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Summary of benefits for group health plans and regulations issued

 

Background

One requirement under the legislation collectively referred to as Health Care Reform mandates that group health plans and health insurance issuers offering group health plans provide a written Summary of Benefits and Coverage (SBC) for each group health plan option offered.

Recently, the Internal Revenue Service (IRS), the Department of Labor (DOL) and the Department of Health and Human Services (HHS) (the Agencies) jointly issued final regulations dealing with the technical requirements for these SBCs. 

This alert summarizes the requirements as they apply to the group health plans sponsored by employers. The requirements for health insurance issuers are comparable.

These regulations will require that group health plans provide a SBC with the first enrollment period that begins on or after September 23, 2012.

Who must provide SBCs?

A group health plan and its plan administrator, as defined under the Employee Retirement Income Security Act of 1974 (typically the employer sponsoring the group health plan), are required to provide SBCs.

What information must be provided in a SBC?

The SBC must include the following:

  • Uniform definitions of standard insurance terms and medical terms, in compliance with guidance as specified by the Agencies
  • A description of the coverage, including cost sharing, for each category of benefits identified by the Agencies
  • The exceptions, reductions and limitations of the coverage
  • The cost-sharing provisions of the coverage, including deductible, coinsurance and copayment obligations
  • The continuation of coverage provisions
  • Coverage examples
  • With respect to coverage beginning on or after January 1, 2014, a statement about whether the plan or coverage provides minimum essential coverage as defined in the applicable provisions of the Health Care Reform legislation and whether the plan’s or coverage’s share of the total allowed costs of benefits provided under the plan meets applicable requirements
  • 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
  • Contact information for questions and for obtaining a copy of the plan document, or the insurance policy, certificate or contract of insurance (such as a telephone number for customer service and an Internet address for obtaining a copy of the plan document or the insurance policy, certificate or contract of insurance)
  • For plans and issuers that maintain one or more networks of providers, an Internet address (or similar contact information) for obtaining a list of network providers
  • For plans and issuers that use a formulary in providing prescription drug coverage, an Internet address (or similar contact information) for obtaining information on prescription drug coverage
  • An Internet address for obtaining the uniform glossary of terms as well as a contact phone number to obtain a paper copy of the uniform glossary and a disclosure that paper copies are available

The coverage examples (as prescribed by the Agencies) included in the SBC are to illustrate the benefits and out-of-pocket costs for common benefit scenarios, including pregnancy and chronic medical conditions.

Where will a plan administrator obtain this information?

Health insurance issuers are required to provide a SBC to a group health plan. The plan administration of a fully-insured group health plan can use the SBC from the issuer to satisfy the requirements. The plan administrator of a self-insured group health plan will need assistance from the plan’s third-party administrator to prepare the SBC.

Who is entitled to receive a SBC from the group health plan?

A group health plan must provide a SBC to each plan participant or beneficiary. A single SBC can be mailed to all participants and beneficiaries residing at the same address.

When must a SBC be provided?

These rules must be followed:

  1. The group health plan must provide a SBC for each available coverage option when the participant or beneficiary receives the application materials to enroll in the plan. This must be provided no later than the first date the participant is eligible to enroll.
  2. If there are changes in the information in the SBC before coverage is to begin, a revised SBC must be provided before the first day of coverage.
  3. If there are material changes to the SBC mid-year, the changes must be disclosed 60 days before the changes become effective.
  4. If participants or beneficiaries must affirmatively renew coverage for a subsequent plan year, the SBC for the option in which the participant or beneficiary is currently enrolled must be provided by the date the written application materials are distributed. If renewal is automatic, the SBC for the option in which the participant or beneficiary is currently enrolled must be provided no later than 30 days prior to the first date of the new plan or policy year.
  5. If a participant or beneficiary requests a SBC for any benefit option, whether or not the participant or beneficiary is currently enrolled in that option, a SBC must be provided as soon as practicable but no later than seven business days after the plan administrator receives the request.

As mentioned above, these rules will require the first SBCs to be provided as part of the first group health plan annual enrollment period beginning on or after September 23, 2012. For individuals enrolling other than through an annual enrollment period, the SBCs must be distributed for plan years beginning after December 31, 2012.

May the group health insurance issuer provide the SBC rather than the group health plan?

Yes. In order to avoid duplication, if the health insurance issuer or other entity provides a SBC that satisfies the requirements, the group health plan does not need to issue a SBC as well.

Are there penalties for a failure to provide the SBC?

Yes. A group health plan that fails to provide the SBC is potentially subject to a fine of no more than $1,000 for each failure. A failure to provide to each participant or beneficiary is considered a separate offense. For example, a failure to provide a SBC to 50 participants could result in a $50,000 fine. In addition, group health plans may also be subject to an additional penalty under Internal Revenue Code Section 4980D of $100 per affected covered individual per day for a failure to timely provide a compliant SBC.

Is there a prescribed format for the SBC?

The SBC must be in a uniform format, using terminology understandable by the average enrollee. The DOL has guidelines and templates available on its website (click here). The SBC may not exceed four double-sided pages in length and may not include print smaller than 12 point font.

May the SBC be provided electronically, instead of on paper?

Yes. The SBC may be provided by email or Internet posting if the DOL’s existing rules for the electronic disclosure of plan information are satisfied.

If you have questions about the SBC requirements, please contact:

Dale R. Vlasek
216.348.5452
dvlasek@mcdonaldhopkins.com

Antoinette M. Pilzner
248.220.1341
apilzner@mcdonaldhopkins.com

Employee Benefits

 

Benefit programs should be a win-win for employers and employees. We strive to accomplish that goal in the design, implementation and operation of sophisticated benefit and executive compensation programs – qualified and non-qualified retirement programs and health and welfare plans. Our employee benefits team has a long track record of working to maximize the efficiency and economic feasibility of each program.

 

 

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IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments), was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding any penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction matter addressed herein.

© 2012 McDonald Hopkins LLC All Rights Reserved. This Alert is designed to provide current information for our clients, friends and their advisors regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.