The Patient Protection and Affordable Care Act 1 (the Act) directs the Departments of Labor, Health and Human Services, and Treasury (collectively, the Departments) to develop, in consultation with the National Association of Insurance Commissioners (NAIC), standards for use by group health plans and health insurance issuers for providing summaries of benefits and coverage (SBC) to insureds, plan participants, and beneficiaries. On August 18, 2011, the Departments issued proposed regulations (the proposed rule) interpreting the SBC requirement. At the same time, the Departments issued a series of model SBC templates, instructions, and a proposed uniform glossary of key terms. The proposed rule was published in the August 22, 2011 Federal Register.2
The Act creates a new Public Health Service Act (PHSA) Section 2715(a), which generally mandates the development of “standards for use by a group health plan and a health insurance issuer offering group or individual health insurance coverage, in compiling and providing to applicants, enrollees, and policyholders or certificate holders a summary of benefits and coverage explanation that accurately describes the benefits and coverage under the applicable plan or coverage.”
The provisions of PHSA Section 2715 prescribe the following specific SBC requirements that the Departments (with NAIC’s assistance) must address:
- Appearance. The SBC must be presented in a uniform format that does not exceed four pages in length and does not include print smaller than 12-point type.
- Language. The SBC must be presented in a culturally and linguistically appropriate manner and utilize terminology understandable by the average plan enrollee.
- Contents. The SBC must include (1) uniform definitions of standard insurance terms and medical terms so that consumers may compare health insurance coverage and understand the terms of coverage (or exception to such coverage), (2) a description of the coverage, including cost sharing for each of the categories of “Essential Health Benefits” 3 as well as any other benefits as identified by regulation, (3) exceptions, reductions, and limitations on coverage; (4) cost-sharing provisions, including deductible, coinsurance, and copayment obligations, (5) renewability and continuation of coverage provisions, (6) a coverage facts label including examples of common benefits scenarios, (7) a statement of whether the plan or coverage provides “minimum essential coverage” 4 and whether the plan or coverage provides good value, (8) a statement that the outline is a summary of the policy or certificate and that the coverage document itself should be consulted to determine the governing contractual provisions, and (9) a contact number for the consumer to call with additional questions and a web address where a copy of the actual individual coverage policy or group certificate of coverage can be reviewed and obtained.
The SBC requirement applies to fully insured and self‐funded ERISA group health plans, including grandfathered plans, as well as to non‐ERISA group health plans and to individual health insurance coverage. The SBC requirement is in addition to the requirements that apply to ERISA-covered group health plans to furnish a summary plan description. SBCs must be provided not later than March 23, 2012 (i.e., 24 months after the date of enactment of the Act), and they must be updated periodically.
The Proposed Rule
The proposed rule imposes obligations on group health plans and health insurance issuers to provide written SBCs without charge in connection with initial eligibility, renewal, special enrollment, and upon request. In some cases, the SBC must be provided for each available benefit package; in other cases, the SBC is with respect to only the current coverage. Also included are rules intended to avoid unnecessary duplication. Set out below is a description of the rules that apply to group health plans and health insurance issuers offering group coverage. Similar rules (which are not described in this client advisory) apply to coverage in the individual market.
Health Insurance Issuers
Health insurance issuers must provide SBCs to group health plans upon application or request for information about the health coverage as soon as practicable, but in no event later than seven days following the request. If an SBC is provided upon request for information about health coverage and the plan subsequently applies for health coverage, a second SBC must be provided only if the information required to be in the SBC has changed. If there is any change in the information required to be in the SBC before the coverage is offered, or before the first day of coverage, the issuer must provide a current SBC to the plan no later than the date of the offer (or no later than the first day of coverage, as applicable).
If the issuer renews or reissues the policy (e.g., for a succeeding policy year), the issuer must provide a new SBC when the policy is renewed or reissued. If a written application is required for renewal, the SBC must be provided no later than the date the materials are distributed. If renewal or reissuance is automatic, the SBC must be provided no later than 30 days prior to the first day of the new policy year.
