Massachusetts Employers Face $750 Penalty for Employees Who Enroll in MassHealth or Receive Subsidized Health Coverage

By Marylou V. Fabbo and Erica E. Flores - Skoler, Abbott & Presser, P.C.

December 19, 2017

In August, Massachusetts Governor Charlie Baker signed into law, “An Act Further Regulating Employer Contributions to Health Care,” which will become effective on January 1st.  More recently, the Massachusetts Department of Unemployment Assistance (DUA) issued proposed draft regulations.  The new law will apply to all employers with 6 or more employees residing in Massachusetts and imposes a penalty of up to $750 for each non-disabled employee who is either enrolled in MassHealth or who receives subsidized coverage through the MassHealth Connector.  The amount an employer pays is based on the wages it pays to those employees who receive health insurance coverage through MassHealth or the Connector.  For each such employee, an employer will pay 5% of the employee’s annual wages, subject to annual wage cap of $15,000 for a maximum annual liability of $750 per affected employee.  In addition, it raises the Employer Medical Assistance Contribution from a maximum fee of $51 per worker up to $77 per worker.  The changes are intended to assist in offsetting the approximately $300 million budget deficit faced by the state’s Medicaid and Children’s Health Insurance Programs. These supplements will be in effect beginning January 1, 2018 and will remain in effect through December 31, 2019.  Employers will see the charge on their first quarter statements in April 2018.  We recommend that before January 1st you consult with counsel regarding whether you meet any of the exceptions to the law.

Here are answers to some common questions we’ve heard from employers regarding the new penalty:

Q:  If an employee’s family is on MassHealth, or has Connector insurance, but the employee is on our insurance as an “individual” through the employer-sponsored plans, will the employer be penalized?

A: According to both the new statute and the proposed regulations, employers only have to pay the EMAC Supplement for each “employee” who received coverage through MassHealth or ConnectorCare for at least 14 continuous days during the quarter, unless the employee’s coverage was due to a permanent and total disability or was secondary to employer-provided health care.  There is no indication in the law or the regulations that employers will owe the Supplement for employee family members, and we think it is unlikely that the DUA will interpret the law that way, especially since the amount of the penalty is a percentage of wages paid to the employee, and family members of employees do not earn wages from the employer.

Q: How is the penalty going to be policed and enforced?

A: According to the proposed regulations and FAQs issued by the DUA, the DUA will be determining which employers owe the EMAC Supplement each quarter and will add any required supplemental contribution to the employer’s quarterly  unemployment insurance statement.  DUA will make the determination based on wage information provided by the employers and enrollment information provided by MassHealth and the Connector.  Payment is due on or before the last day of the first month after the end of the quarter in which the wages at issue were paid and reported.  The same provisions that govern the consequences of failure to pay the EMAC govern the failure to pay the EMAC Supplement.  Accordingly, an employer who fails to make payment will owe interest or a $5 daily penalty on the amount owed.  Employers who knowingly fail or refuse to pay, or engage in conduct in an effort to evade payment, also face fines, penalties, and even jail time, and the DUA can obtain legal remedies to collect the unpaid amounts.

Q:  Will there be a maximum monetary penalty that an employer could pay out in penalties?

A: The only maximum provided for by the statute and the proposed regulations is a per-employee maximum of $750 per year.  There appears to be no per-employer maximum EMAC Supplement

Q: What if we have a probationary period before employees are eligible to join the employer-sponsored plan and new employees use MassHealth or subsidized insurance to cover them until they become eligible for benefits with us?  Will we be liable for the surcharge for them for the period they don’t have coverage with us?

A: Neither the law nor the proposed regulations differentiate between full-time, part-time, temporary or probationary employees.  As a result, anybody who is employed by an employer in any capacity will count unless the specific services they provide are exempt under the existing unemployment compensation statute (see M.G.L. ch. 149, §§ 5, 6).  So, yes, an employer that does not offer benefits to new employees for 90 days will owe the EMAC Supplement for any quarter in which the new employee was enrolled in MassHealth or a ConnectorCare plan for at least 14 days.

Q:  How often will an ER be looked at and penalized?

A: The EMAC Supplement will be calculated and charged on a quarterly basis.

Q: What can an employer do before the law goes into effect to find out what population within their company does have MassHealth or a subsidy from the MA Connector so they can budget for this?

A: The proposed regulations currently allow employers to have access to beneficiary information from MassHealth and ConnectorCare only after the EMAC Supplement has been calculated, for purposes of challenging the determination.  There appears to be no method by which an employer can obtain that information in advance.

Q: If an employee has 2 jobs and at both make more than $15,000, but are part-time so they are not eligible for group sponsored benefits, will each respective employer be required to pay the penalty?

A: There is no rule that says an employer cannot offer health insurance to part-timers, but assuming a part-time employee works two part-time jobs and is not eligible for employer-sponsored health coverage from either employer, then yes – based on the law and the current proposed regulations, both employers would owe an EMAC Supplement for each quarter in which the employee was covered under MassHealth or a ConnectorCare plan, up to a maximum of $750.  In other words, the fact that the employee has a second job with a second employer would not relieve the first employer from liability for the Supplement, and vice versa.  However, an employee making more than $30,000 may not qualify for MassHealth or ConnectorCare in the first place.