Retirement plans are complicated creatures to administer so it perhaps is not surprising that the process of determining the beneficiary of a deceased participant can present its own set of challenges and, if things go awry, expose a plan to paying twice for the same benefit.
These risks were recently highlighted in an 11th Circuit Court of Appeals decision decided in the aftermath of the Supreme Court case of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan. In that 2009 decision, the Supreme Court ruled that a beneficiary designation naming a spouse had to be given effect even though the spouse had subsequently waived her interest in any of her husband’s retirement benefits in a divorce agreement.
In the 11th Circuit case, Ruiz v. Publix Super Markets, the question was whether a deceased participant’s prior designation of her niece and nephew as beneficiaries would trump the participant’s considerable efforts to change that designation shortly before her death. In deciding the case upon Publix’s motion for summary judgment, the Court assumed as true statements from the deposition of Arlene Ruiz, the partner of the deceased participant, who was asserting a right to the benefits as the newly intended beneficiary of Ms. Ruiz. According to the deposition, Ms. Ruiz spoke with a Publix representative who advised her that the beneficiary designation could be changed if the participant wrote a letter and delivered it to Publix indicating the new person she wanted to be her beneficiary and that person’s Social Security number. She was advised that such a letter had to be signed and dated.
The instructions provided by the Publix representative were contrary to a card system maintained by Publix especially designed for changes in beneficiary designations. Ms. Ruiz alleged that the Publix representative advised her that including a beneficiary designation change card with her correspondence was not necessary. Following the instructions of the Publix representative, Ms. Ruiz signed a letter following the instructions provided to her and included one of the Publix beneficiary designation change cards that contained the same pertinent information as the letter with the exception that the participant, Ms. Rizo, did not sign the card. Instead, on that card, she simply referenced her accompanying correspondence.
Faced with these facts, the Court concluded that it was clear that Ms. Rizo intended to change her beneficiary but that she did not strictly comply with the directions contained in the plan’s summary plan description for how to change a beneficiary designation. The issue for decision, according to the Court, was whether the equitable doctrine of substantial compliance required a ruling in favor of Ms. Ruiz. The doctrine of substantial compliance would give effect to a beneficiary designation where a participant evidenced his or her intent to make a change and made discernible attempts to effectuate the change. The Court concluded that the doctrine of substantial compliance did not survive the Supreme Court decision in Kennedy given the Supreme Court’s emphasis on the duty of a plan administrator to act in accordance with the plan documents.
The 11th Circuit decision should be helpful to plan administrators, although it highlights (i) the necessity of having a clearly stated process for changing beneficiary designations, (ii) for requiring that participants follow those procedures, and (iii) for being consistent in the administration of those procedures.
On the other hand, consistently applied administrative procedures will not necessarily solve all of a plan administrator’s issues with beneficiary designations. Apart from failed or incomplete efforts to change designations, we have encountered a number of thorny situations raising the question of who is the rightful beneficiary, including divorces, simultaneous deaths, multiple spouses, and beneficiaries as murderers of their benefactors. With these situations in mind, plan sponsors may wish to consider some of the following practices and additions to plan language in anticipation of these situations:
- Giving frequent written reminders to participants about their beneficiary designations
- Resoliciting updated beneficiary designations from participants on a periodic basis
- Adopting a rule providing for the revocation of spousal designations upon divorce
- Adopting a rule specifying a presumption of survival in the event of the simultaneous death of a participant and beneficiary
- Adopting a rule that voids a beneficiary designation naming a person who is convicted of the murder of the participant
While state law may address some of these situations, ERISA preemption muddies those waters and adopting a plan rule should avoid any debate over the applicability of a state law. Another helpful procedural provision to consider is a freeze on the distribution of a participant’s account where there is a dispute over the rightful beneficiary.
Where a dispute among beneficiary claimants appears insoluble, filing an interpleader action in federal court may be the only definitive way to resolve the dispute without exposing the plan to the possibility of having to pay twice for the same benefit.
