Introduction
About this Guide
Federal Health Reform Policies that Affect MA Employers
Small Business Tax Credit
Grants for Small Employer Wellness Programs
Early Retiree Reinsurance Program
Reasonable Break Time and Space for Nursing Mothers
Automatic Enrollment in Health Insurance for Large Firms
Insurance Reforms
Simple Cafeteria Plans
Changes to HSAs, FSAs, MSAs and MRAs
Employer Notice Requirement
Elimination of Deduction for Medicare Part D Expenses
Medicare Payroll Tax
Free Choice Vouchers
Section 125 Plans
Assessment for Employers with 50 or more Workers
Small Business Health Options Program
Excise Tax on High Cost Coverage
Implementation Timeline

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Introduction to the Affordable Care Act

President Barack Obama signed the Patient Protection and Affordable Care Act (PPACA) into law on March 23, 2010. This federal health reform law makes changes across the health care system in the United States. These changes include:

  • An individual mandate (similar to the Massachusetts mandate)
  • New responsibilities and opportunities for employers
  • Expansions of existing public programs like Medicaid - or MassHealth, as it is called in Massachusetts
  • Subsidies to help low and middle- income people afford health insurance
  • Tax changes to the financing of health care
  • Health insurance exchanges like the Massachusetts Health Connector
  • New minimum benefits
  • Protections for health insurance consumers
  • Savings and efficiencies in Medicare and Medicaid
  • Measurement and rewards for high-quality, effective care
  • Wellness and prevention programs
  • Support for a well-equipped health care workforce

Massachusetts employers are well ahead of those in other states. They have been key partners in Massachusetts' own health reform, and are among the most generous and engaged when it comes to offering and promoting health coverage.

 
About this Guide

A working group of state agencies convened by Executive Office of Health and Human Services Secretary JudyAnn Bigby produced this guide. The Division of Health Care Finance and Policy, the Division of Insurance, and the Health Connector provided the content for this guide. The guide provides a high-level overview of the federal health reform law and how it may impact employers, with suggestions on where to find more information. The guide is not intended and should not be construed to advise employers on how to comply with the federal health reform law.

The information in this guide is set forth in chronological order, based on when the programs and rules go into effect, and should be considered only a starting point for making sense of a complicated law.

 

Federal Health Reform Policies that Affect Massachusetts Employers 

Small Business Tax Credit

New federal tax credits are available to help small businesses with low and middle-income workers pay for the cost of health insurance.

A small business health care tax credit is available to small employers that pay at least half of the cost of individual coverage for their employees. This federal credit is targeted to help those small businesses and tax-exempt organizations that primarily employ low and middle-income workers. This tax credit is available to both qualified employers who currently offer coverage and those that want to begin offering coverage and is meant to offset some of the costs associated with doing that. It supports employers' ability to grow and create new jobs. A July 2010 Families USA and the Small Business Majority report estimates that 81,300 Massachusetts small businesses could be eligible for the small business health care tax credit.

Credits for Tax Years 2010 to 2013

  • Eligible small employers may qualify for a credit of up to 35 percent of the premiums they paid.
  • Eligible tax-exempt organizations may qualify for a credit of up to 25 percent of the premiums they paid.

The maximum credit goes to employers with 10 or fewer full-time equivalent (FTE) employees and average annual wages of $25,000 or less. Partial credits are available to employers with up to 25 FTEs and with average annual wages up to $50,000.

The eligibility rules refer to the number of FTEs, not the number of employees. Businesses with part-time workers may qualify even if they employ more than 25 people.

Eligible small businesses can claim the credit as part of the general business credit, starting with the 2010 tax return they file in 2011 by using new IRS Form 8941. Tax-exempt organizations will claim the credit on IRS Form 990-T.

Credits for Tax Years 2014 and Beyond

In 2014, the maximum tax credit will increase to 50%, but will only be available to employers who purchase health coverage for their employees through an exchange like Massachusetts' Health Connector.

Effective Date: March 23, 2010.

For More Information

The IRS has resources to help employers determine their eligibility and obtain the tax credit.

