"The Update printed below is for the use of clients of Benefits by Design. It is for informational purposes only. It is not intended to provide legal or accounting advice. Employers should consult their attorneys or tax advisors for specific compliance information and advice."
On December 22.1997, the Dept. of Labor (DOL), Trea-sury Dept and the Dept. of Health and Human Services (DHHS) issued interim regulations on the Mental Health Parity Act (MHPA) provisions contained in ERISA, the Internal Revenue Code (IRC) and the Public Health service act (PHSA).
Summary of the MHPA
The MHPA requires group health plans and health insurers to have annual and/or lifetime dollar limits for mental health benefits equal to those for physical illness benefits. Mental health benefits do not include chemical dependency or substance abuse. Small employers (those with 50 or fewer employees in the preceding calendar year) are exempt from this law. If an employer has more than 50 employees, the employer or its health insurer must comply with the MHPA unless compliance with the law's provisions raises the cost of the plan by I% or more.
The MHPA is effective for plan years beginning on or after January 1, 1998. The laws provision sunset on September30. 2001.
HighIights of the MHPA Interim Regulations
(Below is a general description of the interim regulations. The interim regulations provide the long needed guidance on the 1% increased cost exemption. They impose new notice requirements on plans wishing to qualify for the exemption.
The interim regulations make it clear that employers are not required to provide mental health benefits; however, insured policies must still offer or provide mental health benefits where required by state law. Group health plans may set the terms and conditions relating to the amount. duration, or scope of mental health benefits under the plan, including:
· cost sharing (copays deductibles, coinsurance)
· limits on numbers of visits or days of coverage
· requirements related to medical necessity · requiring prior authorization for treatment
Determining Employer Size
If an employer is part of a controlled group of different employers, the whole controlled group is treated as single employer in determining if the law applies. The controlled group rules are found under sections (b), (c), (m), and (0) of Section 414 of the IRC. All employees of the employer, both full-time and part-time. are counted in determining employer size.
1% Increased Cost exemption
1. Plans Must Comply with the MHPA for a Minimum 6-Month Base Period Group health plans and health insurers must comply with the MHPA provisions for a minimum of six months following the MHPA effective date. (Sec #5 below regarding information on a possible transition period for plans that were relying on the l% increased cost exemption before the interim regulations were released.)
2. Calculation of the l% Increased Cost Exemption After a minimum of six months, a group health plan must calculate it's actual experience (claims costs and administrative costs) under MHPA using a formula prescribed in the interim regulations. The results of this calculation arc not subject to formal approval by the federal regulators. Premium payments are not part of the cost. Special rules apply for fully or partially insured group health plans that arc combined in a pool for rating purposes.
3. Notice Requirement If a group health plan qualifies for the 1% increased cost exemption, the plan must notify covered individuals and the appropriate federal agency. The agency to be notified is determined as follows:
· Church plans notify the Department of the Treasury:
· Nonfederal government plans notify the Department of Health and Human Services: And
· Group health plans subject to ER ISA notify the Department of Labor.
Group health plans must also make available to covered individuals, upon request, and at no charge, a summary of the information on which the exemption was based. (See the attached example for the required information.)
4 Effective Date of the 1% Increased Cost Exemption
The exemption will not take effect until 30 days after the notice is sent to covered individuals and the appropriate federal agency. Once the exemption is effective, the group health plan is not required to comply with the MHPA the exemption, once satisfied, will continue to apply until September 30, 2001 (the MHPA's sunset date). Insured group health plans may change carriers without requalifying for the exemption. The regulations permit health insurers to sell non-MHPA policies to groups that have previously qualified for the exemption.
5. Transition Period for Plans that Expected to Qualify for the 1% Increased Cost Exemption No enforcement action will be taken before April 1, 1998, for group health plans and health insurers:
· who are subject to the MHPA in the first quarter of 1998;and,
· who assumed before the release of these interim regulations they would qualify for the cost exemption.
