Group Health Plan Summary of Benefits and Coverage Final Rules Require Plan Sponsors; and Administrators' Attention and Action

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Contributed by Dawn E. Sellstrom and Robert L. Jensen, Drinker Biddle & Reath LLP

Beginning as early as the open enrollment period for 2013 benefits, group health plans will be required to provide the new “Summary of Benefits and Coverage” (SBC) to participants and beneficiaries. On February 9, 2012, the Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively, the Departments) issued final regulations regarding SBCs and the uniform glossary requirement under the Patient Protection and Affordable Care Act of 2010 (PPACA), and a template SBC and specific instructions for completion. The final regulations affect employers that sponsor group health plans, designated plan administrators and insurers. On March 19, 2012, in response to questions from stakeholders about the SBC rules, the Departments issued frequently asked questions (FAQs) regarding implementation of the SBC final regulations. Below is a summary of the major provisions of the rules and related guidance and their impact on group health plans, and the issues plan sponsors and administrators should consider now as they begin their compliance effort.

Purpose of the SBC and Uniform Glossary Requirements

Under the new rules, group health plans and insurers are required to provide health plan participants and beneficiaries clear and understandable information about their plans in uniform, summary format. The main aim of these requirements is to allow group health plan participants to understand and compare health coverage options, in order to make “shopping” for coverage efficient and easy.

Effective Dates for the SBC and Uniform Glossary Requirements

As Early as Open Enrollment for 2013 Benefits - For disclosures to participants and beneficiaries (including COBRA qualified beneficiaries) who enroll or reenroll in group health coverage through an open enrollment period, the requirements are effective as of the first day of the first open enrollment period that begins on or after September 23, 2012. Depending on the timing of open enrollment for 2013 benefits and the enrollment process, this means a health plan may have to provide its SBC(s) to participants and beneficiaries as early as October or November, 2012 (see “Distribution Timing Requirements” below). For Mid-Year Enrollees - For disclosures to participants and beneficiaries (including COBRA qualified beneficiaries) who enroll in group health plan coverage other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees), the requirements are effective as of the first day of the first plan year that begins on or after September 23, 2012. For Health Insurance Issuers -The regulations become effective for disclosures by insurers to plans beginning on September 23, 2012.

Responsible Parties

In the case of an insured group health plan, insurers are required to distribute the SBC to the group health plan (i.e., the plan sponsor), and the group health plan and the insurer are both required to distribute the SBC to plan participants and beneficiaries. In the case of a self-insured group health plan, the plan’s designated plan administrator is responsible.

Plans Subject to the Requirements

An SBC is not required for plans that are “excepted benefits” under HIPAA. These include stand-alone dental and vision plans, and health flexible spending arrangements (health FSAs) that are excepted benefits. Health savings accounts (HSAs) generally are not group health plans and thus, generally are not subject to the SBC requirements. Health reimbursement arrangements (HRAs), on the other hand, are group health plans subject to the SBC requirements. To the extent a non-excepted health FSA or an HRA is integrated with other major medical coverage, the SBC that is prepared for the other major medical coverage can denote the effects of the health FSA or HRA in the appropriate spaces in the SBC. In other words, a separate SBC is not required for a non-excepted health FSA or HRA, unless such plan is a stand-alone plan.

Distribution Timing Requirements

Group health plans and/or the insurers are required to distribute SBCs as follows: Insurers to Group Health Plans - Health insurance issuers must provide an SBC to a group health plan sponsor as soon as practicable following receipt of an application by the plan for health coverage, but no later than seven business days following receipt of the application. If the information in the SBC changes before the first day of coverage, the insurer must update and provide a current SBC to the plan sponsor no later than the first day of coverage. If a plan sponsor requests the SBC or other summary information about an insured product, the insurer must provide an SBC as soon as practicable, but no later than seven business days following receipt of such request. In addition, the insurer must provide the SBC to the plan sponsor upon renewal (the timing rules are similar to those for providing the SBC directly to participants and beneficiaries, described below). Group Health Plans and/or Insurers to Participants & Beneficiaries - Group health plans and/or the insurer must provide an SBC to participants and beneficiaries as follows:

