On February 14th the Departments of Treasury, Labor and Health and Human Services (the Departments) issued final regulations regarding the Summary of Benefits and Coverage (SBC) Rules under the Affordable Care Act.

The final rules are significantly better than the proposed rules. However, many provisions in the final rules are still drafted in terms of insured plans and individual policies. In many places in the final rules, self-insured plans will almost need to suspend reality in order to determine the standards for compliance. Further, recent informal conversations with the Departments have shown that there are many provisions that still need to be thought through for self-insured plans.

Background

Under the final rules, employer-sponsored group health plans and health insurers must prepare and distribute an SBC and uniform glossary of terms to participants and enrollees at various times during the year. At the same time, the Departments published separately additional guidance for complying with the SBC disclosure requirements, including templates for the SBC (with instructions and sample language) and the uniform glossary. All of these documents can be obtained from the Department of Labor website at www.dol.gov/ebsa/healthreform. The new disclosure requirements apply to both group health plans and health insurers. However, this alert addresses only those provisions that affect employer-sponsored group health plans.

Effective Date

The final SBC rules are effective for participants or beneficiaries who enroll or re-enroll in a group health plan through an open enrollment period beginning on the first day of the first open enrollment period that begins on or after September 23, 2012. Thus, for calendar year plans, the rules will be effective during open enrollment for 2013, which will occur this fall.

The Departments delayed the effective date with respect to participants and beneficiaries who enroll in the group health plan at any other time (e.g., new hires and special enrollees). For these individuals, the new SBC requirements do not apply until the first day of the first plan year that begins on or after September 23, 2012. For calendar year plans, the final rules are effective January 1, 2013.

Even though for many employer plans, the final rules will not apply until open enrollment this fall, due to the many open issues, employers will need to begin focusing on these new rules soon to determine how they will comply.

Application of the SBC Requirements

The SBC requirements generally apply to all ERISA group health plans, including grandfathered plans. However, many exceptions do exist, described as follows —

  • Excepted Benefits. The new SBC requirements do not apply to group health plans that provide “excepted benefits” for purposes of Part 7 of ERISA. This includes, for example, stand-alone dental or vision options, most health FSAs, and retiree plans that are properly structured as retiree-only plans.
  • Health Reimbursement Arrangements. Health reimbursement arrangements are not excepted benefits and, thus, must comply with the disclosure requirements. The Departments note, however, that if the HRA is integrated with other major medical coverage, a separate SBC is not required. Rather, the SBC that is prepared for the major medical coverage can reflect the HRA coverage by noting the effects of the HRA coverage in the proper places in the SBC. However, for stand-alone HRAs, a separate SBC must be prepared.
  • Health Savings Accounts. HSAs generally are not group health plans, and thus are not subject to the SBC requirements. However, the Departments note that the SBC prepared for a high deductible health plan can include the effects of employer contributions to HSAs in the appropriate places.

SBC Disclosure Requirement

Group health plans must distribute an SBC to participants or beneficiaries with respect to each benefit package offered by the plan for which the participant or beneficiary is eligible. The final rules make it clear that both the plan administrator and, for insured plans, the health insurer, are responsible for compliance. If the benefit package is insured (or is HMO coverage), to avoid duplication, the final regulations provide that if either the plan administrator or the insurer/HMO provides the SBC, then both will have satisfied their compliance obligations so long as all timing and content requirements are satisfied. This means that employers and insurers/HMOs can agree contractually for one party to be responsible for distribution of the SBC on behalf of the other.

SBC Distribution and Timing Requirements

An SBC must be provided to each participant or beneficiary with respect to each benefit package offered by the plan for which the participant or beneficiary is eligible. If a participant and beneficiary live at the same address, a single SBC may be provided to the participant and beneficiary. If, however, the beneficiary lives at a different address, a separate SBC must be provided to the beneficiary at the separate address.

