Issue Brief. SBC Distribution Rules for Employer Sponsored Health Plans October Summary. Which Plans Are Required to Provide the SBC?

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1 Issue Brief SBC Distributin Rules fr Emplyer Spnsred Health Plans Octber 2012 Summary The Affrdable Care Act (ACA) expands ERISA's disclsure requirements by requiring that a summary f benefits and cverage (SBC) be prvided t applicants and enrllees. The SBC must accurately describe the benefits and cverage under the applicable plan. The SBC rules apply t bth grup health plans and individual health insurance. Terms used in guidance issued by the regulatry agencies (the agencies) ften uses language mre cmmn t the individual health insurance market, such as applicants instead f cmmn grup health plan terms such as emplyees r participants. This summary fcuses n the SBC distributin requirements that affect emplyer spnsred health plans, and des nt address issues specific t insurance cmpany bligatins fr individual health insurance plicies. Which Plans Are Required t Prvide the SBC? The SBC requirement applies t grup health plans (bth insured and self-insured) and insurers but nt t certain excepted benefits. Grandfathered grup health plans must cmply with this mandate. Excepted Benefits Benefits treated as excepted benefits under existing HIPAA rules are nt subject t the SBC requirements. Cmmn benefits nt subject t the SBC rules include: Limited Scpe dental and visin plans Health FSAs funded with nly participant cntributins Cverage nly fr accidents (including accidental death and dismemberment cverage); Disability incme cverage Wrkers' cmpensatin r similar cverage Autmbile medical payment insurance Health Savings Accunts The SBC requirement des nt apply t HSAs. Hwever, the SBC wuld apply t the underlying high-deductible health plan (HDHP). Accrding t the preamble t the final regulatins, the effects f emplyer cntributins t an HSA can be mentined in an SBC fr the HDHP. Applicatin t Heath Reimbursement Accunts (HRAs) HRAs may create additinal bligatins n the part f many emplyers. Infrmatin abut HRAs (and health FSAs that are nt excepted benefits) can be included in the apprpriate spaces n the majr medical plan SBC. The FAQs refer t accunt-based cverage as an add n t majr medical cverage that culd affect the participant's cst-sharing and ther infrmatin n the SBC. In such circumstances, the agencies explain that the SBC cverage examples shuld nte the assumptins used in creating them.

2 Imprtant Nte fr HRA Plans HRAs that are integrated with ther cverage may satisfy the SBC requirement by prviding a single cmbined SBC that describes the HRA and any underlying health cverage. Agency guidance des nt, hwever, define what it means fr an HRA t be integrated with ther cverage. Frtunately plan administratrs can safely chse t either distribute a single integrated SBC r prepare a stand-alne SBC fr the HRA cverage, at least fr the first year that SBCs are required. Hwever, whether incrprated int the primary plan SBC r nt, the HRA plan administratr shuld ensure that the HRA s prvisins are cvered by an SBC. Agency guidance cnfirms that the respnsibility t distribute an SBC fr an HRA remains with the plan administratr. In fact, the guidance states that the plan r insurer must accurately describe the relevant plan terms while using its best effrts t d s in a manner that is still cnsistent with the instructins and template frmat as reasnably as pssible. Cnsequently, emplyers need t chse t incrprate the HRA cverage int a cmbined SBC r prduce and distribute a separate SBC fr the HRA cverage. Applicatin t Wellness Prgrams Depending n the types f benefits prvided, a wellness prgram may be cnsidered a grup health plan. The FAQs refer t a wellness prgram as an add n t majr medical cverage that culd affect the participant's cst-sharing and ther infrmatin n the SBC. In such circumstances, the agencies explain that the cverage examples shuld nte the assumptins used in creating them. Applicatin t Emplyee Assistance Prgrams (EAPs) The SBC rules d nt explicitly address EAPs, but whether the SBC requirements apply wuld depend n if the EAP is cnsidered a grup health plan. Given the limited nature f benefits under an EAP, it wuld nt traditinally fit within the SBC template. Thus, these prgrams may take advantage f a special rule. It states that t the extent a plan s terms that are required t be in the SBC template cannt reasnably be described in a manner cnsistent with the template and instructins, the plan r insurer must accurately describe the relevant plan terms while using its best effrts t d s. Until further guidance is prvided it is expected that emplyers wh ffer EAP cverage will simply dente that fact in the health plan SBC. Wh Must Prvide the SBC? Fr self-funded plans the bligatin t prvide the SBC clearly rests with the plan administratr (usually the plan spnsr/emplyer unless anther entity is named as such in the plan dcuments). Hwever, ne surce f cnfusin amng emplyers stems frm the fact that fr fully insured plans the rules apply t bth the plan administratr (usually the emplyer) and the insurance cmpany. Allcating Cntractual Respnsibility The regulatins cntain a special rule regarding the jint liability situatin. The plan's bligatin is satisfied s lng as any entity has prvided the SBC. Thus, if the insurer prvides a timely and cmpliant SBC, the plan administratr's bligatin is satisfied. The FAQ guidance recgnizes that different cmbinatins f plans, insurers, and service prviders may have different infrmatin needed t satisfy the SBC requirement. The rules prvide that, until further guidance, a plan r insurer generally will nt be subject t enfrcement actin if it enters int a binding cntractual arrangement under which anther party assumes respnsibility fr the SBC. Sme insurance carriers have begun t add language t grup insurance cntracts specifically making the emplyer respnsible fr the distributin f the SBC t emplyees.

