On Aug. 22, 2011, the Departments of the U.S. Treasury (“Treasury”), Labor (DOL) and Health and Human Services (HHS) (collectively, the “Agencies”) jointly published proposed regulations (“Regulations”) that identify the standards for the uniform explanation of coverage requirement under the Patient Protection and Affordable Care Act of 2010 (ACA).
The ACA directs the Agencies to develop standards for a uniform explanation of benefits and coverage (“Summary of Benefits Coverage” or SBC) to be provided by group health plans and health insurance issuers offering group or individual health insurance to enrollees.
The long-awaited and much-anticipated Regulations propose the standards that will govern who provides an SBC, who receives an SBC, how the SBC is provided, when the SBC is provided and the contents of the SBC.
In addition, the Agencies also published a draft template for the SBC, with more than 30 pages of instructions, sample language for completing the template and a uniform glossary of terms used in health insurance coverage, such as “deductible” and “copay,” as required by the Regulations.
The SBC requirement is statutorily effective March 23, 2012. Presumably, this means that the requirements apply to enrollments—including new enrollees, mid-year or special enrollments and annual enrollments—after that date. The standards set forth in the Regulations for completing and distributing an SBC will likely have a significant impact on each group health plan’s enrollment procedures and materials and, unless the effective date set forth in the statute is extended by the final rules, there is little time to prepare.
Health insurers and group health plan sponsors should begin analyzing the standards now! The following is an overview of the who, what, when, where and how of SBC compliance, as set forth in the Regulations, the draft template and the uniform glossary.
Who Must Provide the SBC?
The Regulations obligate the group health plan (including the plan administrator) and, if applicable, the health insurance issuer offering coverage in connection with a group health plan (i.e., if the plan is fully insured) to provide the SBC in accordance with the standards described below.
Thus, if the group health plan is self-insured, the obligation to provide an SBC lies solely with the plan administrator. If the plan is fully insured, the obligation to timely send the SBC lies with both the plan administrator and the health insurer. The Regulations clarify that a responsible party may rely on another party to send an SBC, but only if a timely SBC is actually sent.
In many cases, the health insurer may not have all of the information necessary to fulfill the SBC requirements (e.g., insurers of a multiple-option plan may not have census information on employees enrolled in other options or in eligible individuals who are not enrolled). Thus, some level of involvement and coordination by the employer plan sponsor will be required.
Who Must Receive an SBC?
Basically, all individuals who are eligible to enroll in the group health plan are entitled to receive the SBC. The Regulations indicate that a “participant” and “beneficiary” as defined in ERISA Sections 3(7) and 3(8) are entitled to an SBC in accordance with the standards discussed herein.
However, don’t let the terms “participant” and “beneficiary” mislead you into believing that the SBC is provided only to those actually enrolled in the plan; the terms “participant” and “beneficiary” are defined broadly by ERISA and include not only those who are currently enrolled in the plan (i.e., covered employees and covered dependents), but anyone who is eligible to enroll. Thus, employees (including former employees) and dependents eligible to enroll in the group health plan are entitled to receive an SBC. The SBC must be incorporated into the plan’s enrollment process.
When Must the SBC be Provided?
Generally, the SBC is provided to a participant or beneficiary at three different times:
- at any enrollment,
- upon request, and
- when there is a material modification in the information.
It also must be provided by a health insurer to a plan at certain times.
Newly Eligible Participants and Beneficiaries (Other than Special Enrollment)
Individuals who first become eligible for coverage on or after March 23, 2012, other than during a special enrollment period, must receive the SBC in connection with any written (or electronic) enrollment materials distributed by the plan as part of the initial enrollment process. If the plan does not distribute written or electronic enrollment materials as part of the initial enrollment process, the plan must distribute the SBC no later than the first day on which the individual is otherwise eligible to enroll.
The SBC must generally be provided with respect to each benefit package offered by the plan for which the newly eligible individual is eligible.
If any of the information required to be in the SBC changes before the first day of coverage (e.g., prior to the end of the waiting period), then an updated SBC must be provided prior to the first day of coverage.
Newly Eligible Participants and Beneficiaries (Special Enrollment)
Individuals enrolling pursuant a HIPAA special enrollment on or after March 23, 2012, must receive the SBC within seven days of the request for enrollment. The SBC must be provided with respect to each benefit package option for which the special enrollee is eligible.
If any of the information required to be in the SBC changes before the first day of coverage (e.g., prior to the effective date of coverage), then an updated SBC must be provided prior to the first day of coverage.
Annual Enrollment (Renewal)
The SBC must be provided as part of the plan’s annual enrollment process, even if the participants and beneficiaries have already received an SBC as part of the initial enrollment process.
