms. For example, effective for 2014 and later plan years, health plans and issuers cannot impose pre-existing condition exclusions on any enrollees.
States have traditionally been the primary regulators of their health insurance markets. The ACA allows states to continue in this role, but does not require states to enforce the ACA’s reforms. If a state chooses not to enforce the ACA’s insurance reforms, the federal government will assume that role. Although states have varied significantly in their approaches to implementing the ACA, many states have enacted laws related to the market reforms.
Massachusetts is taking an active role in enforcing the ACA’s market reforms. State regulators perform functions such as collecting and reviewing policy forms for compliance, responding to consumer inquiries and complaints and taking enforcement action as necessary.
Dependent Coverage Requirements
Effective for plan years beginning on or after Sept. 23, 2010, the ACA requires group health plans to extend dependent coverage up to age 26. Some states may have laws that go beyond the federal minimums established by the ACA. For example, some states extend dependent coverage beyond age 26.
Massachusetts does not require insured health plans to maintain coverage beyond the federal minimum age limit, although it does allow disabled dependents to stay on their parent’s coverage without regard to age.
The ACA amended the federal tax code so that the value of coverage provided by an employer to an employee’s child is excluded from income for federal tax purposes through the end of the year in which the child turns age 26. Since Massachusetts amended its tax laws to conform to the tax treatment imposed by federal law, the cost of dependent coverage of adult children up to age 26 is tax-free at the state level. Also, coverage for a disabled dependent that lasts beyond the end of the tax year in which the dependent reaches age 26 will be tax-free if the child qualifies as the employee’s tax dependent.
External Review Process
The ACA requires non-grandfathered group health plans to follow minimum requirements for external review of claims appeals. Insured plans must comply with their state’s external review process if it includes certain minimum consumer protections. If a state’s external review process does not include the required minimum consumer protections, health insurers in the state must comply with a federal process for conducting external reviews, effective Jan. 1, 2012. HHS determines whether a state’s external review process includes the minimum consumer protections.
HHS has concluded that the Massachusetts external review process includes the minimum consumer protections. Thus, insured health plans in Massachusetts must conduct external appeals in accordance with the state’s external review process.
The ACA’s premium rating restrictions apply to issuers in the individual and small group markets, effective for plan years beginning on or after Jan. 1, 2014. Under the federal standards, these issuers are generally prohibited from determining premium rates based on health status, gender or other factors. Issuers may only vary premium rates based on the following factors:
The ACA’s premium rating restrictions do not apply to issuers in the large group market, unless states elect to offer large group coverage through their Exchanges beginning in 2017. In addition, the premium rating restrictions do not apply to insurance coverage that has grandfathered status.
Massachusetts law allows issuers to consider a range of factors when setting premium rates. To assure stability in the marketplace as the state is required to transition away from its wider range of rating factors, HHS provided Massachusetts with additional time to comply with the ACA’s rating restrictions. Under this special transition provision, Massachusetts has until 2018 to fully transition to the ACA’s premium rating factors in the small group market.
This guide is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. It is provided for general informational purposes only. Readers should contact legal counsel for legal advice.
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