A Summary of Benefits & Coverage (SBC) is required starting the first day of the first plan year after September 23, 2012, or the first day of the first open enrollment period after this date. Health insurers and group health plans must provide the SBC and the Uniform Glossary to consumers.

Please note that the SBC:

• May be provided electronically in connection with online enrollment or renewal but must provide the option to receive a paper copy.

• SBC can be displayed on a single webpage

• Must be provided no later than 7 business days after receiving a “substantially complete” application in individual market or for group health plan/sponsors,

What is the penalty?
Up to $1,000 per instance of willfully failing to provide required information.

*During the first year of applicability, there are no penalties on plans and for issuers that are working diligently and in good faith to comply with the final regulations.

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A provision of the 2010 health care reform law requires employers to provide notices, by March 1, 2013, to all employees regarding the availability of health coverage options through the state-based exchanges created pursuant to that law. In January, the Department of Labor had announced delayed enforcement of the exchange coverage notice provision (which added Section 18B to the Fair Labor Standards Act) in light of the reality that, by March 1st, it was unlikely that enough information regarding the exchanges would be available, employers had no way of ascertaining some of the other information required to be included in the notices, and the agency would not have regulations or other guidance ready.

DOL issued temporary guidance on May 8, 2013 (Technical Release 2013-02) and model notices for employers to provide notice of coverage options through the exchanges, or what the federal government recently rebranded as “the Marketplace.” Employers are required to issue exchange coverage notices no later than October 1, 2013. The implication of the temporary guidance is that employers may use the model notices and rely on the temporary guidance earlier, but additional guidance and modifications to the model notices are expected.

An exchange coverage notice must include -

• information about the existence of the exchange, including a description of the services provided by the exchange and how to contact the exchange;

• a statement that the employee may be eligible for subsidized exchange coverage (i.e., premium tax credit under Internal Revenue Code § 36B), if the employee obtains coverage through the exchange and the employer’s plan fails to meet a 60% minimum value; and

• a statement that the employee may lose the employer contribution (if any) toward the cost of employer coverage (all or a portion of which may be excludable from income for Federal income tax purposes) if the employee obtains coverage through the exchange.

DOL created two model exchange coverage notices: one for employers who do not offer a health plan and the other for employers who do offer a health plan for some or all employees.

The exchange coverage notice must be provided to each employee regardless of the employee’s status as full- or part-time and regardless of whether the employee participates in the employer’s group health plan. In addition to providing the exchange coverage notice to those employed before October 1, 2013, employers must provide the notice to each new employee (again, regardless of status) hired on or after October 1, 2013 within 14 days of hire.

DOL also modified and reissued its model COBRA election notice to include information about the availability of exchange coverage options and eliminate certain obsolete language in the earlier model. A copy of the new model COBRA election notice is available on the DOL’s COBRA webpage.

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The agencies have released an updated Summary of Benefits and Coverage (SBC) template that plans will need to use for 2014. The updated template has very few changes from the version used for 2013.

The primary change is that the 2014 SBC must state whether or not the plan provides “minimum essential” and “minimum value” coverage. The template is designed to include the minimum essential and minimum value information on page 4 of the SBC.  If an employer or insurer has already begun preparing its 2014 SBC and including this information on page 4 would be difficult, the needed information can be included in an attachment or cover letter.

Beginning in 2014, plans may not have annual dollar limits on essential health benefits.  Plans may address this change by either:
•    Deleting the row that asks about annual limits; or
•    Completing the question with “no” and stating in the “Why It Matters” column: “The chart starting on page 2 describes any limits on what the plan will pay for specific covered services, such as office visits.”

There are no changes to the examples that must be completed in the SBC (including the stated cost of care), to the glossary that must accompany the SBC or to the SBC calculator.

Employers and carriers should continue to use the current version of the SBC template for any coverage that begins in 2013.

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The Departments of Labor, Health and Human Services and the Treasury have issued several updates that affect employer-sponsored group health plans.

Wellness Incentives, HRAs, Minimum Value and Affordability

The IRS has released proposed regulations that address how wellness incentives or penalties are applied to premium affordability (for purposes of the employer shared responsibility/play or pay requirements) and to minimum value.