In today’s virtual world, we suspect most plan sponsors rely upon the self-certification process to document and process 401(k) distributions made on account of financial hardship. The IRS has recently issued examination guidelines for its field agents for their use in determining whether a self-certification process has an adequate documentation procedure. While these examination guidelines do not establish a rule that plan sponsors must follow, we believe most plan sponsors will want to ensure that their self-certification processes are consistent with these guidelines to minimize the potential for any dispute over the acceptability of its practices in the event of an IRS audit.
The examination guidelines describe three required components for the self-certification process:
(1) the plan sponsor or TPA must provide a notice to participants containing certain required information;
(2) the participant must provide a certification statement containing certain general information and more specific information tailored to the nature of the particular financial hardship; and
(3) the TPA must provide the plan sponsor with a summary report or other access to data regarding all hardship distributions made during each plan year.
The notice provided to participants by the plan sponsor or TPA must include the following:
(i) a warning that the hardship distribution is taxable and additional taxes could apply;
(ii) a statement that the amount of the distribution cannot exceed the immediate and heavy financial need;
(iii) a statement that the hardship distributions cannot be made from earnings; and
(iv) an acknowledgement by the participant that he or she will preserve source documents and make them available upon request to the plan sponsor or plan administrator at any time.
The participant certification statement for financial hardship distributions must contain the following information:
(i) the participant’s name;
(ii) the total cost of the hardship event;
(iii) the amount of the distribution requested;
(iv) a certification provided by the participant that the information provided is true and accurate; and
(v) more specific information with regard to the applicable category of financial hardship, as outlined in the examination guidelines that can be found at the following website link: https://www.irs.gov/pub/foia/ig/spder/tege-04-0217-0008.pdf.
In cases where any participant has received more than two financial hardship distributions in a single plan year, the guidelines advise agents to request source documents supporting those distributions if a credible explanation for the multiple distributions cannot be provided. Given the instructions being given to agents in this regard, plan sponsors may wish to consider limitations on the number of financial hardship distributions that a participant may take or to apply a more stringent process for approving requests for financial hardship distributions where more than two requests are made in any plan year.
Plan sponsors should be aware that this IRS memorandum only addresses substantiation of “safe-harbor” distributions and that if a plan permits hardship distributions for reasons other than the “safe-harbor” reasons listed in the regulations, the IRS may take the position that self-certification regarding the nature of those hardships is not sufficient.
The good news with these guidelines is that if a self-certification process with respect to “safe-harbor” hardship distributions adheres to these guidelines, plan sponsors should have less concern over using the self-certification process and there should be fewer, if any, disputes with IRS field agents over the need for plan sponsors to maintain or provide access to source documents.
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.
Last week, the Department of Labor (DOL) released adjusted penalty amounts which are effective for penalties assessed on or after January 13, 2017, whose associated violations occurred after November 2, 2015. You might remember that these penalties were just adjusted effective August 1, 2016 (also for violations which occurred after November 2, 2015); however, the DOL is required by law to release adjusted penalties every year by January 15th, so you shouldn’t be surprised to see these amounts rise again next year.
All of the adjusted penalties are published in the Federal Register, but we’ve listed a few of the updated penalty amounts under the Employee Retirement Income Security Act of 1974 (ERISA) for you below:
- For a failure to file a 5500, the penalty will be $2,097 per day (up from $2,063).
- If you don’t provide documents and information requested by the DOL, the penalty will be $149 per day (up from $147), up to a maximum penalty of $1,496 per request (up from $1,472).
- A failure to provide reports to certain former participants or failure to maintain records to determine their benefits remained stable at $28 per employee.
Pension and Retirement
- A failure to provide a blackout notice will be subject to a $133 per day per participant penalty (up from $131).
- A failure to provide participants a notice of benefit restrictions under an underfunded pension plan under 436 of the tax code will cost $1,659 per day (up from $1,632).
- Failure of fiduciary to make a properly restricted distribution from a defined benefit plan will be $16,169 per distribution (up from $15,909).
- A failure of a multiemployer plan to provide plan documents and other information or to provide an estimate of withdrawal liability will be $1,659 per day (up from $1,632).
- A failure to provide notice of an automatic contribution arrangement required under Section 514(e)(3) of ERISA will also be $1,659 per day per participant (also up from $1,632).
