What is a Wrap Summary Plan Description (SPD) and Why Do I Need One?

Here are the Wrap SPD document requirements by ERISA and the Affordable Care Act as succinctly as possible:

If you offer group health insurance, you’re now required by ERISA law, enforced by the Department of Labor and now the Affordable Care Act, to distribute a Wrap SPD within 120 days of the Plan’s effective date.
Failure to provide the Wrap SPD within 30 days of request triggers a $110 a day fine per participant. Not having a Wrap SPD can also trigger an audit by the Department of Labor.
The insurance company’s Master Contract, Certificate of Coverage, or Summary of Benefits is not a Wrap SPD.
This requirement applies to all employer sponsored group health insurance offerings, including a one-person plan.

The Summary Plan Description, or SPD, is the main vehicle for communicating group health insurance plan rights and obligations to participants and beneficiaries. As the name suggests, it is a summary of the material provisions of the plan document, and it should be understandable to the average participant of the employer. However, in the context of health & welfare benefit plans, it is not uncommon for the SPD to be a combination of a complete description of the plan’s terms and conditions, such as a Certificate of Coverage, and the required ERISA/ACA disclosure language.

Note: An insurance company’s Master Contract, Certificate of Coverage, or Summary of Benefits is not a plan document or SPD.
The ERISA and ACA required Group Health Insurance Wrap SPD document is now available for a $350 one-time fee. You only update your Wrap SPD document as your benefit options change. The low-cost Wrap SPD document is limited to fully insured group health insurance plans only.

Here’s the “summary” of what the ERISA SPD law requires. An SPD must contain all of the following information:

The plan name
The plan sponsor/employer’s name and address
The plan sponsor’s EIN
The plan administrator’s name, address, and phone number
Designation of any named fiduciaries, if other than the plan administrator, e.g., claim fiduciary
The plan number for ERISA Form 5500 purposes, e.g., 501, 502, 503, etc. (Note-each ERISA plan should be assigned a unique number.)
Type of plan or brief description of benefits, e.g., life, medical, dental, disability
The date of the end of the plan year for maintaining the plan’s fiscal records (which may be different from the insurance policy year)
Each trustee’s name, title, and address of principal place of business, if the plan has a trust
The name and address of the plan’s agent for service of legal process, along with a statement that service may be made on a plan trustee or administrator
The type of plan administration, e.g., administered by contract, insurer, or sponsor
Eligibility terms, e.g., classes of eligible employees, employment waiting period, and hours per week, and the effective date of participation, e.g., next day or first of the month following satisfaction of an eligibility waiting period
How the insurer refunds (e.g., dividends, demutualization, and medical loss ratio (MLR) refunds) are allocated to participants. Note: This is important for obtaining the small plan (<100 participants) exception for filing Form 5500.
The plan sponsor’s amendment and termination rights and procedures, and what happens to plan assets, if any, in the event of plan termination
A summary of any plan provisions governing the benefits, rights, and obligations of participants under the plan on termination or amendment of the plan or elimination of benefits
A summary of any plan provisions governing the allocation and disposition of assets upon plan termination
Claims procedures-may be furnished separately in a Certificate of Coverage, provided that the SPD explains that claims procedures are furnished automatically, without charge, in the separate document (e.g., a Certificate of Coverage), and time limits for lawsuits, if the plan imposes them
A statement clearly identifying circumstances that may result in loss or denial of benefits (e.g., subrogation, coordination of benefits, and offset provisions)
The standard of review for benefit decisions (We recommend consideration of granting full discretion for the plan administrator or authorized fiduciary to interpret the plan and make factual determinations.)
ERISA model statement of participants’ rights
The sources of plan contributions, whether from employer and/or employee contributions, and the method by which they are calculated
Interim SMMs since the SPD was adopted or last restated
The fact that the employer is a participating employer or a member of a controlled group
Whether the plan is maintained pursuant to one or more collective bargaining agreements, and that a copy of the agreement may be obtained upon request
A prominent offer of assistance in a non-English language (depending on the number of participants who are literate in the same non-English language)
Identity of the insurer(s), if any

Additional requirements for Group Health Plan SPDs:

Detailed description of plan provisions and exclusions (e.g., copays, deductibles, coinsurance, eligible expenses, network provider provisions, prior authorization and utilization review requirements, dollar limits, day limits, visit limits, and the extent to which new drugs, preventive care, and medical tests and devices are covered) A link to network providers should also be provided. Plan limits, exceptions, and restrictions must be conspicuous.
Information regarding COBRA, HIPAA, and other federal mandates such as the Women’s Health Cancer Rights Act, preexisting condition exclusion, special enrollment rules, mental health parity, coverage for adopted children, Qualified Medical Support Orders, and minimum hospital stays following childbirth.
Name and address of health insurer(s), if any
Description of the role of health insurers (i.e., whether the plan is insured by an insurance company or the insurance company is merely providing administrative services).