The proposed regulations provide that when deciding if the employee’s share of the premium is affordable (less than 9.5% of the employee’s safe harbor income), the employer may not consider wellness incentives or surcharges except for a non-smoking incentive.  In other words, the premium for non-smokers will be used to determine affordability (even for smokers).  Any other type of wellness incentive must be disregarded, except for a special rule for 2014.

Example: Acme has a wellness program that reduces premiums by $300 for employees who do not use tobacco products or who complete a smoking cessation course. Premiums are reduced by $200 if an employee completes cholesterol screening during the plan year.  The annual employee premium is $4,000. Employee B does not use tobacco and completed the cholesterol screen so the cost of his actual premiums is $3,500 [$4,000 – 300 – 200]. Employee C uses tobacco and does not do the cholesterol screen, so the cost of her actual premiums is $4,000.  For purposes of affordability, Acme will use $3,700 as the cost of coverage for both Employee B and Employee C [$4,000 less the available $300 non-smoker discount].

For the 2014 plan year only, employers who had a wellness program in place on May 3, 2013 may also take the wellness incentives for targets other than non-use of tobacco into account when determining premium affordability.  So, for 2014 only, using the example, Acme would use $3,500 as Employee B’s and Employee C’s cost of coverage (since the employer can assume all available incentives were earned).

If an employer makes HRA contributions that the employee may use to pay premiums, the employer may reduce the employee’s cost of coverage by the HRA contribution for the current year when determining affordability.
When calculating minimum value, if incentives for nonuse of tobacco may be used to reduce cost-sharing (i.e., the deductible or out-of-pocket costs), those incentives may be taken into account when determining minimum value.  (Other types of wellness incentives that affect cost-sharing may be considered for 2014 if the employer had a wellness program that provided cost-sharing incentives on May 3, 2013; they may not be considered after 2014.)   Current year contributions to an integrated HRA that may only be used for cost sharing (and not to pay premiums) or to an HSA may be considered first dollar benefits when calculating minimum value.

The proposed regulation also includes three proposed “safe harbor” plan designs that would meet the 60% minimum value threshold.  (The safe harbor designs could be used instead of testing the plan through the calculator supplied by HHS; the safe harbor is just a convenience and not a limit on permitted plan designs.)  The IRS says that these designs meet minimum value:
•    A plan with a $3,500 integrated medical and drug deductible, 80 percent cost-sharing, and a $5,000 maximum out-of-pocket limit;
•    A plan with a $4,500 integrated medical and drug deductible, 70 percent cost sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to an HSA; or
•    A plan with a $3,500 medical deductible, $0 drug deductible, 60 percent medical cost sharing, a $10/$20/$50 copay tiered drug plan, and a 75 percent coinsurance for specialty drugs.

It is possible that more safe harbor designs will be provided later.

The proposed regulation is here: Minimum Value – Proposed Rule

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Employers that have had their group health plans audited by the Employee Benefits Security Administration (EBSA, the arm of the U.S. Department of Labor that enforces Title I of ERISA) are aware of the broad nature of the document requests and compliance reviews carried out under these audits. The EBSA has updated its audit protocols to include a review of plans’ compliance with the Patient Protection and Affordable Care Act (PPACA), the Genetic Information Nondiscrimination Act (GINA), and wellness programs, in addition to the laundry list of other federal benefits laws pertaining to group health plans. An uptick in PPACA enforcement appears to be underway, and many plan sponsors have received EBSA audit notices. Click here to see an actual EBSA audit letter.  It provides insight into the kind of information EBSA is requesting in these audits.

EBSA audits examine compliance with a range of federal statutes and regulations, such as ERISA, HIPAA, COBRA, and the Women’s Health and Cancer Rights Act. However, as employers begin to ramp up in earnest concerning the PPACA’s employer shared responsibility requirement and other provisions of the health care reform law going into effect in 2014, many will be facing audits on the full range of PPACA mandates. The DOL’s audit letters are looking for information and documentation concerning particular aspects of the PPACA, such as the plan’s grandfather status, coverage for adult children, lifetime and annual limits, and claims and appeals procedures. (See questions 18-20 in the Letter.)

The DOL also is looking at the design of wellness programs offered in connection with group health plans and the related, required notices that have to be provided with outcome-based programs. (See question 17 in the Letter.)  These inquiries will allow the DOL to begin looking at how employers have complied with the HIPAA nondiscrimination regulations concerning wellness programs, as well as Title I of GINA. Of course, the rules for wellness programs will be changing beginning in 2014.

