On August 22, 2011, the Departments of the U.S. Treasury (“Treasury”), Labor (DOL) and Health and Human Services (HHS) (collectively, the “Agencies”) jointly published proposed regulations (“Regulations”)1 that identify the standards for the uniform explanation of coverage requirement under the Patient Protection and Affordable Care Act of 2010 (ACA).2 The ACA directs the Agencies to develop standards for a uniform explanation of benefits and coverage (“Summary of Benefits Coverage” or SBC) to be provided by group health plans and health insurance issuers offering group or individual health insurance to enrollees. The long-awaited and much-anticipated Regulations propose the standards that will govern who provides an SBC, who receives an SBC, how the SBC is provided, when the SBC is provided and the contents of the SBC. In addition, the Agencies also published a draft template for the SBC, with over 30 pages of instructions, sample language for completing the template and a uniform glossary of terms used in health insurance coverage, such as “deductible” and “co-pay,” as required by the Regulations.3

Practice Pointer: The draft template SBC and uniform glossary were prepared by the NAIC and proposed by the Agencies without change. Consequently, the terminology in the draft SBC and uniform glossary is more consistent with the terminology typically used in an insurance policy—not a self-insured group health plan. For example, the term “renewal” is used instead of annual enrollment.

The Agencies have requested comments on ways to modify the template to better suit a self-insured plan. The Agencies request comments on the standards proposed in the Regulations, the draft SBC template and the uniform glossary of terms, all of which are due on or before October 21, 2011.

The SBC requirement is statutorily effective March 23, 2012.4 Presumably, this means that the requirements apply to enrollments—including new enrollees, mid-year or special enrollments and annual enrollments—after that date. The standards set forth in the Regulations for completing and distributing an SBC will likely have a significant impact on each group health plan’s enrollment procedures and materials and, unless the effective date set forth in the statute is extended by the final rules, there is little time to prepare.5 Health insurers and group health plan sponsors should begin analyzing the standards now!

Practice Pointer: The Agencies specifically request comments on the factors that may impact the feasibility of implementation by this due date.

The following is an overview of the who, what, when, where and how of SBC compliance, as set forth in the Regulations, the draft template and the uniform glossary.

NOTE: The SBC requirements also apply to health insurance issuers who issue coverage in the individual market; however, the focus of our overview below is solely on group health plans.

Who must provide the SBC?

The Regulations obligate the group health plan (including the plan administrator) and, if applicable, the health insurance issuer offering coverage in connection with a group health plan (i.e., if the plan is fully insured) to provide the SBC in accordance with the standards described below.

Practice Pointer: The SBC requirement applies to all self-insured and fully-insured group health plans otherwise subject to the health insurance reforms set forth in Sections 1001 and 1201 of the ACA, including grandfathered plans.6

Thus, if the group health plan is self-insured, the obligation to provide an SBC lies solely with the plan administrator. If the plan is fully insured, the obligation to timely send the SBC lies with both the plan administrator and the health insurer. The Regulations clarify that a responsible party may rely on another party to send an SBC, but only if a timely SBC is actually sent. In many cases, the health insurer may not have all of the information necessary to fulfill the SBC requirements (e.g., insurers of a multiple-option plan may not have census information on employees enrolled in other options or in eligible individuals who are not enrolled). Thus, some level of involvement and coordination by the employer plan sponsor will be required.

Practice pointer: Unlike the rules applicable to a certificate of creditable coverage required by HIPAA, a responsible party may not avoid liability simply because it has agreed in writing with another party, such as a health insurer, that the other party will timely send an SBC. Thus, if the plan administrator of a fully insured plan agrees in writing with the health insurer that the health insurer will timely send a compliant SBC but the insurer fails to timely send the SBC, both the plan administrator and the insurer are likely liable for the failure. Responsible parties who contract with third parties to send an SBC should obtain indemnification for the third party’s failure to fulfill the SBC requirements.

Who must receive an SBC?

Basically, all individuals who are eligible to enroll in the group health plan are entitled to receive the SBC. The Regulations indicate that a “participant” and “beneficiary” as defined in ERISA Sections 3(7) and 3(8) are entitled to an SBC in accordance with the standards discussed herein. However, don’t let the terms “participant” and “beneficiary” mislead you into believing that the SBC is provided only to those actually enrolled in the plan; the terms “participant” and “beneficiary” are defined broadly by ERISA and include not only those who are currently enrolled in the plan (i.e., covered employees and covered dependents), but anyone who is eligible to enroll.7 Thus, employees (including former employees) and dependents that are eligible to enroll in the group health plan are entitled to receive an SBC. As noted in more detail below, the SBC must be incorporated into the plan’s enrollment process.

