Week Of 2009 08 10

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Week Of 2009 08 10

  1. 1. BENEFITS UPDATE WEEK OF AUGUST 10, 2009 Are EAPs and Increased Cost Ways to Avoid the New Mental Health and Addiction Requirements? Background As reported earlier, the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the “Act”) requires employers with more than 50 employees who provide mental health or substance use disorder benefits under their group health plans to impose the same limitations on these benefits as they do for medical and surgical benefits, effective for plan years beginning after October 3, 2009 (January 1, 2010 for calendar year plans). This goes farther than the Mental Health Parity Act (“MHPA”), currently in effect, which prohibits group health plans that offer mental health benefits from imposing lower annual or aggregate lifetime dollar limits for mental health benefits than for medical and surgical benefits, but does not prevent a health plan from having different cost-sharing mechanisms. The Act does not require that employers cover mental health or substance use disorder benefits. However, insured plans may have to offer these benefits due to state insurance law mandates. If mental health or substance use disorder benefits are offered, they must impose the same limitations on these benefits as they do for medical and surgical benefits. EAPs and the Act The Act applies to “group health plans.” So, for employers who have the option, will moving all mental health benefits from the major medical plan to an EAP avoid the Act’s parity requirements? Unlikely. At this time, it appears that an employer's whole health program (major medical plan, EAP, etc.) is considered one plan for these purposes and, thus, subject to the Act. The Act adopts the ERISA definition of a “group health plan,” and under this definition, an EAP is a group health plan if it provides medical care or benefits. Some EAPs are referral-only while others also provide a counseling benefit. When examined closely, most EAPs fall under the ERISA definition of a “group health plan.” If an employer were to add mental health benefits to its EAP while keeping its medical/surgical benefits separate, there would appear to be no question that the EAP would be considered a group health plan and thus be subject to the Act. Even if the plans are referral-only, if they are staffed by professionals who refer participants to additional resources for further help, that might qualify as the dispensing of medical care and the DOL would consider such a plan to be subject to ERISA. Thus, broadly speaking, only a narrow class of EAPs providing general information about referrals and not staffed by trained counselors can successfully avoid ERISA and group health plan status. For an interesting article summarizing these concerns, visit: http://www.kilpatrickstockton.com/publications/downloads/MHPAEALetter.pdf See the next article for a discussion of what benefits are excepted from the Act. Increased Cost Exemption This Benefits Update is intended to convey general information and may not take into account all the circumstances relevant to a particular person’s situation. 1
  2. 2. A plan does not have to comply with the Act for a plan year in which the parity requirements result in an increase of the health plan’s total cost of over 2% for the first plan year or 1% for each subsequent plan year. A health plan seeking an exemption must still comply with the Act for the first 6 months of the plan year involved. Cost-increase determinations must be made and certified in a written report by qualified and licensed actuaries. The written report and all underlying documentation must be maintained by the group health plan or health insurance carrier for six years following the notification to elect the cost exemption. Plans that qualify for and elect to apply the cost exemption must provide notice to the appropriate governmental agencies, participants, and beneficiaries in accordance with the Act’s requirements. Further guidance expected to be issued soon would be particularly welcome in terms of complying with this cost exemption. (For plan years beginning before October 4, 2009, there is also an increased cost exemption applicable with respect to the MHPA in the event that applying the mental health parity rules would result in a cost increase under the plan of at least 1%.) Possible Opt-Out Available for Self-Funded Governmental Plans Non-federal governmental plans that are not offered through insurance (i.e., are self-funded) can opt out of the MHPA requirements, provided that certain procedures are followed. In order for a plan to opt out, an election must be filed with CMS prior to the beginning of each plan year. Plan sponsors must also notify participants in writing on an annual basis and at the time of enrollment of an opt-out election and its consequences. As a result of this notice requirement, many governmental employers will find that the employee relations cost associated with the opt-out requirement is prohibitive. CMS has issued regulations that clarify the circumstances under which plans may opt out. For example, the election must be mailed (not received) before the first day of the plan year. However, the filing deadline may be extended for good cause if a plan substantially complies with its obligation to notify enrollees of an opt-out election at the time of enrollment and on an annual basis. It would seem that this opt-out provision applies to