Most of us have received a detailed booklet, usually prepared by an insurance company, that describes our group health coverage. The booklet is a formidable document that describes our group health benefits and the applicable limitations and restrictions on coverage in great detail. But does this booklet measure up to ERISA requirements? In many cases that answer is “No” and here is why:
First, a typical insurance company booklet, or “certificate of coverage,” describes the provisions of an insurance policy. However, this booklet may not contain all of the legally required provisions for a group health plan document. These additional required provisions include a description of the classes of employees who are eligible for coverage, the identification of the plan’s “named fiduciary” and other parties responsible for plan administration, and the procedures for amending or terminating the plan.
Summary Plan Description
Many of these same provisions must be included in the group health plan’s summary plan description, or “SPD.” The SPD is required to summarize all significant provisions of the plan in simple to understand language. So, a compliant SPD is required to disclosure 26 separate items including the plan benefits and eligibility requirements, the allocation of any plan costs to covered employees, any circumstances that could result in a loss of benefits, a statement with ERISA rights, disclosure of the plan’s three digit identification number, and the persons responsible for the operation of the plan.
For employers that now use the Affordable Care Act (ACA) “look back” rule to identify “full-time” employees who are eligible for group health coverage, a description of how that rule is applied also should be disclosed in the group health plan documents.
The insurance company is not responsible for preparing a complete plan document or providing a compliant SPD. Those responsibilities fall on the “plan administrator” and that typically is the employer – not the insurance company or contract administrator.
Documents containing the provisions required by law can be used to supplement the group health booklet. These documents, sometimes called “wrap documents” because they wrap around the plan booklet, are intended for distribution to participants along with the plan booklet to satisfy applicable disclosure requirements. A wrap document does not necessarily have to be complex because many of the required provisions consist of the identity of individuals who operate the plan and a disclosure of basic plan information such as the plan’s three-digit identification number.
Also consider the consequences of not having compliant group health documents: in the event of an audit of your group health plan by the Department of Labor, the first two documents on the audit checklist will be: (1) the plan document, and (2) the summary plan description. A failure to have these documents can expose the employer to liability for plan benefits otherwise provided through group insurance (see Silva v. Metropolitan Life, a 2014 decision of the 8th U.S. Circuit Court of Appeals). Additionally, private parties can sue for statutory penalties of up to $110 per day for non-compliance even if they are not harmed by the lack of an SPD (see cases like Amschwand v. Spherion Corp., a 2006 federal decision).