Massachusetts Health Reform ERISA Industry Committee July 31, 2007

The Uninsured in Massachusetts Total Commonwealth Population: 6,200,000 Insured (94%) 5,830,000 Uninsured (6%) summer 2006 370,000 <100% FPL 70,000 Medicaid Eligible but unenrolled 0-300% FPL 140,000 Commonwealth Care >300 FPL 160,000 Affordable Private Insurance Note: Based on August 2006 Division of Health Care Finance and Policy statewide survey

MA Landmark Health Care Reform Law Government subsidies for low-income uninsured Individuals age 18 and older to have health insurance by July 1, 2007 Employers w/ 11+ full-time equivalent employees to provide premium contribution & pre-tax payroll deduction Reform the small- & non-group market Increase MassHealth reimbursement levels (P4P)

Health Connector’s Mission: Insure as many as possible Create choice of affordable insurance products Consolidate administration of group insurance Deliver high quality customer service Keep the process simple and transparent Improve the portability of health insurance

What the Connector Does REGULATORY Commonwealth Care benefits & premiums MCC Regulation S. 125 Regulations Affordability Schedule Waivers & Appeals ENTERPRISE Qualify & enroll for CommCare Seal of Approval for CommChoice Sell CommChoice: Individuals Non-group employees Small employers

Commonwealth Care Enrollment thru 7/1/07

Employer Responsibilities Section 125 Plan Offering Fair & Reasonable Employer Contribution Employers may choose to make contributions to their employees’ health insurance or to make payments that ultimately help offset the State’s healthcare costs Health Insurance Responsibility Disclosure (HIRD) Form Non-discrimination Provisions

Helping Employees Connect to Good Health Young Adults Other Non-Group Small Business Voluntary (Section 125) 3

Options Under Commonwealth Choice (37-year old) $185 $175 $280 $240 Bronze $230 $235 $340 $300 Silver $370 $285 $460 $400 Gold Carrier D Carrier C Carrier B Carrier A Benefit Level

How Does This Compare With What is Available Now? The $184 plan is half the $335 premium this same individual would pay now The $335 premium currently available buys less: No Rx coverage $5,000 deductible The $175 plan covers: Rx Office visits & ER visits immediately, plus 80 % of other costs after a $2,000 deductible

Minimum Creditable Coverage The lowest level of insurance an individual may purchase to avoid the mandate. Comprehensive health plans, include Rx No annual or per sickness benefit maximum 3. No indemnity fee schedule of benefits Deductible capped at $2,000/$4,000 Cover (3/6) preventive care visits Out-of-pocket max. of $5,000/$10,000

Individual Mandate Tax Year 2007: MA residents age 18 and older without minimum creditable coverage will lose the personal exemption unless they have an approved waiver (e.g. based on affordability, hardship) Tax Year 2008 and later: Penalty will be 50% of what an individual would have paid toward “affordable” health insurance coverage for one year

Affordability Schedule and Regulations Flexible enforcement Accounting for individual circumstances Robust appeals process Require Participation in Commonwealth Care For the rest, keep it simple Excuse lower-income brackets Assume affordability for upper-income brackets Progressive sliding scale of premium contributions, stated as dollars/month, in between for singles, couples and 3+ Benchmark affordability for ESI based on Commonwealth Care rates

Implementing a Commonwealth Choice Voluntary Plan

Commonwealth Choice Overview Not subsidized Individuals who earn more than 300% of FPL Options from six insurers have earned the Health Connector’s Seal of Approval GOLD, SILVER, BRONZE and YOUNG ADULT Commonwealth Choice plans are available: Via a Section 125/Voluntary Plan (pre-tax) Direct (after tax) Pharmacy options available Available to small businesses (<50 employees) on “contributing” basis in the future

Commonwealth Choice Eligibility Residents of Massachusetts age 18 or older (or under 18 with the permission of a parent/guardian) living within the health plan’s service area who Participate in an employer’s Section 125/Voluntary Plan, OR Work for an employer with ≤50 employees but do not participate in the employer’s Section 125/Voluntary Plan; OR Work for an employer with >50 employees but do not participate in the employer’s Section 125/Voluntary Plan, and are not eligible for employer sponsored insurance; or are within a waiting period for employer sponsored insurance; or are eligible for employer sponsored insurance, but do not receive an employer contribution of at least 33% toward the cost of the employee health insurance (individual coverage); or are eligible for employer sponsored insurance, but the health insurance offered by the employer does not meet minimum creditable coverage standards

