Notice to Employees Regarding Health Insurance Exchange Coverage Options

by King & Spalding
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Beginning January 1, 2014, individuals and employees of small businesses will be able to purchase medical coverage through state and federal health insurance exchanges (the “Marketplaces”).  These Marketplaces will offer “one-stop shopping” to find and compare health insurance options. 

The Affordable Care Act (“ACA”) added Section 18B to the Fair Labor Standards Act (the “FSLA”) which requires employers to provide a written notice to employees regarding the coverage options available through the Marketplaces.  The Marketplace notice requirement was originally scheduled to take effect on March 1, 2013, but on January 24, 2013, the effective date was postponed. 

The Department of Labor (the “DOL”) recently published Technical Release 2013-02 to provide temporary guidance regarding the Marketplace notice requirement in preparation of the Marketplace open enrollment period which begins October 1, 2013. This guidance will remain in effect until the DOL promulgates regulations or other guidance.  The DOL also provided model notices for employers.

Employers subject to the Marketplace notice requirement:  In general, the FSLA (and therefore the notice requirement) applies to any company that employs one or more employees and is engaged in interstate commerce with annual business of not less than $500,000.  The FSLA also specifically covers hospitals, schools,  institutions of higher education, and federal, state and local government agencies.

Employees to whom the Marketplace notice must be provided:  The notice of coverage options must be provided to each employee, regardless whether of the employee is enrolled or eligible to participate in the employer’s health plan or is a part-time or full-time employee.  However, employers are not required to provide a separate notice to an employee’s dependents or former employees who are or may become eligible for coverage under the employer’s plan (e.g., retirees or individuals eligible for COBRA coverage).

Information that the Marketplace notice must contain:   The notice must contain the following:

(1) information regarding the existence of the Marketplace, a description of the services provided by the Marketplace, and how the employee may contact the Marketplace to request assistance;

(2) information that the employee may be eligible for a premium tax credit if the employee purchases qualified health benefits through the Marketplace.  An employee will be eligible for a premium tax credit if either (i) coverage under the employer’s plan does not satisfy the “minimum value” standard set by ACA or (ii) the cost of employee-only coverage under the employer’s plan exceeds 9.5% of the employee’s household income;  and

(3) a statement that if the employee purchases qualified health benefits through the Marketplace, the employee may lose any employer contribution to any health benefits plan offered by the employer, as well as the ability to exclude employer and employee contributions from his or her income.  In other words, while employer coverage may be provided on a pre-tax basis, coverage purchased through the Marketplace is paid for on an after-tax basis.

Timing of the Marketplace notice:  With respect to current employees, the Marketplace notice must be provided not later than October 1, 2013.   With respect to newly hired employees, the Marketplace notice must be provided at the time they are hired.  For 2014, the DOL will consider the notice to be timely provided if it is provided within 14 days of an employee’s start date.   

Delivery of the Marketplace notice: The Marketplace notice must be written in a manner calculated to be understood by the average employee and provided free of charge. The Marketplace notice may be sent by first-class mail, or be provided electronically if the DOL’s electronic disclosure safe harbor requirements at 29 CFR 2520.104b-1(c) are met.  In general, the DOL safe harbor allows electronic disclosure only to those employees (i) who use a computer as part of their normal job function, or (ii) who have affirmatively consented in a manner that reasonably demonstrates the individual’s ability to access the information provided. Thus, simply posting the notice on a website or intranet will not be sufficient.  There is no prohibition on sending the Marketplace notice with other items, so the employer may consider including it with their new hire packets, annual enrollment materials or other communications. 

Model Notices

The DOL has published model notices,  one for employers who do not offer a health plan, and another for employers who offer a health plan to some or all of its employees.  Employers may use one of these models, as applicable, or a modified version, as long as the notice meets the content requirements.

Each model notice has two parts. Part A provides general information regarding the Marketplace and sets forth the required information discussed above.  Part B requests optional information about the employer and health coverage, if any, sponsored by the employer.  While not mandatory, employers may want to provide the optional information requested on the first page of Part B, in particular, the employer identification number and contact information, and the plan eligibility and dependent coverage information. However, instead of an extensive description of eligibility information in the notice, the employer may want to cross-reference such information in its summary plan description or enrollment materials. The second page of Part B requests optional information that corresponds to the information an employee must provide when enrolling for coverage through the Marketplace and will assist employees in evaluating their coverage choices.  However, providing the information requested on the second page of Part B may not be practical for many employers since it requires individualized information. 

The DOL has also revised the model COBRA election notice. Although ACA did not make any changes to COBRA, the model COBRA election notice was revised in order to provide employees information about other coverage options that may be available through the Marketplace.  Qualified beneficiaries may want to compare COBRA continuation coverage to what is available through the Marketplace, and/or take advantage of premium tax credits to help pay for some or all of the cost of coverage.  In addition, the revised model notice eliminates the stale references to the preexisting condition limitations rules that have been substantially revised by ACA.  Employers should work with their COBRA administrators to appropriately update their COBRA notices.  While there is no deadline, the COBRA notices should be updated by late 2013 so that qualified beneficiaries are aware of coverage options available to them beginning January 1, 2014 through the Marketplace.

Next Steps

While the model notice simplifies compliance with the mandate under FLSA Section 18B, there are still several pressing issues an employer must address including:

  1. Arranging for the notice to be timely distributed to all employees on or before October 1, 2013, either by mail or electronic disclosure.  Employer must determine whether the notice can be included with other communications, such as new hire packets or open enrollment materials.
  2. Determining whether the optional information in Part B of the model notice will be provided, and if so, how will it be collected.      
  3. Coordinating with the employer’s COBRA administrator to make sure the COBRA notices are updated.

King & Spalding would be pleased to provide you with additional information regarding compliance with the Marketplace coverage notice to employees or other issues regarding compliance with ACA.

Author, Mark Kelly, Atlanta, +1 404 572 2755, mkelly@kslaw.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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