Gov. Baker Proposes New $300 Million Employer Health Care Tax 

On Wednesday, Gov. Charlie Baker filed his $40.5 billion FY18 state budget proposal and included in the proposal is what the Governor described as a return of the former Fair Share Assessment on employers that was part of the old MA Health Care reform law.  However, Baker’s new version of this health care tax on employers is much worse than the old $295 per employee assessment. 

Under the original Fair Share regulation established in 2006, the assessment brought in $7.5 million – as it was not designed to be a revenue generator.  The Baker proposal is the opposite, as it is clearly crafted to raise a significant amount of money - $300 million in taxes on employers, payable to the MA Department of Revenue.  The new tax is said to be needed to help close a $600 million budget gap in the state’s Medicaid program, MassHealth.  Employers are being asked to solve a problem that they did not create.      

The “Employer Contribution to Health Care” is a proposed $2000 per employee tax that, to some extent, will likely hit most employers with 11 or more full-time equivalent employees.  To avoid the tax, employers must:

1)      make a "Minimum qualified offer" to employees working over 35 hours per week, defined as $4,950 per year, to an employer sponsored group health insurance plan, AND

2)      maintain an uptake rate of greater than, or equal to, 80%.

The language of the proposal is in Outside Section 46: Employer Contribution to Health Care 2.  The convoluted formula to determine an employer’s tax penalty is as follows:

Section 2. The total employer contribution of each employer that employs 11 or more full-time equivalent employees in the commonwealth shall be determined as follows:

1)  For each quarter, if an employer does not make any contribution or makes a contribution less than the minimum qualified offer then the employer shall be assessed one quarter of the employer contribution rate multiplied by the employer's total full-time equivalent employees

2) For each quarter, if an employer makes a minimum qualified offer but has a less than 80 per cent uptake rate, the employer contribution shall be one quarter of the employer contribution rate multiplied by the product of the difference between 80 per cent and the employer's uptake rate times the total full-time equivalent employees.

3) For each quarter, the employer contribution shall be zero if the employer makes a minimum qualified offer and has an uptake rate of greater than, or equal to, 80 per cent.

So, while employers that do not offer health insurance will pay the penalty, so will employers that may offer excellent health insurance to all of their employees, yet fail to reach the employee take-up rate of 80%.  For example:

  • ABC Retail Company has 100 full-time equivalent employees;
  • ABC offers qualifying health insurance, yet only has a take-up rate of 60%;
  • ABC pays a penalty on the 20% difference between 60 and 80%;
  • 100 FTEs X .20 (20%) = 20
  • 20 X $2000 = $40,000 annual Employer Contribution to Health Care tax penalty
  • The calculation is done and payments are due quarterly, so $10,000 a quarter.

The 80% take-up rate is almost impossible for any employer to meet, and will certainly be a challenge for any retailer or restaurant that has a number of part-timers and secondary wage earners on staff. 

All RAM members are encouraged to review your plans and policies and run the numbers to see what, if any, tax penalty you would owe under this troubling proposal.  Please then share that information with us, with your legislators, and with the Governor’s office.   RAM is working with others in the employer community to vigorously oppose this new tax, but your input is critical. 

If you have any questions or wish to discuss this issue with us directly please contact Bill Rennie, Vice President, at brennie@retailersma.org or (617) 523-1900 ext. 110.