What is a summary of benefits and coverage (“SBC”)?
Under the Patient Protection and Affordable Care Act (“PPACA”), an SBC that describes the benefits and coverages of each “benefit package” under a group health plan must be provided to participants and beneficiaries (collectively referred to as “participants”). It is intended that the SBC, which is required to be written in a brief, standardized format, will provide information in a manner that helps participants better understand their health coverage and compare the benefit options that are available to them. The SBC requirement is in addition to ERISA’s summary plan description (“SPD”) and summary of material modifications (“SMM”) requirements.
Health insurers are also required to provide SBCs to the sponsors of insured group health plans.
When is the SBC requirement first effective?
For open enrollees, the SBC requirement applies on the first day of the open enrollment period beginning on or after September 23, 2012. For calendar-year plans, the SBC will first be required during open enrollment in 2012 for the 2013 plan year. For individuals enrolling other than through open enrollment, the SBC requirement applies 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). For non- calendar-year plans, this date may be as early as October 1, 2012.
The open enrollment period for calendar-year plans is fast approaching, and it can be very time-consuming to prepare an SBC. If you sponsor a group health plan that is subject to the SBC requirement and you have not already done so, you will want to take action immediately to make sure that your plan will comply by the effective date.
Which plans are required to provide the SBC?
Most insured and self-insured group health plans are required to provide the SBC. Group health plans that are “grandfathered” under PPACA must comply, as well as group health plans of governmental and church employers. There is no exception for non-ERISA plans or small employers.
The SBC requirement does not apply only to major medical plans. All group health plans are potentially subject to this rule. There are exceptions, however. Plans that provide “excepted benefits” (as defined in HIPAA), which include most stand-alone dental or vision plans, many health flexible spending accounts (“FSAs”), and retiree-only plans, are not subject to the SBC requirement. Health savings accounts (“HSAs”) are generally not group health plans and thus not subject to the SBC requirement (but the effects of employer contributions to the HSA can be mentioned on the SBC for the underlying high-deductible health plan).
Health reimbursement arrangements (“HRAs”) do not usually meet the definition of “excepted benefits” under HIPAA, so they are likely to need an SBC. (If, however, the HRA is an excepted benefit under HIPAA, an SBC is not required.) A wellness program or an employee assistance plan (“EAP”) that provides medical care is a group health plan subject to the SBC requirement. An EAP is almost always a stand-alone plan and would need its own SBC. Health FSAs, HRAs, and wellness programs (that are subject to the SBC requirement) may be stand-alone plans that are required to have their own SBCs or may be integrated with a major medical plan that satisfies the SBC requirement by providing a single combined SBC that describes the major medical plan and the integrated health FSA, HRA, or wellness plan.
As an initial step, you should identify all your group health plans that are required to have an SBC.
Who is legally responsible for providing the SBC to participants?
- For self-insured plans, the plan administrator is responsible.
- For insured plans, both the insurer and the plan administrator are equally responsible. In order to prevent unnecessary duplicates of SBC, however, there is a special rule that the group health plan’s obligation to provide the SBC is satisfied so long as any party provides a timely and accurate SBC. Thus, if the insurer provides the SBC to participants, the plan administrator is not required to do so.
Guidance issued by the Department of Labor (the “DOL”), Health and Human Services (“HHS”), and the Internal Revenue Service (jointly referred to as the “Departments”) recognizes that several different parties may have portions of the information needed to complete and distribute the SBC. Until further guidance, no enforcement action will be taken against the plan administrator or insurer if another party assumes SBC responsibility under a binding contract. For example, the plan administrator of a self-insured plan may enter into a contract with its third-party administrator to prepare the SBC. For fully insured plans, the insurer is required to provide an SBC to the plan sponsor, but the insurer and the plan administrator may coordinate the distribution of the SBC to different groups of participants. Even though the plan administrator or insurer has entered into a binding contract with another party to fulfill all or part of its SBC obligation, the plan administrator or insurer continues to be legally responsible to monitor that party’s performance, to correct violations, and to take steps to avoid future violations.
If you are a plan sponsor, you should consult with your insurers (or insurance broker) and third-party administrators to determine what role each party will have in the preparation and distribution of the SBC.
When and how must the SBC be distributed to participants?
- At Open Enrollment. If a plan or insurer requires participants to actively elect to maintain coverage during open enrollment or provides them with the opportunity to change coverage options during that period, the SBC must be provided with the open enrollment materials. If there is no requirement to renew coverage (sometimes referred to as an “evergreen” election) and no opportunity to change coverage options, renewal is considered automatic. In that case, the SBC must be furnished no later than 30 days before the first day of the new plan year. (For insured plans, if the new policy has not been issued 30 days before the beginning of the plan year, the SBC must be provided as soon as practicable, but no later than seven business days after the policy is issued.)
