Chapter 6
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Table of Contents | Chapter 8 |
7
GROUP BENEFITS
Burton T. Beam, Jr.
Increased Availability of Medical Expense Coverage
What Was the Situation Before?
Prior to the passage of the Health Insurance Portability and Accountability Act of 1996, there were few laws at the federal level that were aimed at making group insurance available to employers and their employees. Rather this was left to the states, and most of them have enacted small-group legislation.
What Is the Nature of the Change?
The Health Insurance Portability and Accountability Act of 1996 contains several provisions designed to help both employees and employers obtain medical expense coverage more easily. Portions of the act that deal with portability are covered in a later section of this chapter when the issue of eligibility is discussed. For now though, the focus is on the plans covered by the act and parts of the act that address nondiscrimination rules, special enrollment periods, renewability, and small groups.
Covered Plans. The act applies to group health plans that cover two or more employees, whether insured or self-funded. However, there is a long list of excepted benefits, including the following:
With one exception, all employers—including the federal government—must comply with the act’s provisions. Nonfederal government plans can elect to be excluded for a specific plan year.
Nondiscrimination Rules. The act prohibits the use of any of the following health-related factors as a reason to exclude an employee or dependent from coverage under a group health plan or to charge the individual or dependent a higher premium:
It is important to note that these factors relate to coverage for specific individuals under a plan. The overall plan itself (except for plans in the small-group market, as explained below) can still be subject to traditional underwriting standards. In addition, group health plans are not required to offer any specific benefits and can limit benefit levels as long as they do not discriminate on the basis of these health-related factors. The act does not restrict the amount an insurance company or other provider of health care coverage can charge an employer for coverage. The act does allow an employer or provider of medical expense coverage to establish premium discounts or rebates or to modify copayments or deductibles for persons who adhere to programs that promote good health or prevent disease. For example, a lower premium can be given to nonsmokers.
Special Enrollment Periods. For various reasons, employees and their dependents may elect not to enroll in an employer’s plan when they are initially eligible for coverage. For example, a new employee may have coverage under a spouse’s plan. The act requires employers to allow these employees and dependents to enroll in the employer’s plan under any one of several specified circumstances as long as the employee had previously stated in writing that the original declination was because there was other coverage. However, the requirement of a written declination does not apply unless the employer requires it and notifies the employee that it is a requirement for future coverage. The following are the circumstances for special enrollment:
The employee has 30 days following the loss of coverage to request enrollment in the employer’s plan.
In addition, new dependents (including children placed for adoption) are also eligible for coverage under special enrollment rules. The employee must enroll the dependent within 30 days of his or her gaining dependent status. Coverage for a new spouse must become effective no later than the first month beginning after the employee’s request. However, coverage for children must go into effect as of the date of birth, adoption, or placement for adoption.
Guaranteed Renewability. All group health insurers must renew existing health insurance coverage unless one of the following circumstances exists:
Similar rules require multiemployer plans and multiple-employer welfare arrangements to renew coverage for employers. It also establishes guaranteed-issue rules for the individual marketplace.
Guaranteed Issue for Small-Group Plans. With some exceptions, the act requires insurers, HMOs, and other providers of health care coverage that operate in the small-group market to accept all small employers—defined as employers with two to 50 employees—that apply for coverage. In addition, all employees of small employers and their dependents must be accepted for coverage as long as they enroll during the period in which they are first eligible. This rule is in line with the small-group legislation of many states. However, some states have similar rules for groups as small as one employee or have an upper limit of 25, above which the small-group legislation does not apply.
Exceptions to this guaranteed-issue requirement are allowed if a provider of coverage in the small-group market has inadequate network or financial capacity or if applicants are not in a plan’s service area.
Minimum participation or employer contribution requirements are acceptable as long as they are permitted under applicable state law.
Interrelationship of State and Federal Legislation. For the most part, the new federal legislation does not preempt state laws pertaining to group health insurance except in those situations where any state standard or requirement would prevent the application of the federal law. To prevent any preemption, most states will need to make some modifications to their laws and regulations.
