Mental Health Parity Act Interim Rules
[Rules and Regulations] [Page 66931-66966] From the
Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22de97-15]
[[Page 66931]]
_______________________________________________________________________
Part V
Department of the Treasury Internal Revenue Service
26 CFR Part 54
Department of Labor Pension Welfare Benefits
Administration
29 CFR Part 2590
Department of Health and Human Services Health Care Financing
Administration
45 CFR Part 146
_______________________________________________________________________
Mental Health Parity; Interim Rules
HIPAA Mental Health Parity Act; Proposed Rule
[[Page 66932]]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
[T.D. 8741]
RIN 1545-AV53
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
29 CFR Part 2590
RIN 1210-AA62
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
45 CFR Part 146
RIN 0938-AI05
Interim Rules for Mental Health Parity
AGENCIES: Internal Revenue Service, Department of the Treasury;
Pension and Welfare Benefits Administration, Department of Labor;
Health Care Financing Administration, Department of Health and Human
Services.
ACTION: Interim rules with request for comments.
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SUMMARY: This document contains interim rules governing parity
between medical/surgical benefits and mental health benefits in
group health plans and health insurance coverage offered by issuers
in connection with a group health plan. The rules contained in this
document implement changes made to certain provisions of the
Internal Revenue Code of 1986 (Code), the Employee Retirement Income
Security Act of 1974 (ERISA or Act), and the Public Health Service
Act (PHS Act) enacted as part of the Mental Health Parity Act of
1996 (MHPA) and the Taxpayer Relief Act of 1997. Interested persons
are invited to submit comments on the interim rules for
consideration by the Department of the Treasury, the Department of
Labor, and the Department of Health and Human Services (Departments)
in developing final rules. The rules contained in this document are
being adopted on an interim basis to ensure that sponsors and
administrators of group health plans, participants and
beneficiaries, States, and issuers of group health insurance
coverage have timely guidance concerning compliance with the
requirements of MHPA.
DATES: Effective date. The interim rules are effective January 1,
1998. Applicability dates. The
requirements of MHPA and the interim rules apply to group health
plans and health insurance issuers offering health insurance
coverage in connection with a group health plan for plan years
beginning on or after January 1, 1998. MHPA includes a sunset
provision under which the MHPA requirements do not apply to benefits
for services furnished on or after September 30, 2001.
Information collection. Affected
parties are not required to comply with the information collection
requirements in these interim rules until the Departments publish in
the Federal Register the control numbers assigned to these
information collection requirements by the Office of Management and
Budget (OMB). Publication of the control numbers notifies the public
that OMB has approved these information collection requirements
under the Paperwork Reduction Act of 1995. The Departments have
submitted a copy of this rule to OMB for its review of the
information collections. Interested persons are invited to send
comments regarding these burdens or any other aspect of these
collections of information on or before February 20, 1998.
Comments. Written comments on
these interim rules are invited and must be received by the
Departments on or before March 23, 1998.
ADDRESSES: Comments on the information collection requirements
should be sent directly to:
Office of Information and Regulatory Affairs, Office of
Management and Budget, Room 10235, New Executive Office
Building, Washington, DC 20503, Attention: HCFA Desk
Officer.
Health Care Financing Administration, Office of Financial and
Human Resources, Management Planning and Analysis Staff, Room
C2-26-17, 7500 Security Boulevard, Baltimore, MD 21244-1850;
Attention: John Burke
Written comments on other aspects
of the interim rules should be submitted with a signed original and
three copies (except for electronic submissions sent to the Internal
Revenue Service (IRS)) to any of the addresses specified below. For
convenience, comments may be addressed to any of the Departments.
Comments addressed to any Department will be shared with the other
Departments. Comments to the IRS
can be addressed to: CC:DOM:CORP:R (REG-109704- 97), Room 5228,
Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. In the
alternative, comments may be hand-delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-109704-97), Courier's Desk,
Internal Revenue Service, 1111 Constitution Avenue, NW., Washington,
DC 20224. Alternatively,
taxpayers may transmit comments electronically via the IRS Internet
site at: http://www.irs.ustreas.gov/prod/tax__regs/ comments.html.
Comments to the Department of
Labor can be addressed to: U.S. Department of Labor, Pension and
Welfare Benefits Administration, 200 Constitution Avenue, NW., Room
N-5669, Washington, DC 20210; Attention: MHPA Comments.
Alternatively, comments may be
hand-delivered between the hours of 9 a.m. and 5 p.m. to the same
address. Comments to the
Department of Health and Human Services can be addressed to: Health
Care Financing Administration, Department of Health and Human
Services, Attention: HCFA-2891-IFC, P.O. Box 26688, Baltimore, MD
21207. In the alternative,
comments may be hand-delivered between the hours of 8:30 a.m. and
5:00 p.m. to either:
Room 309-G, Hubert Humphrey Building, 200 Independence Avenue,
SW., Washington, DC 20201
or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD
21244-1850
All submissions to the Internal
Revenue Service will be open to public inspection and copying in
Room 1621, 1111 Constitution Avenue, NW, Washington, DC from 9:00
a.m. to 4:00 p.m. All submissions
to the Department of Labor will be open to public inspection and
copying in the Public Documents Room, Pension and Welfare Benefits
Administration, U.S. Department of Labor, Room N-5638, 200
Constitution Avenue, NW, Washington, DC from 8:30 a.m. to 5:30 p.m.
All submissions to the Department
of Health and Human Services will be open to public inspection and
copying in Room 309-G of the Department of Health and Human Services
offices at 200 Independence Avenue, SW, Washington, DC from 8:30
a.m. to 5:00 p.m.
FOR FURTHER INFORMATION CONTACT: Terese Klitenic, Health Care
Financing Administration, Department of Health and Human Services,
at (410) 786- 1565; Mark Connor, Pension and Welfare Benefits
Administration, Department of Labor, at (202) 219-4377; or Russ
[[Page 66933]]
Weinheimer, Internal Revenue Service, Department of the Treasury,
at (202) 622-4695. Customer
service information. Individuals interested in obtaining a copy of
the Department of Labor's booklet entitled ``Questions and Answers:
Recent Changes in Health Care Law,'' which includes information on
MHPA, may call the following toll-free number: 1-800- 998-7542.
SUPPLEMENTARY INFORMATION:
A. Background
The Mental Health Parity Act of
1996 (MHPA) was enacted on September 26, 1996 (Pub. L. 104-204, 110
Stat. 2944). MHPA amended the Employee Retirement Income Security
Act of 1974 (ERISA) and the Public Health Service Act (PHS Act) to
provide for parity in the application of certain dollar limits on
mental health benefits with dollar limits on medical/surgical
benefits. Provisions implementing MHPA were later added to the
Internal Revenue Code of 1986 (Code) under the Taxpayer Relief Act
of 1997 (Pub. L. 105-34).
1. Regulatory Responsibility
The provisions of MHPA are set
forth in Chapter 100 of Subtitle K of the Code, Part 7 of Subtitle B
of Title I of ERISA, and Title XXVII of the PHS Act.\1\ The
Secretaries of the Treasury, Labor, and Health and Human Services
share jurisdiction over the MHPA provisions. These provisions are
substantially similar, except as follows:
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\1\ Chapter 100 of Subtitle K of
the Code, Part 7 of Subtitle B of Title I of ERISA, and Title XXVII
of the PHS Act were added by the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), Pub. L. 104-191.
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<bullet> The MHPA
provisions in the Code generally apply to all group health plans
other than governmental plans, but they do not apply to health
insurance issuers. A taxpayer that fails to comply with these
provisions may be subject to an excise tax under section 4980D of
the Code. <bullet> The MHPA
provisions in ERISA generally apply to all group health plans other
than governmental plans, church plans, and certain other plans.
These provisions also apply to health insurance issuers that offer
health insurance coverage in connection with such group health
plans. Generally, the Secretary of Labor enforces the MHPA
provisions in ERISA, except that no enforcement action may be taken
by the Secretary against issuers. However, individuals may generally
pursue actions against issuers under ERISA and, in some
circumstances, under State law.
<bullet> The MHPA provisions in the PHS Act generally apply to
health insurance issuers that offer health insurance coverage in
connection with group health plans and to certain State and local
governmental plans. States, in the first instance, enforce the PHS
Act with respect to issuers. Only if a State does not substantially
enforce any provisions under its insurance laws will the Department
of Health and Human Services enforce the provisions, through the
imposition of civil money penalties. Moreover, no enforcement action
may be taken by the Secretary of Health and Human Services against
any group health plan except certain State and local governmental
plans. The interim rules being
issued today by the Secretaries of the Treasury, Labor, and Health
and Human Services have been developed on a coordinated basis by the
Departments. In addition, these interim rules take into account
comments received by the Departments in response to the request for
public comments on MHPA published in the Federal Register on June
26, 1997 (62 FR 34604). Except to the extent needed to reflect the
statutory differences described above, the interim rules of each
Department are substantively identical. However, there are certain
non-substantive differences. The interim rules reflect certain
stylistic differences in language and structure to conform to
conventions used by a particular Department. These differences have
been minimized and any differences in wording are not intended to
create any substantive difference.
2. Preemption of State Laws
The McCarran-Ferguson Act of 1945
(Pub. L. 79-15) exempts the business of insurance from federal
antitrust regulation to the extent that it is regulated by the
States and indicates that no federal law should be interpreted as
overriding State insurance regulation unless it does so explicitly.
Section 514(a) of ERISA preempts State laws relating to employee
benefit plans (including group health plans). Section 731 of ERISA
and section 2723 of the PHS Act provide that Part 7 of Subtitle B of
Title I of ERISA and Part A of Title XXVII of the PHS Act (including
the MHPA provisions) do not in any way affect or modify section 514
of ERISA with respect to group health plans.
Section 514(b)(2) of ERISA saves
from preemption any State law that regulates insurance. However,
section 731(a) of ERISA and section 2723(a) of the PHS Act preempt
State insurance laws relating to health insurance issuers in
connection with group health insurance coverage to the extent such
laws ``prevent the application of'' Part 7 of Subtitle B of Title I
of ERISA or Part A of Title XXVII of the PHS Act, including the MHPA
provisions. (There is no corresponding provision in the Code.) In
this regard, the conference report to HIPAA states that the
conferees generally intended the narrowest preemption of State laws
with regard to health insurance issuers (not group health plans)
with respect to the provisions of Part 7 of Subtitle B of Title I of
ERISA and Part A of Title XXVII of the PHS Act.\2\ Consequently, the
conference report to HIPAA states that State laws with regard to
health insurance issuers that are broader than federal requirements
in certain areas would not ``prevent the application of'' the
provisions of Part 7 of Subtitle B of Title I of ERISA or Part A of
Title XXVII of the PHS Act. Further, the conference report to MHPA
states that the application of these preemption provisions should
permit the operation of any State law or provision that requires
more favorable treatment of mental health benefits under health
insurance coverage than that required under the MHPA provisions.
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\2\ However, the preemption is
broader for the statutory requirements of section 701 of ERISA and
section 2701 of the PHS Act that limit the application of
preexisting condition exclusions. Under these broader provisions,
State laws cannot ``differ'' from the preexisting condition
exclusion requirements of section 701 of ERISA or section 2701 of
the PHS Act except as specifically permitted by section 731(b)(2) of
ERISA and section 2723(b)(2) of the PHS Act. These provisions permit
a State to impose on health insurance issuers certain stricter
limitations relating to preexisting condition exclusions.
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Thus, generally, a State law that
requires more favorable treatment of mental health benefits under
health insurance coverage offered by issuers would not be preempted
by the provisions of MHPA and the interim rules.
B. Overview of MHPA and the Interim Rules
The MHPA provisions are set forth
in section 9812 of the Code, section 712 of ERISA, and section 2705
of the PHS Act. MHPA and the interim rules apply to a group health
plan (or health insurance coverage offered by issuers in connection
with a group health plan) that provides both medical/surgical
benefits and mental health benefits.
The MHPA provisions provide for
parity in the application of aggregate lifetime dollar limits, and
annual dollar limits, between mental health benefits and
medical/surgical benefits. If a group health plan offers two or more
benefit packages under the plan, the
[[Page 66934]]
requirements of MHPA and the interim rules apply separately to
each package. The interim rules make clear that the MHPA
requirements apply regardless of whether the mental health benefits
are administered separately under the plan. In addition, the interim
rules make clear that the MHPA requirements in ERISA and the PHS Act
apply both to group health plans and to health insurance issuers
offering coverage in connection with a group health plan.
MHPA and the interim rules do not
require a group health plan (or health insurance coverage offered in
connection with a group health plan) to provide mental health
benefits. In addition, MHPA and the interim rules do not affect the
terms and conditions (including cost sharing, limits on the number
of visits or days of coverage, requirements relating to medical
necessity, requirements that patients or providers obtain prior
authorization for treatment, and requirements relating to primary
care physicians' referrals for treatment) relating to the amount,
duration, or scope of mental health benefits under a plan (or
coverage) except as specifically provided in regard to parity of
aggregate lifetime dollar limits and annual dollar
limits.<SUP>3</SUP>
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\3\ In response to the
Departments' request for public comments on MHPA published in the
Federal Register (62 FR 34604), the Equal Employment Opportunity
Commission (EEOC) noted that the Americans with Disabilities Act
(ADA) prohibits disability-based distinctions (including such
distinctions relating to the provision of mental health benefits) in
employer-provided health insurance plans unless the plan otherwise
falls within the protections of section 501(c) of the ADA. The ADA
is within the regulatory jurisdiction of the EEOC.
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1. Aggregate Lifetime Limits and Annual Limits
Under MHPA and the interim rules,
a group health plan (or health insurance coverage offered in
connection with a group health plan) providing both medical/surgical
benefits and mental health benefits may comply with the MHPA parity
requirements in any of the following general ways:
<bullet> The plan (or
coverage) may comply by not including any aggregate lifetime dollar
limit or annual dollar limit on mental health benefits.
<bullet> The plan (or
coverage) may comply by imposing a single aggregate lifetime or
annual dollar limit on both medical/surgical benefits and mental
health benefits in a way that does not distinguish between the two.
<bullet> The plan (or
coverage) may comply by imposing an aggregate lifetime dollar limit
or annual dollar limit on mental health benefits that is not less
than the aggregate lifetime dollar limit or annual dollar limit on
medical/surgical benefits.
<bullet> In the case of a plan (or coverage) under which
aggregate lifetime dollar limits or annual dollar limits differ for
categories of medical/surgical benefits, the plan (or coverage) may
comply by calculating a weighted average aggregate lifetime dollar
limit or weighted average annual dollar limit for mental health
benefits. The weighted average must be based on a formula in the
interim rules that takes into account the limits on different
categories of medical/ surgical benefits.
In addition, under MHPA and the
interim rules, benefits for treatment of substance abuse or chemical
dependency may not be counted in applying an aggregate lifetime or
annual dollar limit that applies separately to mental health
benefits.
2. Exemptions from the Requirements of MHPA
(a) Small Employer Exemption
The parity requirements under MHPA and the interim rules do not
apply to any group health plan (or health insurance coverage offered
in connection with a group health plan) for any plan year of a small
employer. The term ``small employer'' is defined as an employer who
employed an average of at least 2 but not more than 50 employees on
business days during the preceding calendar year and who employs at
least 2 employees on the first day of the plan
year.<SUP>4</SUP>
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\4\ Section 9831(a) of the Code,
section 732(a) of ERISA, and section 2721(a) of the PHS Act provide
an exception that applies under the MHPA provisions as well as under
provisions added by HIPAA and the Newborns' and Mothers' Health
Protection Act of 1996. The exception applies to any group health
plan (and health insurance coverage offered in connection with a
group health plan) for any plan year if, on the first day of the
plan year, the plan has fewer than 2 participants who are current
employees.