Health Insurance Issuers and Group Health Plans
Plans and issuers must provide an SBC to a participant or beneficiary with respect to each benefit package offered by the plan or issuer for which the participant or beneficiary is eligible. The SBC must be provided as part of any written application materials that are distributed by the plan or issuer 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. If there is any change to the information required to be in the SBC before the first day of coverage, the plan or issuer must update and provide a current SBC to a participant or beneficiary no later than the first day of coverage. The plan or issuer must also provide the SBC to enrollees with HIPAA special enrollment rights within seven days of a request for enrollment pursuant to a special enrollment right.
If the plan or issuer requires participants or beneficiaries to renew in order to maintain coverage, the plan or issuer must provide a new SBC when the coverage is renewed. If a written application is required for renewal, the SBC must be provided no later than the date the materials are distributed. If renewal is automatic, the SBC must be provided no later than 30 days prior to the first day of coverage under the new plan year. A plan or issuer must also provide the SBC to participants or beneficiaries upon request, as soon as practicable, but in no event later than seven days following the request.
Where both a plan an issuer are required to provide an SBC, both are deemed to comply if either party timely provides a compliant SBC. If a participant and any beneficiaries are known to reside at the same address, and a single SBC is provided to that address, the requirement to provide the SBC is deemed to be satisfied with respect to all individuals residing at that address. But if a beneficiary’s last known address is different than the participant’s last known address, a separate SBC is required to be provided to the beneficiary at the beneficiary’s last known address.
Multiple Benefit Packages
Where a group health plan offers multiple benefit packages, the plan or issuer is required to provide a new SBC automatically upon renewal only with respect to the benefit package in which a participant or beneficiary is enrolled. SBCs are not required to be provided automatically with respect to benefit packages in which the participant or beneficiary are not enrolled. If a participant or beneficiary requests an SBC with respect to another benefit package (or more than one other benefit package) for which the participant or beneficiary is eligible, however, the SBC(s) must be provided upon request, but in no event later than seven days following the request.
The proposed rule generally tracks the Act’s requirements set out above, but it also adds the following four additional content requirements:
- For plans and issuers that maintain one or more networks of providers, a web address (or similar contact information) for obtaining a list of the network providers;
- For plans and issuers that maintain a prescription drug formulary, a web address where an individual may find more information about the prescription drug coverage under the plan or coverage;
- An Internet address where an individual may review and obtain the “uniform glossary” (as described below); and
- Premiums (or cost of coverage for self-insured group health plans).
Recall that the Act required the SBC to include a statement about whether a plan or coverage provides minimum essential coverage (the “minimum essential coverage statement”) and whether the plan’s or coverage’s share of the total allowed costs of benefits provided under the plan or coverage meets applicable minimum value (the “minimum value statement”). Because the Act’s rules governing minimum essential coverage and minimum value do not take effect until 2014, SBCs need not include a minimum essential coverage statement or a minimum value statement until January 1, 2014.
Under the Act, SBCs must be presented in a uniform format, utilizing terminology understandable by the average plan enrollee that does not exceed four pages in length, and does not include print smaller than 12-point type. The proposed rule interprets the four-page limitation to mean four double-sided pages. (According to the preamble to the proposed rule, “PHS Act section 2715(b)(1) does not prescribe whether the four pages are four single-sided pages or four double-sided pages.”)
The proposed rule permits transmittal of SBCs in paper form or electronically. For plans and issuers subject to ERISA or the Code, the SBC may be provided electronically if the requirements of the Department of Labor’s electronic disclosure safe harbor (see 29 CFR 2520.104b-1(c)) are met. For non-federal governmental plans, the proposed rule provides that the SBC may be provided electronically if either the substance of the provisions of the Department of Labor’s electronic disclosure rule is met, or if the provisions governing electronic disclosure in the individual health insurance market are met.
With respect to an SBC provided by a health insurance issuer to a plan, the SBC may be provided in paper form or electronically.
The SBC must be “presented in a culturally and linguistically appropriate manner.” Drawing on prior guidance under the Act’s claims procedure rules, the proposed rule provides that, in specified counties of the United States, plans and issuers must provide interpretive services, and must provide written translations of the SBC upon request in certain non-English languages. In addition, in such counties, English versions of the SBC must disclose the availability of language services in the relevant language. The counties in which this must be done are those in which at least 10% of the population residing in the county is literate only in the same non-English language.
