Health Care Reform

Exchange Notice Requirement


Summary

Updated May 2013

Under the Patient Protection and Affordable Care Act (PPACA), the health benefit exchange will be operational on Jan. 1, 2014. PPACA requires employers covered by the Fair Labor Standards Act (FLSA) to provide a notice to employees prior to the beginning date of the exchange.

The notice informs employees about the existence of the health benefits exchange and gives a description of the services provided by the exchange. The notice also explains how the employee may be eligible for a premium tax credit or a cost-sharing reduction if the employer's plan does not meet certain requirements. The notice informs employees that if they purchase a qualified health plan through the exchange, they may lose any employer contribution toward the cost of employer-provided coverage, and that all or a portion of the employer contribution to employer-provided coverage may be excludable for federal income tax purposes. Lastly, the notice includes contact information for customer service resources within the exchange, and an explanation of appeal rights. The regulations clarified that the notice must meet certain accessibility and readability requirements, as well as be in writing.


Recent Developments

On March 27, 2012, the U.S. Department of Health and Human Services issued final regulations concerning the establishment of exchanges and qualified health plans and exchange standards for employers. Within the final regulations, the general standards for the exchange notice requirement were provided.

On May 8, 2013, the U.S. Department of Labor (DOL) provided temporary guidance on the exchange notice requirement. This temporary guidance will remain in effect until the DOL issues regulations or other guidance. In connection with the temporary guidance, the DOL announced the availability of model exchange notices for employers to use to satisfy the exchange notice requirement. The DOL also set a compliance deadline for the exchange notices. Employers must provide employees with an exchange notice by Oct. 1, 2013.


Employer Action Required

Employers are required to provide the notice to each new employee at the time of hiring beginning Oct. 1, 2013. For 2014, the DOL will consider a notice to be provided at the time of hiring if the notice is provided within 14 days of an employee's start date.

With respect to employees who are current employees before Oct. 1, 2013, employers are required to provide the notice not later than Oct. 1, 2013. The notice is required to be provided automatically, free of charge.

The notice must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first-class mail. Alternatively, it may be provided electronically if the requirements of the DOL's electronic disclosure safe harbor are met.

In general, the exchange notice must:

  • Inform employees about the existence of the exchange and describe the services provided by the exchange and the manner in which the employee may contact the exchange to request assistance.
  • Explain how employees may be eligible for a premium tax credit or a cost-sharing reduction if the employer's plan does not meet certain requirements.
  • Inform employees that if they purchase coverage through the exchange, they may lose any employer contribution toward the cost of employer-provided coverage, and that all or a portion of this employer contribution may be excludable for federal income tax purposes.

The DOL provided two model exchange notices: one for employers that do not offer a health plan and another for employers that offer a health plan to some or all of their employees. Employers may use one of these models, as applicable, or a modified version, provided the notice meets the content requirements described above.


Penalties for Noncompliance

The regulations do not identify a specific penalty for failing to comply with the notice requirement. On Sept. 11, 2013, the DOL posted a new FAQ reiterating that there is no specific fine or penalty under the law for failing to provide the notice. However, if an employer is covered by the Fair Labor Standards Act, the employer should provide the notice by Oct. 1, 2013. Although there is no penalty, the DOL or plan participants may bring a civil action against an employer for failure to comply. Additionally, if the employer is selected for a DOL audit any noncompliance with the notice requirement would likely be addressed during the audit as well.


Frequently Asked Questions

Q1: What employers are subject to the FLSA and thus subject to the notice of exchange requirement?
A: In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. This broad definition will likely encompass most employers.

Q2: Is the notice required to be distributed to all employees or only those who are eligible for coverage?
A:
Employers must provide a notice of coverage options to each employee, regardless of plan enrollment status (if applicable) or of part-time or full-time status. Employers are not required to provide a separate notice to dependents or other individuals who are or may become eligible for coverage under the plan but who are not employees.

Q3: May the notice be provided electronically (i.e., via email)?
A:
The notice must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first-class mail. Alternatively, it may be provided electronically if the requirements of the DOL's electronic disclosure safe harbor at 29 CFR 2520.104b-1(c) are met.


Additional Resources

Citations

  • 77 Fed. Reg. 18310, March 27, 2012
  • 29 USC 218B
  • FLSA §18B(b), as added by PPACA, Pub. L. No. 111-148 (2010) §1512

The above links are provided for your information only. NFP does not endorse, nor accept any responsibility for the content, products and/or services provided at non-NFP sites. Some information contained in the NFP site is provided by third parties. We do not independently verify this information, nor do we guarantee its accuracy or completeness. Information provided from governmental agencies is subject to change.

This material was created by NFP, its subsidiaries, or affiliates for distribution by their Registered Representatives, Investment Advisor Representatives, and/or Agents. This material was created to provide accurate and reliable information on the subjects covered. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Neither NFP Securities, Inc. nor NFP Benefits offer legal or tax services.

Securities offered through Registered Representatives of NFP Securities, Inc., a Broker/Dealer and Member FINRA/SIPC. Investment Advisory Services offered through Investment Advisory Representatives of NFP Securities, Inc. a Federally Registered Investment Adviser. NFP Benefits Partners is a division of NFP Insurance Services, Inc., which is a subsidiary of National Financial Partners Corp, the parent company of NFP Securities, Inc. NFP Securities, Inc. is not affiliated with any other entities listed on this document.

Not all of the individuals using this material are registered to offer Securities or Investment Advisory services through NFP Securities, Inc.