The ACA Exchange Notice
By Brian Gilmore | Published June 26, 2020
Question: What are the employer requirements with respect to the ACA Exchange Notice?
Short Answer: The ACA requires employers to provide the Exchange Notice to new hires within 14 days of their start date, but there are no fines or penalties for failure to comply.
What is the Exchange Notice?
The ACA added the Exchange Notice requirement as a modification to the Fair Standards Labor Act (FLSA) by adding a new §18B.
That addition to the FLSA requires employers to provide new hires with an Exchange Notice meeting the following requirements:
Informing the new hire for the existence of the Exchange (aka Marketplace), with a description of the services provided and how to request assistance;
A notice that if the employer’s offer of coverage is not affordable, or the plan does not provide minimum value, the employee may be eligible for Exchange subsidies (i.e., the §36B premium tax credit); and
If the employee enrolls in the Exchange, the employee will not receive the employer contribution or the tax advantages of employer-sponsored coverage.
The DOL has created a model Exchange Notice that employers can use to satisfy this requirement here: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/coverage-options-notice
The Exchange Notice is also frequently referred to as the “Marketplace Notice” or the “Notice of Coverage Options”. These names are all referring to the same notice requirement added by the ACA.
Which Employers are Required to Provide the Exchange Notice?
The Exchange Notice requirement applies to all employers subject to the Fair Labor Standard Act (FLSA), which (among other provisions) establishes the federal minimum wage and overtime rules. That includes the vast majority of employers.
In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produced goods for, interstate commerce. The DOL provides a “Handy Reference Guide” on the topic here: https://www.dol.gov/agencies/whd/compliance-assistance/handy-reference-guide-flsa
When Are Employers Required to Provide the Exchange Notice?
Employers must provide the Exchange notice to new hires within 14 days of the employee’s start date.
Best practice: Include the Exchange Notice as part of the standard new hire materials.
Note that the Exchange Notice is one of the required annual notices. There is no requirement to provide another Exchange Notice to employees after they receive the notice upon hire.
How Can Employers Provide the Exchange Notice?
The default distribution method for the Exchange Notice is by first class mail. Although not stated in the guidance, presumably hand delivery is also sufficient.
The rules state that employers may provide the Exchange Notice electronically if the requirements of the DOL’s ERISA electronic disclosure safe harbor is satisfied.
The standard electronic disclosure safe harbor generally applies where:
The employee has work-related computer access that is integral to his or her job duties (e.g., employee works at a desk with a computer); or
The employee’s affirmative electronic consent to electronic disclosure (i.e., opt-in to electronic distribution).
For full details here, see our previous post: ERISA Electronic Disclosure Rules.
Why Hasn’t the Exchange Notice Been Updated Since 2013?
Portions of the DOL’s model Exchange Notice are very outdated at this point. For example, it still states that open enrollment begins October 2013 for coverage starting January 1, 2014.
Most likely, the DOL has considered the Exchange Notice a low priority for a variety of reasons:
There are no penalties associated with the notice (see below);
Exchange coverage generally has not been competitive with employer-sponsored group health plans;
Even where Exchange coverage is competitive, there are typically strong cost and tax incentives to stick with the employer’s plan;
Employers have expressed their displeasure at a requirement to advertise alternative individual policy coverage; and
The Trump administration’s ACA executive order makes all forms of ACA enforcement a low priority where possible.
Nonetheless, we recommend modifying the model Exchange Notice slightly to update the relevant dates and affordability percentage calculation information.
Do Employers Need to Complete Page 3 of the Model Exchange Notice?
This section is listed as optional, and we find that very few employers complete it. The information on page 3 is customized to the particular employee, which makes the routine distribution to all new hires more difficult.
What are the Penalties for Failure to Provide the Exchange Notice?
The DOL issued a FAQ confirming that although employers “should provide” the Exchange Notice, “there is no fine or penalty under the law for failing to provide the notice.”
Best Practice: Provide the Exchange Notice to new hires within 14 days of their start date even though there is no enforcement scheme.
Where Can I Find the Model Exchange Notice and More Information?
DOL Technical Release 2013-02: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/13-02
FAQ Confirming No Penalties: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/notice-of-coverage-options
Is the Exchange Notice Related to Section 1411 Certification Notices from the Exchange?
No. Section 1411 Certification Notices, also frequently referred to as Employer Exchange Notices, inform employers that one or more of their employees has been conditionally approved for subsidies (i.e., §36B premium tax credit) to pay for coverage on the exchange. These notices come from the exchange to the employer, and they are related to the ACA employer mandate pay or play rules.
For full details, see our previous post: When to Appeal Notices from the Exchange.
Notice to employees.
(a) In general. In accordance with regulations promulgated by the Secretary, an employer to which this Act applies, shall provide to each employee at the time of hiring (or with respect to current employees, not later than March 1, 2013), written notice—
(1) informing the employee of the existence of an Exchange, including a description of the services provided by such Exchange, and the manner in which the employee may contact the Exchange to request assistance;
(2) 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, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code of 1986 and a cost sharing reduction under section 1402 of the Patient Protection and Affordable Care Act [42 USC §18071] if the employee purchases a qualified health plan through the Exchange; and
(3) if the employee purchases a qualified health plan through the Exchange , the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.
(b) Effective date. Subsection (a) shall take effect with respect to employers in a State beginning on March 1, 2013.
DOL Technical Release 2013-02:
Time and Delivery 2013-02:
Employers are required to provide the notice to each new employee at the time of hiring beginning October 1, 2013. For 2014, the Department will consider a notice to be provided at the time of hiring if the notice is provided within 14 days of an employee’s start date.
With respect to employees who are current employees before October 1, 2013, employers are required to provide the notice not later than October 1, 2013. The notice is required to be provided automatically, free of charge.
The notice must be provided in writing in a manner calculated 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 Department of Labor’s electronic disclosure safe harbor at 29 CFR 2520.104b-1(c) are met.
DOL Exchange Notice FAQ:
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 October 1, 2013, but there is no fine or penalty under the law for failing to provide the notice.
Lead Benefits Counsel, VP, Newfront
Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.Connect on LinkedIn