The Commonwealth Choice Advantage Aggregates options available from six quality insurers (e.g. Travelocity) Options comply with minimum creditable coverage (MCC) requirements Employee enrollment is easy Eligibility, billing and premium payment processes are streamlined for the employer

Key Dates for Section 125/Voluntary Plan Implementation A Section 125 Plan must be established by July 1, 2007 that provides access to one or more health coverage options on a pre-tax basis Allowable Section 125 eligibility waiting periods: Up to 2 months if employer does not contribute (Voluntary Plan) Corresponds with health care coverage option(s) if employer contributes Commonwealth Choice coverage begins on the 1st of the month following: enrollment by the employee, AND submission of the first full month’s premium by the employer Pilot for EDI (ASCII) process targeted to begin August, 2007

Starting a Section 125/Voluntary Plan Create a Section 125 Plan and designate Commonwealth Choice Set up an account with the Health Connector, including company information and signed Terms & Conditions agreement On-line, by fax or by mail Submit Section 125 Plan-employee information (eligible or participating employee listing) to the Health Connector On-line (data entry or Excel) Piloting EDI Communicate Commonwealth Choice employer ID number to eligible employees (to “shop” and enroll) Once employees enroll, receive bill for premiums due from the Health Connector based on employee selection Submit monthly premium payments to the Health Connector via check, EFT, wire transfer or money order Note: Commonwealth Choice health insurance coverage begins on the 1st of the month following: Enrollment by employee Receipt of 1st month’s premium by Health Connector Update Section 125 eligibility/participant information

Employer Account Set-up Set up an account with the Health Connector, including company information and signed Terms & Conditions agreement: On-line, by fax or by mail Submit listing of eligible or participating employees On-line (data entry or Excel) At least one eligible employee must enroll within two months from the date the employer’s account is set up for the account to remain active The group’s effective date is the 1st of the month following account set-up

Enrollment Coverage begins on the 1st day of the month following enrollment and payment of 1st month’s premium and ends on the last day of the month Once an employee enrolls, a bill will be generated (45 days in advance of the effective date) Employees who enroll by August 15th may become effective on October 1, 2007 Employees who enroll between August 16 and August 31, 2007 may become effective on November 1, 2007 For employees who need coverage sooner, the Health Connector accepts post tax payments made directly by an individual Employees who do not enroll within the enrollment period will have to wait until the employer’s next annual enrollment period (unless they have a qualified change in status event) or can purchase coverage directly through the Health Connector on a post-tax basis

Billing/Premium Payment Rates are calculated based on the employee’s demographics at the time of enrollment (e.g. age and zip code) and are based on the employer’s effective date The Health Connector will send the employer a single bill of premium amounts due based on employee selection: Once an employee makes a selection and enrolls, a bill will be generated (45 days in advance of the effective date) Monthly billing statements are issued about the 15th of the month (45 days prior to the coverage month) Premiums are due on the 10th of the month prior to the coverage month but may be accepted up to 5 business days prior to the beginning of the coverage month The employer submits premium payments to the Health Connector via check, EFT, money order or wire transfer

Billing/Premium Payment (cont.) The employer is not responsible for any premium shortfall Accounts are considered delinquent when a partial premium payment, or no payment, is received prior to the first (1st) day of the coverage month If an account is delinquent for 60 days from first day of the coverage month that payment is due, coverage will be terminated Any credit balances are returned to the employer after cancellation or termination of coverage Re-instatement of lapsed coverage is allowed twice per plan year as long as all back premiums and reinstatement fees are paid and coverage has not lapsed for more than 90 days

Changes/Renewals Employer notifies the Health Connector of eligibility changes Changes are allowed when a subscriber has an eligible status change event or moves out of the plan’s service area Renewals are 12 months from the group’s effective date Employees hired mid-year will renew on the group’s renewal date Employees are “locked in/out” until the group’s next open enrollment period

Section 125/Voluntary Plan Timeline Sample 1 Key assumptions: CommChoice enrollment period and Section 125 waiting period run concurrently July 1st Section 125 Plan effective date and 2 month waiting/enrollment period The employer must set up an account with the Health Connector before employees can enroll, including Employer information Terms & Conditions Employee census During waiting/enrollment period employees can shop for/enroll in Commonwealth Choice 1st Commonwealth Choice effective date is October 1st 1st notification to employer of payroll deduction amounts is August 15th 1st premium payment from the employer to the Health Connector is September 10th Employee Commonwealth Choice coverage is effective on the 1st of the month following enrollment payment of the full first month’s premium Employees have the option to pay the monthly premium direct (after-tax) to begin coverage on September 1st or sooner Note: The Health Connector will accept payment up to 5 business days prior to the benefit month.

