Final Summary of Benefits and Coverage (SBC) Rules Issued

The Department of Health and Human Services (HHS), the Department of Labor (DOL), and the Internal Revenue Service (IRS) released its final regulations on requirements of a written summary, referred to as “the summary of benefits and coverage” or the “SBC” that group health plans or health insurance issuers must distribute. The SBC is intended to be a standardized summary in order to make plans both easy to understand and to compare.

What must be done? Group health plans and health insurance issuers must provide an SBC to enrollees, applicants, and policyholders at specified times, free of charge, or face a possible monetary penalty of up to $1,000 per person.

When must the SBC be distributed? The agencies have delayed the date that the regulations apply to September 23, 2012 (instead of March 23, 2012 which was given in the August 2011 proposed regulations). Generally:

Type of Communication * Effective Date - On or after 9/23/2012 of
  1. Open Enrollment period with an open enrollment communication mailing
1st day of the Open Enrollment
  1. Open Enrollment period without an open enrollment communication mailing, e.g., auto-enrollment
30 days prior to the earlier of the beginning of the plan or policy year
  1. No Open Enrollment period, i.e., no benefit plan options and cannot opt out
See effective date for other communications
  1. Upon request
Seven (7) business days after the earliest of
i)      open enrollment date
ii)     beginning of plan year
iii)    beginning of policy year
  1. New Hire Packet
Earlier of beginning of plan or policy year
  1. COBRA Packet
90 days after COBRA enrollment following the earlier of the beginning of plan or policy year
  1. Summary of Material Modification or Summary of Plan Description
Not required; may include and if so, then must comply with standard location in the packets
  1. Group Health Insurance Application
Seven (7) business days of the earlier of application or issuance date
  1. Group Health Insurance Renewal
Upon distribution of renewal material
  1. Auto Renewal of Group Health Insurance
30 days prior to policy year
  1. Changes to Group Health Insurance
First day of coverage change

* Either paper or electronic

What actions are needed? Plan Sponsors need to:

  1. Develop an SBC for each benefit package,
  2. Determine which participant communication packages will include the SBC(s), and
  3. Decide the implementation date for each communication package.

What must be in the SBC? The final regulations removed several items listed in the proposed SBC regulation. The final regulation requires the following to be provided in the SBC:

  • Answers to eight standard questions regarding the plan’s covered benefits and medical management (1 page)
  • Chart showing coverage levels for specific benefits (4 pages)
  • Explanation of rights at termination (1 page)
  • Two Coverage Examples: Having a baby and managing Type 2 Diabetes (1 page)
  • Questions and answers about the Coverage Examples (1 page)

The regulations provide standardized cost information to apply to the plan design for the two coverage examples, without adjustments for geography, discounts, or other plan experience. The SBC is required to be in the same format as the template, be eight pages in length, have the specific font size, and use the defined standard terms.

Attached is the template and instructions, and below are internet links that might be helpful:

Cheiron Observation: Even though the template has a box to warn participants that the examples should not be used to estimate their actual costs, plans should consider how clear it will be to participants that the hypothetical costs may differ significantly from actual costs and make appropriate additional communications.

How must the SBC be distributed? For a group health plan, the SBC can be distributed as:

  • A stand-alone document or
  • Combined with the Summary Plan Description or other group health plan summary disclosure material. The SBC information must be intact (all together in one place) and prominently displayed at the beginning of such materials.

The SBC can be furnished electronically, but the participant can request a paper version.

Is duplication (i.e., sending the SBC more than once) required? The regulations contain three exceptions to the required sending of the SBC, in order to prevent unnecessary duplication. Specifically, distribution requirements are satisfied if:

  1. Another party already provides the SBC (e.g., your insurance company);
  2. Participant and beneficiaries reside at the same address;
  3. When a plan offers multiple benefit packages, the plan is required to provide only the participant’s current benefit option’s SBC upon renewal/open enrollment. (Of course, a participant can ask for other SBCs and the Plan Sponsor would need to provide them as described in the box above.)

What is ahead for 2014? This final SBC template only applies for distribution for coverage before January 1, 2014. The agencies intend to issue updated materials to apply to 2014 and after. We expect these updates to address health reform changes effective in 2014.

Cheiron consultants can assist with the analysis of the effect of providing the SBC to participants and beneficiaries in your plan.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Therefore, we do not provide legal services or tax advice.