Recommended, but not required provisions in an SPD:

For insured arrangements, attach the Summary of Benefits provided by the insurance companies to help ensure you have provided an understandable summary of the Certificate of Coverage
For self-insured arrangements, provide the name, address, and phone number of any Third Party Administrator (TPA) paying claims or benefits.
Language that in the event there is a conflict between the plan document, the SPD, and a Certificate of Insurance, which document controls

Wrap SPD Document Requirements:

Group insurance Certificates of Insurance are typically not SPDs because they do not contain all of the language required by ERISA. An employer must prepare an ERISA “wrapper” to supplement the Certificate of Insurance. Together, the wrapper and Certificate of Insurance comprise a proper SPD.

Health Care Reform – Notices/Disclosures

Summary – The health care reform law makes many changes to health coverage requirements, such as extending coverage for young adults up to age 26, prohibiting rescissions of health coverage (except in cases of fraud or intentional misrepresentation), eliminating preexisting condition exclusions for children under the age of 19 (applicable to adults in 2014), prohibiting lifetime limits on essential health benefits and restricting annual limits, and requiring coverage for preventive care without cost sharing. The law has staggered effective dates. Many of its changes are effective now, and others will become effective in future years.

Notices/Disclosure – The health care reform law created a number of notice and disclosure obligations for group health plans, such as:

Statement of Grandfathered Status – Plan administrator or issuer was required to provide the first statement before the first plan year beginning on or after Sept. 23, 2010. The statement must continue to be provided on a periodic basis with participant materials describing plan benefits. This requirement only applies to grandfathered plans.

Notice of Patient Protections and Selection of Providers – Plan administrator or issuer must provide a notice of patient protections/selection of providers whenever the summary plan description (SPD) or similar description of benefits is provided to a participant. These provisions relate to the choice of a health care professional and benefits for emergency services. The first notice should have been provided no later than the first day of the plan year beginning on or after Sept. 23, 2010. This requirement does not apply to grandfathered plans.

Documenting method for Identifying Full-time Employees

Beginning in 2015, the Affordable Care Act (ACA) imposes a penalty on applicable large employers (ALEs) that do not offer health insurance coverage to substantially all full-time employees and dependents. An ALE may also be subject to a penalty if it offers health insurance coverage to full-time employees and dependents, but the coverage is unaffordable or does not provide minimum value. An ALE is only liable for a penalty if one or more of its full-time employees receives a health insurance subsidy for coverage under an Exchange.

The ACA’s employer penalty rules are often referred to as “employer shared responsibility” or “pay or play” rules. The pay or play rules will take effect for many ALEs on Jan. 1, 2015.
This Legislative Brief includes a brief overview of the two methods for identifying full-time employees, and it provides guidelines for documenting the method an employer decides to use. It also includes sample language for describing the look-back measurement method. This sample language, which requires customization, could be incorporated into an employer policy, health plan document or summary plan description (SPD).

Methods for identifying Full-time Employees

On Feb. 12, 2014, the Internal Revenue Service (IRS) published final regulations on the employer shared responsibility rules. The final regulations provide two methods for identifying full-time employees for purposes of offering health plan coverage and avoiding a pay or play penalty-the monthly measurement method and the look-back measurement method.

A full-time employee is an employee who was employed, on average, at least 30 hours of service per week. The final regulations treat 130 hours of service in a calendar month as the monthly equivalent of 30 hours per service per week.

Monthly Measurement Method

The monthly measurement method involves a month-to-month analysis where full-time employees are identified based on their hours of service for each calendar month. This method is not based on averaging hours of service over a prior measurement period. Month-to-month measuring may cause practical difficulties for employers, particularly if there are employees with varying hours or employment schedules, and it could result in employees moving in and out of health plan coverage on a monthly basis.

Look-back Measurement Method

To give employers flexible and workable options and greater predictability for determining full-time employee status, the IRS developed an optional look-back measurement method as an alternative to the monthly measurement method.

Under the look-back measurement method, an employer counts an employee’s hours of service during one period (called a measurement period) to determine his or her full-time status for a future period (called the stability period). The details of this method are complex, and vary based on whether the employees are ongoing or new and whether new employees are expected to work full time or are variable, seasonal or part-time employees.