Employers should consider taking a serious look at their group health plans, not only for compliance with the PPACA, but also with the long standing mandates for group health plans – ERISA, HIPAA, COBRA and other laws.

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The January 1, 2014 effective date of the Pay-or-Play requirements under health care reform presents special issues for employers with non-calendar year plans.  Prior to the release of the proposed regulations under the shared responsibility rules, employers with non-calendar year plans would either need to comply with the Pay-or-Play requirements at the beginning of the 2013 plan year or change the terms and conditions of the plan mid-year in order to comply.  Recognizing that compliance as of January 1, 2014 caused a special hardship for non-calendar year plans, the proposed regulations, provide special transition relief.  Employers with non-calendar year plans in existence on December 27, 2012 can avoid the Pay-or-Play penalties for months preceding the first day of the 2014 plan year (the plan year beginning in 2014) for any employee who was eligible to participate in the non-calendar year plan as of December 27, 2012 (whether or not they actually enrolled).  Under this relief, the employer would not be subject to Pay-or-Play penalties for any such employees until the first day of the plan year beginning in 2014, provided they are offered coverage that is affordable and provides minimum value as of the first day of the 2014 plan year.

The relief also provides an employer maintaining a non-calendar year plan with additional time to expand the plan’s eligibility provisions and offer coverage to employees who were not eligible to participate under the plan’s terms as of December 27, 2012.  If the employer had at least one-quarter of its employees (full and part-time) covered under a non-calendar year plan, or offered coverage under a non-calendar year plan to one-third or more of its employees (full and part-time) during the most recent open enrollment period prior to December 27, 2012, it will not be subject to Pay-or-Play penalties for any of its employees until the first day of the plan year beginning in 2014.   For purposes of determining whether the plan covers at least one-third (or one-quarter) of the employer’s employees, an employer can look at any day between October 31, 2012 and December 27, 2012.  Again, this transition relief is dependent upon the plan offering affordable, minimum value coverage to these employees no later than the first day of the 2014 plan year.

This important transition rule raises the question of what is considered to be a plan’s plan year.  If a plan is not required to file an Annual Report, Form 5500, as is the case with a fully insured plan with fewer than 100 participants, or the plan has failed to prepare a summary plan description that designates a plan year, the plan year generally will be the policy year, presuming that the plan is administered based on that policy year.  If a policy renews on January 1 and any annual open enrollment changes take effect January 1, the plan year likely will be deemed to start January 1.  If the policy renews on July 1, however, and open enrollment changes become effective on January 1 of each year, the lack of a summary plan description leaves the plan year determination open to question.   The employer in this situation may want the plan year to start on July 1 in order to delay the date on which the plan has to comply with the requirements under health care reform.  If the plan is administered on a calendar-year basis, however, the government could reasonably argue that the plan year is the calendar year.  Employers should be taking steps now to identify the plan year for their group health plan(s) in order to ensure that they are timely complying with the applicable requirements under health care reform.

If the employer has prepared and distributed a summary plan description for its group health plan or the plan files an Annual Report, Form 5500, the plan year has already been identified.  If the employer has not complied with the ERISA disclosure and/or reporting requirements, then additional analysis of the 12-month period over which the plan is administered and operated is needed to identify the plan year.  That analysis should take place now and not when an auditor asks the question.

For employers in this situation, it would be advisable to adopt a plan document to address this issue.  Since insurance companies are not directly subject to ERISA, their policies may not contain all of the provisions necessary to meet ERISA’s disclosure requirements.  An insurance policy typically does not contain certain desired provisions describing the relationship between the employer and plan participants.  Such provisions might include the employer’s indemnification of its employees who perform plan functions, the employer’s right to amend the plan, a description of the plan’s enrollment process, and the allocation of the cost of coverage between the employer and participants.  A wrap plan can address these issues, as well as enable an employer to aggregate all its welfare benefits under a single plan so that a consolidated Annual Report, Form 5500 may be filed for all ERISA welfare benefit plans subject to annual reporting obligations.
Copyright © 2013 United Benefit Advisors, LLC. All Rights Reserved.

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