Delayed Confusion

I received an email inquiry recently from one of my favorite clients, who started by saying, “Just when we thought there would be one requirement that was self-explanatory, we are reminded that nothing PPACA-related is simple.”

Maybe the right adage is that nothing related to the Affordable Care Act is as simple as we want it to be. But we may have a solution, at least on notifying employees of coverage options in healthcare exchanges.

The law required employers to provide the first availability notice to employees no later than March of this year. But in February the Department of Labor delayed that deadline, in part to give itself more time to finalize a safe harbor notice that employers could use to satisfy what appears to be a straightforward administrative obligation—distribution of a notice.

The Department of Labor issued its initial guidance on the notification on May 8 requiring employers to provide all employees with a copy of their exchange coverage options by October 1. All employees hired after then are entitled to a copy of the notice “at the time of hire” (which, for the balance of 2013 and for 2014 only, will be considered if it is delivered within two weeks of the hire date). This is a one-time obligation. There is no requirement to provide an annual copy after the initial notice.

The “coverage option notice” must notify employees of three things:

1. The existence of exchanges, the services they offer and how employees can contact an exchange for further information.
2. The employee’s potential eligibility for a premium tax credit through an exchange if the worker’s share of allowed costs provided by the benefits plan is less than 60% of total costs (that is, it does not meet minimum value requirements).
3. And that the employee will lose the employer’s contribution and corresponding tax benefits if the employee obtains coverage through the exchange.

In conjunction with the guidance, the Labor Department issued a “model notice” that can be deployed to ensure full compliance with the “coverage option notice” obligation. One would think this would make compliance quick and easy. Don’t be fooled.

Part A of the model notice is designed to facilitate compliance. It encompasses all of the basic notice obligations and explains the key concepts in an accessible way. This includes basic descriptions of the Health Insurance Marketplaces and the general obligations under the statute.

Part B of the model notice, however, tends to raise more questions than it answers. It is designed to give employees as much information as is available about employer plans to aid employee choice. It also is designed to alleviate the employer’s post-notice administrative burdens because any plan-related information employees need to make their choice may be provided in designated places on Part B of the Model Notice. Employers can also use the notice to provide employees with subsidy eligibility information, such as eligibility to participate in those plans and their affordability.

The problem? Some of the information, including many of the affordability details, might not be known when employers are doing the initial distribution of the form. For example, employers can check a box verifying to the employee that coverage offered by the employer “meets the minimum value standard, and the cost of this coverage to you is intended to be affordable, based on employee wages.”

Yet deciding whether to check the box is fraught with problems. Even for calendar year plans, an employer may not have worked out the affordability details prior to October 1. That problem grows exponentially for non-calendar year plans that will not confront these issues until later. Individual employee affordability also may vary for many employers by virtue of both compensation differences and differences between full-time and part-time employees (the latter are not entitled to receive an offer of coverage).

So what to do? We advise employers to delete the option completely from their notice unless they are in a position to know that at least one of their plans will be affordable for all employees who are eligible to participate. Regarding the information requested on Part B of the Model Notice, employers can delete or rewrite as they wish to make the notice as non-problematic as possible.

We believe there are advantages to providing the basic employer information requested in the first part of Part B. If it is not provided here, the employer inevitably will have to respond on an individual basis for each employee who applies for coverage through a “marketplace.” But each employer can decide whether it wants to do that; none of the Part B information is required.

Two other related thoughts. There is a lot of confusion regarding whether coverage is considered affordable under the 9.5% income test because affordability really involves two separate and, at some level, unrelated inquiries—one from the employer’s perspective and one from the employee’s perspective. The employer can avoid being subject to the $3,000 penalty for each employee who receives a subsidy provided as long as the employer satisfies one of the affordability safe harbors. An employee of that employer may nevertheless be eligible for a subsidy if the employer-provided coverage is not affordable for the employee.

Second, plan-specific information—including whether the plan satisfies the 60% minimum-value affordability test—will still be provided to employees eligible to participate. This will be done through the summary of benefits and coverage notice that must be provided during each open-enrollment period.

Despite the lack of simplicity, employers do have choices on their notifications. By writing them wisely they can dodge some of the tripwires to the healthcare law.