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Ensuring Parity

The most significant points about complying with the Mental Health Parity Act and an update on the COBRA benefits -- as modified by the economic-stimulus act -- are summarized this month.

Monday, November 29, 2010
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Question: Can you provide us with recent updates that affect employer benefits, actions and requirements on the issues of mental health (such as the Mental Health Parity Act) or addiction and/or rehabilitation care (such as the Addiction Equity Act)?

Answer: Unquestionably, the most important recent development affecting employers in the areas of mental health and addiction or rehabilitation care were brought about by the Mental Health Parity and Addiction Equity Act of 2008 and the corresponding interim final regulations that were jointly published by the Departments of Treasury, Labor, and Health and Human Services on Feb. 2, 2010, and which implement the Act's provisions.

The final regulations were effective April 5, 2010. Generally, group-health plans must be in compliance for plan years beginning on or after July 1, 2010, while calendar year plans must be in compliance effective Jan. 1, 2011.

The MHPAEA amends the Employee Retirement Income Security Act of 1974, as amended, the Internal Revenue Code of 1986, as amended, and the Public Health Service Act. It also supplements certain prior provisions of the Mental Health Parity Act of 1996, and supersedes the existing regulations enacted under the MHPA.

The MHPAEA applies to group-health plans sponsored by both private and public-sector employers with more than 50 employees, including both self-insured and fully insured arrangements. The Act also applies to health-insurance issuers who issue coverage to employers with more than 50 employees.

Generally speaking, the MHPAEA requires that financial requirements (such as co-payments and deductibles) and treatment limitations (such as visitation limits) applicable to mental-health or substance-use-disorder benefits in group-health plans be no more restrictive than the medical/surgical benefits provided.

This represents an important expansion of the MHPA, which, while significant in establishing parity with regard to aggregate lifetime and annual dollar limits for mental-health benefits and medical/surgical benefits, did not address substance-use-disorder benefits.

It is important to note, however, that, while the Act provides new protections to participants in group-health plans, it does not require that plans provide mental-health or substance-use-disorder benefits. Instead, a group-health plan that already provides mental-health or substance-use-disorder benefits in addition to medical/surgical benefits must comply with MHPAEA's parity provision.

As interpreted by the final regulations, the MHPAEA provides a number of important protections. Below are summaries of some of the important changes to be aware of for plans that do provide for mental-health and substance-use-disorder benefits.

Protections Relating to Financial Requirements and Treatment Limitations:

* The "financial requirements" or "quantitative treatment limitations" on mental-health and substance-use-disorder benefits can be no more restrictive than the "predominant" requirements or limitations applied to "substantially all" medical/surgical benefits.

* This "predominant/substantially all" test applies to six classifications of benefits established by the regulations: (i) inpatient, in-network; (ii) inpatient, out-of-network; (iii) outpatient, in-network; (iv) outpatient, out-of-network; (v) emergency; and (vi) prescription drugs.

* Parity is generally required within each of the above classifications and within coverage tiers (i.e., single coverage or family coverage) but not across them. In other words, a plan need only provide as much mental-health or substance-use-disorder benefits as it does medical/surgical benefits in any given classification.

* The regulations do not provide for separate classifications for generalists or specialists in determining the predominant requirements that apply to substantially all medical/surgical benefits. Therefore, plans can no longer apply more restrictive requirements and limitations upon specialists.

* In addition, the parity requirement applies to cumulative requirements and limitations, and thus plans cannot have financial requirements such as deductibles accumulate separately for medical/surgical benefits and mental-health or substance-use-disorder benefits.

Protections Relating to Nonquantitative Treatment Limitations:

* Because of the less objective nature of nonquantitative treatments limitations (such as medical management standards and formulary design), the regulations include a separate and distinct parity requirement test for such limitations.

* Such limitations with respect to mental-health or substance-use-disorder benefits must be comparable and not applied more stringently than the limitations with respect to medical/surgical benefits.

Special Rule for Prescription Drug Benefits:

* If a plan imposes different financial requirements on different tiers of prescription drugs based on reasonable factors, as opposed to distinctions between medical/surgical benefits or mental-health or substance-use-disorder benefits, then the plan complies with the parity requirement in that respect.

Requirements for the Availability of Plan Information:

The MHPAEA requires that plans now make two disclosures regarding mental-health or substance-use-disorder benefits.

* First, upon request, the plan must make any criteria for medical-necessity determinations with respect to such benefits available to any current or potential participant, beneficiary or contracting provider.

* Second, upon request or as otherwise required, the plan must make available the reasons for any denial of reimbursement or payment for services with respect to such benefits.

Exemptions:

The MHPAEA retained -- but modified -- the exemption for smaller employers that was contained in the MHPA to take into account increased costs.

The MHPAEA and the corresponding regulations have, in large part, brought treatment options for employees with mental-health and substance-use disorders in line with traditional benefits provided for medical/surgical treatments -- at least for plans that already provide for such mental-health and substance-use benefits.

This column is just a brief summary of some of the most significant points and guidance published by the federal government. Human resource professionals and plan administrators should closely review the law, the regulations, and agency guidance in order to evaluate the steps necessary to bring health plans in line with the law.