The plan or insurer may provide the SBC only for the benefit package in which the participant is enrolled. An SBC is not required to be provided automatically for any benefit package in which the participant is not enrolled. The participant may, however, request an SBC for any benefit package for which he or she is eligible, and the SBC must be provided as soon as practicable, but not later than seven business days after the request. From a practical standpoint, it appears simpler and more in keeping with the spirit of the law (i.e., giving participants the ability to easily compare benefit options) to automatically give the SBCs for all the benefit packages to the eligible participants.
- At Initial Enrollment. If a plan or an insurer distributes written materials (in either paper or electronic form) for initial enrollment, the SBC must be provided as part of those materials. If there are no written materials, the SBC must be provided by the first day that the participant is eligible to enroll in the coverage.
If a participant was provided an SBC at initial enrollment and the information in the SBC changed before the first day of coverage, an updated SBC must be provided by the first day of coverage.
- At Special Enrollment. The SBC must be provided to special enrollees (employees and dependents who have the right to enroll midyear under HIPAA’s special enrollment rules) within 90 days of enrollment.
- Upon Request. The SBC must be provided upon request as soon as practicable, but no later than seven business days following the request.
Guidance has been issued that clarifies that the term “provided” means “sent.” For example, the SBC is timely provided if it is sent out within seven business days, even if it is not received until after that period.
The SBC can be provided as a stand-alone document or in combination with other summary materials if certain requirements are met. Because the SBC must be provided more often than the SPD and the SBC must be given to beneficiaries and eligible employees as well as covered participants, attaching the SBC to the SPD is not very practical. In most cases, it is desirable to maintain a stand-alone SBC for each benefit package.
The SBC may be provided in paper form or electronically. Plans that are subject to ERISA or the Internal Revenue Code must satisfy the DOL electronic disclosure regulations for participants who are already covered under the plan. These requirements are quite complicated and generally make it almost impossible for most plans to comply, particularly because of the requirement that a participant consent to receiving the disclosures electronically if accessing the employer’s electronic information system is not an integral part of the participant’s duties.
In order to make electronic delivery of the SBC a more viable option, the Departments have issued some important relief from the strict DOL requirements. The DOL’s current electronic disclosure rules contain an affirmative consent requirement that would apply to beneficiaries. The Departments’ guidance provides relief from that consent requirement by noting that unless the plan or insurer has knowledge of a separate address for a beneficiary, the SBC may be provided to the participant on behalf of the beneficiary, including by furnishing the SBC to the participant in electronic form.
The Departments also recently adopted a safe harbor allowing SBCs to be provided electronically to participants in connection with their online enrollment or renewal of coverage. The SBC may also be provided electronically to participants who request the SBC online. In either case, the participant must have the option to receive a paper copy of the SBC upon request. Given the popularity of online enrollment, this safe harbor should significantly increase the number of plans that can use electronic disclosure as a method of distribution.
For participants who are eligible but not enrolled in the plan, the SBC may be delivered electronically if the format is readily accessible and a paper form is provided free of charge upon request. It may also be posted on the Internet if the individuals are notified in paper form (such as a postcard) or by e-mail that the SBC is available on the Internet and are given the address. The Departments’ model language for a postcard or an e-card is available at Q12 of the FAQs Part VIII at www.dol.gov/ebsa/faqs/faq-aca8.html.
If you are a plan sponsor and you are interested in providing the SBC electronically, you should carefully review all the electronic disclosure requirements that would apply to your plan and determine whether this method of distribution is available to you. You may also choose to use a combination of paper and electronic delivery for different groups of participants.
Who is a participant or beneficiary?
As mentioned above, an SBC must be provided to participants and beneficiaries. The terms “participant” and “beneficiary” for purposes of the SBC have broader meanings than under the ERISA SPD and SMM requirements. SPDs and SMMs are required to be given only to covered participants (and not to beneficiaries or noncovered employees). The SBC must be provided to any employee who is eligible to participate in the plan, regardless of whether that person is actually enrolled. If the employee chooses to enroll a dependent, then that dependent is considered a beneficiary and must also receive the SBC. A single SBC may be provided to a family unless any beneficiaries are known to reside at a different address (in which case a separate SBC must be sent to the beneficiary’s address).
SBCs are also required to be given to COBRA qualified beneficiaries during an open enrollment period, but a COBRA qualifying event does not normally trigger the right to an SBC.
What is the required content and format of the SBC?
The SBC must be printed in 12-point or larger font and must be limited to four double-sided pages. It is required to be in a uniform format and use terminology understandable by the average participant. It may be provided in either color or grayscale.
