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September 6‚ 2011
Labor, Health and Human Services, and Treasury
Departments Issue Proposed Regulations Implementing the “Summary of
Benefits and Coverage” Requirement under the Affordable Care Act
By Alden J. Bianchi
The Patient Protection and Affordable Care Act 1 (the Act) directs the Departments of
Labor, Health and Human Services, and Treasury (collectively, the
Departments) to develop, in consultation with the National Association of
Insurance Commissioners (NAIC), standards for use by group health plans and
health insurance issuers for providing summaries of benefits and coverage
(SBC) to insureds, plan participants, and
beneficiaries. On August 18, 2011, the Departments issued proposed
regulations (the proposed rule) interpreting the SBC requirement. At the
same time, the Departments issued a series of model SBC templates,
instructions, and a proposed uniform glossary of key terms. The proposed
rule was published in the August 22, 2011 Federal Register.2
Background
The Act creates a new Public Health Service Act (PHSA)
Section 2715(a), which generally mandates the development of “standards for
use by a group health plan and a health insurance issuer offering group or
individual health insurance coverage, in compiling and providing to
applicants, enrollees, and policyholders or certificate holders a summary of
benefits and coverage explanation that accurately describes the benefits
and coverage under the applicable plan or coverage.”
The provisions of PHSA Section 2715 prescribe the following
specific SBC requirements that the Departments (with NAIC’s assistance)
must address:
·
Appearance. The SBC must be presented in a uniform format
that does not exceed four pages in length and does not include print
smaller than 12-point type.
·
Language. The SBC must be presented in a culturally and
linguistically appropriate manner and utilize terminology understandable by
the average plan enrollee.
·
Contents. The SBC must include (1) uniform
definitions of standard insurance terms and medical terms so that consumers
may compare health insurance coverage and understand the terms of coverage
(or exception to such coverage), (2) a description of the coverage,
including cost sharing for each of the categories of “Essential Health
Benefits” 3
as well as any other benefits as identified by regulation,
(3) exceptions, reductions, and limitations on coverage; (4)
cost-sharing provisions, including deductible, coinsurance, and copayment
obligations, (5) renewability and continuation of coverage provisions,
(6) a coverage facts label including examples of common benefits
scenarios, (7) a statement of whether the plan or coverage provides
“minimum essential coverage” 4
and whether the plan or coverage provides good value, (8) a
statement that the outline is a summary of the policy or certificate and
that the coverage document itself should be consulted to determine the
governing contractual provisions, and (9) a contact number for the
consumer to call with additional questions and a web address where a copy
of the actual individual coverage policy or group certificate of coverage
can be reviewed and obtained.
The SBC requirement applies to fully insured and self‐funded ERISA group
health plans, including grandfathered plans, as well as to non‐ERISA group health
plans and to individual health insurance coverage. The SBC requirement is in
addition to the requirements that apply to ERISA-covered group health
plans to furnish a summary plan description. SBCs must be provided not
later than March 23, 2012 (i.e., 24 months after the date of enactment of
the Act), and they must be updated periodically.
The Proposed
Rule
Basic
Requirements
The proposed rule imposes obligations on group health plans
and health insurance issuers to provide written SBCs without charge in
connection with initial eligibility, renewal, special enrollment, and upon
request. In some cases, the SBC must be provided for each available benefit
package; in other cases, the SBC is with respect to only the current
coverage. Also included are rules intended to avoid unnecessary
duplication. Set out below is a description of the rules that apply to
group health plans and health insurance issuers offering group coverage.
Similar rules (which are not described in this client advisory) apply to
coverage in the individual market.
Health
Insurance Issuers
Health insurance issuers must provide SBCs to group health
plans upon application or request for information about the health coverage
as soon as practicable, but in no event later than seven days following the
request. If an SBC is provided upon request for information about health
coverage and the plan subsequently applies for health coverage, a second
SBC must be provided only if the information required to be in the
SBC has changed. If there is any change in the information required to be
in the SBC before the coverage is offered, or before the first day of
coverage, the issuer must provide a current SBC to the plan no later than
the date of the offer (or no later than the first day of coverage, as
applicable).
If the issuer renews or reissues the policy (e.g., for a
succeeding policy year), the issuer must provide a new SBC when the policy
is renewed or reissued. If a written application is required for renewal,
the SBC must be provided no later than the date the materials are
distributed. If renewal or reissuance is automatic, the SBC must be
provided no later than 30 days prior to the first day of the new policy
year.
Health
Insurance Issuers and Group Health Plans
Plans and issuers must provide an SBC to a participant or
beneficiary with respect to each benefit package offered by the plan or
issuer for which the participant or beneficiary is eligible. The SBC must
be provided as part of any written application materials that are
distributed by the plan or issuer for enrollment. If the plan does not
distribute written application materials for enrollment, the SBC must be
distributed no later than the first date the participant is eligible to
enroll in coverage for the participant or any beneficiaries. If there is
any change to the information required to be in the SBC before the first
day of coverage, the plan or issuer must update and provide a current SBC
to a participant or beneficiary no later than the first day of coverage.
