Massachusetts Penalty.  In August 2017, Massachusetts enacted a new law that, among other changes, temporarily imposes a penalty on employers of up to $750 per year (5% of an employee’s annual wages up to $15,000) for each non-disabled employee who receives health coverage through MassHealth program (the state’s Medicaid program) or the ConnectorCare program (state-subsidized Exchange coverage).  The penalty, which is intended to help fund the rising costs of the MassHealth and ConnectorCare programs, applies beginning January 1, 2018, and sunsets on December 31, 2019.

Limiting Exposure to the Penalty.  An employer may limit, but not entirely eliminate, its exposure to the new penalty by offering its employees medical coverage that meets the affordability and minimum value standards of the Affordable Care Act (“ACA compliant coverage”).

• Eligibility for Subsidized ConnectorCare Coverage.  An employee who is offered ACA compliant coverage from his or her employer is not eligible for subsidized coverage through ConnectorCare, because the eligibility requirements for ConnectorCare are similar to the requirements for a federal Exchange subsidy.  Therefore, an employer offering ACA compliant coverage should not incur a penalty on that basis.
• Eligibility for MassHealth.  However, an employer’s offer of ACA compliant coverage will not prevent a penalty based on MassHealth enrollment, because eligibility for the MassHealth programs that trigger the penalty is not dependent on whether an employer offers the employee medical coverage, but instead is based on how much the employee earns.

Penalty Assessments.  The Massachusetts Department of Unemployment Assistance (the “Department”) has begun assessing the new penalty – known as the “Employer Medical Assistance Contribution Supplement” (“EMAC Supplement”) – for the first quarter of 2018.  Payments are due by April 30, 2018.

Deadline to Appeal.  An employer that disagrees with the Department’s penalty assessment has only 10 days from receiving notice of the penalty to appeal.  If the Department denies the appeal, the employer has 30 days to appeal the Department’s decision to state court.

Grounds for Appeal.  According to the current guidance available from the Department, an employer appears to have a limited basis on which to appeal a penalty determination.  For example, an employer may argue that the individual triggering the penalty is an independent contractor and not an employee or that the wages on which the penalty was based were incorrect.
Notably, the Department’s guidance does not address what appears to be the most obvious grounds for appeal – that the employee was not actually eligible for the state program triggering the penalty.

• Although, as discussed above, an offer of ACA compliant coverage would appear to be a basis to appeal an EMAC Supplement based on ConnectorCare enrollment, it is not clear whether the Department will be willing to revisit the ConnectorCare eligibility decision, which was made by a different state agency.
• An offer of ACA compliant coverage will not be a basis to appeal an EMAC Supplement based on MassHealth enrollment.  Unfortunately, the Department penalty notice does not specify whether a penalty is triggered because of enrollment in MassHealth or ConnectorCare.  It is not clear whether this information will be provided by the Department during the appeal process.

Next Steps.  Although it is not clear whether the Department will entertain the argument, it may be helpful for employers offering ACA compliant coverage to include this as a basis for the initial appeal to the Department, if only to preserve the right to appeal on this basis to state court.
It is important for employers who wish to appeal a penalty determination to act promptly, as employers have only 10 days to request an appeal.  Employers will also want to ensure that employees throughout their organization appreciate the significance of a Department penalty assessment and know where to direct the assessment internally.

Contact Information.  For more information, please contact Don Mazursky (404.888.8840), Kelly Meyers (404.888.8838), Angela Roberts (404.888.8822) or Alex Smith (404.888.8839).