The New Summary of Benefits and Coverage (SBC)

As open enrollment season approaches, employers and their advisors are getting ready to use the new Summary of Benefits and Coverage (SBC) format required under federal rules. The basic rules have been in place for several years, but 2017 is the first year that health plans must use newly updated templates and instructions to create their SBCs.
This article answers frequently-asked questions about the SBC and what you need to do as the employer sponsor.

 

1. What is the Summary of Benefits and Coverage (SBC)?

The Summary of Benefits and Coverage (SBC) describes the plan’s benefits and limits, provides contact information, and illustrates hypothetical coverage scenarios in a standardized format. Using templates and instructions provided by federal agencies, health insurers and employers insert case-specific information to create an SBC for their plan. See a sample SBC.

The SBC is sometimes called the uniform four-page summary, although it may be longer due to double-sided pages. The format requires presenting specific information in a specific order which is intended to help employees easily understand the plan’s key features and compare different plans.

 

2. Who is responsible for the SBC? The insurance company or the employer?

Group health plans are required to provide the SBC to plan participants before enrollment or re-enrollment. For plans provided through group insurance, the insurance carrier is responsible for producing the SBC and providing it to the plan administrator (employer). Both the insurer and employer are responsible for distributing the SBC to the plan participants. Either one may handle the distribution, but the employer needs to ensure it is done.

For self-funded health plans, the plan sponsor (employer) is responsible for producing and distributing the SBC. Most self-funded employers choose to contract with their third-party administrator or claims administrator for this service, but the employer retains ultimate responsibility for compliance.

3. Is an SBC required for every health plan? If the employer offers multiple plans, can the information be consolidated into a single SBC? 

An SBC generally is required for any health plan providing medical benefits, but not for plans that primarily provide excepted benefits. For example, SBCs are not required for the following:

  • Limited-scope stand-alone dental and/or vision plans;
  • Health Flexible Spending Accounts (HFSAs) with little or no employer contribution;
  • Fixed-indemnity or specific-disease policies;
  • Long-term care, disability or accident coverage; or
  • Retiree-only plans.

A separate SBC is required for each health plan that can be chosen for enrollment. For instance, if the employer offers one PPO plan and two HMO plans, there will be three separate SBCs. A consolidated summary describing multiple plans may be helpful to employees, and may be provided in addition to the SBCs, but cannot take the place of the required SBCs.

Different options within a plan can be shown on the same SBC provided the information is clear. For instance, different coverage levels (self/family) or different cost-sharing options (high deductible/low deductible) can be presented in the same SBC as long as the remainder of the coverage information is very similar.

4. Is an SBC required for a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA)?

A Health Savings Account (HSA) is a savings program—not health plan—so no SBC is required. However, a High Deductible Health Plan (HDHP), which sometimes is called an HSA-compatible plan, is a health plan requiring an SBC. Employers that contribute to their employees’ HSAs may want to show that information on the HDHP SBC.

A Health Reimbursement Arrangement (HRA) is a group health plan. In almost all cases, the HRA is integrated with another plan, such as a major medical plan or HDHP. Employers usually choose to include information about HRA amounts, and how they reduce deductibles or other cost-sharing, on the medical plan SBC.

5. What is the deadline for distributing the SBC? 

The insurer or employer must distribute the SBC at each of the following times:

  • At the beginning of each enrollment period (i.e., when a new employee first becomes eligible to enroll and at the start of each annual open enrollment period);
  • Within seven (7) business days of the participant’s request; and
  • Within 90 calendar days of a HIPAA special enrollment.


6. Do all eligible employees receive the SBC? What about dependents?

The SBC must be distributed to all plan participants including employees, retirees, and COBRA beneficiaries. Separate distribution for dependents is not required, unless the employer knows that they have a different address.

New hires (or employees newly eligible to enroll) must be given SBCs for all the plans for which they are eligible. At open enrollment, however, enrolled participants only need to receive the SBC for the plan in which they are currently enrolled, unless they request SBCs for other plans.

