Law – Setnor Byer Insurance & Risk

Is Title Inflation Putting Your Business At Risk?

Title Inflation occurs when superior-sounding job titles are given to non-superior employees. Despite recent trends, title inflation is not new. It was even a topic of conversation in a 1998 episode of Seinfeld.

ELAINE: Do you know how embarrassing this is to someone in my position?

JERRY: (Confused) What’s your position?

ELAINE: I am an associate.

GEORGE: Hey, me too.

WAITRESS (passing their table): Yeah, me too.

While having too many “Vice Presidents of This”, “Chiefs of That” and “Directors of Those” can be comical, it can also be risky. Let’s see what happened in Aleynikov v. Goldman Sachs, a case out of United States Third Circuit Court of Appeals.

This case involves a Goldman Sachs employee who was indicted for stealing computer source code before quitting his job. The employee spent over $2.3 million defending state and federal criminal charges relating to the theft, and, according to the employee, Goldman Sachs was required to cover the costs of his criminal defense. Why would Goldman Sachs possibly have to pay to defend the person who allegedly stole its own source code? Title inflation.

This employee worked as a computer programmer. He did not supervise other employees, did not transact business on behalf of Goldman Sachs and did not have any management or leadership responsibilities. Nevertheless, he was given the title of Vice President in Goldman Sachs equities division, and under its By-Laws, Goldman Sachs is required to indemnify officers for their legal expenses. (Indemnification provisions like this are commonly found in corporate By-Laws.)

The court considered a number of factors to determine whether the employee, as a Vice President, is entitled to indemnification under Goldman Sachs’ By-Laws. For example, the court noted that Goldman Sachs employs tens of thousands of employees and that approximately one-third of them hold the title of Vice President. Despite the apparent absurdity of the employee’s position, the court ruled that additional facts are needed before a final decision can be made. In other words, Goldman Sachs, the victim, still faces the possibility of having to pay the defense costs for its former employee, the perpetrator.

Though this case is extreme, it highlights a significant risk associated with title inflation. Employees must be given titles that are consistent with their functions and responsibilities because employees with artificially inflated titles, even those without criminal intentions, can create significant risks and expose businesses to substantial liability.

Additional protection can be obtained with a Directors and Officers Liability insurance policy. These policies generally protect directors and officers against monetary damages resulting from lawsuits or claims resulting from actions taken in their official capacity. While these policies do not cover all potential liabilities, such as those resulting from fraudulent or intentional acts, or those that caused by someone who is not entitled to coverage under the policy (perhaps due to title inflation?), they can provide a much needed security blanket.

Since variations among these policies can be significant, it is important to select a policy form which addresses any particular risks with appropriate coverage terms. When shopping for a Directors and Officers insurance policy, it is important to use the services of an insurance agent with substantial expertise in this field.

If you would like more information about obtaining the right insurance coverage for your business, please contact us.

Settling Insurance Claims: Good Faith or Bad Faith?

Insurance companies have a general duty of good faith when settling the claims of their policyholder. This duty of good faith can come from statute, common law, or both. For example, in addition to having a common law duty of good faith, insurance companies in Florida have a statutory duty to act fairly and honestly toward their insureds. Insurance companies that fail to act in good faith may end up in court defending a claim for bad faith.

Contrary to what many believe, it’s not bad faith for an insurance company to deny a claim that is not covered under a policy or to defend a claim subject to a reservation of rights. So what does it mean to act in good faith? According to one court, the duty of good faith requires insurance companies to investigate the facts, give fair consideration to settlement offers that are not unreasonable, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so.

Those damaged by an insurance company’s failure to act in good faith may be able to sue the insurance company for bad faith. Bad faith claims can be first-party or third-party.

A first-party bad faith claim occurs when an insurance company is sued by its insured for refusing to settle the insured’s own claim in good faith. First-party claims typically involve allegations that the insurer improperly denied coverage, underpaid a loss or delayed payment without adequate justification. A common example of a first-party bad faith claim is when an insured is involved in an accident with an uninsured motorist and does not reach a settlement with his or her own uninsured motorist liability carrier for costs associated with the accident.

A third-party bad faith claim arises when an insured is exposed to liability in excess of insurance coverage because the insurer failed in good faith to settle a third party’s claim against the insured within policy limits. Third-party bad faith claims often arise in situations where there is clear liability on the part of the insured, severe injury to the third party, and minimal policy limits available.

