The massive financial bailout law, H.R. 1424, enacted on October 3, 2008
includes a number of extensions of tax provisions due to expire. Provisions of
H.R. 1424 and other new laws affect employee benefits, including an extension
and expansion of the mental health parity rules, health coverage for college
students on medical leave, and rules for bicycle commuting. The law also has
several executive compensation changes targeted at affected financial
institutions that will be covered in a separate WorkCite edition.
Mental Health Parity Extension and Expansion
Under the existing mental health parity rules in the Internal Revenue Code
and ERISA, group health plans that provide both medical benefits and mental
health benefits cannot use aggregate lifetime or annual dollar limits on mental
health benefits that are not imposed on substantially all medical benefits. The
existing rules were set to expire on December 31, 2008. However, under the new
law, the mental health parity requirements are now permanent as of January 1,
2009. There may also be a delayed effective date for a group health plan
maintained under a collective bargaining agreement.
Beyond the extension, the mental health parity rules are amended as to
financial requirements and treatment limits, disclosure of information on
medical necessity criteria and claim denials, and a plan’s out-of-network
provisions. These amendments are effective for plan years beginning on or after
October 3, 2009. For a calendar year plan, the effective date would be January
In addition, H.R. 1424 changes the definition of mental health benefits, such
that it no longer excludes substance abuse or chemical dependency. The term
“substance abuse” is replaced by a new definition for “substance use disorder
benefits”, which is added as a separate type of benefit for which parity is
Financial Requirements and Treatment Limits
Under H.R. 1424, the “financial requirements” for mental health or substance
use disorder benefits cannot be more restrictive than the “predominant”
financial requirements that are applied to substantially all medical and
surgical benefits covered by a plan.
A “financial requirement” includes deductibles, co-payments, co-insurance,
and out-of-pocket expenses, but not aggregate lifetime limits or annual limits
(which are subject to separate existing rules). There also cannot be cost
sharing requirements that apply only to the mental health or substance use
disorder benefits. In addition:
- The “treatment limitations” for mental health or substance use disorder
benefits cannot be more restrictive than the “predominant” treatment
limitations that apply to substantially all medical and surgical benefits
covered by the plan. A “treatment limitation” includes limits on the
frequency of treatment, number of visits, days of coverage, or other similar
limits on the scope or duration of treatment.
- There can be no separate treatment limits that apply only to mental
health or substance use disorder benefits.
- The same out-of-network provisions that apply to medical/surgical
benefits must apply to mental health or substance use disorder benefits.
Under regulations to be issued pursuant to the new law, a plan administrator
will have to disclose the criteria for medical necessity determinations made
under the plan for mental health or substance use disorder benefits to any
current or potential participant, beneficiary, or contracting provider upon
request. The regulations will require that the reason for any denial of
reimbursement or payment for services for mental health or substance use
disorder benefits will have to be made available to the participant or
Cost Exemption Changes
The new law also substantially tightens the exemption from the parity rules
for increased cost. The changes include raising the cost threshold, requiring
actuarial support, and notification to the IRS and state agencies (in addition
to participants). The exemption would apply only for one year unless extended by
a new demonstration of increased costs.
Health Care Continuation for Students on Medical Leave of Absence
Under the 2008 Student Health Insurance Act, H.R. 2852, a group health plan
must continue coverage of a college student who is a “dependent child” under the
plan who has a “medically necessary leave of absence”. The absence must
otherwise cause the child to lose student status under the plan. Coverage must
continue until the earlier of one year after the absence starts or the date
coverage would otherwise terminate for a covered student.
The benefits during the absence must be the same as for any other covered
student. However, a group health plan can require certification of medical
necessity by the child’s treating physician. The plan must also describe these
rules in any documents that include a requirement for certification of student
status for coverage under the group health plan.
The changes to the Internal Revenue Code and ERISA are effective for plan
years beginning on or after October 3, 2009, for medically necessary leaves of
absence beginning during those plan years. For a calendar year plan, the
effective date would be January 1, 2010.
Bicycle Commuting Reimbursement
Lastly, effective in 2009, bicycle commuting reimbursement will be added to
the list of qualified transportation fringe benefits. The reimbursement can
cover the purchase of a bicycle and bicycle improvements, repair, and storage if
the bicycle is regularly used for travel between the employee’s residence and
place of employment. The bicycle must be used for a substantial portion of the
The bicycle commuting reimbursement is limited to $20 multiplied by the
number of qualified bicycle commuting months during the year, or $240 per year.
The $20 amount is not indexed for inflation. The bicycle reimbursement cannot be
paid if the employee also receives a transportation fringe benefit for the
month, such as a transit pass. Also, a qualified bicycle commuting reimbursement
benefit cannot be funded through employee elective salary deferrals.
For additional information, please contact any member of McGuireWoods’
Benefits or Labor &
Employment groups, including: