“Now that the Supreme Court has upheld the constitutionality of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Act”), employers must move forward with implementation. In the coming weeks, we will publish a series of newsletter articles focusing on the changes that most immediately affect employer group health plans and may require immediate attention, especially for employers who have taken a wait-and-see approach in hopes that the Act would be invalidated.
This alert, the second in the series, discusses the Act’s summary of benefits and coverage (SBC) requirement and a related rule requiring a 60-day advance notice of mid-year changes to the SBC.
The Act expands ERISA’s disclosure requirements by requiring group health plans to provide an SBC to applicants and enrollees at various times. On February 14, 2012, the Departments of Health and Human Services, Labor, and Treasury (collectively, the “Departments”) jointly issued final regulations (the “Final Regulations”) and an SBC template and uniform glossary. The SBC template can be found here. A sample completed template can be found here. The uniform glossary can be found here.
On March 19, 2012 and May 11, 2012, the Departments issued additional guidance in the form of Frequently Asked Questions (FAQs) to clarify certain aspects of the Final Regulations. The full text of the FAQs can be found here and here.
Delayed Effective Date
The Final Regulations delay compliance with the SBC requirements for six months following the original effective date of March 23, 2012. Some group health plans, including grandfathered plans, may be required to furnish SBCs as early as September 23, 2012, depending on when their plan year and open enrollment period fall.
The SBC requirement applies beginning with the first open enrollment period beginning on or after September 23, 2012 for participants and beneficiaries enrolling or re-enrolling through open enrollment. For calendar year plans, SBCs may be required during open enrollment in 2012 for the 2013 plan year, depending on when the open enrollment period begins. If a plan’s open enrollment period begins before September 23, 2012, the SBC would not be required until the 2013 open enrollment for the 2014 plan year. Based on language in the preamble of the Final Regulations, an employer that accelerates its typical open enrollment period for the 2013 plan year to avoid the SBC requirement could be challenged.
For individuals enrolling other than through open enrollment, such as new hires and individuals who enroll through special enrollment, the SBC requirement applies beginning on the first day of the first plan year that begins on or after September 23, 2012 (i.e., January 1, 2013 for calendar year plans).
Appearance of the SBC
The Final Regulations make few changes to the appearance requirements for the SBC.
The Final Regulations require that the SBC be presented in a uniform format that does not exceed four pages in length and does not include print smaller than 12-point font. The Final Regulations retain the interpretation from the proposed regulations that the SBC cannot exceed four, double-sided pages resulting in eight pages. The FAQs clarify that minor adjustments to the row or column size of the SBC format are permitted as long as the information presented in the SBC is still understandable. The FAQs also clarify that the SBC header and footer need not be included on every page of the SBC and, instead, may be included on the first and last pages of the SBC.
Significantly, the Final Regulations clarify that the SBC may be provided either as a stand-alone document or in combination with other materials, such as a summary plan description (SPD), as long as the SBC information is prominently displayed at the beginning of the materials and in accordance with the timing requirements set forth in the Final Regulations.
Consistent with the proposed regulations, the SBC must be provided in a culturally and linguistically appropriate manner similar to the rules regarding the group health plan claims and appeals notices. In general, those rules provide that, in specified counties of the United States, plans 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 and must disclose how to access the language services provided by the plan. This must be done in counties in which at least 10 percent of the population residing in the county is literate only in the same non-English language. The current list of counties in which the 10 percent threshold is met can be found here.
There are currently four languages triggered by this rule throughout the United States – Spanish, Chinese, Tagalog and Navajo. Depending on where an employer is sending an SBC, it could be required to provide the SBC in any of these four languages. For example, if an employer in Maricopa Country, Arizona (in which the 10 percent threshold is not met for any language) sends an SBC to a participant in Yuma or Santa Cruz counties, the Spanish language requirements will apply. If the same employer sends an SBC to a participant in Apache County, the Navajo language requirements will apply.
The Departments have issued model language disclosing the availability of language services and how such services may be accessed. That model language can be found here. Written translations of the SBC template and uniform glossary in Spanish, Chinese, Tagalog and Navajo can be found here.
