Old Law, New Impact: The Mental Health Benefit Parity Requirement

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1 Old Law, New Impact: The Mental Health Benefit Parity Requirement The Mental Health Parity and Addiction Equity Act (MHPAEA) has been on the books for years. Yet some employers are about to feel the law's impact for the first time. That's because mental health and addiction services are one of the Affordable Care Act's (ACA's) 10 mandated essential health benefits (EHBs) that small group plans must offer if they fall under the act's purview. Thus, such "nongrandfathered" small group plans that kick in on or after July 1, 2014, must now comply with the MHPAEA. Legal Background The MHPAEA, enacted back in 2008, doesn't oblige employers to provide mental health and addiction services benefits. Rather, it requires only that such benefits, if offered, be comparable to those applicable to medical/surgical plans. More specifically, the MHPAEA requires: group health plans and health insurance issuers to ensure that financial requirements (such as co-pays, deductibles) and treatment limitations (such as visit limits) applicable to mental health or substance use disorder (MH/SUD) benefits are no more restrictive than the predominant requirements or limitations applied to substantially all medical/surgical benefits. This is according to a Department of Labor (DOL) summary of the law. Final DOL regulations regarding the MHPAEA were published in late EHBs and Benchmark Plans As mentioned, the ACA names 10 EHBs that applicable small insured group plans must include in their coverage. These are: 1. Ambulatory patient services, 2. Prescription drugs, 3. Emergency care, 4. Mental health services, 5. Hospitalization, 6. Rehabilitative and habilitative services, 7. Preventive and wellness services, 8. Laboratory services, 9. Pediatric care, and 10. Maternity and newborn care. Every state sets its own specific guidelines for what each benefit should cover. For this year and last, states define the individual EHB requirements by picking a benchmark plan that reflects the scope of services offered by a "typical employer plan." What's typical? Common benchmarks include:

2 The biggest plan by enrollment in any of the state's three largest small group insurance products, Any of the three largest state employee health plans by enrollment, Any of the three largest federal employee health plan options by enrollment, and The largest HMO plan offered in the state's commercial market by enrollment. The specifics of what mental health and addiction services benefits look like at the state level vary. For example, Ohio chose the largest small group PPO product offered in the state, a Blue Cross plan, as its benchmark for EHBs. Among other provisions, Ohio's plan limits mental/behavioral health and substance abuse outpatient services to 30 visits per year. Outpatient and inpatient substance abuse treatment and general inpatient mental/behavioral treatment services are also limited to 30 visits annually. But biologically based mental illnesses are covered the same way as other medical services thus, limits don't apply, as required by the MHPAEA. In contrast, Texas's mental health benefits in the benchmark plan are more limited. Outpatient mental health visits are capped at 25 per year, and substance abuse outpatient services are set at three. Inpatient mental/behavioral health visits are limited to 10, with three days for inpatient substance abuse treatment. Meanwhile, at the other end of the spectrum, California's mental health benefits set no limits on such visits. Out-of-Pocket Limits Under the MHPAEA, as with standard medical/surgical benefits, plans can't impose a lifetime or annual dollar cap on mental health and substance benefits though benefits may be limited in other ways. Similarly, the ACA caps employees' out-of-pocket expenditures on mental health benefits, along with other EHBs. The ACA's 2015 limits are $6,600 for self-only coverage (up from $6,350 last year) and $13,200 for family coverage (up from $12,700 in 2014). Guidance issued jointly by the three federal agencies with oversight of ACA compliance last year made it clear that, in 2015, for nongrandfathered small group plans, those out-of-pocket limits apply to all EHBs. Plans can, however, satisfy that requirement based on either: 1. Aggregate employee claims for all EHBs used, or 2. Separate out-of-pocket maximums for individual EHBs that add up to the overall limits. In other words, you could, in effect, create an incentive for employees to take advantage of one or more EHBs (including mental health / substance abuse services) by establishing a low out-of-pocket maximum for some EHBs and a higher one for others. Whether such fine-tuning makes sense might be influenced by the actual details of coverage under each EHB. The state models that guide EHB design may give an indication, so ask your benefits advisor for help setting up your plan based on your state's specifics. Strong Interaction Offering a carefully balanced yet affordable array of health benefits has always been the goal of most employers. But the interaction between the MHPAEA and the ACA offers a strong indication of how the federal government wants many nongrandfathered small group plans to handle mental health and addiction services benefits. If your plan falls into this category, your benefits advisor can, as mentioned, help you interpret and comply with the mental health benefit parity requirement. Summary of Benefits and Coverage Requirement to Undergo

