Planning for Open Enrollment: the Summary of Benefits and Coverage

8/3/2012 April A. Goff, Norbert F. Kugele

As you gear up for your group health plan’s open enrollment period this fall, keep in mind that employers will also have to distribute a Summary of Benefits and Coverage (SBC) with open enrollment materials this year. Generally, you must provide a separate SBC for each health plan option that you make available to your employees.

This duty applies to open enrollment periods beginning on and after September 23, 2012. You must provide the SBC and a Uniform Glossary no later than the first day that individuals can begin making their elections for the coming plan year.  Your best practice will be to include the SBC with your open enrollment materials.

What is the SBC?

The SBC is a new four-page document required by Health Care Reform that provides key information about coverage and out-of-pocket costs for a particular plan option. Separate and distinct from a Summary Plan Description, the SBC is intended to help employees compare different medical coverage options, whether offered under your plan, another employer’s plan or in the individual market. To ensure uniformity, the SBC must be prepared using a federally-designed template. You can find the template on the Department of Labor’s web site at http://www.dol.gov/ebsa/correctedsbctemplate.doc and the Uniform Glossary at http://www.dol.gov/ebsa/pdf/SBCUniformGlossary.pdf.

Separate tiers of coverage (single, employee plus one, family) may be described on a single SBC.  You may also use one SBC for multiple plan options if the only differences between the options are deductibles, copay or co-insurance amounts — but only if you can clearly communicate those differences to participants within the required format.

The SBC can be a stand-alone document, or you can incorporate it into a booklet or other materials as long as the SBC content is kept intact and given a prominent position at the beginning of the materials (for example, immediately after the table of contents)

By When Must I Distribute the SBC?
 
You (or your insurer/TPA, if it has agreed to distribute the SBC on your behalf) must distribute the SBC no later than by the first day of the open enrollment period.  If you are late in distributing the SBC, or fail to distribute it at all, you may be subject to penalties.   ERISA provides a penalty of up to $1,000 per failure, and the Tax Code imposes a penalty of up $100 per day for each affected person. In either instance, we expect the penalty will be calculated based on the number of individuals who failed to receive the SBC.

Who Must Provide an SBC?

If you are an employer with insured health plan coverage, the insurer is responsible for providing you with an SBC that describes its coverage. Both you and your insurer share responsibility for distributing the SBC to the participants in your plan, but both of you do not need to distribute separate SBCs. You and your insurer can agree on who will be responsible for distributing the SBC, but employers may want to take on this duty to ensure that the SBCs reach all eligible individuals by the beginning of the open enrollment period.

For self-insured health plans, the “plan administrator” is responsible for preparing the SBC. This is typically the employer who sponsors the plan. Third-party administrators (TPAs) typically do not have an obligation to prepare the SBC — though we expect that many TPAs will be offering assistance (but perhaps for a fee). To make sure you get the necessary information on a timely basis, you should amend your TPA contracts to clearly specify the support that your TPAs will provide and the additional fees, if any, that will be charged for that assistance. While you could also contract to have your TPAs distribute the SBC, you may want to retain control of distribution to ensure that the SBC reaches everybody in time.

What If the Plan Uses Multiple Insurers and/or TPAs to provide the Coverage?

Preparing the SBC can get complicated if a plan option uses multiple insurers or an insured plan with a carved-out, self-insured component. For example, maybe you have your medical coverage through an insurer, but your prescription drug coverage is self-insured through a pharmacy benefits manager (PBM), and perhaps you even have a health reimbursement arrangement (HRA) that covers part of the employee deductible and is administered by a separate TPA. The insurer is only responsible for providing an SBC describing its own insured coverage, and you, as the employer, would have to revise the SBC to include information about the pharmacy benefits and the HRA. Or you would have to contract with the insurer, PBM or TPA to integrate all the information into one SBC.

Since this is the first year for the SBC requirement, most insurers and TPAs have not finished drafting their SBCs.  It may very well be that you (or whoever has contracted to help you) will not receive all of the necessary information until the end of September. What if there’s not enough time to integrate the information into one SBC?

The DOL has offered some relief, saying that for this first year, employers may distribute multiple partial SBCs that, together, provide all of the relevant information needed to describe a particular plan option. Recognizing that employees may be confused by multiple partial SBCs, the DOL also says that the employer should take steps (such as a cover letter or a notation on the SBCs) to explain that it is distributing multiple partial SBCs and provide a telephone number if there are questions. Because of the likely confusion, you should consider using multiple partial SBCs only as your solution of last resort.

How Do I Distribute the SBC?

The same ERISA rules that apply to your summary plan description also apply to the SBC.  Thus, you must use a method this is reasonably calculated to result in actual receipt of the SBC by those enrolled in or eligible to be covered by your health plan. You can do this either in paper or electronic form. If you are using paper, you can distribute it by U.S. mail, interoffice mail or even by hand — but merely making the documents available in your HR office or in the break room will not satisfy the DOL’s requirements.

If you choose to distribute the document electronically, keep in mind that the DOL has a safe harbor rule that distinguishes between (1) individuals who have the ability to access documents at the location where they work and whose access to the company's electronic information system is an integral part of their duties; and (2) individuals with no work-related computer access who consent to electronic distribution.

The rules that apply to individuals in the second category are cumbersome (you can read more about them here), and most employers find that it’s easier to simply provide paper documents to these employees. But for the first group (those with work-related access), the rule is pretty simple:  give the employee notice (by paper or by email) that the documents are being distributed electronically, the significance of the documents, how the documents may be accessed and that the employee has the right to request and receive a paper version at no charge.

While you can rely on the safe harbor rules for individuals who are currently enrolled in your health plan, the federal guidelines also allow for electronic disclosure to individuals who are eligible to participate in your plan but not yet enrolled (even if they do not normally use a computer as part of their job duties). For these individuals, you can post the SBC on the Internet in a generally accessible format (for example, MS Word, Adobe Acrobat or html format) and then provide the individuals notice by email or via postcard of how they can access the document.  Keep in mind that you must provide a free, paper copy of the SBC, upon request.

For employers who use an electronic enrollment system, the federal guidelines provide an even easier approach:  you can simply make the SBC available through your electronic enrollment system (without having to provide a separate notice), as long as you explain that individuals have the option to request a paper copy. This approach, however, will only work for employees who actually enroll using your electronic system. Thus, if you have a passive enrollment system that automatically renews participants’ prior year’s elections, you will have to rely on one of the other methods described above to make sure that everyone receives the SBC on a timely basis.  Similarly, you can’t rely on this method for employees who enroll using paper forms or by telephone.

The SBC regulations require that you distribute the SBC not only to employees, but also to their eligible dependants. Fortunately, you are deemed to have provided the SBC to eligible dependents when you provide it to the employees, unless you have knowledge that the dependents are living at a different address (in which case you'll probably need to provide the SBC to the dependents in paper form). To make sure that this is clear, you may want to include a statement in your enrollment forms and instructions alerting employees that you will only deliver a separate SBC to dependents if you are given a separate address.

Questions?

If you have questions about the SBC, please contact Norbert F. Kugele (nkugele@wnj.com or 616.752.2186), April A. Goff (agoff@wnj.com or 616.752.2154) or any other member of the Warner Norcross & Judd LLP Employee Benefits/Executive Compensation Practice Group.

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