Contents of the SBC
The Final Regulations eliminate the requirement to include premium or cost of coverage information in the SBC. The Final Regulations also reduce the number of coverage examples required to be included in the “coverage facts label” from three to two. Pursuant to the Final Regulations, the SBC must include the following information: Uniform glossaryof insurance and medical terms so that consumers may compare health coverage and understand the terms of (or exceptions to) their coverage; A description of coverage, including cost sharing for each category of benefits identified by the Departments; Exceptions, reductions and limitations on coverage; Cost-sharing provisions of coverage, including deductibles, coinsurance and co-payment obligations; The renewability and continuation of coverage provisions; A “coverage facts label” that includes examples to illustrate two common benefits scenarios, normal pregnancy and managing type 2 diabetes, and related cost-sharing based on recognized clinical practice guidelines; For coverage beginning on or after January 1, 2014, a statement of whether the plan provides minimum essential coverage and whether the plan pays at least 60 percent of the total cost of benefits; A statement that the SBC is only a summary and that the plan document, policy or certificate of coverage should be consulted to determine the governing contractual provisions of coverage; Contact information for questions and for obtaining a copy of the plan document or insurance policy, certificate or contract of insurance; For plans that maintain one or more provider networks, an Internet address for obtaining a list of network providers; For plans that use a prescription drug formulary, an Internet address for obtaining information on prescription drug coverage; and An Internet address for obtaining the uniform glossary, a contact phone number to obtain a paper copy of the glossary and a statement that a paper copy of the glossary is available upon request.
The Final Regulations clarify that a separate SBC need not be provided for each tier of coverage or for each add-on to major medical coverage (e.g., FSAs, HRAs, HSAs or wellness programs). As a result, plans may combine information for different coverage tiers and add-ons into a single SBC as long as the appearance is understandable.
When Must the SBC Be Distributed?
After becoming subject to the SBC requirement (see “Delayed Effective Date” above), a plan must distribute the SBC as follows: Open Enrollment – The SBC must be provided along with open enrollment materials. If a plan requires participants and beneficiaries to actively elect to maintain coverage during open enrollment, or allows them to change coverage options during open enrollment, the SBC must be provided at the same time the open enrollment materials are distributed. If there is no requirement to renew (i.e., “evergreen” elections), and no opportunity to change coverage options, renewal is automatic, and the SBC must be furnished no later than 30 days prior to the first day of the new plan year. For insured plans, if the new policy is not issued 30 days prior to the beginning of the plan year, the SBC must be provided as soon as practicable, but no later than seven business days after the issuance of the policy. Initial Enrollment – An SBC for each benefit package for which the participant or beneficiary is eligible must be provided as part of any written application materials that are distributed by the plan. If a plan does not distribute written application materials, the SBC must be distributed no later than the first date the participant is eligible to enroll in coverage. Upon Request – The plan must provide the SBC to a participant or beneficiary upon request, as soon as practicable, but in no event later than seven business days following the request. The FAQs clarify that the SBC must be sent, rather than received, within seven business days following the request. Special Enrollment – The plan must also provide the SBC to special enrollees within 90 days after enrollment pursuant to a special enrollment right. Individuals contemplating special enrollment may request an SBC, which would then have to be provided consistent with the foregoing rule.
Who Must Receive the SBC?
The SBC must be provided to all applicants, enrollees and policyholders or certificate holders. The FAQs clarify that this includes COBRA-qualified beneficiaries. The Final Regulations clarify that if enrollees live at the same address (i.e., a participant and his or her spouse), only one SBC needs to be delivered to that address. 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.
SBCs may be delivered to participants and beneficiaries in paper or electronic format. Participants and beneficiaries always have the right to receive an SBC in paper format, free of charge, upon request.
For participants and beneficiaries who are already covered under the group health plan, the Final Regulations permit the SBC to be provided electronically if the requirements of Department of Labor Regulation 29 CFR 2520.104b-1 are met (paragraph (c) of those regulations includes an electronic disclosure safe harbor). For participants and beneficiaries who are eligible for, but not enrolled in coverage, the Final Regulations permit the SBC to be provided electronically if the format is readily accessible and a paper copy is provided free of charge, upon request.