Health and Welfare
- For a multiple employer welfare arrangement’s failure to file a M-1, the penalty will be $1,527 per day (up from $1,502).
- Employers who fail to give employees their required CHIP notices will be subject to a $112 per day per employee penalty (up from $110).
- Failing to give State Medicaid & CHIP agencies information on an employee’s health coverage will also cost $112 per day per participant/beneficiary (again, up from $110).
- Health plan violations of the Genetic Information Nondiscrimination Act will also go up to $112 per day per participant/beneficiary from $110. Additionally, the following minimums and maximums for GINA violations also go up:
- minimum penalty for de minimis failures not corrected prior to receiving a notice from DOL: $2,790 (formerly $2,745)
- minimum penalty for GINA failures that are not de minimis and are not corrected prior to receiving a notice from the DOL: $16,742 (up from $16,473)
- cap on unintentional GINA failures: $558,078 (up from $549,095)
- Failure to provide the Affordable Care Act’s Summary of Benefits and Coverage is now $1,105 per failure (up from $1,087).
The penalty amounts listed above are generally maximums, but there is no guarantee the DOL will negotiate reduced penalties. If you’re already wavering on some of your new year’s resolutions, we recommend you stick with making sure your plans remain compliant!
If statistics are any guide, by now a significant number of you have already broken your New Year’s resolutions. However, there’s still plenty of time to make new ones that you can break, er, keep. If you sponsor or work with an employee benefit plan (and odds are, if you’re reading this, that you do), then here are some ideas to keep in mind in the upcoming year:
- Fiduciary, Know Thyself. It important to know your fiduciaries (or know if you are one). Reviewing plan documents, charters, and delegations, among other possible documents, are key to determining who is an ERISA fiduciary. You should make sure that any individuals who have been designated are still willing and able to serve and, if not, they should be removed. While not as much of an issue for plan sponsors, advisors should also closely review the DOL’s conflict of interest/fiduciary rule to determine if it applies to them.
- Look Over Your Service Providers’ Shoulders. Even if you think you have outsourced one or more of your plan responsibilities, you’re still required, under ERISA, to monitor those providers to make sure they are doing their jobs properly. Additionally, if you have not done an RFP in a while for a particular service provider, it may be time to do one.
- Resolve to Improve Your Plan Governance. As we have detailed previously, the specter of litigation can be made considerably less scary by reviewing, and improving your plan governance.
- Wrap Yourself in the Protective Cloak of Procedurally Prudent Process. Not only is following a procedurally prudent process necessary to satisfy your fiduciary obligations, it is also your best protection from fiduciary breach claims. What does this mean? For each fiduciary decision you should: 1) inquire, 2) analyze, 3) consider alternatives, 4) seek help and advice as appropriate, and 5) document the process, actions and basis for the decision.
- And Add a Protective Layer of Fiduciary Insurance. After all, ERISA fiduciary liability is personal …and joint! Which means you could be liable for the sins of your fiduciary brothers and sisters.
- Calendar Reporting and Disclosure Requirements. From ACA reporting to sending out 401(k) statements and filing Forms 5500s, sponsoring an ERISA plan can involve a dizzying array of reporting and disclosure obligations. Take the time to sit down and review the obligations for each plan and calendar when they are due. This will prevent them from becoming deadlines that creep up on you unexpectedly. For assistance with retirement plans, consult the Retirement Plan Reporting and Disclosure Guides issued by the IRS and the DOL. Note also that your plan vendor may also publish a reporting calendar that will help you fulfill these obligations.
- Keep an Eye on Twitter (Yes, Really). Given the President-elect’s propensity to make economic news 140-characters at a time (no account required for that link to work), including tweeting about the ACA, it makes sense to keep an eye on what’s going on there. Of course, you could also follow us on Twitter for the latest benefit updates (whether or not Trump-related).
- Or at Least Keep an Eye on D.C. More generally, with Republicans controlling both houses of Congress and the White House, it’s possible that this year and next year could result in some significant changes in the employee benefits landscape. The Republicans are already working to repeal the ACA and are talking about tax reform, both of which will have substantial impacts on employee benefit plans. While both topics have been discussed frequently in recent years, only now do [to] the Republicans really have the ability to implement them. So stay tuned.