The SBC is designed to be prepared using the sample template, instructions, coverage examples, and uniform glossary of coverage and medical terms provided by the Departments. These documents are available on the DOL’s website at http://www.dol.gov/ebsa/healthreform. Scroll down to “Summary of Benefit and Coverage and Uniform Glossary” and see “Templates, Instructions, and Related Materials” under that heading. If a plan’s terms cannot be described in a manner consistent with the template, the plan or insurer must use its best efforts to describe the terms in a manner as consistent as possible with the template’s instructions. These documents are to be used for coverage beginning before January 1, 2014. Because of the health care reform changes that take effect in 2014 and beyond, the Departments expect to issue updated documents in the coming years.
The SBC is required to include a long list of information, which is also reflected in the template and instructions and includes the following:
- Uniform definitions of standard insurance and medical terms.
- A description of the plan’s coverage, including any exceptions, reductions, or limitations on coverage.
- Cost-sharing provisions, including deductibles, copayments, and coinsurance.
- Information relating to renewability and continuation of coverage.
- Coverage examples, which include two common benefit scenarios (normal childbirth and managing Type 2 diabetes) that illustrate the expected cost-sharing for each.
- Beginning in 2014, a statement about whether the plan provides minimum essential coverage and whether the plan satisfies the minimum value requirements.
- A statement that the SBC is only a summary and that the plan documents should be consulted for more information about the coverage.
- Internet addresses or contact information for obtaining a list of any network providers, information about any prescription drug formulary, the uniform glossary, and the plan documents.
Note that an SBC is not required to include a statement about whether the plan is a grandfathered plan under PPACA.
An SBC is required for each “benefit package,” but the regulations do not define that term. It is clear that separate SBCs are required for multiple benefit options (e.g., HMO and PPO). Information for different coverage tiers (such as self only and family) and different cost-sharing levels (such as deductible, copayments, and coinsurance) may be combined in one SBC, if the appearance is understandable.
If the SBC is being sent to an address in specified counties of the United States that the U.S. Census Bureau has identified as having a population of at least 10 percent who speak only the same non-English language, the SBC must contain a one-sentence statement in the applicable non-English language clearly indicating how to access the language services provided by the plan or insurer. Written translations of the SBC must be provided upon request. The four languages are Spanish, Chinese, Tagalog, and Navajo. The HHS provides a list of the counties, which is available at http://cciio.cms.gov/resources/factsheets/clas-data.html. Written translations for the SBC template and the uniform glossary are available at http://cciio.cms.gov/resources/other/index.html#5bcug.
What if there is a material change to the coverage described in the SBC?
If a group health plan or insurer makes a “material modification” to the terms of the plan’s coverage other than in connection with a new plan year (for example, a mid-year plan design change) that is not reflected in the most recent SBC, notice of the material modification must be provided to all enrolled participants and beneficiaries no later than 60 days before the effective date of the change. This is a significant change from the normal due date for an SMM, which is 210 days after the end of the plan year (or 60 days after the adoption of a material reduction in covered services or benefits). The notice may be provided in paper or electronic form, in accordance with the requirements for distribution of the SBC, or a completely updated SBC may be distributed.
This notice is generally in addition to ERISA’s SPD and SMM requirements, but in certain situations the notice or an updated SBC may satisfy the requirement to provide an SMM.
What are the penalties for noncompliance?
The Departments have indicated that during the first year of applicability, no penalties will be imposed on plans and insurers that are working diligently and in good faith to provide a legally compliant SBC.
The penalties for willful failure to provide a timely SBC are significant, however. A penalty of up to $1,000 per failure can be assessed on plan administrators and insurers. Each participant who did not receive the SBC counts as a separate failure. The fine cannot be paid from plan or trust assets. Also, an excise tax of $100 per day per failure may apply under Code Section 4980D (for plans other than governmental plans). Plan administrators subject to the excise tax under Code Section 4980D must report and pay the excise tax on Form 8928.
Is there any other guidance?
The Departments published the final SBC regulations and guidance on February 14, 2012. The regulations and guidance can be found on the DOL’s website at http://www.dol.gov/ebsa/healthreform. Scroll down to “Summary of Benefits and Coverage and Uniform Glossary” and see “Regulations and Guidance” under that heading.
Since then, the Departments have released three sets of Frequently Asked Questions, which provide helpful information in greater detail. The FAQs are available as follows:
FAQs about Affordable Care Act Implementation Part VIII, dated March 19, 2012, at http://www.dol.gov/ebsa/faqs/faq-aca8.html.
FAQs about Affordable Care Act Implementation Part IX, dated May 11, 2012, at http://www.dol.gov/ebsa/faqs/faq-aca9.html.
FAQs about Affordable Care Act Implementation Part X, dated August 7, 2012, at http://www.dol.gov/ebsa/faqs/faq-aca10.html.
The HHS’s website at http://cciio.cms.gov/programs/consumer/summaryandglossary/index.html also contains information about the SBC and links to other resources.
If you have any questions about the SBC requirement for your plans or would like assistance with preparing or reviewing the SBC, please contact one of the members of our Benefits Team.