According to the Regulations, if eligible individuals must enroll in writing (or electronically), the SBC must be provided with the written or electronic annual enrollment materials that are provided. If annual enrollment is automatic, the SBC must be provided no later than 30 days prior to the first day of coverage for the new plan year.
Unlike the initial enrollment and special enrollment periods, only an SBC for the benefit package in which the individual is currently enrolled must be provided during annual enrollment, even if the covered individual is eligible for other benefit package options. Nevertheless, the covered individual is entitled to receive a copy of the SBC for the other benefit package options for which he is eligible upon request (see “Upon Request by a Participant or Beneficiary” below for a more detailed discussion).
If any of the information required to be in the SBC changes before the first day of coverage (e.g., between the date the SBC is provided in connection with annual enrollment and the first day of the next plan year), then an updated SBC must be provided prior to the first day of coverage.
Upon Request by a Participant or Beneficiary
The SBC must be provided to an eligible individual in connection with a request for information about a plan or policy as soon as practical, but no later than seven days following the request.
Material Modifications
Where a material modification is made to the terms of the plan that would impact the information in the most recently distributed SBC, and such change is made other than in connection with “renewal” (i.e., it is not a change required to be reflected in the SBC provided during annual enrollment), then notice of the modification must be provided at least 60 days prior to the effective date of the change.
The preamble to the Regulations reflects that the mid-year notice can either be a separate notice describing the change or an updated SBC. Otherwise, the format of the notice and the manner in which it must be delivered must comply with the format and delivery requirements of the SBC.
How Must the SBC be Delivered?
An SBC provided by a plan or health insurer to a participant or beneficiary may be provided in paper form. Alternatively, for plans and issuers subject to ERISA (plans sponsored by private employers) and/or the Internal Revenue Code (e.g., church plans), the SBC may be provided electronically if the requirements of DOL’s electronic disclosure safe harbor are met. Nonfederal governmental plans may comply with either ERISA’s electronic disclosure safe harbor requirements or, alternatively, the requirements applicable to insurers in the individual market.
Generally, the SBC must be a stand-alone document; however, the Agencies request comments as to whether the SBC may be sent with the plan’s summary plan description if the SBC is intact and provided at the front of the SPD. The Regulations further propose that a single SBC may be sent to the address at which all individuals to whom the SBC must be sent reside. However, if any eligible dependent’s address is different than the eligible employee’s address, a separate SBC must be provided to the beneficiary residing at a separate address.
For an SBC provided by an issuer to a plan, the SBC may be provided in paper form or electronically. For electronic forms, the format must be readily accessible by the plan, and the SBC must be provided in paper form upon request.
What are the Format and Content Requirements for an SBC?
An SBC must satisfy the following format requirements:
- Four double-sided pages (i.e., a total of eight printed pages, front and back)
- No less than 12-point font (and the instructions to the draft template reflect that the font must be Times New Roman).
An SBC must satisfy the following content requirements:
- In addition, if at least 10 percent of the population in the county are literate only in a particular non-English language and speak English less than “very well,” as determined by the American Community Survey data published by the United States Census Bureau, then each SBC sent to a recipient with an address in that county must include a one-sentence statement in that non-English language about the availability of language services provided by the plan.
- Uniform definitions of standard insurance terms and medical terms, so that consumers may compare health coverage and understand the terms of (or exceptions to) their coverage;
- A description of the coverage, including cost sharing, for each category of benefits identified by the Departments;
- The exceptions, reductions and limitations on coverage;
- The cost-sharing provisions of the coverage, including deductible, co-insurance and copayment obligations;
- The renewability and continuation of coverage provisions;
- Coverage Examples which illustrate common benefits scenarios and related cost-sharing based on recognized clinical practice guidelines;
- A statement about whether the plan provides minimum essential coverage, 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 (this information does not have to be provided until on or after January 1, 2014);
- A statement that the SBC is only a summary and that the plan document, policy or certificate of insurance should be consulted to determine the governing contractual provisions of the coverage;
- A contact number to call with questions and an Internet address where a copy of the actual individual coverage policy or group certificate of coverage can be reviewed and obtained;
- For plans and issuers that maintain more than one network of providers, an Internet address (or similar contact information) for obtaining a list of network providers;
- For plans and issuers that maintain a prescription drug formulary, an Internet address where an individual may find more information about the prescription drug coverage under the plan or coverage;
- An Internet address where an individual may review and obtain the uniform glossary; an premiums (or cost of coverage for self-insured group health plans).
Potential penalties for failure to comply with the SBC requirement are severe, including agency-induced fines of up to $1,000 for each failure to distribute an SBC and the self-reported excise tax applicable to group health plans (other than governmental plans) under Section 4980D of the Internal Revenue Code. The Department of Labor (which has enforcement authority over ERISA plans) has indicated that it will issue separate enforcement penalty regulations in the near future.
