A cornerstone of the Massachusetts Health Care Reform Act is its “fair share contribution” requirement, under which employers with 11 or more full-time equivalent employees at Massachusetts locations must either make a “fair and reasonable premium contribution” to a group health plan, or pay to the Commonwealth an “annual fair share employer contribution” not to exceed $295 per full-time equivalent.

The Massachusetts Division of Unemployment Assistance is charged with enforcing the FSC requirement, and it has undertaken a series of FSC audits as a part of its enforcement efforts. As a result of the audits, many employers who have acted in good faith and done what they believe is required are finding themselves liable.

Testing fairness

In assessing whether an employer makes a fair and reasonable premium contribution, the Act’s regulations establish the following three part test:

(1) Threshold coverage: Does the employer employ 11 or more full-time equivalent employees in the Commonwealth for the relevant testing period? If the answer is no, then the employer is not subject to the FSC requirement and need not pay an annual fair share employer contribution to the Commonwealth.

(2) FSC testing: If the answer to Part 1 is yes, then the following tests are applied:

• Primary/percentage contribution test: (i) Does the employer offer a group health plan to which the employer makes some (any) contribution and (ii) do 25% or more of the employer’s full-time employees participate? (This test was originally referred as the “primary” test, and it was later re-named the “percentage contribution” test. The terms are used interchangeably.)
• Secondary/premium contribution test: Does the employer offer to make a premium contribution of at least 33% of the cost of individual coverage under an employer-sponsored group health plan offered that is available to all of its full-time employees no more than 90 days after the date of hire?

(3) Calculation and payment: If an employer passes the percentage and/or premium contribution tests described above, then it has no obligations to make any payments.

Otherwise it must make a per employee fair share contribution not to exceed $295.00, prorated for full-time equivalent status based on a 2,000 hour year for years commencing before Oct. 1, 2008, and based on a 500 hour quarter for years commencing after Sept. 30, 2008.   

Chasing down documents

Another of the Act’s requirements is the Health Insurance Responsibility form, which is intended to provide information to the regulators to assist with enforcement. There are two HIRD forms, an employer HIRD form and an employee HIRD form.

While the regulations implementing the HIRD form prescribed penalties for failing to comply with the former, no penalties or sanctions are prescribed for the failure to obtain the latter.

In its audit activity, the Division of Unemployment Assistance is requiring employers to produce signed HIRD forms for all or at least substantially all of full-time employees who decline the employer’s offer of coverage. Many employers do offer coverage to all full-time employees after 90 days of employment and subsidize at least 33% of the individual premium.

These employers presumed that they had satisfied the requirements of the secondary test only to have their compliance efforts rejected on audit because they were unable to produce HIRD forms. In addition to demanding HIRD forms in connection with FSC audit activities, the DUA also routinely asks for carrier invoices, employee rosters and other data filed with the Commonwealth, and copies of employee handbooks.

Employers that want to ensure that they can survive an audit of their FSC compliance should pay particular attention to their HIRD form compliance and their employee communications.

Practices and procedures should be adopted to ensure that HIRD forms are distributed and collected, and that efforts to chase down missing HIRD forms are documented in a manner that could be produced on audit.

Underreporting contributions

Compliance with the FSC testing rules is more difficult than it first appears. Employers that have read and have endeavored to comply with the rules are shocked to find on audit that they are coming up short.

This has led some to speculate that the aggressive use of the HIRD form requirement on audit is driven by the need for revenue. There is, however, nothing to suggest that that DUA’s audit position vis-à-vis the HIRD form is anything but a good faith attempt to apply the law.

The original purpose of the FSC testing rules was to expand coverage, not to raise revenue. The 2009 changes to the FSC testing rules were, however, revenue driven. They make it more difficult for larger employers to comply with the FSC rules, thereby increasing revenue. But it would be better if this connection was made explicit in a regulation or other guidance.

Alden J. Bianchi can be reached at ajbianchi@mintz.com.  

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