SBC Rule Does Not Strictly Limit Employers To Eight-Page Summaries, IRS Official Says

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By Kristen Ricaurte Knebel  

The final rule requiring health insurers and group health plans to provide plan participants with a summary of benefits and coverage (SBC) contains a “flexibility rule” that does not constrain those summaries from going over the generally required page length, an Internal Revenue Service official said at a conference Sept. 20.

Some comments about the SBC rule indicated that plans have many different tiers of coverage, making it difficult, if not impossible, to fit everything onto the generally required length of four pages, front and back. However, the rule does not give guidance on what to do if the summaries exceed the limit, said Russell E. Weinheimer, senior counsel in the Office of the Chief Counsel for IRS's Tax Exempt and Government Entities Division.

While the final rule provides some flexibility regarding the summaries, that flexibility is “fairly vague,” Weinheimer said at a conference sponsored by the American Law Institute Continuing Legal Education.

In discussing what he called the “flexibility rule,” Weinheimer was referring to the part of the final regulation that states: “To the extent a plan's terms that are required to be in the SBC template cannot reasonably be described in a manner consistent with the template and instructions, the plan or issuer must accurately describe the relevant plan terms while using its best efforts to do so in a manner that is still consistent with the instructions and template format as reasonably possible.”

Weinheimer said it would be reasonable for employers to read the final rule and think they should only provide the most pertinent information about their health plan on the SBC and “skimp on the rest.”

“I can tell you that wasn't our intent. Our intent was that you go over eight pages. That wasn't clear in the guidance, but if you do confront that situation, I would encourage you to go ahead and use 10 or 12 pages. If you need to, use legal size if that's going to work better than letter size,” he said.

The departments of Health and Human Services, Labor, and Treasury issued a final rule Feb. 9 under the Affordable Care Act that requires health plan insurers and group health plans to provide a standardized, easy-to-understand summary of benefits and coverage for plans, as well as a uniform glossary of coverage terms, for plan years beginning on or after Sept. 23 (30 HRR 153, 2/13/12).

Good Faith Compliance.

The session's moderator, Greta E. Cowart, a partner at Haynes & Boone in Dallas, asked Weinheimer if plans will be covered by the good-faith compliance approach to implementation if they provide participants with the SBC later than required but within this year's open enrollment period.

In a set of frequently asked questions-and-answers released in May (30 HRR 539, 5/21/12), the agencies reiterated that any plans or issuers working in good faith to comply with the summary-of-benefits requirements will not face penalties during the first year of applicability.

“It's the approach of the government to try to encourage voluntary compliance,” Weinheimer said. As long as investigators see that plans are doing their best effort to comply, investigators should not penalize them for that effort, he said.

Notice 2012-40.

The conference session also addressed IRS guidance on health flexible spending arrangements. In Notice 2012-40, IRS stated that the $2,500 limit on salary reduction contributions to health FSAs set by a provision of the 2010 federal health care system overhaul does not apply for plan years starting before 2013.

Kevin P. Knopf, attorney-adviser in Treasury's Office of Benefits Tax Counsel, said most comments IRS received on the notice called for a repeal of the “use-or-lose” rule included in a 2007 proposed regulation that generally prevents the use of any FSA contributions in the next plan year, which can result in the relinquishing of unused amounts.

Eliminating the use-or-lose provision would bring up complications regarding salary reductions for FSA contributions, Knopf said, in part because employees would have to know what amount they had left over from the previous year and adjust their salary reductions accordingly.

“Most likely, any sort of design which would eliminate use-or-lose would end up with a complicated provision” that would require changes in an employee's salary reduction, Knopf said.

He said IRS and Treasury are reviewing the provision but that there are questions as to whether it is appropriate to change a rule that has been around for 30 years without modification.

“You have to wait and see what happens with the use-or-lose. I wouldn't go out and change my plan assuming that it's going to happen,” Knopf said.

By Kristen Ricaurte Knebel