3 Changes The IRS, DOL, and Department of Health and Human Services (HHS) have issued separate but largely identical proposed regulations relating to the ACA's summary of benefits and coverage (SBC) requirement. The agencies have also released proposed revisions to the SBC template, instructions, uniform glossary and other materials. These latest proposed regulations would modify the final regulations issued in According to the agencies, the proposed changes which would generally apply to plan years beginning on or after September 1, 2015 are intended to streamline the SBC requirement to more clearly provide the information most useful to individuals (as indicated by comments from stakeholders) and ease compliance for insurers and group health plans. Proposed Changes to Regulations Here are the major highlights of the proposed changes: Providing the SBC at application or enrollment. The SBC must be provided within specified timeframes upon a group health plan's application to an insurer or a participant's eligibility to enroll for coverage. The proposed regulations would clarify that, if an SBC was provided before the applicable event, no new SBC is required unless required information in the SBC changed in the interim. Also, in connection with these rules, the proposed regulations would add references to "reissuance" and "re-enrollment" (to go along with existing references to renewal) and clarify that re-enrollment includes automatic reenrollment. Modifying content requirements. Plans and insurers will continue to be required to provide contact information for questions, but insurers would be required to include an Internet address for obtaining a copy of the individual coverage policy or group certificate. It appears that the SBC for a self-insured group health plan wouldn't be required to provide an Internet address for obtaining a copy of the plan. Of course, group health plans that must comply with the Employee Retirement Income Security Act (ERISA) are still required to provide a copy of the plan document upon written request by a plan participant or beneficiary under ERISA Section 104(b). Formalizing FAQ guidance on allocating contractual responsibility. The proposed regulations would formalize guidance previously issued in FAQ form regarding allocation of contractual responsibility for SBC compliance. Under the proposed regulations, if an entity required to provide an SBC to an individual enters into a binding contract with another party to provide it, the entity will be treated as satisfying the SBC requirement as long as it: 1. Monitors the other party's performance, 2. Corrects any noncompliance determined to have occurred, and 3. Communicates with participants and beneficiaries about noncompliance and takes "significant" steps as soon as practicable to avoid future violations, in the event it doesn't have information necessary to correct noncompliance. Formalizing other FAQ guidance. Several proposed changes reflect other guidance previously issued in FAQ form. These include: Excluding Medicare Advantage plans from the SBC requirement, Permitting a group health plan using two or more benefit packages to provide either a single or multiple SBCs, and Allowing the SBC to be provided electronically in connection with online enrollment or in response to an online request.

4 The SBC would have to be provided in paper form if a paper SBC is requested. Outlining the consequences for failure to provide. The proposed IRS regulations clarify that enforcement by the IRS doesn't apply to insurers. The regs would also specify that the IRS will enforce the SBC requirement "using a process and procedure consistent with" Internal Revenue Code Section 4980D. ERISA group health plans are subject to enforcement by the DOL, and the proposed DOL regulations clarify that DOL enforcement would be according to a "process and procedure consistent with" that used for enforcing Form 5500 failures. Insurers and governmental plans are subject to enforcement by the HHS, and HHS regulations already specify the HHS enforcement mechanism for SBC failures. The statutory penalty for willful failure to provide an SBC is $1,000 per failure. The proposed regulations make no mention of the good-faith compliance standard that currently applies, so it's unclear whether it might continue to apply after final regulations are issued. It should be noted that a failure to comply with the SBC requirement apparently also subjects certain group health plans (generally ERISA plans and church plans) to separate excise taxes of $100 per day under Sec. 4980D. Proposed Changes to the SBC Template The proposed revised SBC template would eliminate a couple of questions from the "Important Questions" section, namely: 1. The question about annual limits (because plans may no longer impose such limits), and 2. The question about what isn't covered. (The SBC would still address noncovered services elsewhere.) In addition, the explanations of copayments, coinsurance and other terms would be removed, as they're addressed in the uniform glossary. Information regarding whether, under the ACA, the plan provides minimum essential coverage or meets minimum value requirements would be presented differently. Currently, a plan must indicate, either on the SBC or separately, whether it provides minimum essential coverage and meets the minimum value standard. As proposed, this information would have to be provided on the SBC itself, using language set forth in the proposed group health plan instructions. For plans providing minimum essential coverage, the language explains that enrolling in the plan will satisfy the ACA's individual mandate (referred to as the "individual responsibility requirement"). If a plan does not satisfy minimum value requirements, it must include additional language explaining that this may create eligibility for financial assistance (subsidies) to buy coverage via a Health Insurance Marketplace. Finally, the SBC would include an additional coverage example, detailing a foot fracture involving an emergency room visit. (The existing maternity and diabetes scenarios would still be included.) The coverage example calculators would remain available for plans and insurers to use in completing the examples, along with proposed narratives and guides to the calculations, as well as updated underlying pricing data. The page explaining assumptions and other information about the coverage examples would be eliminated. The net effect of these changes is to reduce the SBC template to 2½ double-sided pages of prescribed content.

