On January 20, 2017, President Trump signed an executive order entitled “Regulatory Freeze Pending Review” (the “Freeze Memo“). The Freeze Memo was anticipated, and mirrors similar memos issued by Presidents Barack Obama and George W. Bush during their first few days in office. In light of the Freeze Memo, we have reviewed some of our recent posts discussing new regulations to determine the extent to which the Freeze Memo might affect such regulations.
The Regulatory Freeze
The two-page Freeze Memo requires that:
- Agencies not send for publication in the Federal Regulation any regulations that had not yet been so sent as of January 20, 2017, pending review by a department or agency head appointed by the President.
- Regulations that have been sent for publication in the Federal Register but not yet published be withdrawn, pending review by a department or agency head appointed by the President.
- Regulations that have been published but have not reached their effective date are to be delayed for 60 days from the date of the Freeze Memo (until March 21, 2017), pending review by a department or agency head appointed by the President. Agencies are further encouraged to consider postponing the effective date beyond the minimum 60 days.
Putting a Pin in It: Impacted Regulations
We have previously discussed a number of proposed IRS regulations which have not yet been finalized. These include the proposed regulations to allow the use of forfeitures to fund QNECs, regulations regarding deferred compensation plans under Code Section 457, and regulations regarding deferred compensation arrangements under Code Section 409A (covered in five separate posts, one, two, three, four and five).
Since these regulations were only proposed as of January 20, 2017, the Freeze Memo requires that no further action be taken on them until they are reviewed by a department or agency head appointed by the President. This review could conceivably result in a determination that one or more of the proposed regulations are inconsistent with the new administration’s objectives, which might lead Treasury to either withdraw, reissue, or simply take no further action with respect to such proposed regulations.
A Freeze on Reliance?
The proposed regulations cited above generally provide that taxpayers may rely on them for periods prior to any proposed applicability date. Continued reliance should be permissible until and unless Treasury takes action to withdraw or modify the proposed regulations.
The DOL Fiduciary Rule
The Freeze Memo does not impact the DOL’s fiduciary rule, which was the subject of its own presidential memorandum, discussed in detail elsewhere on our blog.
While on this day, most people focus on the heart, we’re going to spend a little time focusing on the head. Under the Mental Health Parity and Addiction Equity Act (MHPAEA), health plans generally cannot impose more stringent “non-quantitative” treatment limitations on mental health and substance abuse benefits (we will use “mental health” for short) than they impose on medical/surgical benefits. The point of the rule is to prevent plans from imposing standards (pre-approval/precertification or medical necessity, as two examples) that make it harder for participants to get coverage for mental health benefits than medical/surgical benefits. “Non-quantitative” has been synonymous with “undeterminable” and “unmeasurable”, so to say that this is a “fuzzy” standard is an understatement.
However, we are not without some hints as to the Labor Department’s views on how this standard should be applied. Most recently, the DOL released a fact sheet detailing some of its MHPAEA enforcement actions over its last fiscal year. In addition to offering insight on the DOL’s enforcement methods, it also provides some examples of violations of the rule:
- A categorical exclusion for “chronic” behavior disorders (a condition lasting more than six months) when there was no similar exclusion for medical/surgical “chronic” conditions.
- No coverage resulting from failure to obtain prior authorization for mental health benefits (for medical/surgical benefits, a penalty was applied, but coverage was not denied).
- A categorical exclusion for all residential treatment services for mental health benefits.
- Requiring prior authorization for all mental health benefits when that requirement does not apply to medical/surgical benefits.
- Requiring a written treatment plan and follow-up for mental health benefits when no similar requirements were imposed on medical/surgical benefits.
- Delay in responding to an urgent mental health matter (it’s not quite clear how this is a violation of the rule since there was no discussion comparing the delay to medical/surgical benefits, but we list it for completeness).
This is not an exhaustive list, but it gives at least a flavor of some of the plan provisions and/or practices that might violate the rule. In addition, the DOL previously issued a “Warning Signs” document that provided other examples. Further clarity is also expected in the future. Under the 21st Century Cures Act that was passed late last year, the DOL and other relevant departments are tasked with providing additional examples and greater clarity on how these rules apply.
One might be tempted to think that the Trump Administration will not enforce the MHPAEA rules as tightly as the Obama Administration did. At this point, it is hard to say. The 21st Century Cures Act also directed the relevant agencies to come up with an action plan to facilitate improved Federal/State coordination on these issues, so even if the Federal government backs off, there may be state enforcement actions under applicable state statutes as well.
Given these developments, plan sponsors should review the existing DOL releases and additional documents as they come out against their plan terms and discuss practices for approving and denying mental health claims with their insurers or third party administrators to evaluate whether they may be running afoul of these rules. Plan sponsors of self-funded plans have greater control over how their plans are designed and, in some cases, administered. However, even sponsors of insured plans should consider engaging their insurers in a discussion on these points to avoid potential employee relations issues and unexpected jumps in premiums that could happen if an insurer is forced to change its policies by the government.
On Friday, President Trump issued an order directing the Department of Labor to review the new regulation to determine whether it is inconsistent with the current administration’s policies and, as it deems appropriate, to take steps to revise or rescind it.
The long awaited Fiduciary Rule expanded protection for retirement investors and included a requirement that brokers offering investment advice in the retirement space put clients’ interests first. Financial institutions that either implemented, or were rapidly completing, their compliance efforts to comply with the Fiduciary Rule will need to assess the impact of this order on these efforts. Notwithstanding many earlier reports that the rule would be delayed 180 days, the date on which the rule was to take effect (April 10, 2017) has not been delayed. However, it is anticipated that a delay will be forthcoming, making the decision whether or not to proceed with further compliance efforts a difficult one. Many of those institutions may choose to implement only certain aspects of the Fiduciary Rule, while delaying complying with other aspects of that rule, pending the results of the DOL review.
Some have speculated that regardless of whether the Fiduciary Rule is finally made effective, compliance with the Fiduciary Rule could become the new “best practice” model; however, it is unlikely that financial institutions will voluntarily assume most of the obligations and resulting exposure of serving retirees in a fiduciary capacity.