In order for this transition relief to apply, a group health plan must do two things;
(a) amend the plan to comply with MHPA by March 31, 1998; and,
(b) notify covered individuals (either by sending a notice directly to individuals or posting a notice in a place where employee communications are normally posted) and notify the appropriate federal agency (see 3 above). (See attached example for the required information.)
The Role of State Laws in MHPA
The sates must pass insurance laws equal to or more generous than the NIHPA. Otherwise, the federal law will apply. For insured customers of Principal Mutual 1. Because all employees of an employer must be counted in determining employer size See (Determining Employer Size above), insured group health plans which are considered small employers under state insurance laws are not necessarily exempt from this law. If you are an insured policyholder with 50 or fewer covered employees, please advise your administrative contact if:
(a) you are subject to controlled group rules of the IRC and the combined number of employees covered under the control led group is more than 50 (please check with your tax advisors or legal counsel to verify if you arc subject to the controlled group rules listed above); or,
(b) you are considered a small employer under state insurance laws but employed more than 50 employees in the preceding calendar year
2. The transition notice requires plan specific information It also requires the notice he signed and dated by, the plan administrator. Because we do not always have access to the required information and we are not considered the plan administrator, we will not be using the transition date for our insured plans.
3. For insured plans, benefit changes must be filed with and approved by the states. We must do this for the MHPA to amend our various product offerings to comply with the minimum base period described above. Because refiling and changing benefits again would be costly and impractical we will not use the l%- increased cost exemption for our insured plans.
4. A mailing will be sent to affected policyholders outlining our interim compliance method. Final benefits are being filed with the State insurance departments and cannot be used until approved. N-lore details will be included in the policyholder mailing. NOTIICE OF GROUP HEALTH PLAN'S EXEMPTION FROM THE MENTAL HEALTH PARITY ACT
DESCRIPTION OF THE ONE PERCENT INCREASED COST EXEMPTION - This notice is required to be provided to you under the requirements of the Mental Health Parity Act of 1 996(MH PA) because the group health plan identified in Line 1 below is claiming the one percent increased cost exemption from the requirements of MHPA. Under MHPA, a group health plan offering both medical/surgical and mental health benefits generally can no longer set annual or aggregate lifetime dollar limits on mental health benefits that are lower than any such dollar limits for medical/surgical benefits. In addition, a plan that does not impose an annual or aggregate lifetime dollar limit on medical/surgical benefits generally may not impose such a limit on mental health benefits. However, a group health plan can claim an exemption from these requirements if the plan's costs increase one percent or more due to the application of MHPA's requirements.
This notice is to inform you that the group health plan identified in line 1 below is claiming the exemption from the requirements of MHPA. The exemption is effective as of the date identified in Line 4 below. Since benefits under your group health plan may change as of the date identified in Line 4 it is important that you contact your plan administrator or the plan representative identified in Line 5 below to see how your benefits may be affected as a result of your group health plan's election of this exemption from the requirements of MHPA.
Upon submission of this notice by you(or your representative) to the plan administrator or the person identified in Line 5 below, the plan will provide you or your representative. free of charge. a summary of the information upon which the plan's exemption is based.
1. Name of the group health plan and the plan number(PN}:
2. Name. address. and telephone number of plan administrator responsible for providing this notice.
3. For single-employer plans. the name address telephone number, (if different from Line 2) and employer identification number (EIN) of the employer sponsoring the group health plan:
4. Effective date of the exemption(at least 30 days after the notices are sent): ___________
5. For further information. call:_____________________________________
NOTICE OF GROUP HEALTH PLAN'S USE OF TRANSITION PERIOD
This notice is to inform you that the plan is utilizing the MHPA transition period and that the plan is delaying compliance with the parity requirements of MHPA until a time no later than March 31,1998.
1. Name of the group health plan and the plan number(PN):
2. Name. address, and telephone number of plan administrator responsible for providing this notice:
3. For single-employer plans, the name, address, telephone number,(if different from line 2), and employer identification number(EIN) of the employer sponsoring the group health plan:
4. For further information. call:
5. Signature of plan administrator:___________________________Date:______________