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For purposes of the small employer
exemption, all persons treated as a single employer under
subsections (b), (c), (m), and (o) of section 414 of the Code (26
U.S.C. 414) are treated as one employer. In addition, if an employer
was not in existence throughout the preceding calendar year, whether
the employer is a small employer is determined on the average number
of employees the employer reasonably expects to employ on business
days during the current calendar year. Finally, any reference to an
employer in the small employer exemption includes a reference to a
predecessor of the employer. (b)
Increased Cost Exemption The second exemption from the MHPA
requirements applies to group health plans (or health insurance
coverage offered in connection with a group health plan) if the
application of the MHPA parity requirements described in paragraph
(b)(1)(i) <SUP>5</SUP> results in an increase in the
cost under the plan (or coverage) of at least one percent. This
exemption is available only if the requirements of paragraph (f) are
met. If a plan offers more than one benefit package, the exemption
is applied separately to each benefit package. Except as provided in
the transition period described in paragraph (h), a plan must
implement the parity requirements for the first plan year beginning
on or after January 1, 1998, and must continue to comply with the
parity requirements until September 30, 2001 (the sunset date in
paragraph (i)) unless the plan satisfies the exemption described in
paragraph (f). However, the exemption is not effective until 30 days
after the notice requirements in paragraph (f)(3) are satisfied.
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\5\ Any reference to a particular
paragraph in this preamble to the interim rules is a reference to
the corresponding paragraphs in each of the Departments' interim
rules.
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The interim rules, in paragraph
(f)(2), describe the ratio of two terms used to determine if a plan
(or coverage) has experienced a cost increase of one percent or
more. The first term is the total cost incurred under parity
(including both mental health costs and medical/ surgical costs).
The second term is the total cost incurred under parity reduced by
the costs required solely to comply with parity. Costs required
solely to comply with parity include mental health claims that would
have been denied absent amendments required to comply with parity,
the administrative costs related to those claims, and other
administrative costs attributable to complying with the parity
requirements. Premium payments are not considered in this
calculation. The ratio is expressed by the following formula:
[GRAPHIC] [TIFF OMITTED] TR22DE97.000
IE represents the incurred expenditures during the base period.
CE represents the claims incurred during the base period that would
have been denied under the terms of the plan absent plan amendments
required to comply with the parity requirements of paragraph
(b)(1)(i). AE represents administrative costs related to claims in
CE and other administrative costs attributable to
[[Page 66935]]
complying with the parity requirements of paragraph (b)(1)(i).
Examples illustrate how the rule
is applied in the case of a self- funded plan, a fully insured plan,
and a partially insured plan. Moreover, in the case of a partially
insured plan in which the partially insured portion is pooled for
rating purposes, the costs of the pool should be allocated
proportionally among the pool members by reasonable methods,
including proportional enrollment. Additional provisions in
paragraph (f) describe the baseline for determining those costs that
are attributable solely to compliance with the parity requirements,
the base period used to calculate whether a plan may claim the
exemption, and how long the exemption applies once it is claimed.
The base period must begin on the first day in any plan year that
the plan complies with the requirements of paragraph (b)(1)(i) of
this section and must extend for a period of at least six
consecutive calendar months. However, in no event may the base
period begin prior to September 26, 1996 (the date of enactment of
the Mental Health Parity Act (Pub. L. 104-204, 110 Stat. 2944)).
Before a group health plan may
claim the one-percent increased cost exemption, it must furnish
participants and beneficiaries with a notice of the plan's exemption
from the parity requirements that includes the information described
in paragraph (f)(3)(i). A plan may satisfy this requirement by
providing participants and beneficiaries with a summary of material
reductions in covered services or benefits, under 29 CFR
2520.104b-3(d), if it includes all the information required by
paragraph (f)(3)(i). However, this exemption under MHPA is not
effective until at least 30 days after the notice is sent to the
participants and beneficiaries and the appropriate federal agency
even if the notice is incorporated into a summary of material
reductions in covered services or benefits.
A group health plan that is not
subject to Part 7 of Subtitle B of Title I of ERISA, and a plan
subject to Part 7 of Subtitle B of Title I of ERISA that chooses not
to incorporate the information in paragraph (f)(3)(i) into a summary
of material reductions in covered services or benefits (which must
be furnished to participants and beneficiaries and the appropriate
federal agency), may use the following model to satisfy the notice
requirement under paragraph (f)(3) of the interim rules:
BILLING CODE 4830-01-P; 4510-29-P; 4120-01-P
[[Page 66936]]
[GRAPHIC] [TIFF OMITTED] TR22DE97.001
BILLING CODE 4830-01-C; 4510-29-C; 4120-01-C
[[Page 66937]]
To claim the one-percent increased
cost exemption, a group health plan that is a church plan (as
defined in section 414(e) of the Code) also must furnish to the
Department of the Treasury a copy of the notice sent to participants
and beneficiaries that satisfies the requirements of paragraph
(f)(3)(i). To claim the one percent increased cost exemption, a
group health plan subject to Part 7 of Subtitle B of Title I of
ERISA also must furnish to the Department of Labor a copy of the
notice sent to participants and beneficiaries that satisfies the
requirements of paragraph (f)(3)(i). To claim the one percent
increased cost exemption, a group health plan that is a nonfederal
governmental plan also must furnish to the Department of Health and
Human Services a copy of the notice sent to participants and
beneficiaries that satisfies the requirements of paragraph
(f)(3)(i). In all cases, the exemption is not effective until 30
days after notice has been sent both to participants and
beneficiaries and to the appropriate federal agency. Any notice
submitted to the Department of Labor or Health and Human Services
will be available for public inspection.
The Secretaries have designated
the following addresses for delivery of these notices:
For notices to the Department of
the Treasury, church plans should mail the notice to: Office of the
Assistant Commissioner, Examination, Examination Programs CP:EX:E,
1111 Constitution Avenue, NW., Washington, DC 20224; Attention: MHPA
one-percent cost exemption notice.
For notices to the Department of
Labor, plans should mail the notice to: Public Documents Room,
Pension and Welfare Benefits Administration, U.S. Department of
Labor, Room N-5638, 200 Constitution Avenue, NW., Washington, DC
20210; Attention: MHPA one-percent cost exemption notice.
For notices to the Department of
Health and Human Services, plans should mail the notice to: Health
Care Financing Administration, 7500 Security Boulevard, Baltimore,
MD 21244-1850; Attention: Insurance Standards: Exemptions.
Finally, to claim the one percent
increased cost exemption, a plan (or issuer) must make available to
participants and beneficiaries (or their representatives), on
request and at no charge, a summary of the information described in
paragraph (f)(4). An individual who is not a participant or
beneficiary and who presents a notice described in paragraph
(f)(3)(i) is considered to be a representative. For this purpose,
individually identifiable information in the notice may be redacted.
The summary of information must include the incurred expenditures,
the base period, the dollar amount of claims incurred during the
base period that would have been denied under the terms of the plan
absent amendments required to comply with parity, and the
administrative expenses attributable to complying with the parity
requirements. In no event should a summary of information include
individually identifiable information.
Civil money penalties as
described in regulations at 45 CFR 146.184(d) apply to an issuer or
nonfederal governmental plan that fails to satisfy the requirements
of paragraph (f).
3. MHPA's Effective Date and Sunset Provision
The MHPA provisions are generally
effective for group health plans (and health insurance issuers
offering health insurance coverage in connection with a group health
plan) for plan years beginning on or after January 1, 1998. MHPA
includes a sunset provision under which the MHPA requirements do not
apply to benefits for services furnished on or after September 30,
2001. However, for requirements
of this section other than the one- percent increased cost
exemption, the interim rules provide a limitation on enforcement
actions in paragraph (h)(2). Under that paragraph, no enforcement
action can be taken by any of the Secretaries against a group health
plan (or issuer) that has sought to comply in good faith with the
requirements of section 9812 of the Code, section 712 of ERISA, and
section 2705 of the PHS Act with respect to a violation that occurs
before the earlier of the first day of the first plan year beginning
on or after April 1, 1998, or January 1, 1999. Compliance with the
requirements of the interim rules is deemed to be good faith
compliance with the requirements of section 9812 of the Code,
section 712 of ERISA, and section 2705 of the PHS Act.
With respect to the increased
cost exemption, the interim rules provide in paragraph (h)(3) a
transition period for compliance with the requirements of paragraph
(f). Under paragraph (h)(3), no enforcement action will be taken
against a group health plan (or issuer) that is subject to the MHPA
requirements prior to April 1, 1998 solely because the plan has
claimed the increased cost exemption under section 9812(c)(2) of the
Code, section 712(c)(2) of ERISA, or section 2705(c)(2) of the PHS
Act based on assumptions inconsistent with the rules under paragraph
(f) of the interim rules, provided that the plan is amended to
comply with the parity requirements no later than March 31, 1998 and
the plan complies with the notice requirements in paragraph
(h)(3)(ii). A group health plan
satisfies this transition period notice requirement only if the plan
provides notice to the applicable federal agency and posts such
notice at the location(s) where documents must be made available for
examination under section 104(b)(2) of ERISA and the regulations
thereunder (Sec. 2520.104b-1(b)(3)). The notice must indicate the
plan's intent to use the transition period by 30 days after the
first day of the plan year beginning on or after January 1, 1998,
but in no event later than March 31, 1998. For a group health plan
that is a church plan, the applicable federal agency is the
Department of the Treasury. For a group health plan that is subject
to Part 7 of Subtitle B of Title I of ERISA, the applicable federal
agency is the Department of Labor. For a group health plan that is a
nonfederal governmental plan, the applicable federal agency is the
Department of Health and Human Services. In all cases, the notice
must include the date; the name of the plan and the plan number; the
name, address, and telephone number of the plan sponsor or plan
administrator; the employer identification number (in the case of
single-employer plans only); the individual to contact for further
information; the signature of the plan administrator; and the date
signed. In addition, the notice must be provided at no charge to
participants and beneficiaries (or their representatives) within 15
days after receipt of a written or oral request for such
notification, but in no event does the notice have to be provided
before it has been sent to the applicable federal agency. For this
purpose, plans may use the following model:
BILLING CODE 4830-01-P; 4510-29-P; 4210-01-P
[[Page 66938]]
[GRAPHIC] [TIFF OMITTED] TR22DE97.002
BILLING CODE 4830-01-C; 4510-29-C; 4120-01-C
[[Page 66939]]
The Secretaries have designated
the following addresses for delivery of the notices: For notices to
the Department of the Treasury, plans should mail the notice to:
Office of the Assistant Commissioner, Examination, Examination
Programs CP:EX:E, 1111 Constitution Avenue, NW., Washington, DC
20224; Attention: MHPA transition period notice.
For notices to the Department of
Labor, plans should mail the notice to: Public Documents Room,
Pension and Welfare Benefits Administration, U.S. Department of
Labor, Room N-5638, 200 Constitution Avenue, NW., Washington, DC
20210; Attention: MHPA transition period notice.
For notices to the Department of
Health and Human Services, plans should mail the notice to: Health
Care Financing Administration, 7500 Security Boulevard, Baltimore,
MD 21244-1850; Attention: Insurance Standards: Exemptions.
C. Interim Rules and Request for Comments
Section 9833 of the Code (formerly
section 9806), section 734 of ERISA (formerly section 707), and
section 2792 of the PHS Act provide, in part, that the Secretaries
of the Treasury, Labor, and Health and Human Services may promulgate
any interim final rules as they determine are appropriate to carry
out the provisions of Chapter 100 of Subtitle K of the Code, Part 7
of Subtitle B of Title I of ERISA, and Part A of Title XXVII of the
PHS Act, including the MHPA provisions.
Under Section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) a general notice
of proposed rulemaking is not required when an agency, for good
cause, finds that notice and public comment thereon are
impracticable, unnecessary, or contrary to the public interest.
These rules are being adopted on
an interim final basis because the Secretaries have determined that
without prompt guidance some members of the regulated community may
not know what steps to take to comply with the MHPA requirements,
which may result in an adverse impact on participants and
beneficiaries with regard to their mental health benefits under
group health plans and the protections provided under MHPA.
Moreover, MHPA's requirements will affect the regulated community in
the immediate future. MHPA's
requirements are effective for all group health plans and for health
insurance issuers offering coverage in connection with such plans
for plan years beginning on or after January 1, 1998. Plan
administrators and sponsors, issuers, and participants and
beneficiaries, will need guidance on the new statutory provisions
before MHPA's effective date. As noted earlier, these interim rules
take into account comments received by the Departments in response
to the request for public comments on MHPA published in the Federal
Register on June 26, 1997 (62 FR 34604). For the foregoing reasons,
the Departments find that the publication of a proposed regulation,
for the purpose of notice and public comment thereon, would be
impracticable, unnecessary, and contrary to the public interest.
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et. seq.) (RFA) requires an agency to publish a
regulatory flexibility analysis describing the impact of a proposed
rule which the agency determines would have a significant impact on
a substantial number of small entities. The RFA requires that the
agency present an initial regulatory flexibility analysis and seek
public comment on its analysis when the agency publishes a general
notice of proposed rulemaking (NPRM) under section 553 of the
Administrative Procedures Act (5 U.S.C. 553 et seq.) (APA). Under
the RFA, small entities include small businesses, non-profit
organizations and governmental agencies. For our purposes, under the
RFA, States and individuals are not considered small entities.
However, small employers and small group health plans are considered
small entities. Since these rules
are issued as interim final rules, and not as an NPRM, a formal
regulatory flexibility analysis has not been prepared. Nonetheless,
in the discussion below on the rule's impact on the regulated
community, the Departments present an analysis addressing many of
the same issues otherwise required by the RFA, including the likely
impact of the interim rule on small entities, and a discussion of
regulatory alternatives considered in crafting the rule. The
Departments invite interested persons to submit comments for
consideration in the development of the final rules implementing the
MHPA. Consistent with the RFA, the Departments encourage the public
to submit comments that accomplish the stated purpose of the MHPA
and minimize the impact on small entities. Specifically, we welcome
comments addressing the impact of the MHPA's 1 percent cost
exemption for plans and issuers that can demonstrate that
implementation of the parity rules would raise their expenditures by
more than one percent. We also welcome comments addressing the
operation of the MHPA provision requiring that plans using
differential aggregate lifetime or annual limits for various
categories of benefits use a weighted average of such differential
limits to calculate the overall aggregate lifetime and annual limits
for the plan.
E. Executive Order 12866--Departments of Labor and Health and
Human Services
The Office of Management and
Budget has determined this rule to be a major rule, as well as an
economically significant regulatory action under Section 3(f) of
Executive Order 12866. The following analysis fulfills the
requirement under the Executive Order to assess the economic impact
of major and economically significant regulatory actions.
Executive Order 12866 requires
agencies to assess the costs and benefits of available regulatory
alternatives, and when regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects; distributive
impacts; and equity). Section 3(f) of the Executive Order 12866
requires agencies to prepare a regulatory impact analysis for any
rule which is deemed a ``significant regulatory action'' according
to specified criteria, including whether the rule may have an annual
effect on the economy of $100 million or more or certain other
specified effects; or whether the rules raise novel legal or policy
issues arising out of the President's priorities.
This analysis was conducted by
the Departments of Labor and Health and Human Services. It discusses
the economic impact of the MHPA, which this rule implements, with
special emphasis on the one percent cost exemption. It quantifies
the number of plans and individuals who might be affected by the
exemption rule, illustrating the exemption's effect in the context
of other statutory MHPA provisions. It separately considers the
impact of regulatory discretion exercised by the Departments in
connection with this rule.
a. Overall Impact of the MHPA
In general, the MHPA may have both
direct and indirect effects on group health plans, plan sponsors,
and plan participants. Direct effects may include broader coverage
of mental health treatments and associated increases in mental
health benefit payments. Indirect effects may include the steps
employers who sponsor plans may take to reduce
[[Page 66940]]
or offset their expenditures attributable to compliance with the
MHPA, such as amending, curtailing or dropping mental health
benefits or other components of compensation, as well as
participants' responses to any expenditure increases that are passed
to them.
