Massachusetts Requires Cafeteria Plan For Certain Employees By July 1, 2007

One of the provisions of the Massachusetts Health Care Reform Law taking effect on July 1, 2007 is that an employer with 11 or more full-time equivalent employees employed in the State, must adopt a written Section 125 cafeteria plan in order to be exempt from the Free Rider Surcharge.

Employers must adopt a plan that allows certain employees to purchase medical insurance on a pre-tax basis, either under the employer-sponsored group health plan or from the Connector (aka "Commonwealth Choice").

Only the following MA employees may be excluded from participation in the employer’s Section 125 cafeteria plan:

• Employees under age 18;
• Temporary employees (who work no more than 12 weeks in any 12 month period);
• Part-time employees who average fewer than 64 hours per month;
• Wait staff, service employees or bartenders who earn less than $400 per month in payroll wages;
• Students who are employed as interns or as cooperative education student workers;
• Seasonal employees under a U.S. J-1 student visa or a U.S. H2B visa and who are enrolled in travel health insurance.

In addition, the Section 125 cafeteria plan may not have a waiting period longer than 2 months. This means that employers whose plans have eligibility requirements that exclude certain employees (for example, a medical plan with a service requirement of 30 hours per week for eligibility) or that have waiting periods longer than 2 months, must offer a non-excludable employee the ability to pay for his or her Commonwealth Choice insurance via a Section 125 cafeteria plan.

Affected employers must file their Section 125 cafeteria plan documents with the State. In addition, employers must distribute, collect and retain (for 3 years) Massachusetts employee waivers of participation in its Section 125 cafeteria plan.

If you have employees in Massachusetts, you must have a Section 125 plan in place and you need to discern whether your employer-sponsored group medical plan eligibility rules require you to offer participation in your Section 125 plan to non-excludable MA employees. If you would like help determining whether this law affects you, or in complying with it, let us know.