The plan or issuer must also provide the SBC to enrollees with HIPAA
special enrollment rights within seven days of a request for enrollment
pursuant to a special enrollment right.
If the plan or issuer requires participants or beneficiaries
to renew in order to maintain coverage, the plan or issuer must provide a
new SBC when the coverage is renewed. If a written application is required
for renewal, the SBC must be provided no later than the date the materials
are distributed. If renewal is automatic, the SBC must be provided no later
than 30 days prior to the first day of coverage under the new plan year. A
plan or issuer must also provide the SBC to participants or beneficiaries
upon request, as soon as practicable, but in no event later than seven days
following the request.
Unnecessary
Duplication
Where both a plan an issuer are required to provide an SBC,
both are deemed to comply if either party timely provides a compliant SBC.
If a participant and any beneficiaries are known to reside at the same
address, and a single SBC is provided to that address, the requirement to
provide the SBC is deemed to be satisfied with respect to all individuals
residing at that address. But if a beneficiary’s last known address is
different than the participant’s last known address, a separate SBC is
required to be provided to the beneficiary at the beneficiary’s last known
address.
Multiple
Benefit Packages
Where a group health plan offers multiple benefit packages,
the plan or issuer is required to provide a new SBC automatically upon
renewal only with respect to the benefit package in which a participant or
beneficiary is enrolled. SBCs are not required to be provided automatically
with respect to benefit packages in which the participant or beneficiary
are not enrolled. If a participant or beneficiary requests an SBC with
respect to another benefit package (or more than one other benefit package)
for which the participant or beneficiary is eligible, however, the SBC(s)
must be provided upon request, but in no event later than seven days
following the request.
Content
The proposed rule generally tracks the Act’s requirements set
out above, but it also adds the following four additional content
requirements:
·
For plans and issuers that maintain one or more networks of
providers, a web address (or similar contact information) for obtaining a
list of the network providers;
·
For plans and issuers that maintain a prescription drug formulary, a
web address where an individual may find more information about the
prescription drug coverage under the plan or coverage;
·
An Internet address where an individual may review and obtain the
“uniform glossary” (as described below); and
·
Premiums (or cost of coverage for self-insured group health plans).
Recall that the Act required the SBC to include a statement
about whether a plan or coverage provides minimum essential coverage (the
“minimum essential coverage statement”) and whether the plan’s or
coverage’s share of the total allowed costs of benefits provided under the
plan or coverage meets applicable minimum value (the “minimum value
statement”). Because the Act’s rules governing minimum essential coverage
and minimum value do not take effect until 2014, SBCs need not include a
minimum essential coverage statement or a minimum value statement until
January 1, 2014.
Appearance
Under the Act, SBCs must be presented in a uniform format,
utilizing terminology understandable by the average plan enrollee that does
not exceed four pages in length, and does not include print smaller than
12-point type. The proposed rule interprets the four-page limitation to
mean four double-sided pages. (According to the preamble to the
proposed rule, “PHS Act section 2715(b)(1) does
not prescribe whether the four pages are four single-sided pages or four
double-sided pages.”)
Form
The proposed rule permits transmittal of SBCs in paper form
or electronically. For plans and issuers subject to ERISA or the Code, the
SBC may be provided electronically if the requirements of the Department of
Labor’s electronic disclosure safe harbor (see 29 CFR
2520.104b-1(c)) are met. For non-federal governmental plans, the proposed
rule provides that the SBC may be provided electronically if either the substance
of the provisions of the Department of Labor’s electronic disclosure rule
is met, or if the provisions governing electronic disclosure in the
individual health insurance market are met.
With respect to an SBC provided by a health insurance issuer
to a plan, the SBC may be provided in paper form or electronically.
Language
The SBC must be “presented in a culturally and linguistically
appropriate manner.” Drawing on prior guidance under the Act’s claims
procedure rules, the proposed rule provides that, in specified counties of
the United States, plans and issuers must provide interpretive services,
and must provide written translations of the SBC upon request in certain
non-English languages. In addition, in such counties, English versions of
the SBC must disclose the availability of language services in the relevant
language. The counties in which this must be done are those in which at
least 10% of the population residing in the county is literate only in the
same non-English language.
Notice of Modifications
Plans and issuers must provide notice of material
modifications to SBCs no later than 60 days prior to the date on which the
change will become effective. A modification is material for this purpose
if it is a “material modification” for ERISA purposes. This includes any
modification to the coverage offered under a plan or policy that,
independently, or in conjunction with other contemporaneous modifications
or changes, would be considered by an average plan participant (or in the
case of individual market coverage, an average individual covered under a
policy) to be an important change in covered benefits or other terms of
coverage under the plan or policy. Thus, a material modification could be
an enhancement of covered benefits or services or other more generous plan
or policy terms. It includes, for example, coverage of previously excluded
benefits or reduced cost-sharing.
