A Note About Advance Notice of Benefit Changes

I have received a number of questions about the 60-day advance notice requirement for group health plan changes. There is a lot of confusion in this area. This is my attempt to clarify and simplify the issue.

Before health care reform, employers were required to notify participants in writing of changes to their health plans only if the changes were a “material reduction” in benefits, and notification could be made up to 60 days after the employer took board action to implement the change (e.g., adopted a plan amendment). (Separately, changes to the contents of a Summary Plan Description were required to be communicated in writing, via a “Summary of Material Modifications,” not later than 210 days after the close of the plan year in which the change took place.)

The Patient Protection and Affordable Care Act, when enacted, for the first time required 60-day advance written notice of any material changes to health benefit information. The statutory text was written in a vague way that suggested that the advance notice was required immediately for any material health benefit change, including increased premiums, hence the confusion and excitement. Later interpretation of the rule clarified that it only applied to material changes to the specific information contained in the Summary of Benefits and Coverage disclosure document (SBC), which was a new disclosure instrument that had not yet been defined in any detail.

Proposed regulations on the form, content and delivery of SBCs was issued in two parts on August 17, 2011 (the second part includes a template SBC document, instructions for completing it, and a uniform glossary of medical and insurance terms). The regulations make it clear that the advance notice requirement applies only to changes in the (now defined) content of the SBC, and further narrow this requirement to material changes occurring mid-year. (The regulations refer to a policy year but it equally could be a plan year for a self-funded arrangement.) The regulations further clarify that material coverage changes that take effect with a new policy or plan year may be disclosed in the SBC that is distributed each year upon renewal of the group policy (or at least 30 days prior to the first day of the new plan years, for plans that are self-funded or renew coverage automatically).

For these purposes, “material” means a change that, on its own or taken together with other contemporaneous changes, would be considered by the average plan participant to be an important change in coverage or benefits. The SBC regulations add that a material change could be an increase in benefits affecting SBC contents, as well as a reduction in coverage.

Employers with group health plans get to kill two disclosure birds with one stone in that a timely-distributed SBC will also fulfill the requirement to:

• distribute a Summary of Material Modifications (due within 210 days after the close of the plan year in which the change occurred) or
• provide written notice of a material reduction in benefits (due 60 days after the employer action to implement the change).

Whenever ERISA compliance is at issue, employers should check with their benefits advisors to make sure that they are following the proper procedures. For instance, a Summary of Material Modifications usually includes the name of the plan (e.g., Widget Company Employee Health Benefit Plan) and other information that relates back to the Summary Plan Description. Although this information could not be added to the SBC, it might be advisable to convey it separately when distributing the SBC containing the change at issue.