The "Summary of Benefits and Coverage" Requirement Under PPACA
By Robert W. Patterson, Jaeckle Fleischmann & Mugel, LLP, Buffalo, New York1
The Patient Protection and Affordable Care Act (“PPACA”)2 includes several provisions intended to facilitate "comparison shopping" for health coverage by employees and consumers. Among these is the amendment of Section 2715 of the Public Health Service Act ("PHSA"),3 which directs the Departments of Health and Human Services (“HHS”), Labor and the Treasury (the "Departments"), in consultation with the National Association of Insurance Commissioners, to develop standards for use by group health plans and health insurers in providing a "summary of benefits and coverage" (“SBC”) to plan participants. An SBC must “accurately describe the benefits and coverage under the applicable plan.”4
The Departments issued final regulations and related guidance (the “SBC Regulations”) in February 2012 that implement this requirement under PPACA.5 The new rules impose significant additional duties on health insurers and health plan sponsors; the latter are of course already obligated under ERISA6 to furnish summary plan descriptions (“SPD”s) and a number of other notices to health plan participants and eligible employees.
The New SBC Requirement
Effective as of September 23, 2012, the SBC Regulations require group health plans and health insurers to provide each participant or enrollee with a written summary that accurately describes the plan's benefits and coverage and that complies with the detailed requirements stated in the regulations.7 The agencies’ guidance includes an SBC template, sample language, and a glossary of terms commonly used in connection with health insurance coverage. The new requirements apply to open enrollment periods that begin or after September 23, 2012, and with respect to participants and beneficiaries who enroll during plan years beginning on or after that date.8
Who Is Responsible For Distributing the SBC
For an insured group health plan, both the insurer and the plan administrator (typically, the employer) are responsible for ensuring that participants receive the SBC. The final regulations state that the insurer must provide the summary of benefits and coverage to the plan, and the administrator and insurer must then ensure that the SBC is provided to participants.9 Participants need not receive the SBC twice — in other words, SBCs do not have to be delivered by the employer if the insurer has distributed them directly to participants — but the employer is ultimately responsible for ensuring distribution and apparently can be penalized if the insurer fails to furnish the SBC to all individuals entitled to receive it.10
In a self-insured plan, the plan administrator is directly responsible for ensuring that all participants receive the required SBC.11
Plans Subject to the SBC Requirement
The SBC requirement applies to both insured and self-insured group health plans, including grandfathered plans that are exempt from certain requirements under PPACA.12 For this purpose, most employer plans that provide medical or health benefits to employees and their families are considered “group health plans.”13 However, the SBC requirement does not apply to “stand alone” dental or vision plans that aren’t integrated with a comprehensive health or medical plan.14 In addition, the SBC rules are modified somewhat in the case of certain account-type arrangements. Most health flexible spending accounts (“FSA”s) would be exempt from the SBC requirement, and for non-exempt FSAs that are integrated with regular healthcare coverage, the effect of the FSA on the underlying coverage can be described in the appropriate places in the SBC for that other coverage.15 Similarly, a health reimbursement arrangement (“HRA”) that is integrated with other coverage does not require a separate SBC; however, an HRA that is not integrated with other coverage (and many are not) must satisfy the SBC requirements. Finally, health savings accounts (“HSA”s) are also exempted from the new disclosure rules, although the associated high deductible health plan would require an SBC.16
Who Must Receive the SBC, and When
The SBC must be provided to health plan participants, beneficiaries (i.e., covered spouses and dependents), prospective enrollees and special enrollees.17 (A single SBC may be provided for a participant and all beneficiaries who reside at the same address.)
The SBC must be distributed with initial enrollment materials for a covered plan, and must be re-issued each year thereafter.18 In subsequent years, the deadline for furnishing the SBC depends on whether renewal or re-enrollment requires a written election or is automatic. If a written election or application (either paper or electronic) is required, the SBC must be provided when the written application materials are distributed. If re-enrollment is automatic (absent an affirmative election to change coverage), the SBC must be provided at least 30 days prior to the first day of coverage in the new plan year.19
In addition, the SBC must be provided to any participant or beneficiary who requests it, within seven business days.20
Advance Notice of Plan Amendments
If the plan sponsor makes any material modification to a covered health plan other than in connection with a renewal of coverage — in other words, a “mid-year” change — the employer must notify participants at least 60 days prior to the effective date of the amendment.21 The SBC rule with respect to plan amendments is the first time that advance notification of a health plan amendment has been explicitly required by federal law.
Content and Form of the SBC
The final regulations state in detail what plan features an SBC must describe, and the accompanying guidance includes an SBC template, a uniform glossary of terms and instructions for using them.22 An SBC must describe, among other plan features, the following:
- the principal plan design features, including the cost sharing requirements (deductibles, coinsurance and copayments) for each category of benefit;
- exceptions, reductions and limitations on the coverage;
- renewability and continuation of coverage provisions (for example, under COBRA);23
- examples that illustrate the benefits that would be provided in certain common scenarios;
- if a provider network or prescription drug formulary is used, an Internet address (or similar contact information) for obtaining a list of network providers or information on prescription drug coverage; and
- uniform definitions of standard insurance and medical terms, along with an Internet address for obtaining a complete “uniform glossary” of key terms.