  • At enrollment - As part of any written application materials, including any forms, or requests for information, distributed for enrollment in paper form or through a website or email (or if no such application materials are provided, no later than the first date the participant is eligible to enroll in coverage). If there is any change to any information in the SBC following the application, but before the first day of coverage, an updated SBC must be provided no later than the first day of coverage.
  • To special enrollees - To special enrollees (i.e., those participants and beneficiaries entitled to special enrollment rights under HIPAA) within 90 days after enrollment.
  • At renewal or reenrollment - If a plan either requires participants and beneficiaries to affirmatively elect to maintain coverage during open enrollment or provides participants and beneficiaries an opportunity to change coverage options during open enrollment, the plan or insurer must provide the SBC with the application materials. If there is no requirement to renew and no opportunity to change coverage options, renewal is considered to be automatic and the plan or insurer must provide the SBC at least 30 days prior to the first day of the plan year or policy year. Note: for fully-insured plans, if the policy has not been issued or renewed before this 30-day period, the SBC must be provided as soon as practicable, but no later than seven business days after the new policy is issued (or receipt of written confirmation of intent to renew, if earlier).To prevent unnecessary duplication, at renewal or reenrollment, health plans with multiple benefit options are required to provide a new SBC only for the benefit package in which the participant or beneficiary is enrolled. A participant or beneficiary may request an SBC with respect to another benefit option(s).
  • Upon request - To a participant or beneficiary as soon as practicable, but no later than seven business days following any request for an SBC.
  • Material modification - To the extent a group health plan implements a mid-year change that is a material modification, and that change affects the content of an SBC, a notice of material modifications must be provided to participants and beneficiaries at least 60 days in advance of the effective date of the change. This rule does not apply when the change is in connection with a renewal or reissuance of coverage.

SBC Content Requirements

A separate SBC must be prepared for each benefits package option (e.g., one SBC for the employer’s PPO option and one for its HMO option), although information for separate coverage tiers (e.g., individual, individual plus one, family) within each option may be combined in one SBC, so long as the appearance is understandable. In the case of an SBC that addresses multiple coverage tiers, the coverage examples are to be based on the individual-only coverage tier (and so identified). An SBC generally must include the following:

  • Uniform definitions of standard insurance and medical terms;
  • A description of the coverage, including cost sharing, for each category of benefits identified by the Departments;
  • Any exceptions, reductions, and limitations on coverage;
  • The cost-sharing provisions of coverage, including deductible, coinsurance, and copayment obligations;
  • The renewability and continuation of coverage provisions;
  • Coverage examples of common benefits scenarios (including having a baby under a normal delivery and managing type-2 diabetes) and related cost-sharing based on recognized clinical practice guidelines;
  • A statement that the SBC is only a summary and that the plan or policy controls;
  • Contact information for questions and obtaining a copy of the plan document, insurance policy, certificate, or contract of insurance;
  • For plans that maintain one or more networks of providers, an internet address (or similar contact information) for obtaining a list of network providers;
  • For plans that maintain a prescription drug formulary, an internet address (or similar contact information) for finding more information about prescription drug coverage under the plan;
  • An internet address where an individual may review the uniform glossary, a contact phone number to obtain a paper copy of the uniform glossary, and a disclosure that paper copies of the uniform glossary are available; and
  • Beginning on or after January 1, 2014, a statement about whether the plan provides minimum essential coverage and meets certain cost-sharing requirements.

Note that the final regulations do not require the SBC to include premium or cost of coverage information (although it is permissible to include such information at the end of the SBC).

Uniform Glossary Requirements

In order to help participants and beneficiaries understand and compare the terms of coverage and medical benefits provided, the Departments have developed a glossary of definitions of insurance, medical, and other terms, presented in a uniform format and using terminology that is understandable by the average plan participant and beneficiary. In addition to the information required to be included in the SBC with respect to the uniform glossary (as described above), a group health plan or insurer must make the uniform glossary available upon request within seven business days. While guidance issued on the uniform glossary makes it clear that the glossary cannot be modified in any way, the plan administrator is not required to change the group health plan SPD or other plan communications to incorporate the same glossary terms.

SBC Template and Formatting Requirements

An SBC must be in a uniform, easy-to-understand format that is culturally and linguistically appropriate, not exceed four double-sided pages, and be in at least 12-point font. To this end, the Departments issued an SBC template (which accommodates both fully-insured and self-insured plans), a sample completed SBC, and instructions for completing the SBC. The Departments authorized the template and other materials for the first year of applicability only. The Departments intend to issue updated materials for subsequent years. While the format of the SBC template generally cannot be modified (except for minor adjustments), the guidance on the SBC template acknowledges that there may be some situations under which a plan’s terms cannot reasonably be described in a manner consistent with the template. In these types of situations, the plan administrator or insurer must accurately describe the relevant plan terms, while using its best efforts to do so in a manner that is still consistent with the template and instructions. A plan administrator may choose to provide an SBC in combination with an SPD, as long as the SBC information is intact and prominently displayed at the beginning of the SPD (e.g., immediately following the table of contents) and the timing requirements for providing an SBC are otherwise satisfied. Note that an SBC is not permitted to substitute a reference to the SPD for any content element of the SBC, but may provide a reference to specified pages or portions of the SPD in order to supplement the SBC’s content.

Translation Requirements

In some instances, the SBC is required to be translated into a foreign language. The final rules incorporate by reference the same standard for providing language assistance as is required by the enhanced appeals requirements under PPACA. This means that language assistance must be provided if the SBC is sent to an address in a county where 10% or more of the population residing in that county is literate only in the same non-English language. Language assistance includes oral language services (e.g., telephone hotline in the non-English language), providing the notice in the non-English language (if requested), and adding a statement to the SBC in the applicable non-English language(s) about how to access language services. Under current guidance, translation may be required into Spanish, Tagalog, Chinese and Navajo.

