Let's Talk About Health Care Reform:Are You Ready to Distribute Summaries of Benefits and Coverage (SBCs)?

Suppose that health insurance policies were written in standard format using common terminology and that it was possible to compare benefits from any two policies simply by lining them up side by side.  How refreshing would that be?

 The Patient Protection and Affordable Care Act (PPACA) – or the Affordable Care Act (ACA) as it is also known and referred to it here – takes a step in the direction of bringing transparency to medical plans and simplifying the task of making benefit elections.  The ACA creates a tool for this purpose called a Summary of Benefits and Coverage, or SBC.  Beginning September 23, SBCs will be required for all new open enrollment periods and plan years.  The ACA requires SBCs to be created using “plain language” and a standardized format. 

In broad terms, an SBC answers questions about coverage and exceptions, explains the cost of common medical services and provides examples, explains common insurance and medical terms using standard definitions, explains continuation coverage, and describes the process for appealing an adverse decision by the plan.  The detailed content of the SBCs, including special language requirements, is beyond the scope of this article, which instead focuses on the responsibility for timely distribution of SBCs, that is, the “which, who, what, when, where and how” of  delivering SBCs to plan participants and others who may be eligible for coverage.  The requirements can seem distressingly complicated until you recognize a common theme, which is that the purpose of the SBCs to provide useful comparative information for decision-making will be accomplished only if the ultimate consumer has the information before being called upon to make a choice among options.  Many of the requirements can be anticipated if that one principle is observed. 

Which Plans Require SBCs?

SBCs are required for all insured and self-insured group health plans maintained by private employers as well as state and local government employers.  Health FSAs and HRAs that offer more than "HIPAA excepted benefits" are required to prepare them.  An exception for group health plans is created for “HIPAA excepted benefits,” which includes retiree-only plans and stand-alone dental and vision coverage.  Consumers will also begin to see SBCs when purchasing individual health coverage. 

Who Prepares SBCs?

The good news is that in most instances the content of the SBCs does not need to concern an employer.  With the exception of self-insured plans, which provide medical coverage for about one-third of health plans sponsored by employers, the SBCs will be prepared by the insurance companies that contract to provide health benefits for employees.  For self-insured plans, the responsibility falls on the employer or the third-party administrator that contracts to provide consulting and benefit administration for those plans.  When an employer offers options from multiple insurers, as is often the case in Northern California when a choice is given between a Kaiser Foundation plan and a PPO, SBCs will be required for each. 

Even when the plan is insured, an employer needs to be certain that contents of the SBC prepared by the insurer do not conflict with the contents of the summary plan description which is normally prepared by the employer, the employer’s counsel or the administrator under contract with the employer.  Conflicting language inevitably results in disputes as to which document prevails and can be costly even if the employer ultimately prevails.  The ACA requirement for SBC’s has not eliminated the ERISA requirement to prepare a summary  plan description, though the SBC, if prominently identified, can be provided as part of a summary plan description. 

Who Must Distribute SBCs?

The assignment of responsibility for distribution of SBCs is a question both of regulatory requirements and of contract.  The ACA assigns the task of distributing SBCs to the insurance carrier for insured plans and to the plan sponsor or administrator for self-insured plans.  For self-insured plans in particular, employers and third-party administrators need to establish as a first order of business what roles each will have.  Similarly, for multiemployer plan, the trustees normally will want to be sure that the service agreement assigns this responsibility to the third party administrator.  This is an important time to review service agreements to be sure that all responsibilities created are allocated to avoid misunderstanding or miscommunication about where the primary compliance role resides.

When Must SBCs Be Provided?

For employer plans, the SBC must be provided in most cases for each benefit package offered as part of any written materials that are distributed by the employer, administrator or insurance carrier for enrollment:

  • Upon request by a plan participant or beneficiary, or within seven business days thereafter.
  • On or before the first day of each open enrollment period if re-enrollment requires action by the individual, or at least thirty days prior to the start of the new plan year if re-enrollment is automatic. An exception exists when the policy has not yet been issued, in which case the SBC must be provided within seven days after issuance or receipt of a written confirmation of intent to renew.
  • For employees automatically enrolled, by the first date the participant is eligible to enroll starting with the first plan year on or after September 23, 2012.
  • For other new employees or employees and their dependents not yet enrolled, with the enrollment materials at the time of their enrollment.
  • To special enrollees within 90 days after enrollment, which is also the deadline for providing them with a summary plan description.  An example of a special enrollee is a person who becomes eligible by marriage, birth, adoption, or loss of coverage in another plan; children who become eligible due to the expansion of dependent coverage to age 26 or elimination of pre-existing condition exclusions, or individuals for whom a lifetime limit on the dollar value of benefits no longer applies and who were previously denied coverage under the lifetime limit. 

