MEMORANDUM TO CLIENTS

Transcription

1 October 27, 2008 MEMORANDUM TO CLIENTS Re: Congress Passes New Benefit Standards for Group Health Plans including the Mental Health Parity and Addiction Equity Act of For the first time in nearly ten years, Congress passed not one, but three new benefit standards for group health plans. In recent months, Congress passed the Mental Health Parity and Addiction Equity Act, Michelle's Law (providing medical leave for college students), and the Genetic Information Nondiscrimination Act. Further, this trend appears poised to continue. The House recently passed two more group health plan standards: the Health Insurance Source of Injury Clarification Act of 2008 (H.R. 6908) (requiring pre-enrollment disclosure of source of injury limitations) and the Breast Cancer Patient Protection Act of 2007 (H.R. 758) (requiring minimum hospital stay after a lumpectomy or mastectomy). The Senate has yet to address either of these bills. The three new benefit mandates are discussed below. I. Mental Health Parity and Addiction Equity Act Passes as Part of "Bail Out" Bill In a surprising move, the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (H.R. 1424) ("Mental Health Parity Act of 2008" or "Act") became the legislative vehicle for the Emergency Economic Stabilization Act of See Title V, subtitle B of the Emergency Economic Stabilization Act of After passing the Senate on October 2, 2008, the House passed the Act and the President signed it into law on Friday, October 3 rd. For most plans, the new mental health and substance use disorder parity provisions go into effect for plan years beginning on or after Generally, the Mental Health Parity Act of 2008 prohibits group health plans from applying financial requirements (e.g. copays) or treatment limitations (e.g. number of annual visits) that are more restrictive than those applied to the group health plan's medical and surgical benefits. History Under the Mental Health Parity Act of 1996, group health plans were prohibited from placing lifetime or annual limits on mental health benefits that did not apply to substantially all medical and surgical benefits. The prior law had well understood limits. In particular, health plans were permitted to limit the number of annual visits and/or add additional cost sharing requirements for mental health treatment. For example, it was permitted under the prior law to include an 80% coinsurance for medical surgical benefits and a 50% coinsurance for mental

2 - 2 - health benefits. Different limits on the number of days of treatment were also permitted. The new 2008 Mental Health Parity Act prohibits such arrangements with certain exceptions described below, and expands the parity requirements to include the treatment of substance use disorders. New Parity Standard: Financial Requirements & Treatment Limits The Mental Health Parity Act of 2008 amends the Employee Retirement Income Security Act of 1974 ("ERISA"), the Public Health Service Act ("PHSA") and the Internal Revenue Code ("Code") to prohibit group health plans or health insurance issuers offering group health coverage that includes mental health or substance use disorder benefits from applying financial requirements or treatment limits that are more restrictive than those applied to substantially all medical surgical benefits. The Act requires that the financial requirements for mental health or substance use disorder benefits be "no more restrictive than the predominant financial requirements applied to substantially all medical and surgical benefits covered by the plan," and that there be "no separate cost sharing requirements." The Act defines financial requirements to include deductibles, copayments, coinsurance, and out-of-pocket expenses. Under the Act, group health plans and health insurers issuing policies in connection with group health plans must ensure that the treatment limits "applicable to mental health or substance use disorder benefits are no more restrictive than the predominant treatment limitations applied to substantially all medical and surgical benefits covered by the plan and there are no separate treatment limitations." The Act defines treatment limitations to include limits on the frequency of visits, number of visits, days of coverage, or other similar limits on the scope or duration of treatment. The Act defines the term "predominant" to mean the most common or frequent of such type of limit or requirement (i.e. financial requirement or treatment limit). In addition, the Act also requires plans to offer out-of-network mental health or substance use disorder benefits if it offers out-of-network medical/surgical benefits. The parity requirements generally apply to out-of-network mental health and substance use disorder benefits. The Act allows health plans to define the terms "mental health" or "substance use disorder" in accordance with applicable state and federal law. This important provision preserves the ability of health plans to better control the cost and scope of mental health and substance use disorder coverage. For example, under this rule, plans subject to the federal parity standards may still determine which mental health or substance use disorder benefits will be covered under the plan. This will be of particular importance to self-funded health plans which are not subject to state law mandates or definitions of mental health benefits.