Also at open enrollment, it is not necessary to provide SBCs to employees who are eligible but not enrolled. Instead, they can be given a notice, such as a postcard, explaining that SBCs are available and how to request them. The Department of Labor (DOL) provides model language for this purpose that the employer may customize for its use:
Availability of Summary Health Information

“As an employee, the health benefits available to you represent a significant component of your compensation package. They also provide important protection for you and your family in the case of illness or injury. 

“Your plan offers a series of health coverage options. Choosing a health coverage option is an important decision. To help you make an informed choice, your plan makes available a Summary of Benefits and Coverage (SBC), which summarizes important information about any health coverage option in a standard format, to help you compare across options.

“The SBC is available on the web at: http://www.website.com/SBC. A paper copy is also available, free of charge, by calling 1-XXX-XXX-XXXX (a toll-free number).”

7. Can the SBC be distributed electronically or are paper copies required? 

SBCs can be distributed electronically provided the method complies with the DOL safe harbor for electronic delivery of benefit notices. The usual DOL guideline is a little less strict for SBCs. For instance, if enrollment is conducted exclusively online, SBCs can be provided electronically. Otherwise, for enrolled participants who use a computer as part of their regular job duties, the SBC can be sent to that computer, or it can be posted and a notice sent explaining how to access it, along with information about how to request a paper copy at no charge. For eligible participants who are not enrolled, it is sufficient to post the SBCs online as long as persons are notified of availability (see model notice above). In any case, a paper copy must be furnished upon the participant’s request.

More Information 

For copies of the new templates, instructions, and related materials, see the following:

In summary, employers offering group health coverage are encouraged to work with their carriers and benefit advisors to ensure that SBCs are prepared and distributed according to the federal rules.

from ThinkHR
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Human Resources Q & A of the Day

Question:

We’ve hired a new employee and have agreed to reimburse their COBRA premium until they become eligible for our insurance. They provided us with proof (copies of checks and invoices) that they paid a 3rd party administrator for their COBRA coverage. Is this reimbursement taxable to the employee when processing through payroll?

 

Answer:

An employer could choose to offer to pay for COBRA for some period of time but keep in mind that COBRA premium payment arrangements while sometimes convenient, can expose an organization to potential liability so we also recommend discussing any arrangements with legal counsel to ensure compliance. Specifically, any agreement in writing to pay for COBRA should be reviewed in partnership with legal and be explicit in terms of the boundaries of what will be provided and for exactly how long. Paying the COBRA fees directly to the employee is not unusual but it has different tax implications than paying the insurance carrier directly or paying the employee based on substantiated expenses (i.e. receipts).

Below is a link to a copy of IRS Information Letter 2006-0042 (INFO 2006-0042) discussing a particular case. In that case, the employer paid its former employee’s COBRA premiums. The IRS determined that the payments were excludable from gross income (thus exempt from income taxes and employment taxes) provided that the employer either (a) paid the insurer directly, or (b) paid the employee based on documented expenses. If, however, the employee had the discretion to use the funds for any other purposes (i.e. he or she just got a lump sum cash “COBRA” payment from the employer) the amount would be taxable income. Please note that we cannot provide tax advice to clients and recommend seeking guidance from a tax professional where appropriate.

SPD, Plan Document, Certificate of Insurance – Do You Have What You Need?

business-documents

A summary plan description (SPD) is the primary vehicle for informing participants and beneficiaries about their plan and how it operates. It must:

  • Be written for the average participant and be sufficiently comprehensive to apprise covered persons of their benefits, rights, and obligations under the plan; and
  • Accurately reflect the plan’s contents as of the date not earlier than 120 days prior to the date the SPD is disclosed.

SPDs are to be distributed automatically to participants within 90 days of becoming covered by the plan and to pension plan beneficiaries within 90 days after first receiving benefits. However, a plan has 120 days after becoming subject to the Employee Retirement Income Security Act (ERISA) to distribute the SPD. An updated SPD must be furnished every five years if changes are made to SPD information or the plan is amended — otherwise the SPD must be furnished every 10 years.

Plan documents are all documents related to plan, including the SPD. The plan administrator must furnish copies of certain documents upon written request and must have copies available for examination. These documents include the latest updated SPD, latest Form 5500, trust agreement, and other instruments under which the plan is established or operated. Copies must be furnished no later than 30 days after a written request. The plan administrator must make copies available at its principal office and certain other locations.