The act permits a state to enforce its provisions with respect to insurance companies and other medical expense providers. However, the federal government can take over enforcement if a state does not perform its duties. In that case enforcement will be by the secretary of health and human services. The secretary of labor has enforcement power for the act’s provisions as they apply to group health plans themselves. When there is federal enforcement, the penalty for noncompliance can be up to $100 per day for each individual with respect to whom a plan or issuer is in noncompliance.
When Does This Change Affect Clients?
Employers, group health plans, and issuers of medical expense coverage are subject to the act’s provisions. The provisions generally become effective for plan years beginning after June 30, 1997. The effective date for plans established under collective-bargaining agreements will vary, depending on the dates a collective-bargaining agreement was ratified and expires.
What Should Be Done?
Insurance companies and other issuers of group health plans need to examine their underwriting practices and determine what changes need to be made.
Employers and other plan sponsors need to do the following:
Where Can I Find Out More?
Portability of Group Medical Expense
What Was the Situation Before?
Prior to the passage of the Health Insurance Portability and Accountability Act of 1996, there was no federal legislation that regulated the use of preexisting-conditions provisions when an employee changed jobs or applied for coverage in the individual marketplace after having had group coverage.
What Is the Nature of the Change?
Group-to-Group Portability. Some of the most significant parts of the Health Insurance Portability and Accountability Act are the provisions dealing with "portability" of medical expense coverage. These provisions do not allow an employee to take specific insurance from one job to another. Rather, they put limitations on preexisting-conditions exclusions and allow an employee to use evidence of prior insurance coverage to reduce or eliminate the length of any preexisting-conditions exclusion when the employee moves to another medical expense plan. These provisions should minimize job lock for employees by eliminating the fear that medical expense coverage will be lost if an employee changes jobs.
The portability provisions apply to almost all group health insurance plans (either insured or self-funded) as long as they have at least two active participants on the first day of the plan year. Note that the same definition of group health plan mentioned in the prior discussion in this chapter (see "Increased Availability of Medical Expense Coverage") also applies to the portability provisions.
Limitations on Preexisting Conditions. A plan may limit or exclude benefits for preexisting conditions for a maximum of 12 months (18 months for late enrollees). In addition, the period for preexisting conditions must be reduced for prior creditable coverage as defined below. It should be noted that there is nothing in the act that prohibits an employer from imposing a waiting period before a new employee is eligible to enroll in a medical expense plan. However, any waiting period must be applied uniformly without regard for the health status of potential plan participants or beneficiaries. In addition, the waiting period must run concurrently with any preexisting-conditions period.
Example: An employee might be subject to a preexisting-conditions period of 7 months because of prior coverage. If the employer’s plan had a 3-month waiting period for enrollment, the length of the preexisting-conditions period after enrollment could be only 4 months.
An HMO is also permitted to have an affiliation period of up to 2 months (3 months for late enrollees) if the HMO does not impose a preexisting-conditions provision and if the affiliation period is applied without consideration of health status-related factors.
Under the act, a preexisting condition is defined as a mental or physical condition for which medical advice, diagnosis, care, or treatment was recommended or received within the 6-month period ending on the enrollment date. No preexisting-conditions exclusions can apply to pregnancy or to newborn children or, if under age 18, to newly adopted children or children newly placed for adoption as long as they become covered for creditable coverage within 30 days of birth, adoption, or placement. In addition, the use of genetic information as a preexisting condition is prohibited unless there is a diagnosis of a preexisting medical condition related to the information.
The 12-month limitation for preexisting conditions applies if an employee enrolls when he or she is initially eligible for coverage. It also applies in the case of special enrollment periods (discussed in the prior section of this chapter) that are required by the act for employees and dependents who lose other coverage and for new dependents. Anyone who does not enroll in an employer’s plan during the first period he or she is eligible or during a special enrollment period is a late enrollee and can be subject to a preexisting-conditions period of 18 months.
Creditable Coverage. The act defines creditable coverage as coverage under an individual policy, an employer-provided group plan (either insured or self-funded), an HMO, medicare, medicaid, or various public plans, regardless of whether the coverage is provided to a person as an individual, an employee, or a dependent. However, coverage is not creditable if there has been a break in coverage of 63 days or more.
