FAQS ABOUT AFFORDABLE CARE ACT 
IMPLEMENTATION (PART XI) 
January 24, 2013 
 
Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of 
various provisions of the Affordable Care Act. These FAQs have been prepared by the 
Departments of Labor, Health and Human Services (HHS), and the Treasury (collectively, the 
Departments). Like previously issued FAQs (available at 
http://www.dol.gov/ebsa/healthreform/), these FAQs answer questions from stakeholders to help 
people understand the new law and benefit from it, as intended. 
 
The Departments anticipate issuing further responses to questions and issuing other guidance in 
the future.  We hope these publications will provide additional clarity and assistance. 
 
Notice of Coverage Options Available Through the Exchanges 
 
Section 18B of the Fair Labor Standards Act (FLSA), as added by section 1512 of the Affordable 
Care Act, generally provides that, in accordance with regulations promulgated by the Secretary 
of Labor, an applicable employer must provide each employee at the time of hiring (or with 
respect to current employees, not later than March 1, 2013), a written notice: 
 
1.  Informing the employee of the existence of Exchanges including a description of 
the services provided by the Exchanges, and the manner in which the employee 
may contact Exchanges to request assistance;  
2.  If the employer plans 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 (the 
Code) if the employee purchases a qualified health plan through an Exchange; and 
3.  If the employee purchases a qualified health plan through an 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. 
 
Q1: When do employers have to comply with the new notice requirements in section 18B of 
the FLSA? 
 
Section 18B of the FLSA provides that employer compliance with the notice requirements of that 
section must be carried out [i]n accordance with regulations promulgated by the Secretary [of 
Labor]. Accordingly, it is the view of the Department of Labor that, until such regulations are 
issued and become applicable, employers are not required to comply with FLSA section 18B.  
 
The Department of Labor has concluded that the notice requirement under FLSA section 18B 
will not take effect on March 1, 2013 for several reasons.  First, this notice should be coordinated  with HHSs educational efforts and Internal Revenue Service (IRS) guidance on minimum value.  
Second, we are committed to a smooth implementation process including providing employers 
with sufficient time to comply and selecting an applicability date that ensures that employees 
receive the information at a meaningful time.  The Department of Labor expects that the timing 
for distribution of notices will be the late summer or fall of 2013, which will coordinate with the 
open enrollment period for Exchanges.  
 
The Department of Labor is considering providing model, generic language that could be used to 
satisfy the notice requirement.  As a compliance alternative, the Department of Labor is also 
considering allowing employers to satisfy the notice requirement by providing employees with 
information using the employer coverage template as discussed in the preamble to the Proposed 
Rule on Medicaid, Childrens Health Insurance Programs, and Exchanges: Essential Health 
Benefits in Alternative Benefit Plans, Eligibility Notices, Fair Hearing and Appeal Processes for 
Medicaid and Exchange Eligibility Appeals and Other Provisions Related to Eligibility and 
Enrollment for Exchanges, Medicaid and CHIP, and Medicaid Premiums and Cost Sharing (78 
FR 4594, at 4641), which will be available for download at the Exchange web site as part of the 
streamlined application that will be used by the Exchange, Medicaid, and CHIP.  Future 
guidance on complying with the notice requirement under FLSA section 18B is expected to 
provide flexibility and adequate time to comply. 
 
Compliance of Health Reimbursement Arrangements with Public Health Service Act (PHS 
Act) section 2711 
 
