The Employee Benefits practice is pleased to present the Benefits Developments Newsletter for the month of May 2018.
Federal Agencies Issue FAQs Regarding Nonquantitative Treatment Limitations Under the MHPAEA and Cures Act
The Mental Health Parity and Addiction Equity Act of 2008 and the 21st Century Cures Act provide that financial requirements (i.e., coinsurance and copays), quantitative treatment limits (i.e., number of visits), and nonquantitative treatment limits (i.e., facility limits) cannot be more restrictive or applied more stringently to mental health or substance use disorders (MH/SUD), than to medical/surgical conditions. The Departments of Labor and Health and Human Services have issued proposed FAQs [Part 39] demonstrating how the requirements of the MHPAEA and Cures Act apply to nonquantitative treatment limitations.
Nonquantitative treatment limitations (“NQTL”) are operations, processes, strategies, evidentiary standards and other factors used to determine benefits and coverages under a group health plan. NQTLs must be applied to MH/SUDs in a manner comparable to medical/surgical conditions. In addition, an NQTL may not be applied more stringently with respect to MH/SUDs than to medical/surgical benefits.
Examples of NQTLs include:
Medical management standards based on medical necessity or appropriateness, including benefits exclusions based upon the experimental or investigative nature of treatment;
Limits on prescription drug formulary design, such as the use of “step therapy” or “fail-first” policies;
Network admission standards (i.e., credentialing) and provider reimbursement rates;
Network adequacy standards (i.e., distance standards, waiting times); and
Facility limitations (i.e., in patient, residential, emergency room).
The FAQs remind plan administrators that a plan may exclude all benefits for a particular condition or disorder, as such exclusions are not treatment limitations for purposes of the parity requirements of the MHPAEA and Cures Act. However, state laws applicable to insured group health plans may or may not permit such exclusions from coverage.
The FAQs discuss participant disclosures for MH/SUD benefits, including the requirement that the criteria for medical necessity determinations be made available within 30 days of a participant’s request. In addition, summary plan descriptions must provide up-to-date, accurate and complete descriptions of the plan’s provider network. Plan administrators may provide electronic access (URL address, or hyperlink) to provider networks, but must comply with the DOL’s electronic disclosure safe harbor requirements. [Proposed] FAQs About Mental Health and Substance Use Disorder Parity Implementation and the 21st Century Cures Act Part XX.
Fiduciary Rule Update
There have been a number of significant recent developments regarding the ongoing efforts by multiple federal agencies to establish new fiduciary rules and standards of conduct for those who provide investment advice and recommendations to retirement plans.
First, on April 18, the Securities and Exchange Commission (SEC) published a proposed package of guidance that establishes a standard of conduct for broker-dealers when making a recommendation of any securities transaction or investment strategy involving securities; clarifies the standard of conduct for investment advisers; and requires new disclosures by investment advisers and brokers that includes information regarding the services offered, the required standard of conduct and the fees and costs associated with those services, identifies certain conflicts of interest, and discloses whether the firm and its financial professionals currently have reportable legal or disciplinary events. The SEC has requested comments on the new guidance – the comment period will remain open until August 7, 2018.
Second, as we reported in our March newsletter, the Court of Appeals for the Fifth Circuit decided that the Department of Labor’s (DOL’s) fiduciary rule should be effectively nullified and vacated (see U.S. Chamber of Commerce v. DOL (5th Cir 2018)). On or about May 7, 2018, absent further proceedings, the Fifth Circuit was expected to issue a mandate making effective its opinion vacating the entire fiduciary rule. Following the Fifth Circuit’s ruling, the DOL immediately announced that, pending further review, it was suspending enforcement of the fiduciary rule. The DOL had the option until as late as April 30 to ask the Fifth Circuit to reconsider its decision. The DOL, however, opted not to file a petition for rehearing by the April 30 deadline. Whether the DOL’s decision not to petition for rehearing might be tied to the SEC’s issuance of its own set of proposed standards of conduct on April 18 is not entirely clear, but it should be noted that the DOL still has the option (until June 13) to formally appeal the Fifth Circuit’s decision to the Supreme Court.
Third, on May 7, the DOL issued Field Assistance Bulletin (FAB) 2018-02 in which the DOL announced it is further delaying its enforcement of the fiduciary rule (i.e., it will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted in the Best Interest Contract Exemption and Principal Transactions Exemption, or treat such fiduciaries as violating the applicable prohibited transaction rules). The DOL believes the temporary enforcement relief is appropriate and in the interest of plans, plan fiduciaries, plan participants and beneficiaries, IRAs, and IRA owners given the uncertainty about fiduciary obligations and the scope of exemptive relief in the wake of the Fifth Circuit’s decision in U.S. Chamber of Commerce. The FAB does not go as far as to fully withdraw the DOL’s new fiduciary rule, so the rule technically remains in effect. But the combination of the issuance of the SEC guidance, the DOL’s decision not request rehearing in U.S. Chamber of Commerce, and the DOL’s extended non-enforcement posture raises significant questions about whether the DOL will continue its efforts to uphold its new fiduciary rule.
Fairness Does Not Override Internal Revenue Code Rules on Taxation of Annuity Payments
When an individual has made after-tax contributions to a defined benefit plan, the individual is entitled to receive those amounts tax-free when distributions are made. Internal Revenue Code Section 72(d) provides for a simplified method of recovering the “investment in the contract,” the portion of the payments representing the non-taxable return of the individual’s contributions. Under this simplified rule the investment in the contract is divided by a number of payments based on the age of the individual at the annuity starting date. In a recent tax court case an individual retired at age 55. Based on the simplified method, the number of payments utilized to recover the investment in the contract is 360. In this case, the individual argued that the simplified method of recovering the investment in the contract was unfair because the individual had a preexisting medical condition which would shorten the individual’s life expectancy. Under the simplified method, the individual would be age 85 by the time that he recovered the total investment in the contract. While the Tax Court was somewhat sympathetic to the individual’s situation, it found that there was no means by which it could overturn the requirements of Internal Revenue Code Section 72(d) requiring recovery over 360 months. The Tax Court did note that should the individual die before all the investment in the contract was recovered, the unrecovered investment in the contract is allowed as a deduction on the individual’s final income tax return. Oliver v. Commissioner (T.C. Summary Opinion 2018).
IRS Revises 2018 HSA Limit (Again) and Announces 2019 HSA Limits
The IRS released Rev. Proc. 2018-27, modifying the 2018 annual limitation on the deduction for contributions to a Health Savings Account (HSA) to $6,900 for an individual with family coverage under a high deductible health plan. This change restores the maximum contribution to the same amount that was originally announced as the 2018 annual limitation back on May 4, 2017. Earlier this year, however, as a result of changes in inflation adjusted calculations under the Tax Cuts and Jobs Act, the IRS released Rev. Proc. 2018-18 reducing the 2018 HSA contribution limit for an individual with family coverage by $50 to $6,850. This reduction caused numerous unanticipated administrative and financial burdens. Especially for individuals with family coverage that had made the maximum HSA contribution before the reduction was announced in March. This latest guidance restoring the original contribution limit is intended to alleviate these administrative hardships. Plan Administrators sponsoring high deductible health plans should communicate the new (old) 2018 limit of $6,900 for individuals with family coverage. In related news, the IRS also released Rev. Proc. 2018-30 providing inflation adjusted figures for 2019 HSA contributions. For 2019, the annual HSA contribution limit for an individual with self-only coverage will be $3,500. The 2019 HSA contribution limit for an individual with family coverage under a high-deductible plan will be $7,000.