Practice Pointer: ERISA’s definition of “participant” does not appear to include self-employed individuals such as independent contractors or partners covered under a plan. However, cases have held that self-employed individuals covered under an ERISA covered plan should be treated as participants. Thus, it would appear that such individuals participating in a group health plan are also entitled to receive an SBC.8

In addition, the Regulations clarify that a group health plan is also entitled to receive an SBC from a health insurance issuer.

The time periods for providing the SBC and the manner in which the SBC must be provided are discussed in more detail below.

Practice Pointer: Don’t forget—only those “group health plans” subject to the health insurance reforms are subject to the SBC requirement. Thus, an SBC is not required to be sent to an eligible employee or eligible dependent with respect to an excepted benefit, such as limited scope dental or vision coverage or a Health FSA.

When must the SBC be provided?

Generally, the SBC is provided to a participant or beneficiary at three different times:

  • at any enrollment,
  • upon request, and
  • when there is a material modification in the information.

It must also be provided by a health insurer to a plan at certain times. We discuss the time periods and dates by which an SBC must be provided in more detail below.

Practice Pointer: The effective date of the SBC requirement is March 23, 2012. Thus, the SBC need only be provided at any enrollment, or upon request, that occurs on or after March 23, 2012.

Newly Eligible Participants and Beneficiaries (Other than Special Enrollment)

Individuals who first become eligible for coverage on or after March 23, 2012, other than during a special enrollment period, must receive the SBC in connection with any written (or electronic) enrollment materials distributed by the plan as part of the initial enrollment process. If the plan does not distribute written or electronic enrollment materials as part of the initial enrollment process, the plan must distribute the SBC no later than the first day on which the individual is otherwise eligible to enroll.

Example: Bob becomes eligible for coverage under ABC’s group health plan on July 1, 2012. ABC’s plan administrator sends Bob written enrollment materials on July 5, 2012. The SBC is timely provided if it is included with the written enrollment materials sent to Bob on July 5, 2012.

Practice Pointer: What if ABC’s enrollment process is conducted by telephone and it does not otherwise send any written materials? The instructions to the draft SBC clarify that the SBC may not be provided orally. Thus, a written copy must be provided, but when? Read literally, the Regulations suggest that ABC, the plan in our example above, must send a written copy of the SBC on or before the first date that Bob is able to enroll, which is July 1, 2012, in our example above. Fortunately, the instructions to the draft SBC template also indicate that the plan must offer to provide a written SBC within seven days to the address provided by the enrollee or, alternatively, it may be provided electronically, at the enrollee’s discretion, (i) to an email address provided by the enrollee, (ii) via a link to a website or (iii) by any other method mutually agreed to by the responsible party and the enrollee.

The SBC must generally be provided with respect to each benefit package offered by the plan for which the newly eligible individual is eligible. See “How is the SBC provided?” below for a more detailed discussion.

Practice Pointer: What is a “benefit package option” for purposes of the SBC requirement? The Regulations do not define “benefit package option”; however, the special enrollment regulations under HIPAA’s portability rules (the same subpart in ERISA, the PHSA and the Code to which the health insurance reforms were added by the ACA) define a benefit package as any coverage arrangement with a difference in benefits or cost sharing.

If any of the information required to be in the SBC changes before the first day of coverage (e.g., prior to the end of the waiting period), then an updated SBC must be provided prior to the first day of coverage.

Newly Eligible Participants and Beneficiaries (Special Enrollment)

Individuals enrolling pursuant a HIPAA special enrollment on or after March 23, 2012, must receive the SBC within seven days of the request for enrollment. The SBC must be provided with respect to each benefit package option for which the special enrollee is eligible.

If any of the information required to be in the SBC changes before the first day of coverage (e.g., prior to the effective date of coverage), then an updated SBC must be provided prior to the first day of coverage.

Annual Enrollment (Renewal)

The SBC must be provided as part of the plan’s annual enrollment process, even if the participants and beneficiaries have already received an SBC as part of the initial enrollment process. According to the Regulations, if eligible individuals must enroll in writing (or electronically), the SBC must be provided with the written or electronic annual enrollment materials that are provided. If annual enrollment is automatic, the SBC must be provided no later than 30 days prior to the first day of coverage for the new plan year.