Direct Effects The most
direct effect of the MHPA is broader health insurance coverage for
mental health treatment. In many health plans, mental health
coverage is more restrictive than medical/surgical coverage due to
lower annual and/or lifetime dollar limits, more restrictive limits
on visits and stays, and other plan provisions. For example, a
recent survey of employee benefit plans by Hay/Huggins illustrates
the differences in plan terms and lower dollar limits of mental
health services and medical/surgical services. The survey reported
that indemnity plans typically impose a lifetime limit of $50,000
for mental health benefits. On the other hand, medical/surgical
benefits of a typical indemnity plan provide a lifetime limit of
$1,000,000. Requiring fuller
coverage of mental health treatment will increase mental health
benefit payments and associated plan expenditures. Some of this
increase will be paid by plan sponsors, and some will be paid by
participants in the form of increased premiums and/or reductions in
other compensation. Aside from any increased administrative costs
involved, these plan expenditure increases generally represent one
side of transfer payments rather than erosion in overall social
welfare. In other words, additional plan expenditures arising from
the MHPA are balanced by additional benefits paid for mental health
services. One result will be that some money that would have been
spent on other goods or services will be spent instead on mental
health services. The direct
effects of the MHPA will in turn cause other effects due to
subsequent responses by affected employers (in their capacity as
plans sponsors) and participants. Indirect Effects of the MHPA
There are numerous ways in which
plan sponsors affected by the MHPA might react. Some might take no
action other than to remove or increase dollar limits on mental
health benefits. Others might make other changes to their mental
health benefits in order to reduce or offset expenditure increases
from compliance with MHPA. The statute explicitly preserves plan
sponsors' right to provide no mental health benefits, or to set the
``terms and conditions (including cost sharing, limits on numbers of
visits or days of coverage, and requirements relating to medical
necessity) relating to the amount, duration, or scope of mental
health benefits,'' except with respect to annual or lifetime dollar
limits. Some plan design options would be associated with lower plan
expenditure increases from compliance with the MHPA. The statute
also provides an ``increased cost exemption'' under which the
statute ``shall not apply'' if its application ``results in an
increase in the cost . . . of at least 1 percent'' (ERISA Section
712(c)(2)). Plan sponsors' responses to the MHPA may lessen their
expenditures associated with compliance; that is, their responses
may reduce the amount of transfers arising from the MHPA.
For example, many mental health
plans currently have non-dollar limits. According to the U.S. Bureau
of Labor Statistics, among full- time participants at private
establishments with 100 or more employees in 1993, 55 percent were
subject to separate day limits for inpatient mental health
treatment, and 43 percent were subject to separate visit limits for
outpatient mental health treatment (U.S. Bureau of Labor Statistics,
Employee Benefits in Medium and Large Private Establishments, 1993).
Plans that impose non-dollar limits on mental health benefits may
face smaller expenditures increases from the MHPA.
Many plans currently subject
mental health benefits to separate cost sharing provisions. Among
full-time participants in medium and large private establishments in
1993, 15 percent were subject to separate coinsurance rates and 4
percent were subject to separate copayment rates for inpatient
mental health care, while 53 percent and 18 percent were
respectively subject to separate coinsurance and copayment rates for
outpatient mental health care. Cost sharing generally affects plan
expenditures in two ways. First, by shifting some payments for
services to participants, cost sharing directly reduces the
expenditures borne by plans. Second, by increasing the price of
services faced by participants, cost sharing reduces the quantity of
services that participants demand. Because of both of these
mechanisms, plans that have more cost sharing for mental health
benefits will not be impacted as much by the MHPA as plans that have
parity in cost sharing. Many
plans use HMO-style management techniques to control mental health
benefit expenditures. Plans that have HMO-style mental health
``carve-outs'' but no mental health limits are likely to pay less
for mental health benefits than fee-for-service plans with low
dollar limits that are impermissible under the MHPA. For example, a
FFS plan with utilization review and an annual mental health limit
of $10,000 averages $6.51 per member per month, while an unlimited
``carve out'' plan pays $6.12, according to a Price Waterhouse LLP
actuarial model developed for the Departments based on the same data
as above. There are a number of
reasons why the permissible plan designs outlined here should have
little negative effect on existing mental health coverage. First,
the modest expenditure increases necessitated by the MHPA would be
unlikely to prompt many major design changes. As noted below,
approximately 10 percent of affected plans will face increased
expenditures under the MHPA of at least one percent, according to
the Price Waterhouse, LLP analysis conducted for the Departments.
Only 4 percent of affected plans are expected to be faced with
increases from the MHPA of 1.5 percent or more, according to the
same analysis. Second, the largest expenditure increases and
therefore the most aggressive responses will be associated with
plans that have the tightest dollar caps today--that is, with plans
that would have provided the most restrictive coverage anyway.
Other effects resulting from the
MHPA may include plan sponsors dropping mental health coverage
altogether, or dropping or curtailing other health benefits or
components of compensation. Such curtailments could include shifting
some of the cost of benefits to employees, for example in the form
of increased participant premium contributions for health benefits.
Participants, in turn, might respond to premium increases by
dropping their health benefits or electing less expensive plans. As
with plan sponsor amendments to mental health benefits, such
responses by plan sponsors and participants are expected to be
modest and/or rare, given the generally small direct effects of the
MHPA on plan expenditures.
b. Review of Quantitative Estimates
The Congressional Budget Office
(CBO) estimated that the MHPA's direct effect would be to increase
health plan expenditures by 0.4 percent on aggregate. (See
Congressional Budget Office, ``CBOs Estimates of the Mental Health
Parity Amendments to the VA/HUD Appropriation Bill, as Passed in the
Senate,'' September 10, 1996.) This assumes that plan sponsors make
no changes to their plans other than to raise or eliminate dollar
limits on mental
[[Page 66941]]
health benefits consistent with the MHPA's parity requirements.
However, some plan sponsors may make other changes to their plans in
order to reduce or offset the impact of the MHPA on their
expenditures. For example, some plan sponsors might amend, curtail,
or drop mental health benefits or health benefits in general. Taking
into account the likely incidence of such plan sponsor responses to
the MHPA, CBO estimated that the true aggregate increase in health
plan expenditures attributable to the MHPA would only be 0.16
percent. Combining these figures
with those from an earlier CBO analysis, the Departments calculate
that, in dollar terms, the total annual direct impact of the MHPA
would be to increase aggregate health plan expenditures by $1.16
billion, not accounting for plan sponsor responses to reduce that
impact. Accounting for those responses, the actual increase in
annual aggregate health plan expenditures would be $464 million. It
should be noted that these figures do not account for the MHPA's
increased cost exemption, its exemption of firms with 50 or fewer
employees, the incidence of managed care plans whose added cost
under the MHPA would be smaller than those of managed fee for
service plans, or for plans that are separately subject to state
requirements equal or greater than the MHPA's. The Departments'
estimates, reported below, incorporate these adjustments.
CBO also reports the Joint
Committee on Taxation's estimate that the MHPA will reduce federal
revenues by $560 million over six years. CBO explains that most of
the 0.16 percent increase in plan expenditures would be shifted back
to employees as lower pay, thus eroding the income and payroll tax
bases. On an annual basis, the MHPA would increase expenditures for
federal annuitants' health benefits by $30 million, CBO reports.
Finally, the MHPA's impact on nonfederal governmental entities would
amount to $50 million, while its impact on the private sector would
probably exceed $100 million, according to CBO.
The CBO estimates were based on a
typical fee-for-service indemnity plan with customary management
techniques to control expenditures, and not on plans with other
types of delivery systems, such as Health Maintenance Organizations
(HMOs), Preferred Provider Organizations (PPOs), or Point-of-Service
(POS) plans. In fact, plans using different delivery systems will
face different expenditure increases under the MHPA. For example,
HMOs, which typically contract with health care providers at
discounted rates and tightly manage utilization, will face smaller
increases under the MHPA. Coopers
& Lybrand (C&L) also estimated the impact of the MHPA
(Ronald E. Bachman, ``An Actuarial Analysis of S. 2031, The Mental
Health Parity Act of 1996,'' prepared for the American Psychological
Association. Coopers & Lybrand LLP, September 1996). C&L
estimated that the MHPA would increase plan expenditures by 0.12
percent per plan on average before taking into account any responses
by plan sponsors. Taking plans sponsors' responses into account and
using the same response assumption as CBO, C&L estimated that
plan expenditures would increase by less than 0.05 percent. In
dollar terms, these increases would amount to $348 million and $139
million respectively. Unlike CBO,
C&L considered four different delivery systems: fee- for-service
with standard utilization review on typical medical services,
fee-for-service with specialized mental health utilization review,
PPO and POS plans with specialized mental health utilization review,
and HMO and carve-out mental health plans. Under each delivery
system, C&L also considered a variety of annual dollar limits
ranging from $10,000 to unlimited amounts, rather than assuming that
all plans in the delivery system provided the same level of
benefits. The Departments
performed additional quantitative analysis, generally analogous to
CBO's, in the course of assessing the impact of the regulatory
discretion reflected in this rule. The additional analysis suggests
that the direct impact of the MHPA, not accounting for plan
sponsors' responses, would be to increase annual aggregate health
plans expenditures by 0.29 percent or $653 million. Under CBO's
assumption regarding plan sponsor responses to reduce the added
expenditure, actual added expenditures would amount to $261 million.
The Departments did not attempt to independently quantify such
responses. However, the Departments estimate that if all plans
eligible for the one percent cost exemption exercise it, the
increase in plan expenditures would be reduced from 0.29 percent to
0.14 percent or $310 million. The Departments' analysis is detailed
below.
c. Exercise of Regulatory Discretion
One Percent Cost Exemption The
main area in which the agencies exercised regulatory discretion is
in connection with the one percent cost increase exemption.
Alternative regulatory interpretations can impact the outcome of the
number of plans, firms, policyholders, and covered lives that would
be exempted from the MHPA. The
Departments considered options concerning the interpretation of the
one-percent cost exemption and how it should be implemented. In
general, they considered (1) whether the eligibility for the
exemption should be determined retrospectively or prospectively, and
what, if any, rules should be established with respect to how
eligibility should be determined, (2) whether eligibility should be
contingent on affirmative approval from an enforcement agency or
simply subject to possible review by such an agency, and (3) whether
plan sponsors electing exemptions should be required to notify
participants and/or enforcement agencies of this action and/or to
disclose to these parties evidence documenting eligibility for the
exemption. They also considered the administrability of each option,
seeking to balance the costs and benefits to plans and participants,
as well as the benefits and burdens of the regulatory scheme on the
federal government. Retro/prospective Determination
The options considered ranged
from a purely retrospective interpretation to a purely prospective
one, and included intermediate interpretations that blend these two
approaches. Under a purely
retrospective interpretation, the one percent increased cost
exemption would be based on actually incurred expenditures
increases, measured retrospectively after implementation of the
statute. In other words, all plans must comply and provide parity of
annual and/or lifetime dollar limits of mental health and medical
services for the first year beginning with the start of a plan year
on or after January 1, 1998. If during the first year, a plan
experiences increases in expenditures equal to one percent or more
as a result of complying with the statute, that plan would then be
eligible to exercise an exemption from the MHPA for subsequent plan
years. The calculation for
determining the percent increase would be based on the ratio of the
increase in plan expenditures to the total plan expenditures, that
is, both medical and mental health expenditures. For self-insured
plans, the numerator would be the actual value of mental health
claims paid in excess of the previous plan limits. For example, if
the annual mental health limit were $10,000 and the medical/surgical
were $1,000,000, then the sum of all mental health claims paid in
excess of $10,000 would be included in the numerator of the
ratio
[[Page 66942]]
used for that plan in calculations related to the one percent
exemption. The denominator for self-insured plans would be the total
value of medical and mental health claims excluding mental health
claims in excess of $10,000. If the result is an increase of one or
more percent, the plan would be exempt from complying with the
statute in any other year until the statute sunsets in 2001. Because
there is a lag between the time that claims are incurred and the
time they are reported, complete data needed for the calculation
might not be available until three or six months after the end of
the first plan year under the MHPA. With respect to fully insured
plans, the calculation would be slightly different. To the extent
that different plans' experiences are pooled for purposes of setting
premiums, their eligibility for the exemption would depend on their
pooled experience under MHPA, rather than on each plan's individual
experience. The purely
retrospective interpretation would minimize the availability of the
exemption, and therefore might result in both the greatest incidence
of parity in lifetime and annual dollar limits and the greatest
incidence of other plan actions to reduce or offset the increase in
expenditures arising from the MHPA. It would also assure that all
plan elections to exercise the one percent increased cost exemption
are based on actual experience under the MHPA's parity requirements
and not on projections or estimates of such experience.
Under a purely prospective
interpretation, a plan would be eligible for the exemption
prospectively if its expected additional expenditures from the MHPA
act equaled or exceeded one percent of its expected total
expenditures absent the MHPA. A self-insured plan would project
these figures, relying on available data and actuarial projection
methods. A fully insured plan would compare legitimate premium
quotes with and without the exemption to determine if the difference
equals or exceeds one percent. The purely prospective interpretation
would maximize the availability of the exemption, and therefore
might result in both the least incidence of parity in lifetime and
annual dollar limits and the least incidence of other plan actions
to reduce or offset expenditure increases arising from the MHPA.
Other interpretations were also
considered, some closer to a purely retrospective interpretation and
others closer to a purely prospective one. For example, one
interpretation might allow plans to prospectively determine their
eligibility and exercise the exemption, but only based upon a
narrowly constrained analysis of their own prior experience, taking
into account only the potential added expenditure from the MHPA
associated with participants whose past mental health claims reached
or nearly reached MHPA-prohibited dollar limits. Interpretations
closer to the purely retrospective view would lessen the
availability of the exemption, and therefore might result in both
greater incidence of parity in lifetime and annual dollar limits and
lesser incidence of other plan actions to reduce or offset
expenditure increases arising from the MHPA; those closer to the
purely prospective view would do the opposite.
The approach adopted under this
rule, referenced above, can be characterized as modified
retrospective approach, based on a relatively brief base period. It
is intended to assure the accurate measurement of increased costs
while minimizing the burden on plan sponsors who wish to exercise
the exemption as soon as accurate measurements can be made. It also
assures that all plan elections to exercise the one percent
increased cost exemption are based on actual experience under the
MHPA's parity requirements and not on projections or estimates of
such experience. The rule eases compliance burdens by providing a
transition period under which certain plans whose plan years begin
during the first quarter of 1998 can exercise the exemption until
April 1, 1998. Exemption Authority
This rule provides that plans may
determine their own eligibility for the exemption and, if eligible,
exercise the exemption, without affirmative approval from any
enforcement agency. Notification and Disclosure
The Departments also exercised
discretion in requiring notice and disclosure in connection with the
one percent increased cost exemption. The rule requires plans
exercising the one percent increased cost exemption during all or
part of the first quarter of 1998 under the rule's transition
provisions to notify the federal government, and to post a copy of
this notice at the workplace. It further requires plans otherwise
exercising the exemption to notify participants and the federal
government, and to disclose on request to these parties summary
documentation of the plans' eligibility for the exemption.
Notifications and disclosures
will be of benefit to participants. They will help assure plans'
compliance with the MHPA, and will promote participants'
understanding of their and their plans' status under the MHPA.
Moreover, by promoting participants' understanding, notifications
and disclosures will inform participants' choices among plans and
their feedback to plan sponsors, thereby fostering more vigorous
competition among plan sponsors and issuers to provide benefits
attractive to participants at competitive prices. The cost of these
notifications and disclosures is outlined below. Weighted Average
Limits The Departments also
exercised discretion in developing rules that specify when plans may
impose separate dollar limits on mental health benefits equal to the
weighted average of limits imposed on other benefit categories, and
in how this weighted average may be calculated. In general, the
rules provide that such mental health limits may be imposed if the
benefit categories to which separate limits apply account for at
least one-third of total plan expenditures and are comparable in
scope to mental health benefits. The average is calculated by
weighting each applicable limit to reflect its share of total plan
expenditures. Any unlimited categories are figured into the average
by using in place of a limit a reasonable estimate of the maximum
plan expenditure that could possibly be incurred in connection with
all such categories, and weighting this estimate to reflect the
proportion of total plan expenditures attributable to all such
categories. Alternative rules
might have permitted more, fewer, or different plans to impose such
limits on mental health benefits, and/or resulted in calculated
averages that were higher or lower. For example, if unlimited
categories were treated as having infinite limits, then the weighted
average of category limits would equal infinity and the option of
imposing a weighted average limit on mental health benefits
effectively would be foreclosed. In contrast, if limits applicable
to benefit categories narrower in scope than mental health benefits
could be averaged to arrive at the permissible mental health limit,
plans might be able to impose very low limits on very narrow benefit
categories, with little effect on coverage of these categories but
with the result of a lower permissible mental health benefit
limit.
d. Impact of Regulatory Discretion
Because the Departments exercised
regulatory discretion in connection with the one percent cost
exemption, it is necessary to quantify the number of plans eligible
for the exemption. This
[[Page 66943]]
requires both estimates of the affected universe and estimates of
the distribution of impacts within that universe. CBO reported
universe estimates but did not estimate the distribution of impacts.