Section 2711 of the PHS Act, as added by the Affordable Care Act, generally prohibits plans and 
issuers from imposing lifetime or annual limits on the dollar value of essential health benefits.  
The preamble to the interim final regulations implementing PHS Act section 2711 (75 FR 37188) 
addressed the application of section 2711 to health reimbursement arrangements (HRAs) and 
certain other account-based arrangements.  HRAs are group health plans that typically consist of 
a promise by an employer1 to reimburse medical expenses (as defined in Code section 213(d)) 
for a year up to a certain amount, with unused amounts available to reimburse medical expenses 
in future years.  The preamble distinguished between HRAs that are integrated with other 
coverage as part of a group health plan and HRAs that are not so integrated (stand-alone 
HRAs).  The preamble stated that [w]hen HRAs are integrated with other coverage as part of a 
group health plan and the other coverage alone would comply with the requirements of PHS Act 
section 2711, the fact that benefits under the HRA by itself are limited does not violate PHS Act 
section 2711 because the combined benefit satisfies the requirements.  (75 FR 37188, at 37190-
37191).  The corollary to this statement is that an HRA is not considered integrated with primary 
health coverage offered by the employer unless, under the terms of the HRA, the HRA is 
available only to employees who are covered by primary group health plan coverage provided by 
the employer and meeting the requirements of PHS Act section 2711.  
  
                                                             
1 An HRA may be sponsored by an employer, an employee organization, or both.  For simplicity, this section of the 
FAQs refers to employers.  However, this guidance is equally applicable to HRAs sponsored by employee 
organizations, or jointly by employers and employee organizations.     
2 
  Questions 2 through 4 below address certain issues relating to HRAs. The Departments 
anticipate issuing future guidance addressing HRAs.2 
 
Q2: May an HRA used to purchase coverage on the individual market be considered 
integrated with that individual market coverage and therefore satisfy the requirements of 
PHS Act section 2711?   
 
No. The Departments intend to issue guidance providing that for purposes of PHS Act section 
2711, an employer-sponsored HRA cannot be integrated with individual market coverage or with 
an employer plan that provides coverage through individual policies and therefore will violate 
PHS Act section 2711.   
 
Q3: If an employee is offered coverage that satisfies PHS Act section 2711 but does not 
enroll in that coverage, may an HRA provided to that employee be considered integrated 
with the coverage and therefore satisfy the requirements of PHS Act section 2711? 
 
No. The Departments intend to issue guidance under PHS Act section 2711 providing that an 
employer-sponsored HRA may be treated as integrated with other coverage only if the employee 
receiving the HRA is actually enrolled in that coverage.  Any HRA that credits additional 
amounts to an individual when the individual is not enrolled in primary coverage meeting the 
requirements of PHS Act section 2711 provided by the employer will fail to comply with PHS 
Act section 2711. 
 
Q4: How will amounts that are credited or made available under HRAs under terms that 
were in effect prior to January 1, 2014, be treated?  
 
The Departments anticipate that future guidance will provide that, whether or not an HRA is 
integrated with other group health plan coverage, unused amounts credited before January 1, 
2014,  consisting of amounts credited before January 1, 2013 and amounts that are credited in 
2013 under the terms of an HRA as in effect on January 1, 2013  may be used after December 
31, 2013 to reimburse medical expenses in accordance with those terms without causing the 
HRA to fail to comply with PHS Act section 2711. If the HRA terms in effect on January 1, 
2013, did not prescribe a set amount or amounts to be credited during 2013 or the timing for 
crediting such amounts, then the amounts credited may not exceed those credited for  2012 and 
may not be credited at a faster rate than the rate that applied during 2012.  
 
                                                             
2 With respect to HRAs that are limited to retirees, the exemption from the requirements of ERISA and the Code 
relating to the Affordable Care Act for plans with fewer than two current employees means that retiree-only HRAs 
generally are not subject to the rules of PHS Act section 2711.  See the preamble to the interim final rules 
implementing PHS Act section 2711 (75 FR 37188, at 37191).  See also ACA Implementation FAQs Part III, 
issued on October 12, 2010 (available at http://www.dol.gov/ebsa/faqs/faq-aca3.html).  
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Disclosure of Information Related to Firearms 
 
Q5: Does PHS Act section 2717(c) restrict communications between health care 
professionals and their patients concerning firearms or ammunition? 
 
No.  While we have yet to issue guidance on this provision, the statute prohibits an organization 
operating a wellness or health promotion program from requiring the disclosure of information 
relating to certain information concerning firearms.  However, nothing in this section prohibits or 
otherwise limits communication between health care professionals and their patients, including 
communications about firearms.  Health care providers can play an important role in promoting 
gun safety.  
 