Evidence of coverage (EOC) is further information regarding the plan that details coverage for the plan period. Each insurance carrier will have an EOC booklet, also called a schedule of benefits. These documents are often called certificates of insurance. This EOC/schedule of benefits does not meet the SPD requirements under ERISA. The EOC explains the health benefits participants and their dependents have under the plan. It details the services that will and will not be covered and the actions employees must to take to receive the health benefits — such as paying a co-pay, meeting a deductible, or using particular health care providers. The EOC can also refer to a certificate or contract provided to a health plan member that contains information about coverage and other rights.

ERISA requires the plan sponsor (employer) to provide an SPD to all plan participants. The SPD may incorporate the carrier’s EOC by reference, which generally provides sufficient description of the plan’s benefits. However, the SPD also must include specific content, such as ERISA plan number, Employer Identification Number (EIN), plan financing method, and other information that would not be found in a carrier EOC. Many employers choose to do an SPD wrap, which incorporates all benefits in one document instead of having a separate one for each line of coverage.

According to the Department of Labor’s Final Rules Relating to Use of Electronic Communication and Recordkeeping Technologies by Employee Pension and Welfare Benefit Plans; Final Rule, you can distribute insurance certificates and various ERISA required plan documents electronically via a company website. The department allows electronic notification and distribution of documents by email, attachment to an email, or by posting documents on a company website. However, just placing the documents on a company website does not, by itself, satisfy ERISA’s disclosure requirements.

Under ERISA, the rules allow for electronic delivery of all documents that must be furnished or made available to participant and beneficiaries. This includes SPDs, summary annual reports, individual benefit statements, and investment-related information for participant-directed accounts. These rules are limited to disclosures that plans are required to make to participants and beneficiaries under ERISA.

Prior to implementing, a plan administrator must notify all participants and beneficiaries of the availability of the particular disclosure document by sending written or electronic notice that directs them to the document on the website.

Top Questions on Form 5500 Preparation

Reprinted from ThinkHR

Man with Note Pad and FAQs ConceptsAt this time of year, many employers and benefit advisors begin preparing Form 5500, the annual report required for most employee benefit plans. Form 5500 must be filed with the federal government within seven months of the end of the plan year. For calendar-year plans, that means the plan’s 2016 Form 5500 is due July 31, 2017.

The following are frequently asked questions about Form 5500 for employer-sponsored health and welfare plans.

Frequently Asked Questions

Is Form 5500 required for our plan?

Under the Employee Retirement Income Security Act of 1974 (ERISA), Form 5500 must be filed annually for employer-sponsored welfare plans with 100 or more participants as of the beginning of the plan year. To count the number of participants, include covered employees, retirees, and primary COBRA beneficiaries, but do not include dependents.

Welfare plans include plans for medical, dental, vision, life, accident, and disability benefits, as well as health flexible spending accounts (HFSAs) and health reimbursement arrangements (HRAs). If the plan includes group insurance coverage, information about the insurance policy must be reported on Schedule A as part of the Form 5500 filing.

Most welfare plans are unfunded, which means all benefits are paid through group insurance contracts, or directly from the employer’s general assets, or a combination of both. In that case, the filing will be comprised of the three-page Form 5500 only, or the Form 5500 with one or more Schedules A if the plan includes group insurance coverages. No other schedules apply.

On the other hand, if the plan is funded (e.g., a benefits trust), or part of a multiple employer welfare arrangement (MEWA), Form 5500 may be required whether or not there are at least 100 participants. Additional schedules also may be required. Funded plans and MEWAs are uncommon and outside the scope of this article.

The following plans are exempt from ERISA; therefore, Form 5500 does not apply:

  • Plans sponsored by governmental employers and certain church plans;
  • Most voluntary plans (e.g., employee-pay-all after-tax insurance plans without any employer sponsorship or contribution);
  • Payroll practices (e.g., unfunded vacation and sick pay); and
  • Plans maintained solely to comply with state workers’ compensation, unemployment, and weekly disability insurance laws, without providing additional benefits.

When is Form 5500 due and how is it filed?