C&L provided a distribution but not universe estimates. Thus,
neither source provides the necessary basis for estimating the reach
of the one percent cost exemption. To address this gap, the
Departments, assisted by Price Waterhouse LLP, combined the CBO and
C&L analyses with other data to produce relevant national
estimates, as follows. First, the
Departments estimated the relevant universe at 3.0 million plans
sponsored by 2.8 million employers covering 145 million individuals.
To derive these estimates, we tallied the number of group health
plan policyholders and dependents by firm size from the Census
Bureau's March 1996 Current Population Survey. Census enterprise
data provided average firm sizes in each size category, allowing us
to estimate the number of employers covering these individuals. KPMG
Peat Marwick's 1997 survey provided the average number of plans per
firm in each size group, supporting estimates of the number of
plans. Data from the Bureau of Labor Statistics' Employee Benefits
Survey and the Health and Retirement Study provided a proportionate
breakdown of plans and individuals in each firm size group across
plan types (HMO, PPO, and fee for service). Likewise, data from KPMG
and Foster Higgins surveys were used to divide insured from
self-insured plans. Second, the
Departments narrowed the focus to plans affected by the MHPA.
Approximately 296,000 plans, sponsored by 136,000 employers and
covering 113 million individuals, would be directly affected by the
MHPA. This excludes firms with fewer than 50 employees (which are
exempt under ERISA Section 712 (c)(1)), plans already covered by
state mandates to provide parity in annual and lifetime dollar
limits (based on C&L and Hay Huggins reports of the incidence of
differential limits--roughly 29,000 plans were excluded here), and
insured plans in 13 states that, independent of the MHPA, as of
January 1, 1998 will require parity equivalent to or surpassing that
required by the MHPA. (Those 13 states are: Indiana, Maryland,
Minnesota, Montana, Arkansas, Colorado, Connecticut, Maine,
Missouri, New Hampshire, North Carolina, Rhode Island, and Texas.)
Some of the plans identified here as affected may not be affected.
The MHPA permits self-insured nonfederal governmental plans to opt
out of compliance. This includes roughly 22,000 plans covering about
18 million individuals. It also exempts plans whose costs increase
by one percent or more, as enumerated below.
Third, the Departments estimated
the overall impact of the MHPA as follows: affected plans' potential
increases in mental health expenditures under the MHPA equal $653
million, or 0.29 percent of affected plans' $226 billion in total
expenditures. (The 0.29 percent figure is benchmarked to CBO's
estimate that the average cost increase for indemnity plans would be
0.4 percent, but it is adjusted to reflect C&L's assessment of
the relative magnitude of cost increases for different plan types.
The $226 billion figure is benchmarked to CBO's $290 billion
universe, but reduced proportionately to reflect the Department's
estimate of the proportion of the total universe that is affected by
the MHPA.) Under CBO's assumption regarding plan sponsor actions to
reduce the added expenditure, actual added expenditures would amount
to $261 million. Expenditures could be smaller still as a result of
self-insured nonfederal governmental plans' right to opt out of
compliance and the MHPA's one percent increased cost exemption,
which are not accounted for in the foregoing estimates. Recall also
that these expenditures represent transfer payments and not social
costs. One Percent Cost Exemption
The effect of this rule will be
to prohibit all covered plans from imposing annual or lifetime
dollar limits on mental health benefits that are lower than limits
imposed on medical and surgical benefits during at least seven
months of the first plan year beginning on or after January 1, 1998.
Specifically, after six months, the rule permits plans to exercise
an exemption as soon as they document a cost increase of one percent
or more and provide 30 days notice to participants and the federal
government. Exactly when a given
plan will become eligible to elect the one percent increased cost
exemption will depend on the timing of its increased costs and its
documentation of those costs. In many cases, plans' increased costs
under the MHPA will not equal or exceed one percent until more than
the initial six months have elapsed. For example, added costs from
the MHPA's provision restricting the use of annual dollar limits on
mental health benefits would likely be concentrated late in the
plans year, when some participants would otherwise have reached
these limits. In addition, plans that utilize this rule' transition
period may not be affected by the MHPA's provisions until after the
first three months of the plan year have elapsed. Therefore, these
may be less likely to incur added costs of one percent or more until
later in the plan year, or until a subsequent plan year (in which
they would be affected by the MHPA beginning on the first day of the
plan year). Whether eligible
plans wishing to reduce the direct impact of the MHPA will opt to
pursue the exemption or opt for alternative responses will depend on
each plan's particular circumstances and priorities.
The Departments estimated the
number of affected plans with potential increases of at least one
percent. Roughly 30,000 plans, or about 10 percent of a plans
affected by MHPA, potentially would be eligible for the one-percent
increased cost exemption. That is, all else being equal, complying
with the MHPA would increase 30,000 plans' expenditures by at least
one percent. These plans cover about 5 million policyholders and 11
million individuals. This is the universe potentially affected by
the provisions of this rule that address the one percent increased
cost exemption. In assessing the
impact of this rule, the Departments considered the economic
consequences of its provisions implementing the one percent cost
exemption. Several factors are likely to affect the magnitude of
those consequences. First, under any interpretation, only 10 percent
of MHPA-affected p lans (or 30,000
plans) could become eligible for the exemption, and only some of
those would elect to exercise it. The estimated 30,000 plans that
would become eligible for the one-percent cost exemption represents
the upper limit of the number of plans that would actually exercise
the exemption. Many of the potentially eligible plans are likely to
forego the exemption in favor of other permitted actions. A survey
of 300 large firms conducted by William M. Mercer, Inc., found that
fewer than 2 percent intended to pursue the one percent increased
cost exemption. Extrapolated to the Departments' estimated plan
universe, this suggests that 6,000 plans, or 22 percent of the
30,000 that are potentially eligible, would pursue the exemption.
Second, expenditure increases
from the MHPA will generally be modest, even for plans potentially
eligible for the one percent cost exemption. Their potential
expenditure increase would be $332 million on a base of $23 billion
in total expenditures, or 1.47 percent overall.
[[Page 66944]]
Third, as noted above, plans can
be designed in ways that lessen these expenditure increases.
Fourth, the 2,215 self-insured
nonfederal governmental plans that might become eligible for the one
percent cost exemption are separately permitted to opt out of the
MHPA entirely, thereby exercising an alternative exemption with
equivalent effect. These plans cover 1.8 million individuals, or 16
percent of individuals in potentially eligible plans.
Fifth, the estimates presented in
this analysis are conservative; actual expenditures arising from
compliance with the MHPA are likely to be less than reported here.
In particular, the estimates may understate the reach and
cost-effectiveness of managed mental health programs that will exist
during the years that the MHPA is in effect (See Roland Sturm, ``How
Expensive is Unlimited Mental Health Care Coverage Under Managed
Care?'' JAMA, Nov. 12, 1997--Vol. 278 No. 18).
Sixth, because plan expenditure
increases under the MHPA (aside from increases in administrative
expenses) are transfers, the availability and use of the exemption
does not change aggregate social welfare. However, the availability
and use of the exemption does affect the size and incidence of
transfers across affected parties.
Finally, this rule preserves the
availability of most of this savings under the one percent
exemption--certain eligible plans are permitted to exercise the
exemption after seven months, thereby operating under the exemption
for up to 38 of the 45 months during which the MHPA is in effect.
This rule also requires certain
notices and disclosures by plans exercising the one percent
increased cost exemption. The Departments undertook to estimate the
paperwork burdens associated with these provisions, as well as the
burden associated with determining whether a plan is eligible for
the exemption. These estimates are summarized below.
The estimates reported
immediately below are for all plans affected by the notice and
disclosure provisions of this rule. The Paperwork Reduction Act
(PRA) analysis that follows is presented separately for affected
private-sector plans and for plans sponsored by nonfederal
governmental employers, which are under the jurisdictions of the
Departments of Labor and of Health and Human Services, respectively.
With respect to the notice to
participants and beneficiaries and to the federal government by
plans exercising the one percent cost exemption, the maximum
possible number of such notices is approximately 5.0 million
(reflecting all plans potentially eligible to elect the exemption),
while a more likely figure is 1.1 million (reflecting the Mercer
survey cited above). Assuming each notice requires 2 minutes of
labor at $11 per hour, plus $0.50 for postage and materials, total
costs would amount to up to $4.3 million or more probably $931,000.
(These assumptions reflect plans' ability to satisfy this notice
requirement through the provisions of a separately required summary
of material modifications, as well as availability of a model notice
to the government, which together essentially eliminate separate
preparation burdens under this requirement and help minimize ongoing
burdens.) With respect to
requirement for group health plans to notify the federal government
of use of the transition period, and to post these notices in the
workplace, only those plans whose plan years begin during the first
three months on 1998 and who are potentially eligible for the one
percent cost exemption are potentially affected by this provision.
These notices would be filed and posted within 30 days or less of
the beginning of the plan year, so all would be filed in 1998. Based
on annual reports filed with the Department of Labor, the
Departments estimate that 60 percent of all eligible plans,
accounting for 72 percent of participants in such plans, begin their
plan years during these months. This amounts to 18,000 plans,
representing the maximum number of notices that would be filed.
Extrapolating from the Mercer survey cited above, about 4,000 of
these plans might intend to pursue the exemption, representing a
more probable number of notices to be filed. Applying the same per
unit cost assumptions as above to the filing and posting of these
notices, the cost of these notices would be no more than $8,000 and
more likely $2,000. These assumptions reflect the availability of a
model notice, the use of which eliminates preparation costs and
helps minimize ongoing burdens.
With respect to the requirement for plans to disclose on request
summary information documenting the plan's eligibility for the one
percent increased cost exemption, the number of such disclosures
will depend on the volume of requests. One might expect requests to
arise most commonly when participants are at or near plans' dollar
limits. Hay Huggins estimates for the Congressional Research Service
(See Roland Sturm, ``How Expensive is Unlimited Mental Health Care
Coverage Under Managed Care?'' JAMA, Nov. 12, 1997--Vol. 278 No. 18)
suggest that 0.73 percent of participants on average incur mental
health claims of more than $10,000--a typical annual limit--in a
given year. The Departments adjusted this figure to reflect the
estimated relationship between increased expenditures under the MHPA
for plans eligible for the one percent increased cost exemption and
increased expenditures under the MHPA for all affected plans,
concluding that 3.74 percent of participants in plans eligible for
the one percent increased cost exemption incur claims of more than
$10,000 in a given year. Assuming that this proportion of
participants in plans electing the exemption request disclosures,
the maximum number of such disclosure requests would be 186,000,
while a more probable figure would be 40,000. Given the same per
unit cost assumptions as above, the associated costs would be
$161,000 and $35,000, respectively.
Finally, with respect to plan
determinations of eligibility for the one percent increased cost
exemption, the Departments expect that plans wishing to exercise the
one percent increased cost exemption or their service providers will
revise their automated claim record systems to facilitate
calculation of the plans' increased costs attributable to the MHPA.
The number of plans performing such functions in-house that might
wish to exercise the exemption is estimated to be no more than 5,346
and more probably 1,142. The number of service providers (including
health insurance issuers and third party administrators) that will
perform this function for plans that wish to exercise the exemption
is estimated to be 1,770 (including 400 third party administrators,
650 health insurers, 645 HMOs, and 75 Blue Cross Blue Shield
organizations). Assuming a start up cost of $5,000 per affected
entity, the total start-up cost associated with determining plans'
eligibility to exercise the exemption amounts to $14.6 million to
$35.6 million, to be amortized over 10 years beginning in 1998.
The estimates of the numbers and
costs of notices, disclosures and calculations reported above, and
below in connection with the Paperwork Reduction Act, may be high
with respect to nonfederal governmental plans. An estimated 2,215
self-insured nonfederal governmental plans might become eligible for
the one percent cost exemption. These plans are separately permitted
to opt out of the MHPA entirely, thereby exercising an alternative
exemption with equivalent effect, and without becoming subject to
the calculation, notice, and disclosure requirements. These plans
cover 1.8
[[Page 66945]]
million individuals, or 16 percent of individuals in potentially
eligible plans.
Weighted Average
The economic impact of the
Departments' exercise of discretion in the weighted average rule is
also expected to be modest.
First, separate limits for benefit categories other than mental
health are not very common. For example, among full-time employees
at establishments with 100 or more employees participating in
non-HMO group health plans in 1993, only a fraction were subject to
separate limits for many major benefit categories. For example, just
14 percent were subject to separate limits for inpatient surgery,
just 13 percent were subject to such limits for outpatient surgery,
and only about one in four were subject to separate limits for both
inpatient and office physician visits (U.S. Bureau of Labor
Statistics, Employee Benefits in Medium and Large Private
Establishments, 1993). ``Separate limits'' in this context include
not only dollar limits, but also non-dollar limits, such as
inpatient day or outpatient visit limits, as well as differential
coinsurance rates, copayments, or deductibles. Therefore, the
proportion with separate dollar limits that would permit imposition
of a weighted average limit on mental health benefits would be even
smaller. In addition, such separate limits are even less common in
HMOs. Second, discretion
exercised in the weighted average rule affects plans' ability to
impose weighted average limits on mental health benefits only at the
margin. In other words, compared with the approach set forth in the
rule, alternative approaches would have increased or decreased the
proportion of plans that are able to impose weighted average limits
and the dollar level of calculated averages by only a small amount.
Third, not all plans that are
permitted to impose weighted average limits on mental health
benefits will elect to do so.
Fourth, some plans that under the rule are not permitted to impose
weighted average limits on mental health benefits, under an
alternative approach, might have been permitted to impose only a
relatively high limit. As such, their expenditure increases from the
MHPA might have been nearly the same with a weighted average limit
on mental health benefits as with no separate limit on such
benefits. Consider a plan with a $500,000 annual cap on all
inpatient care and a $250,000 annual cap on all outpatient care, and
a $25,000 annual cap on mental health benefits. Under the interim
rules, such a plan could not impose a weighted average limit on
mental health benefits. Any separate limit on mental health care
would have to be at least $750,000, or at least $500,000 for
inpatient care and at least $250,000 for outpatient care. Had the
plan been permitted to impose a weighted average cap, however, it
still would have been required to increase its mental health cap
from $25,000 to some amount between $250,000 and $500,000, depending
on the weights. Finally, as with
the one percent cost exemption and with the MHPA generally, the
impact of regulatory discretion in the weighted average rule will be
reduced because self-insured nonfederal governmental plans can opt
out, the MHPA's added expenditure is modest, plans can be designed
in ways that lessen the MHPA's added expenditure, and the estimates
presented here are conservative.
F. Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act
of 1995 (P.L. 104-4) requires agencies to prepare several analytic
statements before proposing any rules that may result in annual
expenditures of $100 million by state, local and tribal governments
or the private sector. These rules are not subject to the Unfunded
Mandates Reform Act because they are interim final rules. However,
consistent with the policy embodied in the Unfunded Mandates Reform
Act, the regulation has been designed to be the least burdensome
alternative for state, local and tribal governments, and the private
sector, while achieving the objectives of the MHPA.
G. Small Business Regulatory Enforcement and Fairness Act of
1995
The Administrator of the Office of
Information and Regulatory Affairs of the Office of Management and
Budget has determined that this is a major rule for purposes of the
Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C.
Section 801 et. seq.) (SBREFA).
The Secretaries have determined that the effective date of these
interim final rules is January 1, 1998. Pursuant to Section 808(2)
of SBREFA, the Secretaries find, for good cause, that notice and
public procedure thereon are impracticable, unnecessary and contrary
to the public interest. These
rules are adopted on an interim final basis because the Secretaries
have determined that without prompt guidance some members of the
regulated community may have difficulty complying with the MHPA
requirements, which may result in an adverse impact on participants
and beneficiaries with regard to their mental health benefits under
group health plans and the protections provided under MHPA.
Moreover, MHPA's requirements will affect the regulated community in
the immediate future. MHPA's
requirements are effective for all group health plans, and for
health insurance issuers offering coverage in connection with such
plans for plan years beginning on or after January 1, 1998. Plan
administrators and sponsors, issuers and participants and
beneficiaries will need guidance on the new statutory provisions
before MHPA's effective date. As noted earlier, these interim rules
take into account comments received by the Departments, in response
to the request for public comments on MHPA published in the Federal
Register on June 26, 1997. 62 FR 34604. For the foregoing reasons,
the Departments find that notice and public comment would be
impracticable, unnecessary and contrary to the public interest.