Notice of Modifications
Plans and issuers must provide notice of material modifications to SBCs no later than 60 days prior to the date on which the change will become effective. A modification is material for this purpose if it is a “material modification” for ERISA purposes. This includes any modification to the coverage offered under a plan or policy that, independently, or in conjunction with other contemporaneous modifications or changes, would be considered by an average plan participant (or in the case of individual market coverage, an average individual covered under a policy) to be an important change in covered benefits or other terms of coverage under the plan or policy. Thus, a material modification could be an enhancement of covered benefits or services or other more generous plan or policy terms. It includes, for example, coverage of previously excluded benefits or reduced cost-sharing.
In the case of mid-year changes, the proposed rule requires the notice of material modifications to be provided 60 days in advance of the effective date of the change. This requirement can be satisfied either by a separate notice describing the material modification or by providing an updated SBC reflecting the modification.
Where ERISA-covered group health plans are concerned, a timely SBC will also satisfy the ERISA “summary of material modifications” (SMM) requirement—i.e., that the summary of material modifications be provided not later than 210 days after the close of the plan year in which the modification or change was adopted, or, in the case of a material reduction in covered services or benefits, not later than 60 days after the date of adoption of the modification or change. Thus, plan sponsors are relieved from the requirement to provide a separate SMM that covers the same changes already covered by the SBC.
The Act directs the Departments to develop, and the Departments separately proposed,5 standards for the following insurance-related and medical-related terms:
- Insurance-related terms: coinsurance, copayment, deductible, excluded services, grievance and appeals, nonpreferred provider, out-of-network copayments, out-of-pocket limit, preferred provider, premium, and UCR (usual, customary and reasonable) fees.
- Medical-related terms: durable medical equipment, emergency medical transportation, emergency room care, home health care, hospice services, hospital outpatient care, hospitalization, physician services, prescription drug coverage, rehabilitation services, and skilled nursing care.
Additional standards are also required to help consumers understand and compare the terms of coverage and the extent of medical benefits (including any exceptions and limitations). Following the lead of the NAIC, the Departments proposed definitions of the following additional terms: allowed amount, balance billing, complications of pregnancy, emergency medical condition, emergency services, habilitation services, health insurance, in-network coinsurance, in-network copayment, medically necessary, network, out-of-network coinsurance, plan, preauthorization, prescription drugs, primary care physician, primary care provider, provider, reconstructive surgery, specialist, and urgent care.
The Act permits states to impose on health insurance issuers requirements that are stricter than those imposed by the Act, i.e., the Act establishes a regulatory baseline for health insurance issuers above which the states are free to impose their own additional rules. The Act does, however, preempt or supersede any state SBC requirement that provides less information to consumers than required by the Act. Thus, for example, States may impose separate, additional disclosure requirements on health insurance issuers.
Penalties for Failure to Provide the SBC
Under the PHSA’s basic penalty structure, a group health plan (including its administrator), and a health insurance issuer offering group or individual health insurance coverage, that “willfully fails to provide the information required under this section shall be subject to a fine of not more than $1,000 for each such failure.” Fines may also be levied under the Internal Revenue Code in the form of tax penalties, and under ERISA in the form or civil monetary penalties.
The PHSA confers on states the discretion to enforce the provisions against health insurance issuers (using their own enforcement mechanisms) in the first instance. Only where a state fails or declines to do so will the Department of Health and Human Services (HHS) step in to enforce these rules. According to the proposed rule, while HHS has the authority to impose penalties for willful violations regardless of state enforcement, it intends to use enforcement discretion “if the Secretary determines that the State is adequately addressing willful violations.”
The preamble to the proposed rule explains that the Department of Labor will issue separate regulations describing the procedures for assessment of civil fines for failures by ERISA-covered group health plans to comply with the Act’s SBC requirements.
The Internal Revenue Code imposes an excise tax of $100 per day per individual for each day that the plan fails to comply with the SBC requirement (among others). This tax may be abated for failures due to reasonable cause and not to willful neglect, so long as the failures are corrected within 30 days of actual or constructive discovery. Taxpayers subject to this excise tax must report the failure and the amount of the excise tax on IRS Form 8928. The Act increases the excise tax for willful failures to not more than $1,000 for each failure to provide an SBC. The tax is imposed on the plan sponsor or on a designated plan administrator.