Protecting Employers: The Liability Impact of the Affordable Care Act


By Richard G. Clarke, CIC, CPCU, RPLU, CITRMS

The Affordable Care Act (ACA), signed into law by President Obama in March 2010, is revolutionizing both health care insurance and the delivery of health care services. With limited exceptions, all individuals are required to purchase and maintain health insurance. The largest group of U.S. citizens affected by this landmark legislation will be employees in the corporate sector.

Effective January 1, 2016, employers with employee headcounts greater than fifty are required to not only provide health insurance, but the insurance (“employer shared responsibility”) must meet specifically described parameters. The insurance must provide “minimum value;” it must be “affordable insurance” providing “minimum essential coverage” and meet other specific requirements, or else the employer will be subject to financial penalties for non-compliance. (Interestingly, if any employer pays for or reimburses employees for insurance and any employee purchases individual insurance on a health exchange or from a private insurer, the employer may be required to pay a specific penalty to the IRS for allowing such an event to happen. Thus, employers face special pressure and the potential of fines for the activity of employees in connection with obtaining health insurance.) This article will address ways in which employers can be protected from fines, penalties, and even liability arising from non-compliance with the ACA.

Protecting Employers for ACA Exposures

Employers must be “in compliance” with the ACA. There are established standards for employer group insurance coverage, and “compliance” is reflected by information in prescribed reports to federal authorities that must be filed according to a pre-set timetable. Additionally, there must be specific, documented communication with employees (primarily, informing them generally about the ACA, and advising them that they have health insurance choices)—also according to a prescribed timetable. Failure to comply will result in possible fines or penalties, or both.

To provide protection to employers with respect to their mandatory compliance with the ACA, many insurers have developed specific insurance coverage in the form of endorsements to Fiduciary Liability insurance policy forms. Fiduciary liability insurance is not a new product, and knowledgeable employers have been purchasing it for years, primarily as protection for the “personal liability” exposure that originated with new federal employee benefits legislation in the form of the Employee Retirement Income Security Act of 1974 (ERISA).

The good news for employers is that this insurance is not expensive and is readily obtainable from a variety of insurers; however, not every insurer offering this coverage has available the endorsement(s) which will address ACA fines and penalties. And some underwriters are either taking the position that their Fiduciary Liability insurance coverage will already apply to liability allegations arising out of the ACA (because they consider the ACA to be “similar legislation” to the ERISA legislation), or, their position is that they are unwilling to specifically cover ACA liability. (It is very important to distinguish between any insurance coverage provided for fines and penalties and insurance coverage provided for liability, on an insurer-by-insurer basis.) So, the homework for professional insurance agents will be to determine the extent of protection—if any—which is available under existing Fiduciary Liability insurance coverage, as well as monitoring newly released endorsements designed to respond to the new exposures arising from the ACA.

The passage of time will involve court cases, amendatory legislation, or other events which will result in this aspect of coverage becoming much clearer. But for now, the intelligent buyer of management liability insurance will want to insist upon obtaining the best possible insurance coverage available, and the most logical place to look for this coverage will be under the Fiduciary Liability insurance policy.

For many employers, insurance becomes increasingly important in the face of the ACA, and there are rather rigid compliance requirements for employers with 100 or more employees (who must be in compliance by January 1, 2015) and 50 to 100 employees (who must be in compliance by January 1, 2016). Even employers with less than 50 employees have some paperwork filing requirements, so having insurance coverage which provides “compliance protection” is becoming more relevant with the passage of time.

The additional stress for employers lies with the fact that the ACA has its own lexicon and jargon. In order to comply, employers will need to compute exactly what constitutes “minimum value;” and assure that the coverage offered is considered “affordable.” Employers also must understand and comply with numerous additional characteristics of the coverage provided (there are a number of carefully defined terms which are associated with the ACA, which employers must either understand or delegate to third party administrators/providers of ACA-related services).

In addition, once employee enrollment is completed, there are more than two dozen “trigger events” which will mandate enrollee communication and which must be both documented and monitored on an ongoing basis. One early frustrated observer has described the ACA as “COBRA on steroids.”