H. Paperwork Reduction Act--The Department of Labor and the
Department of the Treasury
The Department of Labor and the
Department of the Treasury have submitted this emergency processing
public information collection request (ICR), consisting of three
distinct ICRs to the Office of Management and Budget (OMB) for
review and clearance under the Paperwork Reduction Act of 1995 (Pub.
L. 104-13, 44 U.S.C. Chapter 35). The Departments have asked for OMB
clearance as soon as possible, and OMB approval is anticipated by
the applicable effective date.
These regulations contain three distinct ICRs. The first ICR is a
notice to participants and beneficiaries and to the federal
government of the plan's election of the exemption from the MHPA's
provisions due to an increase in cost under the plan of at least one
percent attributable to compliance with these provisions. A plan may
satisfy this requirement by providing participants and beneficiaries
with a notice of material reductions in covered service or benefits,
under the Department of Labor's regulations at 29 CFR section
2520.104b-3(d), that includes the information in paragraph (f)(3)(i)
of this interim final rule regarding issuing a notice to
participants and beneficiaries of the plan's exemption from these
parity requirements. Before the one percent increased cost exemption
is effective, the plan must also notify the federal government. For
this purpose, the group health plan may either send
[[Page 66946]]
the Department of Labor a copy of the summary of material
reductions in covered services or benefits sent to participants and
beneficiaries, containing the plan number and the plan sponsor's
employer identification number, or the plan (or coverage) may use
the Departments' model notice in this interim final rule which has
been developed for this purpose.
The second ICR is a summary of the information used to calculate the
plan's increased costs under the MHPA for purposes of electing the
one percent increased cost exemption, which the plan must make
available to participants and beneficiaries, on request at no
charge. The third ICR is a notice
of a group health plan's use of the transition period. The rule
requires plans exercising the one percent increased cost exemption
during all or part of the first quarter of 1998 under the rule's
transition provisions to notify the federal government, and to post
a copy of this notice at the workplace.
1. Notice to Participants and Beneficiaries and the Federal
Government of Electing One Percent Increased Cost Exemption
i. Department of Labor The
Department of Labor, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance
consultation program to provide the general public and Federal
agencies with an opportunity to comment on proposed and/or
continuing collections of information in accordance with the
Paperwork Reduction Act of 1995 (Pub. L. 104-13, 44 U.S.C. Chapter
35) and 5 CFR 1320.11. This program helps to ensure that requested
data can be provided in the desired format, reporting burden (time
and financial resources) is minimized, collection instruments are
clearly understood, and the impact of collection requirements on
respondents can be properly assessed. Currently, the Pension and
Welfare Benefits Administration is soliciting comments concerning
the proposed collection of information, Notice to Participants and
Beneficiaries and the Federal Government of Electing One Percent
Increased Cost Exemption. A copy of the proposed ICR can be obtained
by contacting the employee listed below in the contact section of
the notice. Information
collection: affected parties are not required to comply with the
ICRs in these rules until the Department of Labor publishes in the
Federal Register the control numbers assigned to these ICRs by OMB.
The publication of the control numbers notifies the public that OMB
has approved these ICRs under the Paperwork Reduction Act of 1995.
The Department has asked for OMB clearance as soon as possible, and
OMB approval is anticipated by the applicable effective date.
Dates: Written comments must be
submitted to the office listed in the addressee section below on or
before February 20, 1998. The Department of Labor is particularly
interested in comments which:
<bullet> Evaluate whether the proposed collection of
information is necessary for the proper performance of the functions
of the agency, including whether the information will have practical
utility; <bullet> Evaluate
the accuracy of the agency's estimate of the burden of the proposed
collection of information, including the validity of the methodology
and assumptions used;
<bullet> Enhance the quality, utility, and clarity of the
information to be collected; and
<bullet> Minimize the burden of the collection of information
on those who are to respond, including through the use of
appropriate automated, electronic, mechanical, or other
technological collection techniques or other forms of information
technology, e.g., permitting electronic submissions of responses.
Addressee: Gerald B. Lindrew,
Office of Policy and Research, U.S. Department of Labor, Pension and
Welfare Benefits Administration, 200 Constitution Avenue, Room
N-5647, Washington, D.C. 20210. Telephone: 202-219-4782 (this is not
a toll-free number). Fax: 202-219-4745.
ii. Department of the Treasury
The collection of information is in 54.9812-1T. This information is
required by the interim final rules so that participants will be
informed about their rights under MHPA, and so that participants and
beneficiaries, and the federal government, will receive notice of a
plan's election of the one percent increased cost exemption. The
likely respondents are business or other for-profit institutions,
non-profit institutions, small businesses or organizations, and
Taft-Hartley trusts. Responses to this collection of information are
required to obtain the benefit of the exemption.
Books or records relating to a
collection of information must be retained as long as their contents
may become material in the administration of any internal revenue
law. Generally, tax returns and tax return information are
confidential, as required by 26 U.S.C. 6103.
Comments on the collection of
information should be sent to the Office of Management and Budget,
Attn: Desk Officer for the Department of the Treasury, Office of
Information and Regulatory Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service, Attn: IRS Reports Clearance
Officer, T:FP, Washington, DC 20224. Comments on the collection of
information should be received on or before February 20, 1998. In
light of the request for OMB clearance by the effective date of the
MHPA, submission of comments within the first 30 days is encouraged
to ensure their consideration. Comments are specifically requested
concerning: Whether the proposed
collection of information is necessary for the proper performance of
the functions of the Internal Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated
burden associated with the proposed collection of information;
How to enhance the quality,
utility, and clarity of the information to be collected;
How to minimize the burden of
complying with the proposed collection of information, including the
application of automated collection techniques or other forms of
information technology; and
Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
I. Background
MHPA generally requires that group
health plans provide parity in the application of dollar limits to
mental health and medical/surgical benefits. The statute exempts
plans from this requirement if its application results in an
increase in the cost under the plan or coverage of at least one
percent. This regulation requires a plan electing this exemption to
notify participants and beneficiaries and the federal government of
the plan's election of the exemption. This ICR covers this
notification requirement.
II. Current Actions
Under 29 CFR 2590.712(f)(3) (i)
and (ii), and 26 CFR 54.9812-1T a group health plan electing the one
percent exemption is obligated to provide a written notice of that
election to participants and beneficiaries and to the federal
government of the plan's election of the exemption. A plan may
satisfy this requirement by providing
[[Page 66947]]
participants and beneficiaries with a notice of material
reductions in covered service or benefits, under the Department of
Labor's regulations at 29 CFR section 2520.104b-3(d), that includes
the information in paragraph (f)(3)(i) of this interim final rule
regarding issuing a notice to participants and beneficiaries of the
plan's exemption from these parity requirements. To satisfy the
requirement to notify the federal government, a group health plan
may either send the Department a copy of the summary of material
reductions in covered services or benefits sent to participants and
beneficiaries, containing the plan number and the plan sponsor's
employer identification number, or the plan may use the Department's
model notice in this interim final rule which has been developed for
this purpose. Based on past experience, the staff believes that most
of the materials required to be issued under this notice procedure
will be prepared by contract service providers such as insurance
companies and third-party administrators.
Type of Review: New.
Agencies: U.S. Department of
Labor, Pension and Welfare Benefits Administration; U.S. Department
of the Treasury, Internal Revenue Service.
Title: Notice to Participants and
Beneficiaries and the Federal Government of Electing One Percent
Increased Cost Exemption. OMB
Number: XXXXXXX Affected Public:
Individuals or households; Business or other for- profit;
Not-for-profit institutions; Group health plans.
Frequency: On occasion.
Burden:
Year |
Total respondents (range) |
Total responses (range) |
Average time per response (minutes) |
Burden hours (range) |
Cost (range) |
1998 |
..... |
..... |
..... |
..... |
..... |
1999 |
5,612 to 25,446 |
813,505 to 3.8MM |
2 |
6,324 to 29,605 |
$705,037 to $3.3MM |
2000 |
..... |
..... |
..... |
..... |
..... |
Totals |
5,612 to 25,446 |
813,505 to 3.8MM |
2 |
6,324 to 29,605 |
$705,037 to $3.3MM |
Comments submitted in response to
this notice will be summarized and/or included in the request for
OMB approval of the ICRs; they will also become a matter of public
record.
2. Calculation and Disclosure of Documentation of Eligibility for
Exemption
i. Department of Labor The
Department of Labor, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance
consultation program to provide the general public and Federal
agencies with an opportunity to comment on proposed and/or
continuing collections of information in accordance with the
Paperwork Reduction Act of 1995 (Pub. L. 104-13, 44 U.S.C. Chapter
35) and 5 CFR 1320.11. This program helps to ensure that requested
data can be provided in the desired format, reporting burden (time
and financial resources) is minimized, collection instruments are
clearly understood, and the impact of collection requirements on
respondents can be properly assessed. Currently, the Pension and
Welfare Benefits Administration is soliciting comments concerning
the proposed collection of information, Disclosure of Documentation
of Eligibility for Exemption. A copy of the proposed ICR can be
obtained by contacting the employee listed below in the contact
section of the notice. Information
collection: Affected parties are not required to comply with the
ICRs in these rules until the Department of Labor publishes in the
Federal Register the control numbers assigned to these ICRs by OMB.
The publication of the control numbers notifies the public that OMB
has approved these ICRs under the Paperwork Reduction Act of 1995.
The Department has asked for OMB clearance as soon as possible, and
OMB approval is anticipated by the applicable effective date.
Dates: Written comments must be
submitted to the office listed in the addressee section below on or
before February 20, 1998. The Department of Labor is particularly
interested in comments which:
<bullet> Evaluate whether the proposed collection of
information is necessary for the proper performance of the functions
of the agency, including whether the information will have practical
utility; <bullet> Evaluate
the accuracy of the agency's estimate of the burden of the proposed
collection of information, including the validity of the methodology
and assumptions used;
<bullet> Enhance the quality, utility, and clarity of the
information to be collected; and
<bullet> Minimize the burden of the collection of information
on those who are to respond, including through the use of
appropriate automated, electronic, mechanical, or other
technological collection techniques or other forms of information
technology, e.g., permitting electronic submissions of responses.
Addressee: Gerald B. Lindrew,
Office of Policy and Research, U.S. Department of Labor, Pension and
Welfare Benefits Administration, 200 Constitution Avenue, Room
N-5647, Washington, D.C. 20210. Telephone: 202-219-4782 (this is not
a toll-free number). Fax: 202-219-4745. ii. Department of the
Treasury The collection of
information is in Section 54.9812-1T. This information is required
by the interim final rules so that participants will be informed
about their rights under MHPA, and so that participants and
beneficiaries may receive a summary of the information upon which
the plan based its election of the one percent increased cost
exemption. The likely respondents are business or other for-profit
institutions, non-profit institutions, small businesses or
organizations, and Taft-Hartley trusts. Responses to this collection
of information are required to obtain the benefit of the exemption.
Books or records relating to a
collection of information must be
[[Page 66948]]
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26
U.S.C. 6103. Comments on the
collection of information should be sent to the Office of Management
and Budget, Attn: Desk Officer for the Department of the Treasury,
Office of Information and Regulatory Affairs, Washington, DC 20503,
with copies to the Internal Revenue Service, Attn: IRS Reports
Clearance Officer, T:FP, Washington, DC 20224. Comments on the
collection of information should be received on or before February
20, 1998. In light of the request for OMB clearance by the effective
date of the MHPA, submission of comments within the first 30 days is
encouraged to ensure their consideration. Comments are specifically
requested concerning: Whether the
proposed collection of information is necessary for the proper
performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated
burden associated with the proposed collection of information;
How to enhance the quality,
utility, and clarity of the information to be collected;
How to minimize the burden of
complying with the proposed collection of information, including the
application of automated collection techniques or other forms of
information technology; and
Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
I. Background
MHPA generally requires that group
health plans provide parity in the application of dollar limits to
mental health and medical/surgical benefits. The statute exempts
plans from this requirement if its application results in an
increase in the cost under the plan or coverage of at least one
percent. This regulation requires plans wishing to elect this
exemption to calculate their increased costs according to certain
rules. It further requires plans electing this exemption to disclose
to participants and beneficiaries (or their representatives), on
request, and at no charge, a summary of the information upon which
the exemption was based. This ICR covers this disclosure
requirement.
II. Current Actions:
Under 29 CFR 2590.712(f)(2) and 26
CFR 54.9812-1T, a group health plan wishing to elect the one percent
exemption must calculate their increased costs according to certain
rules. Under 29 CFR 2590.712(f)(4) and 26 CFR 54.9812-1T, a group
health plan electing the one percent exemption is obligated to
disclose to participants and beneficiaries (or their
representatives), on request and at no charge, a summary of the
information on which the exemption was based.
Type of Review: New.
Agencies: U.S. Department of
Labor, Pension and Welfare Benefits Administration; U.S. Department
of the Treasury, Internal Revenue Service.
Title: Calculation and Disclosure
of Documentation of Eligibility for Exemption.
OMB Number: XXXXXXX.
Affected Public: Individuals or
households; Business or other for- profit; Not-for-profit
institutions; Group Health Plans.
Frequency: On occasion.
Calculation burden: It is expected that plans wishing to exercise
the one percent increased cost exemption or their service providers
will revise their automated claim record systems to facilitate
calculation of the plans' increased costs attributable to the MHPA.
The number of plans performing such functions in-house that might
wish to exercise the exemption is estimated to be no more than 4,489
and probably 958. The number of service providers (including health
insurance issuers and third party administrators) that will perform
this function for plans using service providers that wish to
exercise the exemption is estimated to be 1,770. Assuming a cost of
$5,000 per affected entity, the total cost associated with
determining plans' eligibility to exercise the exemption amounts to
$12.5 million to $30.1 million, to be amortized over 10 years
beginning in 1998. Disclosure
burden: In addition to the calculation burden, plans wishing to
elect the one percent increased cost exemption will incur a burden
in connection with disclosure requests from participants, as
detailed below.
Year |
Total respondents (range) |
Total responses (range) |
Average time per response (minutes) |
Burden hours (range) |
Cost (range) |
1998 |
..... |
..... |
..... |
..... |
..... |
1999 |
5,612 to 25,466 |
30,188 to 140,412 |
2 |
235 to 1,101 |
$26,163 to $121,690 |
2000 |
5,612 to 25,466 |
30,188 to 140,412 |
2 |
235 to 1,101 |
$26,163 to $121,690 |
Totals |
5,612 to 25,466 |
60,377 to 280,824 |
2 |
470 to 2,201 |
$52,326 to $243,381 |
Comments submitted in response to
this notice will be summarized and/or included in the request for
OMB approval of the ICRs; they will also become a matter of public
record.
3. Notice of Group Health Plan's Use of Transition Period, and
Posting Thereof
i. Department of Labor The
Department of Labor, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance
consultation program to provide the general public and Federal
agencies with an opportunity to comment on proposed and/or
continuing collections of information in accordance with the
Paperwork Reduction Act of 1995 (Pub. L. 104-13, 44 U.S.C. Chapter
35) and 5 CFR 1320.11. This program helps to ensure that requested
data can be provided in the desired format, reporting burden (time
and financial resources) is minimized, collection instruments are
clearly understood, and the impact of collection requirements on
respondents can be properly assessed. Currently, the Pension and
Welfare Benefits Administration is soliciting comments concerning
the proposed collection of information, Notice of Group Health
Plan's Use of Transition Period. A copy
[[Page 66949]]
of the proposed ICR can be obtained by contacting the employee
listed below in the contact section of the notice.
Information collection: affected
parties are not required to comply with the ICRs in these rules
until the Department of Labor publishes in the Federal Register the
control numbers assigned to these ICRs by OMB. The publication of
the control numbers notifies the public that OMB has approved these
ICRs under the Paperwork Reduction Act of 1995. The Department has
asked for OMB clearance as soon as possible, and OMB approval is
anticipated by the applicable effective date.
