State health care developments have employment tax relevance

Massachusetts and Vermont healthcare and employment taxEarlier this year, Massachusetts lawmakers repealed the employer “Fair Share Contribution” on the rationale that it duplicated the employer shared responsibility provisions of the Affordable Care Act.

At the same time, Vermont Governor Peter Shumlin has indicated his potential interest in using a new payroll tax as a funding source for the proposed state universal single-payer health care plan, known as Green Mountain Care (GMC). The governor will submit legislation during the 2015 state legislative session that would implement the GMC plan beginning in 2017.

These developments point to the importance of monitoring state health care developments that may implicate employment taxes.

Background on Vermont’s health care reform

In January 2011, the governor unveiled his plan for health care reform, including a goal to implement a single-payer system of universal health insurance that will cover all Vermont residents.

Act 48 of 2011 created the premise of the GMC; the five-member Green Mountain Care board, which oversees state health care costs; and the Vermont Health Connection exchange that will implement the Affordable Care Act (ACA).

Act 48 also required that the state Agency of Administration, Office of Health Care Reform, develop a strategic plan for implementing and funding the GMC. Implementation of a state universal health care plan would require approval of a federal ACA waiver, which is expected to be available in 2017. This will enable Vermont to continue to receive federal fund as a partial funding mechanism for the new health plan.

Funding for Vermont’s universal health care

According to news sources, 91% of Vermont residents are currently covered by some form of health insurance, second only to Massachusetts. Under the GMC health reform plan, all Vermont residents would be enrolled automatically beginning in 2017. For individuals also covered under an employer-sponsored plan or by a federal plan such as Medicare or Medicaid, GMC coverage would be the individual’s secondary insurance.

A report released in January 2013 by the University of Massachusetts Medical School, Center for Health Law and Economics, recommends that in developing a plan to finance GMC, the state consider the amounts that employers and employees currently spend for employer-sponsored insurance.

The report lists a payroll tax as a possible funding source, as well as other state taxes, such as a percentage of current income tax or sales tax revenue.

Massachusetts repeals employer “pay or play” provision

In April 2006, Massachusetts enacted health care reform legislation that expanded access to health insurance and imposed an “individual mandate,” which required Massachusetts residents age 18 and older to have health insurance if they could afford it. Beginning in 2007, individuals who could afford health insurance but lacked coverage faced penalties collected by the Department of Revenue through the individual income tax process. (Chapter 58 of the Acts of 2006.)

The act also contained a a provision that employers make a “fair and reasonable contribution” to their employees’ health insurance. Massachusetts employers who employed 11 or more full-time equivalent (FTE) employees were required to file a Fair Share Contribution (FSC) report that showed whether or not the employer complied with the mandate. Employers that did not comply were required to make a per-employee FSC to the Commonwealth Care Fund, payable to the state Department of Unemployment Assistance (DUA).

A provision of the Massachusetts FY 2014 budget act repealed the employer Fair Share Contribution (FSC) provision effective July 1, 2013.

Proponents of the repeal of the FSC requirements argued that they were duplicative of the employer shared responsibility provisions of the ACA, originally set to take effect on January 1, 2014. The FSC repeal was passed despite the U.S. Treasury Department’s announcement that the employer “play or pay” tax under the ACA is postponed until 2015.

Effective January 1, 2014, other provisions of the budget act replace the Unemployment Health Insurance (UHI) contribution employers have been paying on a quarterly basis since 1990 with a new mechanism for health insurance for the uninsured — the Employer Medical Assistance Contribution (EMAC).