Notice Of Coverage Options In Exchange Distributable To Employees By October 1, 2013 Under Health Care Reform Act

by Butler Snow LLP

Update:  On July 2, 2013, the Treasury Department posted a blog announcing its intention to delay – until January 1, 2015 – the employer shared responsibility and related requirements of the Health Care Reform Act, and that additional guidance would be issued within a week.  I.R.S. Notice 2013-45 was issued on July 9, 2013 providing details about the transition relief from the employer shared responsibility and related provisions.  However, I.R.S. Notice 2013-45 did not postpone the effective date for distribution of the Notice of Coverage Options In Exchange, which is the subject of the following article.

One of the “oddities” of the Health Care Reform Act was its several amendments to the Fair Labor Standards Act (“FLSA”).  New FLSA §18B requires that every employer subject to the FLSA - whether the employer offers a health care plan or not - provide each of its employees with a written notice of the coverage options available through the health care exchanges ("Notice").  This Notice was required by FLSA §18B to be given beginning no later than March 1, 2013.  However, on January 24, 2013, the Department of Labor (“DOL”) issued guidance stating that the Notice requirement would not take effect on March 1, 2013 for various reasons. 

The DOL, the Department of Health and Human Services, and the Department of the Treasury (collectively "Tri-Agencies") are working together to develop coordinated regulations with respect to the FLSA §18B requirements, but these regulations are not ready for issuance.  Therefore, on May 8, 2013, the DOL issued Technical Release 2013-02 ("Guidance") providing temporary guidance regarding the Notice requirement.  The Guidance, which will be effective until regulations or other guidance is issued by the Tri-Agencies, specifies the requirements which much be satisfied in order for an employer to be considered in compliance with FLSA §18B in the interim.    

The exchanges – now being referred to in the Guidance as the Health Insurance Marketplace (“Marketplace”) – are supposed to be operational on January 1, 2014, with open enrollment for coverage through the Marketplace to begin October 1, 2013.  Consequently, the Guidance requires employers to provide the Notice no later than October 1, 2013 to their then current employees.  Thereafter, each new employee is required to be provided with the Notice at the time of hiring.  (For 2014 - and presumably for the remainder of 2013 - the Notice will be considered to be provided "at the time of hiring" if provided within fourteen (14) days of the employee’s start date.) 

The Notice must be provided to every employee, regardless of whether or not enrolled in a health plan of the employer or whether a part-time or full-time employee.  However, employers are not required to provide separate Notices to dependents or others who are covered or may become eligible for coverage but who are not employees. 

The Notice must inform the employee:

(1) of the existence of the Marketplace, the services provided by the Marketplace, and the contact information for assistance at the Marketplace;

(2) that an employee purchasing a qualified health plan through the Marketplace may be eligible for a premium tax credit if the employer plan's share of the total allowed cost of benefits provided under the employer's plan is less than 60% of such costs; and

(3) that an employee purchasing a qualified health plan through the Marketplace may lose the employer contribution, if any, to any employer health plan, all or a portion of which employer contribution may be excludable from income for federal income tax purposes. 

The Notice must be provided automatically by the employer; free of charge to the employees; in writing; and in a manner calculated to be understood by the average employee.  It may be delivered either by first-class mail or electronically, if the requirements of the DOL’s electronic disclosure safe harbor are satisfied

In order to assist employers with providing the Notice, the DOL has posted model Notices on its website.  There are two model Notices available – one for employers who do not offer a health plan and another for employers who do offer a health plan.  An employer may use one of these model Notices – or a modified version thereof, so long as the modified Notice satisfies the minimum content requirements of the Guidance - to comply with the Notice requirement.

The establishment of the Marketplace will also result in some necessary conforming revisions to the COBRA election notice ("Election Notice").  Under COBRA, upon the happening of a qualifying event, an employer sponsoring a group health plan is required to provide a qualified beneficiary with an Election Notice describing the right to continuation coverage and how to make an election.  However, qualified beneficiaries may want to compare COBRA continuation coverage to health coverage alternatives available through the Marketplace.  Also, qualified beneficiaries may be eligible for the premium tax credit to help pay for some or all of the cost of coverage offered through the Marketplace.

Therefore, the DOL’s model Election Notice has also been revised to make qualified beneficiaries aware of these other coverage alternatives available through the Marketplace, as well as certain other updates.  The Guidance provides that use of this revised model Election Notice, appropriately completed, will be considered by DOL to be good faith compliance with the Election Notice content requirements of COBRA.  This revised Election Notice is also available on the DOL’s website.  (Consideration should also be given to any necessary or desirable corresponding changes in the initial notice of COBRA rights distributed to new participants in the employer's health plan at the time of commencement of coverage under the plan).

While there appears to be growing skepticism concerning whether the Marketplace will indeed be operational by January 1, 2014, employers cannot afford to wishfully rely on that possibility and postpone timely preparation for compliance with the Guidance.  Otherwise, they may find themselves either hurriedly trying to do last minute compliance, or even being delinquent in compliance, with the Guidance.

Caution:  While the DOL has provided these model Notices as a useful "safe-harbor" for meeting the minimum requirements of FLSA §18B and COBRA, care should be taken with respect to merely printing these model Notices and filling in the blanks.  In the complicated employee benefits environment, it is an exception rather than the rule that a "one size fits all" approach is appropriate.  Generally, some tweaking of these model Notices may be necessary for them to be appropriate for use by many – if not most – health plans.

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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