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Blizzard of New Guidance: Final SBC Rules, New FAQs on Pay or Play and Changes to Contraceptive Rules

Employee Benefits Law Alert John L. Barlament

Last week federal regulators issued a mid-winter flurry of new employee benefits guidance and updates, with even President Obama personally issuing some of the guidance. This alert summarizes the new changes relating to:

  • Final regulations on the "summary of benefits and coverage" ("SBC") rules;
  • New, non-binding Frequently Asked Questions ("FAQs") on several topics, including how to determine who is a "full-time" employee for "pay or play" purposes; and
  • A softening of the rule on whether certain employers with religious affiliations must provide contraceptive coverage.

SBC Rules

Overview of SBC Rules. The SBC is intended to serve as an easy-to-read, informative summary of benefits available under a plan - in some senses, a "mini-SPD." The rules apply to both fully insured and self-funded health plans. The three federal agencies that enforce the SBC rules (the Internal Revenue Service ("IRS"), Department of Health and Human Services ("HHS") and Department of Labor ("DOL")) jointly issued final regulations and template SBCs. These final regulations supercede proposed regulations from 2011 and are binding on employers and insurers.

Overview of Effect on Employers. Employers will need to ensure that the SBCs are properly created and distributed. Employers with fully insured plans will likely look to the insurers to create the SBCs, while employers with self-funded plans either must create the SBCs themselves or look to their third-party administrators ("TPAs") for assistance. However, in all cases employers (whether fully insured or self-funded) are likely to need to take some actions, such as distributing the SBCs to employees who are not yet enrolled in the plan.

Background. The health care reform law (now called the "Affordable Care Act" or "ACA" by the federal agencies) requires that individuals receive a "four-page" SBC. (The regulations effectively double this to an eight-page SBC, by interpreting a "page" to be double-sided.) The SBC is intended to provide important plan information to individuals, such as common benefit scenarios and definitions for frequently used terms. The SBC rule applies to both grandfathered and non-grandfathered health plans.

SBC Contents. An SBC must describe numerous features of the plan, including:

  • Uniform definitions of standard insurance and medical terms, along with an Internet address for obtaining a "uniform glossary" of key terms;
  • A description of coverage, including cost sharing, for each category of benefits;
  • Exceptions, reductions and limitations of the coverage;
  • Cost-sharing provisions of the coverage, including deductible, coinsurance and copayment information;
  • Renewability and continuation of coverage provisions (e.g., COBRA);
  • Coverage examples;
  • A statement that the SBC is only a summary and that the plan document or policy should be consulted;
  • Contact information for questions and to obtain a copy of the plan document or insurance policy;
  • If a provider network is used, an Internet address (or similar contact information) for obtaining a list of network providers;
  • For plans that use a formulary in providing prescription drug coverage, an Internet address (or similar contact information) for obtaining information on prescription drug coverage; and
  • Beginning in 2013 or 2014, whether the plan provides minimum essential coverage and minimum value.

In addition, the proposed regulations required that the premiums charged be described. The final regulations remove this requirement. Removing this requirement is helpful for employers and insurers, as it allows the SBC to be more uniform.

Templates Serve as Starting Point. The SBC is intended to look similar for all types of health coverage (group and individual; self-funded and fully insured) across the country. Thus, the agencies provided a template that employers and insurers must use as a starting point. The template under the final regulations is similar to that under the proposed regulations. However, there are some notable differences and clarifications, as described below.

Best Efforts Standard. The agencies recognize that sometimes a plan's terms cannot reasonably be described in a manner consistent with the template and instructions. If so, the plan or insurer must "accurately describe the relevant plan terms" while using its "best efforts" to still be consistent with the template format, as "reasonably possible." This language is helpful, although perhaps a bit vague.

Special Rules for Excepted Benefits, HRAs and HSAs. The final regulations recognize that account-based arrangements, such as health flexible spending arrangements ("Health FSAs"), health reimbursement arrangements ("HRAs") and health savings accounts ("HSAs") pose unique difficulties to summarize through an SBC. In addition, the regulations provide special rules for excepted benefits, such as many dental and vision plans. The guidance from the regulations is noted below. Note that the guidance does not specifically discuss other arrangements, which could be a "group health plan" in some situations (such as wellness plans and on-site medical clinics).

Benefit Type Do SBC Rules Apply? Comments
Dental Plan Usually not. Many dental plans are an "excepted benefit" under HIPAA. If so, plan need not comply. Excepted benefit test: Coverage must be: (1) provided under a separate policy, certificate or contract of insurance; or (2) otherwise not be an integral part of a group health plan. The first part, (1), usually applies to a stand-alone, fully insured dental plan. The second part, (2), can apply to a self-funded dental plan if participants who elect such coverage must pay an additional premium or contribution for it.

In both situations, coverage must be limited to treatment of the mouth.

Health FSA Usually not. Most Health FSAs are "excepted benefits" under HIPAA. If so, Health FSA need not comply. Excepted benefits test for Health FSAs usually satisfied if no employer contributions (or employer contributions are capped at $500).

