This is the twenty-fourth issue in our health care reform series of alerts for employers on selected topics in health care reform. (Our general summary of health care reform and other issues in this series can be accessed by clicking here.) This series of Health Care Reform Management Alerts is designed to provide a more in-depth analysis of certain aspects of health care reform and how it will impact your employer-sponsored plans.

Beginning no later than March 23, 2012, the Affordable Care Act requires group health plans and health insurers to (1) provide plan participants with a shortsummary of benefits and coverage ("SBC") prior to enrollment and upon request,and (2) notify participants at least 60 days in advance of any material modifications to the terms of plan coverage. Recently released guidance from the IRS, DOL and HHS (the "Agencies") provides a template plan sponsors can use to satisfy the SBC requirement and provides more detail regarding what must be included in the SBC, as summarized in this Alert.

Summary of Benefits and Coverage

The Agencies developed the following proposed rules and guidance for plan sponsors after consulting with the National Association of Insurance Commissioners. Comments on the proposed rules must be submitted to any one of the Agencies by October 21, 2011.

Providing the SBC

The SBC is intended to provide easy-to-understand information to individuals who are comparing health coverage options. As a result, insurers (in the case of fully insured group health plans) and plan administrators (of self-funded group health plans) are required to distribute a written SBC to participants and beneficiaries when they enroll, renew coverage, and when the SBC is amended. In the case of participants and beneficiaries living at the same address, a single SBC for the entire household is sufficient.

An SBC must be provided:

  1. Prior to Initial and Annual Enrollments. An SBC must be provided as part of any written application for initial or renewed enrollment. If a plan doesn't distribute written application materials, the SBC must be distributed no later than the first date the participant is eligible to enroll.
  2. Prior to Automatic Renewals. Where a participant's election automatically renews, an SBC must be provided 30 days prior to the first day of coverage under the new plan year. For automatic renewals, the plan sponsor need only provide the SBC relating to the benefits package in which the participant or beneficiary is enrolled. (Note that if a participant's enrollment automatically renews, the SBC must be distributed the earlier of the first date the participant is eligible to enroll during annual enrollment or 30 days prior to the first day of coverage.)
  3. Upon Amending the SBC. If the SBC is amended before the first day of coverage, each enrollee must receive the amended SBC before coverage commences.
  4. Prior to Special Enrollments. Within 7 days of a request for a special enrollment, a plan must provide a SBC to special enrollees.
  5. Upon Request. Within 7 days of a participant or beneficiary request.

Plan sponsors of fully insured plans also have the right to receive an SBC from the insurance issuer if a policy is changed or renewed, and at any time upon request. The plan sponsor may also contract with the insurance issuer to fulfill its obligation of SBC distribution to plan participants and beneficiaries.

What Must Be Included in the SBC?

  • Uniform definitions of standard insurance and medical terms (plan sponsors can satisfy this requirement usingthe "Uniform Glossary" and "Why This Matters" column of the the template SBC described below)
  • A description of coverage
  • Exceptions, reductions and limitations on coverage
  • Cost-sharing provisions
  • Renewability and continuation of coverage provisions
  • Coverage examples (up to six)
  • A statement regarding whether the plan provides "minimum essential coverage" (starting in 2014)
  • A statement that the SBC is only a summary of benefits
  • Contact number for questions (all plans) and a website where participants may obtain the group certificate ofcoverage (fully-insured plans)
  • Information regarding how participants may obtain a list of providers (if applicable)
  • Information regarding where participants may obtain more information relating to prescription drug coverage (ifapplicable)
  • Total cost of coverage (i.e., total insurer premium for fully insured plans, or COBRA rate for self-funded plans)

Language and Appearance

The SBC must be a stand-alone document presented in a uniform format and must use terminology understandable by the average plan enrollee. It may not be longer than four double-sided pages nor contain font smaller than 12-point. Plan sponsors should use the template SBC described below as guidance.

The Affordable Care Act requires that the SBC be "culturally and linguistically appropriate." According to the Agencies, this means that if plan participants reside in counties where at least 10% of the population is literate in the same non-English language, the plan sponsor must provide the SBC in the relevant language upon request. The English version of the SBC must contain a statement disclosing the availability of the translated SBC.

Form and Manner

Plan sponsors may provide the SBC electronically or in paper form. However, electronic notice may only be provided to participants who have consented to receive the SBC electronically or otherwise have the ability to effectively access electronic documents at their workspaces where the plan sponsor's electronic information system is an integral part of their duties. A plan sponsor that chooses to distribute the SBC electronically must take reasonably calculated steps to ensure that the SBC transmission actually goes through and protects the confidentiality of the participants' personal information. The SBC must be prepared and furnished in a manner that is consistent with the style, format and content requirements discussed in this Alert. Additionally, the plan sponsor must simultaneously notify participants of the significance of the SBC and their right to request a paper version of the document.