the Act. While no direct guidance has been provided regarding this question, the PHSA provisions which created the opt-out election procedure for the MHPA were not amended by the Act and the CMS regulations which clarify the circumstances under which such plans may opt out have not been amended. What Are Excepted Benefits? HIPAA Portability Rules (including preexisting condition exclusion, nondiscrimination, and special enrollment rights requirements), the Mental Health Parity Act (“MHPA”), the Mental Health Parity and Addiction Equity Act, the Women’s Health and Cancer Rights Act (“WHCRA”), and the Newborns’ and Mothers’ Health Protection Act (“NMHPA”) do not apply to group health plans that provide “excepted benefits.” Excepted benefits means: • coverage only for accidents (including AD&D coverage); • disability income coverage; • coverage issued as a supplement to liability insurance; This Benefits Update is intended to convey general information and may not take into account all the circumstances relevant to a particular person’s situation. 2
  3. 3. • liability insurance, including general liability and auto liability insurance; • workers’ compensation or similar coverage; • automobile medical payment insurance; • credit-only insurance; • coverage for on-site medical clinics; • other coverage similar to the above, specified in regulations (but no such regulations have been issued), under which benefits for medical care are secondary or incidental to other insurance benefits; • limited-scope dental or vision benefits if the benefits (a) are provided under a separate policy, certificate, or contract of insurance; or (b) are otherwise not an integral part of a group health plan*; • benefits for long-term care, nursing-home care, home care, or community-based care if the benefits (a) are provided under a separate policy, certificate, or contract of insurance; or (b) are otherwise not an integral part of a group health plan*; • health FSAs that satisfy the following two conditions: o the maximum benefit payable to any participant in the class** for a year cannot exceed two times the participant’s salary reduction election under the health FSA for the year (or, if greater, the amount of the employee’s salary reduction election for the health FSA for the year, plus $500); and o other group health plan coverage, not limited to benefits that are excepted benefits under HIPAA (e.g., limited-scope dental and vision coverage), must be made available for the year to the class of participants** by reason of their employment; • any group health plan in relation to the plan’s provision of (a) coverage only for a specified disease or illness; and (b) hospital indemnity or other fixed indemnity insurance that pays a fixed dollar amount per day (or other period) of hospitalization or other illness (e.g., $100 per day) regardless of the amount of expenses incurred, provided that: o such coverage is provided under a separate policy, certificate, or contract of insurance; o no coordination exists between the provision of such benefits and any exclusion under any plan maintained by that employer; and o benefits are paid for an event regardless of whether benefits are provided under any group health plan maintained by the same plan sponsor. • any employee assistance program (“EAP”) that does not provide or pay for medical care*** • any group health plan in relation to the plan’s provision of Medicare supplemental health insurance, coverage supplemental to TRICARE, and similar supplemental coverage if the benefits are provided under a separate policy, certificate, or contract of insurance.**** * For purposes of this exception, benefits are not considered to be an integral part of a group health plan (whether or not the benefits are provided under a separate plan) if the following two conditions are met: • participants have the right to elect not to receive the coverage; and • participants who elect to receive the coverage must pay an additional premium or contribution for the coverage. Many dental and vision plans will qualify for this exception. **Note that the regulations use the term “class of participants” in describing the requirements that must be met for health FSA benefits to qualify as excepted benefits. However, neither the regulations nor the preamble to the regulations explains what is meant by the term “class of participants.” The language appears to preclude a “participant-by-participant” approach to determining whether benefits under a health FSA are excepted benefits. (Under such an approach, the determination of whether a health FSA provides excepted benefits would be made separately with respect to each participant, based on whether the two conditions were satisfied for that participant.) On the other hand, the language appears to permit a “class-by-class” approach. This Benefits Update is intended to convey general information and may not take into account all the circumstances relevant to a particular person’s situation. 3