Section 125/Voluntary Plan Timeline Sample 2 Key assumptions: CommChoice enrollment period is subsequent to Section 125 waiting period July 1st Section 125 Plan effective date and 2 month waiting period The employer must set up an account with the Health Connector before employees can enroll, including Employer information Terms & Conditions Employee census Employees can shop for/enroll in Commonwealth Choice following the 2 month waiting period Commonwealth Choice enrollment period is from September 1st to September 30th 1st bill (notification to employer of payroll deduction amounts) is September 15th Premium payments must be received no later than 2 business days prior to the beginning of the coverage month Employee Commonwealth Choice coverage is effective on the 1st of the month following enrollment payment of the full first month’s premium 1st Commonwealth Choice effective date is December 1st. Employees have the option to pay the monthly premium direct (after-tax) to begin coverage on September 1st or sooner

For more information Your Connection to Good Health Contact the Health Connector: By phone: 1-877-MA-ENROLL (623-6765) or By e-mail: Connector@state.ma.us Or visit the Health Connector’s website at: www.MAhealthconnector.org Your Connection to Good Health

Section 125 Plan Requirements Other Employer Responsibilities ___________________________________________________ Other Employer Responsibilities

Employer Responsibilities (11+ FTEs) Fair & Reasonable Employer Contribution (or Fair Share Assessment) Effective 10/1/06 Primary test based on data from 10/1/06 – 9/30/07 Secondary test based on coverage from 7/1/07 DHCFP final regulation issued 10/06 DUA proposed regulation issued 4/20/07 Section 125 Plan Offering (Free Rider Surcharge) Effective 7/1/07 Final section 125 regulation issued 6/5/07 Admin Bulletin 02-07 issued 6/29/07 Emergency surcharge regulation/form issued 6/21/07 Health Insurance Responsibility Disclosure (HIRD) Forms Employer HIRD filed electronically with FSC data each November Emergency regulation/form issued 6/21/07 Annual “1099-HC” style statement Effective 1/1/08

Determining 11+ FTEs Fair Share Contribution, HIRD and Surcharge requirements (based on payroll from 10/1/06 – 9/30/07) Section 125 (based on payroll from 4/1/06 – 3/31/07; 10/1 thereafter) Calculation: Payroll hours for all who worked for at least a month Includes part-time, temporary and seasonal employees 2000 hours max. for any one employee Divide total hours by 2000 Take the payroll hours starting October 1 and ending September 30. FYI: Payroll hours include Jury Duty and paid leave, vacation, sick time, etc. Exclude hours of employees who worked less than a month. If any employee worked more than 2000 hours, just count 2000 hours for him or her. Divide by 2000 to get your FTE number for the Fair Share Assessment. If your number is 11 or more, move to the next tests.

M.G.L. c. 151F Section 2.  Each employer with more than 10 employees in the commonwealth shall adopt and maintain a cafeteria plan that satisfies 26 U.S.C. 125 and the rules and regulations promulgated by the connector.  A copy of such cafeteria plan shall be filed with the connector.

Intent of M.G.L. c. 151F Increase employer sponsored access to health insurance through cafeteria plans Make it more affordable for individuals to comply with the mandate through net tax savings Give employers some tax incentive as well as relief from the Free Rider surcharge

Traditional Cafeteria Plan Concepts A Federal tax code animal – IRC §125 An employer sponsored plan Provides choices among other employer sponsored group plans – a conduit or election vehicle. Benefit = right to make choices. Does not provide any substantive benefits Does not trigger ERISA compliance issues

Connector Section 125 Regulation 956 CMR 4.00 Addresses use of Section 125 Plans for purposes of MA health care reform Adopted March 20, 2007 as emergency regulation by Connector board Public hearing held on April 27, 2007 Written comments submitted through 4/27 Final adjustments voted on at June 5 board mtg Admin Bulletin 02-07 issued June 29, 2007