- Keep the Other Eye on the Courts, Particularly on Fee Litigation. Plaintiff’s lawyers continue to expand not only the plans which they are targeting for challenge, but also the type of fees being challenged. Plans sponsored by educational institutions were targets in 2016.
- And if you have one eye left, keep it on government enforcement action. We will report shortly on the 2017 enforcement priorities, but one area that is always at the top of the list is timely contribution to the plan of employee deferrals and loan repayments. Remember, the DOL requires that such amounts be paid into the plan “as soon as reasonably practicable”. The 15th day of the following month is a NOT a safe harbor.
It might be tempting to conclude that the recent Department of Labor regulations on disability claims procedures is limited to disability plans. However, as those familiar with the claims procedures know, it applies to all plans that provide benefits based on a disability determination, which can include vesting or payment under pension, 401(k), and other retirement plans as well. Beyond that, however, the DOL also went a little beyond a discussion of just disability-related claims.
The New Rules
The new rules are effective for claims submitted on or after January 1, 2018. Under the new rules, the disability claims process will look a lot like the group health plan claims process. In short:
- Disability claims procedures must be designed to ensure independence and impartiality of reviewers.
- Claim denials for disability benefits have to include additional information, including a discussion of any disagreements with the views of medical and vocational experts and well as additional internal information relied upon in denying the claim. In particular, the DOL made it clear in the preamble that a plan cannot decline to provide internal rules, guidelines, protocols, etc. by claiming they are proprietary.
- Notices have to be provided in a “culturally and linguistically appropriate manner.” The upshot of this is that, if the claimant lives in a county where the U.S. Census Bureau says at least 10% of the population is literate only in a particular language (other than English), the denial has to include a statement in that language saying language assistance is available. Then the plan must provide a customer assistance service (such as a phone hotline) and must provide notices in that language upon request.
- New or additional rationales or evidence considered on appeal must be provided as soon as possible and so that the claimant has an opportunity to respond before the claims process ends.
- If the claims rules are not followed strictly, then the claimant can bypass them and go straight to court. This does not apply to small violations that don’t prejudice the claimant.
- As with health plan claims, recessions of coverage are treated like claim denials.
- If a plan has a built-in time limit for filing a lawsuit, a denial on appeal has to describe that limit and include the date on which it will expire. Basically, claimants have to know that they need to sue by a certain date. The DOL noted in the preamble that, while this only applies to disability-related claims, they believe any plan with such a time limit is required to include a description or discussion of it under the existing claims procedure regulations.
More information about the changes is available in this DOL Fact Sheet.
What to Do
While January 1, 2018 might seem like a long way off at this point, employers and plans need to consider taking the following steps early next year:
- For insured disability plans, plan sponsors need to engage their insurance carriers in a discussion about how these procedures will apply to them and what changes are needed to the insurance contracts. Some insurers may be slow to adopt these new procedures, which could put plan sponsors in a difficult position.
- For self-funded disability plans, plan documents will need to be updated, and procedures put in place.
- For retirement plans, there are some decisions to make. Recall that the procedures only apply if a disability determination is required. One way to avoid this is to amend the definition of disability so that it relies on a determination by the Social Security Administration or the employer’s long-term disability carrier. For defined contribution plans, this is likely to be the most expedient approach.
For defined benefit pension plans, this may not necessarily work. To the extent the disability benefit results in additional accruals, such a change may require a notice under 204(h) of ERISA. If a disability pension allows participants to elect a different from of benefit, then any change in the definition it may have to apply to future accruals under the plan, which means a disability determination may still be required for many years to come. Additionally, tying a disability determination to something other than the SSA raises similar issues if the plan sponsor changes disability carriers or plans that change the definition of disability.
Further, before going down the road of changing disability definitions, plan sponsors may want to consider whether a more restrictive definition, like the SSA definition, is consistent with their benefits philosophies. For plan sponsors who that cannot (or choose not to) amend their retirement plan disability definitions, plan documents must be amended before January 1, 2018 to incorporate these rules and procedures must be developed to address them.
- All plans that have lawsuit filing deadlines, even if they don’t provide disability benefits, should revise their notices to include a discussion of that deadline.