Practice Pointer: In some cases, a health plan’s annual enrollment procedure is passive or “negative,” which means that all elections currently in effect (including a prior election not to participate) are renewed for the following plan year unless an election change is affirmatively made. In such cases, notice of the annual enrollment opportunity is typically provided via postcard or email prior to the actual annual enrollment period; however, if the participant has no desired changes for the following plan year, the participant takes no action during the annual enrollment period and his/her election is automatically renewed. In the case of a negative annual enrollment period, where elections are automatic, must the SBC be provided when the notice of the enrollment period is sent or no later than 30 days prior the first day of the plan year? Although not clear, we believe the better approach is that the SBC must be provided when notice of the enrollment period is sent. Thus, if notice of the annual enrollment opportunity is sent 60 days before the beginning of the plan year, the SBC should be provided at that time as well.

Due to restrictions on the manner in which the SBC is distributed, this could be problematic for plans and insurers. See “How must the SBC be sent?” below for a more detailed discussion.

Unlike the initial enrollment and special enrollment periods, only an SBC for the benefit package in which the individual is currently enrolled must be provided during annual enrollment, even if the covered individual is eligible for other benefit package options. Nevertheless, the covered individual is entitled to receive a copy of the SBC for the other benefit package options for which he is eligible upon request (see “Upon Request by a Participant or Beneficiary” below for a more detailed discussion).

Practice Pointer: Individuals who are eligible, but not enrolled, must be sent a copy of the SBC for each benefit package for which they are eligible to enroll during the annual enrollment period. If a plan’s current enrollment system is unable to distinguish between those who currently have coverage and those who don’t, then the plan may have to provide everyone a copy of each SBC for which they are eligible, regardless of whether they are enrolled or not.

If any of the information required to be in the SBC changes before the first day of coverage (e.g., between the date the SBC is provided in connection with annual enrollment and the first day of the next plan year), then an updated SBC must be provided prior to the first day of coverage.

Upon Request by a Participant or Beneficiary

The SBC must be provided to an eligible individual in connection with a request for information about a plan or policy as soon as practical, but no later than seven days following the request.

Practice pointer: Can a plan or health insurer charge the individual for copies provided upon request? The preamble to the Regulations indicate that the SBC must be provided free of charge.

Material Modifications

Where a material modification is made to the terms of the plan that would impact the information in the most recently distributed SBC, and such change is made other than in connection with “renewal” (i.e., it is not a change required to be reflected in the SBC provided during annual enrollment), then notice of the modification must be provided at least 60 days prior to the effective date of the change. The preamble to the Regulations reflects that the mid-year notice can either be a separate notice describing the change or an updated SBC.

Otherwise, the format of the notice and the manner in which it must be delivered must comply with the format and delivery requirements of the SBC.

Practice Pointer: Changes to the plan that are effective on the first day of the next plan year are typically communicated during the annual enrollment period, which for many plans is less than 60 days prior to the start of the plan year. A literal reading of the statute suggested that notice of material modifications had to be provided 60 days prior to the effective date of the change, even if the effective date was the first day of the next plan year. This would have caused plans that wanted to continue notifying participants and beneficiaries in the annual enrollment period of changes effective as of the first day of the plan year to revise the date they send annual enrollment materials. The Regulations seem to apply the 60-day rule only to changes that are effective during the plan year.

From Health Insurance Issuer to Plan

A health insurance issuer must provide an SBC to a group health plan (or its sponsor) at the following times:

  • With the plan’s application or as soon as reasonably practical, but no later than seven days following a request for information (e.g., by a group health plan not currently insured by the health insurer) by the group health plan. If the health plan (or its sponsor) requests information and then subsequently applies for coverage, the health insurer must provide another SBC only if the information provided in the first SBC provided upon request has changed.
  • If there is a change in the information before the coverage is offered, an updated SBC must be provided before the offer is made. Likewise, if there is a change in the information before the first day of coverage, an updated SBC must be provided before the first day of coverage.
  • If written application for renewal is required, then the SBC must be provided when the written materials for renewal are provided.
  • If renewal is automatic, then the SBC must be provided to the plan no later than 30 days prior to the first day of the new policy year.
  • As soon as practical but no later than seven days following a request by a plan.

How must the SBC be delivered?

An SBC provided by a plan or health insurer to a participant or beneficiary may be provided in paper form. Alternatively, for plans and issuers subject to ERISA (plans sponsored by private employers) and/or the Internal Revenue Code (e.g., church plans), the SBC may be provided electronically if the requirements of DOL’s electronic disclosure safe harbor at 29 CFR Section 2520.104b-1(c) are met. Nonfederal governmental plans may comply with either ERISA’s electronic disclosure safe harbor requirements or, alternatively, the requirements applicable to insurers in the individual market.

Nonfederal governmental plans that wish to comply with the electronic disclosure requirements for insurers in the individual market must provide an SBC (and any subsequent SBC) in paper form if, upon the individual’s request for information or request for an application, the individual makes the request in person or by phone, fax, U.S. mail or courier service. A nonfederal governmental plan may provide an SBC (and any subsequent SBC) in electronic form (such as on the Internet or via email) if an individual requests information or requests an application for coverage electronically, or if an individual submits an application for coverage electronically.

