ACA TO REQUIRE STANDARDIZED SUMMARY OF BENEFITS AND COVERAGE (SBC)

August 2011

INSIGHTS

Under the Affordable Care Act (ACA), insurance carriers and group health plans will be required to provide a standardized Summary of Benefits and Coverage (SBC) beginning on and after March 23, 2012. The SBC is intended to provide consumers with benefit information in a consistent and uniform manner to help evaluate coverage and compare plan benefits among a variety of options. On August 22, 2011, the Departments of Treasury, Labor, and Health and Human Services (the Departments) published proposed regulations which include disclosure requirements as well as a draft SBC template, uniform glossary of terms, sample language and a guide for preparing required coverage examples. The public has 60 days to offer comments on the proposed rules and draft SBC. Additional information can be found at http://www.dol.gov/ebsa/healthreform/ under Summary of Benefits and Coverage and Uniform Glossary.

IMPLICATIONS

Plan sponsors of fully insured and self-funded plans (including grandfathered plans) should become familiar with the SBC mandatory style and content as well as the requirements for distribution. Failure to comply can result in numerous and significant penalties and sanctions from a variety of government agencies. Under the ACA, a penalty of $1,000 per failure can be imposed for willfully failing to provide the information. The IRS excise penalty of $100 per day during the noncompliance period can be assessed along with Department of Labor (DOL) civil fines, state-enforced sanctions or Health and Human Services (HHS) penalties of $100 per day per each affected individual.

The following are some key provisions of the proposed regulations:

The SBC requirement does not apply to excepted benefits such as dental and vision coverage.
The Departments are seeking public comment on the implementation time-frame (March 23, 2012), which is causing some concern due to the late issuance of regulations.
The plan sponsor is ultimately responsible to distribute the SBC to plan participants; however, the plan sponsor may contract with the carrier or third-party administrator to perform this service.
The SBC generally must be provided at least 30 days prior to renewal (to the plan sponsor) and must automatically be provided to an individual for the plan in which the member is enrolled. The plan sponsor is not required to automatically provide an SBC for other benefit options, however it seems practical to distribute all applicable SBCs at open enrollment.
Consistent with NAIC recommendations, the SBC is intended to be a stand-alone document although the Departments are seeking public comment on how the SBC might be coordinated with the SPD and other group health plan disclosure materials.
The plan sponsor may provide a single notice for all members of a common residence.
The SBC may be issued following DOL electronic distribution rules.
A new SBC or a notice of material modification must be provided 60 days in advance of a material change in benefits or coverage that occurs during the plan year and does not apply to material changes upon renewal at the end of the plan year. This should come as welcome relief to plan sponsors who have been concerned that this requirement would be a significant obstacle for renewal and open enrollment.

The Departments are seeking public comment on numerous provisions of the proposed rules. The Departments have stated the recommended materials were crafted primarily for use by insurance carriers (fully insured group health plans and individual policies) and recognize that modifications may be warranted to accommodate self-funded plans as well as various other types of plan and coverage designs. Final rules are expected later this year and we will wait to see whether the Departments delay implementation or provide transition relief to comply with the new requirements.

Background

The Affordable Care Act requires health plan information to be communicated in a uniform manner beginning March 23, 2012. The ACA requires the summary of benefits and coverage to use at least 12-point font and to be no longer than four pages in length. The terminology must be easy to understand by the average enrollee and include a glossary of standard insurance and medical definitions. The Departments, in conjunction with the National Association of Insurance Commissioners (NAIC), have created a draft SBC and proposed rules for use by insurance carriers and plan sponsors to comply with this ACA communication requirement.

Content and Style

The ACA requires the Summary of Benefits and Coverage to contain the following elements:

Uniform definitions of standard insurance terms.
A description of the coverage including cost sharing requirements (deductible, copayments or coinsurance) by benefit category.
Any exceptions, reductions or limitations in coverage.
Renewability and continuation of coverage provisions.
A coverage facts label for at least three medical conditions that illustrates how the plan may cover these conditions. The template includes examples for maternity, treating breast cancer and managing diabetes. The Secretary of HHS may require up to six coverage fact labels to be included on the SBC.
A statement that the SBC is only a summary.
Plan contact information.
A statement as to whether the plan provides minimum essential coverage (beginning in 2014).

