On January 29, 2010, the IRS, DOL, and HHS issued interim final regulations implementing the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”). The MHPAEA generally requires group health plans that provide mental health and/or substance use disorder benefits (“MH/SUD benefits” for short) to provide such benefits on an equivalent basis with any medical/surgical benefits. In general, the MHPAEA is effective for plan years beginning after October 3, 2009, and the regulations are effective for plan years beginning on or after July 1, 2010 (there is a delayed effective date for certain collectively bargained plans). A “good faith” compliance standard applies prior to the effective date of the regulations. The following summarizes the key provisions of the new regulations.
Provision of Benefits: The regulations confirm that the MHPAEA does not require a plan to offer MH/SUD benefits, and if a plan does offer one or more MH/SUD benefits, the MHPAEA does not require the provision of benefits for any other condition or disorder. However, the MHPAEA does not preempt or supersede any other applicable state and federal laws (for example, a state law mandating that health insurance policies provide specific MH/SUD benefits).
Aggregate Lifetime and Annual Dollar Limits: The MHPAEA imposes specific parity requirements with respect to aggregate lifetime and annual dollar limits. To comply, plans may either (a) apply any aggregate lifetime or annual dollar limits on a combined basis to both medical/surgical benefits and MH/SUD benefits (i.e., in a manner that does not distinguish between the available benefits), or (b) apply separate limits to MH/SUD benefits, provided they are no more stringent than the limits applied to medical/surgical benefits.
Financial Requirements and Treatment Limitations: Under the regulations, “Financial Requirements” include such things as deductibles, copayments and coinsurance. Aggregate lifetime and annual dollar limits are excluded from the meaning of financial requirements, as they are subject to their own rule (described above). “Treatment Limitations” include both quantitative treatment limitations, which are expressed numerically (such as the number of days of inpatient care), and non-quantitative treatment limitations, which are not expressed numerically but which otherwise limit the scope or duration of benefits for treatment (such as medical management standards or formulary design for prescription drugs).
Parity with Respect to Financial Requirements and Quantitative Treatment Limitations: Under the MHPAEA, a plan may not apply any financial requirement or quantitative treatment limitation to MH/SUD benefits in any classification that is more restrictive than the “predominant” (generally, applied to more than one-half of the benefits in that classification) financial requirement or quantitative treatment limitation of that type applied to “substantially all” (generally, applied to at least two-thirds of the benefits in that classification) medical/surgical benefits in the same classification. Therefore, if a financial requirement or quantitative treatment limitation is not applied to at least two thirds of all medical/surgical benefits in a classification, it cannot be applied to MH/SUD benefits in that classification.
The regulations identify six specific “classifications” of benefits: inpatient, in-network; inpatient, out-of-network; outpatient, in-network; outpatient, out-of-network; emergency care; and prescription drugs. These are the only classifications used for purposes of satisfying the parity requirements, which must be met on a classification-by-classification basis. A plan that provides MH/SUD benefits in any classification must provide those same MH/SUD benefits in all classifications in which medical/surgical benefits are provided.
Parity with Respect to Non-Quantitative Treatment Limitations: Non-quantitative treatment limitations cannot be imposed on MH/SUD benefits in any classification unless any processes, strategies, evidentiary standards, or other factors used in applying the non-quantitative treatment limitation to MH/SUD benefits are comparable to, and applied no more stringently than, those factors used in applying the limitation to medical/surgical benefits in the same classification. For example, a plan cannot require a participant to exhaust employee assistance program benefits in order to receive MH/SUD benefits under the plan, where there is no comparable gatekeeper for medical/surgical benefits.
Special Rule for Tiered Prescription Drug Benefits: A plan may impose different financial requirements (such as copayments) on different tiers of prescription drugs based on reasonable factors (such as cost, efficacy, or generic vs. brand name) as long as it is done without regard to whether a drug is usually prescribed with respect to medical/surgical benefits or MH/SUD benefits. The parity rules are applied separately to each tier of prescription drug benefits.
Separate Cumulative Financial Requirements and Quantitative Treatment Limitations are Prohibited: A plan may not impose separate cumulative financial requirements or quantitative treatment limitations (such as deductibles or maximum monthly office visits) for MH/SUD benefits in a classification that accumulate separately from any such requirement or limitation established for medical/surgical benefits in that classification. For example, a plan cannot impose $500 deductible for medical/surgical benefits and a separate $500 deductible for MH/SUD benefits,
All of an Employer’s Plans Are Treated as A Single Plan: If an employer offers medical/surgical and MH/SUD benefits through separate plans, the parity requirements must be satisfied for all combinations of MH/SUD benefits. This is an anti-abuse rule: plans cannot avoid the new law by maintaining separate plans.