  4. 4. Under this approach, a health FSA would be treated as providing excepted benefits for a class of participants if the two conditions were satisfied with respect to all participants in that class, whether or not the conditions were met with respect to other classes of participants. For example, part-time employees and full-time employees participating in a health FSA might be treated separately in determining whether their health FSA benefits were excepted benefits. Further guidance from the regulators on this issue would be welcome. In the absence of further guidance, cautious employers may decide to treat health FSAs as excepted benefits only if the two conditions are satisfied with respect to all participants in the health FSA (i.e., for the plan as a whole). Taking this approach would also simplify the employer’s compliance burden and plan administration (e.g., tracking of the participants in the excepted and nonexcepted classes would be avoided). Employers that prefer simplicity may also wish to consider designing their health FSAs to ensure that benefits are excepted for all participants. Many health FSAs will qualify for the exception. But as a practical matter, compliance with MHPA, WHCRA, and NMHPA may not pose much of a problem for a nonqualifying health FSA. Because health FSAs seldom limit benefits for particular conditions or treatments, these mandates will rarely affect the design of such plans. And although there are certain notice and disclosure requirements associated with these mandates, compliance with such requirements is relatively straightforward. For example, the health FSA’s SPD would have to include a statement about the protections afforded by the NMHPA that meets the content requirements prescribed by the DOL. The health FSA would also have to comply with WHCRA’s requirement to provide, upon a participant’s enrollment and annually thereafter, notice of the availability of the required coverage for reconstructive surgery following mastectomy. ***An EAP is subject to the HIPAA portability rules if it is a group health plan. An EAP is a group health plan if it provides or pays for medical care. Most EAPs provide or pay for some type of medical care such as free or low-cost counseling services. However, if the only services the EAP provides are non-medical such as referrals to governmental social service agencies, the EAP is not subject to the HIPAA portability rules. It is unlikely that many EAPs would qualify for the “other supplemental coverage” exception for the following reasons: (a) many EAPs are self-funded, and therefore, for the reasons stated above, would not qualify for the exception; (b) like carve-out prescription plans, EAPs are not usually designed to meet the requirement of the exception that the supplemental plan fill in gaps not paid by the employer’s primary group health plan, such as deductibles or co-payments; and (c) EAPs generally will not fall within the supplemental coverage exception because EAPs are generally self-funded (not insured), they aren’t designed to fill in gaps in the major medical plan, and they often cover employees not covered by the employer’s major medical plan (such as part-time employees). ****Regulations provide that to be “similar supplemental coverage,” the coverage must be specifically designed to fill gaps in the primary coverage, such as co-insurance or deductibles. Moreover, the term does not include coverage that becomes secondary or supplemental only under a coordination-of-benefits (“COB”) provision. An example in the regulations indicates that an employer-sponsored group health plan that provides coverage for both active employees and retirees under which the retiree coverage supplements the benefits provided by Medicare (but does not qualify as Medicare supplemental health insurance under the Social Security Act) does not qualify as an excepted benefit. (But there are various federal mandates regarding when retiree medical plans might be otherwise exempt.) The DOL, CMS, and IRS, in coordinated guidance documents, have provided additional information about the scope of the supplemental coverage exception when they issued safe harbor rules setting forth their interpretation of the exception. Under these safe harbor rules, the agencies will treat coverage as similar supplemental coverage exempt from HIPAA’s portability rules if it is a separate policy, certificate, or contract of insurance that meets all four of these criteria: This Benefits Update is intended to convey general information and may not take into account all the circumstances relevant to a particular person’s situation. 4
  5. 5. • it must be issued by an entity that does not provide the primary coverage under the group health plan (for this purpose, all entities within the same group of corporations or part of the same group of trades or businesses under common control, as described in Code § 52(a) or (b), are considered a single entity); • it must be specifically designed to supplement gaps in the primary coverage, such as the payment of co-insurance or deductibles (a plan that merely becomes secondary or supplemental to the primary plan under its COB provisions is not considered to be specifically designed to fill in gaps in the primary coverage); • the cost of the supplemental coverage must not exceed 15% of the cost of primary coverage (for this determination, the DOL will calculate the cost in the same manner as the cost of COBRA coverage is calculated, even if the coverage is not subject to COBRA, except that the cost will be 100% of the applicable premium, not 102% generally permitted to be charged as the COBRA premium); and • it does not differentiate among individuals in eligibility, benefits, or premiums based on any health factor of an individual. This Benefits Update is intended to convey general information and may not take into account all the circumstances relevant to a particular person’s situation. 5

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