Issue 37: Plan Sponsors May Be Able to Issue Fewer SBCs than Originally Expected

This is the thirty-seventh issue in our series of alerts for employers on selected topics in health care reform. (Click here to access our general summary of health care reform and other issues in this series.) This series of Health Care Reform Management Alerts is designed to provide an in-depth analysis of certain aspects of health care reform and how it will impact your employer-sponsored plans.

The Affordable Care Act requires group health plan sponsors (employers and insurers) to provide participants with a short Summary of Benefits and Coverage (SBC) for each benefit package offered. Recent guidance in the form of FAQs provides some relief to plan sponsors by limiting the number of SBCs that plan sponsors must issue to participants. This issue supplements Issues 24, 30 and 33 of our Health Care Reform Management Alert Series, which addressed earlier guidance from the IRS, DOL and HHS (the “Agencies”) on the SBC requirement.

Background: Employers Sought Relief Following Final Regulations

 In the wake of the final regulations on the SBC requirement, three primary complaints emerged:

 

• Plan sponsors were not provided with sufficient time following the final regulations to prepare the SBCs before the effective date;
• Plan sponsors were required to produce and provide participants with mostly duplicative SBCs to reflect different coverage tiers (i.e., employee, employee plus one, family, etc.); and
• The rigid structure of the SBC template did not provide enough flexibility for sponsors with unique plan designs.

The new guidance provides some relief on the second two items, but the effective date remains: SBCs must be issued during open enrollments beginning on or after September 23, 2012. However, the guidance indicated that during the initial year of the SBC requirement, the Agencies will not impose penalties on plans that have worked “diligently and in good faith” to provide an SBC that is consistent with the final regulations. Instead, the Agencies will work with plans to achieve uniform compliance.

New Guidance Suggests Fewer SBCs and Relaxed Enforcement Standard

The new guidance clarifies that plans may combine information for multiple coverage tiers in one SBC, assuming the SBC is still understandable to participants. In these instances, if cost-sharing varies across tiers, the plan sponsor should use the cost for self-only coverage (and the SBC should note this assumption).

Plan sponsors may use the same general approach for unique plan structures that do not translate well to the SBC template (e.g., a build-your-own plan design that allows participants to select among different copays, deductibles, etc.). Again, in these instances the SBC should note any assumptions used in completing the template.

As noted above, the guidance notes that the Agencies’ focus is on compliance assistance rather than enforcement. The guidance also reiterates that plan sponsors should use good faith efforts to complete the template in a manner that is as consistent as possible with the instructions while still accurately reflecting plan terms.

Other Clarifications

The new guidance also addressed other unique issues raised by sponsors following the final regulations, including:

• Carve-Outs for Specific Benefits. The guidance acknowledges that any given SBC may require collaboration between a number of different entities (e.g., plan administrator, insurer, pharmacy benefit manager, managed behavioral health organization). As a result, the guidance provides that the Agencies will not take enforcement action against a plan that contracts with a provider to satisfy (all or a portion of) the SBC requirement, as long as the plan (1) monitors the provider’s performance and (2) acts quickly to correct the SBC if the plan becomes aware of any misinformation or variations from the SBC instructions. If the plan does not have access to the information necessary to correct the provider’s mistake, it must notify participants of the mistake separately and take steps to avoid a recurrence.
• FSA, HSA & HRA Coverage. Plans may combine the SBC for major medical coverage with any information relating to an “add-on” benefit, such as a flexible spending account, health reimbursement arrangement or a health savings account. The SBC should identify any assumptions used in this process. Plan administrators may want to consider this approach, as these benefits are likely to impact participant costs.
• Electronic Delivery, Template Changes, Etc. The guidance contained a number of other clarifications regarding delivery timing, electronic delivery, template changes, application to COBRA beneficiaries, and non-English SBCs. While a discussion of these details is beyond the scope of this alert, the Agencies’ FAQs are available here.

Employer Action Steps

• Determine which benefit packages and coverage levels may be consolidated in a single SBC.
• Coordinate and contract with service providers to determine who will prepare and distribute the SBC.
• Complete the SBC template for each benefit package and prepare for distribution no later than the first open enrollment period following September 23, 2012 - generally for the 2013 plan year.
• Determine whether to distribute electronically or to provide paper copies of the SBC.