Action Items for Employers: Notice to Employees of Health Insurance Marketplace and Related Updates to COBRA Election NoticesSeptember 10, 2013
The Affordable Care Act provides employees who are not offered health coverage by their employers the option of purchasing health coverage through new health insurance marketplaces (also known as health insurance exchanges) that will operate in every state. Even employees who are offered coverage by their employers have the choice of taking that coverage or purchasing coverage from a health insurance marketplace instead. The Affordable Care Act requires employers to provide employees with written notice of the new marketplace coverage option. Although the marketplaces will not open until fall, and the coverage they offer will not start until January 1, 2014, the Department of Labor (“DOL”) has announced that notices for current employees must be provided by October 1, 2013, a fairly short timeframe given the potential complexity of preparing the notice and the limited methods of delivery permitted.
The DOL’s New Guidance on the Notice of Coverage Options
The Affordable Care Act added new section 18B to the Fair Labor Standards Act (“FLSA”), requiring all employers who are otherwise subject to the FLSA to provide a one-time written notice about health insurance marketplaces to all of their current employees before the marketplaces open, as well as written notice to all new employees upon hire.
Which Employers Must Provide Notice of Coverage Options to Employees?
The notice requirement applies to all employers who are subject to the FLSA. In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies. The FLSA also specifically covers the following entities, regardless of dollar volume of business: hospitals; institutions primarily engaged in the care of the sick, aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state, and local government agencies.
Which Employees Must Receive a Notice of Coverage Options?
The employer must provide a notice of coverage options to all employees. The reference to “employees” means all employees, full-time and part-time, but there is no need to provide notices to dependents. Nor does the notice have to be provided to former employees, retirees, or other individuals who are not employees but may be eligible for coverage (e.g., under COBRA).
The question of who exactly is an employee is important. The Act’s exchange notice requirement amends the FLSA. Thus, although the Internal Revenue Code and ERISA look to the “common law” standard, applicable court precedent interpreting the FLSA’s use of the term “employee” relies on the broader, “economic realities” test. Accordingly, an individual is an “employee” for FLSA purposes if he or she is economically dependent on the business for which he or she performs personal services. Thus, individuals properly classified as independent contractors for tax purposes may nevertheless be employees (to whom notice must be provided) for FLSA purposes.
Is It Permissible for Entities Other than the Employer to Send the October 1 Notice of Coverage Options to Employees?
Yes. An employer will have satisfied its obligation to provide the Notice with respect to an individual if another party provides a timely and complete notice. The Department of Labor notes that, as explained in Technical Release 2013-02, FLSA section 18B requires employers to provide notice to all employees, regardless of whether an employee is enrolled in, or eligible for, coverage under a group health plan. Accordingly, an employer is not relieved of its statutory obligation to provide notice under FLSA section 18B if another entity sends the notice only to participants enrolled in the plan, if some employees are not enrolled in the plan. When providing notices on behalf of employers, it is incumbent upon multiemployer plans, issuers, and third-party administrators to ensure that a notice is provided to all employees regardless of plan enrollment, or to communicate clearly to employers that the plan, issuer, or third-party administrator will provide notice only to a subset of employees (e.g., employees enrolled in the plan) and advise of the residual obligations of employers with respect to other employees (e.g., employees who are not enrolled in the plan).
What Information Must Employers Include in the Notice of Coverage Options?
The notice of coverage options must be in writing and written in a manner that is understood by the average employee. FLSA Section 18B requires the notice of coverage options to provide employees with information about:
- The existence of health insurance marketplaces;
- Services provided by health insurance marketplaces;
- How to contact a health insurance marketplace for assistance;
- The possibility that employees may lose the employer contribution to any employer-provided health plan if they purchase a plan through a health insurance marketplace;
- The possibility that employees may lose the ability to exclude employer and employee contributions from their income for federal income tax purposes if they purchase a plan through a health insurance marketplace; and
- Whether employees may be eligible for a premium tax credit if they purchase a qualified health plan through a health insurance marketplace.
The DOL has provided employers with two model notices:
- One version for employers that offer health coverage to some or all employees, which is available at: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf
- Another version for employers that do not offer any health care coverage at all, which is available at: http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf
Each model notice includes a Part A that contains general information about the marketplaces and the tax and economic consequences of declining employer-provided coverage, and a Part B that the employer completes with specific identifying information and answers to questions about any health coverage it may offer.
Part A of the notice provides the first five items of information required under section 18B. Part B provides the sixth item—information about whether any health plan the employer may offer will affect the employee’s eligibility for a premium tax credit. If an employer offers an employee a health plan that provides what is called “minimum value” and has an affordable premium for self-only coverage, then the employee is not eligible for a premium tax credit.
The model notice for employers that offer health coverage also includes an optional section where the employer may provide information that employees will need if they seek financial assistance when purchasing coverage through a marketplace.
Employers may provide current employees with one of the model notices or create their own version that includes the mandatory items listed above.
When Must Employers Provide Notices of Coverage Options?
Current Employees: Employers must provide each current employee with a notice of coverage options by October 1, 2013.
New Hires: Employers must provide a notice of coverage options to employees hired after October 1, 2013 through December 31, 2014 within 14 days of the start of their employment. The DOL may change the timing requirements for new hires that come on board in 2015 or later.
After initial distribution, the Notice is not required to be distributed annually to current employees.
How May Employers Send Notice of Coverage Options to Employees?
An employer may provide notice of coverage options by first-class mail or electronically. Merely posting a disclosure Notice on the employer’s website so it is available to employees will not by itself satisfy this disclosure requirement. The Notice may be provided electronically if the requirements of the DOL’s electronic disclosure safe harbor described in labor regulations (29 CFR 2520.104b-1(c)) are satisfied. Generally, this safe harbor allows disclosure through electronic media to employees:
- Who have the ability to effectively access documents furnished in electronic form at any location where the employee is reasonably expected to perform duties; or
- For whom access to the employer’s electronic information system is an integral part of those duties.
Please note: Employers relying on the electronic safe harbor must ensure that the system for furnishing documents results in actual receipt by the employee and must inform the employee of his or her right to request a paper version of the Notice.
There is no prohibition on sending the notice with other items. Thus, employers may wish to consider including it with their new hire packets, annual enrollment materials, or other existing communications. However, these items will have to be delivered in the manner and timeframe required for (each of) the notices provided.
Updated COBRA Election Notice
In general, federal COBRA allows employees covered by an employer’s health plan to elect continuation coverage after a qualifying event, such as termination of employment or reduction in hours that results in a loss of coverage under the employer’s plan. These employees must be given an election notice explaining their right to continuation coverage under COBRA. Although the Affordable Care Act did not require any changes to the COBRA election notice, the DOL revised its model COBRA election notice to provide employees who are eligible for COBRA continuation coverage with information regarding health coverage alternatives offered through the marketplaces, as well as to eliminate stale references to preexisting condition limitation rules that have been substantially revised by the Affordable Care Act. An employer should take appropriate action to update its COBRA election notice. There is no fixed deadline for doing so, but it makes sense for the COBRA notices to be updated for qualifying events occurring in late 2013, so that COBRA-qualifying beneficiaries are aware of health coverage options other than COBRA that are available to them effective January 1, 2014.
For further information or assistance in meeting the requirements of the Affordable Care Act, please contact any member of our Employee Benefits Practice Group.PDF