In determining the length of a person’s preexisting-conditions period, the period of prior creditable coverage must be subtracted. Assume, for example, that an employer’s plan has a preexisting-conditions period of 12 months. If a new employee has 12 months or more of creditable coverage, the preexisting-conditions period will be satisfied. If the period of creditable coverage is only 7 months, then the preexisting-conditions period will run 5 more months. Note, however, that if the employee has been without coverage for at least 63 days between jobs, the full preexisting-conditions period will apply.
Employers have two ways in which they can apply creditable coverage: on a blanket basis to all categories of medical expense coverage or on a benefit-specific basis.
Example: If an employee had prior coverage that excluded prescription drugs, this particular coverage could be subject to the full preexisting-conditions period, while the period for other benefits would be reduced because creditable coverage had applied to them. However, for administrative ease, an employer would probably apply the creditable coverage to all categories of medical expense.
The act requires an employer to give persons losing group coverage a certificate that specifies the period of creditable coverage under the plan they are leaving, including any period of COBRA coverage.
State Options. The act’s provisions on portability override state laws with some exceptions, including state laws that provide greater portability. For example, a look-back period of less than 6 months might be required, or the maximum preexisting-conditions period could be less than 12 months.
Group-to-Individual Portability. The Health Insurance Portability and Accountability Act makes it easier for individuals who use group medical expense coverage to find alternative coverage in the individual marketplace. The purpose of the federal legislation seems to be to encourage states to adopt their own mechanisms to achieve this goal. The federal rules will apply in a state only if the state fails to have its plan in effect by either January 1, 1998, or July 1, 1998, depending on which provisions of the act apply in a specific state.
It is assumed that most states will adopt their own plans so that the federal rules will not become effective. The state alternative must do all the following:
– is comparable to comprehensive health coverage offered in the individual marketplace or
– is comparable to (or is a standard option of coverage available under) the group or individual laws of the state
In addition, the state must implement one of the following:
If a state fails to adopt an alternative to federal regulation, then insurance companies, HMOs, and other health plan providers in the individual marketplace will be required to make coverage available on a guaranteed-issue basis to individuals with 18 or more months of creditable coverage and whose most recent coverage was under a group health plan. However, coverage does not have to be provided to an individual who has other health insurance or who is eligible for COBRA coverage, medicare, or medicaid. No preexisting-conditions exclusions can be imposed. Health insurers have three options for providing coverage to eligible individuals:
Rules similar to those described in the prior topic in this chapter require the renewal of individual coverage.
When Does This Change Affect Clients?
Employers, group health plans, and issuers of medical expense coverage are subject to the act’s provisions. The provisions generally become effective for plan years beginning after June 30, 1997. The effective date for plans established under collective-bargaining agreements will vary, depending on the dates a collective-bargaining agreement was ratified and expires.
What Should Be Done?
Insurance companies and other issuers of group health plans need to examine their underwriting practices and determine what changes need to be made.
Employers and other plan sponsors need to do the following:
Where Can I Find Out More?
COBRA Changes
What Was the Situation Before?
The continuation of group medical expense coverage under COBRA has been in effect since 1985. Until the passage of the Health Insurance Portability and Accountability Act of 1996, a qualified beneficiary has been defined as any employee, or the spouse or dependent child of the employee, who on the day before the qualifying event was covered under the employee’s group health plan.
Qualified beneficiaries who were determined to have met the social security definition of total disability at the time of a qualifying event for COBRA coverage were able to extend COBRA coverage from 18 to 29 months.
What Is the Nature of the Change?
The Health Insurance Portability and Accountability Act of 1996 changed the definition of a qualified beneficiary to include any child who is born to or placed for adoption with the employee during the period of COBRA coverage. This change gives automatic coverage to the child and also gives the child the right to have his or her own election rights if a second qualifying event (such as the parent’s death) occurs.
The right to extend COBRA coverage from 18 to 29 months now also applies to a qualified beneficiary who becomes disabled (using the Social Security Administra-tion definition) during the first 60 days of COBRA coverage.
When Does This Change Affect Clients?
Clients should have made each qualified beneficiary who had elected coverage aware of these changes by November 1, 1996. This could be done by mailing, first class, a copy of ERISA Technical Release No. 96-1 to the last known address of each qualified beneficiary.
What Should Be Done?
Employers and other plan sponsors should do the following:
Where Can I Find Out More?