If the electronic form is an Internet posting, the plan or issuer 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. FAQ 12 (March 19, 2012) gives model language to provide an e-card or postcard in connection with website postings.
The FAQs provide additional guidance on electronic disclosure as well as an additional distribution safe harbor.
60-Day Advance Notice of Changes
The Final Regulations retain the rule providing that a group health plan must provide 60 days’ advance notice of material modifications that affect the content of the current SBC. A material modification for this purpose includes benefit enhancements or reductions. The Final Regulations clarify that material modification also includes changes that increase cost-sharing or impose new referral requirements. This notice requirement may be satisfied by an independent notice describing the modification or by providing an updated SBC reflecting the change. The Final Regulations also provide that if a timely notice is delivered pursuant to the Final Regulations, the ERISA summary of material modification requirement is also satisfied.
The Final Regulations make minor changes to the uniform glossary requirements of Section 2715(g) of the Act, which requires the Departments to develop a glossary of standard terms used in health insurance coverage. The final uniform glossary defines 44 common coverage and medical terms and may not be modified from the appearance (i.e., format) authorized in the Final Regulations. The glossary must be provided to participants and beneficiaries in either paper or electronic form within seven business days of request.
The Final Regulations acknowledge that the generic definitions in the glossary may not necessarily help consumers understand what terms mean in the context of their own plan because the definitions in the glossary are not plan specific. Accordingly, plan sponsors will need to be especially careful in coordinating definitions in their plan document, SPD and uniform glossary. Alternatively, plan sponsors that do not intend to conform to the definitions in their plan document and SPD to the uniform glossary, should be sure to adequately notify participants and beneficiaries of such decision.
Penalties for Noncompliance
Section 2715(f) of the Act provides that a group health plan or issuer that willfully fails to provide the SBC to a participant or beneficiary is subject to a fine of up to $1,000 for each failure. The Final Regulations clarify that a failure with respect to each participant or beneficiary constitutes a separate offense for purposes of this penalty. In other words, a plan sponsor who fails to distribute the SBC to 10 enrollees could be fined up to $10,000. The Final Regulations also state that a failure to provide the SBC may also result in an excise tax of $100 per day for each individual affected by the failure.
The FAQs note that plans that are working diligently and in good faith to provide the SBC in an appearance that is consistent with the Final Regulations will not face penalties during the first year of applicability of the Final Regulations. The FAQs also provide that the Departments will not take any enforcement action against a plan or issuer for failing to provide an SBC before September 23, 2013 with respect to an insured product that is no longer being actively marketed for business, provided that the SBC is provided no later than September 23, 2013.
What Should Plan Sponsors Do Now?
While we expect insurers to be very involved in preparing the SBC, the Final Regulations clarify that, for insured plans, the plan administrator or insurer bears the responsibility for providing the SBC. For self-insured plans, the plan sponsor or plan administrator must provide the SBC. Plan sponsors and plan administrators should start working with their third-party administrators and/or insurance providers to allocate responsibility for preparing and distributing the SBC.
Action Items Assess which group health plans are subject to the SBC requirement and prepare an SBC for each benefit package. Allocate responsibility for preparing and distributing the SBC. This will likely require changes to service provider agreements. Determine if foreign language requirements apply. Consider whether to revise plans and SPDs to coordinate with the uniform glossary to prevent confusion. Distribute the SBC for open enrollments beginning on or after September 23, 2012. For calendar year plans, this will be the open enrollment for the plan year starting January 1, 2013. For individuals who enroll other than during an open enrollment period, the SBC requirements apply on the first day of the first plan year that begins on or after September 23, 2012. For calendar year plans, this will be January 1, 2013. For mid-year changes, distribute a 60-day advance notice of any changes that affect the content of the current SBC.
 A grandfathered plan is any group health plan or individual coverage that was in effect on March 23, 2010, the date of the Act’s enactment. A plan or coverage can lose its grandfathered status if significant changes are made to the plan or coverage that reduce benefits or increase costs to participants.