On August 1, Massachusetts Governor Charlie Baker signed into law H. 3822, “An Act Further Regulating Employer Contributions to Health Care” (the “Act”). The purpose of the Act is to shore up the finances of the Commonwealth’s Medicaid program and its Children’s Health Insurance Program (CHIP), which in Massachusetts are combined into a single program called MassHealth. MassHealth covers about 1.9 million low income, minor and disabled Massachusetts residents, and it costs about $15.6 billion annually.

The Act temporarily increases existing employer fees and imposes new fines on employers that together are expected to raise about $200 million. Despite this new revenue, the Act leaves a significant shortfall in projected MassHealth revenues. In light of this budget shortfall, future changes to these rules are all but inevitable. The new law applies in 2018 and 2019, and it sunsets December 31, 2019.

In particular, the Act:

• Increases the Employer Medical Assistance Contribution (“EMAC”) from an annual maximum fee of $51 per employee to $77 per employee; and

• Imposes a penalty on employers of up to $750 for each non-disabled worker who receives health insurance coverage through MassHealth or who opts out of employer-provided coverage and instead receives subsidized coverage from the Massachusetts Health Connector (i.e., the Commonwealth’s Affordable Care Act marketplace).

Act Section 3: Increase in the EMAC contribution rate

The EMAC requirements were enacted in 2014 following the repeal of Massachusetts’ “fair share” employer contribution requirements that were a part of the 2006 Massachusetts health care reform effort. Under the EMAC rules, employers that have an average of at least six employees per quarter in Massachusetts are required to make EMAC contributions, irrespective of whether the employer offers health insurance coverage to its employees. The contribution is determined by applying a statutorily-established percentage rate to the first $15,000 of each employee’s wages during the calendar year.

Before the Act, the maximum EMAC contribution rate was 0.34% up to the annual wage cap of $15,000, which translates to a maximum of $51 per employee per year. For 2018 and 2019, that rate rises to 0.51%, or $77 per employee per year. EMAC contribution rates are phased-in for employers newly subject to the EMAC rules, for whom the rate is 0.00% in the first three years. In the fourth and fifth years, the EMAC percentage rates are 0.12% and 0.18%, respectively. The Act increases the EMAC percentage rates to 0.18% from 0.12% (in the fourth year), and to 0.24% from 0.18% (in the fifth year).

Act Section 9: The 5% Employer Assessment

The Act establishes a new employer assessment that applies to all Massachusetts employers that are required to pay into the Commonwealth’s unemployment insurance fund, except for employers with not more than 5 employees per quarter in Massachusetts. (Generally, Massachusetts employers with employees working one or more days in 13 weeks during a calendar year that pay wages of $1,500 or more in any calendar quarter are required to make Massachusetts unemployment insurance contributions.) Under this provision of the Act, employers must pay to the Department of Unemployment assistance 5.00% of annual wages for each non-disabled employee who:

• Obtains health insurance coverage from MassHealth (excluding the premium assistance program), or

• Qualifies for subsidized coverage through the Connector.

The amount of the assessment is capped at an annual wage cap of $15,000, which translates to $750 per affected employee.

Here is the relevant text of the new requirement, which is included in a new Section 189A of Chapter 149 of the Massachusetts General Laws:

(a) Each employer, [ ] except those who employ not more than 5 employees, shall pay a contribution for each employee who receives health insurance coverage through the division of medical assistance or subsidized insurance through the commonwealth health insurance connector authority. The contribution shall be computed by multiplying the wages the employer paid any such employee by 5 per cent.

“Wages” means the “unemployment insurance taxable wage base,” i.e., $15,000 (which is the cap established in Mass. Gen. Laws ch. 151A, Section 14(a)(4)).

The Commonwealth’s Department of Unemployment Assistance, “in consultation with the division of medical assistance and the commonwealth health insurance connector authority,” is directed to promulgate regulations implementing the new employer assessment. These regulations will, among other things, “specify the number of days that an individual shall be required to receive such subsidized health care coverage to cause the assessment.” The Department of Unemployment Assistance will also establish rules for the payment of the assessment.

(The current EMAC rule is at Mass Gen Laws ch. 149, sec. 189(a), and the implementing regulations are at 430 CMR 10.00.)

The Act is far from the final word on EMAC assessments. These most recent changes were originally packaged with a series of changes to the MassHealth eligibility rules that were intended to lessen the burdens on employers and to otherwise address the program’s ballooning costs. These changes were not adopted, however, much to the consternation of the business community. Ultimately, the matter of MassHealth’s rising costs cannot be solved by manipulating EMAC contribution rates.