Originally posted by Stephen Miller on September 13, 2013 on https://www.shrm.org

U.S. employers were again surprised by another unexpected suspension of a provision of the Patient Protection and Affordable Care Act (PPACA or ACA) when, on Sept. 11, 2013, the Department of Labor (DOL) announced there will be no penalty imposed on employers that fail to distribute to workers a notice about available coverage under state- and federal-government-run health insurance exchanges (collectively referred to by the government as the “health insurance marketplace”), scheduled to launch in October 2013.

Fair Labor Standards Act (FLSA) Section 18B, added to the labor statute by the PPACA, requires employers that are subject to the FLSA to provide all their employees by Oct. 1 of each year (the traditional start of the annual open enrollment season for employee health plans), and all new employees at the time of hiring, a written notice informing them of the following:

  • The existence of the government-run health care exchanges/the marketplace, including a description of the services provided and the manner in which employees may contact an exchange to request assistance.
  • If the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, workers may be eligible for a premium tax credit under Section 36B of the Internal Revenue Code if they purchase a qualified health plan through an exchange.
  • Employees who purchase a qualified health plan through an exchange may lose their employer’s contribution to any health benefits plan the organization offers. All or a portion of this contribution may be excluded from income for federal income tax purposes.

According to the PPACA and subsequent guidance, the notice must be provided to each employee, regardless of plan-enrollment status or part-time or full-time status. Employers are not required to provide a separate notice to dependents or retirees, but an employer’s obligation to provide notice may extend to its independent contractors and leased workers, depending on the nature of their relationship with the employer as determined under the FLSA’s “economic reality” test.

The PPACA has a $100-a-day penalty for noncompliance with its provisions (unless otherwise specified in the statute), and it had generally been assumed this penalty would apply to employers that fail to distribute the exchange notice, possibly with additional penalties for failure to comply with a provision of the FLSA. However, the penalty provision had not been made explicit in any previous guidance, nor had the regulators described how the penalty would be implemented and enforced.

Then, on Sept. 11, 2013, the DOL posted on its website a new FAQ on Notice of Coverage Options, which states:

Q: Can an employer be fined for failing to provide employees with notice about the Affordable Care Act’s new Health Insurance Marketplace?

A: No. If your company is covered by the Fair Labor Standards Act, it should provide a written notice to its employees about the Health Insurance Marketplace by Oct. 1, 2013, but there is no fine or penalty under the law for failing to provide the notice.

DOL Encourages Compliance

Keith R. McMurdy, a partner at law firm Fox Rothschild LLP, commented in a posting on his firm’s Employee Benefits Legal Blog that Section 18B of the FLSA clearly states that any employer subject to the FLSA “shall provide” written notice to current and future employees and that the DOL’s Technical Release No. 2013-02, issued in May 2013, states that Section 18B of the FLSA generally provides that an applicable employer “must provide” each employee with a notice. McMurdy wrote:

My experience with the federal laws and the enforcement of said laws by federal agencies is that when things say “shall” and “must,” there are penalties when you don’t do them. So when the DOL now takes the position that it is not a “shall” or “must” scenario, but rather only a “should” and “even if you don’t we won’t punish you” proposition, I get suspicious. But I also think this confirms what I have said since the beginning about PPACA compliance for employers. It is all about your risk tolerance.” …

So, if you don’t want to send the Oct. 1, 2013 Notice, apparently the DOL “FAQ” says you have no penalties and thus no risk. Me? My risk tolerance is a little lower than that and my experience with regulatory agencies is such that I don’t trust informal “FAQs” posted on the web as much as I trust the clear language of the statutes and prior technical releases. Words like “shall” and “must” usually mean that if I don’t do it I get burned. So I am still recommending that employers comply with the notice requirement. Why? I can almost guarantee that if you send the notice, you won’t face a penalty for not sending it. But if you don’t send one, well, I still say all bets are off.

Christine P. Roberts, a benefits attorney at law firm Mullen & Henzell LLP,commented on her “E is for ERISA” blog, “This information, at this late date, is more confusing than it is helpful to employers who have already invested significant resources in preparing to deliver the Notice of Exchange.” She added this cautionary note:

“Particularly for employers with pre-existing group health plans, the Notice of Exchange potentially could be viewed by the DOL as within the scope of the employer’s required disclosures to participants and thus within the scope of an ERISA audit, or separate penalties could be imposed through amendment to the FLSA or the ACA.”

Model Notices

The DOL’s Sept. 11 FAQ reiterated that the department has two model notices to help employers comply with the Oct. 1 exchange/marketplace notice deadline (which they are strongly encouraged to meet):

Employers may use one of these models, as applicable, or a modified version. The model notices are also available in Spanish and MS Word format at www.dol.gov/ebsa/healthreform.