Practice Pointer: ERISA’s electronic disclosure safe harbor currently set forth in the regulations generally imposes strict requirements on plan administrators to ensure that the information sent electronically is sent by means “reasonably calculated to ensure receipt.” For example, if a participant is effectively able to access the electronic information from any location where the participant is reasonably expected to perform his duties and access to the employer’s electronic information system is an integral part of his/her duties (“worksite employee”), then the plan may generally provide the information electronically without consent provided that the participant is notified that a paper form will be provided upon request and certain other requirements are satisfied. On the other hand, if the participant is not a worksite employee, or the individual receiving the information is not an employee (e.g., a former employee or spouse), then special consent requirements must be satisfied. Plans may find it difficult to revise their electronic enrollment process to match the safe harbor requirements. Moreover, the SBC must be sent to spouses and dependents who would have to satisfy the special consent requirements in order to receive the SBC electronically. Obtaining such consent may not be practical.

See also the instructions to the draft SBC template.

Generally, the SBC must be a stand-alone document; however, the Agencies request comments as to whether the SBC may be sent with the plan’s summary plan description if the SBC is intact and provided at the front of the SPD. The Regulations further propose that a single SBC may be sent to the address at which all individuals to whom the SBC must be sent reside. However, if any eligible dependent’s address is different than the eligible employee’s address, a separate SBC must be provided to the beneficiary residing at a separate address.

Practice Pointer: Must another SBC be sent if the spouse enrolls at a different location than the employee but resides at the same address as the employee? Although not clear, a separate SBC distributed to the spouse would appear to be required.

For an SBC provided by an issuer to a plan, the SBC may be provided in paper form or electronically. For electronic forms, the format must be readily accessible by the plan, and the SBC must be provided in paper form upon request.

What are the format and content requirements for an SBC?

An SBC must satisfy the following format requirements:

  • four double-sided pages (i.e., a total of eight printed pages, front and back); and
  • no less than 12-point font (and the instructions to the draft template reflect that the font must be Times New Roman).

An SBC must satisfy the following content requirements:

  • uniform definitions of standard insurance terms and medical terms, so that consumers may compare health coverage and understand the terms of (or exceptions to) their coverage;
  • a description of the coverage, including cost sharing, for each category of benefits identified by the Departments;
  • the exceptions, reductions and limitations on coverage;
  • the cost-sharing provisions of the coverage, including deductible, coinsurance and copayment obligations;
  • the renewability and continuation of coverage provisions;
  • coverage examples that illustrate common benefits scenarios (under the proposed regulations, a normal childbirth, breast cancer treatment and diabetes management) and related cost-sharing based on recognized clinical practice guidelines;
  • a statement about whether the plan provides minimum essential coverage as defined under Section 5000A(f) of the Internal Revenue Code, and whether the plan’s or coverage’s share of the total allowed costs of benefits provided under the plan or coverage meets applicable requirements (this information does not have to be provided until on or after January 1, 2014);
  • a statement that the SBC is only a summary and that the plan document, policy or certificate of insurance should be consulted to determine the governing contractual provisions of the coverage;
  • a contact number to call with questions and an Internet address where a copy of the actual individual coverage policy or group certificate of coverage can be reviewed and obtained;
  • for plans and issuers that maintain more than one network of providers, an Internet address (or similar contact information) for obtaining a list of network providers;
  • for plans and issuers that maintain a prescription drug formulary, an Internet 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; and
  • premiums (or cost of coverage for self-insured group health plans).

Practice Pointer: The draft template SBC indicates that the premium reflected is the total premium charged by the insurer (if fully insured) or the total cost of the coverage, if self-insured, and instructs the recipient to contact the employer for the employee’s portion of the cost. The Agencies are requesting comments on whether the SBC should include the employee’s portion of the cost.

  • In addition, if at least 10 percent of the population in the county are literate only in a particular non- English language and speak English less than “very well,” as determined by the American Community Survey data published by the United States Census Bureau, then each SBC sent to a recipient with an address in that county must include a one-sentence statement in that non-English language about the availability of language services provided by the plan.

What happens if I don’t comply?

Potential penalties for failure to comply with the SBC requirement are severe, including agency-induced fines of up to $1,000 for each failure to distribute an SBC and the self-reported excise tax applicable to group health plans (other than governmental plans) under Section 4980D of the Internal Revenue Code. The Department of Labor (which has enforcement authority over ERISA plans) has indicated that it will issue separate enforcement penalty regulations in the near future.