What's in Your Summary Plan Description?

Many health plans operate under inadequate plan summaries that leave them open to liability. Does yours?

After designing a health plan, negotiating contracts and assembling a provider network, HR practitioners often view the drafting of their summary plan descriptions (SPDs)—the documents that deliver the information plan participants need to know about the plan’s benefits and their rights under it—as an afterthought. “I often see clients who have no SPDs or SPDs that fail to cover key provisions,” says Jen Calhoun, a principal with Mercer Human Resource Consulting’s Health and Benefits Division in Philadelphia.

Mark Stember, a benefits attorney with the Washington, D.C., office of Kilpatrick Stockton LLP, agrees. “Many plans are operating under carelessly worded SPDs that leave their sponsors open to liability,” he says.

This can cause big trouble for employers. Most private-sector health plans are covered by the Employee Retirement Income Security Act (ERISA), which requires sponsors of both insured and self-funded health plans to create a comprehensive plan document that includes extensive legal language and a more succinct and reader-friendly SPD that covers the salient points plan participants need to know about the plan and their rights under it.

“If you are sued [under ERISA], the first thing an attorney will do is see if your SPD follows ERISA guidelines,” says Jonathan Edelheit, vice president of United Group Programs, a third-party administrator (TPA) based in Boca Raton, Fla.

With such high stakes, it’s important to work with your TPA to write, review and distribute your SPD correctly, and with your plan administrator to create a clear and comprehensive document, and to have the document reviewed by an attorney familiar with ERISA law, even if your TPA has a general counsel.

Creating a clear SPD starts with investing in a process designed to pre-empt problems and protect an employer from expensive litigation in the future.

Preparing Your SPD

The U.S. Department of Labor provides guidelines on what employers must cover in their SPD. This includes the plan name and IRS-assigned number, employer’s name and address, administrator’s name and contact information, grievance and appeals process, ERISA and Health Insurance Portability and Accountability Act (HIPAA) rights statements, and statement of collective bargaining agreements, if relevant.

Many self-funded companies rely on their TPAs to create their SPDs, but the results can be uneven. “TPAs often use prototype documents and adapt them for individual plans. Sometimes these are fine; other times they are deficient in certain areas that might not show up on the surface, but leave the company open to litigation. If your TPA writes your SPD, be sure to have it reviewed by an attorney with expertise in this area,” Stember advises.

Edelheit says many HR practitioners assume that their TPAs know what they’re doing. “That can be a mistake if your TPA is not as competent as it should be,” he says. “Make sure your TPA has a general counsel, and have your own attorney review your SPD as well. Also, check to see that your document has the proper ERISA and HIPAA disclosures.”

Richard Tunno, manager of compensation and human resource information systems with A. Duda and Sons, a Florida-based agricultural, land and real estate development company with about 1,200 employees, recommends that employers take an active role in developing their SPDs. “We work with our TPA throughout the process and have three or four sets of eyes—including an experienced attorney and someone with excellent communication skills—review our document,” Tunno says.

Calhoun advises HR professionals to be familiar with the ERISA requirements for SPDs, to leverage their existing resources, to call on contractors if needed, and to allocate at least three months to the process of creating their documents.

Don’t Just Write: Communicate!

ERISA regulations require that SPDs be written in a manner that plan participants can understand. “Many do not meet this standard,” says Calhoun.

“If you have a large volume of calls to HR or the TPA’s call center, or you have members who say they’ve read the SPD and still feel as if claims were wrongly denied, it’s time to take a second look at your plan language,” says Edelheit.

Peggy Sease, PHR, human resource director at University Health Care System in Augusta, Ga., with 3,400 employees, says it’s important that SPDs be so clearly worded that they leave no room for misinterpretation. “We work with our TPA to prepare our SPD, then have everything reviewed by an attorney to make sure it covers all ERISA requirements; clearly establishes who, and what, is and is not covered; and meets the standard of being easily understood.”

Donna Grummich, a principal and communication strategist with Buck Consulting in Cincinnati who writes plan documents and SPDs, stresses that good communication is about more than stating facts. It’s about packaging and delivering information in a way that creates interest and promotes learning. “Over the last decade many companies have stopped using their SPDs as communication tools because ERISA requirements are so cumbersome. But I see that changing now. More clients are requesting well-written documents, many with navigational tools to help their employees find the information they want on their intranets,” Grummich says.

Edelheit also has noticed an emphasis on communication. “Explanation of benefits forms are becoming more detailed, and this is driving members to read the fine points of their SPDs. As a result, sponsors are trying to make their SPDs clearer and easier to understand.”

According to Grummich, a team effort that includes a professional writer may be the best approach to writing SPDs. “Benefits people often write the first draft, and a communication specialist familiar with ERISA law polishes and shapes the document. It’s then peer-reviewed by an experienced attorney.” She says this approach can produce a document “that meets both the letter and the spirit of the law.” Grummich notes that communication specialists can also help companies highlight features they want to promote, such as wellness or preventive care, and foster the feeling that the company is giving its workers something of value.

