Health Care Reform's Summary of Benefits and Coverage (SBC)

Effective March 23, 2012, a standardized summary of benefits and explanations of coverage format goes into effect for group health plans and health insurers offering group coverage.  Health insurance issuers offering group health plan coverage within the U.S. are responsible for providing the SBC. Employers who sponsor self-insured group health plans are also required to provide the new SBC.

The summaries need to be provided to enrollees, as well as current plan participants.  The summaries must be in a uniform format, be easily understood and must include uniform definitions of standard insurance and medical terms.  The explanation must also describe any cost-sharing, exceptions, reductions, and limitations on coverage, and use examples to illustrate common benefits scenarios, all in four pages. 

Appearance

·         4 page length limit on new summary of benefit and coverage (SBC)

·         12-point font or greater

Language

·         The new summary must be presented in a "culturally and linguistically appropriate manner"

·         Terminology must be understandable by the average person

Content

·      uniform definitions of standard insurance and medical terms (consistent with definitions to be developed by the Health and Human Services Secretary (HHSS) so that health plan consumers can compare coverage and understand the coverage terms and any exceptions to the coverage terms;

·      a coverage description, including cost sharing for (1) each of the categories of essential health benefits: Ambulatory patient services; Emergency services; Hospitalization; Maternity and newborn care; Mental health and substance use disorder services; Prescription drugs; Rehabilitative and habilitative services and devices; Laboratory services; Preventive and wellness services (including chronic disease management); and Pediatric services (including oral and vision care) and other benefits identified by the HHSS;

·      coverage exceptions, reductions, and limitations;

·      cost-sharing provisions, including descriptions of deductibles, coinsurance, and co-pays;

·      renewability and coverage continuation provisions;

·      a "coverage facts label" that includes examples illustrating common benefit scenarios, such as pregnancy or chronic medical conditions, as well as any related cost-sharing (all based on recognized clinical practice guidelines);

·      a statement as to whether the plan (1) provides minimum essential coverage and (2) ensures that its share of the total allowed benefit cost under the plan is no less than 60 percent of those costs;

·      a statement that the outline is a policy summary and that consumers should consult the plan's coverage document to determine the plan's governing contractual provisions; and

·      a contact number for additional questions and an Internet website where actual plan policies and certificates can be reviewed and obtained by consumers.

Method of Distribution

Paper or electronic form is acceptable.

Modifications

Any material changes to the plan terms or coverage that is not reflected in the most recent SBC must be provided to enrollees at least 60 days before the effective date of the changes.

Exemptions

The SBC preempts any state-provided standards regarding benefit and coverage summaries that provide less information to consumers than what is required to be provided by the SBC.

Penalties

The penalty for a group health plan or health insurance issuer covered by the SBC for willfully failing to provide the required information is a fine of up to $1,000 for each failure.  A failure is considered a separate offense for each plan participant, subject to an addition fine.

Grandfathered Health Plans

Plans that are grandfathered are required to comply for plan years beginning on or after March 23, 2010.



Retirement News for Employers -Summer 2011 Edition

We're Glad You Asked!

Should our plan administrator withhold 20% for federal income tax from all retirement plan distributions?

No. The plan administrator should only withhold 20% for federal income tax from Eligible Rollover Distributions. A plan administrator doesn't have to apply withholding if expected distributions to an individual are less than $200 for the year. The 20% withholding generally only applies to any previously untaxed amount of the eligible rollover distribution (not to any already taxed amount - cost). However, no withholding is required if the plan directly rolls over (in a trustee-to-trustee transfer) the amount to another qualified retirement plan or IRA.

Distributions that are not Eligible Rollover Distributions are subject to different withholding rates depending on whether they are periodic or non periodic payments.

·         Periodic payments are made at regular intervals for more than 1 year (for example, an annuity).

o    Generally, the plan administrator must withhold at the rate for a married individual with 3 withholding exemptions. However, the plan administrator must notify the recipient of his or her right to:

§  elect no withholding or elect to have a different amount withheld, by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments, with the plan administrator; and

§  revoke the election at any time.

o    The plan administrator must withhold 10% from any 20% from any Required Minimum Distributions and excess amount distributed that is an eligible rollover distribution.

·         Nonperiodic payments are distributions that usually aren't made at regular intervals and are not eligible rollover distributions, for example:

o    distributions of excess annual additions;

o    distributions of excess contributions and excess aggregate contributions from most plans if made within 2 ½ months after the end of the plan year;

o    hardship distributions; and

o    loans treated as distributions.

The plan administrator must withhold 10% from nonperiodic payments. However, the recipient may elect no withholding or have a different amount withheld by filing a Form W-4P with the plan administrator.

Special Situations

·         Distributions made because of Recognized Disasters.

·         Special withholding rules apply to certain noncash distributions, including:

o    employer securities; and

o    a participant's accrued benefit offset because of a defaulted loan.

·         Distributions delivered outside the U.S. or U.S. possessions.

·         Distributions from Designated Roth Accounts in 401(k), 403(b) or 457(b) plans:

o    Qualified Distribution - no withholding because the distribution is not taxable.

o    Nonqualified Distribution - withholding required only from any distributed earnings that the recipient must include in gross income.

Penalties

A plan administrator may be subject to penalties for failing to:

·         properly withhold, deposit or report taxes; and

·         electronically deposit withheld taxes.

Additional Resources

·         Publication 15-A, Employer's Supplemental Tax Guide

·         Publication 505, Tax Withholding and Estimated Tax

·         Publication 575, Pension and Annuity Income

Page Last Reviewed or Updated: August 25, 2011