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Client Alert - Massachusetts Healthcare Reform Act: July 1 Deadline for Massachusetts Employers - Proper 125 Plan Required (PDF) By Michael J. Radin, Esq.

Saturday, June 16, 2007
There is an imminent deadline for Massachusetts employers. As of July 1,
2007, Massachusetts employees are required to have health insurance if an affordable
plan (based on their income) is available to them. The new law
phases in mechanics for individuals to become responsible for their own health
insurance, and utilizes employers in the process. To implement this mandate,
employers with eleven or more “full time employees” (“FTE’s) in Massachusetts
must make a “fair and reasonable” contribution to the cost of FTE’s health insurance,
or face a fine of up to $295 per FTE (an amount that could increase in
the future) for failing to do this. Out-of-state employers who have FTE’s in
Massachusetts (regardless of the employees’ residence) above the threshold
number must comply with the new law.
We want to alert you to a crucial July 1, 2007 deadline for employers.
These are two basic and easy to do actions to take by July 1. These should be
done for basic risk management. Employers with eleven or more FTE’s in
Massachusetts must do the following by July 1, 2007:
1. Adopt a Proper 125 Plan. A 125 plan (referring to Internal Revenue
Code Section 125) allows employees to pay for health care costs using
pre-tax dollars. A proper Section 125 Plan under the new law (“125
Plan”) must allow all employees on the payroll (including FTE’s and parttime
employees) to pay for their health insurance using pre-tax dollars.
If you already have a 125 Plan, you need to confirm whether it complies,
or whether you need to amend it or adopt a new plan. Some employers
may have more than one 125 Plan to provide the proper scope. The 125
Plan is supposed to be filed with the state, but the state is uncertain how
to handle this. Information about the requirements for a 125 Plan can
be found at While form 125 Plans are available
from the Massachusetts “Connector” website, we urge you to speak
with your advisors before actually adopting a plan.
Adopting a proper 125 Plan by July 1, 2007 allows an employer to avoid
the “free rider” surcharge. This surcharge requires an employer to pay
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Massachusetts Healthcare Reform Act
July 1 Deadline for Massachusetts Employers –
Proper 125 Plan Required
Client Update
June 2007
100% of the healthcare costs if employees
(meeting certain income
requirements) and/or their dependents
receive more than a minimum
amount of free medical care (more
than three times per year), or if the
employer has five or more instances
of employees or their dependents
receiving free care in a
year. Just one instance of care
above this threshold (such as from
a serious car accident) can cost the
employer significant – and potentially
unlimited - amounts. Having
a proper 125 Plan in place by July
1, 2007 eliminates that exposure.
Given the downside, adopting a 125
Plan is a must.
2. Obtain Health Insurance Responsibility
Forms. Effective July
1, 2007, the law requires two forms
be used by employers with more
than ten employees. One form is
for employees and one is for employers.
The forms are not yet
available – the best we can do is
alert you to be ready to use them
once available. The forms are expected
to be posted at
Employee form. Each employee
needs to sign an employee Health
Insurance Responsibility Disclosure
(“HIRD”) form if he/she (i) declines
to enroll in an employer-sponsored
health plan, or (ii) declines to participate
in the employer’s 125 Plan.
Employees will have to indicate
whether they have an alternative
source of insurance coverage. Employers
must distribute and collect
these forms from employees, and
retain them for three years (there
is a fifteen-day grace period for
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new hires). The employer should
place the form with the employees’
confidential records.
Employers need to make a fair and
reasonable attempt to secure this
form. To avoid situations where an
employee fails to return the form,
we suggest that you (i) prepare a
cover sheet (attached to the form)
that is signed and dated by the
employee confirming that the form
was delivered, or (ii) place a memo
into the employee’s confidential file
that the employee failed to sign and
return the actual form.
Employer form. All employers must
submit annually an employer-HIRD
to the state. The content, time and
place for filing have yet to be specified,
but the form is expected to
cover some basic information such
as number of full and part time employees,
whether the employer has
a 125 Plan, and whether the employer
offers to pay a portion of
employees’ health insurance premiums.
Taking the above two actions are
basic requirements you need to take now
to protect yourself. There will be additional
action items as the new program
Looking Ahead.
Two other items that deserve your
attention now are: (i) making certain that
you do not “discriminate” against an employee
based on a number of healthrelated
factors, and (ii) identifying the
upcoming open enrollment periods for
your health insurance plans to allow employees
to elect in – or for you and them
to arrange for other coverage. Going forward, all employees (no matter at what level)
must receive the same coverage options and premium support within the plan available
to them. Further, it will be essential to provide the proper notices to your employees to
allow you and them to comply with the requirements of the new law.
As of July 1, 2007, if you are subject to the new law but do not have an openenrollment
period, then your employees will need to secure their own insurance (which
is now available from the Connector website). You will need to be ready to give the
employees the necessary notice.
Importantly, employers cannot escape the new law by calling personnel
“independent contractors.” Since 2004, Massachusetts has had the strictest independent
contractor law in the country, as there is now a presumption (almost impossible to
rebut) that an individual helping in your line of business is an employee. This means
that you cannot simply label personnel as contractors to avoid the eleven or more FTE
thresholds. Importantly, seasonal and temporary employees have to be looked at as
there is a fairly low threshold in the new law before they are counted toward the FTE
threshold. Basically, employers need to review their labor pool very carefully under the
new rules.
You can access a tremendous amount of information and learn about available insurance
products at We expect to send further alerts as
specific action item deadlines approach. In the meantime, if you have any questions,
we invite you to contact Michael Radin, Esq. at 617-218-2035 or
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Tarlow Breed Hart & Rodgers, P.C. was formed in 1991 and from inception,
has dedicated its services to small and family-owned businesses providing
clients with personalized, prompt and effective services. The firm’s multidimensional
practice offers experienced counsel in the areas of corporate,
litigation, real estate and tax and estate planning as well as hospitality,
intellectual property, municipal, secured lending and securities law.
This Update is published by the firm of Tarlow Breed Hart & Rodgers, P.C.
as a service to our clients and friends. The information contained in this
Update should be viewed as informational and not as a substitute for legal
advice. Please consult your attorney on specific legal questions.
101 Huntington Avenue | Prudential Center |Boston, MA 02199 |617.218.2000 | 617.261.7673 Fax|