Examples of Material Modifications to a Health Benefit Plan

Material modifications to a health benefit plan are changes that significantly impact the plan’s participants. These modifications can alter the scope of benefits, cost-sharing structures, or eligibility criteria, and they must be communicated to plan participants in a timely manner. Understanding what constitutes a material modification is essential for maintaining compliance with ERISA (Employee Retirement Income Security Act of 1974) and ensuring that employees are adequately informed about their health plan’s details [1].

Common Examples of Material Modifications

1. Changes to Cost-Sharing Elements: One of the most common types of material modifications involves adjustments to cost-sharing elements like deductibles, copayments, or out-of-pocket maximums. For instance, if a plan increases the deductible from $1,000 to $2,000, this change is considered material because it directly affects the financial responsibility of participants. Similarly, raising the copayment for doctor visits or prescription drugs would also qualify as a material modification [2].
2. Alterations in Covered Services: Modifications to the scope of services covered under the plan are also material. For example, if a plan decides to exclude coverage for a particular treatment or add new services like telemedicine, these changes must be communicated to participants. The inclusion or exclusion of significant benefits, such as mental health services, maternity care, or preventive services, would also be considered a material modification [3].
3. Provider Network Adjustments: Another example of a material modification is a change in the plan's provider network. If a health plan significantly narrows its network or changes the preferred providers, participants need to be informed because it could impact their access to care. For example, if a major hospital or a group of specialists is no longer in-network, this would be a material modification that requires notification [4].
4. Eligibility Criteria Changes: Modifications to eligibility requirements for plan participation are also material. For instance, if a plan changes the number of hours an employee must work to qualify for coverage, or alters the waiting period for new employees, these changes must be disclosed to participants. Adjustments in the coverage of dependents, such as adding or removing spousal coverage, also fall under this category [5].
5. Changes in Premium Structure: Significant changes to the premium structure, such as introducing a new premium tier or adjusting the employer-employee contribution ratio, are considered material modifications. For example, if an employer increases the percentage of the premium that employees must pay, this change directly impacts the cost of the plan for participants and must be communicated clearly [6].

Communication Requirements

When a material modification is made to a health benefit plan, it is not only important to implement the change but also to communicate it effectively to plan participants. ERISA requires that participants be informed of any material modifications within 210 days after the end of the plan year in which the change was adopted. However, if the modification results in a reduction in benefits or an increase in costs, notice must be provided within 60 days of the adoption of the change [7]. This communication is typically done through a Summary of Material Modifications (SMM) or an updated Summary Plan Description (SPD).

Conclusion

Material modifications are significant changes to a health benefit plan that can affect participants' coverage, costs, and access to care. Employers and plan administrators must be vigilant in identifying these modifications and ensuring timely communication to maintain compliance with ERISA regulations. By doing so, they not only meet legal requirements but also help participants make informed decisions about their healthcare coverage.

References:

 [1] U.S. Department of Labor. (2022). What you should know about ERISA. Retrieved from https://www.dol.gov/general/topic/health-plans/erisa

 [2] Internal Revenue Service. (2021). Questions and answers on employer shared responsibility provisions under the Affordable Care Act. Retrieved from https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act

 [3] U.S. Department of Labor. (2023). Summary plan description. Retrieved from https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/spd

 [4] Centers for Medicare & Medicaid Services. (2023). Provider network adequacy standards. Retrieved from https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/provider-networks

 [5] U.S. Department of Labor. (2022). Reporting and disclosure guide for employee benefit plans. Retrieved from https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/reporting-and-disclosure-guide-for-employee-benefit-plans.pdf

 [6] Kaiser Family Foundation. (2023). Employer health benefits survey. Retrieved from https://www.kff.org/report-section/ehbs-2023-summary-of-findings/

 [7] U.S. Department of Labor. (2023). Fiduciary responsibilities under ERISA. Retrieved from https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/fiduciary-responsibilities-under-erisa 

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