Dates: Written comments must be
submitted to the office listed in the addressee section below on or
before February 20, 1998. The Department of Labor is particularly
interested in comments which:
<bullet> Evaluate whether the proposed collection of
information is necessary for the proper performance of the functions
of the agency, including whether the information will have practical
utility; <bullet> Evaluate
the accuracy of the agency's estimate of the burden of the proposed
collection of information, including the validity of the methodology
and assumptions used;
<bullet> Enhance the quality, utility, and clarity of the
information to be collected; and
<bullet> Minimize the burden of the collection of information
on those who are to respond, including through the use of
appropriate automated, electronic, mechanical, or other
technological collection techniques or other forms of information
technology, e.g., permitting electronic submissions of responses.
Addressee: Gerald B. Lindrew,
Office of Policy and Research, U.S. Department of Labor, Pension and
Welfare Benefits Administration, 200 Constitution Avenue, Room
N-5647, Washington, D.C. 20210. Telephone: 202-219-4782 (this is not
a toll-free number). Fax: 202-219-4745. ii. Department of the
Treasury The collection of
information is in Section 54.9812-1T. This information is required
by the interim final rules so that participants will be informed
about their rights under MHPA, and so that plans electing the one
percent increased cost exemption during all or part of the first
quarter of 1998 under the rules' transition provisions will notify
the federal government and post the notice in the workplace. The
likely respondents are business or other for-profit institutions,
non- profit institutions, small businesses or organizations, and
Taft- Hartley trusts. Responses to this collection of information
are required to obtain the benefit of the exemption.
Books or records relating to a
collection of information must be retained as long as their contents
may become material in the administration of any internal revenue
law. Generally, tax returns and tax return information are
confidential, as required by 26 U.S.C. 6103.
Comments on the collection of
information should be sent to the Office of Management and Budget,
Attn: Desk Officer for the Department of the Treasury, Office of
Information and Regulatory Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service, Attn: IRS Reports Clearance
Officer, T:FP, Washington, DC 20224. Comments on the collection of
information should be received on or before February 20, 1998. In
light of the request for OMB clearance by the effective date of the
MHPA, submission of comments within the first 30 days is encouraged
to ensure their consideration. Comments are specifically requested
concerning: Whether the proposed
collection of information is necessary for the proper performance of
the functions of the Internal Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated
burden associated with the proposed collection of information;
How to enhance the quality,
utility, and clarity of the information to be collected;
How to minimize the burden of
complying with the proposed collection of information, including the
application of automated collection techniques or other forms of
information technology; and
Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
I. Background
MHPA generally requires that group
health plans provide parity in the application of dollar limits to
mental health and medical/surgical benefits. The statute exempts
plans from this requirement if its application results in an
increase in the cost under the plan or coverage of at least one
percent. This regulation requires a notice of group health plan's
use of transition period, under which plans electing the one percent
increased cost exemption during all or part of the first quarter of
1998 under the rule's transition provisions must notify the federal
government and to post a copy of the notice in the workplace. This
ICR covers this notification requirement.
II. Current Actions
Under 29 CFR 2590.712(h)(3)(ii)
and 26 CFR 54.9812-1T, group health plans electing the one percent
increased cost exemption during all or part of the first quarter of
1998 under the rule's transition provisions must notify the federal
government. Based on past experience, the staff believes that most
of the materials required to be issued under this notice procedure
will be prepared by contract service providers such as insurance
companies and third-party administrators.
Type of Review: New.
Agencies: U.S. Department of
Labor, Pension and Welfare Benefits Administration; U.S. Department
of the Treasury, Internal Revenue Service.
Title: Notice of Group Health
Plan's Use of Transition Period.
OMB Number: Affected Public:
Individuals or households; Business or other for- profit;
Not-for-profit institutions; Group Health Plans.
Frequency: On occasion.
Burden:
Year |
Total respondents (range) |
Total responses (range) |
Average time per response (minutes) |
Burden hours (range) |
Cost (range) |
1998 |
3,348 to 15,193 |
3,348 to 15,193 |
2 |
19 to 89 |
$1,514 to $6,910 |
1999 |
..... |
..... |
..... |
..... |
..... |
2000 |
..... |
..... |
..... |
..... |
..... |
Totals |
3,348 to 15,193 |
3,348 to 15,193 |
2 |
19 to 89 |
$1,514 to $6,910 |
Comments submitted in response to
this notice will be summarized and/or included in the request for
OMB approval of the ICRs; they will also become a matter of public
record.
I. Paperwork Reduction Act--Department of Health and Human
Services
Under the Paperwork Reduction Act
of 1995 (PRA), agencies are required to provide a 60-day notice in
the Federal Register and solicit public comment before a collection
of information requirement is submitted to the Office of Management
and Budget (OMB) for review and approval. In order to fairly
evaluate whether an information collection should be approved by
OMB, section 3506(c)(2)(A) of the PRA requires that we solicit
comment on the following issues:
<bullet> Whether the information collection is necessary and
useful to carry out the proper functions of the agency;
<bullet> The accuracy of
the agency's estimate of the information collection burden;
<bullet> The quality,
utility, and clarity of the information to be collected; and
<bullet> Recommendations to
minimize the information collection burden on the affected public,
including automated collection techniques. Therefore, we are
soliciting public comment on each of these issues for the
information collection requirements discussed below.
Section 146.136 of this document
contains three distinct information collection requirements, as
summarized below: Type of
Information Request: New collection.
Title of Information Collection:
Mental Health Parity Act of 1996; Information Collection
Requirements Contained in 45 CFR 146.136; HCFA- 2891-IFC.
Form Number: HCFA-R-223 (OMB
approval #: 0938-XXXX). Use: The
information collection requirements contained in this interim final
rule will help ensure that sponsors and administrators of group
health plans notify the required individuals/entities of a plan's
exemption from the MHPA parity requirements and make the data used
to calculate the exemption available to affected individuals and
entities. Frequency: On occasion.
Affected Public: States,
businesses or other for profit, not-for- profit institutions,
Federal Government, individuals or households.
Notification Requirements:
Nonfederal governmental plans, not exempt from the parity
requirements by reason of an opt out under regulations at 45 CFR
146.180, must furnish participants and beneficiaries with a notice
of the plan's exemption from the parity requirements based on
increased costs. A plan may satisfy this requirement by providing
participants and beneficiaries with a notice of material reductions
in covered services or benefits, under 29 CFR 2520.104b-3(d), that
includes the information in paragraph (f)(3)(i). Even though a plan
generally is not required to furnish a material reduction in covered
services or benefits for 60 days, in no case will the exemption be
effective until 30 days after the notice is sent to participants and
beneficiaries. For this purpose, a plan that does not furnish the
summary of material reductions in covered services or benefits may
satisfy its notice requirements by using the model exemption notice
described above in this preamble.
In addition, the nonfederal governmental plan (or issuer providing
coverage to such a plan) must also furnish to the Department of
Health and Human Services a notice similar to the notice sent to
participants and beneficiaries before the exemption is effective.
For this purpose, the plan may either send the Department the
summary of material reductions in covered services or benefits sent
to participants and beneficiaries, or the plan (or issuer) may use
the model described above. In all cases, the exemption is not
effective until 30 days after notice has been sent.
Burden:
Year |
Total respondents (range) |
Total responses (range) |
Average time per response (minutes) |
Burden hours (range) |
Cost (range) |
..... |
..... |
..... |
..... |
..... |
..... |
1999 |
890 to 4,092 |
261,000 to 1.2MM |
2 |
2,133 to 9,975 |
226,000 to 1.1MM |
2000 |
..... |
..... |
..... |
..... |
..... |
Totals |
890 to 4,092 |
261,000 to 1.2MM |
2 |
2,133 to 9,975 |
226,000 to 1.1MM |
Availability of documentation:
Nonfederal governmental plans that take the exemption, or issuers
that provide coverage for such plans, must make available to
participants and beneficiaries, on request and at no charge, a
summary of the data used to calculate the exemption of this section.
The summary of data must include the incurred expenditures
(including identification of the portion of the total representing
claims and the portion of the total representing administrative
expenses), the base period, the claims incurred during the base
period that would have been denied under the terms of the plan
absent amendments required to comply with parity, and the
[[Page 66951]]
administrative expenses attributable to complying with the parity
requirements.
Burden:
Year |
Total respondents (range) |
Total responses (range) |
Average time per reponse (range) (minutes) |
burden hours (range) |
Cost (range) |
1998 |
..... |
..... |
..... |
.... |
..... |
1999 |
890 to 4,092 |
9,700 to 45,300 |
2 |
79 to 372 |
$8,400 to $39,300 |
2000 |
890 to 4,092 |
9,700 to 45,300 |
2 |
79 to 372 |
$8,400 to $39,300 |
Total |
890 to 4,092 |
19,400 to 90,600 |
2 |
158 to 744 |
$16,800 to $78,600 |
Plans that take the exemption will
incur start up costs for preparing to issue the information they
must disclose. We estimate the start up costs for nonfederal
governmental plans that take this exemption to range from $2.1
million to $5.5 million. Notice
of Use of Transition Period: With respect to the increased cost
exemption, the interim rules provide in paragraph (g)(3) a
transition period for compliance with the requirements of paragraph
(f). Under paragraph (g)(3), no enforcement action shall be taken
against a nonfederal governmental plan that is subject to the MHPA
requirements prior to April 1, 1998 solely because the plan claims
the increased cost exemption under section 2705(c)(2) of the PHS Act
based on assumptions inconsistent with the rules under paragraph
(f), provided that the plan is amended to comply with the parity
requirements no later than March 31, 1998 and the plan complies with
certain notice requirements. A nonfederal governmental plan
satisfies the notice requirements only if such plan provides notice
to the Department of Health and Human Services of the plan's intent
to use the transition period by 30 days after the first day of the
plan year beginning on or after January 1, 1998, but in no event can
the notice be provided later than March 31, 1998. Such notice shall
include the name of the plan; the name, address, and telephone
number of the plan sponsor or plan administrator; the employer
identification number; and the plan number. In addition, such notice
must be provided at no charge to participants within 30 days after
receipt of a written request for such notification.
Burden:
Year |
Total respondents (range) |
Total responses (range) |
Average time per reponse (range) (minutes) |
burden hours (range) |
Cost (range) |
1998 |
531 to 2,441 |
531 to 2,441 |
2 |
4 to 17 |
$250 to 1,151 |
1999 |
..... |
..... |
..... |
..... |
..... |
2000 |
..... |
..... |
..... |
..... |
..... |
Total |
531 to 2,441 |
531 to 2,441 |
2 |
4 to 17 |
$250 to 1,151 |
We have submitted a copy of this
proposed rule to OMB for its review of the information collection
requirements in Sec. 146.136. These requirements are not effective
until they have been approved by OMB.
If you comment on any of these
information collection and recordkeeping requirements, please mail
copies directly to the following: Health Care Financing
Administration, Office of Information Services, information
Technology Investment Management Group, Division of HCFA Enterprise
Standards, Room C2-26-17, 7500 Security Boulevard, Baltimore, MD
21244-1850. ATTN: John Burke HCFA-2891-IFC.
We have submitted a copy of this
rule to OMB for its review of these information collections. A
notice will be published in the Federal Register when approval is
obtained. Interested persons are invited to send comments regarding
this burden or any other aspect of these collections of information.
If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following
addresses:
Office of Information and Regulatory Affairs, Office of
Management and Budget, Room 10235, New Executive Office Building,
Washington, DC 20530, Attn: Allison Herron Eydt, HCFA Desk Officer.
DATED: Gerald B. Lindrew, Deputy Director, Pension and Welfare
Benefits Administration, Office of Policy and Research
Statutory Authority
The Department of the Treasury
temporary rule is adopted pursuant to the authority contained in
sections 7805 and 9833 of the Code (26 U.S.C. 7805, 9833), as
amended by HIPAA (Pub. L. 104-191, 110 Stat. 1936) and the Taxpayer
Relief Act of 1997 (Pub. L. 105-34, 111 Stat. 788).
The Department of Labor interim
final rule is adopted pursuant to the authority contained in
sections 107, 209, 505, 701-703, 711, 712, and 731-734 of ERISA (29
U.S.C. 1027, 1059, 1135, 1171-1173, 1181, 1182, and 1191-1194), as
amended by HIPAA (Pub. L. 104-191, 110 Stat. 1936) and MHPA (Pub. L.
104-204, 110 Stat. 2944), and Secretary of Labor's Order No. 1-87,
52 FR 13139, April 21, 1987.
[[Page 66952]]
The Department of Health and Human
Services interim final rule is adopted pursuant to the authority
contained in sections 2701, 2702, 2705, 2711, 2712, 2713, 2721,
2722, 2723, and 2792 of the PHS Act (42 U.S.C. 300gg, 300gg-1,
300gg-5, 300gg-11, 300gg-12, 300gg-13, 300gg-21, 300gg-22, 300gg-23,
and 300gg-92), as established by HIPAA (Pub. L. 104-191, 110 Stat.
1936) and MHPA (Pub. L. 104-204, 110 Stat. 2944).
List of Subjects
26 CFR Part 54
Excise taxes, Health insurance,
Pensions, Reporting and recordkeeping requirements.
29 CFR Part 2590
Employee benefit plans, Employee
Retirement Income Security Act, Health care, Health insurance,
Reporting and recordkeeping requirements.
45 CFR Part 146
Health care, Health insurance,
Reporting and recordkeeping requirements, State regulation of health
insurance.
Adoption of Amendments to the Regulations
Internal Revenue Service
26 CFR Chapter I
Accordingly, 26 CFR Part 54 is amended as follows:
PART 54--PENSION EXCISE TAXES
Paragraph 1. The authority
citation for part 54 is amended by revising the entries for sections
54.9801-1T through 54.9801-6T and 54.9802-1T, by removing the
entries for sections 54.9804-1T, and 54.9806-1T, and by adding
entries for sections 54.9812-1T, 54.9831-1T, and 54.9833-1T to read
in part as follows: Authority: 26
U.S.C. 7805 * * *
Section 54.9801-1T also issued under 26 U.S.C. 9833. Section
54.9801-2T also issued under 26 U.S.C. 9833. Section 54.9801-3T
also issued under 26 U.S.C. 9833. Section 54.9801-4T also issued
under 26 U.S.C. 9833. Section 54.9801-5T also issued under 26
U.S.C. 9801(c)(4), 9801(e)(3), and 9833. Section 54.9801-6T
also issued under 26 U.S.C. 9833. Section 54.9802-1T also issued
under 26 U.S.C. 9833. Section 54.9812-1T also issued under 26
U.S.C. 9833. Section 54.9831-1T also issued under 26 U.S.C.
9833. Section 54.9833-1T also issued under 26 U.S.C. 9833.
Par. 2. In Sec. 54.9801-1T,
paragraph (a) is revised to read as follows:
Sec. 54.9801-1T Basis and scope (temporary).
(a) Statutory basis. Sections
54.9801-1T through 54.9801-6T, 54.9802-1T, 54.9812-1T, 54.9831-1T
and 54.9833-1T (portability sections) implement Chapter 100 of
Subtitle K of the Internal Revenue Code of 1986. * * * * *
Par. 3. Section 54.9801-2T is
amended by: 1. Revising the
introductory text. 2. Revising
the definition of excepted benefits.
3. Revising the definition of
health insurance coverage. The
revisions read as follows:
Sec. 54.9801-2T Definitions (temporary).
Unless otherwise provided, the
definitions in this section govern in applying the provisions of
Secs. 54.9801-1T through 54.9801-6T, 54.9802-1T, 54.9812-1T,
54.9831-1T, and 54.9833-1T. * * * * *
Excepted benefits means the
benefits described as excepted in Sec. 54.9831-1T(b). * * * * *
Health insurance coverage means
benefits consisting of medical care (provided directly, through
insurance or reimbursement, or otherwise) under any hospital or
medical service policy or certificate, hospital or medical service
plan contract, or HMO contract offered by a health insurance issuer.
However, benefits described in Sec. 54.9831-1T(b)(2) are not treated
as benefits consisting of medical care. * * * * *
Par. 4. In Sec. 54.9801-4T,
paragraph (a)(2) is revised to read as follows:
Sec. 54.9801-4T Rules relating to creditable coverage
(temporary).
