Employers may be liable for uninsured Obamacare expenses

Posted on Posted in Small Business

Is your small business at risk for failure to notify employees of health coverage options?

The Affordable Care Act (ACA) became law in 2010 eventually became synonymous with the term “Obamacare”. The law brought so many changes to individuals, employers, health insurance companies and health care providers that it wouldn’t even be practical to attempt to summarize them in a single article like this. This post focuses only on one single requirement of employers: the requirement to notify employees of their health insurance options under the law.

Section 18B of the Fair Labor Standards Act was added by section 1512 of the Affordable Care Act that generally requires all employers with gross sales over $500,000 to provide each employee with a notice, at least once each year, of coverage options in a format further prescribed in IRS Technical Notice 2013-2.

This simple notification requirement was one of the first and most basic employer requirements implemented under the new ACA law. Some time after implementation the Internal Revenue Service and the Department of Labor announced that there would be no tax penalty assessed against employers who failed to comply. Some employers and advisers might have incorrectly interpreted the lack of tax penalty to mean that there was no urgent need to comply with this part of the law.

Companies that offer employer-sponsored group health insurance typically rely on their insurance company to help meet this legal requirement. Yet millions of small businesses without group insurance do not have access to this professional help and appear to simply skip the notice requirement. Small business accountants and attorneys that I’ve communicated with on this subject mostly seem to be just as ignorant or dismissive of the law as their small business owner clients.

It seems that perhaps more than half of all U.S. small business employers simply do not provide the notice at all. Perhaps this is because they are aware that there is no tax penalty for failure to comply. Perhaps it is because this legal requirement does not get much press coverage from writers like me who tend to focus on tax consequences. Yet the risk of civil liability remains tremendously large for unsuspecting small business owners. A single claim could easily bankrupt a small company and its owner.

Employers who either fail to notify employees about their health coverage options, or did provide notice but are simply unable to prove that they provided this notification to employees could face liabilities similar to those assessed in the courts for failure to provide COBRA notification.

As an example, imagine this common scenario. Assume that year you notified a former employee that your company does not offer health insurance and that he should consider options using the state health insurance exchange. He never pursued that option and misplaced the written notice that you provided. Then assume he has to pay a tax penalties and, even worse, winds up in a hospital emergency room seeking care months after he left your employment. Health care providers are now trained to ask questions like “Why don’t you have health insurance?” and  “Didn’t your employer notify you about free health insurance options?”

If the employee doesn’t recall receiving that notice from you and you have no way to prove that you did provide it, there are a growing number of plaintiff attorneys who would be willing to represent your former employee in collecting money from you for both the cost of the medical treatment as well as the amount of the tax penalty owed by the former employee.

All that is needed to cause you trouble in this example is a referral from the hospital ER staff to a local attorney. These types of cases represent a growing cottage industry in the legal profession. We already see plenty of evidence that health care providers are coordinating with attorneys to seek recovery of fees from uninsured patients in other areas. It probably won’t be long before we see TV advertisements shouting “Did you incur substantial medical bills because your employer did not provide health coverage options? Call XYZ lawyers today to allow us to get you the money that you deserve?”

It does appear to be in the best public interest to allow liberal prosecution if these cases, much like the pattern of litigation we have seen in employer violations of COBRA law. I see no reason why a court would not be willing to award legal fees and damages – in addition to actual costs that would have been covered by an Obamacare policy – against an employer who was found negligent in providing an ACA coverage notice.

Considering the huge risk and the low-cost of compliance, why don’t small employers provide these notices and keep a third-party verification of the notifications available in case of trouble? We can only assume that it is a combination of ignorance of the law and naivety as to the consequences.

I offer this notification and third-party verification service as a defensive strategy for small business owners. This service can be included as part of the concierge advisory package that I offer to small business owners. In the event of a problem with a violation of the notification requirement, I also offer consultative and expert witness services to plaintiff attorneys.

Every small business with sales over $500,000 that has one or more employee and does not offer employer-provided group health insurance should use this service or some similar method of response to this basic requirement of the Affordable Care Act.

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