Availability of Plan Information: The regulations require the plan administrator to make certain information available to participants upon request, including: (1) the criteria used for determining medical necessity with respect to MH/SUD benefits; and (2) the reason for any denial of reimbursement or payment for services with respect to MH/SUD benefits. Plans subject to ERISA must make these disclosures in a form and manner consistent with ERISA’s claims procedure regulations.
Exemptions: Group health plans maintained by “small employers” (defined as those averaging no more than 50 employees on business days during the preceding calendar year) are exempt from the MHPAEA’s requirements. There is also a one-year exemption from the MHPAEA’s requirements if a plan demonstrates, by actuarial certification, that it would incur an overall healthcare cost increase of at least 2% from complying with the rules. Plans may only qualify for the increased cost exemption in alternating plan years. Regulations implementing the increased cost exemption will be issued in the future.
Compliance Recommendations: Unless you meet the small employer plan exception or your health plan doesn’t provide any MH/SUD benefits, your plan should be reviewed to determine whether any changes are needed for compliance with the new rules. Specifically, any financial requirements, treatment limitations, and aggregate lifetime and annual dollar limitations currently imposed under your plan will need to be reviewed. You will also need to ensure that your communications materials are updated for the new disclosure requirements. In addition, if changes are required, you may wish to consider the availability of the increased cost exception. These rules are detailed and complex, and you should consult your professional advisors for assistance if you have specific questions, to determine whether or not your plan complies with these rules, and to make any necessary changes.
Other Recent Changes in the Law
Model CHIP Notice: The DOL recently released a model Employer CHIP Notice (a new notice for group health plans required by CHIPRA). The model notice is available at: Model CHIP Notice. The initial deadline for providing the notice is the later of (a) May 1, 2010, or (b) the first day of the first plan year beginning after February 4, 2010. The notice must be provided annually thereafter, and it’s expected that the DOL will update the model notice on an annual basis. The notice can be combined with other materials (e.g., open enrollment materials, SPDs, SARs, etc.). The model notice is one-size-fits-all, providing basic information about CHIP and a website/phone number for each state for employees to contact for state-specific information. The DOL announcement indicates that an employer may (but is not required to) add state-specific information, and some states may provide sample language on their websites.
DOL “Plan Asset” Regulations: The DOL also recently revised its ERISA “plan asset” regulations, which are relevant to self-insured health plans funded through a trust. In general, participant contributions to such plans become ERISA “plan assets” and must be transferred to the trust by the earliest date on which they can reasonably be segregated from the employer’s general assets. The new regulation creates a 7-day safe harbor for plans covering fewer than 100 participants. Larger plans remain subject to the general “as soon can reasonably be segregated” standard. The regulation applies to contributions withheld from an employee’s paycheck, as well as to contributions paid by check (e.g., COBRA premiums or premiums from an employee on leave). The DOL has a long-standing non-enforcement policy which makes the regulation of limited relevance self-insured plans that fund benefits out of general assets and to insured plans.
Excise Taxes and Self-Reporting: Employers that sponsor group health plans now have a duty to self-report certain technical violations and to pay excise taxes where such failures are not corrected in a timely fashion once discovered, or are due to willful neglect. The reporting is done on IRS Form 8928, which was recently released. The new form applies to excise taxes due for violations of many group health plan requirements, including the following: (a) the COBRA continuation coverage and pediatric vaccine requirements under Code Section 4980B; (b) the HIPAA limits on preexisting conditions, the HIPAA certificate of creditable coverage requirements, and the HIPAA special enrollment and health status nondiscrimination rules; (c) the requirements for mental health parity and minimum hospital stays for newborns; (d) the MHPAEA parity requirements of Code Section 9812; and (e) the comparable health savings account contribution requirements under Code Section 4980G. The new reporting obligation makes complying with group health plan requirements more important than ever, and could signal increased IRS enforcement in this area. You should ensure that you have processes in place reasonably designed to ensure compliance, and you should promptly (within 30 days) correct any violations that are discovered.
The information you obtain in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.