MAKING EMPLOYEE HEALTH BENEFITS UNDERSTANDABLE: THE SUMMARY-PLAN-DESCRIPTION FAILURE AND HOW TO FIX IT.

• Author: Switzer, Christopher

CONTENTS INTRODUCTION I. ERISA AND EMPLOYER-SPONSORED HEALTH PLANS A. ERISA's Purpose: To Protect Health-Plan Participants? B. SPD Background and Requirements II. EMPLOYEE HEALTH LITERACY IN CRISIS A. Employee Health Literacy B. SPDs Today III. SPDS IN COURT A. "[C]alculated to be understood by the average plan participant"? B. Reliance Issues IV. FIXING THE SPD FAILURE A. Working with Current Employer Practices B. Enforcing ERISA's Readability Requirement 1. Using Literacy Tools to Draft Tailored SPDs 2. Identifying the Average Plan Participant 3. Interpreting SPDs in Court C. Helping Participants Rely on Employer Communications CONCLUSION INTRODUCTION

Poor health literacy costs Americans between $106 billion and $238 billion each year. (1) Those numbers represent between 7% and 17% of personal health care expenditures. (2) Health literacy includes the ability to read medical terminology and understand treatment but, key to this Note, health literacy also includes the ability to read and analyze health-plan communications. (3)

In 2019, almost half of Americans received health insurance through an employer. (4) In theory, employees learn about their benefits through a benefits summary called a summary plan description--an SPD. (5) So, with SPD in hand, do average Americans with employer-sponsored health insurance understand their medical benefits? Unsurprisingly, probably not. According to UnitedHealthcare, one of America's largest health insurers, (6) less than 10% of its survey respondents understood all of these basic health-insurance terms: premium, deductible, out-of-pocket maximum, and coinsurance. (7) And even though a national assessment of health literacy found that respondents with employer-sponsored insurance were more health literate than other insured respondents, the literacy difference was only marginal. (8) Although one industry survey states that a majority of respondents were confident in analyzing their health insurance, (9) another shows that 96% of respondents overestimated their own health-insurance understanding. (10)

The SPD is supposed to work for Americans, even those with low health literacy. In 1974, Congress, motivated by a "lack of employee information and adequate safeguards" in employee-benefit plans, (11) required that administrators provide an SPD to plan participants. (12) In contrast to a comprehensive plan document, an SPD is supposed to provide an easy-to-understand summary of the plan's benefits. (13) Therefore, an SPD "shall be written in a manner calculated to be understood by the average plan participant." (14) Unfortunately, agency regulations do not provide much concrete guidance about how to effect the readability requirement. (15)

For clarity's sake, it is important to define a few terms up front. A plan is a set of terms, written in a plan document, designed to provide benefits to the individuals it covers. (16) The plan sponsor is the entity that establishes the plan and selects its terms--for instance, the employer. (17) The plan administrator is the entity or person who handles day-to-day plan obligations such as distributing SPDs (18)--again, it may be the employer but it could be another entity, such as an insurer or third-party administrator. (19) Plan participants are employees who enroll in benefits. (20) Beneficiaries are any individuals who are entitled to benefits under a plan, which includes participants and any spouses or dependents whom participants enroll in benefits. (21) If internalizing these definitions all at once is difficult for you, then you may have a sense of how plan participants feel when they attempt to decipher the benefits described in their SPD.

Courts may need to review SPDs when plan participants sue based on those SPDs. (22) Courts often apply an objective standard when reading SPDs--for instance, "from the perspective of a layperson." (23) The courts use such standards despite the statutory requirement that plan administrators tailor their SPD to "the average plan participant." (24) As a result, administrators favor comprehensive disclosure and objectively unambiguous language over language tailored to participants' health-literacy level. (25) Therefore, they write health-plan SPDs using technical language, (26) and SPDs do not effectively communicate plan benefits to participants. (27)

But participant-focused communication is in an employer's best interest because comprehensive benefits attract and retain workers, especially when wage increases are unfeasible. (28) To make up for the SPD's unhelpfulness, employers communicate benefits in other ways, (29) including websites and annual open-enrollment materials. (30) But participants cannot always rely on these separate communications in court. (31) Therefore, if participants rely on the supplemental benefit communications, and those communications contain errors, participants may be left without a remedy. For all the reasons discussed above, the SPD, which Congress intended as an aid for participants, instead becomes a tool that plan sponsors and administrators use to avoid liability.

