Publications

The Mental Health Parity Act of 1996
(“MHPA”) requires that group health plans treat mental health benefits and medical/surgical benefits similarly with respect to any annual or lifetime dollar limits. The IRS and the Departments of Labor and Health and Human Services, which share regulatory responsibility for implementing the MHPA, recently issued interim rules governing the parity requirements.

Under the interim rules, a group health plan (or health insurance coverage offered in connection with a group health plan) that provides both medical/surgical and mental health benefits can comply with the dollar limit parity requirements of the MHPA in several ways: (1) by not imposing any aggregate lifetime or annual dollar limits on mental health benefits at all; (2) by setting a single aggregate lifetime or annual dollar limit that applies to both medical/surgical and mental health benefits and does not distinguish between the two; (3) by setting aggregate lifetime or annual dollar limits that apply separately to mental health and medical/surgical benefits, provided the mental health limit is not lower; or (4) if the plan places aggregate annual or lifetime dollar limits on some medical/surgical benefits and not others, the interim rules set forth a formula to determine an acceptable aggregate dollar limitation for mental health benefits.

In thinking about how the MHPA may apply to your group health plans, it is important to note that the MHPA does not require group health plans to provide any mental health benefits. Moreover, conditions and limitations such as co-payments and limits on numbers of visits or days of coverage for mental health benefits are clearly permissible under the MHPA, although it is unclear whether the parity requirements apply to daily dollar amount limits on mental health benefits (e.g. $25 per day). Furthermore, benefits for substance abuse or chemical dependency are not mental health benefits under the MHPA and do not count toward any limit on mental health benefits. The MHPA contains a sunset provision so that the parity requirements do not apply to benefits for mental health services provided after September 29, 2001.

The interim rules provide exemptions from the requirements of the MHPA for small employers and for plans for which application of the parity requirements results in a 1% percent or more increase in cost. A small employer is defined as an employer that alone, or in combination with other related employers, employs an average of at least 2 but not more than 50 employees during the calendar year and at least two employees on the first day of the plan year, or an employer whose predecessor did.

In order to claim the increased cost exemption, an employer may not use estimated costs; instead, it must implement the rules for a period of at least six calendar months and then evaluate its costs using a formula provided in the rules. The employer must also provide notice of intent to claim the exemption to participants and beneficiaries and make available to them (upon request at no cost) a summary of the information on which it based its claim for exemption. These requirements, particularly the actual implementation requirement, make the 1 % cost exemption difficult to take advantage of and may deter employers from attempting to claim it.

If a health plan offers two or more benefit packages (such as an HMO and indemnity or point of service package), the parity requirements apply separately to each package, as does the 1% cost increase exemption (i.e., each package must demonstrate the 1 % or more cost increase separately).

Interim Rules Issued for HIPAA
HIPAA places limits on exclusions for pre-existing conditions (but not on generally applicable waiting periods) for plan years beginning on or after July 1, 1997. In addition, HIPAA requires that any pre-existing condition exclusion period be reduced by the period for which an individual can show that he or she had prior health care coverage. This obligates most plans and issuers to provide certificates of creditable coverage which individuals can use as proof of prior creditable coverage.

There had been considerable confusion about the extent to which health care coverage through a medical flexible spending account (FSA) would reduce a pre-existing condition exclusion period, and accordingly, the extent to which sponsors of FSAs would have to provide certificates of creditable coverage with respect to FSA benefits. The new guidance sets forth the conditions under which benefits through medical FSAs are exempt from the HIPAA portability requirements. Medical FSA benefits are exempt in any plan year if:

• The maximum benefit payable under the medical FSA is no more than the greater of two times the employee’s salary reduction contribution for the plan year or one times the employee’s salary reduction contribution for the plan year plus $500; and

• The employee has other coverage available under a group health plan of the employer for the plan year that does not consist solely of other exempt benefits (e.g., limited scope dental, vision or supplemental medical benefits provided through a separate contract of insurance).

If medical FSA benefits are exempt, plan sponsors are not obligated to provide certificates of creditable coverage and the coverage cannot be used to reduce preexisting condition exclusion periods. Employers should be sure to evaluate their medical FSAs to determine whether or not they am obligated to provide certificates of creditable coverage.

IRS Issues Proposed COBRA Regulations
COBRA requires that group health plans offer participants and their family members an opportunity to continue their group health coverage by paying their own premiums for 18 months after termination of employment or a reduction in hours below that required for participation in the plan. Coverage continues for 36 months for other qualifying events (such as death of the covered employee or divorce from the covered employee) or if a second qualifying event occurs during the first 18 months. Under OBRA 1989, the initial 18 month coverage extends to 29 months if a participant or family member is disabled at the time of the termination or reduction in hours.

HIPAA further modifies COBRA by providing that a participant or family member need not be disabled at the time of the termination or reduction in hours in order to qualify for extended (29 months) coverage. If a participant or beneficiary becomes disabled within the first 60 days of the initial period of COBRA coverage, the initial 18 month period extends to 29 months.

The IRS recently issued proposed regulations that clarify HIPPA’s disability extension provisions so that all qualified beneficiaries, NOT just the disabled family member, are entitled to the 29 month disability extension. Coverage extended by reason of disability ends 29 months after the date of termination of employment (or from the date coverage would be lost) or 36 months after the date of termination (or from the date coverage would be lost) if there is a second qualifying event during the first 29 months of continuation coverage.

During the first 18 months of continuation coverage, a plan may charge a disabled individual up to 102% of the premium. For the 19th through 29th month, the plan may require that a disabled individual pay up to 150% of the premium, unless the disabled individual is entitled to additional COBRA coverage without regard to disability (i.e., due to a second qualifying event during the first 18 months), in which case the plan may not charge more than 102% of the premium for the entire 36 months. The proposed regulations did not address the question of whether non-disabled family members may be charged a 150% premium during the 19th through 29th months of an extension granted because of disability. However, given that all family members now qualify for the extension, it would be reasonable to assume that an employer can charge the other family members 150% until further notice from the IRS.