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Employee Benefits Law Report Reporting on recent trends and developments affecting employee benefits

October 1, 2013 Health Care Reform Exchange Notice Deadline for All Employers Subject to the FLSA

Posted in Health Care Reform

As a reminder, under health care reform, all employers to which the Fair Labor Standards Act (“FLSA”) applies, not just “applicable large employers,” are required to distribute health care exchange notices to their employees by October 1, 2013.  Given that health care reform is chock full of big penalties, it puzzled me that I couldn’t find a penalty for failure to provide this notice. Last week, the DOL published Frequently Asked Questions that confirmed, “there is no fine or penalty under the law for failing to provide the notice.” Nonetheless, health care reform involves so many inter-related statutes, pages of guidance, government agencies and interested parties that we encourage employers to comply to demonstrate good faith, and to avoid potential alternative theories of liability.

Statutory Requirement.  Section 1512 of the Patient Protection and Affordable Care Act (the “Act”) added Section 18B to the FLSA, and originally required these notices to be provided by March 1, 2013 to current employees (and to new employees at the time of hiring).  The Act requires the employer to provide written notice:

  1. informing the employee of the existence of an Exchange, including a description of the services provided by such Exchange, and the manner in which the employee may contact the Exchange to request assistance;
  2. if the employer plan’s share of the total allowed  costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code of 1986 and a cost sharing reduction under section 1402 of the Patient Protection and Affordable Care Act if the employee purchases a qualified health plan through the Exchange; and
  3. if the employee purchases a qualified health plan through the Exchange, the employee will lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

Employers could not comply with item (1) because the exchanges did not exist at March 1, so the Department of Labor (the “DOL”) delayed the deadline. 

Model Notices, and Alterations.  In Technical Release No. 2013-02, the DOL announced the October 1 deadline and issued model notices.  The model notices vary substantially from the three requirements set forth in the Act.  The notices do not address item (1), since this information was still generally not available when the models were posted.  Instead, the notices direct employees to visit healthcare.gov.  Some employers may decide to stick to the statutorily required text, plus a reference to the website. Part A of the notice says more than is required, and may confuse employees, but it is standardized (except for contact name), so employers may choose to distribute this.  Part B requires tailoring to discuss the employer’s particular situation, and even tailoring to a unique employee’s situation, which were not required by the statute. 

It is not entirely clear who is going to obtain all the information necessary to determine whether an individual appears to be eligible for a credit on the exchange, to confirm after the year ends that he actually was eligible for subsidies, and to confirm whether employers are actually liable for any penalties (commencing in 2015). Nor is it clear how they are going to obtain this information.  We are concerned that absent more guidance, providing too much information in Part B could lead to inappropriate conclusions. 

In theory, on or about October 1, employers could be inundated with requests for information (which they may or may not be able to provide) with respect to employees seeking credits on exchanges. Therefore, employers may want to complete the portions of Part B about which they are confident. 

Therefore, employers may decide to disregard some or all of Part B, especially if the information is uncertain or likely to change. At some point, it may be helpful for employers to distribute information generally rather than be inundated with individual inquiries (e.g., employees seeking credit on an exchange).

We also caution employers to be aware that the Act contains broad retaliation provisions. Saying too much or too little about the exchanges, credits, and penalties could prove problematic. Therefore, until more guidance is provided, we believe employers will be cautious about volunteering too much information.

Electronic Distribution.  Can the notice be distributed by email?  While the direction to visit the government website presumes that all employees have Internet access, employers cannot necessarily distribute the notices electronically.  The DOL only allow an employer to distribute a notice to an employee electronically if the employer’s electronic information system is an “integral part of the employee’s duties” and the employee has the ability to “effectively access documents in an electronic form at any location whether the employee is reasonably expected to perform his or her duties.”  The notice requirement is set forth under the FLSA, but the Technical Release refers to the ERISA regulations regarding electronic distribution of notices.

COBRA Notices.  The DOL website also provides revised model COBRA notices that discuss the availability of the exchanges. These revised notices are important, as they may encourage COBRA qualified beneficiaries to explore exchange coverage rather than purchasing COBRA coverage. Following the models will help employers communicate this information without running afoul of health care reform retaliation provisions.

Not sure if the FLSA applies to you? Check here, and with legal counsel as needed.