Connector Objectives For 956 CMR 4.00 Promote increased access to health insurance Ease administrative burden on employer Coordinate with other state agencies implementing Health Care Reform Do not invite ERISA challenges

Two Chapters from the HCR Story Ch. 118G - Surcharge An employer who complies with 151F with respect to an employee is not subject to the Free Rider surcharge if the employee receives uncompensated care. Ch. 151F - §125 Increase access to health care by adopting and maintaining a plan satisfying Code §125 and Connector rules. A win/win for the employer and the employee

Employer Surcharge for State-Funded Health Costs (a/k/a Free Rider Surcharge) May be assessed on employers > 11 employees not offering §125 plans to employees receiving uncompensated care HCR requires the surcharge to be assessed if more than $50,000 per year in free care used, and: one employee or dependents receive free care more than three times in the year, or employer has five or more instances of employees or their dependents receiving free care in the year The surcharge varies by employer size and free care utilization

Overview of 956 CMR 4.00 Each employer with 11 or more FTEs at MA locations must adopt and maintain a Section 125 Cafeteria Plan, effective 7/1/07 Practical Effect: Employers with existing Section 125 Cafeteria Plans should: Amend Current Plan to Expand Eligibility, or Establish Second Plan for Employees Not Covered by Group Health Plan

Overview of 956 CMR 4.00 The plan must, at minimum, be a “premium-only plan” that allows employees to pay for or contribute to the cost of medical care coverage on a pre-tax basis. The plan must offer eligible employees access to one or more medical care coverage options. No FSAs required Employers do not need to contribute to the cost of medical care coverage options available under the plan. No plan configuration restrictions Special exception from 151F for employers providing noncontributory medical coverage to all employees (dependents) not otherwise excluded

Overview of 956 CMR 4.00 §125 eligibility requirements determined by the employer Eligibility waiting period can match GHP wait period where employer contributes Up to 2 month §125 plan eligibility waiting period permitted for employee pay all coverages Optional 1-time extension to 9/1/07 for those who are employed on 7/1/07 Employers may exclude certain classes of employees from the plan and still be compliant for Free Rider Surcharge purposes A copy of the 7/1/07 plan document must be filed with the Health Connector between 9/1/07 and 10/1/07; pending further guidance

Excludable Employees for §125 Plan Purposes: Employees younger than 18 Temporary employees Employees working, on average, fewer than 64 hours per month Wait staff, service employees or service bartenders who earn, on average, less than $400 in monthly payroll wages Student Employees who are employed as interns or as cooperative education student workers Seasonal employees who are international workers with either a U.S. J-1 student visa, or U.S. H2B visa and who are also enrolled in travel health insurance Employees whose employer is required to contribute to a Multiemployer Health Benefit Plan based on their employment

Fair Share Contribution Primary Test Secondary Test 33% employer contribution to an individual health plan 25% participation OR 25% or more of full-time employees enrolled MA employer based regardless of residency Based on payroll hours Full-time employees Employed at least 90 days Employers who fail both tests are subject to a $295 assessment per employee per year (pro-rated for part-time employees)

Fair Share Contribution: Full-time Employee Definition 35 or more hours per week who work in MA (regardless of residence) Excludes independent contractor, seasonal employees and temporary employees Seasonal employee Works during employer’s seasonal period Employment does not exceed 16 weeks Temporary employee Full or part time Employment doesn’t exceed 12 consecutive weeks within 1 year Independent contractor As defined by Mass General Law

Health Insurance Responsibility Disclosure (HIRD) File Employer HIRD Form Filed annually (date to be announced by DHCFP) Filed electronically as part of annual FSC filing Maintain Employee HIRD Form Signed by employees who Decline employer-sponsored coverage Decline use of Section 125 Plan for medical New hires Annual open enrollment Status changes where coverage is terminated while remaining employed Retain for 3 years Emergency regulation/form issued by DHCFP 6/21/07

Annual “1099-HC” Statement (effective 1/1/08) Employers must provide or contract to provide by 1/31: Annual written statement to each subscriber Separate electronic report to DOR Statements and reports must identify: Carrier or employer Covered individuals/dependents w/dates of coverage Policy or group numbers NO SSNs Penalty = $50 per ind. / $50k max per year