Unclear SMM Leads to Inapplicability of Plan Changes

The importance of clearly communicating plan changes to participants cannot be emphasized enough. Yet another court case, this one out of the Ninth Circuit Court of Appeals, emphasizes this point. A plan participant sued her health plan after she incurred medical bills totaling more than one million dollars. The plan argued that it had effectively instituted a $500,000 lifetime maximum on retiree health benefits and that the maximum applied to the participant. The plan communicated this change via a Summary of Material Modifications (SMM) that the court deemed unclear. Additionally, the plan did not timely update its Summary Plan Description (SPD) so the only communication of the retiree lifetime maximum was through the unclear SMM. Therefore, the retiree benefit lifetime maximum did not apply to the participant and the court found in her favor.

Once again, SMMs should always favor over-communication and be written so that the average participant can easily understand the changes being made to the plan.

King v. Blue Cross and Blue Shield of Ill. (9th Cir. 2017)