Detailed Guidelines: http://www.irs.gov/pub/irs-drop/n-10-44.pdf
3-step Guide: http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf
FAQ: http://www.irs.gov/newsroom/article/0,,id=220839,00.html
One-page flyer: http://www.irs.gov/pub/newsroom/taxcreditflyer.pdf

The Small Business Majority has a "tax credit calculator" on their website that provides preliminary estimates for eligibility and savings.

Calculator Link: http://www.smallbusinessmajority.org/tax-credit-calculator/

 
 

Grants for Small Employer Wellness Programs

Funding is available to help small businesses offer programs to keep employees healthy.

For 2011 through 2015, $200 million has been set aside for grants to help small employers across the United States provide workplace wellness programs to their employees.

Eligibility

Small employers with fewer than 100 employees who work 25 hours or more per week are eligible. The funding will only be available to employers that did not have a wellness program in place as of March 23, 2010.

How to Apply

Guidance on how and when employers can apply is pending. Employers will need to have a well-defined plan for implementing a wellness program. The program should promote health awareness initiatives like preventive screenings and health risk assessments.

Effective Date: March 23, 2010.

 
Early Retiree Reinsurance Program

Employers may receive financial assistance to help pay for the expensive medical costs of early retirees.

Employers with early retiree plans will be able to apply for reinsurance for early retirees who are at least 55 and not eligible for Medicare. Reinsurance is insurance purchased by insurers or employers for financial protection in the event of very expensive claims. Reinsurance transfers some of the risk from the insurer to the reinsurer. The percentage of U.S. large firms providing retiree coverage has dropped from 66 percent in 1988 to 31 percent in 2008, due mostly to rising premium costs. The employer may qualify for reimbursement of 80% of claims incurred within the plan year between $15,000 and $90,000. The program provides a total of $5 billion in financial assistance to employers who qualify.

Eligibility

Both self-funded and insured plans are eligible, including those offered by private entities, state and local governments, non-profits, religious entities, unions and other employers. There is no size requirement for the employers eligible for this opportunity. Employers must have at least $15,000 of early retiree health care claims.

How It Works

Reinsurance reimbursements are provided to employers accepted into the program. The reimbursements cover:

  • Medical claims for retirees age 55 and older who are not eligible for Medicare, as well as their spouses, surviving spouses, and dependents.
  • Many medical, surgical, hospital, prescription drug and other benefits between $15,000 and $90,000.

Claims incurred before June 1, 2010 are not eligible for reimbursement, but do count toward the $15,000 qualifying threshold. Only medical expenses incurred after June 1, 2010, are eligible for reimbursement.

The Early Retiree Reinsurance Program ends when funding runs out or on Jan. 1, 2014, when early retirees will be able to choose coverage options through an exchange.

Effective Date: March 23, 2010.

For More Information and to Apply

Interested employers should consider applying early since funding is limited. The U.S. Department of Health and Human Services will distribute funds on a first come, first served basis.

New Early Retiree Reinsurance website: http://www.ERRP.gov
New Early Retiree Reinsurance hotline: 877-574-3777

 

Reasonable Break Time and Space for Nursing Mothers

Employers must offer adequate break time and space for breastfeeding workers.

Breastfeeding employees must have "reasonable break time" and a private, non-bathroom place to express breast milk during the workday. These accommodations must be provided up until the child's first birthday. This requirement applies to employers of all sizes.

The U.S. Department of Labor is working to define terms and processes for enforcement.

Exemptions

Employers with 50 or fewer employees may seek an exemption. These employers must show that this requirement would cause "an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer's business." The process for seeking an exemption is still under development.

Effective Date: March 23, 2010
 

 
Automatic Enrollment for Employees of Large Firms

Employers with more than 200 full-time employees that offer health coverage must automatically enroll new full-time employees in a plan.

New full-time employees must be enrolled in an employer's plan automatically, pending a lawful waiting period. Current employees will continue to be enrolled. The automatic enrollment process must provide adequate notice and the opportunity for an employee to opt out of any coverage.

