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 1, 2010.
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 required.
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 beneficiary.
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 employee’s commuting.
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.