If the plan changes at any time after the SBC is issued and before the plan year, a Notice of Modification (NOM) must be provided no less than 60 days before the change becomes effective. This is a significant change.  By requiring advance notice, this requirement differs from the ERISA rule requiring a Summary of Material Modifications, which was generally issued after the fact and no more than 210 days after end of plan year in which modification was adopted (or to new participants within 90 days of becoming a participant), or the HIPAA Summary of Material Reductions, which had to be issued within 60 days of the reduction unless regular notifications of plan benefits were provided every 90 days.

Who Is Entitled to Receive an SBC?

As a general rule, any eligible employee or former employee and any person eligible to be designated by an employee or former employee for benefits under an employer plan must be provided with an SBC for each benefit package offered by the plan or insurer. To avoid duplication, regulations require the plan or insurer to provide the SBC only to those beneficiaries known to reside at a different address than the employee.   COBRA-eligible employees or beneficiaries have the same entitlement to receive an SBC as an active employee. 

How Must SBCs Be Distributed?

SBCs may always be provided in paper form.  For electronic delivery, regulations distinguish between a participant or beneficiary who is already covered under the group health plan and a participant or beneficiary who is eligible for coverage but not yet enrolled.  Oddly, the requirements are more demanding for participants or beneficiaries who are already enrolled than for those not yet enrolled.  For those not yet enrolled, an SBC generally may be provided electronically by email or internet posting as long as the format is readily accessible, the intended recipient has advance notice such as by email, letter or postcard that the SBC is available on the Internet and is given the Internet address, and the intended recipient is offered the option of receiving a paper copy free of charge.  For those already enrolled, pre-existing Department of Labor "safe harbor" rules require that measures be taken to ensure delivery (or notice of non-delivery) along with access to electronic documents where the individual works as an integral part of the individual’s duties. Alternatively, for those already enrolled, the administrator must obtain affirmative consent to electronic delivery, coupled with acknowledgment that documents will be provided in electronic form and advance written notice of the types of documents to be provided.  The "safe harbor" rules also require that an individual must be notified of the means of withdrawing that consent at any time at no charge and must receive a statement that a paper version will be provided free of charge.

What Are the Consequences of Noncompliance?

As always with regulated programs, the discussion cannot conclude without mention of penalties for noncompliance.  A willful failure to provide the requirement information exposes an insurer, plan sponsor or administrator, depending on the requirement, to a fine of not more than $1,000, but that fine may be multiplied by the number of enrollees for whom a failure occurs.  The Departments of Labor, Treasury and Health and Human Services have said, however, that their purpose is “[to work] together with employers, issuers, States, providers and other stakeholders to help them come into compliance with the new law and [to work] with families and individuals to help them understand the new law and benefit from it, as intended. Compliance assistance is a high priority for the Departments. Our approach to implementation is and will continue to be marked by an emphasis on assisting (rather than imposing penalties on) plans, issuers and others that are working diligently and in good faith to understand and come into compliance with the new law. This approach includes, where appropriate, transition provisions, grace periods, safe harbors, and other policies to ensure that the new provisions take effect smoothly, minimizing any disruption to existing plans and practices."  The Departments say that they “will not impose penalties on plans and issuers that are working diligently and in good faith to provide the required SBC content in an appearance that is consistent with the final regulations. The Departments intend to work with stakeholders over time to achieve maximum uniformity for consumers and certainty for the regulated community.”

What Should an Employer Be Doing to Ensure Compliance?

There is a great deal to do to meet these requirements, but for an employer the process begins with these: 

  • If your plan is fully insured, maintain close coordination with your benefits consultant or insurance company to make sure that the insurance company will be preparing and distributing the SBC in a timely manner.
  • If your plan is self-insured, be sure that you have a clear understanding with your third-party administrator about who is assigned responsibility for preparing and distributing the SBC.
  • Work closely with your benefits consultant, insurance company, or third-party administrator to ensure that the SBC distribution rules are followed.
  • Make sure that your summary plan description is consistent with any SBC issued for your health plan.
  • Update your service agreements to encompass all of the requirements of the ACA (including any assistance needed to integrate cost-sharing features such as a Health FSA, HRA, HAS or wellness program). 
  • Pay close attention to the calendar.  These requirements apply to open enrollments and new plan years beginning on or after September 23.