Health Care Reform: New Guidance on the Summary of Benefits and Coverage

Health care reform's latest addition to the alphabet soup of plan participant notices is the SBC—the Summary of Benefits and Coverage.  Not to be confused with the SPD or SMM, the SBC is a new, separate notice that both grandfathered and non-grandfathered group health plan sponsors must be ready to provide by March 23, 2012.

In proposed regulations issued on August 22, the agencies laid out the basic who, what, when, where, and how applicable to the SBC.  The guidance also included proposed templates and a uniform glossary.  Perhaps most notably, the SBC is still slated for a March 23, 2012 effective date (with the exception of the statement regarding minimum essential coverage, which is not required until January 1, 2014).  This article will focus on the responsibilities of group health plan administrators with respect to the SBC rules proposed in the regulations.

Who?

The SBC must be provided to each plan participant and beneficiary:

• For self-funded group health plans, the plan administrator is responsible for providing the SBC. 
• For fully-insured group health plans, the health insurance issuer must provide the SBC to the plan administrator upon request, and automatically upon renewal.  If the issuer and plan administrator so agree, the issuer may send the SBC directly to the plan's participants and beneficiaries.  Otherwise, the plan administrator is responsible for distributing the SBC to participants and beneficiaries.

If a participant and beneficiary reside at the same address, only one SBC must be sent to that address.  Otherwise, separate SBCs must be provided to the participant and any beneficiaries.

What?

SBC Content: A separate SBC must be produced for each health option offered under a group health plan.  Each of these SBCs must cover the following items (the last four of which were added by the new regulations):

1. Uniform definitions of standard insurance and medical terms;
2. Description of the coverage;
3. Exceptions, reductions, and limitations on coverage;
4. Cost-sharing provisions, including deductible, coinsurance, and copayments;
5. Renewability and continuation of coverage provisions;
6. Coverage examples that illustrate common benefits scenarios (including pregnancy and serious or chronic medical conditions) as identified by the agencies;
7. For coverage beginning on or after January 1, 2014: a statement about whether the plan provides minimum essential coverage as defined under section 5000A(f) of the 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;
8. A statement that the SBC is only a summary and that the plan document or policy should be consulted to determine the governing provisions;
9. Contact information for questions and obtaining a copy of the plan document or policy;
10. For plans with more than one network of providers; an internet address (or similar contact information) to obtain a list of providers;
11. For plans with a prescription drug formulary: an internet address (or similar contact information) to obtain information on the coverage;
12. An internet address to obtain the uniform glossary; and
13. Information on premiums, or the cost of coverage for self-insured group health plans.

SBC Format: The agencies have interpreted the statute's requirement that the notice "not exceed 4 pages in length" to mean a maximum of four double-sided pages (i.e., eight pages of information).  The SBC must be printed in a minimum 12-point font size.

Uniform Glossary: The plan must make a uniform glossary available to participants and beneficiaries upon request, in either electronic or print form.  The agencies have issued a sample uniform glossary that would satisfy these requirements.

When?

During Enrollment: The SBC must be provided with any written application materials.  If there are no written application materials, then the SBC must be provided on or before the first date that the participant is eligible to enroll in coverage.  Additionally, if there is any change to the information required to be in the SBC before the first day of coverage, a new SBC must be provided before that first day of coverage.  An SBC must be provided for each coverage option for which a participant or beneficiary is eligible.

When Coverage is Renewed: The SBC must be provided no later than the date that written applications materials are distributed.  If renewal is automatic, then the SBC must be provided within 30 days of the first day of coverage in the new plan year.  Upon renewal, the plan only needs to automatically provide a new SBC with respect to the benefit package in which the participant or beneficiary is enrolled.

For Special Enrollees: The SBC must be provided within 7 days of enrollment pursuant to a special enrollment period. 

Upon Request: The SBC must be provided within 7 days of a participant or beneficiary request.  The SBC must be provided for any benefit package requested, even if the requester is not eligible for that package.  In addition, the uniform glossary must be provided within 7 days of a participant or beneficiary request.

Mid-Year Material Modifications: If there is a material modification to the plan terms or coverage that would affect the content of the SBC, the plan must provide advance notice to enrollees 60 days before the change is effective.  (This does not apply at renewal.)  A material modification could be a benefit enhancement or reduction.  The advance notice requirement can be satisfied by providing an updated SBC, or by providing a standalone description of the change.

How?

Delivery and Cost: The SBC must be provided in writing and without charge.  However, the SBC may be provided electronically if the Department of Labor's (DOL) electronic-disclosure safe-harbor rule is met. 

Electronic Enrollment: As proposed, the SBC template instructions require employers who conduct electronic enrollment to (1) provide the SBC on the electronic enrollment site and (2) make the employee acknowledge receipt of the SBC as a necessary step in the enrollment application.  It is important to note that the templates were drafted primarily in the context of fully-insured plans and may require further revisions to better suit self-funded plans (an issue on which the agencies have requested comments).  Nevertheless, employers should start considering now the adjustments that will need to be made in their electronic enrollment systems to accommodate this SBC notice and receipt requirement.  Calendar-year plans do not need to implement this particular change for their January 1, 2012 enrollment process. 

Language: The SBC must be provided in a "culturally and linguistically appropriate manner," which will be deemed satisfied if the thresholds and standards explained in the DOL's recent claims and appeals guidance are met.

Penalties:

The potential penalties for willfully failing to provide the SBC, the uniform glossary, or the 60-day advance notice of modifications are significant: up to $1,000 for each failure, and failures with respect to each participant and beneficiary are considered separate failures.  For ERISA plans, the proposed regulations state that the DOL will be issuing separate guidance regarding how they will enforce the $1,000 penalty.  Failures are also subject to the excise tax requirements of Code 4980D ($100 per day per individual). 

Unresolved Issues:

Despite the recent guidance, many questions remain regarding the new SBC:

• Will the effective date be delayed?  The guidance hints at a possible extension, requesting comments on the "feasibility of implementation" and how "practical considerations might affect the timing of implementation."
• Assuming the effective date doesn't change, if a plan's enrollment occurs during early 2012 but the coverage is effective after March 23, 2012, must the SBC be provided before the effective date?
• Should the templates be revised for self-funded group health plans?  The preamble to the proposed rules notes that the materials were drafted by the National Association of Insurance Commissioners primarily for use by health insurance issuers.
• How will the SBC be coordinated with other disclosure materials?  Could plans put the SBC in Summary Plan Descriptions?  The guidance specifically requests comment on whether the SBC could be provided within the SPD, if the SBC is displayed at the beginning of the SPD and the timing requirements are met.  Whether or not the SBC becomes part of the SPD, plan sponsors will want to consider how their current open enrollment materials and SPDs will coordinate with the new SBC.