Final Regulations Require New Health Plan Summaries for Most Fall Enrollments

Executive Summary

Federal agencies have issued their much anticipated final rules on the requirement that insurers and group health plans distribute four-page benefit summaries (called "Summaries of Benefits and Coverage" or "SBCs") to enrollees and even to applicants for coverage. The final rules make some important and welcome changes to the proposed regulations issued last August.
The date by which plans must comply with the SBC disclosure requirement varies. The requirement applies for open enrollment periods beginning on or after September 23, 2012. For newly eligible and special enrollees who enroll outside of an open enrollment period, the requirement applies for enrollments occurring in plan years beginning on or after September 23, 2012. Thus, for calendar year plans, the SBC requirement applies to new and special enrollments occurring on or after January 1, 2013.
The plan must make available to individuals who are eligible for coverage but not enrolled (e.g., newly eligible individuals, late enrollees and special enrollees, etc.), an SBC for each coverage option for which they are eligible. This may be accomplished by posting the SBCs online. Current enrollees, however, should receive at open enrollment the SBC for the option in which they are currently enrolled. Eligible and enrolled individuals may request an SBC for any of the plan's coverage options, at any time.
As was the case with the proposed regulations, the final regulations include sample SBC templates, narratives and instructions, as well as a glossary that must be provided to enrollees upon request.
The final rules make some accommodations for employer concerns with the 2011 proposed rules. For example, regulators have eliminated the obligation to reflect premium costs (payable by the employee) in the SBC, and allow plans to furnish the SBC as part of a summary plan description, rather than as a stand-alone document. But there is no blanket exception for self-insured plans, even though the rules and templates seem to have been written primarily with insured plans in mind.

By Marc Holloway, JD Health Reform Advisory Practice, Lockton
The federal agencies responsible for implementing the health reform law, the Patient Protection and Affordable Care Act (PPACA), issued final regulations relating to the requirement that insurers and plan sponsors distribute four-page "plain English" benefit summaries to health plan enrollees. The summaries are called "Summaries of Benefits and Coverage" or "SBCs." The new rules contain some welcome changes to the proposed regulations issued in August.

As was the case with the proposed regulations, the final regulations include sample SBC templates, narratives and instructions, as well as a new benefit glossary that must be provided to enrollees upon request. The guidance is clear that the model documents may be used only for the first year of applicability. The agencies intend to update the materials for future use. Click here to find these resources on the Labor Department's PPACA webpage.

The All-Important Effective Date
The proposed regulations called for a March 23, 2012, effective date, just seven months after release of the proposed regulations. That aggressive timetable concerned many insurers and plan sponsors, and so in mid-November the federal agencies announced that they would give plans "sufficient time" to comply with final regulations, once final regulations were issued. We know now what "sufficient time" means: Sept. 23, 2012, more or less.

The actual effective date for the SBC requirement is staggered. With respect to newly eligible or special enrollees enrolling outside of an annual enrollment period, the SBC requirement applies for enrollments occurring during plan years beginning on or after Sept. 23, 2012 (i.e., Jan. 1, 2013, for calendar year plans). We discuss later in this Alert which SBCs the enrollees must receive, when they must receive them, and how.

With respect to individuals enrolling or re-enrolling during an open enrollment period, the SBC requirement applies to open enrollment periods that begin on or after Sept. 23, 2012. We wonder how many employers planning on, say, an open enrollment period commencing Oct. 1 might attempt to accelerate the open enrollment period by a couple weeks in order to defer the SBC requirements for a year, at least as those requirements apply to the open enrollment process.

The stakes are high for noncompliance, as the law applies penalties of up to $1,000 per willful failure to provide a compliant SBC. The aggressive timeframe for distributing the summaries is expected to set off a mad dash by insurers to update their systems in order to issue the SBCs later this year, and for self-funded plans to coordinate preparation of their SBCs by their claims administrator, consultant or other vendors.

"Remind Me Why We're Doing This?"
The obligation to supply a four-page benefit summary is included in the PPACA, which also lists a wide variety of information that must be contained in the summary. The rules apply to ERISA and non-ERISA (e.g., governmental) group health plans, regardless of the plan's grandfathered status.

Per earlier guidance from the agencies, the requirement does not apply to most dental and vision coverage, nor to most health flexible spending accounts. Similarly, the requirement does not apply to stand-alone retiree medical plans, which are not subject to the PPACA. However, the rules do apply to stand-alone health reimbursement arrangements (e.g., HRAs not included as a component of a major medical plan).