Penalty for Noncompliance

Plan sponsors that willfully fail to provide all of the information required to be included in the SBC could face a penalty of up to $1,000 per failure (for fully-insured plans, the employer and insurer are jointly liable). Further, the IRS and DOL could impose additional penalties of up to $100, per day, per affected individual.

Template SBC

Published simultaneously with the Proposed Regulations was an additional set of documents including a template for the SBC, instructions, a sample completed SBC, a guide for coverage examples, and a Uniform Glossary. The Agencies indicated that a working group of diverse stakeholders drafted the templates and Uniform Glossary, which underwent consumer testing to ensure that they were "consumer friendly." This includes the recommendations as to the layout and color of the template. But, recognizing the cost of color printing, the Agencies propose to allow self-funded plans to use a grayscale version instead. (They have posed the question whether insurers should be required to print in color.)

While the template is three double-sided pages, a plan's actual SBC may be up to four double-sided pages in length. The first page of the template contains three columns headed: Important Questions, Answers, and Why this Matters. There are nine questions identified in this portion regarding the premium, deductibles, out of pocket limits, annual limit, provider networks, and exclusions from services. The second and third pages of the template SBC have a five column chart listing: Common Medical Events, the Services You May Need for those events, Your Cost if you use a participating versus nonparticipating provider and any Limitations and Exceptions. The common medical events to be addressed are provider visits, medical tests, prescription drugs, outpatient surgery, immediate medical attention, hospital stays, mental, behavioral and substance abuse, pregnancy, recovery or other special health needs, and pediatric dental or eye care. Page four provides a list of excluded services, and other covered services, discusses a participant's right to continue coverage and any grievance and appeal rights. Pages five and six have three coverage examples for having a baby, treating breast cancer, and managing diabetes. These examples are already completed with specific dollar amounts for the "Amount owed to providers" and the "Sample care costs." The plan may not adjust those dollar amounts, but must use those amounts to complete the cost sharing line items.

While changes to the SBC template may be made to accommodate different types of plan design, the Agencies make it clear that uniformity is critical so that consumers may be able to accurately compare different coverages using the issued SBCs. As a result, common elements, like the order of the charts and columns, may not be changed. Interestingly, the instruction guide to assist in completing the SBCs has strict linguistic rules about what phrases and abbreviations may be used. For example, they indicate that a list of items must be linked by a word such as "and", "or", or "plus", but a semi-colon may notbe used.

A copy of the sample completed SBC can be found here.

Uniform Glossary

The Agencies also created a Uniform Glossary of common benefit terms, intended to supplement the SBC, which includes such terms as copayment, deductible and preferred provider. The Uniform Glossary may not be modified by plan sponsors, even if some of the terms are irrelevant to the plan.

Unlike the SBC, however, the Uniform Glossary is not required to be provided automatically. Instead, plan sponsors must provide an internet address where the participant can access the Uniform Glossary within seven days of a participant request (e.g., the HHS or DOL homepage, or the plan sponsor's website). Plan sponsors must also make available a paper copy if requested by the participant.

60-Day Advance Notice of Material Modifications

The Affordable Care Act also requires plan sponsors to notify participants at least 60 days in advance of any material plan modifications. The Agencies define a material modification as any change to coverage that an average participant would consider important and that would affect the content of the SBC, whether a reduction or an enhancement of covered services or benefits. Plan sponsors can satisfy this requirement either by providing (1) a stand-alone summary of material modifications (SMM), or (2) an updated SBC.

The Agencies intend to periodically update the template SBC and the Uniform Glossary, but these changes will not be considered material modifications that must be provided to participants in advance. Instead, plan sponsors must provide an updated SBC within 90 days after the date the Agencies update the template SBC or Uniform Glossary. This means plan sponsors will be required to provide the updated SBC or Uniform Glossary starting with the first new hire, special enrollment, open enrollment or participant request beginning 90 or more days after the date of modification.

Effective Date of Changes

Plan sponsors must provide participants with an SBC "prior to any enrollment" beginning on or after March 23, 2012. For calendar year plans, this probably means the first annual enrollment SBC will be distributed in late 2012, during open enrollment for the 2013 plan year. Further, enrollment could occur at any time during a year due to hiring and special enrollments. So, plans should be ready to provide the SBC (as well as advance notice of changes to the SBC) as early as March 23, 2010.

Employer Action Steps

  • Determine which benefit packages and coverage levels are subject to the SBC requirement. (Plan administrators must distribute one SBC for each type of health plan (PPO, HMO, etc.) and each corresponding coverage level (individual, individual + spouse, family, etc), but no SBC is required for "excepted benefits," such as a stand-alone dental or vision plan).
  • For fully-insured plans, coordinate with the insurance provider to determine who will prepare and distribute the SBC.
  • Complete the SBC template for each benefit package and prepare for distribution no later than the first open enrollment period following March 23, 2012 (earlier for participant requests, hiring and special enrollment).
  • Determine whether to distribute electronically or to provide paper copies of the SBC.