Assume, for example, an insured with $100,000 of automobile liability coverage runs a red light and injures a pedestrian. Despite the pedestrian’s significant injuries and the insured’s clear fault, the insurance company rejects the pedestrian’s reasonable $90,000 settlement offer. The pedestrian goes to court and is awarded $200,000 in damages. By failing to act in good faith and settle the case within the $100,000 policy limit, the insured is liable for the excess judgment amount of $100,000.

In this example, the insured could file a third-party bad faith claim against its insurance company. The injured pedestrian may also be able to sue the insurance company, either directly if permitted by applicable law, or through an assignment of the insured’s rights. Note that in some jurisdictions insurance companies are entitled to notice before a lawsuit can be filed. In Florida, for example, those wanting to file a bad faith claim must give the insurance company 60-days’ notice before filing a lawsuit.

The claims settlement process can be long, complicated and stressful, even when the insurance company is handling the process in good faith. Since bad faith claims, particularly those involving third parties, can be very complex, it helps to have a reputable and experienced insurance agent to guide you through the claims process.

If you have any questions or would like to discuss your insurance options, please contact us.

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A Contract’s Fine Print: Find the Devil in the Details

Contracts are an essential part of doing business. Regardless of size or industry, contracts with customers, vendors, suppliers, service providers or independent contractors are an important part of a business’s operations. While good contracts can help manage risk and maintain good working relationships, bad contracts can be incredibly harmful. This is why every business must proceed cautiously when negotiating and signing contracts.

Ideally, an attorney will be consulted when negotiating or signing contracts. The reality, however, is that many businesses handle their own contracts. Though it may be easy for some to identify and understand a contract’s main provisions, like cost, volume, part numbers, etc., the devil is in the details, which, in the case of contracts, is the fine print.

Every provision in a contract has a purpose, including those found in the fine print. Despite being underemphasized, they are often important when defining a contractual relationship, particularly when things go wrong. The following provisions, for example, are not only commonly used, but commonly overlooked.

Forum (Jurisdiction) Selection: A contract may require that any lawsuits involving the contract be filed in a specific forum or jurisdiction (county, state, country). This may not be a problem if a business is located in the jurisdiction specified in the contract. However, it may be a huge problem if, for example, a Florida business is required to file a lawsuit in Alaska. Despite having the legal right to enforce the contract, the increased complexity and cost of filing a lawsuit in another jurisdiction makes it practically impossible for many businesses to do so, particularly when relatively small amounts of money are involved.

Choice of Law: Similar to a forum selection clause, a choice of law provision specifies which state’s law will be used to interpret and enforce the contract. These clauses can be significant because laws may vary from state to state. For example, one state may have more favorable consumer protection laws, while another makes it more difficult to recover damages. It is important to know if and how a choice of law provision may affect any contractual rights or remedies.

Integration (Merger) Clause: Contracts typically contain a provision stating that the contract represents the full and final agreement and supersedes any other agreements, oral or written. With an integration clause, any verbal or written conversations, brochures, promises, representations or statements that are not included in the contract are not part of the contract. This may become an issue when a business is not receiving what the salesperson promised before signing the contract. Expectations, obligations and requirements must be included in the contract to be enforceable under the contract.

Assignment: A contract may allow one or both parties to assign their rights, duties or obligations to a third party. This can create a problem if there is an expectation that a specific person or company will be performing under the contract. If, for example, a business wants only a specific vendor to do a job, the contract must state that the vendor cannot assign its obligations under the contract to someone else. Otherwise, a business may find that the person they contracted with isn’t the person they end up working with.

Evergreen Clause: Contracts are typically entered into for a specific period of time (term). A contract with an evergreen clause will automatically renew for a new term unless notice of termination is given by either party, usually within a specific period of time. For example, a one year contract will automatically renew for another year unless written notice of termination is given at least 60 days before the end of the yearly term. Businesses that fail to discover and comply with an evergreen clause may be stuck in a contract they no longer need or want.

Dispute Resolution: Contracts may require that disputes be resolved through arbitration rather than by filing a lawsuit. Depending on the nature of the contract, this requirement can significantly affect the resolution of disputes and the apportionment of damages.

Indemnification Clause: Indemnification clauses are used to allocate risk and responsibility among the parties to a contract by requiring one party to compensate the other for specific liabilities or losses arising out of the contract. Since these clauses commonly require a party to assume liability that would not otherwise exist, they must be reviewed carefully and understood completely. Indemnification clauses often end up being the most significant provision in a contract when something goes wrong.