Test for SBC purposes identical to test for other purposes (so employer likely already knows whether its Health FSA is an excepted benefit).

HSA Usually not. Most HSAs are not a "group health plan" or "employee welfare benefit plan" under DOL guidance.[1]


In pregnant women between 24 and 28 weeks of gestation and at the first prenatal visit for pregnant women identified to be at high risk for diabetes.
HRA Generally yes. An HRA generally is a "group health plan" and usually the HRA does not constitute an "excepted benefit." The final SBC regulations provide that a "stand-alone" HRA must satisfy the SBC rules. However, an HRA that is "integrated" with other major medical coverage can simply modify the SBC for that other coverage to discuss the HRA. If so, a separate SBC would not be required.

The final SBC regulations do not state exactly what steps an employer must take to ensure that an HRA is "integrated" with other major medical coverage. This could be especially problematic if the major medical coverage is fully insured, as the employer may have less control over the plan design.

Vision Plan Usually not. Many vision plans are an "excepted benefit" under HIPAA. If so, plan need not comply.  See above box, Dental Plan Comments, for "excepted benefits" test. Coverage must be limited to treatment of the eye.

Who Distributes the SBC. For a fully insured plan, either the insurer or the employer will distribute the SBC. If neither properly distributes the SBC, it appears both could be liable. This possible liability will provide a strong incentive for employers and insurers to contract with each other and clarify who must distribute the SBC, to whom the SBC must be sent and the timing of the SBC distribution. (In fact, the agencies specifically state that they "expect plans and issuers to make contractual arrangements for sending SBCs.") 

For self-funded plans, the plan and its administrator must distribute the SBC. Some employers with self-funded plans will look to their TPAs for assistance in creating and distributing the SBC. TPAs need not agree to this, but we expect that TPAs may be willing to assist (perhaps for an additional fee).

Who Receives the SBC (and When). The SBC must be distributed to participants, beneficiaries, prospective enrollees and special enrollees. The time to distribute the SBC is often short. It usually must be distributed with initial enrollment materials. For future plan years, the rules depend on whether renewal requires a written application or is automatic. If a written application is required, the SBC must be provided when the written application materials are distributed. If renewal is automatic, the SBC must be provided at least 30 days prior to the first day of coverage under the new plan year. However, if the policy has not yet been issued, a separate seven-business-day standard applies. Participants and beneficiaries can request an SBC and a plan must accommodate that request within seven business days (a change from the proposed regulations' use of seven "calendar" days). If participants and beneficiaries are "known" to reside at different addresses, multiple SBCs may need to be provided.

An SBC generally can be distributed electronically if ERISA's electronic disclosure rules are satisfied. The new regulations provide a more lenient standard for employees who are eligible but not yet enrolled in the plan. An SBC also must be provided in a "culturally and linguistically appropriate manner." This requires, in certain circumstances, that plans translate the SBC into a non-English language upon request. This translation process could be a significant burden for employers, insurers and TPAs.

Advance Notice of Modifications. The ACA provides that if a plan (or, presumably, an employer) makes any "material modification" in a plan term that is not reflected in the most recent SBC, the plan must provide enrollees notice of such modification at least 60 days in advance of the change's effective date. The final regulations are similar to the proposed regulations. They provide that this 60-day advance notice requirement only applies if the material modification "occurs other than in connection with a renewal or reissuance of coverage." In other words, the 60-day advance notification rule only applies to "mid-year" plan changes, not plan changes that occur as of the beginning of each new plan year. This is helpful, but the exact definition of what constitutes a "mid-year" change remains somewhat unclear.

Penalties. There are significant penalties for failing to comply with the SBC rules. The penalties vary, depending on which federal agency (or state) is enforcing the rules. A typical penalty would be $100 per day per affected individual - an amount which could add up rapidly. Willful failures could result in a $1,000 penalty for each failure.

Effective Date of Regulations. The SBC rules use three possible effective dates.

  1. Group Health Plan Participants - Open Enrollment. For participants and beneficiaries who are enrolling (or re-enrolling) through an open enrollment period, the SBC must be provided for the first open enrollment period beginning on or after September 23, 2012. For example, many calendar year plans (whose plan year begins January 1, 2013) would hold an open enrollment period in November 2012. For such an employer, the SBC must be ready by November 2012.
  2. Group Health Plan Participants - Not Open Enrollment. Some participants will begin participating at times other than open enrollment (e.g., special enrollees or newly-hired employees). Such participants must receive SBCs starting with the first day of the first plan year that begins on or after September 23, 2012. For example, assume the plan is a calendar year plan.  If so, a special enrollee who entered the plan on December 31, 2012 apparently would not receive an SBC, while a special enrollee who entered the plan on January 1, 2013 apparently would receive an SBC.
  3. For disclosures with respect to plans, and to individuals and dependents in the individual market, the SBC rule begins September 23, 2012.