Part I of this Note explores the SPD's requirements and purpose, including a brief overview of the Employee Retirement Income Security Act of 1974 ("ERISA") (32)--the federal law that overhauled employee benefits and created the SPD requirement. (33) This brief background will introduce SPDs and will also explain why this Note is limited in discussion to health-plan SPDs. Part II analyzes SPDs in the context of national health literacy and explains how SPDs are not meeting their statutory goal of empowering participants. Part III explores how courts apply ERISA's readability requirement and how SPDs are used in litigation to further employer and employee interests.

Lastly, Part IV suggests a three-part solution to the SPD failure: 1) replace the single-document SPD with the tailored communications that plan administrators are already producing; 2) enforce the standard that plan summaries "be written in a manner calculated to be understood by the average plan participant"; (34) and 3) allow participants to sue based on the new summaries. These new tailored summaries would better effect the law's purpose, which is to aid participants in understanding their benefits, and better align with current employer and employee expectations regarding benefits communication.

1. ERISA AND EMPLOYER-SPONSORED HEALTH PLANS

   "[ERISA] is a 'comprehensive and reticulated statute.'" (35) Passed in 1974, ERISA set a national standard for employee-benefit administration by preempting state laws that interfere with the ERISA regime. (36) The statute has four "[principal [p]olicies": to promote informed financial decision making, prevent mismanagement and abuse, protect reliance, and preserve employer autonomy. (37) Despite ERISA's intricate structure, nothing in ERISA requires health plans to offer particular benefits. (38) But ERISA does dictate certain benefits requirements for employee retirement plans, such as minimum funding and vesting standards. (39)

   A brief look into ERISA's history and purpose will help explain why Congress set more standards for retirement plans than for health plans. This difference will then inform the discussion of the SPD's requirements.

   1. ERISA's Purpose: To Protect Health-Plan Participants?

      The motivation for ERISA's passage explains why the law is focused on retirement-benefit regulation. In 1963, a Studebaker car plant closed, and 6,900 workers either lost their retirement benefits entirely or became entitled to substantially reduced benefits. (40) At the time, plans had few legal safeguards for participants. Some plans engaged in practices that were legal but arguably unethical--such as terminating an employee just before the employee became entitled to benefits. (41) Other plans lacked funding or would lose their funding when the plan sponsor was sold or had to pay creditors. (42) The Studebaker event, combined with other similar events, resulted in a "public outcry" that ultimately motivated Congress to pass ERISA. (43) President Ford's signing statement (44) and ERISA itself (45) also point to protection for retirement benefits as the primary motivator. Current online materials at the Department of Labor ("DOL") emphasize retirement benefits as well. (46)

      Despite this focus on retirement benefits, ERISA also affected employer-sponsored health plans, (47) though "some have viewed ERISA's regulations governing employee health coverage as an unintended consequence of the statute." (48) Because, in contrast to retirement plans, health plans did not involve large sums of deferred employee pay, Congress did not have to worry about a massive loss of expected future benefits from a lack of plan funding. (49) As a result, ERISA does not require health plans to offer any particular benefits, (50) but it does require both retirement-plan and health-plan SPDs to satisfy the same readability standard when disclosing benefits to participants. (51)

      However, the differences between retirement plans and health plans support different disclosure practices. First, retirement benefits and health benefits operate differently. Retirement benefits are concerned with deferred compensation and investments, (52) while health benefits are concerned with splitting the costs for covered health services between a participant and the plan. (53) Unlike retirement plans, which can identify either an account balance or benefit amount, (54) health plans can only identify the formula for calculating a participant's or the plan's costs for health-care categories--e.g., "diagnostic tests" or "hospitalization." (55) Plans cannot guarantee the actual cost for any particular health service because costs vary across providers (56) and depend on how the provider codes the service when it bills the plan. (57)

      Second, health-plan disclosures often involve more than just one benefit. Plan sponsors could offer...