Insurance Requirements: Many contracts include specific insurance requirements. For example, a contract may require a party to have general liability or workers’ compensation insurance, or it may require that one party be given Additional Insured status under the other party’s insurance policies. Contracts often require proof of insurance before work can begin or payment is made. It is important to identify and comply with any contractual insurance requirements.

Despite the benefits of using an attorney to negotiate and review contracts, particularly complex or high-value contracts, many businesses take a do-it-yourself approach. Nevertheless, given the increased risk of harm caused by bad contracts, businesses should never sign a contract without reading and understanding every provision, including those in fine print.

If you have any questions or would like to discuss how Setnor Byer Insurance & Risk can help identify and protect against various business risks, please contact us.

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No Penalty for Noncompliance with ACA’s Notice of Coverage Options

On September 11, 2013, the United States Department of Labor announced that employers will not be fined or penalized under the Affordable Care Act for failing to provide employees with notice about coverage options available through the ACA’s Health Insurance Marketplace (Exchanges). This comes just weeks before the October 1, 2013 deadline for employers to begin providing the notice to their employees.

The announcement, which was posted on the DOL’s website as a “FAQ on Notice of Coverage Options,” states:

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

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.

A day later, the U.S. Small Business Administration posted similar information on its website.

This announcement comes as a surprise to those who assumed that noncompliance would be met with a fine or penalty. Though the ACA’s employer notice requirement does not contain a specific penalty provision, many assumed that the ACA’s general penalty of $100 per day would apply. And, since news of the DOL’s position came informally through its website rather than the formal regulatory process, some believe that fines or penalties for noncompliance remain a possibility in the future.

This new development has understandably left many employers unsure about how to deal with the ACA’s employer notice requirement. Though it is still the law, the DOL’s announcement has undoubtedly left many wondering whether a requirement can really exist without consequences.

At Setnor Byer Insurance & Risk, we are committed to guiding you through the constantly changing health care reform landscape. Check back with us periodically for future informational updates about the Affordable Care Act.

If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, view our health product page.

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Calculating Workers Compensation Insurance Premiums

Workers’ Compensation (WC) provides medical, disability, rehabilitation or death benefits to employees who have suffered a job-related injury or illness. Employers are generally required by their state’s law to provide WC coverage to employees. Since most employers purchase insurance to satisfy this statutory obligation, it is important to understand how WC insurance premiums are calculated.

The formula for calculating the starting WC premium is (Payroll / 100) x (Premium Rate). To understand this formula we need to discuss three elements that play a big part in calculating the premium.

Payroll

The premium for WC insurance is based on an employer’s payroll, which is generally defined to include the total remuneration paid by an employer. Payroll typically includes wages, salaries, commissions, bonuses and paid time off, and typically excludes tips, severance, active military duty pay and employee discounts. Employers should check state-specific requirements, including the treatment of executive officers, when calculating payroll for WC insurance purposes.

Classification (Class) Code

Insurance companies use class codes to assign premium rates to specific workplaces based on the risks associated with a particular kind of work. Most states use the classification codes developed by the National Council on Compensation Insurance (NCCI). There are approximately 550 different class codes and they can be very specific. For example, the correct code for Janitorial Services by Contractors may depend on whether the services include window cleaning above ground level.

Though a single employer can be assigned more than one class code, it is important to note that classification codes are designed to categorize employers with common exposures rather than the specific occupations of each employee within an organization. Since class codes are specific and appear to be somewhat conflicting, choosing the appropriate class code is not always easy and mistakes are common.

Premium Rate

Each class code is assigned a premium rate that corresponds to the risks associated with that particular kind of work. These rates, which are evaluated regularly, are applied to every $100 of payroll. Higher risk jobs are given higher premium rates. NCCI provides premium rates for each of its class codes, and many states rely on them when setting their own rates.

Now, let’s assume an employer has a payroll of $187,500 and that the premium rate for its classification code is $1.07. Divide the payroll by 100 [187,500 / 100 = 1,875], and multiply the quotient by the premium rate [1,875 x 1.07] to get a premium of $2,006.25. Note that if the applicable premium rate is $6.05, then the premium would be $11,343.75.