In the case of mid-year changes, the proposed rule requires
the notice of material modifications to be provided 60 days in advance of
the effective date of the change. This requirement can be satisfied either
by a separate notice describing the material modification or by providing
an updated SBC reflecting the modification.
Where ERISA-covered group health plans are concerned, a
timely SBC will also satisfy the ERISA “summary of material modifications”
(SMM) requirement—i.e., that the summary of material modifications be
provided not later than 210 days after the close of the plan year in which
the modification or change was adopted, or, in the case of a material
reduction in covered services or benefits, not later than 60 days after the
date of adoption of the modification or change. Thus, plan sponsors are
relieved from the requirement to provide a separate SMM that covers the
same changes already covered by the SBC.
Uniform
Glossary
The Act directs the Departments to develop, and the
Departments separately proposed,5
standards for the following insurance-related and medical-related
terms:
·
Insurance-related terms: coinsurance, copayment, deductible,
excluded services, grievance and appeals, nonpreferred
provider, out-of-network copayments, out-of-pocket limit, preferred
provider, premium, and UCR (usual, customary and reasonable) fees.
·
Medical-related terms: durable medical equipment, emergency medical
transportation, emergency room care, home health care, hospice services,
hospital outpatient care, hospitalization, physician services, prescription
drug coverage, rehabilitation services, and skilled nursing care.
Additional standards are also required to help consumers
understand and compare the terms of coverage and the extent of medical
benefits (including any exceptions and limitations). Following the lead of
the NAIC, the Departments proposed definitions of the following additional
terms: allowed amount, balance billing, complications of pregnancy,
emergency medical condition, emergency services, habilitation services,
health insurance, in-network coinsurance, in-network copayment, medically
necessary, network, out-of-network coinsurance, plan, preauthorization,
prescription drugs, primary care physician, primary care provider,
provider, reconstructive surgery, specialist, and urgent care.
Preemption
The Act permits states to impose on health insurance issuers
requirements that are stricter than those imposed by the Act, i.e., the Act
establishes a regulatory baseline for health insurance issuers above which
the states are free to impose their own additional rules. The Act does,
however, preempt or supersede any state SBC requirement that provides less
information to consumers than required by the Act. Thus, for example,
States may impose separate, additional disclosure requirements on health
insurance issuers.
Penalties for
Failure to Provide the SBC
Under the PHSA’s basic penalty structure, a group health plan
(including its administrator), and a health insurance issuer offering group
or individual health insurance coverage, that “willfully fails to provide
the information required under this section shall be subject to a fine of
not more than $1,000 for each such failure.” Fines may also be levied under
the Internal Revenue Code in the form of tax penalties, and under ERISA in
the form or civil monetary penalties.
The PHSA confers on states the discretion to enforce the
provisions against health insurance issuers (using their own enforcement
mechanisms) in the first instance. Only where a state fails or declines to
do so will the Department of Health and Human Services (HHS) step in to
enforce these rules. According to the proposed rule, while HHS has the
authority to impose penalties for willful violations regardless of state
enforcement, it intends to use enforcement discretion “if the Secretary
determines that the State is adequately addressing willful violations.”
The preamble to the proposed rule explains that the
Department of Labor will issue separate regulations describing the
procedures for assessment of civil fines for failures by ERISA-covered
group health plans to comply with the Act’s SBC requirements.
The Internal Revenue Code imposes an excise tax of $100 per
day per individual for each day that the plan fails to comply with the SBC
requirement (among others). This tax may be abated for failures due to
reasonable cause and not to willful neglect, so long as the failures are
corrected within 30 days of actual or constructive discovery. Taxpayers
subject to this excise tax must report the failure and the amount of the
excise tax on IRS Form 8928. The Act increases the excise
tax for willful failures to not more than $1,000 for each failure to
provide an SBC. The tax is imposed on the plan sponsor or on a designated
plan administrator.
* * *
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1
Pub. L. No. 111-148 (2010), as amended by the Health Care and
Education Reconciliation Act of 2010 (Pub. L. 111-152 (2010)), the Medicare
and Medicaid Extenders Act of 2010 (Pub. L. 111-309 (2011)), and the
Department of Defense and Full-Year Continuing Appropriations Act of 2011
(Pub. L. 112-10 (2011)).
2
76 Fed. Reg. 52442 (Aug. 22, 2001).
3 We continue to await guidance
from the Departments with respect to “Essential Health Benefits,” but we do
know that these benefits generally include ambulatory
patient services, emergency services, hospitalization, maternity and
newborn care, mental health and substance use disorder services, including behavioral
health treatment, prescription drugs, rehabilitative and habilitative services and devices, laboratory services,
preventive and wellness services, chronic disease management, and pediatric
services, including oral and vision care.
4 “Minimum
essential coverage” is defined under Internal Revenue Code Section 5000A(f)
and includes, among others, coverage under an
eligible employer-sponsored plan.
5 76
Fed. Reg. 52475 (Aug. 22, 2011) The proposed SBC template may be accessed
at: http://www.healthcare.gov/news/factsheets/labels08172011b.pdf.
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