The Department of Labor is required to issue regulations on this provision. As of the writing of this guide, no such regulations have been issued.

Effective Date: Effective upon issuance of guidance by the Department of Labor
 

 
 

Insurance Reforms

The federal health reform law makes several changes to the health insurance market.

Some of these reforms do not take effect until 2014. We focus here on some early changes that Massachusetts employers may see in 2010. Many of the new federal requirements have already been law in Massachusetts for some time.

Where applicable, this guide notes whether the new requirement will constitute a change in the way that health plans are administered in Massachusetts. The Massachusetts insurance laws described in this section in general do not apply to self-funded plans. The insurance reforms in national health reform that are described in this section of the guide apply to both fully insured and self-funded plans.

Limits on Lifetime Benefits

A health plan cannot limit the dollar value of the "essential health benefits" that an enrollee can receive in a lifetime.

  • How This Affects MA: Most health plans sold in Massachusetts do not have lifetime limits. Federal law now says that new or existing plans cannot impose them on essential health benefits. Benefits not considered essential health benefits may be subject to lifetime limits, however.

In the essential health benefits package, the following services must be covered: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services (including chronic disease management), and pediatric services (including oral and vision care).

The full definition of essential health benefits has not yet been issued. Until the full definition is issued, the enforcing agencies will take into account good faith efforts to comply with a reasonable interpretation of the term "essential health benefits."

Health plans may provide benefits in addition to the services included in the essential health benefits package.

Limits on Annual Benefits

A health plan can only have restricted limits on the dollar value of essential health benefits that an enrollee can receive in a year.

  • How This Affects MA: With some notable exceptions such as Young Adult Plans or Student Health Insurance Plans, health plans with annual caps do not meet the current Massachusetts' Minimum Creditable Coverage (MCC) regulations, developed under Massachusetts health reform. Those state regulations are available at www.MAhealthconnector.org. Click on the Health Care Reform tab, then "Key Decisions."

Starting on September 23, 2010, $750,000 will be the lowest annual limit a health plan can impose on "essential health benefits" in the U.S. The limit will increase each year until January 1, 2014, when annual limits will be eliminated.

The rules apply to new and existing plans. Annual caps will be allowed on benefits that are not considered essential health benefits. Plans must make "good faith efforts" to comply with a "reasonable definition" of essential health benefits as it relates to the lifetime cap requirement.

Health plans may be able to seek a waiver of these federal requirements.

Rescission

A health plan cannot retroactively drop an insured person from a plan, except in case of fraud, intentional misrepresentation of a material fact, or for nonpayment of premium.

  • How This Affects MA: Massachusetts already prohibits retroactive cancellations except in certain limited instances, including fraud.

A group plan or health insurer must provide at least 30 days advance written notice to the affected individual(s) before coverage may be rescinded.

Coverage for Preventive Care

A health plan must cover certain preventive services without cost-sharing. Cost-sharing includes deductibles, coinsurance, copayments and similar charges. Cost-sharing does not include premiums or balance-billing amounts for non-network providers.

  • How This Affects MA: Insurers in Massachusetts have historically been permitted to charge co-pays or other fees for preventive care, so this will be a new requirement here. Draft regulations on the preventive services covered by the new law are available at www.healthcare.gov/center/regulations/prevention/regs.html.

This requirement will apply to new plans and existing plans that are not "grandfathered." It does not apply to existing plans that are "grandfathered" under the new law. View the federal regulations on grandfathered plans at www.hhs.gov/ociio/regulations/grandfather/index.html.

Coverage for Older Children

A health plan must offer coverage for a child on a parent's health plan until the child reaches the age of 26, regardless of dependent status.

  • How This Affects MA: In Massachusetts, prior to national health reform, health plans were already required to allow a child to be covered on a parent's plan until the child reached age 26 or two years after the child lost dependent status, depending on which came first.

Federal law does not require that a covered child's children be offered coverage on a parent's (grandparent's) employer-sponsored health insurance plan.

  • How This Affects MA: In Massachusetts, a child of a covered dependent must be offered coverage on date of birth and thereafter, as long as the dependent is covered.