(a) * * *
(2) Excluded coverage. Creditable
coverage does not include coverage consisting solely of coverage of
excepted benefits (described in Sec. 54.9831-1T). * * * * *
Par. 5. In Sec. 54.9801-5T, the
first sentence of paragraph (a)(3)(vi) is revised to read as
follows:
Sec. 54.9801-5T Certification and disclosure of previous coverage
(temporary).
(a) * * *
(3) * * *
(vi) Excepted benefits;
categories of benefits. No certificate is required to be furnished
with respect to excepted benefits described in Sec. 54.9831-1T. * *
* * * * * *
Sec. 54.9804-1T [Redesignated as Sec. 54.9831-1T]
Par. 6. Section 54.9804-1T is
redesignated as Sec. 54.9831-1T and amended by revising paragraph
(b)(1) to read as follows:
Sec. 54.9831-1T Special rules relating to group health plans
(temporary). * * * * *
(b) Excepted benefits--(1) In
general. The requirements of Secs. 54.9801-1T through 54.9801-6T,
54.9802-1T, and 54.9812-1T do not apply to any group health plan in
relation to its provision of the benefits described in paragraph (b)
(2), (3), (4), or (5) of this section (or any combination of these
benefits). * * * * *
Sec. 54.9806-1T [Redesignated as Sec. 54.9833-1T]
Par. 7. Section 54.9806-1T is
redesignated as Sec. 54.9833-1T and amended by:
1. Revising paragraph (a)(1).
2. Revising the first sentence of
paragraph (a)(2). The revisions
read as follows:
Sec. 54.9833-1T Effective dates (temporary).
(a) General effective dates--(1)
Non-collectively-bargained plans. Except as otherwise provided in
this section, Chapter 100 of Subtitle K and Secs. 54.9801-1T through
54.9806-1T, 54.9802-1T, and 54.9831-1T apply with respect to group
health plans for plan years beginning after June 30, 1997.
(2) Collectively bargained plans.
Except as otherwise provided in this section (other than paragraph
(a)(1) of this section), in the case of a group health plan
maintained pursuant to one or more collective bargaining agreements
between employee representatives and one or more employers ratified
before August 21, 1996, Chapter 100 of Subtitle K and Secs.
54.9801-1T through 54.9801-6T, 54.9802-1T, and 54.9831-1T do not
apply to plan years beginning before the later of July 1, 1997, or
the date on which the last of the collective bargaining agreements
relating to the plan terminates (determined without regard to any
extension thereof agreed to after August 21, 1996).* * * * * * *
* Par. 8. Section 54.9812-1T is
added to read as follows:
[[Page 66953]]
Sec. 54.9812-1T Parity in the application of certain limits to
mental health benefits (temporary).
(a) Definitions. For purposes of
this section, except where the context clearly indicates otherwise,
the following definitions apply:
Aggregate lifetime limit means a dollar limitation on the total
amount of specified benefits that may be paid under a group health
plan for an individual (or for a group of individuals considered a
single unit in applying this dollar limitation, such as a family or
an employee plus spouse). Annual
limit means a dollar limitation on the total amount of specified
benefits that may be paid in a 12-month period under a plan for an
individual (or for a group of individuals considered a single unit
in applying this dollar limitation, such as a family or an employee
plus spouse). Medical/surgical
benefits means benefits for medical or surgical services, as defined
under the terms of the plan, but does not include mental health
benefits. Mental health benefits
means benefits for mental health services, as defined under the
terms of the plan, but does not include benefits for treatment of
substance abuse or chemical dependency.
(b) Requirements regarding limits
on benefits--(1) In general--(i) General parity requirement. A group
health plan that provides both medical/surgical benefits and mental
health benefits must comply with paragraph (b) (2), (3), or (6) of
this section. (ii) Exception. The
rule in paragraph (b)(1)(i) of this section does not apply if a plan
satisfies the requirements of paragraph (e) or (f) of this section.
(2) Plan with no limit or limits
on less than one-third of all medical/surgical benefits. If a plan
does not include an aggregate lifetime or annual limit on any
medical/surgical benefits or includes aggregate lifetime or annual
limits that apply to less than one-third of all medical/surgical
benefits, it may not impose an aggregate lifetime or annual limit,
respectively, on mental health benefits.
(3) Plan with a limit on at least
two-thirds of all medical/ surgical benefits. If a plan includes an
aggregate lifetime or annual limit on at least two-thirds of all
medical/surgical benefits, it must either--
(i) Apply the aggregate lifetime
or annual limit both to the medical/surgical benefits to which the
limit would otherwise apply and to mental health benefits in a
manner that does not distinguish between the medical/surgical and
mental health benefits; or (ii)
Not include an aggregate lifetime or annual limit on mental health
benefits that is less than the aggregate lifetime or annual limit,
respectively, on the medical/surgical benefits.
(4) Examples. The rules of
paragraphs (b)(2) and (3) of this section are illustrated by the
following examples:
Example 1. (i) Prior to the
effective date of the mental health parity provisions, a group
health plan had no annual limit on medical/surgical benefits and had
a $10,000 annual limit on mental health benefits. To comply with the
parity requirements of this paragraph (b), the plan sponsor is
considering each of the following options:
(A) Eliminating the plan's annual
limit on mental health benefits;
(B) Replacing the plan's previous annual limit on mental health
benefits with a $500,000 annual limit on all benefits (including
medical/surgical and mental health benefits); and
(C) Replacing the plan's previous
annual limit on mental health benefits with a $250,000 annual limit
on medical/surgical benefits and a $250,000 annual limit on mental
health benefits. (ii) In this
Example 1, each of the three options being considered by the plan
sponsor would comply with the requirements of this section because
they offer parity in the dollar limits placed on medical/surgical
and mental health benefits.
Example 2. (i) Prior to the effective date of the mental health
parity provisions, a group health plan had a $100,000 annual limit
on medical/surgical inpatient benefits, a $50,000 annual limit on
medical/surgical outpatient benefits, and a $100,000 annual limit on
all mental health benefits. To comply with the parity requirements
of this paragraph (b), the plan sponsor is considering each of the
following options: (A) Replacing
the plan's previous annual limit on mental health benefits with a
$150,000 annual limit on mental health benefits; and
(B) Replacing the plan's previous
annual limit on mental health benefits with a $100,000 annual limit
on mental health inpatient benefits and a $50,000 annual limit on
mental health outpatient benefits.
(ii) In this Example 2, each
option under consideration by the plan sponsor would comply with the
requirements of this section because they offer parity in the dollar
limits placed on medical/ surgical and mental health benefits.
Example 3. (i) A group health
plan that is subject to the requirements of this section has no
aggregate lifetime or annual limit for either medical/surgical
benefits or mental health benefits. While the plan provides
medical/surgical benefits with respect to both network and
out-of-network providers, it does not provide mental health benefits
with respect to out-of-network providers.
(ii) In this Example 3, the plan
complies with the requirements of this section because they offer
parity in the dollar limits placed on medical/surgical and mental
health benefits. Example 4. (i)
Prior to the effective date of the mental health parity provisions,
a group health plan had an annual limit on medical/surgical benefits
and a separate but identical annual limit on mental health benefits.
The plan included benefits for treatment of substance abuse and
chemical dependency in its definition of mental health benefits.
Accordingly, claims paid for treatment of substance abuse and
chemical dependency were counted in applying the annual limit on
mental health benefits. To comply with the parity requirements of
this paragraph (b), the plan sponsor is considering each of the
following options: (A) Making no
change in the plan so that claims paid for treatment of substance
abuse and chemical dependency continue to count in applying the
annual limit on mental health benefits;
(B) Amending the plan to count
claims paid for treatment of substance abuse and chemical dependency
in applying the annual limit on medical/surgical benefits (rather
than counting those claims in applying the annual limit on mental
health benefits); (C) Amending
the plan to provide a new category of benefits for treatment of
chemical dependency and substance abuse that is subject to a
separate, lower limit and under which claims paid for treatment of
substance abuse and chemical dependency are counted only in applying
the annual limit on this separate category; and
(D) Amending the plan to
eliminate distinctions between medical/ surgical benefits and mental
health benefits and establishing an overall limit on benefits
offered under the plan under which claims paid for treatment of
substance abuse and chemical dependency are counted with
medical/surgical benefits and mental health benefits in applying the
overall limit. (ii) In this
Example 4, the group health plan is described in paragraph (b)(3) of
this section. Because mental health benefits are defined in
paragraph (a) of this section as excluding benefits for treatment of
substance abuse and chemical dependency, the inclusion of benefits
for treatment of substance abuse and chemical dependency in applying
an aggregate lifetime limit or annual limit on mental health
benefits under option (A) of this Example 4 would not comply with
the requirements of paragraph (b)(3) of this section. However,
options (B), (C), and (D) of this Example 4 would comply with the
requirements of paragraph (b)(3) of this section because they offer
parity in the dollar limits placed on medical/surgical and mental
health benefits.
(5) Determining one-third and
two-thirds of all medical/surgical benefits. For purposes of this
paragraph (b), the determination of whether the portion of
medical/surgical benefits subject to a limit represents one-third or
two-thirds of all medical/surgical benefits is based on the dollar
amount of all plan payments for medical/surgical benefits expected
to be paid under the plan for the plan year (or for the portion of
the plan year after a change in plan benefits that affects the
applicability of the aggregate lifetime or annual limits). Any
reasonable method may be used to
[[Page 66954]]
determine whether the dollar amounts expected to be paid under
the plan will constitute one-third or two-thirds of the dollar
amount of all plan payments for medical/surgical benefits.
(6) Plan not described in
paragraph (b)(2) or (3) of this section-- (i) In general. A group
health plan that is not described in paragraph (b)(2) or (3) of this
section, must either-- (A) Impose
no aggregate lifetime or annual limit, as appropriate, on mental
health benefits; or (B) Impose an
aggregate lifetime or annual limit on mental health benefits that is
no less than an average limit for medical/surgical benefits
calculated in the following manner. The average limit is calculated
by taking into account the weighted average of the aggregate
lifetime or annual limits, as appropriate, that are applicable to
the categories of medical/surgical benefits. Limits based on
delivery systems, such as inpatient/outpatient treatment or normal
treatment of common, low-cost conditions (such as treatment of
normal births), do not constitute categories for purposes of this
paragraph (b)(6)(i)(B). In addition, for purposes of determining
weighted averages, any benefits that are not within a category that
is subject to a separately-designated limit under the plan are taken
into account as a single separate category by using an estimate of
the upper limit on the dollar amount that a plan may reasonably be
expected to incur with respect to such benefits, taking into account
any other applicable restrictions under the plan.
(ii) Weighting. For purposes of
this paragraph (b)(6), the weighting applicable to any category of
medical/surgical benefits is determined in the manner set forth in
paragraph (b)(5) of this section for determining one-third or
two-thirds of all medical/surgical benefits.
(iii) Example. The rules of this
paragraph (b)(6) are illustrated by the following example:
Example. (i) A group health plan
that is subject to the requirements of this section includes a
$100,000 annual limit on medical/surgical benefits related to
cardio-pulmonary diseases. The plan does not include an annual limit
on any other category of medical/surgical benefits. The plan
determines that 40% of the dollar amount of plan payments for
medical/surgical benefits are related to cardio-pulmonary diseases.
The plan determines that $1,000,000 is a reasonable estimate of the
upper limit on the dollar amount that the plan may incur with
respect to the other 60% of payments for medical/surgical benefits.
(ii) In this Example, the plan is
not described in paragraph (b)(3) of this section because there is
not one annual limit that applies to at least two-thirds of all
medical/surgical benefits. Further, the plan is not described in
paragraph (b)(2) of this section because more than one-third of all
medical/surgical benefits are subject to an annual limit. Under this
paragraph (b)(6), the plan sponsor can choose either to include no
annual limit on mental health benefits, or to include an annual
limit on mental health benefits that is not less than the weighted
average of the annual limits applicable to each category of
medical/surgical benefits. In this example, the minimum weighted
average annual limit that can be applied to mental health benefits
is $640,000 (40% x $100,000 + 60% x $1,000,000 = $640,000).
(c) Rule in the case of separate
benefit packages. If a group health plan offers two or more benefit
packages, the requirements of this section, including the exemption
provisions in paragraph (f) of this section, apply separately to
each benefit package. Examples of a group health plan that offers
two or more benefit packages include a group health plan that offers
employees a choice between indemnity coverage or HMO coverage, and a
group health plan that provides one benefit package for retirees and
a different benefit package for current employees.
(d) Applicability--(1) Group
health plans. The requirements of this section apply to a group
health plan offering both medical/surgical benefits and mental
health benefits regardless of whether the mental health benefits are
administered separately under the plan.
(2) Health insurance issuers. See
29 CFR 2590.712(d)(2) and 45 CFR 146.136(d)(2), which provide that
health insurance issuers offering health insurance coverage for both
medical/surgical benefits and mental health benefits in connection
with a group health plan are subject to rules similar to those
applicable to group health plans under this section.
(3) Scope. This section does
not-- (i) Require a group health
plan to provide any mental health benefits; or
(ii) Affect the terms and
conditions (including cost sharing, limits on the number of visits
or days of coverage, requirements relating to medical necessity,
requiring prior authorization for treatment, or requiring primary
care physicians' referrals for treatment) relating to the amount,
duration, or scope of the mental health benefits under the plan
except as specifically provided in paragraph (b) of this section.
(e) Small employer exemption--(1)
In general. The requirements of this section do not apply to a group
health plan for a plan year of a small employer. For purposes of
this paragraph (e), the term small employer means, in connection
with a group health plan with respect to a calendar year and a plan
year, an employer who employed an average of at least two but not
more than 50 employees on business days during the preceding
calendar year and who employs at least two employees on the first
day of the plan year. See section 9831(a) and Sec. 54.9831-1T(a),
which provide that this section (and certain other sections) does
not apply to any group health plan for any plan year if, on the
first day of the plan year, the plan has fewer than two participants
who are current employees. (2)
Rules in determining employer size. For purposes of paragraph (e)(1)
of this section-- (i) All persons
treated as a single employer under subsections (b), (c), (m), and
(o) of section 414 are treated as one employer;
(ii) If an employer was not in
existence throughout the preceding calendar year, whether it is a
small employer is determined based on the average number of
employees the employer reasonably expects to employ on business days
during the current calendar year; and
(iii) Any reference to an
employer for purposes of the small employer exemption includes a
reference to a predecessor of the employer.
(f) Increased cost exemption--(1)
In general. A group health plan is not subject to the requirements
of this section if the requirements of this paragraph (f) are
satisfied. If a plan offers more than one benefit package, this
paragraph (f) applies separately to each benefit package. Except as
provided in paragraph (h) of this section, a plan must comply with
the requirements of paragraph (b)(1)(i) of this section for the
first plan year beginning on or after January 1, 1998, and must
continue to comply with the requirements of paragraph (b)(1)(i) of
this section until the plan satisfies the requirements in this
paragraph (f). In no event is the exemption of this paragraph (f)
effective until 30 days after the notice requirements in paragraph
(f)(3) of this section are satisfied. If the requirements of this
paragraph (f) are satisfied with respect to a plan, the exemption
continues in effect (at the plan's discretion) until September 30,
2001, even if the plan subsequently purchases a different policy
from the same or a different issuer and regardless of any other
changes to the plan's benefit structure.
(2) Calculation of the
one-percent increase--(i) Ratio. A group health plan satisfies the
requirements of this paragraph (f)(2) if the application of
paragraph (b)(1)(i) of this section to the plan results in an
increase in the cost under the plan of at least one percent.
[[Page 66955]]
The application of paragraph (b)(1)(i) of this section results in
an increased cost of at least one percent under a group health plan
only if the ratio below equals or exceeds 1.01000. The ratio is
determined as follows: (A) The
incurred expenditures during the base period, divided by,
(B) The incurred expenditures
during the base period, reduced by-- --
(1) The claims incurred during
the base period that would have been denied under the terms of the
plan absent plan amendments required to
comply with this section; and (2)
Administrative expenses attributable to complying with the
requirements of this section.
(ii) Formula. The ratio of paragraph (f)(2)(i) of this section is
expressed mathematically as follows:
[GRAPHIC] [TIFF OMITTED] TR22DE97.005
(A) IE means the incurred
expenditures during the base period.