The SBC must be distributed at various times during the year. Some of these requirements will be relatively easy to comply with, while others will not. For example, an SBC must be provided within seven business days upon request. Further, for mid-year enrollees who are HIPAA special enrollees, an SBC must be provided within 90 days of enrollment.

In addition to the situations above, SBCs must also be provided at initial and annual enrollments. However, this is where the paved road of compliance ends, and where the mountainous road begins.

  • Initial Enrollment. The final rules require plans to provide SBCs as part of any written application materials that are distributed by the plan for enrollment. If the plan does not distribute written application materials for enrollment, the SBC must be distributed no later than the first date the participant is eligible to enroll in coverage for the participant or any beneficiaries.
    • While the term “written application materials” is clear in the individual policy market, it’s unclear what this means for employer plans. Many employer plans have a written or online enrollment guide and require eligible employees to enroll via a website. This process certainly appears to be an “application” for coverage, and further Department guidance is welcome.
  • Annual Enrollment. If a written application is required for renewal (whether electronically or via paper), the SBC must be provided no later than the date on which the written application materials are distributed. If, however, renewal is automatic, the plan must provide the SBC no later than 30 days prior to the first day of the new plan year.
    • Some health plans are structured so that medical elections roll over from year to year unless the employee elects to change the coverage. In the rollover situation, the SBC would not have be distributed until 30 days prior to the beginning of the plan year (for calendar year plans, December 1).
    • However, many plans require eligible employees to re-enroll each year, or to check a box to confirm their dependents, current address, etc. In that situation, it’s unclear when an SBC would have to be provided.
    • Further, even having an annual enrollment process (whether voluntary or mandatory) could constitute an “application” for coverage under the rules. This would mean that an SBC must be provided with the annual enrollment materials, rather than 30 days prior to the plan year. For employers with annual enrollment that opens prior to December 1st, this is a significant issue, and further Department guidance is welcome.
  • Multiple Benefit Packages. If the plan offers multiple benefit packages, the final rules require the plan to provide a new SBC at renewal only with respect to the benefit package in which a participant or beneficiary is enrolled. Individuals may, however, request a copy of the SBC for a benefit package in which he or she is eligible but not enrolled, and the plan must respond to the request within seven business days.
    • However, this rule seems to be inconsistent with the enrollment rules that would require distribution of all SBCs for which the individual is eligible, if the employer requires the individual to “apply” for coverage. Again, further Department guidance is welcome.

Completing the SBC

SBC Template. The Departments provide detailed instructions and sample language for completing the SBC. (These documents will be updated for periods on or after January 1, 2014.) The SBC must not exceed four double-sided pages in length or use print smaller than 12-point font, and must use terminology understandable by the average plan enrollee. The final rules require the SBC template to be used, but plan administrators have some latitude on how to illustrate the provisions of a benefit package.

But, changing the template itself is only allowed in the situation where the plan’s terms cannot reasonably be described in a manner consistent with the template and instructions. In that situation, the plan 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. This may occur, for example, if a plan provides a different structure for provider network tiers or drug tiers than is contemplated by the template and instructions, if a plan provides different benefits based on facility type (e.g., hospital inpatient versus non-hospital inpatient) or if a plan provides different cost sharing based on participation in a wellness program.

Uniform Glossary. At the same time the Departments published the SBC template, the Departments also published the final uniform glossary, which provides standard definitions for certain medical and plan-related terms. The uniform glossary may not be modified, and must be provided in connection with the SBC. As noted above, the plan must provide in the SBC an Internet address where an individual may obtain the uniform glossary and contact phone number to obtain a paper copy of the uniform glossary. In that regard, the plan may post the uniform glossary on its own website or it may refer individuals to the uniform glossary posted on the DOL or HHS website. If a request is made for the uniform glossary, it must be provided in either paper or electronic form (as requested) within seven business days.

SPD Interaction. The SBC may be provided either as a stand-alone document or with the SPD (or other summary materials) if the SBC is intact and prominently displayed at the beginning of the materials (such as immediately after the Table of Contents in an SPD). However, given the SBC’s rigid format and terms, and the high legal standards for SPDs and SMMs, plans should not consider the SBC as part of an SPD or SMM.