Distribution Methods

SBCs may be distributed in paper form or electronically. For participants and beneficiaries who are already covered under a group health plan, the plan administrator (or insurer, as applicable) must comply with the DOL’s disclosure rules, which include the safe harbor for electronic disclosures. For participants and beneficiaries who are eligible but not enrolled in coverage, the SBC may be provided electronically if the format is readily accessible and a paper copy is provided free upon request. In this case, if the electronic form is an Internet posting, the plan administrator (or insurer, as applicable) must timely advise the individual in a paper form (e.g., a postcard, a model of which has been provided by the Departments) or email that the documents are available on the Internet, provide the Internet address, and notify the individual that the documents are available in paper form upon request. All participants (both covered, and eligible but not enrolled) have the right to receive an SBC in paper format, free of charge, upon request. A single SBC may be provided to a family at the family’s last known address, unless any beneficiaries are known to reside at a different address.

Consequences of Noncompliance

If a plan administrator willfully fails to provide an SBC, it may be assessed a penalty of up to $1,000 for each failure to provide an SBC to an individual. In addition, a plan sponsor may be subject to an excise tax under the Internal Revenue Code of up to $100 a day, for each affected individual, unless certain exceptions apply. Note, however, that consistent with the Departments’ approach to implementation, which focuses on assisting plans and insurers with compliance efforts rather than imposing penalties, the Departments will not impose penalties during the first year of applicability on plans or insurers that are working diligently and in good faith to provide the SBC in a manner consistent with the final regulations. Although the rules provide that the requirement to provide an SBC will be considered satisfied for all entities if the SBC is appropriately provided by any entity, the current rules provide only limited relief from the noncompliance penalties for reliance on another entity fulfilling the SBC requirement. Specifically, in the FAQs, the Departments indicate that, if a group health plan or insurer has entered into a binding contractual arrangement under which another party has assumed responsibility to complete the SBC, provide required information to complete a portion of the SBC, or deliver an SBC, the plan or insurer generally will not be subject to any penalties for failing to provide a timely or complete SBC. However, the plan or insurer must continue to monitor the other party’s performance under the agreement, and take certain actions in the event it knows of a violation of the rules.

Next Steps

Initial planning will help plan sponsors and administrators identify obstacles to compliance and establish a solid SBC compliance strategy. Top action items and issues to consider include:

  • Benefits communications strategy. Consider developing a comprehensive communication strategy (or modifying the current strategy) to help participants understand how the SBC is meant to work with the other information provided about the plan.
  • Identify responsible parties. Determine how their health plans will comply with the SBC requirements. This may involve talking to insurers (in the case of insured plans), third-party administrators (in the case of self-insured plans), and legal counsel to determine how best to timely prepare and distribute the SBC(s) to comply with the new requirement. In the case of an insured plan, because the requirement to provide an SBC to participants and beneficiaries applies to both the group health plan and to the insurer, the parties should consider assigning the responsibility for providing this disclosure through contractual provisions, including allocation of liability for any non-compliance penalties.
  • Distribution process. Distributing SBCs will be an ongoing exercise. Because SBCs are due to health plans and plan participants at various times, the parties must develop a process to determine SBC deadlines, distribute SBCs timely, and maintain records. Likewise, due to the timing rules, even if a plan administrator delegates the actual distribution to a TPA or insurer, it will likely have to remain part of the process and transfer relevant data about participants to the TPA.
  • Cost considerations and electronic distribution. Consider distributing SBCs electronically for potential cost savings, especially in light of the ongoing requirement to regularly update and re-distribute SBCs. The electronic distribution guidelines for SBCs are more lenient, in some cases, than the DOL’s electronic distribution safe harbor.
  • Consider template format and any needed adjustments. Review the SBC template, sample completed SBC, and instructions for completing the SBC and identify any open questions. Carefully review the instructions as they are very specific as to the placement of certain content, and require that all symbols, formatting, bolding, and shading be replicated. Also consider any benefits for which a separate SBC is needed (e.g., a stand-alone HRA), or that may be integrated into a health benefit option’s SBC (e.g., account-based benefits such as an integrated HRA, health FSA or HSA). Determine the number of SBCs that must be prepared and distributed, based on the health benefit options offered and tiers of coverage. Decide whether to address separate rate tiers in separate SBCs or combine rate tiers for a benefit option into one SBC.
Dawn E. Sellstrom is counsel at Drinker Biddle & Reath LLP in the Chicago office and a member of the Employee Benefits & Executive Compensation Practice Group. Dawn practices in all areas of employee benefits law. She has extensive experience with the market reform and employer shared responsibility provisions of PPACA. Robert L. Jensen is an associate at Drinker Biddle & Reath LLP in the Philadelphia office and a member of the Employee Benefits & Executive Compensation Practice Group. Rob assists clients in a variety of employee benefits areas, including qualified retirement plans, non-qualified deferred compensation arrangements, stock options and other equity-based incentive compensation.
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