Form 5500 and any required schedules must be filed electronically using the Department of Labor (DOL) EFAST2 electronic filing system. Paper filings are no longer accepted. To prepare and file the form and any schedules, you may use approved third-party vendor software or the DOL’s web-based filing system IFILE.

Filing is due within seven months after the end of the plan year. For instance, for calendar-year plans, the due date is July 31 of the following year (or the next business day if July 31 falls on Saturday or Sunday).

The due date can be extended by two and one-half months if the employer mails a simple Form 5558 Application for Extension of Time, no later than the original due date. (Instructions for U.S. mail or overnight delivery are included with the form.) In very rare cases, the IRS denies the request. Normally, the IRS does not respond which means the extension is automatically granted. Later on, when filing Form 5500, be sure to check the appropriate box in Part I, D, to indicate that the due date was extended by filing Form 5558.

We have one plan covering employees at our parent company and two subsidiaries. In Part I, A, of Form 5500, do we check the box as a “single” or “multiple” employer?

A plan sponsored by multiple entities that belong to the same controlled group is deemed a single-employer plan. A controlled group means two or more related employers that are under some degree of common ownership or control, such as parent and subsidiary companies, or brother-sister companies. (The IRS definition of controlled group is used for a variety of business and tax purposes, so the group’s tax advisor or financial officer will be familiar with the definition and can confirm the group’s status.) Use the Employer Identification Number (EIN) as shown in the plan document and SPD; this usually is the parent company’s EIN.

For reference, here are quick definitions for the boxes in Part I, A, of Form 5500 (check one):

  • A “single employer plan” is an ERISA plan that is sponsored by a single employer, or by multiple entities that belong to the same controlled group and, therefore, are deemed a single employer.
  • A “multiemployer plan” is an ERISA plan that is sponsored by unrelated employers and a labor union (e.g., Taft-Hartley plan or union trust plan).
  • A “multiple-employer plan” is an ERISA plan that is sponsored by unrelated employers (that is, the entities do not belong to the same controlled group). If the plan is a welfare plan, it also is called a multiple employer welfare arrangement (MEWA). This is uncommon. In some states, state insurance laws prohibit MEWAs.
  • A “direct filing entity” or DFE is usually a bank or trust that files a Form 5500 listing all the plans that are invested in the master trust (e.g., pension plan investments).

Employers and benefit advisors that prepare Forms 5500 for welfare plans usually are reporting a “single employer plan.” Employers are unlikely to handle any of the other three types of plans shown above; those plans and forms generally are handled by trustees.

Part II of Form 5500 asks for basic plan information. Where do we find this information?

Although Form 5500 is prepared and filed many months after the end of the plan year, the plan’s name, plan number, and plan year were designated by the employer when the plan was first established.

ERISA requires that the plan sponsor (employer) set forth the plan in writing and provide a summary plan description (SPD) to plan participants. Those materials must specify the ERISA plan name, plan number, and plan year, along with the plan sponsor’s EIN and other required information. Therefore, the information needed to complete Part II of Form 5500 will be found in the plan document and SPD.

Part II asks for information about who prepared the form. Is this required?

No. Do not provide information about the preparer. Although the IRS added space for the preparer’s information, officials later announced that it should not be provided. Specifically, the IRS issued the following instruction: “The IRS has decided not to require plan sponsors to enter the “Preparer’s information” at the bottom of the first page of Form 5500 for the 2016 plan year and plan sponsors should skip these questions when completing the form.”

Part III, line 8, asks for codes. What are the correct codes?

For a welfare plan, do not enter any codes on line 8a. Refer to page 20 in Instructions for 2016 Form 5500 for the index of Plan Characteristic Codes, then enter the appropriate code(s) on line 8b. Codes for welfare benefits, including health plans and group life and disability insurance, begin with “4.”

For instance, if Form 5500 is for a welfare plan comprised solely of two medical plans (PPO and HMO), an HFSA, and an HRA, the appropriate code would be 4A (health, other than vision or dental). If the plan also included dental, life insurance, and AD&D, the appropriate codes would be 4A, 4B, 4D and 4L.

