The Massachusetts Health Connector's board of directors
has acted to formally repeal the regulations that required employers
to either offer health care coverage to employees or pay a fine.
Despite this repeal, the requirement that Massachusetts
residents obtain qualified health care coverage or pay a fine remains
in effect. However, an individual who is liable for both state and
federal penalties can offset the state penalty by the amount of the
federal penalty, and if the federal penalty is greater than the state
penalty, no payment will be due to the state.
Background. In 2006, the Massachusetts legislature enacted the
Massachusetts Health Care Act (the "Act"). The Act served
as the model for the Patient Protection and Affordable Care Act
("PPACA"). Beginning in 2013, and in the wake of guidance
issued under PPACA, the Connector's board of directors began to
repeal certain portions of the state's health care legislation to
avoid duplication with PPACA's employer mandate rules. In particular,
the board has repealed the Act's fair share contribution and Section
125 plan requirements.
Fair Share Contribution. The Act required employers to either make a fair and
reasonable contribution towards their employees' health coverage or
pay a penalty (of up to $295 per full-time equivalent employee). In
July of 2013, the Massachusetts legislature repealed the "fair
share contribution" requirement for employers, effective June
30, 2013. Because this action left the regulations regarding the
coverage mandate meaningless, the board decided to also repeal the
regulations to avoid confusion about their legal effect.
Section 125 Plans. Under the Act, employers with 11 or more full-time
equivalent employees were required to sponsor Section 125 plans to
allow employees ineligible for employer provided coverage to pay for
individual market coverage using pre-tax contributions made to the
Section 125 plan. Employers that violated Section 125 plan
requirement were assessed a "free rider" surcharge if employees
or their dependents received state-funded medical care.
Interestingly, the legislation that repealed the Act did
not eliminate the Section 125 plan requirement. However, subsequent
guidance issued by IRS provides that, effective for 2014, PPACA
prohibits the use of Section 125 plan pre-tax contributions to
purchase individual market coverage. As a result, in March 2014, the
Massachusetts legislature repealed both the Section 125 plan
requirement and free rider surcharge.
The Connector issued a transition policy for the Section
125 plan requirement (Health Connector Administrative Bulletin 03-13)
which provided that:
- Employers that permit
non-benefit eligible employees to use Section 125 plans to
purchase individual market coverage with pre-tax funds may leave
the plans in place until the end of the 2013 plan year.
- For plan years starting
in 2014, employers can no longer offer Section 125 plans that
allow employees to purchase individual market coverage using
pre-tax funds. Employers may, however, continue to offer
employees Section 125 plans to purchase group health coverage
and other benefits.