By: HUB’s EB Compliance Team

Massachusetts Minimum Creditable Coverage (“MCC”) defines the essential, state-mandated health benefits residents of Massachusetts must have to avoid tax penalties. MCC requires comprehensive care including doctor visits, hospital stays and prescription drug coverage. Every year the state’s official health insurance marketplace under the Affordable Care Act (“ACA”), the Massachusetts Health Connector (“Connector”), sets the maximum deductibles and out-of-pocket maximums for individual and family levels. Employers are not required to provide MCC, but ensuring their plans are compliant will help employees avoid individual penalties.

Below are a series of common questions and answers around the MCC:

Q: What is the Massachusetts Minimum Creditable Coverage (“MCC”) requirement?

A: The MCC requirement is a Massachusetts statutory and regulatory requirement that generally requires, with few exceptions, any Massachusetts resident 18 years or older to have proof of a minimum level of health insurance coverage, if it is affordable, or pay a penalty through their Massachusetts state tax return. The requirement is also known as the Massachusetts individual health mandate.

Q: Who decides what level of health insurance coverage satisfies the MCC requirement?

A: The Massachusetts Health Connector, which is a state entity created by the Massachusetts Health Care Reform Act of 2006, and its Board of Directors, will determine what is deemed affordable coverage and the benefits and standards that constitute Minimum Creditable Coverage.

Q: Is a Massachusetts employer subject to a Massachusetts tax penalty if it fails to provide its Massachusetts employees with MCC?

A: There is no tax penalty exposure for the employer who does not provide MCC to its Massachusetts employees.

Q: Why would an employer of Massachusetts residents want to make sure that its group-sponsored health plan satisfies MCC requirements?

A: If an employer sponsor of group health coverage in Massachusetts fails to provide MCC coverage to its employees, any Massachusetts employee age 18 or older would be subject to a monthly tax penalty (which accrues after four months of noncompliance). Massachusetts law sets the penalty for non-compliance for individuals at no more than half of the minimum monthly insurance premium an individual would have qualified for through the Health Connector. This means that anyone subject to a penalty will owe half of the lowest-cost plan available to them for every month they are subject to a penalty at tax time.

Q: Does the MCC requirement apply to employees under fully insured, self-funded and level-funded health plans?

A: Yes, all. There is no exception for employees covered by an employer-sponsored self-funded or level-funded plan.

Q: Who verifies for the Massachusetts resident/employee under the employer-sponsored plan that they have health coverage that satisfies the MCC requirements?

A: Initially, the certification for the health plan is provided by the Health Connector after it reviews the health plan. Health insurance companies that sell fully insured group health plans that cover Massachusetts employees will communicate to the broker and employer sponsor that the coverage satisfies MCC requirements after the Health Connector approves the submitted plan.

For self-funded or level-funded plans, the employer or its Third-Party Administrator (“TPA”) can submit an MCC Certification Application attesting that the plan is actuarially sufficient for MCC purposes.

Q: What is Form 1099-HC, who prepares it and who distributes it?

A: All Massachusetts residents must report their MCC coverage on their annual state tax return using Form 1099-HC to avoid a tax penalty. The information on Form 1099-HC will help the Massachusetts employee complete their Massachusetts tax return. Every Massachusetts resident above the age of 18 who has health insurance will receive a Form 1099-HC.

Form 1099-HC is prepared and provided by a person’s health insurance carrier if the individual is covered by a fully insured plan. Typically, the insurance carrier will mail the form to the employee’s address.

If the employee’s health plan is self-funded, the employer has the responsibility for completing and distributing the Form 1099-HC to its employees and filing the information electronically with the Massachusetts Department of Revenue (“DOR”). Oftentimes an employer with a self-funded plan will contract with a TPA or insurance carrier to perform the specific Form 1099-HC responsibilities on its behalf.

Q: Is there a deadline for the distribution and filing of Form 1099-HC? Is there a penalty for non-compliance?

A: Both distribution of Form 1099-HC to employees and filing with the DOR must be completed by January 31 following the end of the tax year.

An employer who fails to distribute to employees and file Form 1099-HC with the DOR shall be punishable by a penalty of $50 per individual to which the failure relates, not to exceed $50,000 per year per violator.

Q: How is the tax penalty calculated for a Massachusetts employee who does not satisfy the MCC?

A: The individual mandate penalty applies only to adults who can afford health insurance and do not have it. If, according to the state affordability schedule, the employee had no affordable health plan options, the employee won't be penalized. There's no penalty if the employee’s income is at or below 150% of the federal poverty level.

Q: How does the MCC requirement assess a non-compliant health plan in isolation that is then paired with an HRA or HSA?

A: The MCC regulations allow for the consideration of the aggregate impact of a health plan that is non-complaint if it is integrated with an HRA or HSA for the purpose of satisfying certain MCC requirements.

Q: How have some employers tried to mitigate the impact of a MCC tax penalty on their employees?

A: There is no official guidance from the Massachusetts DOR or the IRS on this topic. In general though, some employers have grossed-up the impacted employee’s compensation, which would be subject to taxation, to try to offset any MCC tax penalty. An employer should consult with their tax advisor on any mitigation strategy.

Q: What are some of the general requirements of MCC coverage in Massachusetts?

A: MCC compliant plans must provide coverage for a broad range of medical services. There must be some level of coverage for:

  • Ambulatory patient services, including outpatient day surgery and related anesthesia
  • Diagnostic imaging and screening procedures, including x-rays
  • Emergency services
  • Hospitalization, including at a minimum, inpatient acute care services which are generally provided by an acute care hospital for covered benefits in accordance with the member's subscriber certificate or plan description
  • Maternity and newborn care, including prenatal care, post-natal care, and delivery inpatient services for maternity
  • Medical / surgical care, including preventative and primary care
  • Mental health and substance abuse services
  • Prescription drugs
  • Radiation therapy and chemotherapy

There are also requirements regarding what the plan can charge for in-network services:

  • Annual deductibles cannot exceed the individual and family limits
  • For plans with up-front deductibles or co-insurance on core services, there is an annual maximum on out-of-pocket spending
  • The out-of-pocket maximum must include all co-payments, coinsurance and deductibles for in-network services, but does not include prescription drugs
  • For plans that have a separate prescription drug deductible, it cannot exceed the annual limit
  • Doctor visits for preventive care must be provided prior to the deductible
  • There can be no limits or caps on: (1)prescription drug benefits, (2)the total amount paid for a particular illness or for benefits in a single year, or (3)certain services, such as a fixed dollar amount per day or stay in the hospital, with the patient responsible for all other charges.
  • The broad range of medical services must be available to all people covered by the plan. If a plan covers dependents, it must include maternity services for the pregnant daughter of the subscriber.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.