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As of April 2006, Massachusetts has had a new set of statutes regarding healthcare. The goal of the legislation is to increase coverage to include the 370,000 uninsured residents of the state. Several elements of the new legislation that affect restaurants are now in force.
Restaurants face issues with the new laws because of the way that the industry employs both full and part time employees. The new regulations are extremely complex, confusing, sometimes vague and very much still unfolding. This makes understanding and dealing with them very difficult for the average restaurateur. I would like to discuss some common issues facing employers. This is not a complete reference on which you can base your compliance decisions; only your own professionally qualified advisor can give you the advice you need for your specific business. This information is accurate as of Spring 2007.
The legislature acted in 2006 to reduce the number of uninsured residents in Massachusetts. According to estimates from the Massachusetts Healthcare Connector (a new state agency responsible for implementing the law), Massachusetts had approximately 370,000 uninsured residents prior to implementing this program, with this breakdown by income:
| Total Massachusetts population |
6,200,000 |
|
Currently insured (93%)
|
5,830,000
|
|
Currently uninsured (7%)
|
370,000
|
|
Uninsured earning under 100% of Federal Poverty Level
|
70,000
|
|
Uninsured earning between 100 – 300% of FPL
|
140,000
|
|
Uninsured earning 300%+ of the FPL
|
160,000
|
The legislature decided to mandate coverage for all Massachusetts residents (this is called the ‘individual mandate’) and subsidize healthcare policies for the 210,000 low-income folks earning less than 300% of the Federal Poverty Level, rather than continue paying ‘free care’ healthcare costs for the uninsured population. This makes Massachusetts unique in the US.
Two main reasons. First, the uninsured often use emergency rooms for their primary care, causing congestion, reducing efficiencies and driving up emergency costs.
Second, all Massachusetts employer-based premiums contain a small financial assessment designed to cover healthcare costs of the uninsured. Employers who provide insurance to their employees pay this assessment, while employers who do not provide coverage, skip it. The legislature thought that this was unfair and decided that non-providing employers should pay their ‘fair share’ toward funding the uncompensated care pool.
The legislature passed two separate and independent employer mandates, called the Fair Share Assessment and the Free Rider Surcharge. Compliance with one does not mean compliance with the other. Beware!
The Fair Share Assessment Mandate ($295/employee/year). This mandate ensures that all Massachusetts employers with more than 10 employees pay their ‘fair share’ toward treatment costs for the uninsured population – or, under the new plan, pay their ‘fair share’ toward subsidizing policies of low-income folks. ‘Non-providing employers’ must pay the $295/employee annual Fair Share Assessment.
Employers face the following questions here:
Does this mandate apply to them?
Do they comply with the regulations?
The mandate applies to employers with more than 10 Full Time Equivalents (FTE) defined as working 2000 hours per year. The formula for applicability becomes:
Total annual payroll hours
2000
If the answer is 11+, then this mandate applies to your business.
To comply an employer must pass one of two tests. The Primary Compliance Test: Do 25% of your full time employees enroll in the company health plan? Here, the regulations stipulate full time as 35 hours/week, or 1750 hours/year.
The Primary Test Compliance Formula is:
Total payroll hours of covered full time employees
Total payroll hours of all full time employees
If the answer is 25% or more, then you pass the Primary Test and are exempt from paying the $295 Employee Fair Share assessment.
When calculating for applicability and compliance, remember the following:
* Independent contractors do not count
* Seasonal employees (clearly defined in state regulations) do not count
* Temporary employees (also clearly defined in state regulations) do not count
* Overtime hours do not count
* Salaried employees count as 40 hours/week
The State will probably verify data with the Division of Employment and Training. You should keep your own records in case of discrepancy.
Employers failing the Primary Test can still avoid paying the $295 Fair Share Assessment by passing the Secondary Compliance Test. Here, the employer need only offer to pay 33% of the health insurance premium costs of employees. With this offer, even if the employer fails the Primary Test, he is still considered ‘in compliance’ and thus need not pay the Fair Share Assessment.
Employers failing both the Primary Test and the Secondary Test will be assessed for their Fair Share contribution by the state.
The Free Rider Surcharge. Whether or not you comply with the Fair Share mandate, you must also comply with the Free Rider Surcharge. This is a separate mandate, distinct and independent from the Fair Share Assessment.
Under the Free Rider Surcharge, non-complying employers may be responsible for their employee ‘Free Care’ healthcare costs. There is no upper liability limit. The Free Rider Surcharge is triggered by one of two events:
Trigger #1: 1 employee or dependent accesses Free Care 3 times during the same year
Trigger #2: A total of 5 or more Free Care instances during the same year
This mandate also applies to companies with more than 10 employees. The legislature has defined a relatively easy and inexpensive mechanism to eliminate the Free Rider penalty risk and satisfy requirements of the Free Rider Surcharge: Establishment of a Section 125 Plan which allows employees to pre-tax their health insurance premium contributions. Pre-taxing reduces the employee’s adjusted gross income and tax liabilities. This is essentially a government subsidy of health insurance premiums for employees on their company health plan.
To comply fully with this mandate, employers must register their Section 125 Plans with the Connector. Section 125 Plans are very inexpensive – we sell them for about $200 to our clients.
Employees not on your company health plan are mandated to purchase their own insurance by July 1, 2007. As part of their purchase process they will give their employer a form, instructing the employer to payroll deduct money (on a pre-tax basis) and pay their health insurance premium. Employees with multiple employers can instruct all employers to pay a portion.
The employer need not cost-share in this process, but is mandated by the state to funnel employee money, pre-tax, to the appropriate insurance carrier.
Other regulations. The new healthcare law establishes a number of additional regulations and obligations on employers. Be sure to engage a professional advisor to help you navigate this new, confusing and complex terrain.
Perhaps like income tax preparation and property conveyancing, health insurance management has become so complex that the small business owner can no longer handle this task alone. Beware and be forewarned - many of the regulations are already in effect, failure to comply may be costly.
About Gary Fradin: Gary Fradin is the author of “Moral Hazard in American Healthcare” and is the owner of INSURANCE for MEMBERS in South Easton. He holds a Bachelors degree in Politics from Lancaster University (UK) a Masters in International Relations from London University (UK) and a Masters in City and Regional Planning from Harvard University.
Gary can be reached at:
This e-mail address is being protected from spambots, you need JavaScript enabled to view it
or by phone on 866.303.2810
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