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Health Care Reform – Summary of Benefits and Coverage Final Rule

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April 6, 2012

The Patient Protection and Affordable Care Act added Section 2715 to the Public Health Service Act, introducing a new disclosure requirement known as the “Summary of Benefits and Coverage” or “SBC.”  The SBC requirement is applicable to both group health plans and insurers.  As a result, in addition to the existing obligation to provide summary plan descriptions (“SPDs”), plan sponsors and insurers must now provide another type of summary, more concise than the SPD, which accurately describes the benefits and coverage under the particular plan in an understandable manner.  The U.S. Departments of Health and Human Services, Labor and Treasury (“Departments”) have recently released final regulations on the implementation of this new requirement. A copy of these regulations is available here.  The Department of Labor has also recently issued Part VIII of the FAQs about Affordable Care Act Implementation providing additional guidance on SBCs. The FAQs are available here.  This alert outlines some of the most notable aspects of the SBC requirement.

Effective Date and Delivery – SBCs must be delivered to participants who enroll or re-enroll in a plan on the first day of the first open enrollment period (including re-enrollees and late enrollees) that starts on or after September 23, 2012.  Plans that do not have a regular open enrollment period must comply beginning on the first day of the first plan year that begins on or after September 23, 2012. Thereafter, SBCs must also be provided no later than 7 business days following a participant’s request.  COBRA qualified beneficiaries must also receive an SBC whenever active participants in the plan receive it.  The SBC may be provided electronically, however there are slightly different rules depending on whether the individual is only eligible for coverage or actually enrolled.  The Departments continue to focus their approach on assisting plans, issuers and others with compliance rather than on imposing penalties.

Plans Both grandfathered and non-grandfathered plans must comply, with some exceptions: HIPAA-exempt plans, retiree-only plans, and certain HRAs.

Format and Content – The SBC must be written in a “culturally and linguistically appropriate manner” in accordance to the same rules applicable to Claims and Appeals procedures.  SBCs must describe cost-sharing requirements (deductibles, co-pays, co-insurance) and information regarding exceptions and other limitations of coverage.  The SBC cannot exceed four pages (double-sided) in length and the font size cannot be smaller than 12-point.  It may be a stand-alone document or part of other materials describing plan benefits (e.g., SPDs), if the SBC information is “intact and prominently displayed” at the beginning of the other materials.  The SBC must include an internet address for individuals to access, review and obtain the “Uniform Glossary of Definitions” (“Glossary”) that is required by the statute.  The SBC must also list a phone number for individuals to request a paper copy.  An SBC must be prepared for each “benefit package” offered; however, it is not necessary to provide different SBCs for different coverage tiers (e.g., self-only, family, etc.).  Unfortunately, the regulations do not define “benefit package.”  Also, information about any “add-on” which could affect cost-sharing (e.g., FSAs, HRAs, HSAs, wellness programs, etc.) may be combined in a single SBC. Cross-references to the SPD to substitute for required content is not permitted.  During the first year there will be no penalties imposed on those “working diligently and in good faith” to provide the required SBC content.

Templates and Samples – The Departments have developed templates and samples of the SBC.  The templates and samples are accessible on the Department of Health and Human Services’ website, along with instructions for completion.  These materials may be found here.  The current templates and samples may only be used for the first year of applicability (i.e., coverage beginning before January 1, 2014).  The Departments expect to issue updated templates and samples for subsequent years.  Also, templates of SBCs and the Glossary translated to other non-English languages will be available at the same website.  Deletion of columns or rows in the template is not permitted; however, minor size changes are acceptable.

Notice of Modifications – Whenever there is a material modification to the terms of coverage as described in a previously-issued SBC, a special notice of the modification must be provided no later than 60 days before the modification of coverage will take effect.  Material modifications include reductions or enhancements to benefits.

Applicable Penalties – Penalties for failure to provide an SBC to an individual can be significant.  For example, the Department of Health and Human Services may impose fines of $100 per day for each affected individual, as well as a penalty up to $1,000 per violation if the entity willfully fails to comply (each failure constitutes a separate offense with respect to each individual).  Further, the Department of the Treasury may assess additional excise taxes of $100 per day per individual.

Service Providers – In the FAQs the Department of Labor has clarified that service providers such as pharmacy benefit managers or managed behavioral health organizations may contract with a group health plan or insurance issuer and assume the responsibility for completing the SBC, and/or delivering it to certain individuals.  However, such a delegation of responsibility is only acceptable as long as the plan or issuer continues to monitor the compliance with such contract, ensures that any violations of the final regulations of which the plan or issuer becomes aware are corrected as soon as practicable, and corrects any incorrect information in the SBC by communicating directly with participants and beneficiaries regarding the lapse and take steps to prevent future violations.

Plan sponsors and insurers should begin preparing to comply with this new requirement as soon as possible.  In particular, administrators of fully-insured plans should coordinate with their insurers to avoid unnecessary duplication of efforts.  

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