An older child will qualify for coverage under the federal law even if he or she is married, not living with a parent, is not a dependent on a parent's tax return, or is no longer a student.

The federal law provides an exception for grandfathered group plans. Federal law allows a grandfathered group plan to deny coverage to an adult child who is eligible for employer-sponsored insurance through his or her own employer.

  • How This Affects MA: Massachusetts insurance laws do not allow for this exception to be applied to a fully insured plan.

IRS provisions in the federal law extend the general federal tax exclusion for reimbursements for medical care expenses under an employer-sponsored health plan to any child of an employee who has not attained age 27 as of the end of the taxable year.

  • How This Affects MA: In Massachusetts, the employer will no longer need to determine imputed income for children covered under parents' employer-sponsored health insurance plans, i.e., including those children who had been covered for the two years after losing dependency status.

Although children must be allowed to be covered up to age 26, an employer may continue coverage beyond the child's 26th birthday if permitted by the group insurance policy. For example:

  • An employer's health plan will renew or expire by January 1.
  • A child turned 26 in August, before January 1 and the start of a new plan year.
  • The employer may allow that child to stay covered through the remaining months of the plan year if permitted by the group insurance policy.

In this example, the value of the child's benefits is excluded from the enrolled employee's income for the entire taxable year in which the child turned 26.

Coverage for Pre-existing Conditions

The new federal law prohibits the use of pre-existing condition exclusions against any individual beginning January 1, 2014 for plans sold or renewed on or after that date.

Plans sold or renewed on or after September 23, 2010, will be prohibited from allowing exclusions for pre-existing conditions for children under age 19.

  • How This Affects MA: Massachusetts already prohibits health plans from denying health insurance coverage to anyone because of a pre-existing condition.

Before September 23, 2010, health plans were permitted to limit coverage of the specific pre-existing condition to new enrollees for up to six months if an enrollee received treatment for that specific condition in the previous six months, unless the enrollee has had continuous coverage. Under federal law, this will no longer be allowed for children under age 19 in 2010, and for anyone in 2014.

Effective Date: Except where noted, these changes are all effective for plans that are new or are renewed on or after September 23, 2010.

For More Information

National Web Portal: http://www.healthcare.gov

Office of Consumer Information and Insurance Oversight, U.S. Department of Health and Human Services: http://www.hhs.gov/ociio/regulations/index.html

National Association of Insurance Commissioners and Center for Insurance Policy and Research: http://www.naic.org/index_health_reform_section.htm
 

 
Simple Cafeteria Plans

Simple Cafeteria Plans adopted by eligible small employers are deemed to comply with nondiscrimination rules applicable to cafeteria plans under section 125 of the Internal Revenue Code.

Section 125 Plans (or "Cafeteria Plans") enable employees to get tax savings when they purchase a health plan. A Simple Cafeteria Plan is a plan sponsored by an eligible small employer that satisfies specified minimum eligibility, participation requirements and minimum employer contribution requirements. These plans are deemed to comply with the Section 125 cafeteria plan nondiscrimination rules as well as the nondiscrimination requirements for life insurance, health plan and flexible spending account benefit options offered through the cafeteria plan.
As a result, eligible small employers save the time and administrative cost associated with conducting annual nondiscrimination testing.

Eligible Small Employer

An eligible small employer is an employer with an average of 100 or fewer employees during either of the preceding two years. An eligible small employer that establishes a simple cafeteria plan will continue to be treated as eligible until its average number of employees reaches 200 or more.

Minimum Eligibility, Participation and Contribution Requirements

Eligibility. Eligible employees are those who have worked at least 1,000 hours for the employer in the preceding year.

Participation. Once eligible, the employee must be permitted to elect any benefit available under the plan, subject to any terms and conditions that are applicable to all plan participants.

Contributions. The employer must make a contribution on behalf of every non-highly paid employee eligible to participate in the plan (whether or not the employee makes a salary reduction contribution). The minimum employer contribution must be at least 2% of the employee's compensation, or not less than the lesser of 6% of the employee's compensation or twice the eligible employee's salary reduction contribution.

