As originally drafted, Section 1512 of the Patient Protection and Affordable Care Act (ACA) amended the Fair Labor Standards Act (FLSA), requiring employers of all sizes to provide their employees with a written notice of the availability of coverage through a public health insurance exchange (the “Notice of Exchange”) by March 1, 2013. In January 2013, however, the U.S. Department of Labor (DOL) announced a delay in the effective date of this Notice of Exchange to the “late summer or fall of 2013.”On May 8, 2013, the DOL issued Technical Release No. 2013-02, in which it set a new effective date of Oct. 1, 2013.
Just recently, the DOL issued an FAQ stating that employers “should provide a written notice” to their employees by Oct. 1, 2013, but “there is no fine or penalty under the law for failing to provide the notice.” It appears many employers are interpreting this DOL statement to mean that the notice is optional. Employers should carefully consider whether they should take this stance for the following reasons:
- The likelihood that a subsequent DOL audit would not look favorably on an employer opting not to provide the Notice of Exchange;
- The Notice of Exchange potentially could be viewed by the DOL as within the scope of the employer’s required disclosures to participants and thus within the scope of an ERISA audit; and
- Employers still have a fiduciary obligation to be forthcoming with plan participants and beneficiaries, and failing to provide the Notice of Exchange could be deemed a breach of those duties.
That said, providing the Notice of Exchange is recommended, although it is within an employer’s discretion to decide not to send the notice and, technically, there would be no financial penalty for not doing so.
As a refresher, Section 1512 provides that employers are to deliver a written Notice of Exchange to each employee, regardless of plan enrollment status or the employee's status as a part-time or full-time employee:
- Informing the employee of the existence of the public health insurance exchange, including a description of the services provided by the public health insurance exchange, and the manner in which the employee may contact the public health insurance exchange to request assistance;
- 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 if the employee purchases a qualified health plan through a public health insurance exchange; and
- If the employee purchases a qualified health plan through a public health insurance exchange, the employee may lose the employer contribution (if any) to any health benefit 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 are to provide the Notice of Exchange to current employees no later than Oct. 1, 2013 when “open enrollment” begins for coverage through the public health insurance exchanges. For new employees, employers are to provide the Notice of Exchange at the time of hiring beginning Oct. 1, 2013. For 2014, if the Notice of Exchange is provided within 14 days of an employee’s start date, the DOL will consider the Notice of Exchange to be provided at the time of hiring.
The Notice of Exchange may be sent via first class mail or it may be provided electronically as long as the requirements of the DOL's electronic disclosure safe harbor are met. Employers may not charge current employees or new hires a fee for providing the Notice of Exchange.
Employers can find two model notices that meet the notice content requirements discussed above on the DOL’s website: One model notice for employers who do not offer a health plan and another for employers who do offer a health plan to some or all of their employees. Importantly, these model notices are not simply boilerplate language that can be photocopied and dispersed to current employees and new hires or posted to a bulletin board. There are a few details employers must fill in. Employers may use one of these models, as applicable, or a customized version, provided the Notice of Exchange meets the content requirements.