Other Insurance Coverages that May be Affected by the ACA

Since being in legal compliance as well as making decisions on insurance is a general governance responsibility, the insurance coverage which provides governance-related insurance is Directors and Officers Liability insurance (D&O). Traditionally, D&O insurance policies have carried an exclusion for (something like), “…failure to comply with the provisions of the ERISA.” The regulatory body primarily responsible for enforcement of the ERISA legislation is the Department of Labor; the regulators responsible for enforcement of the ACA are the Internal Revenue Service and Health and Human services.

Although there has been little public discussion about the effect of the ACA upon D&O insurance, it is possible that some insurers will choose to also exclude liability arising out of the ACA under D&O insurance policies (in the absence of such specific exclusionary language, a case could be made that an employer’s ACA liability could conceivably be covered under D&O insurance).

Additionally, the ACA has some provisions for rewarding “whistleblowers.” The ACA’s section 1558 prevents employers from retaliating against whistleblowers. It is possible to obtain some measure of coverage for whistleblower-related activity under most D&O insurance policies, although doing so can involve some rather complicated aspects of coverage. Firms in the health care industry (ranging from third-party administrators to physicians to health insurers and medical care facilities) may face some particular risks in this regard, so close attention to professional liability and D&O insurance for these practice areas may be especially important.

Finally, with respect to D&O insurance exposure, there’s always a potential for allegations of violation of “anti-trust” legislation, should health care organizations, responding to incentives in the ACA, form specific types of operating organizations, such as affordable care organizations. Generally speaking, D&O insurers are hesitant about providing insurance for allegations of “anti-trust” violations, but in the health care D&O sector, underwriters have been willing to offer some measure of insurance in certain circumstances.

Although perhaps a bit of a stretch, allegations of discrimination brought against employers by employees relating to participation in the ACA could also affect Employment Practices Liability (EPL) insurance. Specific individual insurance policy language would need to be consulted in this regard, in the event of such allegations.

There will certainly be an impact upon workers’ compensation insurance as a result of the ACA: medical care for workrelated injuries will continue to be provided, and it’s likely that more efficient ways of delivering this care will evolve. An example might be greater dependence upon telemedicine, or the rise of third-party medical care givers localized to provide work-related medical care.

Those firms involved in providing medical-related services or health insurance-related services (third-party administrators or other firms offering ACA compliance-related services to employers) will find an impact under the ACA, as cost control measures and more limited medical choices will impact the delivery of medical services. Underwriters of these specialty insurance coverages (likely “professional liability” or “E&O liability” insurance) will carve their coverage in ways that will either benefit these “third-parties” or cause additional concern for the insurance coverages offered, as a result of the ACA. But the implication stressed upon employers choosing to outsource employee benefits-related services will be the importance of having solid insurance requirements for these third-party providers, including E&O liability, “Cyber” liability, and Crime insurance, in addition to agreeing to hold the contracting employers harmless.


At this early date, it is impossible to know or understand all of the potential ramifications of the ACA upon employers. No known litigation has yet been filed against individual employers by either employees or federal authorities, in connection with the ACA. But with the passage of time and the evolution of insurance coverage, employers will be much better equipped to address ACA exposures on individual insurance policies. However, based upon past legislation (such as ERISA) and past court rulings (particularly, the U.S. Supreme Court in 1991), we can anticipate that there will be continuing developments. Stay tuned as we all move forward with this interesting and provocative legislation known as the Affordable Care Act!

Learn More, Earn More

Executive Liability Insurance

To learn more about D&O, EPL, and Fiduciary Liability insurance, consider attending a Ruble Executive Risk Seminar. Richard Clarke, the author of this article, also authored The Academy’s book, Executive Liability Insurance, available for sale at For practical learning about commercial liability exposures and coverages, attend a CIC Commercial Casualty Institute or CISR’s Commercial Casualty I & II Courses.

Dick Clarke, CIC, CPCU, RPLU, CITRMS, is a veteran of the insurance industry, having worked as an underwriter, consultant, and broker. He is currently Senior Vice President with the regional brokerage, J. Smith Lanier & Company in Atlanta, Georgia. Dick authored Executive Liability Insurance and continues to publish articles on a variety of subjects, and functions as a consultant to buyers of commercial insurance, as well as insurance companies. He is a long-time National Alliance National Faculty member, Education Consultant, CIC/CISR Committee member, and former Board member for both CIC and The Academy.

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