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DOL Issues Model Exchange and COBRA Election Notices
Oct. 1 deadline for notices to employees of exchange-based coverage options

By Stephen Miller, CEBS  5/10/2013
 
updated 9/12/2013

Update: No Penalty for Failing to Provide Exchange Notices

On Sept. 11, 2013, the U.S. 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 (referred to as the "health insurance marketplace"). The annual deadline for providing the notices is Oct. 1.

While some benefits advisors said distributing the notices to employees would still be prudent, others said the DOL's action makes the notices optional.

To learn more, see the SHRM Online article "DOL Says No Fine for Not Providing Exchange Notices."

On May 8, 2013, the U.S. Department of Labor (DOL) issued Technical Release No. 2013-02, announcing that the DOL has issued long-awaited temporary guidance and a temporary Model Notice to Employees of Coverage Options about the soon-to-launch public exchanges (or "marketplaces"), as required under Fair Labor Standards Act (FLSA) section 18B. The exchange notification, which should be provided to current and all newly hired employees starting no later than Oct. 1, 2013, is one of many health care reform requirements that may have fallen below the radar of many employers.

The release also announced an updated model election notice that plans must provide to inform departing employees about continued health care coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Model Exchange Notice Issued

FLSA section 18B, added to the labor statute by the Patient Protection and Affordable Care Act (PPACA), requires employers that are subject to the FLSA to provide to each of their employees, and to all new employees at the time of hiring, a written notice. The notice must inform employees 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, employees 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.

  • If employees purchase a qualified health plan through an exchange, they may lose the employer contribution (if any) to any health benefits plan the employer offers. All or a portion of this contribution may be excluded from income for federal income tax purposes.

To satisfy these content requirements, model language is available on the DOL's Affordable Care Act webpage. There is one Model Notice for employers that offer a health plan to some or all employees and another Model Notice for those that do not offer a health plan.

Employers may use one of these models or a modified version, provided the notice meets the content requirements described above. It 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.

"It is welcome news that the model notices are not state-specific or employee-specific," Buck Consultants said in its alert. "Employers who offer different health plans to different groups of employees, however, may need to prepare multiple notices and coordinate the distribution."

"Employers need to be prepared to include this in their communication plans,” Jennifer Benz, CEO of consultancy Benz Communications, told SHRM Online. “Communicate your 2014 position before the legalese does,” she advised. “Be sure to use language that fits the notice into your big picture approach to health care reform compliance."

No Penalty for Noncompliance

On Sept. 11, 2013, the DOL announced in FAQ on Notice of Coverage Options that "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." (See the SHRM Online article "DOL Says No Fine for Not Providing Exchange Notices.")

Timing of Exchange Notice

The requirement to issue the section 18B exchange notice to current and new employees was to take effect on March 1, 2013, but the DOL announced a delay in January (see the SHRM Online article “Required Exchange Notifications to Employees Delayed”). At that time, the DOL said it expected that exchange notices would be distributed in the late summer or fall of 2013, which would coincide with the open enrollment period for the exchanges.

In the new Technical Release No. 2013-02, the agency said it had received several requests from employers for a model notice on an earlier time frame so they could inform their employees now about the upcoming coverage options through the exchanges.

Under the new guidance, beginning Oct. 1, 2013, employers will be required to provide the exchange notice to each new employee at the time of hiring. For 2014, the DOL will consider a notice to have been timely delivered if it’s provided within 14 days of an employee’s start date.

With respect to current workers, employers are required to provide the notice by Oct. 1. The notice must be provided automatically, free of charge, and written in language that the average employee can understand. It may be provided by first-class mail or electronically if the requirements of the DOL's electronic disclosure safe harbor are met.

Model COBRA Notice Revised

Under COBRA, an individual who was covered by a group health plan on the day before a qualifying event occurred (such as termination of employment or reduction in hours that causes loss of coverage under the plan) must be able to elect COBRA continuation coverage. Individuals with such a right are called qualified beneficiaries. A group health plan must provide qualified beneficiaries with an election notice, which describes their rights to continuation coverage and how to make an election. The election notice must be provided to these individuals within 14 days of when the plan administrator receives the notice of a qualifying event.

The COBRA Model Election Notice was revised to inform qualified beneficiaries of coverage options available through government-run health care exchanges under the PPACA. The DOL is now referring to these exchanges collectively as “the Marketplace.”

The exchanges—which may be run by individual states, by the federal government on behalf of states or by states in partnership with the federal government—are scheduled to launch in October 2013 (the Kaiser Family Foundation provides an up-to-date state-by-state list).

“Some qualified beneficiaries may want to consider and compare health coverage alternatives to COBRA continuation coverage that are available through the Marketplace,” the DOL said in a statement. “Qualified beneficiaries may also be eligible for a premium tax credit (a tax credit to help pay for some or all of the cost of coverage in plans offered through the Marketplace).”

The COBRA Model Election Notice is available in modifiable electronic form, along with a “Redline version” of the prior model notice that shows the changes that were made. The notices and related information can be found on the DOL's COBRA Continuation Coverage webpage.

As with the earlier version, to use this model election notice properly, the plan administrator must complete it by filling in the blanks with the appropriate plan information. The DOL will consider plan administrators who properly complete the model election notice to be in good-faith compliance with COBRA’s election notice content requirements.

"Plan sponsors should consider amending their existing COBRA notices," Buck Consultants advised in a posted alert. "With the availability of Marketplace coverage and subsidies, the need for COBRA coverage could drop significantly. Enrollment in Marketplace coverage instead of COBRA can often benefit both the COBRA beneficiary and the employer."

COBRA Confusion?

Employers who terminate an employee must now give them the option of choosing COBRA to continue their coverage, or a second option of going into the exchange. "On the surface this seems logical; what the directive will mean in practice is that a fired or laid off employee will now have to educate him or herself on the intricacies of health insurance at what is typically an emotional and frantic time," Ben Lupin, director of compliance at Corporate Synergies, a benefits consulting firm, told SHRM Online. "The employee will have to understand the level of coverage and cost of both COBRA and the exchange. There’s deadline pressure for the employee, too. If they don’t make a choice within 60 days, they get neither, which would leave them uninsured."

Currently, COBRA is a fairly straightforward option that most terminated employees choose. However, "in many circumstances it’s reasonable to think that the exchanges will provide a more flexible and/or more affordable option. But digging into the nooks and crannies of the various policy options to determine whether it’s a good fit for the employee and her family promises to be daunting," Lupin added.

"For employers, there’s no obligation to assist the employee in weighing options and making a smart decision. Whether or not they choose to assist is yet another decision which employers and their HR staffs will have to make with regard to PPACA," noted Lupin.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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