Earlier this year, an employer was sued in a class action in Federal District Court for the Southern District of Florida for violating the notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) with respect to its COBRA election notice. Specifically, the employees alleged that the COBRA election notices provided by the employer did not include the information required by COBRA regulations. After failing to convince the court that the case should be dismissed, the employer agreed to establish a settlement fund for the affected employees and to correct the alleged deficiencies in its COBRA election notice. Since then, two similar lawsuits have been filed in Florida courts by employees who claim that the election notices provided by their respective employers were deficient and non-compliant with COBRA.
COBRA provides that any employer with 20 or more employees that maintains a group health plan must provide a covered employee who experiences a qualifying event (and his or her covered spouse and dependents) with continuing health insurance coverage for at least 18 months. A qualifying event encompasses a number of situations which result in a loss of health insurance coverage. The most common of these events are: (i) a covered employee’s voluntary or involuntary termination of employment (for reasons other than gross misconduct), (ii) a reduction in a covered employee’s work hours, (iii) a covered employee’s divorce or legal separation, (iv) a covered employee’s death, and (v) the loss of dependent child status.
The COBRA regulations specify that employers must provide certain notices to employees, including a notice of their rights to elect continued health insurance coverage under the employer’s group health plan if the employee experiences a qualifying event. An employer’s (i) failure to provide the required notice or (ii) provision of a deficient notice may result in the assessment of statutory penalties of up to $110 per day for each employee who does not receive the notice or who receives a defective notice until the failure is corrected.
The two later cases were filed in November and December 2016. While we await their respective outcomes, employers may wish to review their COBRA election notices against the DOL model COBRA election notice.
The Securities Act of 1933 prohibits the offer or sale of securities unless either a registration statement has been filed with the SEC or an exemption from registration is applicable. Although most qualified plan interests qualify for an exemption from the registration requirement, offers or sales of employer securities as part of a 401(k) plan generally will not qualify for such an exemption. Accordingly, 401(k) plans with a company stock investment option typically register the shares offered as an investment option under the plan using Form S-8.
On September 22, 2016, the SEC released a Compliance and Disclosure Interpretation addressing the application of the registration requirements to offers and sales of employer securities under 401(k) plans that (i) do not include a company securities fund but (ii) do allow participants to select investments through a self-directed brokerage window. Open brokerage windows typically allow plan participants to invest their 401(k) accounts in publicly traded securities, including, in the case of a public company employer, company stock. The SEC determined that registration in this situation would not be required as long as the employer does no more than (i) communicate the existence of the open brokerage window, (ii) make payroll deductions, and (iii) pay administrative expenses associated with the brokerage window in a manner that is not tied to particular investments selected by participants. This means that the employer may not draw participants’ attention to the possibility of investing in employer securities through the open brokerage window.
The SEC apparently was concerned that some employers have been advising participants regarding their ability to invest 401(k) plan assets in company securities through open brokerage windows. This might occur, for example, when an employer has decided to remove the company stock fund as an investment option because of concern over potential stock drop litigation; in communicating such a change, the employer might point out to participants that they still have the ability to purchase company stock through the open brokerage window.
The takeaway for public companies that do not offer a company securities fund in their 401(k) plan but do offer an open brokerage window is clear. They should either assure that communications to 401(k) participants include no reference to the option to purchase company securities through the open brokerage window or, if such communications are desirable, register an appropriate number of securities using Form S-8.
In the latest round of ACA and Mental Health Parity FAQs (part 34, if you’re counting at home), the triumvirate agencies addressed tobacco cessation, medication assisted treatment for heroin (like methadone maintenance), and other mental health parity issues.
Big Tobacco. The US Preventive Services Task Force (USPSTF) updated its recommendation regarding tobacco cessation on September 22, 2015. Under the Affordable Care Act preventive care rules, group health plans have to cover items and services under the recommendation without cost sharing for plan years that begin September 22, 2016. For calendar year plans, that’s the plan year starting January 1, 2017.
The new recommendation requires detailed behavioral interventions. It also describes the seven FDA-approved medications now available for treating tobacco use. The question that the agencies are grappling with is how to apply the updated recommendation.