Remember that this is only the starting premium. Additional pricing factors may be applied to the starting premium to arrive at the final premium, such as:

Minimum premium requirements
Experience modification based on prior loss history
Discounts based on the size of the premium
Credits for qualifying safety and drug-free programs
Dividend plans tied to loss experience
Audits adjusting premiums to reflect actual (rather than estimated) payroll

Since the starting premium can be significantly affected by these additional pricing factors, a reputable insurance agent with substantial experience in evaluating and placing WC insurance should be consulted. For those employers with a statutory obligation to provide WC coverage, mistakes can be very costly.

If you would like more information about obtaining workers’ compensation insurance for your organization, please contact us.

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Health Benefits and Value under the Affordable Care Act

The Department of Health and Human Services (HHS) released final rules pursuant to the Affordable Care Act (Act) that are designed to help consumers shop for and compare health insurance options in the individual and small group markets. According to the HHS, these final rules will promote consistency among health plans, protect consumers by ensuring that plans cover a core package of health benefits and limit out of pocket expenses.

To make it easier for consumers to make apples-to-apples comparisons among health insurance plans, the final rules create uniform standards of coverage and value.

Essential Health Benefits

The Act provides that health plans offered in the individual and small group markets, including those available through Health Insurance Marketplaces (Exchange), must offer a core package of items and services known as Essential Health Benefits or EHBs, which must be equal in scope to those benefits offered by a typical employer plan. Under the Act, EHBs must provide:

Ambulatory patient services
Emergency services
Hospitalization
Maternity and newborn care
Mental health and substance use services, including behavioral health treatment
Prescription drugs
Rehabilitative services and devices
Laboratory services
Preventive and wellness services and chronic disease management
Pediatric services, including oral and vision care

To protect consumers against discrimination the final rules also:

Prohibit discriminatory benefit designs
Include special standards and options for coverage not typically covered by individual and small group policies
Include standards for prescription drug coverage

Actuarial Value

The final rules outline actuarial values of individual and small group plans to help consumers distinguish and compare plans offering different levels of coverage. Actuarial Value, or AV, is calculated as the percentage of total average costs covered by a plan. For example, if a plan has an AV of 70%, a consumer could expect to pay an average of 30% of the costs.

Beginning in 2014, non-grandfathered health plans in the individual and small group markets must meet certain AVs, which have been assigned the following “metal levels”:

A platinum health plan has an AV of 90%.
A gold health plan has an AV of 8%.
A silver health plan has an AV of 70%.
A bronze health plan has an AV of 60%.

To give health plans some flexibility, a plan can meet a particular metal level if its AV is within 2% of the standard. For example, a silver plan may have an AV between 68% and 72%. The final rules also provide flexibility, if necessary, for issuers in the small group market regarding annual deductible limits to achieve a particular metal level.

To streamline and standardize the calculation of AV for health insurance issuers, HHS is providing a publicly available AV Calculator. In 2014, this calculator will use a national standard population, but in 2015, HHS will accept state-specific data sets for the standard population if states choose to submit alternate data for the calculator.

According to HHS, these final rules will give consumers a consistent way to compare and enroll in health coverage in the individual and small group markets, while giving states and insurers more flexibility and freedom to implement the Act. Time will tell if these final rules will achieve their desired purpose.

At Setnor Byer Insurance & Risk, we are committed to guiding you through Health Care Reform. Check back with us periodically for informational updates about the Affordable Care Act. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

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Finding Safe Harbor from the Employer Mandate

Under the Affordable Care Act’s Employer Shared Responsibility provisions, “large” employers with at least 50 full-time equivalent employees may be subject to an annual $2,000 or $3,000 penalty (tax) per qualifying employee. An employer may avoid the penalty by offering health coverage to at least 95% of its full-time employees (and dependents) under an “affordable” plan that provides “minimum value.”

A plan will generally satisfy the “minimum value” requirement if it covers at least 60% of health care costs. To be considered “affordable,” the employee’s required contribution for employee-only coverage cannot be more than 9.5% of the employee’s household income for the taxable year.

In the context of determining whether a plan satisfies the affordability requirement, the Internal Revenue Service recognized the likely inability of employers to ascertain the household income for each of its employees. As a result, the proposed regulations recently published by the IRS allow employers to take advantage of three safe harbor provisions.

Form W-2 Safe Harbor

Application of the Form W-2 Safe Harbor, which is determined after the calendar year on an employee-by-employee basis, takes into account the employee’s Form W-2 wages and the employee contribution.

An employer will not be assessed a penalty for an employee if the required annual contribution for the employer’s cheapest employee-only coverage plan is not more than 9.5% of that employee’s Form W-2 wages from the employer. If an employee is not offered coverage for an entire calendar year, the Form W-2 wages can be adjusted to reflect the period for which coverage was offered.

