Experts Explain Top 5 COBRA Implications of Reform’s Summary of Benefits and Coverage

One simple line requiring that group health plans and insurers describe “continuation of coverage provisions” in summaries of benefits and coverage (SBCs) actually raises several complex issues for COBRA administrators.

The health care reform law requires that group health plans and insurers accurately describe in SBCs the benefits and coverage under the applicable plan or insurance coverage. The law mandates specific formatting and basic requirements for SBCs, and on Aug. 22, 2011, three federal agencies issued proposed regulations and sample notices for plans and insurers to consider (see 76 Fed. Reg. 52442). See more background on the SBC here. The U.S. Department of Labor has indicated that compliance with the SBC rule is not required pending finalization of the regulations and sample SBC forms. But once it is effective, noncompliance can result in significant penalties of up to $1,000 per offense, plus excise tax sanctions.

As plan administrators review the proposed regulations and plan for future compliance with the SBC requirements, Paul M. Hamburger, Esq., and Lynda M. Noggle, Esq., a partner and associate respectively at Proskauer Rose LLP, explain why plan administrators should not overlook the implications of this new disclosure for COBRA coverage and qualified beneficiaries. Here are their top five concerns:

1. COBRA qualified beneficiaries are participants in the group health plan and, as such, are entitled to copies of the SBCs to the same extent that active participants are entitled to them. Furthermore, because each qualified beneficiary has an independent right to elect COBRA, it seems likely that (at least for initial COBRA enrollment), each qualified beneficiary will need to be provided an SBC. These SBC rights also raise other COBRA issues, such as the fact that the SBC delivery rule requires administrators to have affirmative knowledge that certain beneficiaries live with the participant, which is arguably different from the COBRA rule permitting administrators to satisfy their COBRA notice obligations by providing a single mailing to all qualified beneficiaries at the participant’s address (unless the administrator knows that a qualified beneficiary lives at a different address).
2. The proposed regulations require plan administrators to provide the SBCs in a number of different contexts, including no later than the first day the participant is eligible to enroll in coverage. Among other things, it is unclear how this rule will apply when a qualified beneficiary is initially eligible for COBRA, because in many instances the plan administrator learns about a qualifying event long after the event has occurred.
3. Plan administrators must provide SBCs is within seven days following a participant’s or beneficiary’s request for one. This is a very short time frame for providing the notices, and in the COBRA context will require significant coordination between the plan administrator and COBRA vendor.
4. SBCs for fully insured group health plans may be provided by the insurer or the plan administrator. It is likely that many fully insured plans will rely on the insurer to satisfy this disclosure requirement. If this is the case — and the final rule requires distribution of an SBC to each qualified beneficiary individually — then the plan administrator must ensure the insurer knows which individuals are qualified beneficiaries and complies with the rule.
5. Many (if not most) dental, vision and health flexible spending account plans are not subject to the SBC rules. This dichotomy potentially adds to the COBRA administration burden because different disclosures will need to be sent to different qualified beneficiaries, depending on which benefits they are enrolled in through COBRA.

Hamburger and Noggle provide more details on the COBRA implications of SBCs in Mandated Health Benefits — The COBRA Guide.