On May 8, the Department of Labor (DOL) issued Technical Release 2013-02 providing guidance on the model Patient Protection and Affordable Care Act (PPACA) Notice of Exchange and the associated employer compliance obligations, as well as the DOL’s updated model COBRA election notice, which has been revised to address changes under PPACA.
NOTICE OF EXCHANGE
What is the Notice of Exchange?
PPACA § 1512 establishes an employer notice requirement to inform employees of the health insurance Exchanges that will be established in 2014. The notice must inform employees The notice must inform employees of:
- The existence of the Exchange
- A description of the services provided by the Exchange
- How to contact the Exchange to request assistance1
- The employee’s potential eligibility for subsidized coverage on the Exchange if the employer-sponsored group health plan does not provide “minimum value” (i.e., the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of such costs)2
- The fact that the employee may lose the employer contribution (if any) towards health coverage if the employee chooses to instead purchase individual coverage on the Exchange (policies on the Exchange are referred to as “qualified health plans” or “QHPs”)3
Which Employers are Subject to this Notice of Exchange Requirement?
PPACA structured the Notice of Exchange requirement as an amendment to the Fair Labor Standards Act (FLSA). Accordingly, employers that are subject to the FLSA are required to provide the notice. In general, the FLSA applies to employers with at least $500,000 in annual dollar volume of business. The DOL has a detailed summary of employers subject to the FLSA available here. The DOL also offers a tool that allows employers to answer certain questions to determine whether they are subject to the FLSA, available here.
To Whom Must Employers Distribute the Notice of Exchange?
Employers must provide the notice to all employees, regardless of whether the employee is an eligible employee for purposes of the employer’s group health plan, a participant, part-time, full-time, etc. There is no requirement to provide the notice to spouses, dependents, retirees, or any other individuals who are not employees.
How Can Employers Distribute the Notice of Exchange?
The notice may be provided by first-class mail. Alternatively, the notice may be provided electronically only if pursuant to the requirements of the DOL’s electronic disclosure safe harbor. This safe harbor generally requires that employees have work-related computer access that is integral to their job duties. All other employees must affirmatively consent to electronic disclosures to satisfy this safe harbor.
When is the Deadline to Distribute the Notice of Exchange to Employees?
- Current EmployeesEmployers must provide the notice by October 1, 2013, for all current employees and new employees hired before that date.
- New EmployeesBeginning October 1, 2013, employers must provide the notice to each new employee within 14 days of the employee’s start date.
The notice must be provided automatically and free of charge. The DOL has stated that the deadline to provide the Notice of Exchange is designed to coordinate with the October 1, 2013, open enrollment season for 2014 Exchange coverage.
Why Does the Model Notice Refer to Exchanges as “Marketplaces?”
PPACA refers to the new centralized state or federally operated markets for QHPs that will open in 2014 as “Exchanges.” Earlier this year, the Department of Health and Human Services (HHS) and other departments began rebranding the Exchanges in press materials and official websites as “Health Insurance Marketplaces” to make the concept more understandable.
As reported by The Hill, Anton Gunn, director of External Affairs at HHS stated “We’re going to use the word ‘marketplace’ because it actually makes sense to people,” adding that “‘Exchange’ doesn’t translate to anything in Spanish, but ‘marketplace’ does.” Gunn also stated that “anyone using the word ‘exchange’ rather than ‘marketplace’ needs to ‘put a quarter in the jar’ for flubbing the terminology.”
What Does the Model Notice of Exchange Say and How Do I Access It?
The DOL actually issued two model notices, one for employers that sponsor a group health plan for employees, and one for employers that do not. Employers are not required to use these model notices. Any alternative notice the employer chooses to distribute must meet the content requirements described above.
There are two parts in the model notice:
Part A
Part A of the model notice provides general information about what the Exchange is, eligibility requirements for subsidies available for Exchange coverage, and the initial Exchange open enrollment period beginning in October 2013. In the model notice for employers that sponsor a plan, there is also a blank entry for employers to provide how to contact the plan for more information about the employer-sponsored coverage.
Employers that do not offer coverage meeting PPACA’s definition of minimum value and affordability to all full-time employees should be aware that the notice promotes certain aspects of the Exchange that may make it more likely for employees to choose subsidized Exchange coverage over the employer-sponsored coverage. For example, the notice states: “The Marketplace is designed to help you find health insurance that meets your needs and fits your budget. The Marketplace offers ‘one-stop shopping’ to find and compare private health insurance options. You may also be eligible for a new kind of tax credit that lowers your monthly premium right away.”