Effective Date: Plan years beginning after December 31, 2010.

 
Changes to Health Savings, Flexible Spending, Medical Savings and Health Reimbursement Accounts

There are new rules for Health Savings Accounts, Flexible Spending Accounts and Health Reimbursement Accounts.

Starting in 2011, a series of new federal rules for health savings accounts, flexible spending accounts, and health reimbursement accounts will take effect. Employers accordingly should communicate the new rules to employees in a clear and timely manner.

(a) Over the-Counter Medication

Over-the-counter drugs will not be eligible for reimbursement from a flexible spending account (FSA), health savings account (HSA), health reimbursement account (HRA) or Archer medical savings accounts (MSAs), unless the drug is insulin or is prescribed.

A drug is prescribed when there is a written or electronic order for the drug issued by a person legally authorized to write a prescription.

FSA and HRA debit card systems cannot be used to purchase over-the-counter medicines purchased on or after January 16, 2011.

Effective Date

Over-the-counter medications purchased on or after January 1, 2011, even if the money was set aside in an account based plan in 2010.

(b) Withdrawal Penalties

The tax penalty for HSA withdrawals that are not used for qualified medical expenses will increase from 10% to 20%, and the tax penalty for unqualified withdrawals from Archer MSAs will increase from 15% to 20%.

Effective Date

January 1, 2011

(c) Maximum Salary Reduction for Flexible Spending Accounts

Effective for tax years 2013 and forward, the maximum annual salary reduction contribution to an FSA will be capped at $2,500. If the plan does not specifically prohibit salary reductions in excess of $2,500, the entire FSA benefit will not receive a tax benefit.

Effective Date: January 1, 2013

http://www.irs.gov/pub/irs-drop/n-10-59.pdf

Note that employees here are based on actual workers (in this case, those who work 25 hours or more per week) rather than FTEs.

Currently, there is no guidance as to how "employees" is measured (i.e. number of workers, number of full-time workers, FTEs, etc.). Clarification will be forthcoming from the federal government on this definition.

The Minimum Creditable Coverage (MCC) requirement relates to the essential health benefits Massachusetts residents need to meet in order to be considered insured and avoid tax penalties. Health insurers licensed in Massachusetts must let consumers know if their plans meet these standards. The MCC requirement applies to individuals, so individuals who are enrolled in self-funded plans still must meet the MCC standards (MCC is discussed in the section on annual limits).

The term "highly compensated employee" means any employee who -- (A) was a 5-percent owner at any time during the year or the preceding year, or (B) for the preceding year -- (i) had compensation from the employer in excess of $110,000 (for 2010), and (ii) if the employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year. An employee is in the top-paid group of employees for any year if such employee is in the group consisting of the top 20 percent of the employees when ranked on the basis of compensation paid during such year.

IRS Notice 2010-59

IRS Notice 2010-59

 
Employer Notice Requirement

Employers face new guidelines on reporting the value of health insurance coverage and providing employees with information regarding health insurance options.

W-2 Reporting:

Employers must report the aggregate annual cost of employer subsidized health coverage on an employee's W-2. This requirement does not change the tax treatment of employer subsidized health coverage. Health coverage includes not only the group insurance plan, but also the cost of other employer-provided coverages including employee assistance programs, reimbursements from health reimbursement arrangements (HRAs), and employer contributions to health savings accounts (HSAs).

Effective Date

On October 12, 2010, the IRS issued a draft W-2 tax form (which can be found here: http://www.irs.gov/pub/irs-utl/draft_w-2.pdf ) for 2011, which employers can use to report wages and employee tax withholding. Although the law originally indicated an effective date of tax years beginning on and after January 1, 2011, the IRS also announced that it will defer the new PPACA requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011. For reference, the details of the deferral can be found here:
http://www.irs.gov/pub/irs-drop/n-2010-69.pdf

The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan. The Treasury Department and the IRS have determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement. The IRS will be publishing guidance on the new requirement later this year.
Although reporting the cost of coverage will be optional with respect to 2011, the IRS continues to stress that the amounts reportable are not taxable.

