HRS Insight Human Resource Services

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1 HRS Insight Human Resource Services Insight 12/06 February 14, 2012 Final regulations and other guidance have been issued concerning the PPACA requirement that health insurance issuers and plan sponsors provide a summary of benefits and coverage to health plan participants. The proposed rules were issued last August. The final rules eliminate the requirement to provide premium information, reduce the number of coverage examples from three to two and include a "best efforts" standard to address plan designs that are difficult to describe on four pages, but the Departments did not adopt the 12- to 24- month delay requested by various industry groups and others. Administration issues final rules on PPACA summary of benefits and coverage Authored by: Tracey Giddings and Birgit Anne Waidmann The Departments of Treasury, Labor and Health and Human Services (the "Departments") have released final rules regarding the summary of benefits and coverage ("SBC") required to be provided by health insurance issuers and group health plans under the Patient Protection and Affordable Care Act ("PPACA"). The guidance includes final regulations, revised SBC templates and instructions, a revised uniform glossary of terms and revised coverage examples and related materials. In August 2011, the Departments issued proposed SBC regulations, recognizing that the PPACA effective date for these required summaries was March 23, On November 17, 2011, the Departments issued FAQs providing that SBCs would not be required until a date specified in final regulations which would give "group health plans and health insurance issuers sufficient time to comply." Many insurance companies, plan sponsors, plan administrators and industry groups urged the Departments to give issuers and plans up to 24 months following issuance of the final regulations to comply with the new disclosure requirements. Under the final regulations released late last week, however, issuers have been given only until September 23, 2012 to comply and group plan administrators must comply for the first open enrollment period beginning on or after September 23, 2012 (the first plan year beginning on or after September 23, 2012 for enrollees who enroll other than through

2 an open enrollment period). The Departments believe the concessions given on SBC content issues make these compliance deadlines reasonable. Background PPACA amended the Public Health Service Act (PHSA) to require group health plans and health insurance issuers to provide a summary of benefits and coverage to applicants and enrollees. PPACA required the Departments to consult with the National Association of Insurance Commissioners (the NAIC ), a working group composed of representatives of health insurancerelated consumer advocacy organizations, health insurance issuers, health care professionals, patient advocates including those representing individuals with limited English language proficiency, and other qualified individuals in developing the standards for the uniform summary of benefits. The NAIC convened the required working group and developed such standards, including a recommended template for the SBC and a uniform glossary, which were incorporated generally into the proposed regulations and have been retained, with some changes, in the final regulations. Many of the changes in the final regulations are intended to satisfy the concerns of larger, selffunded plans. Changes in Final Rules In addition to the final regulations, the Departments finalized a companion document, which provides guidance for compliance with the SBC regulations and includes templates, instructions and related materials. Changes in the final regulations and in the companion documents include: SBCs do not have to include plan premiums or cost of coverage. If plans cannot reasonably describe plan terms in accordance with the SBC template and instructions, they must use "best efforts" to be as consistent with the template and instructions as reasonably possible. The Departments require that SBCs initially include only two coverage examples (having a baby and managing type 2 diabetes) rather than three coverage examples. For now, the Departments have eliminated breast cancer as a required coverage example. Modifications were made to both the pregnancy and the diabetes scenarios based on comments received. In situations where an SBC or a paper copy of the Uniform Glossary is required to be provided within seven days of a request, issuers and plans have seven business days (rather than seven calendar days) to respond. In the final rules, the circumstances under which the SBC may be provided electronically to an enrollee differ depending on whether the individual is already covered under the plan or is merely eligible for coverage. The Departments have provided updated guidance documents and templates to assist plans in filling in information on SBCs. However, plans can rely on these materials only for the first year of SBC compliance. The Departments intend to issue updated materials for subsequent years. The SBC template and instructions now include terminology PwC HRS Insight 2

3 appropriate for self-insured plans (i.e. "coverage" instead of "policy" and "plan" instead of "issuer"). Plans do not need to provide separate SBCs for health flexible spending accounts ("FSAs") and health reimbursement accounts ("HRAs") that are integrated with major medical coverage, or for health savings accounts ("HSAs") integrated with a high-deductible health plan ("HDHP"). Instead, plans will prepare SBCs for the major medical coverage or HDHP and can denote the effects of the account-based plans in the appropriate spaces on the SBC for deductibles, copayments, coinsurance, and benefits otherwise not covered by the major medical coverage. Plans do not need to provide SBCs for excepted benefits, as defined under HIPAA, such as stand-alone dental or vision coverage or HSAs that satisfy the excepted benefits definition. SBC Rules as Updated by the Final Rules Providing the SBC A health insurance issuer must automatically provide the SBC to a group health plan or its sponsor upon application by the plan for health coverage. The SBC must be provided as soon as practicable following such a request, but in no event later than seven business days following receipt of the application. An updated SBC must be provided if there is any change before the first day of coverage. A new SBC must be provided when a policy is renewed or reissued. If written application is required upon renewal, the SBC must be provided at the time the issuer distributes the application materials. If renewal is automatic, the SBC must be provided no later than 30 days before the beginning of the new policy year unless special circumstances apply. Group health plans and health insurance issuers are required to provide an SBC to a participant or beneficiary with respect to each benefit package offered for which the participant or beneficiary is eligible. It must be provided with any written application materials that are distributed for enrollment or, if no written materials are distributed, no later than the first date the participant is eligible to enroll. Special enrollees must receive the SBC no later than the date by which the summary plan description is required to be provided to the special enrollee under ERISA (within 90 days of enrollment). Upon renewal of the coverage, the SBC is to be provided to the participant or beneficiary with any written or electronic enrollment materials, or, if renewal is automatic, no later than 30 days prior to the first day of coverage (unless special circumstances apply with respect to an insured plan). The regulations also require that a health insurance issuer must provide an SBC to a plan, and an issuer or plan administrator must provide an SBC to a participant or beneficiary, upon request, no later than seven business days following the request. The regulations provide that only one entity is required to provide the SBC, so that if the health insurance issuer provides it in a timely and complete manner, the plan's requirement to provide the SBC will be satisfied. A single SBC may be provided to one address for all participants and beneficiaries residing at that address. PwC HRS Insight 3

