Massachusetts’ Section 125 Requirement: Implementation and Lessons Learned Jon Kingsdale Commonwealth Health Insurance Connector Authority July 18, 2008

2 Agenda  Policy Objectives  Overview of Massachusetts’ Section 125 Requirements  Survey/Case Study Results  Key Findings and Lessons Learned

3 Policy Objectives  Reduce net cost of health insurance by taking advantage of federal and state tax codes  Extend pre-tax option to non-benefits-eligible employees (e.g., part-timers, contract workers)  Reduce use/cost of uncompensated care pool (i.e., health safety net)

4 Overview of MA’s Section 125 Requirement  Applies to all Massachusetts employers with 11 or more full-time equivalent employees  Premium-only plan that allows employees to pay health insurance premiums “pre-tax”  Eligible employees must have access to at least one health plan  No employer contribution required

5 Overview of MA’s Section 125 Requirement (cont.)  Up to two months waiting period permitted  Advantages to designating the Connector, but not a requirement  Employers that do not offer a Sec. 125 plan subject to Free Rider Surcharge

6 Advantages of Using the Connector  Employee choice of benefits level and carriers  Ease of administration & aggregation of billing  Employer NOT positioned as endorsing any one plan  One-stop shopping for info on Reform

7 Section 125 – Implementation Timeline  April health reform law enacted  Jan original Section 125 effective date, subsequently revised to July 2007  March draft 125 regulations issued  March - May public comment period  July regulations take effect  September/October health insurance coverage effective date

8 Section 125 – MA Exclusions  Employees under age 18  Temporary employees (less than 12 consecutive weeks)  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

9 Section 125 – MA Exclusions (cont.)  Employees covered by collectively-bargained multi-employer plans (Taft-Hartley, MEWA)  Students employed as interns or as cooperative education student workers  Employers offering 100% premium contribution  Seasonal employees (state certified) and seasonal international workers with either:  U.S. J-1 student visa, or  U.S. H2B visa and who are also enrolled in travel health insurance

10 Section 125 – MA Exclusions Not Intuitive  These exclusions and other specifics in the regs are simply not intuitive—need to consult with employers, brokers, consultants, health & welfare fund administrators, HR lawyers, etc.  On our website for your information are hand0book, sample mailings, etc.

11 Survey/Case Study Results  Evaluation of initial implementation of Section 125 plan requirement  Six employer case studies (small, mid-sized, and large)  Survey sent to >2,800 employers completed (25% response rate)

12 Key Findings  After initial trepidation, most employers report positive experience (< 20 hours)  Wide variation in amount of education and outreach -- may affect take-up  Jargon-free materials are a necessity for both employers and employees  Tax law + health benefits = confusion  E.g.: “don’t pay taxes” better than “salary reduction”

13 Key Findings  Frequent communication with employers is necessary to keep them engaged  Administrative simplicity is crucial to success  In a state with relatively few uninsured and very small non-group market, take-up rate has been low, so far

14 Lessons Learned  Upfront, frequent and ongoing consultations with employers and benefits professionals is critical to maintain buy-in  Outreach and education to employers and employees can’t be overstated  Target employers that don’t offer ESI

15 Lessons Learned (cont.)  Most employers can’t/won’t dedicate inordinate amount of time on non-benefits-eligible employees  May need to communicate directly with employees, e.g., other non-group enrollees  Brokers and consultants play a major role in advising employers

16 Lessons Learned (cont.)  Simplify, simplify, simplify  It all comes down to $$

17 Exemplary Employer: Market Basket  14,000 employees, of whom 4,500 are MA part- timers eligible for s. 125 “V.P.” only  Started with an enrollment goal & a real plan  Interactive in-store meetings, train-the-trainers (store managers), English & Spanish,  Enrollment has grown slowly since last fall, but only to 65 subscribers today (<1.5% of eligibles)