Exchange and Premium Tax Credit Notices

Employers must also provide employees written notice of:

  • The availability of the health insurance exchange and how the employee can contact the exchange for assistance - beginning March 2013
  • Possible eligibility for federal assistance if the employer's health plan is "unaffordable" under the standards of the federal health reform law and/or if the coverage being offered is valued at less than 60% of total costs
  • The risk of losing an employer contribution to health coverage if they purchase health insurance through the health insurance exchange without a free choice voucher (See section 12 for more on free choice vouchers.)

Effective Date: March 1, 2013

Summary of Benefits and Coverage

Health insurance issuers and plan sponsors of self-funded arrangements will be required to provide a summary of benefits and coverage to applicants and enrollees in a culturally and linguistically appropriate manner.

The summary of benefits and coverage must not exceed four pages in length and must include information related to definitions of insurance terms; a description of the coverage; coverage exceptions, reductions, and limitations; the cost-sharing provisions; the renewability and continuation of coverage provisions; a coverage facts label that includes examples of common benefit scenarios; a statement of whether the plan provides minimum essential coverage and ensures that the plan covers at least 60% of total allowed costs, and a contact number.

Health insurance issuers and plan sponsors will also be required to notify enrollees no later than 60 days before material changes are made to the summary of benefits and coverage.

These requirements do apply to "grandfathered" plans.

Effective Date: Health insurance issuers and plan sponsors must provide the summary of benefits and coverage no later than March 23, 2012. The federal Secretary of Health and Human Services is required to promulgate regulations on the summary of benefits and coverage by March 23, 2011.
 

 
Elimination of Deduction for Medicare Part D Subsidy

Employers will no longer be able to deduct the Medicare Part D retiree drug subsidy.

As of 2013, businesses will not be allowed to deduct prescription drug expenses that are covered by the Medicare Part D retiree drug subsidy. Medicare Part D provides a subsidy to businesses that cover prescription drugs for their retirees. The subsidy is 28 percent of allowable drug costs for retiree drugs costs between $250 and $1,000.

The subsidy itself is not being eliminated. It is the businesses' tax deduction of the subsidy that will be prohibited.

Effective Date: January 1, 2013

 

Medicare Payroll Tax

High-income workers will see a Medicare tax increase.

Starting with the 2013 federal tax year, there will be an additional 0.9% Medicare tax on individual filers with wages of more than $200,000 and joint filers with wages of more than $250,000. The tax is only imposed on the employee portion of the Medicare tax - not on the employer portion. Employers may wish to inform employees of this tax change as 2013 approaches.

Effective Date: January 1, 2013
 

 

Free Choice Vouchers

Employers must offer a "free choice voucher" to qualifying workers to allow them the option of buying health insurance through an exchange.

Employers that offer insurance and contribute toward health insurance coverage will need to provide "free choice vouchers" to employees who qualify. The voucher is equal to the amount the employer would have contributed to its own health plan on behalf of the employee.

The employee can use the voucher to purchase qualified health plans through an exchange. The employee can "buy up" and pay the difference, or "buy down" and pocket the difference. The amount that an employer provides for a free choice voucher will be considered deductible for tax purposes. Further details are pending on how free choice vouchers will be implemented.

Eligibility

Employees qualify if:

  • Their household income is 400% of the Federal Poverty Level (FPL) or less and
  • Their contribution for coverage through their employer would cost between 8 and 9.8% of their household income.

Currently, a single person earning roughly $43,300 is at 400% of the Federal Poverty Level. For a family of four, $88,200 in income is 400% of the Federal Poverty Level.

Effective Date: January 1, 2014 
 

 

Section 125 Plans

As of 2014, employees who buy insurance using a Section 125 plan will not be able to get pre-tax savings on plans sold through an exchange.

Under the new federal health reform law, employees will not be able to buy individual policies of health insurance through an exchange on a pre-tax basis using a Section 125 plan. This rule does not apply to the employees of small employers that are offering employer-subsidized group health benefits through an exchange like Massachusetts' Health Connector.