4 Upon renewal, SBCs are required to be provided automatically only with respect to the benefit package in which the participant or beneficiary is enrolled. If there is a request for another SBC with respect to a benefit package for which the participant or beneficiary is eligible, it must be provided within seven business days. Observation: When renewal is automatic, a new SBC must be provided by a health insurance issuer to the plan and by the plan to participants at the same time, i.e., no later than 30 days before the beginning of the new plan or policy year. The provision of the regulations stating that the plan's obligation to provide the SBC will be satisfied if the insurance issuer provides it to participants and beneficiaries in a timely and complete manner will be helpful in many instances. However, if the plan is not going to rely on the issuer to provide the renewal SBC to participants, the plan will need to make arrangements to obtain it from the issuer prior to the 30-day deadline. Standards are also provided in the regulations for the provision of SBCs by issuers in the individual insurance market, which are parallel to the provisions applicable to group health plans. Content of the SBC PPACA specifies the items that must be included in the SBC. The items specified in the law are: Uniform definitions of standard insurance and medical terms; A description of the coverage and cost sharing for each category of benefits; Exceptions, reductions and limitations on coverage; Cost-sharing provisions, including deductible, coinsurance and copayments; Renewability and continuation of coverage provisions; Examples to illustrate common benefits scenarios and related cost sharing; With respect to coverage beginning on or after January 1, 2014, a statement as to whether the plan provides minimum essential coverage and whether it meets the applicable minimum value requirements; A statement that the SBC is only a summary and not the official plan document; and A contact number to call with questions and an Internet address where a copy of the actual group certificate of coverage or individual policy can be reviewed and obtained. The regulations and the template for the SBC generally parallel these statutorily required elements. Some additional elements recommended by the NAIC are also included in the SBC template, such as information about the plan's network of providers and drug formulary and internet addresses for additional information. The final rules do not require the SBC to include premium and cost information, as had been proposed. In addition, the final rules note that the minimum essential coverage and minimum value requirements are not yet in effect; for this reason, the templates and instructions provided in connection with the final rules do not include this information and may only be used for 2013 plan years. PwC HRS Insight 4

5 The regulations provide that the Departments may identify up to six coverage examples that may be required in an SBC so that consumers may easily read, understand and compare how benefits are provided for common medical conditions. The two coverage examples currently required are having a baby (normal delivery) and managing diabetes. For purposes of these examples, the Departments have provided the specific information necessary to simulate benefits covered under the plan or policy for the coverage example portion of the SBC and to make the necessary calculations for these examples. These benefit scenarios were modified slightly to reflect current accepted standards of practice. This information may be used only during the first year of applicability; future guidance will make changes for later years. In lieu of summarizing coverage for items and services provided outside the United States, the plan or issuer may provide an Internet address (or similar contact information) where participants can obtain information about such coverage. Appearance PPACA specifies that the SBC is to be presented in a uniform format, not exceeding four pages in length, utilizing 12 point or larger font. The Departments have interpreted the law as referring to four double-sided pages. The proposed regulations would have required that the SBC be provided as a stand-alone document. The final rules have eliminated this requirement with respect to group health plan coverage, so that it may be provided in combination with other summary materials, such as the summary plan description, as long as it is intact and prominently displayed at the beginning of such materials. The Departments have provided a template in conjunction with the final rules. Generally speaking, the words to be used in completing the template must be those specified by the guidance. Plans and issuers have little discretion as to how to describe their provisions. The guidance provides, however, that if plans or issuers cannot reasonably describe relevant plan terms in accordance with the SBC template and instructions, they must accurately describe the relevant plan terms and use "best efforts" to be consistent with the template and instructions. This situation may occur if the SBC template and instructions do not capture a plan s unique structure (such as provider network tiers, drug tiers, hospital vs. non-hospital inpatient, health FSA, HRA, cost-sharing based on wellness program participation, etc). The companion document published in conjunction with the final regulations provides that the SBC and glossary may be provided either in color or in grayscale. Form and Manner For group health plans, the regulations include rules to facilitate electronic transmittal of the SBC when appropriate. For participants and beneficiaries who are already covered by a group health plan, plans may distribute SBCs electronically if they comply with existing Department of Labor requirements for electronic disclosures. For participants and beneficiaries who are eligible but not enrolled in plans (such as new enrollees), the final regulations allow more flexibility for electronic disclosure. For these individuals, plans may distribute SBCs PwC HRS Insight 5