Note: The proposed regulations, issued in 2011, required that premiums be described in the SBC.24 The final regulations removed this requirement — a helpful change for employers and insurers, especially in light of the tight timeframes for updating the SBC.
The SBC generally must be furnished in written form; however, it can be provided electronically (by email, intranet, or internet) if the applicable requirements stated in the regulations are met.25
Penalties for Failure to Furnish the SBC
There are significant penalties for failing to comply with the new SBC rules. A willful failure can trigger a $1,000 per day penalty for each affected individual. Both the insurer and plan administrator are potentially subject to this penalty.26
Employers’ Existing SPD Obligation
General. Under ERISA, group health plan administrators long have been required to provide participants with a “summary plan description” (“SPD”) of the most important plan provisions.27 Detailed requirements as to the form, content, and distribution of SPDs are stated in Department of Labor regulations.28 The longstanding SPD rules are different in several respects from the new SBC requirements.
Who Is Responsible. Under ERISA, the plan administrator — typically, the employer — is the party that is responsible for providing an SPD to each participant.29 Even if the insurer or a third party administrator actually provides the SPD and/or has contracted with the employer to do so, it is the plan administrator that is legally responsible, as many courts have held.30 In contrast, under the SBC rules both the insurer and the plan administrator are responsible for furnishing the SBC.
Plans Subject to SPD Requirement. In general, SPDs are required for both insured and self-insured health plans. However, the SPD duty — unlike the new SBC obligation — extends to stand-alone dental and vision plans, as well as HRAs.31 As is the case with the SBC, an SPD need not be provided for a health FSA or HSA, although an SPD would likely be required for any related medical plan, including the high deductible health plan associated with an HSA.
Who Must Receive an SPD, and When. Department of Labor regulations state that only covered participants must be provided with an SPD.32 The plan administrator generally is not required to provide an SPD to covered spouses or dependents. An SBC, on the other hand, must be provided to covered spouses and dependents, prospective enrollees and special enrollees, in addition to participants.
When SPD Must Be Provided. The SPD must be delivered to all participants within 120 days after the effective date of a new plan, and to new participants within 90 days after the date the participant first becomes covered by the plan.33 Thereafter an updated SPD need only be provided every ten years, or five years if the plan has been amended. In contrast, the SBC must be redistributed every year.34
Plan Amendments. A “summary of material modifications” (“SMM”) that informs participants of the effect of a plan change must be distributed within 210 days after the end of the year in which a amendment is adopted.35 If the change constitutes a “material reduction in covered services” under the plan, SMM must be provided to covered participants within 60 days after the date the change is adopted or effective (whichever is later).36 As noted earlier, the SBC rules for the first time require advance notice of plan changes that take effect during a plan year.
Penalties. If a plan administrator fails to furnish SPDs to participants, or provides SPDs that are deficient in some respect, it could be liable for breaching its fiduciary duty, or for additional benefits that weren’t intended to be part of the plan.37 In addition, if a participant or beneficiary requests an SPD and the plan administrator fails to deliver it within 30 days, the employer could be liable for a civil penalty of up to $110 per day.38 In contrast, under the SBC rules both insurers and plan administrators are subject to a penalty of up to $1,000 per day for each affected individual, but only in the case of a willful failure to provide an SBC.
Other Notice Obligations of Health Plan Sponsors
Federal law requires that group health plan administrators provide a number of other notices and disclosure documents to employees and participants, including COBRA notices, notices that explain special enrollment rights, and a description of the plan’s privacy practices with respect to protected health information.39 Many of these required notices can be included in the plan’s SPD, but some (for example, the HIPAA special enrollment notice)40 must be provided on or before the date of enrollment, and so might have to be furnished in another way.
What Employers Should Do
The New SBC Rules. Employers that sponsor group health plans should work with insurers and/or third-party administrators to prepare (or get assurances that the insurer or administrator is preparing) the SBC and uniform glossary required under the new final regulations, prior to the September 23, 2012 deadline. Thereafter, employers must be aware of the new requirements to provide advance notice of material plan amendments and to re-distribute the SBC each plan year. In preparing the required SBC, employers should take into account any health FSAs, HRAs, or other benefits that may be excused from these requirements, or that should be described in the SBC for the underlying or related health coverage.
Existing SPD and Notice Requirements. Employers should also ensure that they are in full compliance with their existing obligations under ERISA and other federal laws to furnish participants with a summary plan description and other required notices. Note that the SPD requirement applies to many benefit plans other than group health plans, such as life insurance and disability insurance plans.
