• Summary of Coverage & Material Modification Rules Released
  • August 30, 2011
  • Law Firm: Davis Brown Koehn Shors Roberts P.C. - Des Moines Office
  • On August 17, 2011 HHS, IRS and DOL released proposed rules implementing the Affordable Care Act’s requirement that group health plans and health insurance issuers provide participants with a summary of benefits and coverage (“SBC”) using uniform terms and definitions.  The rules also discuss the requirement that participants be notified 60 days in advance of material modifications to the SBC. The SBC requirement is effective March 23, 2012 and we expect the rules to be finalized prior to that date. Below is a detailed analysis of the rules and issues of interest to employers sponsoring group health plans.

    The rules apply to all group health plans and any health insurance issuer that provides group or individual health insurance.  There is no exception for state or local government plans, church plans, or small employers.  In addition, the rules apply to grandfathered plans as well as non-grandfathered plans. 

    Employer Requirements
    Participants and beneficiaries eligible for an employer’s group health plan must be provided with an SBC in the following circumstances: (i) as part of written application materials distributed for enrollment; (ii) upon a change in the SBC; (iii) upon request of a special enrollee for enrollment; (iv) upon renewal of the coverage; and (v) upon request. Because the rules require the SBC to be provided at enrollment and upon renewal, it appears the SBC will need to be incorporated into the benefits information provided to employees upon hire, as well as at open enrollment.

     Self-insured plans should note that the rules appear to apply to both the employer as the plan sponsor and the plan administrator.  If the plan sponsor is not also the plan administrator the parties will need to coordinate distribution of the SBC.   In order to avoid unnecessary duplication, both entities do not need to provide a duplicate SBC but the parties should fully understand who will be providing the SBC and in what circumstances and incorporate this understanding into their written agreement.

    An employer that offers more than one benefit package appears to be required to provide all eligible participants and beneficiaries with a copy of the SBC that corresponds to each benefit package.  One exception to this is for SBCs provided at renewal.  Upon renewal the employer only needs to provide the participant and beneficiary with the SBC for the benefit package they are enrolled in.  However, employers with annual open enrollment periods appear to be required to provide participants and beneficiaries not currently enrolled in coverage with an SBC for each available benefit package which likely negates any positive impact of this exception.

    Issuer Requirements
    For employers with fully-insured plans, the health insurance issuer must provide an SBC to the employer, as the plan’s sponsor, in the following circumstances: (i) upon application by the employer for insurance, (ii) upon request of the employer, (iii) upon changing the SBC; and (iv) upon renewing or reissuing a policy to the employer.   Health insurance issuers must also provide an SBC to participants and beneficiaries under the same circumstances as outlined above under “Employer Requirements.”  This means that participants in fully-insured plans could receive two SBCs, one from their employer and one from the health insurance issuer.  To avoid unnecessary duplication in these situations, the proposed rule provides that only one party must provide the SBC but does not specify which party.  If this rule is finalized, employers should discuss the coordination of SBC distribution with their insurance issuers. In the comments to the proposed rules, the agencies state that they expect plans and issuers to make contractual arrangements for sending SBCs.  Because both the employer and issuer remain responsible if the participants do not receive an SBC when required, employers need to fully understand in which situations the issuer will provide a required SBC.

    The SBC must contain the following information:

    • Uniform definitions of standard terms;
    • Description of the coverage;
    • Exceptions, reductions and limitations of coverage;
    • Cost sharing provisions;
    • Renewability and continuation provisions;
    • Required coverage examples (currently normal delivery of a baby, treating breast cancer and managing diabetes);
    • Whether the coverage is “minimum essential coverage” (not required until 1/1/2014);
    • A statement that the SBC is only a summary and that the plan document or insurance policy should be consulted;
    • Contact information for questions or obtaining a copy of the plan document or insurance policy;
    • An Internet address or contact information for obtaining a list of network providers, if applicable;
    • An Internet address or contact information for obtaining information on prescription drug coverage if a formulary is used;
    • An Internet address for obtaining a uniform glossary of terms; and
    • Premiums or for self-insured plans, the cost of coverage (including both the employer and employee share of the premiums/cost of coverage).

    The SBC must also be in the form required.  The proposed forms and templates are available at http://www.healthcare.gov/news/factsheets/labels08172011b.pdf. The SBC is also subject to the thresholds and standards for providing benefit materials in non-English languages as outlined in previous rules adopted by the DOL.

    Manner of Distribution
    An SBC must be a stand-alone document and may be provided in paper form in person or via mail to the last known address of the participant and beneficiary.  An SBC may be sent via electronic mail to participants and beneficiaries provided the Department of Labor’s regulations relating to electronic distribution of plan materials are followed.  One SBC may be provided for a participant and his/her beneficiaries unless a beneficiary has a last known address that is different from the participant’s.  An insurance issuer providing an SBC to an employer may do so via mail, electronic mail, or through an Internet website.

    While the proposed rules do not allow an employer or issuer to satisfy the distribution requirement by including the SBC in the SPD or other mandatory disclosures, the agencies are seeking comments on ways the SBC could be coordinated with the SPD and other mandatory disclosures to reduce costs and redundancies.

    Notice of Modifications
    If a group health plan or issuer makes a material modification to the health coverage that affects the content of the SBC, the plan or issuer must provide notice of the modification to participants and beneficiaries enrolled in the coverage no later than 60 days prior to the date on which such modification will become effective.  There is one exception to this requirement and that is for modifications made in connection with a renewal or reissuance of coverage.  Thus, it appears that an employer who makes changes to its group health plan coverage in connection with the start of its plan year does not need to provide participants with 60 days prior notice and this rule should not impact the timing of an employer’s renewal or open enrollment period.  Employers subject to ERISA’s summary of material modification requirement will meet this requirement by providing the revised SBC within 60 days of the effective date of the material modification.

    Uniform Glossary
    In addition to an SBC, each group health plan and health plan issuer must maintain a uniform glossary of standard terms and definitions in the form required by HHS, IRS and DOL.  The uniform glossary must be provided to participants and beneficiaries upon request in the format (paper or electronic) requested.

    Effective Date
    The SBC, material modification and uniform glossary requirements are effective March 23, 2012; however, the agencies are seeking comments on whether this is feasible and appear to be considering whether to delay enforcement of the rules to a later date.

    Employers or issuers who willfully fail to comply with these requirements are subject to a $1,000.00 penalty for each violation.  A failure with respect to each participant or beneficiary constitutes a separate offense.

    Because these rules are in proposed format, there will be a 60 day comment period during which interested parties can submit comments to the agencies.  Because the agencies appear open to considering changes to the rules to make them less burdensome to plans and issuers, interested parties should submit comments within the 60 day period.  Comments can be submitted online at http://www.regulations.gov. Please let us know if you have any questions regarding the proposed rules or comment submissions.