Proposed regulations would require the SBC to contain four additional elements (when applicable):

An internet address (or contact information) of network providers.
An internet address for prescription drug coverage when the plan utilizes a drug formulary.
An internet address for the Uniform Glossary.
Premium (or self-funded cost of coverage) information. The Departments are seeking comment on whether this should reflect the employee share of the cost (instead of the total cost) as well as the cost under different tiers of coverage.

While the ACA requires the SBC to be no longer than four pages in length, the proposed regulations interpret this as four double-sided pages. A separate four page glossary of Health Insurance and Medical Terms has also been created. The proposed regulations indicate that plan sponsors and insurance carriers will not be able to make any modifications to this glossary once it is finalized.

The Departments have also prepared language that must be used when completing the “Why This Matters” column on page one of the SBC and note that unless otherwise instructed, the SBC preparer must use 12-point Times New Roman font, and exactly replicate all symbols, formatting, bolding, colors, and automatic shading. Printing the information in grayscale is acceptable. Additional restrictions such as the order of the rows and columns, allowable page breaks, headers, footers, etc. also apply.

The SBC must present the information in a culturally and linguistically appropriate manner, similar to the revised rules that apply to the notice requirements for adverse benefit determinations. In general, if an individual lives in one of the specified counties of the United States, plans and issuers must provide interpretive services and written translations of the SBC upon request, and must have a statement in the required language on the English version of the SBC that such services are available. Currently 255 counties and four languages (Spanish, Tagalog, Chinese and Navajo) are affected.

More information can be found on the Federal Register.

Providing the SBC

As a general rule, an SBC must be provided within seven days of making a request for the information. However, there are certain circumstances when an SBC must be provided automatically such as when the SBC content changes during the application or enrollment process. A carrier must automatically provide an SBC to the plan sponsor as follows:

Upon application for the coverage or a request for the information.
At renewal either with written application materials or no later than 30 days prior to the start of the plan year.

The plan sponsor must ensure that participants and beneficiaries automatically receive an SBC under the following circumstances:

At the time of initial eligibility for coverage. A separate SBC must be provided for all benefit packages offered and must be distributed along with enrollment materials no later than the date an individual is eligible to enroll.
HIPAA special enrollees within seven days of the request for enrollment.
Prior to enrollment but no later than 30 days prior to the first day of coverage (when renewal is automatic) in the new plan year. In connection with the annual open enrollment, the plan sponsor is only required to automatically provide an updated SBC with respect to the benefit package in which the participant or beneficiary is currently enrolled. However, it would be sensible to distribute an SBC at open enrollment for all benefit plans being offered.

If a participant and any beneficiaries are known to reside at the same address, the plan sponsor will satisfy the rules by issuing a single SBC to that address. Furthermore, an SBC may be provided electronically to individuals if the DOL safe harbor disclosure requirements are satisfied, which includes demonstration of actual receipt of the information. It should be noted that earlier this year the DOL published a Request For Information regarding electronic disclosure to review (and hopefully) update the onerous and somewhat outdated electronic distribution standards. An insurance carrier may also provide the SBC to the plan sponsor in electronic format.

ADDITIONAL INFORMATION

For specific questions concerning information contained in this INSIGHTS & IMPLICATIONS, please contact your Chernoff Diamond consultant.

Information contained in this INSIGHTS & IMPLICATIONS is not intended to render tax or legal advice. Employers should consult with qualified legal and/or tax counsel for guidance with respect to matters of law, tax and related regulation.

Chernoff Diamond provides comprehensive consulting and administrative services with respect to all forms of employee benefits, risk management, qualified and non-qualified retirement plans, private client services, and compensation and human resources.

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