3 - 3 - Application As noted above, the Act extends the parity requirement to substance use disorder benefits as well. However, the new parity requirements apply only to group health plans that offer both medical/surgical benefits and mental health or substance use disorder benefits. Plans that do not offer mental health or substance use disorder benefits are not required to make any changes. The Act also exempts small employers with 50 or fewer employees and collective bargaining agreements in place before the Act's enactment until the later of January 1, 2009 or the collective bargaining agreement's termination (without regard to amendments or extensions). The January 1, 2009 date for collectively bargained plans appears to be an error, and interested parties may wish to seek clarification or technical correction. The Act uses HIPAA's definition of group health plan and incorporates the same exceptions and opt-outs found in HPAA, such as excepted benefits and the opt-out election for nonfederal governmental plans. Similar to current law, the new Act does not prohibit the use of medical management techniques or require that medical management techniques be the same for mental health and substance use disorder benefits and medical/surgical benefits. Moreover, medical management techniques, such as precertification requirements, are protected by a rule of construction that states that nothing shall be construed as affecting the terms and conditions of the plan or coverage to the extent that the plan terms and conditions do not conflict with the new parity requirements. The rule of construction, together with the fact that the Act's basic requirements do not expressly preclude medical management practices that vary between medical/surgical benefits and mental health and substance use disorder benefits, appear to protect these cost saving techniques. Note that the Act does require plans to disclose, upon request or as otherwise required by law, criteria used to make medical necessity determinations and the reasons for any denial of reimbursement for services. We think that this disclosure request further buttresses the view that medical management provisions are generally protected under the Act. Cost Exemption The Act contains a cost exemption if the parity requirements cause a health plan's total costs to increase by 2% in the first plan year and 1% in subsequent years. The cost exemption requires plans to comply with the parity requirement for at least six months before claiming the cost exemption, which permits plans to avoid the parity requirements for one plan year. To claim the cost exemption, a plan must notify the secretary of Health and Human Services ("HHS"), Department of Labor ("DOL"), or Treasury, as well as appropriate state agencies and plan participants and beneficiaries that the plan intends to utilize the cost exemption. Note that unlike ERISA's summary of material modification requirement, in this case, the plan must notify participants prior to taking advantage of the cost exemption. The notice to the secretary must describe the number of covered lives, a description of the total cost of medical surgical, mental health, and substance use disorder benefits, and the total cost for mental health and substance use disorder benefits for the prior year and the year for which the exemption is sought. The cost increase must be certified in writing by a qualified actuary who is

4 - 4 - a member of the American Academy of Actuaries, and all underlying documentation must be retained by the plan for a period of six years, during which time such documentation is subject to audit. Enforcement & State Law The Act retains the original Mental Health Parity Act's enforcement scheme (which is generally the same as HIPAA's). Under this scheme, participants can sue to enforce the parity requirements under ERISA. DOL will enforce the parity requirements as applied to self-funded plans, and HHS will be the fall-back regulator for insurers in states that do not adopt laws that meet the new federal requirements. In regulating insurers, states may adopt and enforce their own laws that meet or exceed the federal parity requirements provided that such laws do not prevent the application of the new federal requirements. This allows states to go further and ensures that state mental health coverage mandates are preserved. Previous versions of the House bill permitted states to develop their own remedies; however, the provision was removed from the final bill. Other Provisions The Act requires federal government agencies to comply with new reporting and disclosure requirements. The DOL is required to submit a report to Congress by January 1, 2012, and every two years thereafter to report on group health plan compliance with new parity requirements. The DOL is also required, in connection with HHS and Treasury, to publish and widely disseminate guidance and information on the application of the Act, for health plans, participants, beneficiaries, states, and other regulatory bodies and provide assistance to such groups. In addition, the Comptroller General is required to undertake a study analyzing the rates, patterns, trends, coverage, and exclusions of specific mental health and substance use disorder diagnosis by health plans. Within three years of the Act's enactment and every two years thereafter, the Comptroller General is required to submit a report to Congress summarizing this research. Regulations & Effective Date Finally, the Act requires the appropriate agencies to issue regulations no later than 1 year after the date of enactment, which would be October 3, The Mental Health Parity Act of 2008 goes into effect for most plan years beginning on or after one year after enactment, regardless of whether regulations are issued. This would be for plan years beginning on or after October 3, 2009 or January 1, 2010 for most calendar year plans.

