Health Connector Issues Four Final Rules Implementing Key Features of the Massachusetts Health Care Reform Act

At its June 5, 2007 meeting, the Massachusetts Health Insurance Connector Authority (the “Connector”) issued four final regulations implementing the following aspects of the Massachusetts Health Care Reform Act (the “Act”)1:

1. “Employer Sponsored Health Insurance Access” (956 CMR 4.00), finalizing the Act’s “cafeteria plan” requirement;
2. “Minimum Creditable Coverage” (956 CMR 5.00), establishing standards for what constitutes “minimum creditable coverage” for purposes of satisfying the individual mandate and avoiding the imposition of a tax penalty;
3. “Determining Affordability for the Individual Mandate” (956 CMR 6.00), prescribing standards under which health insurance is determined to be not affordable for purposes of exemptions from the Act’s individual heath insurance mandate; and
4. “Eligibility and Hearing Process for Commonwealth Care” (956 CMR 3.00), setting the basic rules for Connector access for the purpose of purchasing Connector-subsidized health insurance coverage.

This Alert summarizes these four final Connector regulations. For a comprehensive treatment of the Act’s impact on employers and individuals, click here for a copy of our firm’s publication entitled, An Employers’ Guide to the 2006 Massachusetts Health Care Reform Act.

Employer Sponsored Health Insurance Access
(956 CMR 4.00)

The Act requires each employer with more than 10 employees in the Commonwealth to “adopt and maintain a cafeteria plan that satisfies 26 U.S.C. 125 and the rules and regulations promulgated by the connector.” The provision also requires a copy of the plan to be filed with the Connector. The Act prescribes an effective date of July 1, 2007 for the cafeteria plan requirement.

On March 20, 2007, the Connector issued an emergency regulation implementing this requirement. (Click here for a copy of our advisory of March 23, 2007 explaining the emergency cafeteria plan regulation.) Under the emergency rule, employers with “11 or more” full-time equivalent employees during a designated “applicable determination period” are subject to the rule. These employers are referred to as 151F Employers (a reference to the statute that imposes the cafeteria plan requirement, Massachusetts General Laws, Chapter 151F). The emergency rule’s “applicable determination period” was either an “initial testing period” that began April 1, 2006 and ended March 31, 2007, or a “subsequent testing period,” which operated on a July 1st to June 30th fiscal year.

The cafeteria plan requirement can best be explained by viewing compliance from the perspective of the employee, i.e., the requirement is satisfied if each Massachusetts employee has access to at least one “medial care coverage option” on a pretax basis. While neither the emergency nor the final rule defines the term “medial care coverage option,” a flexible spending account or a limited scope dental or vision program will not suffice.

The emergency rule permitted cafeteria plan waiting periods within limits, and certain employees were not required to be covered, e.g., part-time employees who are regularly scheduled to work fewer than 64 hours per month.

The final cafeteria plan regulation is similar to the emergency rule, with the following exceptions:

• The cafeteria plan requirement does not apply to multiemployer health benefit plans. For this purpose, the term “Multiemployer Health Benefit Plan” is defined to mean:

  A health benefit plan to which more than one Employer is required to contribute, which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one Employer, and there is evidence that such Employer contributions to the Multiemployer Health Benefit Plan were the subject of good faith bargaining between such employee representatives and such Employers.

• The rule includes both an initial measuring period of April 1, 2006 to March 31, 2007, which has not changed from the emergency rule, and a “subsequent” measuring period, which has changed. Under the emergency rule, the subsequent measuring period ran from July 1st to June 30th. The final regulation changes this to October 1st to September 30th, and the cafeteria plan requirement applies as of the following January 1st.
• Under the emergency rule, a cafeteria plan could not impose a waiting period that exceeded the lesser of the waiting period of the underlying medical plan or 60 days. The final regulation now permits cafeteria plan waiting periods that match the waiting period of the underlying medical plan, even where the underlying waiting period exceeds 60 days.
• Lastly, the final rule clarifies that no cafeteria plan access is required where the plan pays the entire cost of coverage for all employees.

Minimum Creditable Coverage (956 CMR 5.00)

The Act’s individual mandate generally requires that Massachusetts residents age 18 and older obtain and maintain health insurance, the coverage under which is “minimum creditable coverage,” provided that such coverage is “affordable.” If a resident can establish that he or she does not have access to affordable coverage, he or she can get an exemption from the individual mandate. The legislature left it up to the Connector to define what constitutes minimum creditable coverage and what coverage is deemed affordable.

The final Connector rule establishing criteria for “minimum creditable coverage” varies little from its March 20, 2007 proposed rule. Under the final regulation, from July 1, 2007 to December 31, 2008, coverage under any fully insured group health plan issued by a carrier licensed in Massachusetts is automatically deemed to qualify, as are self-funded plans that provide “medical, surgical or hospital benefits” (e.g., a self-funded mini-med plan). Beginning January 1, 2009, however, only plans meeting certain requirements will constitute “minimum creditable coverage.” These requirements include strict limits on co-payments and deductibles as well as mandated prescription drug coverage.

The final rule also sets out a list of items that do not rise to the level of minimum creditable coverage, including, among others, the following:

• accident-only, credit-only, or limited-scope vision or dental benefits;
• hospital indemnity insurance policies if offered as independent, non-coordinated benefits (e.g., policies which provide an in-patient hospitalization benefit not to exceed $500 per day);
• disability income insurance;
• supplemental liability insurance;
• specified disease insurance;
• insurance arising out of a workers’ compensation law or similar law; and
• automobile medical payment insurance.

Determining Affordability for the
Individual Mandate (956 CMR 6.00)

On April 11, 2007, the Connector issued a release entitled “Affordability Standards Recommended to Connector Board,” which recommends baseline “affordability” requirements. These requirements are important because, as indicated above, individuals without access to affordable coverage are not subject to the individual mandate.

With the affordability rule, the Connector has established a formal process for determining affordability. The Connector board must vote annually, not later than June 1st of each year, to adopt an affordability schedule prescribing the percentage of an individual’s adjusted gross income that the individual can be expected to contribute toward the cost of health insurance. Public comment is permitted as a part of the process, and a formal appeals process is also included. Individuals who demonstrate that no Connector health plans are affordable for them may seek a certificate that the penalty should not be assessed.

Eligibility and Hearing Process for
Commonwealth Care (956 CMR 3.00)

The Commonwealth Care Insurance Program provides eligible, low-income Massachusetts residents access to medical care through subsidized heath insurance. Commonwealth Care is operated by the Connector, which has developed four plan types that differ based on income and payment structure. 956 CMR 3.00 governs the process whereby low-income individuals can gain access to Commonwealth Care products. Specifically, the final regulation contains rules governing eligibility for participation and enrollment in Commonwealth Care, and it establishes enrollee premium contributions, disenrollment procedures, and a hearings and appeals process.

1 Chapter 58 of the Acts of 2006, An Act Providing Access to Affordable, Quality, Accountable Health Care, as amended by Chapter 324 of the Acts of 2006, An Act Relative to Health Care Access, and Chapter 450 of the of the Acts of 2006, An Act Further Regulating Health Care Access.

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If you have any questions concerning the information discussed in this advisory or any other employee benefits topic, please contact one of the attorneys listed below or your primary contact with the firm who can direct you to the right person. We would be delighted to work with you.

Alden Bianchi
 617.348.3057 | AJBianchi@mintz.com

Tom Greene
617.348.1886 | TMGreene@mintz.com

Addy Press
617.348.1659 | ACPress@mintz.com

Pamela Fleming
617.348.1664 | PBFleming@mintz.com

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