Question: Can you explain the new COBRA benefits to us? Also, can you tell us at what point the benefits begin? For example, do the benefits begin when the former employee signs the forms? At the beginning of the next month? When the program was modified via the stimulus law? Or at some other time?

Answer: Since Congress passed the Consolidated Omnibus Budget Reconciliation Act health-benefit provisions in 1986, the law has provided for continuation coverage under group-health plans for certain individuals who might otherwise lose coverage.

Recently, however, and as part of the federal government's economic-stimulus package, Congress passed the American Recovery and Reinvestment Act of 2009, which provided a COBRA premium-reduction subsidy for eligible individuals involuntarily terminated from employment.

Under ARRA, an "assistance-eligible individual" is required to pay only 35 percent of their COBRA premiums, while the remainder would be reimbursed to the coverage provider in the form of a tax credit against certain employment taxes.

ARRA, as amended, was designed to help alleviate some of the financial burdens on individuals who lost their jobs during the economic downturn. The laws, however, do not represent permanent changes to COBRA.

Indeed, due to a statutory sunset provision, individuals who lost their jobs after May 31, 2010 are not eligible for the subsidy. While the cut-off date for the subsidy had previously been extended under the Department of Defense Appropriations Act of 2010, the Temporary Extension Act of 2010 and later the Continuing Extension Act of 2010, it was not extended further by the Unemployment Compensation Act of 2010.

As a result, only individuals who qualified on or before May 31, 2010 may continue to pay reduced premiums for up to 15 months, provided they are not eligible for another group-health plan or Medicare. If COBRA continuation coverage lasts for more than 15 months, the individual must pay the full amount to continue such coverage beyond that time.

Significantly, the 15-month premium-reduction period begins on the first day of the first period of coverage for which an individual is "assistance eligible." This is distinct from COBRA, which generally measures maximum coverage from the date of the original qualifying event (such as involuntary termination).

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While both COBRA coverage and the subsidy eligibility may often begin on the same date, this is not true in all instances, as explained below.

Under ARRA, as amended, an "assistance-eligible individual" is the employee or a member of his or her family who timely elects COBRA coverage following a qualifying event related to an involuntary termination of employment that occurs at any point (i) from Sept. 1, 2008 through May 31, 2010; or (ii) from March 2, 2010 through May 31, 2010 if the involuntary termination follows a qualifying event that was a reduction of hours, and the reduction of hours occurred between Sept. 1, 2008 and May 31, 2010.

Such a reduction in hours is a qualifying event if the employee loses coverage as a result of no longer working enough hours to satisfy the plan's eligibility requirements.

As an example, and as explained in the U.S. Department of Labor's Frequently Asked Questions, available on the DOL's website, an employee who suffered a reduction of hours on Aug. 7, 2009 that caused a loss of coverage on Aug. 31, 2009, but was not terminated until March 3, 2010 would only be eligible for the premium reduction subsidy through June 30, 2011.

To begin, the 18 months of COBRA continuation coverage would be measured from the initial reduction of hours qualifying event, which would generally be Aug. 7, 2009 or Sept. 1, 2009, depending on the plan. The premium-reduction period, however, would be different, and would not begin until April 1, 2010 since that would be the first day of the first period of coverage under the plan (typically a month or shorter period for which plans charge COBRA premiums).

Therefore, assuming that the COBRA coverage period (18 months) begins on the date of the loss of coverage, the 18 months of COBRA will end on Feb. 28, 2011, even though the individual would have only used 11 months of premium subsidy. Note, that states with so-called "mini-COBRA" laws require insurers to provide "comparable" continuation coverage beyond 18 months required by federal law; thus, individuals who are otherwise still eligible may continue to pay reduced premiums until they reach the 15-month cap.

ARRA, as amended, mandates that plans notify certain current and former participants and beneficiaries about the premium reductions. Note that the U.S. Department of Labor updated the information available on its website to take into account the extensions of the COBRA subsidy eligibility period.

Such information and materials include Model Notices, an Application for Expedited Review of Denial of COBRA Premium Reduction, a Fact Sheet, and Frequently Asked Questions. These are excellent resources for human resource professionals and plan administrators.

Generally, under COBRA, employers must provide notice of a qualifying event that is a reduction of hours or involuntary termination to the group-health plan within 30 days of the event. Thereafter, the plan has 14 days to provide a COBRA-election notice to the qualified beneficiaries. Thus, notice must typically be sent to the individual within 44 days of the qualifying event.

Under ARRA, and as guided by the DOL, a number of updated model COBRA notices were to be provided to certain groups of individuals depending on the timing of qualifying events and other considerations.

Generally speaking, these notices (including the General Notice, Notice of New Election Period and Supplemental Information Notice) were required to be sent within a certain amount of time after May 31, 2010, and are no longer applicable.

The DOL recommended that ARRA notices be provided to all individuals who experienced any termination of employment.

Since ARRA, as amended, is not available for individuals suffering qualifying events after May 31, 2010, previous guidance regarding COBRA-continuation coverage applies once again. Nevertheless, if employers and group-healthcare-plan sponsors have not already done so, they should review and evaluate the DOL guidance carefully and consult with benefits counsel to ensure that policies and plans are in compliance with the law.

Keisha-Ann G. Gray is senior counsel in the Labor & Employment Law Department of Proskauer in New York and co-chair of the Department's Employment Litigation and Arbitration Practice Group.

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