5 - 5 - II. Michelle's Law Requires Coverage for College Aged Dependents during Medical Leave Michelle's law (H.R. 2851) passed the House on July 30, 2008, the Senate on September 25, 2008, and was signed by the President on October 9, Like the Mental Health and Addiction Equity Parity Act, Michelle's law amends ERISA, the PHSA, and the Code. The new law prohibits group health plans from terminating coverage for a dependent student who takes a medically necessary leave of absence. The Act applies to group health plans and health insurers that issue coverage in connection with a group health plan. The Act uses HIPAA's definition of group health plan and incorporates the same exceptions. Currently, many group health plans condition dependent eligibility on status as a fulltime student for dependents between the ages of 19 and 23 or later depending on the terms or state law. This means that such dependents must be enrolled as a full-time student in order to retain health insurance coverage. Coverage During Medically Necessary Leave Under the new law, a group health plan must continue to provide coverage to a dependent who otherwise would lose coverage under the plan for failing to maintain full-time enrollment in a post-secondary institution in the event the dependents require a medically necessary leave of absence. The group health plan must continue coverage for one year after the first day of the medically necessary leave, or until coverage otherwise would terminate under the plan. The group health plan also is required to provide a notice describing the availability of the medical leave as part of the plan materials describing the student status requirements. At the end of the year of medical leave, dependents who return to school as full-time students may continue coverage under the terms of the plan. Coverage for dependents who do not return to school may be terminated under the terms of the plan. Although the legislation does not address COBRA continuation rights, a loss of coverage for dependents who do not return to school likely would be considered a "qualifying event" for purposes of COBRA. Accordingly, group health plans that are subject to COBRA would be required to offer such dependents 36 months of COBRA continuation coverage from the date that the coverage is terminated. To qualify for coverage under the law, (1) the dependent must suffer from a serious illness or injury (2) the dependent must lose eligibility due to the medically necessary leave; and (3) the leave must be medically necessary. To demonstrate that a dependent meets the three criteria, the dependent's treating physician must certify that dependent is suffering from a medical illness or injury and that the leave of absence is medically necessary. Michelle's Law is based on a similar law that was passed in New Hampshire in 2006 in honor of Michelle Morse, a college student who was diagnosed with colon cancer. Michelle was required to maintain a full course load while undergoing cancer treatment in order to retain her health insurance coverage. Michelle died of colon cancer in 2005 at age 22.

6 - 6 - Effective Date Michelle's Law is effective for plan years beginning one year on or after the date of enactment October 4, That means that most calendar year plans will have until January 1, 2010 to comply. III. Genetic Information Nondiscrimination Act ("GINA") President Bush signed the Genetic Information Nondiscrimination Act of 2008 (Pub. L. No ) ("GINA") into law on May 21, GINA amends ERISA, the PHSA, and the Code to prohibit discrimination on the basis of individuals' genetic information by group health plans, health insurers, and employers. GINA also prohibits employment discrimination on the basis of genetic information. We discuss the provisions that apply to group health plans below. Currently, nondiscrimination provisions under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") prohibits health plans and insurers from establishing eligibility rules or charging higher premiums or contributions for individuals on the basis of "health factors," including genetic information. However, these nondiscrimination provisions do not prohibit setting group premium rates on the basis of health factors. GINA extends HIPAA by prohibiting health plans and insurers from setting group premium rates on the basis of genetic information and includes a myriad of other specific prohibitions related to genetic information. Genetic Nondiscrimination Provisions GINA defines "genetic information" to include information about an individual's genetic tests, genetic tests of an individual's family members, and manifestation of a disease or disorder in family members of an individual. "Genetic information" does not include information on the manifestation of a disease or disorder in an individual covered by a plan, and therefore allows for increasing premiums based on manifestation of a disease or disorder in an individual. However, manifestation of a disease or disorder in the individual's family member cannot be the basis for an increase in premiums. Specific prohibitions under Title I of GINA provide that health plans and health insurers may not: Adjust premium or contribution amounts on the basis of genetic information; Request or require that an individual or the individual's family member undergo a genetic test; Request, require, or purchase genetic information for underwriting purposes; or Request, require, or purchase genetic information with respect to any individual prior to the individual's enrollment in a group health plan.

7 - 7 - Because "genetic information" includes information on manifested diseases in family members, GINA's prohibition on requesting genetic information for underwriting purposes could impact the use of family histories in medical questionnaires, a practice particularly common in the individual market. In addition, GINA could impact the type of information a health plan requests on a health risk assessment, particularly if the health risk assessment is obtained prior to enrollment. However, GINA clarifies that the prohibition on adjusting premiums and contributions on the basis of genetic information does not prohibit health plans and insurers from increasing premiums based on manifestation of a disease or disorder in any individual enrolled in a health plan, nor does it prohibit the collection of genetic information for underwriting purposes and prior to enrollment with respect to manifestation of a disease or disorder in all family members enrolled in a plan. This provision also allows use of a medical questionnaire requesting information on manifested diseases or disorders in an individual prior to that individual's enrollment. However, manifestation of a disease or disorder in one family member covered by a plan cannot be used as genetic information about other family members covered by the plan to increase premiums. Another important provision states that, while health plans and health insurers may not request or require genetic tests, the definition of "genetic test" does not include tests for manifested diseases or disorders. Health plans and health insurers may obtain results of genetic tests in making determinations regarding payment. In addition, while health plans may not request, require, or purchase genetic information for underwriting purposes, they will not be considered to have violated GINA if they obtain genetic information that is incidental to requesting, requiring, or purchasing other information concerning individuals. Effective Date and Regulations The health plan provisions are effective for plan or policy years beginning on or after the date that is one year after the date of GINA's enactment: this would be plan years beginning after May 21, 2009 or January 1, 2010 for calendar year plans. Amendments to the Privacy Rule required by Title I are effective one year after the date of GINA's enactment (May 21, 2009). The Treasury, the IRS, DOL and HHS have requested comments about how group health plans, policies and procedures will be affected by regulation under GINA. The agencies will accept public comment until December 10, For more information on GINA see our July 2, 2008 client memo at * * * Authors: Jon Breyfogle, Christy Tinnes, and Heather Meade If you have any questions, please contact your regular Groom contact or any of the Health and Welfare practice group attorneys listed below:

8 - 8 - Jon W. Breyfogle jwb@groom.com (202) Gina M. Boscarino gmb@groom.com (202) Jenifer A. Cromwell jac@groom.com (202) Thomas F. Fitzgerald tff@groom.com (202) Debbie G. Leung dgl@groom.com (202) Christine L. Keller clk@groom.com (202) Heather E. Meade hem@groom.com (202) William F. Sweetnam wfs@groom.com (202) Christy A. Tinnes cat@groom.com (202) Donald G. Willis dgw@groom.com (202) Brigen L. Winters blw@groom.com (202) O:\CKELLER\HEALTH AND WELFARE UPDATES\MHP 2008 CLIENT MEMO.DOC