In our prior blog, we explained that under principles of triage, employers may need to focus on the current annual enrollment and wait to take care of the Summary of Benefits and Coverage (“SBC”). Although the SBC does not need immediate attention, we caution employers not to wait too long or take the SBC responsibilities too lightly. The penalties for failing to satisfy the SBC requirements are severe. This blog will explain what those penalties are and the steps to take to avoid them. In a subsequent blog, we will provide more details regarding specific content requirements and the different groups of people who must be given the SBC.
Excise Tax Penalties
Section 2715(f) of the Patient Protection and Affordable Care Act (“PPACA”) provides that each group health insurance issuer, including a group health plan that is not a self-insured ERISA plan, that willfully fails to provide the SBC is subject to an excise tax of up to $1,000 per failure, to be assessed by the DOL, with each enrollee who did not receive an SBC considered a separate failure. The proposed regulations apparently seek to extend this liability to an ERISA plan administrator, typically the employer. Further, the preamble to the proposed regulations provides that administrators of group health plans that fail to comply with the SBC requirements are required to report this failure to the Treasury on Form 8928, and pay excise taxes under Internal Revenue Code Section 4980D. This excise tax is $100 per day per individual, subject to rules regarding failures due to reasonable cause and not willful neglect. Apparently, self-reporting to the Treasury may lead to having more excise tax penalties slapped on by the DOL.
Employer Action Steps
To avoid incurring these penalties, we recommend that employers maintaining health care plans follow the following steps:
- Identify each plan and benefit package affected by the SBC requirements, and their plan years. As we explained previously, the SBC requirements become effective March 23, 2012. Although this effective date may give calendar year plans some extra time to comply with the requirements, plans with enrollment during the first half of 2012, in particular, may struggle with timely implementation.
- If the plans are insured, confirm that the insurer will timely handle the preparation of the SBC, and determine who will handle distribution of the SBC. If an employer switches insurers, be aware that the new insurer may have different procedures from the prior insurer.
- Begin to become familiar with the model SBC templates and the SBC requirements to prepare for distribution of the SBCs by the March 23, 2012 effective date. This step is particularly important if the insurer is not handling certain matters or if the plan is self-insured.
- Begin to compare the SBC model (including the Glossary of Health Insurance and Medical Terms) to the existing plan documents, including insurance policies.
The Plan Document Controls Over a Summary
Commentators who will be required to prepare and provide SBCs have expressed concern about the substantial number of problems with the model, and the disregard of the one-year time period they were supposed to have for preparation. Meanwhile, commentators wanting to receive SBCs are pushing the agencies to move full speed ahead. One such organization needed 34 pages to explain what it thought was wrong with the proposed regulations, and the provisions it wanted added to the draft model that is already twice the mandated maximum length.
Commentators rushing the SBC seem to be making the dangerous presumption that on March 23, 2012, individuals can make important decisions based on the SBC and just dispense with those pesky complicated plan documents. To the contrary, the U.S. Supreme Court recently made clear in CIGNA v. Amara that an ERISA plan document controls over a summary.
Given that substantial excise tax penalties loom and that the agencies have not announced when a final model will be provided, it may be necessary for employers to just dive in and do the best they can to come up with a document known as a Summary of Benefits and Coverage.