To avoid manipulation, the proposed regulations provide that the employee’s required contribution must remain consistent during the calendar year and that an employer cannot make discretionary adjustments to the required employee contribution for a pay period.

Rate of Pay Safe Harbor

Under the Rate of Pay Safe Harbor, an employer:

takes the rate of pay for each hourly employee who is eligible for coverage under the plan as of the beginning of the plan year; and
multiplies that rate by 130 hours (the benchmark for monthly full-time status) to compute the employee’s monthly wages.

If the employee’s monthly contribution amount for the cheapest employee-only coverage plan is not more than 9.5 percent of the computed monthly wages, then the coverage is considered affordable. For salaried employees, the monthly salary would be used to determine affordability.

The Rate of Pay Safe Harbor allows employers to prospectively determine affordability without having to analyze every employee’s wages and hours. However, it may only be used for those employees who did not have their hourly wages or monthly salaries reduced by the employer during the year.

Federal Poverty Line Safe Harbor

Under the Federal Poverty Line (FPL) Safe Harbor, coverage is considered affordable if the employee’s cost for the cheapest employee-only coverage plan is not more than 9.5% of the FPL for a single individual. Under the regulations, employers may use the most recently published poverty guidelines for the first day of the plan year.

These safe harbors are optional. Large employers may use one or more of these for all employees or for any reasonable category of employees, provided they are used uniformly and consistently for all employees in a category.

The IRS will be accepting comments on these proposed regulations until March 18, 2013.

At Setnor Byer Insurance & Risk, we are committed to guiding you through what is sure to be a bumpy ride. Check back with us periodically for future informational updates about the Affordable Care Act. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

If you’d like to subscribe to our weekly newsletters please click here.

Health Care Reform by the Numbers

As Health Care Reform makes its way through the health insurance landscape, many employers are finding it difficult to keep up. Unfortunately, the size and complexity of the Affordable Care Act (Act) doesn’t help. Nevertheless, a general understanding of the Act’s more significant provisions can help employers adjust to past changes and prepare for future ones.

Since numbers play a big part in determining how the Act will impact a particular employer, here are some figures that employers can use to see where they fit in the big picture.

0 Number of employers explicitly required by the Act to offer employee health care coverage

50 Number of full-time equivalent employees required to trigger the Act’s tax on employers

$2,000 Annual tax large employers must pay for each full-time employee (in excess of 30) if the employer does not offer health benefits to its employees

$3,000 Annual tax that large employers must pay for each full-time employee receiving a credit for purchasing health insurance from an Exchange if the employer offers health benefits to its employees

30 Average number of hours an employee must work to be considered a full time employee for purposes of determining large employer status

$0 Annual tax that large employers must pay for each part-time employee, regardless of whether the employer offers health coverage to employees

85% Minimum percentage of premium revenue that a large group health insurance issuer must spend on health care claims and quality improvement to avoid issuing a rebate to enrollees

80% Minimum percentage of premium revenue that a small group or individual market health insurance issuer must spend on health care claims and quality improvement to avoid issuing a rebate to enrollees

200 Maximum number of full-time employees that an employer may have before the Act’s automatic enrollment requirement is triggered

9.5% Maximum percentage of employee’s household income that the employee’s self-only health plan contribution may be to qualify as affordable under the Act

60% Minimum percentage of costs that must be covered by an employer’s health plan to be considered adequate under the Act

249 Maximum number of W-2 Forms an employer may file during the previous calendar year to avoid reporting the cost of coverage under an employer-sponsored group health plan on Form W-2

35% Maximum tax credit available to eligible small employers through 2013

24 Maximum number of full-time equivalent employees an employer may have to be eligible for the Act’s small employer tax credits

$49,999 Maximum average annual wages an employer may pay to be eligible for the Act’s small employer tax credits

50% Minimum percentage of employees’ premium cost for single (not family) health care coverage an employer must pay to be eligible for the Act’s small employer tax credits

100 Maximum number of employees an employer may have to be eligible to purchase insurance through Small Business Health Options Program (SHOP) Exchanges

TBD Number of newly insured Americans

TBD Affordability of health insurance under the Act

TBD Effect of Act’s provisions on employers and employees

At Setnor Byer Insurance & Risk, we are committed to guiding you through what is sure to be a bumpy ride. Check back with us periodically for future informational updates. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

Insurance Designed for Self Storage Facilities

When considering insurance, owners and operators of self storage facilities often focus on traditional coverages despite facing risks that are unique to the self storage industry. As a result, some of the biggest risks faced by self storage facilities remain uninsured.