Foreign Language Rule. The SBC must be provided in a culturally and linguistically appropriate manner following the Affordable Care Act rules for providing claims and appeals notices. This means, for example, that if Spanish and Chinese apply to a plan’s claims and appeals notices, the plan is required to provide an SBC in Spanish and Chinese as well. To assist plan sponsors, written translations of the SBC template, sample language, and uniform glossary have been provided in Spanish, Tagalog, Chinese and Navajo.

Expatriate Plans. The final rules also adopt a special rule for describing the coverage provided under an expatriate plan. Specifically, the plan must issue an SBC that accurately summarizes the benefits and coverage available under the plan within the United States. However, the SBC is not required to summarize coverage for items and services provided outside the United States, but can instead provide an Internet address (or similar contact information) for obtaining such information.

Delivery of the SBC

The SBC must be provided in paper form or, in certain circumstances, electronically. As noted below, the rules for electronic distribution differ depending on whether the participant or beneficiary is currently enrolled in the plan.

  • Existing Enrollees. For participants and beneficiaries who are already covered under the group health plan, the SBC may be provided electronically if the regular ERISA rules regarding electronic distribution of SPDs, participant communications and other ERISA documents are satisfied.
  • New Enrollees. For participants and beneficiaries who are eligible for but not enrolled in the plan, the SBC may be provided electronically if the electronic format is readily accessible and a paper copy is provided free of charge upon request. If the SBC is posted on the Internet, the plan must timely advise the individual in paper form (such as a postcard) 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.

The rules set forth above for new enrollees are very similar to comments submitted by this firm with respect to how the ERISA electronic distribution rules could be liberalized for distribution of SPDs. It’s unclear why the Departments provided liberalized rules for new enrollees versus current participants.

Notice of Modifications to the SBC

Plan sponsors must provide advance notice of mid-year plan changes that impact the content of the SBC. If the plan implements a mid-year change that is a material modification for ERISA purposes and it affects the content of the SBC, the plan must provide notice of the modification. For this purpose, a material modification includes any modification to the coverage offered under a plan that, independently, or in conjunction with other contemporaneous modifications or changes, would be considered by an average plan participant to be an important change in covered benefits or other terms of coverage under the plan. A material modification could be an enhancement of covered benefits or a material reduction in covered services or benefits.

The notice must be provided to enrollees no later than 60 days prior to the effective date of the change. The notice can be in the form of an updated SBC or a separate notice describing the material modifications. A timely and properly completed notice of modification will also satisfy the ERISA requirement to provide a summary of material modifications (to the extent the SBC is required to discuss the change). However, given the rigid format of SBCs, and the much higher legal standards for plan amendments set by recent court actions, only issuing a revised SBC for a plan change will likely be insufficient.

Failure to Comply

Plan administrators who fail to provide the SBC as required by the final rules will face penalties. Specifically, a plan administrator who willfully fails to provide the SBC, uniform glossary and related disclosure materials will be subject to civil penalties of up to $1,000 for each such failure. Separate penalties may be imposed for each individual for whom there is a failure to provide an SBC. The Department of Labor will be issuing future guidance regarding the procedures for assessing this penalty.

The above penalty is in addition to the regular excise tax penalties that normally apply. Under the regular penalty rule, group health plans who fail to comply with the Affordable Care Act disclosure requirements are also subject to the excise tax imposed under Code Section 4980D. The excise tax is generally $100 per day per individual for each day of noncompliance, but this amount may be reduced in special circumstances. Taxpayers subject to the excise tax under Code Section 4980D are required to report the failures and the amount of the excise tax on IRS Form 8928.

Conclusion

As noted above, significant issues still remain for how employer plans must comply with certain provisions of the SBC final rules. Further, completion of the SBC templates for each applicable benefit package will certainly take time. Due to these issues, employers are encouraged to start early in working through an SBC compliance plan.