McGuireWoods Healthcare Reform Guide: Installment No. 23 – Agencies Issue Guidance on Summary of Benefits & Coverage

McGuireWoods Healthcare Reform Guide: Installment No. 23

September 26, 2011

This is the 23rd in a series of WorkCite articles concerning the Patient Protection and Affordable Care Act and its companion bill, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the Act). This WorkCite contains a discussion of a proposed regulation that addresses the requirement that plan sponsors provide a Summary of Benefits and Coverage (SBC) to participants and beneficiaries of employer-sponsored group health plans. The SBC rules have extensive coverage: they apply to both insured and self-insured plans, grandfathered and non-grandfathered, plans, and even to plans that are not covered by ERISA. A similar requirement is imposed on health insurance issuers when they receive an application or information request from a plan sponsor.

Effective Date

The good news: The effective date under the proposed rule is March 23, 2012; therefore, compliance is not required for the upcoming open enrollment season for the 2012 (calendar) plan year.

The bad news: As noted below, SBCs must be provided on request and in connection with mid-year HIPAA special enrollment dates. Therefore, all group plans must have SBCs in place by March 23, 2012. This head start of several months may not be sufficient to master this compliance hurdle.

MW Comment: Plan sponsors should waste no time in (i) evaluating required changes to plan administration, (ii) beginning discussions with service providers, and (iii) considering how they will share information about the process with the government agencies that jointly issued the proposed rules.


Following consultation with the National Association of Insurance Commissioners, the Departments of Labor (DOL), Treasury (IRS) and Health and Human Services (HHS) (collectively, the Departments) issued the proposed regulations to set forth standards for the design, content, and distribution of SBCs. While the concept of the SBC is undoubtedly a useful aid to the healthcare consumer, employers have expressed concern over the increased cost and burden of providing this new document in accordance with the lengthy and exacting requirements outlined in the proposed rule.

MW Comment: This may be the issue that pushes plan sponsors to speak up; the comment period for the proposed rule ends October 21, 2011. The Departments have invited comment on the practicality of the additional disclosure requirements (and their possible redundancy) in light of the many disclosure requirements already applicable to group health plans. Suggestions from plan sponsors as to methods of coordinating SBCs with the other materials already required to be provided by group health plans, such as summary plan descriptions (SPDs) and open enrollment materials, will be particularly helpful for this ongoing discussion with the Departments. Without substantive input from plan sponsors, the Departments will not be able to achieve their stated goal of balancing “effective communication and ease of comparison” for individuals with “minimization of cost and duplication” for plan sponsors and health insurance issuers.

Each benefit package offered under the plan must have an SBC.

Uniformity in Contents and Appearance

The proposed regulations are exacting in terms of the appearance and contents of the SBC. The SBC itself must be presented in a uniform format, must be no longer than four (double-sided) pages using a font no smaller than twelve point and must use terminology understandable by the average plan enrollee. Generally, the Act requires that the SBC include the following:

  • A uniform glossary of standard insurance terms and medical terms so that consumers may compare health coverage and understand the terms of (or exceptions to) their coverage;
  • A description of the coverage, including cost sharing, for each category of benefits identified by the Departments;
  • The exceptions, reductions and limitations on coverage;
  • The cost-sharing provisions of the coverage, including deductible, coinsurance, and copayment obligations;
  • The renewability and continuation of coverage provisions;
  • Coverage examples (using assumptions based on clinical practice guidelines) that mimic “Nutrition Facts” labels found on most packaged foods, which will enable individuals to understand at a glance their out-of-pocket costs for specified common benefits scenarios;
  • 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 under Code section 5000A(f), and whether the plan sponsor’s share of the total allowed cost of benefits provided under the plan or coverage 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; and
  • A contact number to call with questions and an Internet address where a copy of the actual individual coverage policy or group certificate of coverage can be reviewed and obtained.

The glossary of medical and insurance terms may be presented in a separate document accompanying the SBC. The glossary must also follow a uniform format – defining only those terms that are designated by the Departments. Both documents must be furnished to participants in order to satisfy the requirement to provide an SBC. The Departments published templates and detailed instructions for both documents at the same time that the proposed regulations appeared in the Federal Register.

The coverage examples that illustrate an individual’s out-of-pocket costs under common benefit scenarios are to be identified by the Departments. To date, the Departments have identified three that must be included – having a baby, treating breast cancer and managing diabetes. The Departments may specify up to three additional scenarios.

Provision of the SBC

The proposed rules direct group health plans and health insurance issuers to provide an SBC to applicants, enrollees, and policyholders or certificate holders. Generally, the SBC must be provided at any time that a plan or individual is comparing health coverage options. The specific rules regarding when SBCs must be provided differ depending on the context of the disclosure (that is, whether the SBC is part of a group health plan or not). Delivery of all SBCs must also follow the recent rules regarding claims and appeals under the Act, which require special interpretive services and related notices where at least 10% of residents in a given county are literate in only the same non-English language. See “Additional Guidance Released on Internal Claims and Appeals and External Review Processes.”