 
Self-Insured Employer Prescription Drug Coverage Supplementing Medicare Part D 
Coverage Provided through Employer Group Waiver Plans 
 
Medicare Part D is an optional prescription drug benefit provided by prescription drug plans.  
Employers sometimes provide Medicare Part D coverage through Employer Group Waiver Plans 
(EGWPs) under title XVIII of the Social Security Act and often supplement the coverage with 
additional non-Medicare drug benefits.  For EGWPs that provide coverage only to retirees, the 
non-Medicare supplemental drug benefits are exempt from the health coverage requirements of 
title XXVII of the PHS Act, Part 7 of the Employee Retirement Income Security Act (ERISA), 
and Chapter 100 of the Code.  (For ease of reference, the relevant provisions of the three statutes 
are referred to here as the health coverage requirements.)  Moreover, for EGWPs that are 
insured under a separate policy, certificate, or contract of insurance, the non-Medicare 
supplemental drug benefits qualify as excepted benefits under PHS Act section 2791(c)(4), 
ERISA section 733(c)(4), and Code section 9832(c)(4) and are, therefore, similarly exempt from 
the health coverage requirements. 
 
Q6:  Must self-insured prescription drug coverage that supplements the standard Medicare 
Part D coverage through EGWPs comply with the health coverage requirements? 
 
Pending further guidance, the Departments will not take any enforcement action against a group 
health plan that is an EGWP because the non-Medicare supplemental drug benefit does not 
comply with the health coverage requirements of title XXVII of the PHS Act, part 7 of ERISA, 
and chapter 100 of the Code.  This enforcement policy does not affect other requirements 
administered by the Centers for Medicare & Medicaid Services that apply to providers of such 
coverage.  The Centers for Medicare & Medicaid Services intends to issue related guidance 
concerning insured coverage that provides non-Medicare supplemental drug benefits shortly.  
 
Fixed Indemnity Insurance 
 
Fixed indemnity coverage under a group health plan meeting the conditions outlined in the 
Departments regulations3 is an excepted benefit under PHS Act section 2791(c)(3)(B), ERISA 
                                                             
3 See 26 CFR 54.9831-1(c)(4), 29 CFR 732(c)(4), 45 CFR 146.145(c)(4). 
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  section 733(c)(3)(B), and Code section 9832(c)(3)(B).  As such, it is exempt from the health 
coverage requirements of title XXVII of the PHS Act, part 7 of ERISA, and chapter 100 of the 
Code.   The Departments have noticed a significant increase in the number of health insurance 
policies labeled as fixed indemnity coverage.   
 
Q7:  What are the circumstances under which fixed indemnity coverage constitutes 
excepted benefits? 
 
The Departments regulations provide that a hospital indemnity or other fixed indemnity 
insurance policy under a group health plan provides excepted benefits only if: 
 
  The benefits are provided under a separate policy, certificate, or contract of 
insurance;  
  There is no coordination between the provision of the benefits and an exclusion of 
benefits under any group health plan maintained by the same plan sponsor; and 
  The benefits are paid with respect to an event without regard to whether benefits are 
provided with respect to the event under any group health plan maintained by the 
same plan sponsor.   
 
The  regulations further provide that to be hospital indemnity or other fixed indemnity insurance, 
the insurance must pay a fixed dollar amount per day (or per other period) of hospitalization or 
illness (for example, $100/day) regardless of the amount of expenses incurred.  
 