Currently, Massachusetts law requires employers with 11 or more full-time-equivalent employees to establish Section 125 plans. Eligible employees may use those Section 125 plans to purchase individual policies of health coverage through the Health Connector using their own pre-tax earnings to pay 100% of the premium cost of a plan.

Massachusetts is seeking clarification on how the new federal requirement will interact with the current Massachusetts requirement.

Effective Date: January 1, 2014
 

 

Assessment on Employers with 50 or More Full-Time Equivalent Workers

Large employers with 50 or more FTEs will face an assessment if:
  • Any full-time employee receives premium tax credits to purchase health insurance through the exchange. Employees become eligible for credits if:
    • Their premium contribution for the employer-sponsored coverage would cost them more than 9.5% of their household income or the actuarial value of the employer plan is less than 60%; and
    • Their household income is below 400% of the Federal Poverty Level.
  • The assessment can affect employers that do not offer coverage, as well as those that do (although assessment amount will vary).

Employers with 50 or more Full-Time Equivalent (FTEs) employees that do not offer coverage:

If at least one full-time employee enrolls in an exchange plan and receives a premium tax credit, these employers will be assessed $2,000 ($167 per month) for each full-time employee on payroll, excluding the first 30 full time employees.

Employers with 50 or more FTEs that do offer coverage:

If at least one full-time employee enrolls in an exchange plan and receives a premium tax credit, these employers will pay the lesser of:

  • $3,000 ($250 per month) for each full-time employee enrolled in the exchange and receiving a premium credit, or
  • $2,000 ($167 per month) for each full-time employee on payroll, excluding the first 30 full-time employees from the assessment

These penalties are not deductible by the employer.

Premium Tax Credits

Employees become eligible for a premium tax credit if the employee's household income is below 400% FPL and:

  • They are not offered insurance by employer, or are offered a plan with an actuarial value of less than 60% or
  • The employee must pay more than 9.5% of household income toward the premiums of an employer's plan

Who is a Full-Time Employee?

The $2000 and $3000 annual penalty assessments are determined using the number of full-time employees. Under federal health reform, a full-time employee works 30 or more hours per week for the employer. This varies from the current Massachusetts standard (under the Fair Share requirement) of "the lesser of 35 hours per week or the number of hours required to be eligible for the same level of employer contribution that is offered to full-time employees working at least 35 hours per week." Massachusetts officials are currently trying to determine how to resolve this difference so as to make it clearer and easier for Massachusetts employers.

Who is a Full-Time Equivalent Employee?

Full-time equivalent employees (FTEs) is a measure used ONLY to determine if the employer meets the 50 or more threshold to be subject to the assessment rules for large employers. Under federal health reform, an employer's full-time equivalent employees would be all full-time employees working 30 or more hours per week for the employer (see above), PLUS the aggregate number of hours worked by part-time employees for the month divided by 120.

Comparing the Massachusetts and Federal Employer Assessments

Massachusetts health reform currently requires employers with 11 or more FTEs to make a "fair and reasonable" contribution towards the costs of covering their workers. If they do not, they may pay a $295 per FTE per year penalty.

To avoid the Massachusetts assessment, employers with 11-50 FTEs must:

  • Offer their full-time workers at least a 33% premium contribution for individual coverage no later than 90 days after their date of hire

OR

  • Have at least 25% of their full-timers enrolled in a group health plan

To avoid the Massachusetts assessment, employers with 50 or more FTEs must:

  • Offer their full-time workers at least a 33% premium contribution for individual coverage no later than 90 days after their date of hire AND have 25% or more of full-timers participating in a group health plan

or

  • Have 75% of their full-time employees participating in the group health plan

Massachusetts officials are working to resolve the difference between the state and federal standards. We understand the need for clear, advanced notice to help employers and state agencies plan and comply. We plan to update this guide and outreach to employers as decisions are reached.

Effective Date: January 1, 2014
 

 

The Small Business Health Options Program

Small businesses will be able to purchase health insurance for their employees through an exchange.

