Reminder for SBCs – Yes, Please!

The Affordable Care Act’s requirement that group health plans provide summaries of benefits and coverage (“SBCs”) to applicants and enrollees at various times is not new.  Nevertheless, because of the steep penalties for noncompliance (i.e., $1,000 per failure with respect to each participant or beneficiary and an excise tax of $100 per day with respect to each individual to whom such failure relates) we think it’s worthy of another blog post.  See our July 19, 2012 Newsletter Summary of Benefits and Coverage for Group Health Plans and follow-up August 11, 2016 blog post Departments Finally Publish Updated SBC Template and Instructions for additional background information.

• Rigid Form – Unlike other ERISA disclosure requirements, such as the summary plan description (“SPD”) and summary of material modification (“SMM”), the SBC is a rigid document and generally all form language and formatting must be precisely reproduced, unless the instructions allow or instruct otherwise.  The Department of Labor (“DOL”) has posted the various guidance, including instructions and template documents, here: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/summary-of-benefits.  Notwithstanding this strict requirement, we often see SBC preparers straying from the form’s instructions.
• Fiduciary Duty to Monitor Service Providers – It is common for a self-funded group health plan to rely on a service provider to prepare and distribute the group health plan’s SBCs.  Although this is permissible, as with all service providers, the plan administrator must act prudently in selecting and monitoring them.  Monitoring may include reviewing a draft of the SBCs before they are distributed to applicants and enrollees to make sure that the service provider accurately followed the DOL’s instructions and obtaining proof from the service provider that the SBCs were, in fact, timely distributed.
• Corporate Transactions – If an employer is on the buy side of a corporate transaction it is important for it to confirm that seller has complied with SBC requirements as well.  Buyers that fail to identify SBC failures in the due diligence process could unexpectedly be liable for noncompliance penalties.  To reduce this risk, during the due diligence phase of a corporate transaction, an employer may consider requesting the SBCs for each group health plan back to 2012, and proof that the SBCs in fact were timely distributed.