Pre-empting Prickly Issues

“It’s very important to get the language right in these documents, both from a legal standpoint and for ease of understanding,” says Stember. “Carefully detail not only the benefits, but what is not covered. If a plan denies care for a large dollar amount and a participant sues, the company generally loses if the exclusion or limitation is not clearly stated in the document.”

One area that often leads to litigation are provisions related to an employer’s right of reimbursement, or subrogation. Such provisions state that if an employee is injured in an accident, and the plan pays his or her medical expenses, the plan has the right to recover the costs if the employee is awarded a settlement based on the accident. “The wording of this is very important and should be broad enough to cover all circumstances,” says Stember.

The SPD should also cover the subject of eligibility. “A few years ago, there were a series of lawsuits in which independent contractors sued Microsoft claiming they were not contractors but employees. The courts found in their favor because the plan language did not clearly define what an employee was,” Stember says. Make sure important terms such as employee, contractor, spouse and full-time student are clarified.

Tunno advises employers to pay special attention to SPD topics such as coordination of benefits to avoid the possibility that the information could be misconstrued. “Participants often mistakenly think they have 100 percent coverage if they are covered by both their employer and their spouse’s employer, but this is not usually true. We communicate this clearly in our SPD and through other means,” Tunno says.

Stember recommends that employers evaluate the financial impact of their SPDs to avoid any unintended results. “Over the last few years almost all of my clients have adopted domestic-partner benefits for same-gender folks,” he says. “But it’s not as simple as saying you’ll open your plan to domestic partners. Plans can’t do that on a tax-free basis as they can for a legal spouse. Employers are taxed on the value of that coverage.”

Another matter to consider is the document’s effect on issues such as reinsurance. “When you give your reinsurer a copy of your SPD, you are locked into the terms it states. I know of a TPA that accidentally put a $100,000 cap on transplants in a plan’s SPD. Then a [plan participant] had a transplant that went well over that figure. The plan assumed the reinsurance would kick in, but the reinsurer refused to pay based on the limitation in the SPD,” says Edelheit.

Employers, especially those operating in multiple states, also should make sure they understand the impact of state laws. “One of the original objectives of ERISA was to allow employers to provide similar benefits across state lines without worrying about the requirements of individual states, so state laws have traditionally affected only insured companies. Now, however, some states are issuing mandates that may affect both insured and self-funded plans,” says Calhoun. “This is another reason to have your documents reviewed by an attorney who can factor in recent litigation.”

Finally, be sure not to overstep your authority when it comes to influencing employees’ behavior. This has become a concern now that many companies, including University Health Care System, are instituting benefits such as wellness programs and health risk assessments to identify lifestyle issues or existing medical conditions. “We had to make certain we didn’t overstep the boundaries or violate employee confidentiality in any way during this change,” Sease says. These issues are now addressed in a specific body of legislation called the HIPAA Wellness Regulations, which went into effect in December. “We’ll be making minor changes to our plan based on these regulations,” says Sease.

Getting the Word Out

Plan administrators are required to distribute their SPDs to all participants free of charge at least once every five years and automatically to new participants as they join the plan. “But we recommend that our clients distribute SPDs annually simply because there are usually changes from year to year,” says Edelheit.

“Our clients often provide a guide that briefly describes the options during open enrollment, then [they] distribute their SPDs after open enrollment,” says Calhoun.

ERISA requires that SPDs be supplied to participants in a method “reasonably calculated to ensure actual receipt of the materials.”

“The demographics of your workforce should determine your distribution method,” says Calhoun. That means understanding employees’ work styles and preferences.

“We have a computer-literate workforce, so we post our SPD on the wellness section of our HR intranet,” says Sease. This is allowed under ERISA law if a company’s employees use computers in their day-to-day work, but if members request written copies, sponsors must comply. Moreover, a hard copy of the document must be available at the place of employment.

“We generally recommend that HR distribute hard copies at the worksite. We have found that a large percentage of members will view the SPD packages as junk mail and throw them away if they are mailed to the home,” Edelheit says.

Because most employees at A. Duda and Sons have no computer access, Tunno says the company distributes a written SPD. “We also have a large percentage of Hispanic workers, so we make the document available in Spanish as well.” If 10 percent or more of the workforce speaks a language other than English, ERISA requires companies to publish their SPDs in that language, as well as in English.

What About Changes?

ERISA requires plan administrators to disclose to plan participants any changes that reduce covered services or benefits within 60 days of the adoption of the change through a revised SPD or a summary of material modification. Material changes that don’t result in a reduction in covered services or benefits must be disclosed no later than 210 days after the end of the plan year in which the change was adopted, says Stember.

In cases where there are a lot of changes, it may be better to rewrite the SPD. “When I see SPDs that have long lists of exceptions and limitations, I know it’s time to rewrite the document,” says Grummich. “This indicates that the plan administrator has discovered problems that need addressing.”

Some employers use technology to keep documents up-to-date.

“When we make changes, we work them into our SPD right away, so it remains current on the intranet,” says Sease. “We also notify participants of these changes through a house-wide e-mail.”

Employers that provide their employees with clearly written SPDs show they care about their workforces and are committed to giving them the tools to make informed health care decisions.

Betty Sosnin is a freelance writer based in Augusta, Ga.