Links to Further Guidance. The SBC regulations and template can be found here:

New FAQs

The agencies also issued Technical Release 2012-01. Unusually, the Technical Release is not binding and does not constitute guidance on which employers can rely. Rather, the Technical Release provides possible approaches and strategies of the agencies. The agencies seek comments on these possible approaches and strategies. We note the most important points of the Technical Release, as follows.

Automatic Enrollment Delayed to 2015 or Beyond. The ACA will generally require that "new, full-time employees" be automatically enrolled in an employer's health plan. The agencies again note that employers need not comply with this rule until guidance is issued. Previously, many assumed the guidance would be completed in 2013 or 2014. Surprisingly, the agencies now state that the guidance "will not be ready to take effect by 2014." This suggests that the rule will be delayed until 2015 or later.

90-Day Waiting Period. Beginning in 2014, the ACA generally requires that employers limit an eligible employee's waiting period to a maximum of 90 days. The Technical Release emphasizes that this 90-day waiting period is only for employees who otherwise are eligible. For example, if an employer excludes part-time employees (usually those who work fewer than 30 hours per week), the 90-day waiting period rule will not require an employer to cover those part-time employees. (The same would be true under the ACA's "pay or play" rule.) 

The Technical Release also notes that future guidance will address alternative standards that can apply in lieu of a day-based waiting period. For example, employers generally would have the ability to require that an employee satisfy a certain number of hours of service before plan entry (e.g., 750 hours of service in a year).   

Pay or Play Rule. The Technical Release indicates that the "pay or play" penalty generally will not apply in the first few months for a new employee, even if the employee is a full-time employee. In addition, special rules will be provided where it is not clear whether an employee will be full-time or part-time.

In prior guidance the IRS had sought industry comments on a definition of "full-time" employee that focused on an employee's recent work history (e.g., whether the employee worked at least 30 hours per week in the past three months). If an employee was "full-time" in this "look-back" period, the person would be considered "full-time" in a future period (called the "stability period").

The agencies report positive industry feedback on this proposed standard. It appears that this look-back / stability period method will be adopted in future guidance. It is unclear whether other options will also be offered to employers.

Link to Further Guidance. The Technical Release is available here:

Contraceptive Coverage and Religious Employers

The ACA requires that most group health plans cover preventive care benefits without any cost-sharing (e.g., without regard to copayments or deductibles). Grandfathered health plans are not subject to this rule. Last year HHS announced eight new preventive services which plans must cover, starting in 2012 or 2013. One of these services was contraceptive coverage.

HHS provided an exception from the contraceptive coverage requirement for certain religious employers, primarily churches. The exception was not broad enough to cover other religious employers, such as hospitals or universities. On January 20, 2012, HHS issued a statement indicating that these religious employers would have an additional year (until at least August 2013) to comply with the contraceptive coverage requirement.

Several religious groups, including many Catholic organizations, protested that the requirement violated their religious tenets and infringed on religious liberties. The political discussion increased, with many Republicans (including Speaker of the House John Boehner and Mitt Romney) criticizing the HHS decision.

On Friday of last week President Obama announced a change in policy. The policy has yet to be fully described in writing, so its terms remain unclear. However, it appears that the new policy will require insurers to provide the contraceptive coverage as part of, or perhaps related to, a fully-insured plan. It appears that insurers would provide this coverage without charge - perhaps allowing a religious employer to note that it does not pay for the coverage.

It is unclear from the president's announcement how the rule would apply to self-funded plans. A final regulation published this week states that the federal agencies "intend to develop policies" that will provide some accommodation for employers with self-funded plans.

HHS has released guidance on a temporary safe harbor for religious employers. The safe harbor provides a notice for such employers to distribute as part of open enrollment materials (starting for plan years on or after August 1, 2012). The guidance also contains a certification that the plan sponsor must sign, certifying that the safe harbor criteria is satisfied.

In order to qualify for the safe harbor, an employer and its plan, from February 10, 2012 onward, must not have provided "contraceptive coverage" at any point because of the employer's religious beliefs. Some religious employers exclude contraceptive medicine when it is used for contraceptive purposes but cover the same medicine if it is used for other medical purposes. Would such an employer still qualify for the safe harbor? Current guidance is unclear. We have spoken with a government official and understand that the question is being considered.

Link to Further Guidance. The temporary safe harbor is available here: The final regulations are available here:

For more information contact the author of this alert, John Barlament, at (414) 277-5727 / [email protected]. You may also contact any of the following Quarles & Brady employee benefits attorneys: Marla Anderson at (414) 277-5453 / [email protected], Amy Ciepluch at (414) 277-5585 / [email protected], Sarah Fowles at (414) 277-5287 / [email protected], Angie Hubbell at (312) 715-5097 / [email protected], Paul Jacobson at (414) 277-5631 / [email protected], David Olson at (414) 277-5671 / [email protected], Robert Rothacker at (414) 277-5643 / [email protected]; either of the following insurance attorneys: Bill Toman at (608) 283-2434 / [email protected], Cristina Choi at (608) 283-2463 / [email protected] or your Quarles & Brady attorney.

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