Much like a college sophomore pulling an all-nighter on a term paper before the deadline, the agencies are just now asking for comments on this issue. Plan sponsors who currently cover tobacco cessation should review Q&A 1 closely and consider providing comments to the email address firstname.lastname@example.org. Comments are due by January 3, 2017. The guidance does not say this, but the implication is that until a revised set of rules is issued, the existing guidance on tobacco cessation seems to control.
Nonquantitative Treatment Limitations. Under applicable mental health parity rules, group health plans generally cannot impose “nonquantitative treatment limitations” (NQTLs) that are more stringent for mental health and substance use disorder (MH/SUD) benefits than they are for medical/surgical benefits. “Nonquantitative” includes items like medical necessity criteria, step-therapy/fail-first policies, formulary design, etc. By their very nature, these items are (to use a technical legal term) squishy.
Importantly for plan sponsors, the agencies gave examples of impermissible NQTLs in Q&As 4 and 5. In Q&A 4, they describe a plan that requires an in-person examination as part of getting pre-authorized for inpatient mental health treatment, but does preauthorization over the phone for medical benefits. The agencies say this does not work.
Additionally, Q&A 5 addresses a situation where a plan implements a step therapy protocol that requires intensive outpatient therapy before inpatient treatment is approved for substance use disorder treatment. The plan requires similar step therapy for comparable medical/surgical benefits. So far, so good. However, in the Q&A, intensive outpatient therapy centers are not geographically convenient to the participant, while similar first step treatments are convenient for medical surgical benefits. Under these facts, applying the step therapy protocol to the participant is not permitted. The upshot, from the Q&A, is that plan sponsors might have to waive such protocols in similar situations. This particular interpretation will not be enforced before March 1, 2017.
Substantially All Analysis. To be able to apply a financial requirement (e.g. copayment) or quantitative treatment limitation (e.g. maximum number of visits) to a MH/SUD benefit, a plan must look at the amount spent under the plan for similar medical surgical benefits (e.g. in-patient, in-network or prescription drugs, as just two examples). Among other requirements, the financial requirement or treatment limitation must apply to “substantially all” (defined as at least two-thirds) of similar medical/surgical benefits.
The details of that calculation are beyond the scope of this post, but Q&A 3 sets out some ground rules. First, if actual plan-level data is available and is credible, that data should be used. Second, if an appropriately experienced actuary determines that plan-level data will not work, then other “reasonable” data may be used. This includes data from similarly-structured plans with similar demographics. To the extent possible, claims data should be customized to the particular group health plan.
This means that, when conducting this analysis, plan sponsors should question the data their providers are using. If it is not plan-specific data, other more general data sets (such as data for an insurer’s similar products that it sells) may not be sufficient. Additionally, general claims data that may be available from other sources is probably insufficient on its own to conduct these analyses.
Medication Assisted Treatment. The agencies previously clarified the MHPAEA applies to medication assisted treatment of opioid use disorder (e.g., methadone). Q&As 6 and 7 provide examples of more stringent NQTLs and are fairly straightforward. Q&A 8 addresses a situation where a plan says that it follows nationally-recognized treatment guidelines for prescription drugs, but then deviates from those guidelines. The agencies say a mere deviation by a plan’s pharmacy and therapeutics (P&T) committee, for example, from national guidelines can be permissible. However, the P&T committee’s work will be evaluated under the mental health parity rules, such as by taking into account whether the committee has sufficient MH/SUD expertise. Like we said, it’s squishy.
Court-Ordered Treatment. Q&A 9 specifically addresses whether plans or issuers may exclude court-ordered treatment for mental health or substance use disorders. You guessed it — a plan or issuer may not exclude court-ordered treatment for MH/SUD if it does not have a similar limitation for medical/surgical benefits. However, a plan can apply medically necessary criteria to court-ordered treatment.
The Bottom Line. The bottom line of all this guidance is that plan sponsors may need to take a harder look at how their third party administrators apply their plan rules. Given the lack of real concrete guidance, there’s a fair amount of room for second guessing by the government. Therefore, plan sponsors should document any decisions carefully and retain that documentation.