Massachusetts’ Section 125 Requirement:

Implementation and Lessons Learned

Jon KingsdaleCommonwealth Health Insurance

Connector AuthorityJuly 18, 2008

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Agenda Policy Objectives

Overview of Massachusetts’ Section 125 Requirements

Survey/Case Study Results

Key Findings and Lessons Learned

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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)

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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

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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

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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

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Section 125 – Implementation Timeline April 2006 -- health reform law enacted Jan. 2007 -- original Section 125 effective

date, subsequently revised to July 2007 March 2007 -- draft 125 regulations issued March - May 2007 -- public comment period July 2007 -- regulations take effect September/October 2007 -- health

insurance coverage effective date

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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

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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

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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.

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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 -- 728 completed (25% response rate)

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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”

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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

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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

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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

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Lessons Learned (cont.)

Simplify, simplify, simplify

It all comes down to $$

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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)