To avoid this problem, owners and operators should consider obtaining specialized coverages designed to protect against the risks that come with operating a self storage facility.

Sale and Disposal Liability Coverage

Sale and Disposal Liability Coverage will pay for damages caused by a self storage facility’s sale and disposal operations involving the lock-out, sale, removal or disposition of a customer’s property. Even if everything was done by the book, the defense coverage can be used to respond to frivolous lawsuits filed by tenants.

Customers’ Goods Legal Liability Coverage

Owners and operators of self storage facilities are usually blamed when a tenant’s property is damaged. Customers’ Goods Legal Liability Coverage will pay for damages to their property that occurs at the self storage facility and will cover defense costs if a lawsuit is filed.

Business Interruption Coverage

A temporary closure due to a loss does not mean that business expenses stop. Business Interruption Coverage can prevent a temporary shutdown from becoming permanent by covering reductions in net income and providing the funds needed to pay normal operating expenses. Extra expense coverage is also available to cover expenses over and above normal operating costs, such as temporary relocation costs.

Ordinance and Law Coverage

Building codes are regularly changed to improve a structure’s resistance to various risks. Ordinance and Law Coverage covers the extra expense of rebuilding to comply with updated building codes, which, in the case of older structures, can be very expensive.

Employee Dishonesty Coverage

It is estimated that employee fraud costs the average American business six percent of its total annual revenue. Employee Dishonesty Coverage, which is also known as Employee Theft Coverage, can protect a self storage facility from financial loss due to the fraudulent activities of an employee or group of employees, including crimes involving embezzlement and internal theft.

Hired and Non-Owned Automobile Coverage

Owners and operators commonly overlook automobile insurance simply because the self storage facility does not own a vehicle. But, what if the self storage facility rents a truck to pick up equipment or sends an employee on a business errand in the employee’s own car? Hired and Non-Owned Automobile Coverage applies to bodily injury or property damage arising out of the business use of a hired or non-owned automobile.

Equipment Breakdown Coverage

Equipment Breakdown Coverage a/k/a Boiler and Machinery Coverage pays the cost of repairing and replacing damaged equipment covered under the policy. Any resulting loss in business income, as well as additional costs incurred in trying to restore operations quickly, may also be covered under such a policy.

When shopping for these coverages, owners and operators of self storage facilities should consult an insurance agent with an established history of experience and expertise in the field of insuring self storage facilities. Otherwise a self storage facility may be left with costly duplicate coverage or dangerous gaps in coverage.

If you would like more information about how Setnor Byer Insurance & Risk’s Self Storage Insurance Program can help protect your facility, please contact us.

New Health Insurance Notice Requirements for Employers

Thanks to the Affordable Care Act, the Fair Labor Standards Act (FLSA) is moving beyond its traditional role as the nation’s principal wage and hour law. In addition to establishing minimum wage, overtime pay, recordkeeping and youth employment standards, the FLSA now deals with health insurance.

Under the amended FLSA, employers must notify employees that:

Affordable Insurance Exchanges exist, along with a description of the services provided by Exchanges and how to request assistance from an Exchange
If their employer’s health plan pays less than 60% of allowed costs the employee may be eligible for a premium tax credit and a cost sharing reduction if the employee purchases a qualified health plan through an Exchange
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

Employers must distribute this notice to every current employee by March 1, 2013. Employees hired after this date must receive their notice upon being hired.

The precise form and content of the notice, as well as acceptable means for providing the notice, are not yet certain. The law states that employers must provide notice “in accordance with regulations promulgated by the Secretary.” Presumably, these regulations will clarify what should be included in the notice and how it can be provided to employees.

Despite the current lack of regulations, it is reasonable to assume that the FLSA’s broad definition of “employer” means that most employers will need to comply with the new notice requirement. Similarly, the FLSA’s broad definition of “employee” means that every employee, regardless of status, will likely be entitled to receive this notice.

Consequently, employers need to be ready to comply with the notice requirement by March 1, 2013, especially since the penalty for violating this requirement is unknown.

At Setnor Byer Insurance & Risk, we are committed to guiding you through what is sure to be a bumpy ride. Check back with us periodically for future informational updates about health care reform. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.