May 18, 2012
Plan Sponsors Working Diligently and in Good Faith on the Summary of Benefits and Coverage Will Not Face Penalties During the First Year
On May 11, 2012, the Departments of Labor, Health and Human Services and Treasury issued answers to Frequently Asked Questions (FAQs) about the new Summary of Benefits and Coverage (SBC) requirements of the Affordable Care Act.1 The FAQs are the ninth set of questions and answers about implementation of the Affordable Care Act.2 At the same time, the Departments issued a slightly revised SBC template, which was modified to make the format more readable.3
The SBC requirements apply to insured and self-insured group health plans. For plans with open enrollment periods, the requirements are effective on the first day of the first open enrollment period that begins on or after September 23, 2012. Group health plans without open enrollment periods must comply with the SBC requirements beginning on the first day of the first plan year that begins on or after September 23, 2012 (January 1, 2013 for calendar-year plans). Significant financial penalties may be assessed for failure to provide the SBC: a $100 penalty for each failure and an additional $1,000 for each willful failure.4
Answers to FAQs on Implementation
The most important part of the latest FAQs relates to implementation of the SBC during the first year of applicability. Due to the complexity of the SBC and the lack of clear instructions in many areas, many questions have arisen about how to complete the documents. Questions also exist regarding how to calculate the coverage examples. Finally, questions remain over the distribution process for SBCs — particularly for plans that do not conduct open enrollment. For example, it has been unclear whether plans without open enrollment must distribute SBCs to all participants or only to new participants.
In light of the significant penalties associated with failure to provide an SBC, plan sponsors preparing to complete SBCs have been concerned that these unresolved issues could trigger a penalty. However, the FAQs provide enforcement relief during the first year of applicability that will assist in resolving these fears. The enforcement relief is as follows:
- The Departments will not impose penalties for failure to provide an SBC or Uniform Glossary5 on plans and issuers that are working diligently and in good faith to comply. The Departments’ approach to implementation will be marked by an emphasis on assisting plan sponsors, rather than imposing penalties. In light of the fact that many questions remain regarding SBC implementation, the relief from the possibility of penalties during the first year is appropriate and will allow plan sponsors to proceed with SBC production without fear of making minor errors due to lack of clear guidance.
- Plan sponsors with “carve-out” arrangements, such as a carved-out outpatient prescription drug program or mental health program, may provide multiple partial SBCs during the first year, as long as the multiple SBCs together provide all relevant information to meet SBC content requirements. After the first year, however, coverage must be combined on one SBC. Plan sponsors that use two insurers or that provide one insured benefit and one self-insured benefit will now have extra time to determine how to combine that information into one SBC. Plan sponsors may combine their information themselves or contract with an insurer or other service provider to do so.
- The Departments will not enforce penalties for failure to provide an SBC with respect to expatriate coverage during the first year of applicability.
- The Departments are developing a calculator that plan sponsors can use as a safe harbor to complete the coverage examples in the SBC. The calculator is only a transitional tool for the first year of applicability. The calculator will allow plans to input a discrete number of elements about the benefit package to create a coverage example. The SBC is required to contain two coverage examples demonstrating how benefits would be paid: one for type 2 diabetes and one for childbirth.
Answers to FAQs on Electronic Distribution
In addition to relief for first-year implementation problems, the Departments also provided guidance on electronic distribution of SBCs:
- SBCs may be provided electronically to participants and beneficiaries in connection with their online enrollment or online renewal of coverage under the plan.
- SBCs may be provided electronically to participants and beneficiaries who request an online SBC.
- Minor adjustments to the online version of the SBC are permitted to accommodate a plan sponsor’s electronic display method, such as expansion of columns. It is also permissible to display the SBC electronically on a single webpage, so the viewer can scroll through the information without having to advance pages.
- Plan sponsors may display SBCs, or parts of SBCs, in a way that facilitates comparisons of different benefit package options by plan participants and beneficiaries. This may be particularly helpful for facilitating choice of plans during open enrollment.
Although these new rules on electronic distribution are helpful, paper versions of the SBC will still have to be provided upon request.
Implications for Plan Sponsors
Plan sponsors should continue to prepare SBCs for their fall open enrollment periods that begin on or after September 23, 2012. Plans without open enrollment periods should continue to prepare SBCs for the 2013 plan year. The new guidance should not slow down these efforts. However, the new guidance does allow plan sponsors to proceed in good faith despite gaps in existing guidance.
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As with all issues involving the interpretation or application of laws and regulations, sponsors of group health plans should rely on their legal counsel for authoritative advice on the interpretation and application of the Affordable Care Act and related regulations. Segal can be retained to work with plan sponsors and their attorneys on compliance issues.
- The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. The May 11, 2012 answers to FAQs are available on the Department of Labor (DOL) website. (Return to the Capital Checkup.)
- Previous answers to FAQs are also available on the DOL website. (Return to the Capital Checkup.)
- The revised SBC template is also available on the DOL website. (Return to the Capital Checkup.)
- For more information about the SBC, see The Segal Company’s March 2012 Bulletin,“Final Rule Issued on the Affordable Care Act’s Summary of Benefits and Coverage.” (Return to the Capital Checkup.)
- In addition to providing the SBC, group health plans must make available to participants and beneficiaries a Uniform Glossary in the form and substance (with no modifications) published by the Department of Health and Human Services. Information about the Uniform Glossary is available on the DOL website. (Return to the Capital Checkup.)
Capital Checkup is The Segal Company's periodic electronic newsletter summarizing activity in Washington with respect to health care and related subjects. Capital Checkup is for informational purposes only and should not be construed as legal advice. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.