Massachusetts’ Section 125 Requirement: Implementation and Lessons Learned Bob Carey Director of Planning and Development Commonwealth Health Insurance Connector Authority June 20, 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 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

7 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

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

9 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)

10 Key Findings  After initial trepidation, most employers report positive experience  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

11 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

12 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

13 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  Brokers and consultants play a major role in advising employers

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

15 Current State of the Commonwealth  More than 350,000 newly-insured since April 2006  110,000 more in private coverage (no public $$)  Employer-sponsored insurance remains predominant source of coverage (82% of non-elderly)  Non-group premiums are down over 40% and membership has grown over 50%

16 Current State of the Commonwealth  Free Care Pool usage and spending down by one-third  Loan repayment initiative has resulted in 47 primary care doctors and nurse practitioners committing to practice in community health centers, providing access to primary care for 84,000 patients  Opinion polls show plurality of voters continue to support health reform