As discussed in our January 2013 Special Alert, PPACA’s pay or play (also referred to as “employer shared responsibility” or “employer mandate”) excise tax penalties under § 4980H are triggered when full-time employees receive subsidized coverage on the Exchange. The § 4980H(a) penalty applies where the employer does not offer coverage to at least 95% of all full-time employees and their children under age 26. Only one full-time employee must receive subsidized coverage on the Exchange to trigger the penalty, which is multiplied by all full-time employees (minus 30).
More significantly in relation to the Notice of Exchange increasing employees’ awareness of Exchange coverage, the § 4980H(b) penalty applies:
- where an employer not subject to § 4980H(a) offers coverage to a full-time employee that is not minimum value or affordable; or
- for an employee who is in the group of up to 5% of full-time employees who can be excluded from coverage without triggering § 4980H(a).
Liability for this penalty is determined by the total number of full-time employees receiving subsidized Exchange coverage. In other words, the more employees who read, understand, and act upon the information in the Notice of Exchange, the higher the potential for employer pay or play excise tax penalty liability.
On the other hand, the model Notice does inform employees that their payment for coverage through the Exchange will be on an after-tax basis. The employee share of the premium or cost of coverage for employer-sponsored coverage is generally paid on a pre-tax basis through a Section 125 Cafeteria Plan.
Part B
In the second part of the notice, employers are instructed to provide additional plan information that employees will need if they choose to apply for coverage on the Exchange. In the model notice that applies to employers with group health plans, this includes detailed employer contact information, basic plan eligibility provisions for employees and dependents, and whether the employer coverage is intended to be affordable and minimum value.
The notice also notes that even if the employer intends for coverage to be affordable (e.g., by satisfying one of the affordability safe harbors in the pay or play regulations), the employee’s coverage may still be considered unaffordable for purposes of determining eligibility for Exchange subsidies. This is because the Exchange subsidies are tied to whether the employer plan’s lowest cost, employee-only coverage exceeds 9.5% of the employee’s household income, not the 9.5% affordability safe harbor (Form W-2, rate of pay, or federal poverty level) applied by the employer.
None of the content in Part B is required by PPACA. However, only page 3 of the model notice for employers with group health plans is listed as optional. This section asks the employer to state whether the specific employee is currently eligible for the employer-sponsored coverage, whether the plan is minimum value, and how the plan’s wellness program discount for tobacco cessation programs (if any) affects the employee’s cost of coverage. This section also asks the employer to state whether it intends to terminate the group health plan, start offering a group health plan, or will change the employee share of the premium or cost of coverage.
How Long Can Employers Rely on This Guidance and These Model Notices?
Under PPACA, these notices were supposed to be provided by March 1, 2013. This effective date was delayed until late summer or fall of 2013 in FAQ XI. The DOL issued Technical Release 2013-02 and the model notices in advance of that date in response to requests from employers for it to issue its model notice sooner. Employers can rely on this guidance and use the model notices at least until October 1, 2013, and they will remain in effect until the DOL promulgates regulations or other guidance.
Updated Model COBRA Election Notice
Concurrently with the model Notice of Exchange, the DOL also issued an updated model COBRA election notice. This revised COBRA election notice makes two important changes related to PPACA:
- The election notice now provides information regarding Exchange coverage.
- The notice removes provisions in the section addressing the COBRA election considerations that used to explain how a 63-day gap in credible coverage could subject the individual to pre-existing condition exclusions, and that individuals would lose the right to purchase a HIPAA guaranteed policy without pre-existing condition exclusions if they did not exhaust their COBRA maximum coverage period.
The DOL has also posted a redline of this updated model COBRA election notice to the prior version.
Neither Technical Release 2013-02 nor the revised model COBRA election notice state when the DOL intends for employers to begin using the new model. We suggest that employers wait to use this revised model election notice until the first plan year beginning on or after January 1, 2014, when PPACA prohibits group health plans from imposing any pre-existing condition exclusions on all covered individuals. Prior to that date, the new model notice’s revised discussion of pre-existing condition exclusion provisions, as well as the sections referring to the availability of alternative Exchange coverage, may be misleading to potential COBRA qualified beneficiaries.
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1 Interestingly, this is not included in the DOL’s model notice. Instead there’s a link to HealthCare.gov, which presumably will provide Exchange contact information by October.
2 Note that PPACA’s content requirements do not require the notice to state that the employee’s potential eligibility for subsidized coverage on the Exchange will also depend on whether the employer-sponsored group health plan is “affordable” (i.e., the employee share of the premium for the plan’s lowest cost, employee-only coverage does not exceed 9.5% of the employee’s household income). However, the DOL model notice does include this important information.