Robert W. Patterson is a partner in the law firm of Jaeckle Fleischmann & Mugel, LLP in Buffalo, New York. He concentrates his practice in employee benefits and health law. Mr Patterson can be reached at firstname.lastname@example.org.
|2||Pub. L. No. 111-148 (2010), signed into law by President Obama on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, signed into law by President Obama on March 30, 2010, are together referred to herein as “PPACA”.|
Section 1001 of Pub.L. 111-148 amends several provisions of the PHSA, including Section 2715. The PHSA is codified in Title 42, Chapter 5A of the United States Code. Section 2715 of the PHSA can be found at 42 U.S.C. § 300gg-15.
77 Fed. Reg. 8668 (Feb. 14, 2012).
Employee Retirement Income Security Act, codified at 29 U.S.C. §§ 1001-1461. The ERISA provisions regarding SPDs are codified at 29 U.S.C. §§ 1021(a), 1022 and 1024.
26 CFR § 54.9815-2715(a)(1), 77 Fed. Reg. 8668, 8697 (Feb. 14, 2012); 29 CFR § 2590.715-2715(a), 77 Fed. Reg. 8668, 8700; 45 CFR § 145.200(a), 77 Fed. Reg. 8668, 8702. The SBC Regulations include parallel amendments to Treasury regulations under Title 26 of the CFR, Labor regulations under Title 29 of the CFR, and HHS regulations under Tile 45 of the CFR. Henceforth only the citations for the Treasury regulations are provided.
26 CFR § 54.9815-2715(f).
26 CFR § 54.9815-2715(a)(1)(i), (ii).
26 CFR § 54.9815-2715(a)(1)(iii)(A).
|11||26 CFR § 54.9815-2715(a)(1)(ii)(A).|
26 CFR § 54.9815-2715(f)(1).
77 Fed. Reg. 8668, 8670-8671.
26 CFR § 54.9815-2715(a)(1)(ii). Regarding “special enrollees”: Under federal law, employees have the right to elect health plan coverage outside of the annual enrollment period in certain circumstances; for example, upon the birth of a child. This is called “special enrollment”. See Internal Revenue Code § 9801(f); 26 CFR § 54.9801-6(a).
26 CFR § 54.9815-2715(a)(1)(ii)(B).
26 CFR § 54.9815-2715(a)(1)(ii)(E).
|20||26 CFR § 54.9815-2715(a)(1)(ii)(F).|
|21||26 CFR § 54.9815-2715(b).|
|22||The template, uniform glossary of terms and accompanying instructions can be accessed at http://cciio.cms.gov/resources/other/index.html#sbcug. See also EBSA FAQs About Affordable Care Act Implementation Part VIII, which can be accessed at http://www.dol.gov/ebsa/faqs/faq-aca8.html.|
|23||The provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 that require group health plans to offer continued health coverage in certain circumstances, including termination of employment, are commonly referred to as “COBRA” and are codified at 29 U.S.C. §§ 1161-1168 and in Section 4980B of the Internal Revenue Code.|
|24||Prop. Reg. § 54.9815-2715(a)(2)(i)(M), 76 Fed. Reg. 52441, 52469 (Aug. 22, 2011).|
|25||26 CFR § 54.9815-2715(a)(4).|
|26||26 CFR § 54.9815-2715(e); 77 Fed. Reg. 8668, 8679.|
|27||29 U.S.C. §§ 1021(a), 1022, 1024(b). ERISA does not apply to church plans or government plans, but these plans are subject to the new SBC requirements.|
|28||29 CFR §§ 2520.102-2, 2520.102-3.|
|29||29 U.S.C. § 1021(a).|
|30||E.g., Coleman v. Nationwide Life Insur. Co., 969 F.2d 54 (4th Cir. 1992).|
|31||The requirement under Section 102(a) of ERISA applies to all “group health plans”, and there are no regulatory exceptions under ERISA (as there are under the PHSA, as amended by PPACA) for dental or vision plans or HRAs.|
|32||29 CFR § 2520.104b-2.|
|33||29 U.S.C. § 1024(b)(1).|
|34||29 U.S.C. § 1024(b) (flush language).|
|37||There are numerous court decisions on the consequences of SPDs that are deficient in some respect. A discussion of these is beyond the scope of this brief article.|
|38||29 U.S.C. § 1132(c)(1); 29 CFR § 2575.502c-1.|
|39||The Employee Benefits Security Administration (“EBSA”), an agency within the Department of Labor, has written a guide to many of the disclosure obligations with respect to group health plans; it can be accessed at http://www.dol.gov/ebsa/pdf/rdguide.pdf.|
|40||See note 17 regarding special enrollment rights. Department of Labor regulations require a group health plan to furnish a notice of these rights at or before the time an employee is initially offered the opportunity to enroll in a group health plan. 29 CFR 2590.701-6(c).|
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