In an earlier post, we reported on the passage of H. 3822, “An Act Further Regulating Employer Contributions to Health Care,” (the “Act”), the purpose of which is to shore up the finances of the Commonwealth’s Medicaid program and its Children’s Health Insurance Program (CHIP). The law, which is a temporary measure, has two components or tiers.

• Tier 1 increases the Employer Medical Assistance Contribution (“EMAC”) from an annual maximum fee of $51 per employee to $77 per employee; and
• Tier 2 imposes a tax penalty—or “EMAC supplement”—on employers with more than 5 employees of 5% of a covered employee’s unemployment insurance taxable wages up to the $15,000 per year (i.e., a cap of $750 per covered employee) for each nondisabled employee who receives health insurance coverage through the Massachusetts Division of Medical Assistance (i.e., MassHealth) or subsidized insurance through the Massachusetts Health Insurance Connector Authority (i.e., ConnectorCare).

The Act directs the Commonwealth’s Department of Unemployment Assistance (DUA) to promulgate regulations implementing the new, Tier 2 penalty. The DUA has made available a useful set of FAQs on the subject, and it has also issued draft regulations, which are the subject of this post.

The Draft Regulations

The DUAs draft regulations implementing the tier 2 EMAC supplement follow the statute while providing additional details—i.e., they do what a regulation should do. The rules governing which employers are affected generally follow existing rules governing unemployment insurance in the Commonwealth. Identifying which employers are affected, and how assessments—or “contributions”—are assessed and collected closely track existing law.

The draft regulations reiterate that the EMAC supplement applies to employers with more than five employees in Massachusetts whose non-disabled employees either obtain health insurance from MassHealth (excluding the premium assistance program) or receive subsidized coverage through the Massachusetts ConnectorCare program. The number of employees for these purposes is calculated by dividing the sum of the employer’s three monthly employment levels for the quarter by three. An employer’s employment level for each month of the quarter is the number of employees who worked or received wages for any part of the pay period that includes the 12th of the month as reported on the Massachusetts unemployment insurance return. The proposed regulations note that non-profit organizations and government entities are subject to these rules.

Beginning with the first calendar quarter of 2018, any employer who employs six or more employees in any quarter is subject to the EMAC Supplement for each such quarter. An employer’s number of employees in a calendar quarter is calculated by dividing the sum of the employer’s three monthly employment levels for the quarter by three. An employer’s employment level for each month of the quarter is the number of employees who worked or received wages for any part of the pay period that includes the 12th of the month as reportable to DUA. Because the calculation is based on wages and not hours worked, an employer subject to the rule is subject to the penalty for each employee on MassHealth (excluding the premium assistance program) or receiving subsidized coverage through the Massachusetts ConnectorCare, regardless of whether the employee is part- or full-time.

An EMAC supplement payment is required for each quarter commencing in 2018 if one or more of an employer’s employees received health insurance coverage either through the MassHealth agency or through ConnectorCare for a continuous period of at least fourteen days. An employer is not liable for an EMAC Supplement with respect to employees who in that quarter have health insurance coverage through MassHealth either on the basis of permanent and total disability as defined under the Social Security Act or under applicable state laws or as a secondary payer because such employees are enrolled in employer-sponsored insurance.

The DUA determines each employer’s liability for the EMAC Supplemental contribution based on information provided by the Massachusetts Division of Medical Assistance and ConnectorCare. The agency will issue a determination letter that specifies the liability amount. EMAC supplement payments will be added to the statement showing the employer’s unemployment insurance liability. Supplemental contributions must be paid quarterly to avoid interest and penalties. Employers wishing to appeal the DUA assessment must do so within 10 days.

The draft regulation also includes rules for “successor employers” in the case of a change in ownership, including but not limited to an acquisition, consolidation, or a partial or total transfer, during a calendar quarter. Successor employers are generally liable for the EMAC supplemental contribution without being allowed credit for any EMAC supplemental contribution paid by the predecessor employer. Despite being paid to the DUA, EMAC supplemental payments are not considered unemployment contributions for purposes of receiving credit under the Federal Unemployment Insurance Contribution Act (FUTA), and they are not reported on the Form 940 worksheet as such. Nor are EMAC supplemental payments taken into account for purposes of determining the employer’s Massachusetts unemployment insurance contribution rate.

Impact on Employers

The rules governing EMAC supplemental contributions are not difficult to understand, nor should they prove difficult to administer. But the statute is particularly onerous in one respect: If an employee chooses to voluntarily forgo an employer’s offer of coverage and instead applies and qualifies for MassHealth (excluding the premium assistance program) or subsidized ConnectorCare, the employer is penalized irrespective of the quality or affordability of the coverage that it offers. There is no exemption similar to that provided under the Affordable Care Act’s employer shared responsibility rules under which an applicable large employer can escape excise tax exposure by offering coverage that is affordable and provides minimum value.

Separately, while the Act applies only during 2018 and 2019, it is hard to envision it not being extended in some form. The budgetary considerations driving the Act’s adoption are not temporary.