Providing the SBC to Participants and Beneficiaries

Under the proposed guidance, a group health plan (including the plan administrator) and a health insurance issuer offering group health insurance coverage to a group health plan generally must provide an SBC free of charge to a participant or beneficiary with respect to each benefit package offered for which the participant or beneficiary is eligible.

On enrollment: The SBC would have to be provided as part of any written application materials that are distributed by the plan or issuer for enrollment purposes, either at open enrollment or when a new employee first becomes eligible under the plan. If the plan does not distribute written application materials for enrollment (for example, if enrollment for coverage is done online), then the SBC must be provided no later than the first date a participant is eligible to enroll in coverage. If there is any change to the information required to be included in the SBC before the first day of coverage, the plan or issuer must provide an updated SBC to a participant or beneficiary no later than the first day of coverage (see explanation below).

HIPAA special enrollees must be provided with an SBC within seven days of a request for special enrollment.

On renewal: If a participant renews coverage during an open enrollment period, the plan or issuer must provide a new SBC no later than: (a) the date on which written application materials are distributed, if a written application is required for renewal, or (b) 30 days prior to the first day of coverage in the new plan year, if renewal is automatic. The participant must receive an SBC for the benefit package in which he was enrolled and may request copies of SBCs for other benefit packages offered by the plan.

On request: If a participant or beneficiary requests an SBC, it must be provided as soon as practicable, but not more than seven days following the request.

Though the requirement to provide an SBC to participants of an insured group health plan is imposed on both the plan and the insurer, the rules allow for coordination such that both entities will be considered as having satisfied the disclosure requirement as long as one of them has distributed the SBC. This highlights the need for the plan sponsor to define clearly, in documents between the plan and the insurer, who has responsibility for compliance with various aspects of this new rule. The same advice applies to third party administrators for the self-insured plans.

Provision of the SBC by an Insurance Issuer to a Plan

In response to an application or request for information by a group health plan or its sponsor, a group health insurance issuer must provide an SBC as soon as practicable, but in no event later than seven days, following the application or request. Once the SBC has been provided, if the plan subsequently applies for health coverage, a second SBC is required to be provided automatically if the information in the SBC has changed. If there is a change to the information required to be included in the SBC before the coverage is offered, or before the first day of coverage, the issuer must provide an updated SBC to the plan no later than the date of the offer or the first day of coverage, as applicable.

On renewal or reissue, a new SBC must be provided to the plan no later than: (i) the date of application, if a written application is required for renewal or reissuance, or (ii) 30 days prior to the first day of the new policy or plan year, if renewal or reissuance is automatic.

Notice of Material Modification

In addition, a notice of material modification must be provided if the plan or issuer makes a material modification to any of the terms of the plan or coverage that is not reflected in the most recently provided SBC. The notice of modification must be provided to enrollees or policyholders no later than 60 days prior to the date on which such change will become effective. The notice may also be used to satisfy the requirement for ERISA-covered plans to provide a summary of material modifications (SMM). However, the proposed rules do not alter the SMM requirements under ERISA.

MW Comment: This is the first time that the Departments have required that a health plan must provide prior notice of a material change, which is a substantial departure from the standard rule for the provision of an SMM. Accordingly, a “traditional” SMM will not satisfy the notice requirement under the proposed regulations.

Coordinating SBCs with Other Required Disclosures

In light of the somewhat onerous drafting and distribution provisions pertaining to the SBC, employers have expressed concerns of undue burden and cost. In response, the Departments considered in the proposed guidance methods through which to coordinate the SBC disclosure with other disclosure requirements of group health plans. With regards to the SPD, it might be difficult to utilize the SBC as the sole SPD because of the array of disclosures that are required to be in the SPD and the strict page limit of the SBC. However, the Departments noted in the guidance that they might consider allowing inclusion of the SBC within the SPD – as long as the SBC is “intact and prominently displayed at the beginning of the SPD (for example, immediately after a cover page and table of contents),” and the timing requirements for providing the SBC are satisfied. The Departments specifically indicated that they would welcome further comment on ways the SBC might be dovetailed with the SPD and other group health plan materials – for example, application and open enrollment materials.

Delivery Methods   

The SBC and its companion documents may be delivered to participants and beneficiaries in paper form or in accordance with the DOL’s established rules for electronic disclosure.

MW Comment: The DOL is in the process of rethinking its electronic delivery rules, but it is likely that any new rules will still result in the use of paper delivery for many participants.

Health insurance issuers may deliver these documents to plans and plan sponsors in paper form. They may also use an electronic format as long as it is “readily accessible” to the plan and a paper version is available free of charge to the plan on request. If the SBC is posted on the Internet, the plan must be notified of its availability by paper or e-mail.

Penalties for Failure to Comply

The penalty for failure to adhere to the regulations is severe – $1,000 per failure. A separate failure will occur for each participant and beneficiary with respect to whom there is noncompliance. It appears that the DOL and the IRS also have the ability to assess additional penalties.

Plan sponsors should review all documents to ensure that the responsibility for penalty fees is properly allocated among the plan sponsor and its service providers.

We will continue to monitor and report on developments with respect to the SBC regulations, including any extension of the deadline.

For assistance in complying with the new SBC rules and group health plan administration generally, please contact the authors or any other member of the McGuireWoods’ Employee Benefits team.