Making Employee Health Benefits Understandable : The Summary-Plan-Description Failure and How to Fix It

In 2019, almost half of Americans received health insurance through an employer. In theory, employees learn about their benefits through a benefits summary called a summary plan description—an SPD. . . .The SPD is supposed to work for Americans, even those with low health literacy. . . . Therefore, an SPD “shall be written in a manner calculated to be understood by the average plan participant.” Unfortunately, agency regulations do not provide much concrete guidance about how to effect the readability requirement.Courts may need to review SPDs when plan participants sue based on those SPDs. Courts often apply an objective standard when reading SPDs—for instance, “from the perspective of a layperson.” The courts use such standards despite the statutory requirement that plan administrators tailor their SPD to “the average plan participant.” As a result, administrators favor comprehensive disclosure and objectively unambiguous language over language tailored to participants’ health-literacy level. Therefore, they write health-plan SPDs using technical language, and SPDs do not effectively communicate plan benefits to participants.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”)—the federal law that overhauled employee benefits and created the SPD requirement. 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”; 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