Rather than attempt to simply tell you what aspect of the proposed rules is changed by the final rules, we'll tackle this by again reviewing (as we did in our earlier Alert on the proposed regulations) what the rules require, reflecting as we go the changes made by the final regulations.

Who Must Provide the SBCs?
The final regulations require that the plan sponsor or plan administrator of a self-funded plan (this is typically the employer) provide the SBC to participants and beneficiaries. For an insured plan, the insurer must distribute the SBC, but for an insured plan sponsored by an ERISA-covered sponsor, the insurer and the plan administrator have dual responsibility. If the insurer provides the necessary information to enrollees, the plan administrator does not have to do so (and vice versa). Thus, sponsors will want to reach an understanding -- and perhaps even contractual agreements -- with their carriers, concerning who will provide the SBCs.

What Must the SBC Look Like?
The standard SBC template looks similar to many contemporary schedules of benefits routinely included in health plan booklets, but adds additional information, including coverage examples. However, the template does not accommodate many contemporary plan designs, as noted above. Plans have no discretion to alter the template format.

What Must the SBC Contain?

The final regulations require the SBC to contain the following elements:

A description of the coverage, including cost-sharing (deductibles, co-pays, coinsurance), as well as exceptions, reductions, and limitations of the coverage;
An Internet address where the SBC may be obtained;
Renewability and continuation of coverage provisions (e.g. COBRA rights);
Examples of coverage for maternity expenses and managing diabetes (the proposed regulations had required a third example, related to treatment of breast cancer; the agencies say they may add additional examples in the future);
A statement that the SBC is only a summary and that the plan documents should be consulted to determine the governing contractual provisions of the coverage;
A telephone number and Internet address for questions and how to obtain a copy of the plan document or the insurance contract, policy, or certificate;
An Internet address for obtaining a list of network providers and the prescription drug formulary; and
Beginning January 1, 2014, a statement about whether the plan provides "minimum essential coverage" for purposes of satisfying the individual health insurance mandate.

As with the proposed rules, plans must provide SBCs in a "culturally and linguistically appropriate manner." In accordance with last year's guidance relating to health plan claims and appeals, if a participant resides in a county in which 10 percent or more of the population (according to the most recent census) is literate in the same non-English language, an offer of translation assistance -- in that language -- must appear in the SBC. Click here to see our Alert on the translation assistance requirements.

Click here for the regulation that includes, in Table 2, a list of the relevant counties.

Like the proposed regulations, the final rules require plans to make available upon request a glossary of standard insurance and medical terms. Although the SBC is not required to include the glossary, the SBC must reflect an Internet address and contact phone number to obtain a paper copy of the glossary, and a statement that paper copies of the glossary are available, free of charge.

Happily, the final regulations dispense with the requirement -- reflected in the proposed rules -- that the SBC include the employee's premium payment amount. This requirement would have been a major hassle particularly for insurers supplying insured health coverage, as they don't necessarily know what an employer is charging employees for the coverage.

The final regulations also include a special accommodation for expatriate coverage. The SBC template includes a box for "Other Covered Services" that may be used to describe coverage provided outside the U.S.

The SBC rules simply don't fit well around certain contemporary plan designs, such as HRAs integrated with major medical coverage, variable cost sharing based on wellness activities, and carve-out programs (e.g., for prescription drugs and behavioral health). In these instances, the regulations require the plan to use its "best efforts" to create an SBC consistent with the regulations. For example, the SBC for the major medical plan might include a reference to or a brief description of how the HRA coordinates its benefits with the major medical component. The agencies will issue future guidance addressing employer concerns in this regard.

Who Gets the SBC, How and When?
The final regulations require plans to supply or make available, as described below, SBCs to participants and beneficiaries (under current ERISA rules, a summary plan description is supplied only to participants and some beneficiaries such as COBRA enrollees and children covered pursuant to a medical support order, but is not typically supplied to dependents).

Happily, a plan will satisfy the SBC distribution requirement for a family unit if it provides an SBC to the employee's last known address, and all beneficiaries are believed to reside at the same address. Where the plan is aware that a beneficiary resides at a different address (e.g., if the plan is aware that a minor child resides with the employee's former spouse, or that a divorced spouse on COBRA lives apart from the employee), the plan must send the SBC to that address.

The plan must supply the SBC free of charge.
The final regulations excuse the proposed requirement that plans supply the SBC as a separate document. The final rules allow plans to issue the SBC in conjunction with the summary plan description.