ERISA Modification for Group Health Plans
What Was the Situation Before?
ERISA required a summary of material modification to be issued automatically to each plan participant and the Department of Labor within 210 days after the end of the plan year in which a material change was made to any welfare benefit plan.
What Is the Nature of the Change?
The Health Insurance Portability and Accountability Act of 1996 changes the 210-day requirement with respect to group health plans. (See the definition in the first section of this chapter.) If there is a material change in such plans, the plan administrator has two options. The first is to furnish the summary of material modification to participants and beneficiaries no later than 60 days after the change. As an alternative, plan administrators can elect to provide the notification at regular intervals no longer than 90 days. This option is probably useful only if a plan is expected to undergo frequent changes.
The summary plan description must identify any health insurance issuer (for example, an insurance company or HMO) that is responsible for the financing or the administration of the plan and provide its address.
When Does This Change Affect Clients?
Plan administrators must comply with these changes or face financial penalties under ERISA beginning in plan years starting after June 30, 1997.
What Should Be Done?
Plan administrators should establish procedures for monitoring changes to group health plans so that these changes can be incorporated into summaries of material modification in a timely manner.
Where Can I Find Out More?
Favorable Tax Treatment for Medical Savings Accounts
What Was the Situation Before?
One suggested approach to making medical expense insurance more available and affordable is the use of medical savings accounts (MSAs). An MSA is an alternative to a medical expense plan, but it has few copayments. In this case an employee maintains a comprehensive medical plan with virtually total coverage for medical expenses to the extent that they exceed a high deductible, such as $2,000. The employer then contributes part of the savings in premium to an MSA, which is often an interest-bearing account. An employee can draw from the account to pay medical expenses not covered by the medical expense plan, such as charges for routine office visits or the cost of eyeglasses. At the end of the year any monies in the MSA are paid to the employee under plans that have been in existence.
The rationale for a medical savings account is that significant cost savings can occur for two primary reasons. First, the expensive cost of administering small claims is largely eliminated, as demonstrated by the fact that a major medical policy with a $2,500 deductible can often be purchased for about one-half the cost of a policy with a $250 deductible. Second, employees now have a direct financial incentive to avoid unnecessary care and to seek out the most cost-effective form of treatment.
A few employers have used medical savings accounts for some time with positive results. Costs have in fact been lowered or risen less rapidly than would otherwise be expected. Employee reaction has generally been favorable, but there has been one major drawback—contributions to an MSA have constituted taxable income to employees.
As with almost any approach to cost containment, medical savings accounts have had their critics. It is argued that MSAs may make sense when used with traditional indemnity plans, but long-term health care reform should focus on managed care. However, proponents counter that the concept could also work with HMOs or preferred provider organizations (PPOs). Another argument against MSAs is that employees will be more interested in receiving cash at the end of the year and therefore minimize treatment for minor medical expenses and preventive care that would have been covered under a plan without an MSA. This avoidance of medical care, contend the critics, may lead to major expenses that could have been avoided or minimized with earlier treatment. A final criticism of MSAs is that they do not focus on the uninsured’s problem. However, proponents argue that any technique that lowers costs for employers will encourage some additional small employers to provide coverage that would have previously been unaffordable.
What Is the Nature of the Change?
The use of MSAs will undoubtedly increase as a result of the Health Insurance Portability and Accountability Act of 1996. The act provides favorable tax treatment for MSAs established under a pilot project that began on January 1, 1997, as long as prescribed rules are satisfied. The project, which runs through the end of the year 2000, allows the establishment of up to approximately 750,000 MSAs. At the end of the 4-year trial period, tax-favored MSAs cannot be established unless Congress expands the program. However, MSAs in existence at the end of the 4-year period can generally continue in force after that time under the current rules. During this 4-year period, the act calls for two studies to assist Congress in making its decision regarding MSAs. First, the Treasury Department will assess MSA participation and its effect on tax revenue. Second, the General Accounting Office will assess the effect of MSAs on the small-group market by looking at factors such as the effect of MSAs on health care costs and the use of preventive care.
It should be noted that MSAs, which existed on a non-tax-favored basis prior to 1997, will probably need to be revised to meet the act’s requirements and receive favorable tax status.
