Demystifying Plan Documents And Health Care Reform

By now, most organizations have faced the inevitable prospect of health care reform.  While several provisions of the Patient Protection and Affordable Care Act (PPACA) do not take effect until future years, others become effective with the first plan year beginning on or after September 23, 2010.

For calendar year plans, this means that important decisions regarding plan changes need to be made before their January 1, 2011 effective date.  Although health care plans may implement required changes sooner, most employers are taking a “wait and see” approach, choosing only to implement changes as of the mandated effective date over the next several years.  Additionally, plan sponsors are faced with the pressing decision of whether to adopt “grandfather status” in order to delay implementation of non-essential benefits under PPACA.  What to do?

Interim rules recently issued by the Departments of Health and Human Services, Labor, and Treasury provide the administrative steps a plan must take to maintain grandfather status.  Plans in existence on the date of PPACA’s enactment on March 23, 2010 may elect to be exempt from certain market reform provisions of the Act, provided they do not make certain plan changes.  But plans are not exempt from other requirements such as annual and lifetime limits, dependent coverage to age 26, waiting periods, and tax provisions, as well as several other provisions.

In addition to the communication requirements included in the Act, all ERISA plans must continue to comply with existing disclosure requirements.  On one hand, communicating upcoming changes may represent a challenge to plan sponsors and create some confusion with plan participants.  On the other, with an appropriate strategy, plan communications ahead of time can be used to deliver a cohesive message that reinforces the value of employees’ overall benefits package.

Communicating Grandfathered Status

For plans adopting grandfathered status, additional content must be included with benefit materials distributed to participants.   Although the effective date and time frame for issuing this statement has not yet been determined, it more than likely will be needed beginning with plans years on or after September 23, 2010.

Grandfathered plans will need to maintain plan documents necessary for participants to verify its ongoing status.  The new notice must include a statement that the plan “believes” it is a grandfathered plan and that participants will not be covered by some consumer protections offered under PPACA.  It must also include plan and Department of Labor (for ERISA plans) contact information for participant questions and/or complaints.   The interim rules indicate that this notice will need to be included in the plan document and can also be included in the SPD to satisfy disclosure requirements.  However, if the plan rescinds its grandfathered status in future years, participants would need to be notified of the subsequent change.

While the notice to elect grandfathered status may not be received by employees as positively as other plan changes, providing an explanation as to why this decision was made may help to minimize  any negative reactions.

Keep in mind that for plan years beginning on or after January 1, 2011, additional changes being phased in under PPACA will need to be communicated in the same manner to participants.  So, developing a communications strategy sooner rather than later can help you to provide a clear and consistent approach for communicating changes while still complying with disclosure requirements.

Communicating Plan Changes

The Summary Plan Description (SPD) is the primary source used by most companies for describing plan benefits.   A user-friendly SPD, written in simple, easy-to-understand language, can incorporate strategic messages that emphasize the value of their benefits.  The SPD is required to be provided to participants within 90 days of their first becoming covered by the plan.  An updated SPD must be furnished every 5 years if plan changes have been made or if other information in the SPD needs updated.  Otherwise, the SPD must be reissued every 10 years.

During the 5-year cycle, changes in the SPD can be communicated by either issuing a new SPD or by issuing a Summary of Material Modification or a Summary of Material Reduction in Covered Services/Benefits, depending on the change.  An SMM is used to communicate changes to plan benefits or the SPD.  The SMM must be issued to all covered participants no later than 210 days following the plan year in which the change is adopted.

A SMR is used to communicate any “material reduction in benefits or services.”  It must be sent to all covered participants within 60 days of adoption of the material reduction.

Both the SMM and SMR revise the SPD until a new one is issued and must be included with any SPD issued thereafter to new participants.  There is no standard format or required language for an SMM or SMR, so a summary of changes that also conveys the value of benefits can easily be developed.

Depending on your plan changes, you have several choices for communicating upcoming plan changes, all which should include your desired message:

• Include future changes in the current SPD and simply state future effective dates.  If you are in the process of updating your SPD, it can easily be drafted to include changes that will take effect on a future date (e.g., Effective January 1, 2011, the maximum plan limit shown will be eliminated.)  This allows the current plan design to be correctly explained in the SPD while alerting participants to a future change.
• Send an SMM or SMR to all covered participants once the final plan design is determined.  Since most of the changes required under PPACA do not constitute a reduction in benefits or services, an SMM will be the appropriate form of communicating changes.  Including a summary of the changes in your open enrollment materials, along with your key messages, can serve as the formal SMM.  This document will need to be included with all future SPDs until the SPD is updated to incorporate the changes.
• Issue a new SPD with the plan changes incorporated or issue newly updated pages for the current SPD that reflect plan changes.

In addition to the above materials, plans will need to develop a new Uniform Summary of Benefits (USB) to be distributed to participants no later than March 23, 2012.  This disclosure is required in addition to the SPD.  Material modifications made after the USB is provided will also need to be communicated at least 60 days prior to the modification’s effective date.  The Secretary of Health and Human Services is charged with developing content and language requirements by March 23, 2011.  So, stay tuned on that front, but beware of fines imposed for failure to provide the notice.

About the Author:

Robert A. Marcino, Esq. is a Principal with Strategic Recovery Partnership Inc., a legal and claim recovery resource providing Subrogation Recovery and Plan Document solutions to self funded health plans and TPA’s nationwide since 1993.  SRP’s new Plan Documents I PERFECTED™ service provides affordable, flexible, and attorney approved welfare plan documents and Summary Plan Descriptions.  More information on SRP can be found at www.srpsubro.com or Bob can be reached at rmarcino@srpsubro.com or toll free at 888.679.5SRP (5777).