Exchange Notice Requirement
Under the Patient Protection and Affordable Care Act (PPACA), the state health insurance exchanges (also called “marketplaces”) became operational on Jan. 1, 2014. To help educate individuals on the availability of the exchanges, PPACA requires employers subject to the Fair Labor Standards Act (FLSA) – which includes almost all employers – to provide a notice to all employees describing the exchanges and their purpose. The exchange notice had to be provided to all employees by Oct. 1, 2013. Thereafter, employers must distribute the notice to all new hires within 14 days of hire.
Importantly, the exchange notice is not an annual requirement. Thus, assuming employers complied with the Oct. 1, 2013, deadline, the employer would only be required to provide the notice to new hires.
The notice must be provided in writing in a manner 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 U.S. Department of Labor’s (DOL) 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 employees 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.
On May 8, 2013, the DOL published Technical Release 2013-02, which includes guidance on the exchange notice requirement. 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.
Employer Action Required
Employers should have distributed the exchange notice by Oct. 1, 2013. Thereafter, employers are required to provide the notice to each new employee within 14 days of hire. If employers failed to distribute the notice to all employees by Oct. 1, 2013, they should do so as soon as possible. Employers should ensure that all new hires receive the notice within 14 days of hire.
Penalties for Noncompliance
The regulations do not identify a specific penalty for failing to comply with the notice requirement, and a DOL FAQ confirms that there is no specific legal fine or penalty for failing to provide the notice. Although there is no specific 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, FLSA applies to employers that employ one or more employees who are engaged in, or who 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 versus 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 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.
- 77 Fed. Reg. 18310, March 27, 2012
- 29 USC 218B
- FLSA §18B(b), as added by PPACA, Pub. L. No. 111-148 (2010) §1512
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