General Nature. An MSA is a personal savings account from which unreimbursed medical expenses, including deductibles and copayments, can be paid. Coverage can either be limited to an individual or include dependents. An MSA must be in the form of a tax-exempt trust or custodial account established in conjunction with a high-deductible health (that is, medical expense) plan. An MSA is established with a qualified trustee or custodian in much the same way that an IRA is established. Any insurance company or bank (as well as certain other financial institutions) can be a trustee or custodian, as can any other person or entity already approved by the IRS as a trustee or custodian for IRAs. While there are some similarities between MSAs and IRAs, there are also differences. As a result, an IRA cannot be used as an MSA, and an IRA and MSA cannot be combined into a single account.
Even though employers can sponsor MSAs, these accounts are established for the benefit of individuals and are portable. If an employee changes employers or leaves the workforce, the MSA remains with the individual.
Eligibility for an MSA. Two types of individuals are eligible to establish MSAs:
A small employer is defined as an employer who has an average of 50 or fewer employees (including employees of controlled group members and predecessor employers) on business days during either of the two preceding calendar years. In the case of a new employer, the number of employees is based on an estimate of the reasonably expected employment for the current year. After the initial qualification as a small employer is satisfied, an employer can continue to make contributions to employees’ MSAs, and employees can continue to establish MSAs until the first year following the year in which the employer has more than 200 employees. At that time participating employees may take over contributions to their accounts, but no employer contributions can be made, and nonparticipating employees may not start new accounts.
A high-deductible health plan, for purposes of MSA participation, is a plan that has the following deductibles and annual out-of-pocket limitations, all of which will be adjusted for inflation after 1998:
A high-deductible plan can be written by an insurance company or a managed care organization, such as an HMO. At the time this book was being prepared, the early high-deductible plans were being written primarily by insurance companies in the form of traditional major medical products but possibly with the requirement that covered persons use preferred-provider networks. No HMOs had established high-deductible plans.
A high-deductible plan can be part of a cafeteria plan, but the MSA must be established outside the cafeteria plan.
With some exceptions, a person who is covered under a high-deductible health plan is denied eligibility for an MSA if he or she is covered under another health plan that does not meet the definition of a high-deductible plan but provides any benefits that are covered under the high-deductible health plan. The exceptions include coverage for accident, disability, dental care, vision care, and long-term care as well as medicare supplement insurance, liability insurance, insurance for a specific disease or illness, and insurance paying a fixed amount per period of hospitalization.
The intent of Congress was that the number of MSAs be limited to approximately 750,000. There are lower statutory limits that, if reached at various specified cutoff dates, will close off the individual’s ability to establish an MSA unless he or she is covered under an employer’s high-deductible plan that existed prior to the cutoff date.
Contributions. Either the account holder of an MSA or the account holder’s employer—but not both— may make a contribution to an MSA. If the employer makes a contribution, even one below the allowable limit, the account holder may not make a contribution. Contributions must be in the form of cash.
Contributions by an employer are tax deductible to the employer and are not included in an employee’s gross income or subject to social security and other employment taxes. Employee contributions are deductible in computing adjusted gross income. As with IRAs, individuals’ contributions must generally be made by April 15 of the year following the year for which the contributions are made.
The annual tax deduction for the contribution to an employee’s account is limited to 65 percent of the deductible for the health coverage if the MSA is for an individual. The figure is 75 percent if an MSA covers a family. If each spouse has an MSA and if one or both of the MSAs provide family coverage, the aggregate deductible contribution is equal to 75 percent of the deductible for the family coverage with the lowest deductible. The deductible contribution is split equally between the two persons unless they agree to a different division.
The actual MSA contribution that can be deducted is limited to 1/12 of the annual amount, as described in the previous paragraph, times the number of months that an individual is eligible for MSA participation. For example, assume that the deductible under an individual’s health plan is $1,800. The maximum annual contribution to the MSA is then 65 percent of this amount, which is $1,170, and the monthly amount is $97.50. If the individual is covered under a high-deductible plan only for the first 8 months of the year, then the annual deductible contribution is eight times $97.50, or $780. Note, however, that there are no requirements that contributions be made on a monthly basis or at any particular time. In this example, the full $1,170 could have been made early in the year. The excess over $780 would then be an excess contribution.