The federal health reform law creates state exchanges to help individuals and small businesses buy health insurance. Small employers may purchase group health insurance for their employees through an exchange.

Massachusetts small businesses already have access to similar services through the Health Connector. The federal health reform law will create exchanges to provide those services in all states.

In 2014, small business tax credits for health insurance coverage will only be available for small group coverage purchased exclusively through an exchange. (Please refer back to the Section 1 of this Guide, for more information on the small business tax credit.)

Massachusetts currently allows small business with fewer than 50 full-time employees to purchase a group health plan through its exchange, the Health Connector. In contrast, the federal health reform law will allow employers with fewer than 100 employees to participate in exchanges, though states may choose to limit exchange participation to employers with fewer than 50 employees. The lower, state-imposed limit cannot extend past 2015, however.

Effective Date: January 1, 2014 
 

 

Excise Tax on High Cost Coverage

High cost employer-sponsored health plans will be subject to a tax.

There will be an excise tax on employer-sponsored health plans with aggregate values that exceed $10,200 for individual coverage and $27,500 for family coverage.

A 40% tax will be imposed on the coverage provider for the value of the "excess benefit," or the health coverage that exceeds the threshold amount. The threshold amount is $10,200 for an individual health insurance plan and $27,500 for a family plan; these amounts will be adjusted to account for various factors such as if health care costs increase more than expected.

Effective Date: January 1, 2018

 

PPACA Employer-Related Provisions Implementation Timeline

 
ProvisionBrief DescriptionEffective Date
Small Business Tax CreditsCredits to help small businesses with low and middle-income workers pay for the cost of health insurance.Tax year 2010
Grants for Small Employer Wellness ProgramsFunding to help small businesses offer programs to keep employees healthy.Immediately; grant money for 2011 - 2015
Early Retiree Reinsurance ProgramEmployers may receive financial assistance to help pay for expensive medical costs of early retirees.June 1, 2010- Jan. 1, 2014
(may end earlier if funding expires)
Reasonable Break Time and Space for Nursing MothersEmployers must offer adequate break time and space for breastfeeding workers.Immediately
Automatic Enrollment in Health Insurance for Large FirmsLarge Employers that offer health coverage must automatically enroll new full-time employees in a plan.Effective upon issuance of guidance by the Department of Labor
Insurance ReformsVarious consumer protections go into effect.Some start in September 23, 2010; others in future years.
Simple Cafeteria PlansSimple Cafeteria Plans adopted by small employers will be deemed to comply with IRS nondiscrimination rules.Jan. 1, 2011
Changes to Health Savings Accounts, Flexible Spending Accounts, Etc.Health savings accounts, flexible spending accounts and health reimbursement accounts are subject to new rules.2011-2013
Employer Notice RequirementEmployers face new guidelines on reporting the value of health plans and providing employees with information regarding health insurance options.2011-2013
Eliminate Deduction for Medicare Part D ExpensesThe employer's deduction for the amount of the Medicare Part D retiree drug subsidy will be eliminated.2013
Medicare Payroll TaxHigh-income workers pay an increased Medicare tax.2013
Free Choice VouchersEmployers must offer a "free choice voucher" to qualifying workers to allow them the option of buying health insurance through an exchange.2014
Section 125 Cafeteria PlansEmployers buying insurance with Section 125 plans will no longer be able to purchase plans through an exchange with pre-tax dollars.2014
Assessment for Employers with 50 or More WorkersLarge employers will face an assessment if employees access premium tax credits (which they become eligible for if under 400% FPL and their employer doesn't offer coverage or offers unaffordable coverage).2014
Small Business Health Options ProgramEligible small businesses will only be able to receive tax credits to purchase insurance through the newly-created exchange.2014
High Cost Plan TaxInsurers of employer-sponsored health plans will be subject to a tax on high-cost health plans.2018

Actuarial value measures the share of the medical expenses covered by the insurance plan.

Earned income (i.e., wages and self-employment income received with respect to employment)

Actuarial value measures the share of the medical expenses covered by the insurance plan.

The "coverage provider" could be an insurer, employer, or a plan administrator.
 

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