3 Respnsibility fr Cmbining Infrmatin frm Multiple Insurers The FAQ guidance prvides that plan administratrs are respnsible fr prviding cmplete SBCs with respect t a plan, even when tw r mre insurers prvide benefits under the plan. Fr example, a plan administratr that uses tw r mre insurance prducts (e.g., a majr medical plicy and a separate carved-ut prescriptin drug cverage) prvided by separate insurers under a single plan may cmbine the infrmatin int a single SBC r may cntract with ne f the insurers (r ther service prvider) t perfrm that functin. The departments have indicated that during the first year, fr emplyers that use tw r mre insurers, distributing multiple SBCs that tgether prvide all the relevant infrmatin, will meet the SBC cntent requirements. Wh Must Receive an SBC? Generally, the SBC must be distributed t all applicants (at the time f applicatin), and enrllees (at initial enrllment and annual enrllment). The plan administratr and/r the insurer must autmatically prvide an SBC t participants and beneficiaries with respect t each benefit package ffered. Imprtant Nte: Multiple Benefit Packages Neither the statute nr the regulatins define benefit package but different cverage tiers may be cnsidered part f the same benefit package. Thus, separate SBCs wuld nt be required fr differences between self-nly, emplyee-plus-ne, and family cverage. COBRA Plans are als required t prvide SBCs t COBRA qualified beneficiaries. During an pen enrllment perid, any COBRA qualified beneficiary wh is receiving COBRA cverage must be given the same rights t elect different cverage as are prvided t similarly situated nn-cobra beneficiaries. In this situatin, a COBRA qualified beneficiary wh has elected cverage has the same rights t receive an SBC as a similarly situated nn-cobra beneficiary. When Must the SBC Be Distributed? Frm Plan r Insurer t Participants and Beneficiaries Grup health plans and/r insurers are required t prvide an SBC t a participant r beneficiary with respect t each benefit package ffered fr which the participant r beneficiary is eligible. The SBC must be distributed at varius times, as utlined belw. At Open Enrllment (Renewal) The SBC must be included with pen enrllment materials. The regulatins use the term renewal as ppsed t pen enrllment. If a plan r insurer requires participants and beneficiaries t actively elect t maintain cverage during pen enrllment, r prvides them with the pprtunity t change cverage ptins during that time, the SBC must be prvided at the same time the pen enrllment materials are distributed. If there is n requirement t renew (ften referred t as an evergreen electin), and n pprtunity t change cverage ptins, renewal is cnsidered t be autmatic, and the SBC must be prvided n later than 30 days prir t the first day f the new plan year. Fr insured plans, if the new plicy has nt yet been issued 30 days prir t the beginning f the plan year, the SBC must be prvided as sn as practicable, but n later than seven business days after the issuance f the plicy.