An excess contribution occurs to the extent that contributions to an MSA exceed the deductible limits or are made for an ineligible person. Any excess contribution made by the employer is included in the employee’s gross income. In addition, account holders are subject to a 6 percent excise tax on excess contributions for each year these contributions are in an account. This excise tax can be avoided if the excess amount and any net income attributable to the excess amount are removed from the MSA prior to the last day prescribed by law, including extensions, for filing the account holder’s income tax return. The net income attributable to the excess contributions is included in the account holder’s gross income for the tax year in which the distribution is made.
An employer that makes contributions to MSAs is subject to a comparability rule that requires the employer to make comparable contributions for all employees who have MSAs. However, full-time employees and part-time employees (those working less than 30 hours per week) are treated separately. The comparability rules require that the employer contribute either the same dollar amount for each employee or the same percentage of each employee’s deductible under the health plan. Failure to comply with this rule subjects the employer to an excise tax equal to 35 percent of the aggregate amount contributed to MSAs during the period when the comparability rule was not satisfied.
Growth of MSA Accounts. Unused MSA balances carry over from year to year, and there is no prescribed period in which they must be withdrawn. Earnings on amounts in an MSA are not subject to taxation as they accrue.
Distributions. An individual can take distributions from an MSA at any time. The amount of the distribution can be any part or all of the account balance. Subject to some exceptions, distributions of both contributions and earnings are excludible from an account holder’s gross income if used to pay medical expenses of the account holder and the account holder’s family as long as these expenses are not paid by other sources of insurance. For the most part, the eligible medical expenses are the same ones that would be deductible—ignoring the 7.5 percent of adjusted gross income limitation—if the account holder itemized his or her tax deductions. However, tax-free withdrawals are not permitted for the purchase of insurance other than long-term care insurance, COBRA continuation coverage, or premiums for health coverage while an individual receives unemployment compensation. In addition, in any year a contribution is made to an MSA, tax-free withdrawals can be made to pay the medical expenses of only those persons who were eligible for coverage under an MSA at the time the expenses were incurred. For example, MSA contributions could not be withdrawn tax free to pay the unreimbursed medical expenses of an account holder’s spouse who was covered under a health plan of his or her employer that was not a high-deductible plan.
Expenses that are withdrawn for reasons other than paying eligible medical expenses are included in an account holder’s gross income and are subject to a 15 percent penalty tax unless certain circumstances exist. The penalty tax is not levied if the distribution is made after the account holder turns 65 or because of the account holder’s death or disability. In addition, the penalty tax does not apply to funds rolled over to a new MSA as long as the rollover is done within 60 days. Transfers of MSA accounts as a result of divorce are also tax free.
Estate Tax Treatment. Upon death, the remaining balance in an MSA is includible in the account holder’s gross estate for estate tax purposes. If the beneficiary of the account is a surviving spouse, the MSA belongs to the spouse and he or she can deduct the account balance in determining the account holder’s gross estate. The surviving spouse can then use the MSA for his or her medical expenses. If the beneficiary is anyone else, or if no beneficiary is named, the MSA ceases to exist.
Reporting and Disclosure Requirements. MSA trustees must report annually to the secretary of the treasury with information such as the number of MSAs for which they are a trustee and also must provide information about persons with MSAs, including the number who were previously uninsured.
Employers that sponsor MSAs must provide annual statements to employees that show amounts contributed to any MSA of the employee or the employee’s spouse.
When Does This Change Affect Clients?
This change is now in effect.
What Should Be Done?
Employers interested in using medical expense accounts need to determine whether this is the preferable approach for providing medical expense coverage to employees. While this approach has the potential to save money in the short run, an employer cannot ignore the possibility that MSAs may also have the effect of minimizing preventive care. This might have a long-run negative effect on cost.
If an employer decides to use MSAs for employees, several issues need to be addressed.
Where Can I Find Out More?
Expanded Coverage for Newborns and Mothers
What Was the Situation Before?
There were no federal rules that required minimum stays for newborns or mothers following birth. However, some states did have such legislation.
What Is the Nature of the Change?