Various situations have come to the attention of the Departments where a health insurance policy 
is advertised as fixed indemnity coverage, but then covers doctors visits at $50 per visit, 
hospitalization at $100 per day, various surgical procedures at different dollar rates per 
procedure, and/or prescription drugs at $15 per prescription.  In such circumstances, for doctors 
visits, surgery, and prescription drugs, payment is made not on a per-period basis, but instead is 
based on the type of procedure or item, such as the surgery or doctor visit actually performed or 
the prescribed drug, and the amount of payment varies widely based on the type of surgery or the 
cost of the drug.  Because office visits and surgery are not paid based on a fixed dollar amount 
per day (or per other period), a policy such as this is not hospital indemnity or other fixed 
indemnity insurance, and is therefore not excepted benefits.  When a policy pays on a per-service 
basis as opposed to on a per-period basis, it is in practice a form of health coverage instead of an 
income replacement policy.  Accordingly, it does not meet the conditions for excepted benefits.   
 
The Departments plan to work with the States to ensure that health insurance issuers comply 
with the relevant requirements for different types of insurance policies and provide consumers 
with the protections of the Affordable Care Act. 
 
Payment of PCORI Fees   
 
Section 4376 of the Code, as added by the Affordable Care Act, imposes a temporary annual fee 
on the sponsor of an applicable self-insured health plan for plan years ending on or after October 
1, 2012, and before October 1, 2019.  The fee is equal to the applicable dollar amount in effect 
for the plan year ($1 for plan years ending on or after October 1, 2012, and before October 1, 
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  2013) multiplied by the average number of lives covered under the applicable self-insured health 
plan during the plan year.  In the case of (i) a plan established or maintained by 2 or more 
employers or jointly by 1 or more employers and 1 or more employee organizations, (ii) a 
multiple employer welfare arrangement, or (iii) a voluntary employees beneficiary association 
(VEBA) described in Code section 501(c)(9), the plan sponsor is defined in Code section 
4376(b)(2)(C) as the association, committee, joint board of trustees, or other similar group of 
representatives of the parties who establish or maintain the plan. 
 
Q8:    Does Title I of ERISA prohibit a multiemployer plans joint board of trustees from 
paying the Code section 4376 fee from assets of the plan? 
 
In the case of a multiemployer plan defined in ERISA section 3(37), the plan sponsor liable for 
the fee would generally be the independent joint board of trustees appointed by the participating 
employers and employee organization, and directed pursuant to a collective bargaining 
agreement to establish the employee benefit plan.  Normally, such a joint board of trustees has no 
function other than to sponsor and administer the multiemployer plan, and it has no source of 
funding independent of plan assets to satisfy the Code section 4376 statutory obligation.  The fee 
involved is not an excise tax or similar penalty imposed on the trustees in connection with a 
violation of federal law or a breach of their fiduciary obligations in connection with the plan.  
Nor would the joint board be acting in a capacity other than as a fiduciary of the plan in paying 
the fee.4  In such circumstances, it would be unreasonable to construe the fiduciary provisions of 
ERISA as prohibiting the use of plan assets to pay such a fee to the Federal government.   Thus, 
unless the plan document specifies a source other than plan assets for payment of the fee under 
Code section 4376, such a payment from plan assets would be permissible under ERISA. 
 
There may be rare circumstances where sponsors of employee benefit plans that are not 
multiemployer plans would also be able to use plan assets to pay the Code section 4376 fee, such 
as a VEBA that provides retiree-only health benefits where the sponsor is a trustee or board of 
trustees that exists solely for the purpose of sponsoring and administering the plan and that has 
no source of funding independent of plan assets. 
 
The same conclusion would not necessarily apply, however, to other plan sponsors required to 
pay the fee under Code section 4376.  For example, a group or association of employers that act 
as a plan sponsor but that also exist for reasons other than solely to sponsor and administer a plan 
may not use plan assets to pay the fee even if the plan uses a VEBA trust to pay benefits under 
the plan.  The Department of Labor would expect that such an entity or association, like 
employers that sponsor single employer plans, would have to identify and use some other source 
of funding to pay the Code section 4376 fee. 
 
 
                                                             
4 See generally, ERISA Field Assistance Bulletin 2002-02 (trustees of multiemployer plans, if allowed under the 
plan documents, may act as fiduciaries in carrying out activities that otherwise would be settlor in nature), available 
at http://www.dol.gov/ebsa/regs/fab2002-2.html.   
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