Part III, lines 9a and 9b, ask about funding arrangements and benefit arrangements. Please explain.

On both lines, check the box for “Insurance” if the plan includes coverages provided through one or more group insurance policies (e.g., group life, medical, STD, LTD). Check the box for “General assets of the sponsor” if the plan includes any self-funded or uninsured coverages (e.g., HFSA, HRA, or other self-funded health plan). Many employers offer insured plans along with an HFSA, in which case both boxes will be checked.
Do not check the boxes for 412(e)(3) contracts or trusts; these are uncommon arrangements requiring tax professionals or plan trustees to prepare the form.

When is Schedule A required?

Schedule A must be filed with Form 5500 if any plan coverages are provided through group insurance contracts. In that case, the insurance company will provide the employer with information about the policy, and information about any commissions or fees, for use in preparing the schedule. Carriers are required to provide this information within 120 days after the end of the plan year. If the plan includes multiple group policies, such as separate policies for group life, PPO medical, HMO medical, dental, and vision, there will be a separate Schedule A for each one.

The group policy year usually is the same as the ERISA plan year, although that is not required so different dates may apply. Include Schedule A with policy information for the policy year that ends within the plan year. For instance, if the ERISA plan year is January 1 and the group policy year and renewal date is July 1, the 2016 Form 5500 will be filed for period January 1, 2016 through December 31, 2016 and include Schedule(s) A for the policy year July 1, 2015 through June 30, 2016.

Is Schedule C required?

Schedule C does not apply to unfunded welfare plans, which are the vast majority of welfare plans. Unfunded means that all plan benefits are paid through group insurance contracts, or directly from the employer’s general assets, or a combination of both. Self-funded health plans are unfunded plans, despite the somewhat confusing terms, as long as benefits are paid from general assets, which usually is the case. Although fees may be paid to consultants, advisors, and other service providers, expenses paid from general assets or in connection with a § 125 plan are not reported on Schedule C.

Schedule C is required only for certain large welfare plans that are funded through benefit trusts (e.g., a voluntary employees’ beneficiary association (VEBA) or union trust), which is uncommon. In that case, Form 5500 and all required schedules should be prepared by tax professionals or plan trustees.

More Information
See the following links for a sample Form 5500 for plan year 2016, instructions for completing the form, and helpful tips from the DOL:

Remember, the actual filing must be completed electronically using the DOL’s EFAST system. Paper filings are not accepted. Lastly, if you are unable to file Form 5500 on time, complete, print, and mail Form 5558, Application for Extension of Time, for an automatic two and one-half month extension. Form 5558 must be mailed no later than the original due date for Form 5500.

My Fix for Health Care – in less than 250 words!

I haven’t run the numbers on how to pay for this yet (emulating all of my current political heroes).  But, I have come up with a relatively simple “Universal Coverage” proposal that does not completely abandon our free-market system and the patient service and treatment innovation that system encourages.  Here is a quick summary:

  • Wellness Benefits – Age appropriate diagnostic screenings as well as regular physical exams for all paid at 100%.
  • Calendar Year Deductible – Single and Family annual deductible resets each January 1st to 5% of previous year’s reported income.  (i.e. – Individual who earned $26,000 in 2008 would have a $1,300 deductible in 2009, Family who earned $128,000 would have a family deductible of  $6,400).
  • Provider Charges – Publish Medicare fee schedule online for complete transparency of pricing.  Patient is responsible for paying 10% above Medicare negotiated provider fees for care.
  • Coinsurance – After the single or family deductible is satisfied, patient is responsible for 20% of approved charges.
  • Calendar Year Out-of-Pocket Maximum – Single and Family annual out-of-pocket maximum (combination of all deductible and coinsurance expense) is 10% of  previous year’s income.
  • Health Savings Accounts – Allow covered individuals to fund and deduct from income up to their annual out-of-pocket maximum.

This plan, though it would obviously shift exposure for medical expenses to higher income earners, does so WHILE establishing a base level of care and an annual worst-case scenario tied to earnings (“catastrophic” coverage is somewhat subjective and relative to financial means).  HSAs and insurance company supplements can be tools to manage costs.  Everyone has an incentive to adopt a healthier lifestyle.