Beginning with plan years on or after January 1, 1998, group health plans are subject to the provisions of the Newborns’ and Mothers’ Health Protection Act. This federal act is very broad and, with one exception, applies to all employers regardless of size and to self-funded plans as well as those written by health insurers and managed care plans. The exception is for plans subject to similar state legislation, which exist in over half the states. The impetus for such legislation at both the state and federal level arose from consumer backlash over the practice of an increasing number of HMOs and insurance companies limiting maternity benefits to 24 hours after a normal vaginal birth and 48 hours after a cesarean section. The act affects maternity benefits if they are provided. It does not mandate that such benefits be included in benefit plans. Of course, many employers are subject to other state and federal laws that do mandate maternity benefits.
The act prohibits a group health plan or insurer from restricting hospital benefits to less than 48 hours for both the mother and the newborn following a normal vaginal delivery and 96 hours following a cesarean section. In addition, a plan cannot require a provider to obtain authorization from the plan or insurer for a stay that is within these minimums. While a new mother, in consultation with her physician, might agree to a shorter stay, a plan or insurer cannot offer a monetary incentive to the mother for this purpose. In addition, the plan or insurer cannot limit provider reimbursement because care was provided within the minimum limits or make incentives available to providers to render care inconsistent with the minimum requirements.
If a plan has deductibles, coinsurance, or other cost-sharing requirements, these cannot be greater than those imposed on any preceding portion of the hospital stay.
When Does This Change Affect Clients?
Group health plans that provide maternity benefits must comply with the act for plan years beginning on or after January 1, 1998.
What Should Be Done?
Employers and providers of medical expense coverage should bring plans and practices within conformity with the act no later than the start of plan years beginning on or after January 1, 1998. However, many employers will already be in compliance because of similar state legislation.
The act treats the imposition of the minimum-stay requirement as a material modification for purposes of ERISA and requires each plan sponsor to provide a summary of material modification to plan participants and the Department of Labor within 60 days after the start of the plan year (rather than the usual 210 days after the end of the plan year) for which the requirements apply.
Where Can I Find Out More?
Some Minor Changes in Mental Health Benefits
What Was the Situation Before?
It has been common for major medical plans to impose an annual maximum (such as $1,000) and/or an overall maximum lifetime limit (such as $25,000) on benefits for mental and nervous disorders, alcoholism, and drug addiction.
What Is the Nature of the Change?
At the time of the debate over the Health Insurance Portability and Accountability Act of 1996, there was considerable disagreement over the issue of requiring mental illness to be treated as any other illness for purposes of medical expense coverage. With estimates that complete parity would raise the cost of providing medical expense benefits by 4 to 10 percent (depending on whose estimate could be believed), Congress left the issue unresolved. The debate continued after the passage of the previously mentioned act and resulted in the passage of another act the following month—the Mental Health Parity Act. However, because of cost considerations, its provisions are limited, and the use of the term parity is probably a misnomer.
The provisions of the act are effective for plan years beginning on or after January 1, 1998, and apply only to employers that have more than 50 employees. The act prohibits a group health plan, insurance company, or HMO from setting annual or lifetime dollar limits on mental health benefits that are less than the limits applying to other medical and surgical benefits as follows:
The act imposes no parity rules on benefits for alcoholism or drug addiction. In addition, the act is noteworthy for other things it does not do. It does not require employers to make any benefits available for mental illness, and it does not impose any other restrictions on mental health benefits. Employers can still impose limitations such as an annual maximum on the number of visits or days of coverage and different cost-sharing provisions for mental health benefits than those that apply to other medical and surgical benefits.
Congressional advocates of the act estimate that overall medical costs to employers should not increase by more than .4 percent. Any employer who can prove that the act’s provisions will increase its costs by more than one percent is exempt from the act.
The act is subject to a sunset provision of September 30, 2001. As of that date, any benefits required by the act can be eliminated unless Congress extends the date or removes the sunset provision prior to that time.
When Does This Change Affect Clients?
Clients whose medical expense plans have maximum annual or lifetime dollar limits for mental health benefits must amend their plans for plan years beginning on or after January 1, 1998.
What Should Be Done?
Employers need to determine if their medical expense plans are subject to the act’s provisions and make any necessary changes.
Changes need to be communicated to employees; these changes probably should include the issuance of a summary of material modification.
Where Can I Find Out More?
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