Plans must distribute or, as applicable, make available the SBC to individuals at different times, within varying timeframes. The list below describes the event that gives rise to the obligation to furnish an SBC, and the time at which the plan must make it available or affirmatively supply it:

Prior to initial enrollment: Make available the plan's SBCs at the time enrollment materials are otherwise provided to newly eligible individuals. If the plan does not distribute materials, the plan must make the SBCs available no later than the first day the person may enroll. Under the final regulations, the SBCs may merely be posted electronically for individuals who are eligible but not enrolled, if the plan supplies an electronic or written notice concerning how to obtain a paper copy.
At annual open enrollment: For plans that require a written or electronic affirmative re-enrollment election during open enrollment, the plans must distribute to the enrollee the SBC for the coverage option in which he or she is enrolled, and do so with or prior to the delivery of the plan's open enrollment materials. If the plan automatically renews coverage without requiring an electronic or written application (such as plans that have "evergreen" participant elections), the plan must supply the relevant SBC at least 30 days prior to the start of the new plan year. However, a special rule applies to insured plans if the insurer has not finalized its renewal by the 30-day deadline. In that case the SBC must be provided as soon as practicable, but in no event later than seven business days after the carrier issues the renewed policy or supplies written confirmation of intent to renew, whichever is earlier.
Upon request: Provide the requested SBC(s) as soon as practicable, but no later than seven business days after the request.
Upon HIPAA special enrollment: Provide the SBC within 90 days after the special enrollment. Of course, the person must have access to the plan's SBCs earlier, and if he or she requests an SBC earlier, the plan must provide it within seven business days of the request.

With respect to new and late enrollees who are not special enrollees, the final regulations are not entirely clear about when or how they must receive an SBC for the coverage option in which they are enrolled. The final regulations require these individuals to have access to the plan's SBCs after becoming eligible for coverage, but unlike the rule requiring actual delivery of an SBC to a special enrollee within 90 days after enrollment, the regulations are vague about when or if the plan must affirmatively supply an SBC to a new or late enrollee who is not a special enrollee. We presume plans should similarly supply the new and late enrollees an SBC within 90 days after enrollment.

Plans with multiple options must make available, to individuals who are eligible but not enrolled in coverage, an SBC for each option for which the individual is eligible. Once an individual is enrolled in a coverage option, the plan need only provide (say, at open enrollment) updated SBCs for the option in which the individual is enrolled, subject to the rule that the individual may request SBCs for any other option for which he or she is eligible and must then receive those SBCs promptly, but not later than seven business days after the request.

Where a plan has an affirmative duty to deliver an SBC to a current enrollee (as to a current enrollee at open enrollment, or upon request), the plan may provide the SBC electronically if the plan satisfies the Department of Labor's (DOL) requirements for electronic distribution. But those rules are difficult to satisfy with respect to enrollees who are not employees.

The DOL rules require a participant's consent to receive documents electronically, unless he or she has effective workplace access to the electronic media, such as a computer at his or her workstation. Your Lockton Account Service Team can supply you with a detailed summary of the DOL rules governing electronic distribution.

But significantly, as noted above, for individuals who are eligible for coverage but not yet enrolled, the final regulations allow the plan to post its SBCs electronically if the plan notifies the individuals via email or paper notice (such as on a postcard) that the documents are available on the Internet, provides the Internet address, and notifies the individual by e-mail or in writing that the documents are also available in paper form, free of charge.

60-day Advance Notice of Material Changes
The final rules retain the proposed regulations' requirement that plans distribute an updated SBC at least 60 days in advance of the effective date of any mid-year material change to the plan, if the change would affect the content of the SBC.3 This is a substantial acceleration of the deadline for supplying notice of material plan changes under current ERISA rules. Under ERISA guidelines, ERISA plans must distribute a notice of material modification within seven months after the close of the year in which the change is made, unless the change is a material reduction in benefits. In that case the notice must be supplied within 60 days after the change is adopted.

As with the proposed regulations, the final regulations say the new 60-day rule does not apply to changes made at renewal. However, the timing rules for distributions of SBCs at open enrollment don't do plan sponsors any favors either, and in some cases may require notice more than 60 days prior to the beginning of the plan year.

Prepare Now for Distribution of SBCs
Plan sponsors should consider how best to distribute the SBCs with the upcoming fall enrollment. Currently, it's not clear the extent to which third-party administrators of self-funded plans will automatically generate the SBCs (and if they do, the associated charges to the plan sponsor).

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