5 Proposed Changes to the Uniform Glossary Under the proposed changes, a variety of new terms would be added to the uniform glossary. These include: Claim, Cost sharing, Cost-sharing reductions, Formulary, Individual responsibility requirement, Marketplace, Minimum essential coverage, Minimum essential coverage exemption, Minimum value standard, Referral, and Specialty drug. Remember that the uniform glossary is used as-is and may not be modified by plans or insurers. Plans should attempt to avoid inconsistencies between defined plan terms and glossary definitions. Fundamental Part of Compliance The SBC requirement is now a fundamental part of group health plan compliance, so these proposed rules deserve careful study. For employees, the explanation of how a plan's coverage may affect responsibility under the individual mandate and potential subsidy eligibility on a Health Insurance Marketplace appears to be helpful. As for the effect on employers and their plans, the preamble to the proposed regulations notes that shortening the SBC template would allow plans more flexibility to add information. For example, a plan might describe the effect of a health Flexible Spending Account or Health Reimbursement Arrangement. Or a plan could reflect cost-sharing differences based on participation in a wellness program. Such added information would be permissible as long as the total length of the SBC doesn't exceed the statutory limit of four double-sided pages. The agencies have specifically requested comments regarding plans that have difficulty providing the required information in the specified format, and what accommodations may be appropriate for those plans. The comment period ends March 2, Claiming the 2014 Small Business Health Care Tax Credit The IRS has released the 2014 version of Form 8941, which can be used by eligible small employers to calculate the health care tax credit. Created as part of the ACA, this credit generally is available to employers that: Have fewer than 25 employees, Pay average annual wages of less than $50,000 (indexed for inflation; see below), and Contribute a uniform percentage of at least 50 percent of the premium costs for employee health insurance coverage. An arrangement with employer contributions of less than 50 percent for some employees may still qualify under certain circumstances, depending on how tiers of coverage are structured and whether composite billing or list billing is used.

6 Once calculated, the tax credit is claimed as a general business credit on Form 3800 (or, by tax-exempt small employers, as a refundable credit on Form 990-T). Key Changes Form 8941 and its instructions have been modified to reflect a number of key changes to the small business tax credit for 2014 and beyond. For starters, the maximum tax credit has increased to 50 percent of premiums paid (35 percent for tax-exempt eligible small employers). In addition, now those premiums must be for qualified health plans offered through a Small Business Health Options Program (SHOP). But an exception is available for employers in identified Washington and Wisconsin counties without 2014 SHOP coverage. (Note that, for 2015, IRS Notice creates a new exception for employers in certain Iowa counties without 2015 SHOP coverage as well.) Form 8941 now begins by asking: Whether premiums were paid through a SHOP, or Whether an exception applies. If the answer to both questions is no, taxpayers are instructed to stop and not file the form. Also beginning with the 2014 tax year, the credit is available to eligible small employers for a maximum of two consecutive tax years. And, adjusted for inflation, average annual wages must be less than $51,000 for Although the inflation-adjusted threshold is technically $50,800, the rounding rule required for calculating average wages results in $51,000 being the effective limit for purposes of Form More on the Instructions The instructions identify the information needed to calculate the tax credit. They also include worksheets to determine the number of employees, average wages and average premiums for the small group health insurance market for each state where an employer has employees. More specifically, the instructions list average premiums, by county, for all 50 states plus the District of Columbia -- which is relevant because an employer's health care tax credit may be reduced if the employer pays premiums greater than the average for the small group market for the state in which its employees work. Furthermore, detail has been added to the instructions on the treatment of contributions paid toward wellness programs, tobacco surcharges and dependent coverage to reflect the 2014 final regulations. An Attractive Incentive Despite outreach efforts by the IRS and the Department of Health and Human Services, employers have not claimed the small business health care tax credit as much as expected or hoped. The 2014 changes won't likely change this. The wage thresholds remain difficult for many small companies to meet, and the limited availability of SHOP coverage in many parts of the country presents another challenge. Yet, for small employers that do qualify, the increase to a maximum 50 percent credit makes this an attractive incentive even in light of the two-consecutive-year limit. If you think your small business may qualify for the credit, work with your tax advisor to carry out the process of claiming it.