4 Fr emplyers that ffer multiple benefit packages, in cnnectin with renewal, the regulatins prvide that the plan nly need t autmatically prvide a new SBC with respect t the benefit package in which a participant r beneficiary is enrlled. Hwever, if a participant r beneficiary requests an SBC with respect t anther benefit package fr which the participant r beneficiary is eligible, the SBC must be prvided as sn as practicable, but in n event later than seven business days fllwing the request. At Initial Enrllment The SBC fr each benefit package ffered, fr which the participant r beneficiary is eligible, must be prvided as part f any written applicatin materials that are distributed by the plan (including a self-insured plan) r insurer fr initial enrllment. If the plan des nt distribute written applicatin materials fr enrllment, the SBC must be distributed n later than the first date the participant is eligible t enrll in cverage. If there is any change t the infrmatin required t be in the SBC befre the first day f cverage (e.g., prir t the end f the plan's waiting perid), the plan r insurer must update and prvide a current SBC t a participant r beneficiary n later than the first day f cverage. At Special Enrllment The plan must prvide the SBC t special enrllees (emplyees and dependents with the right t enrll in cverage midyear upn specified circumstances) within 90 days after enrllment pursuant t a special enrllment right. Upn Request The plan r insurer must prvide the SBC t a participant r beneficiary upn request, as sn as practicable, but in n event later than seven business days fllwing the request. Frm Insurer t Plan In the case f an insured plan, an insurer is required t prvide an SBC t the grup health plan (in this case, the emplyer/plan spnsr): Upn an applicatin r request fr infrmatin the SBC must be prvided as sn as practicable fllwing the request, but in n event later than seven business days fllwing the request. If there is a change t the infrmatin in the SBC befre the cverage is ffered, r befre the first day f cverage, the insurer must update and prvide a current SBC t the plan n later than the date f the ffer (r n later than the first day f cverage, as applicable). If written applicatin fr renewal is required, the SBC must be prvided n later than the date the materials are distributed. If renewal is autmatic, the SBC must be prvided n later than 30 days prir t the first day f the new plicy year. If the new plicy has nt yet been issued 30 days prir t the beginning f the plan year, the SBC must be prvided as sn as practicable, but n later than seven business days after the issuance f the plicy. Upn request frm the grup health plan, the SBC must be prvided as sn as practicable but n later than seven business days fllwing the request. Frm and Manner t Distribute the SBC Distributin t Participants and Beneficiaries An SBC may be prvided in paper frm t participants and beneficiaries cvered under the plan, r can be prvided electrnically if the requirements f the electrnic disclsure regulatin under ERISA are met.

5 The FAQ guidance prvides imprtant relief relating t distributin requirements by nting that unless the plan r insurer has knwledge f a separate address fr a beneficiary, the SBC may be prvided t the participant n behalf f the ther beneficiary (e.g. spuses and dependents). This deemed ntice t beneficiaries applies even in the case f electrnic delivery f the SBC. Imprtant Nte - Deemed Disclsure t Beneficiaries. Frm an administrative standpint, the clarificatin in the FAQ regarding electrnic delivery f the SBC t the participant n behalf f the beneficiary prvides imprtant relief. The agencies' psitin is als a sensible recgnitin that emplyees will share infrmatin abut cverage ptins with family members living under the same rf. This relief frm nt having t directly ntify a beneficiary wuld nt apply if the emplyer has infrmatin that a beneficiary lives at an address different frm the participant/emplyee. The agencies have adpted anther imprtant safe harbr fr electrnic delivery f the SBC. SBCs may be prvided electrnically t participants and beneficiaries in cnnectin with their nline enrllment r renewal f cverage under the plan. It appears that the safe harbr wuld nly be satisfied fr thse actually enrlling nline. In ther wrds, it wuld nt be available fr thse wh chse t enrll via anther means. Fr participants and beneficiaries wh are eligible but nt enrlled, the SBC may be prvided electrnically if the frmat is readily accessible and a paper frm is prvided free f charge upn request. Fr these participants and beneficiaries, the SBC may be prvided via Internet psting if the individuals are ntified in paper frm (such as a pstcard) r via that the dcuments are available n the Internet. The pstcard r must prvide the Internet address and indicate that the dcuments are available in paper frm upn request. Language Requirements fr the SBC Plans must include a ne-sentence statement indicating hw t access the language services in the English versins f SBCs sent t an address in specified cunties f the United States. The cunties in which this must be dne are thse in which at least 10% f the ppulatin residing in the cunty is literate nly in the same nn-english language. HHS prvides a list, which is applicable fr 2012, f cunties which meet r exceed this threshld at: Mst emplyers sending SBCs t cunties where this rule applies will simply include the sentence in all SBCs sent rather than attempt t send different SBCs t specific cunties. Upn request frm an individual, written translatins f the SBC must be prvided in the fur applicable nn-english languages. Written translatins fr the SBC template and the unifrm glssary are nw available in all fur applicable languages Spanish, Chinese, Tagalg, and Navaj n the HHS website. While every effrt has been taken in cmpiling this infrmatin t ensure that its cntents are ttally accurate, neither the publisher nr the authr can accept liability fr any inaccuracies r changed circumstances f any infrmatin herein r fr the cnsequences f any reliance placed upn it. This publicatin is distributed n the understanding that the publisher is nt engaged in rendering legal, accunting r ther prfessinal advice r services. Readers shuld always seek prfessinal advice befre entering int any cmmitments.