6 electronically provided the format is readily accessible and they provide paper copies free of charge upon request. If the electronic form is an Internet posting, plans must (1) timely advise individuals in paper form (such as by postcard) or that the documents are available on the Internet, (2) provide the Internet address or addresses, and (3) notify individuals that they can receive the documents in paper form upon request. Language The regulations incorporate other PHSA rules regarding providing notices in a culturally and linguistically appropriate manner for purposes of the SBC rules. In counties in the United States in which at least ten percent of the population is literate only in the same non-english language, written translations of the SBC must be provided in those languages. To assist plans in complying, the Department of Health and Human Services will provide written translations of the SBC template and Uniform Glossary in Spanish, Tagalog, Chinese, and Navajo. Glossary of Terms PPACA directed the Departments to develop standard definitions for certain insurance-related and medical terms, as well as other terms that will help consumers understand their coverage; the statute requires that the SBC include uniform definitions of these terms. The NAIC developed a glossary which the Departments have modified to reflect terms more appropriate for self-insured as well as insured plans, and adopted. This document must be provided without change. The Uniform Glossary is a separate document from the SBC. SBCs must include an Internet address where an individual can review the Uniform Glossary, a contact phone number to obtain a paper copy, and a statement that paper copies are available. Notice of Modifications Under PPACA, a group health plan or health insurance issuer must provide a notice of material modification in the terms of the plan or coverage to enrollees or policyholders no later than 60 days prior to the effective date of the change, if it occurs other than in connection with a renewal or reissuance of coverage. The final regulations provide that a notice of modification is required if there is a material modification in the terms of the plan or coverage that would affect the content of the SBC, that is not reflected in the most recently provided SBC and occurs other than in connection with a renewal or reissuance of coverage. A material modification includes an enhancement in covered benefits or services or other more generous plan or policy terms. It also includes any material reduction in covered services or benefits or more stringent requirements for receipt of benefits, such as changes or modifications that reduce or eliminate benefits, increase cost-sharing or impose a new referral requirement. Penalties and Preemption PPACA does not preempt State laws that impose requirements on health insurance issuers that are stricter than those imposed by the Act. However, PPACA does preempt any State law that requires less information to be provided than is required by these provisions. Accordingly, the final rules do not prevent States from imposing separate, additional disclosure PwC HRS Insight 6

7 requirements on health insurance issuers. PPACA provides that a group health plan and a health insurance issuer that wilfully fails to provide the SBC shall be subject to a fine of no more than $1,000 for each such failure. A separate fine may be imposed for each individual or entity for whom there is a failure to provide an SBC. In addition, if a group health plan fails to comply with the requirements of chapter 100 of the Internal Revenue Code, into which the requirements of the PHSA (including the SBC requirements) are incorporated, an excise tax of $100 per day per individual is imposed. The regulations implement mechanisms for imposing these penalties that vary slightly depending on the Department that is enforcing the provision and the entity against which it is enforced. The States will have primary enforcement authority over health insurance issuers. HHS may also enforce penalties on issuers, and has direct enforcement authority for violations by non-federal governmental plans. The Treasury Department has authority for excise taxes imposed on group health plans under chapter 100 of the Code. Violations of chapter 100 are selfreported on IRS Form PwC HRS Insight 7

8 For more information, please do not hesitate to contact your local PwC professional: Charlie Yovino (678) Atlanta, GA (704) Charlotte, NC Ed Donovan (617) Boston, MA (646) New York Metro Matthew Cowell (617) Boston, MA Pat Meyer (312) Chicago, IL Jack Abraham (312) Chicago, IL Paul Perry (312) Chicago, IL Terry Richardson (312) Chicago, IL Kansas City, MO St. Louis, MO Cindy Fraterrigo (312) Chicago, IL Brandon Yerre (214) Dallas, TX Theresa Gee (312) Detroit, MI Todd Hoffman (713) Houston, TX Carrie Duarte (213) Los Angeles, CA John Caplan (646) New York Metro Scott Olsen (646) New York Metro Bruce Clouser (267) Philadelphia, PA Bill Dunn (267) Philadelphia, PA Amy Lynn Flood (267) Philadelphia, PA Sandra Hunt (415) San Francisco, CA Julie Rumberger (408) San Francisco, CA San Jose, CA Scott Pollak (408) San Jose, CA Jeff Davis (202) Washington, DC Nik Shah (703) Washington, DC For more information or to access past issues of HRS Insights, please visit our website: This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. SOLICITATION 2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to PricewaterhouseCoopers LLP, a Delaware limited liabiity partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. PwC HRS Insight 8