(B) CE means the claims incurred
during the base period that would have been denied under the terms
of the plan absent plan amendments required to comply with this
section (C) AE means
administrative costs related to claims in CE and other
administrative costs attributable to complying with the requirements
of this section. (iii) Incurred
expenditures. Incurred expenditures means actual claims incurred
during the base period and reported within two months following the
base period, and administrative costs for all benefits under the
group health plan, including mental health benefits and
medical/surgical benefits, during the base period. Incurred
expenditures do not include premiums.
(iv) Base period. Base period
means the period used to calculate whether the plan may claim the
one-percent increased cost exemption in this paragraph (f). The base
period must begin on the first day in any plan year that the plan
complies with the requirements of paragraph (b)(1)(i) of this
section and must extend for a period of at least six consecutive
calendar months. However, in no event may the base period begin
prior to September 26, 1996 (the date of enactment of the Mental
Health Parity Act (Pub. L. 104-204, 110 Stat. 2944)).
(v) Rating pools. For plans that
are combined in a pool for rating purposes, the calculation under
this paragraph (f)(2) for each plan in the pool for the base period
is based on the incurred expenditures of the pool, whether or not
all the plans in the pool have participated in the pool for the
entire base period. (However, only the plans that have complied with
paragraph (b)(1)(i) of this section for at least six months as a
member of the pool satisfy the requirements of this paragraph
(f)(2).) Otherwise, the calculation under this paragraph (f)(2) for
each plan is calculated by the plan administrator based on the
incurred expenditures of the plan.
(vi) Examples. The rules of this
paragraph (f)(2) are illustrated by the following examples:
Example 1. (i) A group health plan
has a plan year that is the calendar year. The plan satisfies the
requirements of paragraph (b)(1)(i) of this section as of January 1,
1998. On September 15, 1998, the plan determines that $1,000,000 in
claims have been incurred during the period between January 1, 1998
and June 30, 1998 and reported by August 30, 1998. The plan also
determines that $100,000 in administrative costs have been incurred
for all benefits under the group health plan, including mental
health benefits. Thus, the plan determines that its incurred
expenditures for the base period are $1,100,000. The plan also
determines that the claims incurred during the base period that
would have been denied under the terms of the plan absent plan
amendments required to comply with this section are $40,000 and that
administrative expenses attributable to complying with the
requirements of this section are $10,000. Thus, the total amount of
expenditures for the base period had the plan not been amended to
comply with the requirements of paragraph (b)(1)(i) of this section
are $1,050,000 ($1,100,000-- ($40,000 + $10,000) = $1,050,000).
(ii) In this Example 1, the plan
satisfies the requirements of this paragraph (f)(2) because the
application of this section results in an increased cost of at least
one percent under the terms of the plan ($1,100,000/$1,050,000 =
1.04762). Example 2. (i) A health
insurance issuer sells a group health insurance policy that is rated
on a pooled basis and is sold to 30 group health plans. One of the
group health plans inquires whether it qualifies for the one-percent
increased cost exemption. The issuer performs the calculation for
the pool as a whole and determines that the application of this
section results in an increased cost of 0.500 percent (for a ratio
under this paragraph (f)(2) of 1.00500) for the pool. The issuer
informs the requesting plan and the other plans in the pool of the
calculation. (ii) In this Example
2, none of the plans satisfy the requirements of this paragraph
(f)(2) and a plan that purchases a policy not complying with the
requirements of paragraph (b)(1)(i) of this section violates the
requirements of this section.
Example 3. (i) A partially insured plan is collecting the
information to determine whether it qualifies for the exemption. The
plan administrator determines the incurred expenses for the base
period for the self-funded portion of the plan to be $2,000,000 and
the administrative expenses for the base period for the self-funded
portion to be $200,000. For the insured portion of the plan, the
plan administrator requests data from the insurer. For the insured
portion of the plan, the plan's own incurred expenses for the base
period are $1,000,000 and the administrative expenses for the base
period are $100,000. The plan administrator determines that under
the self-funded portion of the plan, the claims incurred for the
base period that would have been denied under the terms of the plan
absent the amendment are $0 because the self-funded portion does not
cover mental health benefits and the plan's administrative costs
attributable to complying with the requirements of this section are
$1,000. The issuer determines that under the insured portion of the
plan, the claims incurred for the base period that would have been
denied under the terms of the plan absent the amendment are $25,000
and the administrative costs attributable to complying with the
requirements of this section are $1,000. Thus, the total incurred
expenditures for the plan for the base period are $3,300,000
($2,000,000 + $200,000 + $1,000,000 + $100,000 = $3,300,000) and the
total amount of expenditures for the base period had the plan not
been amended to comply with the requirements of paragraph (b)(1)(i)
of this section are $3,273,000 ($3,300,000-($0 + $1,000 + $25,000 +
$1,000) = $3,273,000). (ii) In
this Example 3, the plan does not satisfy the requirements of this
paragraph (f)(2) because the application of this section does not
result in an increased cost of at least one percent under the terms
of the plan ($3,300,000/$3,273,000 = 1.00825).
(3) Notice of exemption--(i)
Participants and beneficiaries--(A) In general. A group health plan
must notify participants and beneficiaries of the plan's decision to
claim the one-percent increased cost exemption. The notice must
include the following information:
(1) A statement that the plan is
exempt from the requirements of this section and a description of
the basis for the exemption; (2)
The name and telephone number of the individual to contact for
further information; (3) The plan
name and plan number (PN); (4)
The plan administrator's name, address, and telephone number;
(5) For single-employer plans,
the plan sponsor's name, address, and telephone number (if different
from paragraph (f)(3)(i)(A)(3) of this section) and the plan
sponsor's employer identification number (EIN);
(6) The effective date of the
exemption; (7) The ability of
participants and beneficiaries to contact the plan administrator to
see how benefits may be affected as a result of the plan's claim of
the exemption; and (8) The
availability, upon request and free of charge, of a summary of
the
[[Page 66956]]
information required under paragraph (f)(4) of this section.
(B) Use of summary of material
reductions in covered services or benefits. A plan may satisfy the
requirements of paragraph (f)(3)(i)(A) of this section by providing
participants and beneficiaries (in accordance with paragraph
(f)(3)(i)(C) of this section) with a summary of material reductions
in covered services or benefits required under 29 CFR 2520.104b-3(d)
that also includes the information of this paragraph (f)(3)(i).
However, in all cases, the exemption is not effective until 30 days
after notice has been sent. (C)
Delivery. The notice described in this paragraph (f)(3)(i) is
required to be provided to all participants and beneficiaries. The
notice may be furnished by any method of delivery that satisfies the
requirements of section 104(b)(1) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1024(b)(1)) (e.g., first-class
mail). If the notice is provided to the participant at the
participant's last known address, then the requirements of this
paragraph (f)(3)(i) are satisfied with respect to the participant
and all beneficiaries residing at that address. If a beneficiary's
last known address is different from the participant's last known
address, a separate notice is required to be provided to the
beneficiary at the beneficiary's last known address.
(D) Example. The rules of this
paragraph (f)(3)(i) are illustrated by the following example:
calendar year and has an open enrollment period every
November 1 through November 30. The plan determines on September 15
that it satisfies the requirements of paragraph (f)(2) of this
section. As part of its open enrollment materials, the plan mails,
on October 15, to all participants and beneficiaries a notice
satisfying the requirements of this paragraph (f)(3)(i).
(ii) In this Example, the plan
has sent the notice in a manner that complies with this paragraph
(f)(3)(i).
(ii) Federal agencies. A group
health plan that is a church plan (as defined in section 414(e))
claiming the exemption of this paragraph (f) for any benefit package
must provide notice in accordance with the requirement of this
paragraph (f)(3)(ii). This requirement is satisfied if the plan
sends a copy, to the address designated by the Secretary in
generally applicable guidance, of the notice described in paragraph
(f)(3)(i) of this section identifying the benefit package to which
the exemption applies. For any other group health plan, see 29 CFR
2590.712(f)(3)(ii)(B). (4)
Availability of documentation. The plan must make available to
participants and beneficiaries (or their representatives), on
request and at no charge, a summary of the information on which the
exemption was based. An individual who is not a participant or
beneficiary and who presents a notice described in paragraph
(f)(3)(i) of this section is considered to be a representative. A
representative may request the summary of information by providing
the plan a copy of the notice provided to the participant under
paragraph (f)(3)(i) of this section with any individually
identifiable information redacted. The summary of information must
include the incurred expenditures, the base period, the dollar
amount of claims incurred during the base period that would have
been denied under the terms of the plan absent amendments required
to comply with paragraph (b)(1)(i) of this section, the
administrative costs related to those claims, and other
administrative costs attributable to complying with the requirements
of this section. In no event should the summary of information
include any individually identifiable information.
(g) Special rules for group
health insurance coverage--(1) Sale of nonparity policies. See 29
CFR 2590.712(g)(1) and 45 CFR 146.136(g)(1) for rules limiting the
right of an issuer to sell a policy without parity (as described in
29 CFR 2590.712(b) and 45 CFR 146.136(b)) to a plan that meets the
requirements of 29 CFR 2590.712 (e) or (f) and 45 CFR 146.136 (e) or
(f)). (2) Duration of exemption.
After a plan meets the requirements of paragraph (f) of this
section, the plan may change issuers without having to meet the
requirements of paragraph (f) of this section again before September
30, 2001. (h) Effective
dates--(1) In general. The requirements of this section are
applicable for plan years beginning on or after January 1, 1998.
(2) Limitation on actions. (i)
Except as provided in paragraph (h)(3) of this section, no
enforcement action is to be taken by the Secretary against a group
health plan that has sought to comply in good faith with the
requirements of section 9812, with respect to a violation that
occurs before the earlier of--
(A) The first day of the first plan year beginning on or after April
1, 1998; or (B) January 1, 1999.
(ii) Compliance with the
requirements of this section is deemed to be good faith compliance
with the requirements of section 9812.
(iii) The rules of this paragraph
(h)(2) are illustrated by the following examples:
Example 1. (i) A group health plan
has a plan year that is the calendar year. The plan complies with
section 9812 in good faith using assumptions inconsistent with
paragraph (b)(6) of this section relating to weighted averages for
categories of benefits. (ii) In
this Example 1, no enforcement action may be taken against the plan
with respect to a violation resulting solely from those assumptions
and occurring before January 1, 1999.
Example 2. (i) A group health
plan has a plan year that is the calendar year. For the entire 1998
plan year, the plan applies a $1,000,000 annual limit on
medical/surgical benefits and a $100,000 annual limit on mental
health benefits. (ii) In this
Example 2, the plan has not sought to comply with the requirements
of section 9812 in good faith, and this paragraph (h)(2) does not
apply.
(3) Transition period for
increased cost exemption--(i) In general. No enforcement action will
be taken against a group health plan that is subject to the
requirements of this section based on a violation of this section
that occurs before April 1, 1998 solely because the plan claims the
increased cost exemption under section 9812(c)(2) based on
assumptions inconsistent with the rules under paragraph (f) of this
section, provided that a plan amendment that complies with the
requirements of paragraph (b)(1)(i) of this section is adopted and
effective no later than March 31, 1998 and the plan complies with
the notice requirements in paragraph (h)(3)(ii) of this section.
(ii) Notice of plan's use of
transition period. (A) A group health plan satisfies the
requirements of this paragraph (h)(3)(ii) only if the plan provides
notice to the applicable federal agency and posts the notice at the
location(s) where documents must be made available for examination
by participants and beneficiaries under section 104(b)(2) of the
Employee Retirement Income Security Act of 1974, and the regulations
thereunder (29 CFR 2520.104b-1(b)(3)). The notice must indicate the
plan's decision to use the transition period in paragraph (h)(3)(i)
of this section by 30 days after the first day of the plan year
beginning on or after January 1, 1998, but in no event later than
March 31, 1998. For a group health plan that is a church plan (as
defined in section 414(e)), the applicable federal agency is the
Department of the Treasury. For a group health plan that is not a
church plan, see 29 CFR 2590.712(h)(3)(ii). The notice must
include-- (1) The name of the
plan and the plan number (PN);
[[Page 66957]] (2) The name,
address, and telephone number of the plan administrator;
(3) For single-employer plans,
the name, address, and telephone number of the plan sponsor (if
different from the plan administrator) and the plan sponsor's
employer identification number (EIN);
(4) The name and telephone number
of the individual to contact for further information; and
(5) The signature of the plan
administrator and the date of the signature.
(B) The notice must be provided
at no charge to participants or their representative within 15 days
after receipt of a written or oral request for such notification,
but in no event before the notice has been sent to the applicable
federal agency. (i) Sunset. This
section does not apply to benefits for services furnished on or
after September 30, 2001.
Dated: December 16, 1997.
Michael P. Dolan, Deputy Commissioner of Internal Revenue.
Approved: December 16, 1997.
Donald C. Lubick, Acting Assistant Secretary of the
Treasury.
Pension and Welfare Benefits Administration
29 CFR Chapter XXV
29 CFR Part 2590 is amended as
follows:
PART 2590--RULES AND REGULATIONS FOR HEALTH INSURANCE PORTABILITY
AND RENEWABILITY FOR GROUP HEALTH PLANS
1. The authority citation for Part
2590 is revised to read as follows:
Authority: Secs. 107, 209, 505,
701-703, 711, 712, and 731-734 of ERISA (29 U.S.C. 1027, 1059, 1135,
1171-1173, 1181, 1182, and 1191-1194), as amended by Pub. L.
104-191, 110 Stat. 1936 and Pub. L. 104-204, 110 Stat. 2944; and
Secretary of Labor's Order No. 1-87, 52 FR 13139, April 21,
1987.
Subpart B--Other Requirements
2. Section 2590.712 is revised to
read as follows:
Sec. 2590.712 Parity in the application of certain limits to
mental health benefits.
(a) Definitions. For purposes of
this section, except where the context clearly indicates otherwise,
the following definitions apply:
Aggregate lifetime limit means a dollar limitation on the total
amount of specified benefits that may be paid under a group health
plan (or group health insurance coverage offered in connection with
such a plan) for an individual (or for a group of individuals
considered a single unit in applying this dollar limitation, such as
a family or an employee plus spouse).
Annual limit means a dollar
limitation on the total amount of specified benefits that may be
paid in a 12-month period under a plan (or group health insurance
coverage offered in connection with such a plan) for an individual
(or for a group of individuals considered a single unit in applying
this dollar limitation, such as a family or an employee plus
spouse). Medical/surgical
benefits means benefits for medical or surgical services, as defined
under the terms of the plan or group health insurance coverage, but
does not include mental health benefits.
Mental health benefits means
benefits for mental health services, as defined under the terms of
the plan or group health insurance coverage, but does not include
benefits for treatment of substance abuse or chemical dependency.
(b) Requirements regarding limits
on benefits--(1)--general--(i) General parity requirement. A group
health plan (or health insurance coverage offered by an issuer in
connection with a group health plan) that provides both
medical/surgical benefits and mental health benefits must comply
with paragraph (b)(2), (3), or (6) of this section.
(ii) Exception. The rule in
paragraph (b)(1)(i) of this section does not apply if a plan, or
coverage, satisfies the requirements of paragraph (e) or (f) of this
section. (2) Plan with no limit
or limits on less than one-third of all medical/surgical benefits.
If a plan (or group health insurance coverage) does not include an
aggregate lifetime or annual limit on any medical/surgical benefits
or includes aggregate lifetime or annual limits that apply to less
than one-third of all medical/surgical benefits, it may not impose
an aggregate lifetime or annual limit, respectively, on mental
health benefits. (3) Plan with a
limit on at least two-thirds of all medical/ surgical benefits. If a
plan (or group health insurance coverage) includes an aggregate
lifetime or annual limit on at least two-thirds of all
medical/surgical benefits, it must either--
(i) Apply the aggregate lifetime
or annual limit both to the medical/surgical benefits to which the
limit would otherwise apply and to mental health benefits in a
manner that does not distinguish between the medical/surgical and
mental health benefits; or (ii)
Not include an aggregate lifetime or annual limit on mental health
benefits that is less than the aggregate lifetime or annual limit,
respectively, on the medical/surgical benefits.
(4) Examples. The rules of
paragraphs (b)(2) and (3) of this section are illustrated by the
following examples:
Example 1. (i) Prior to the
effective date of the mental health parity provisions, a group
health plan had no annual limit on medical/surgical benefits and had
a $10,000 annual limit on mental health benefits. To comply with the
parity requirements of this paragraph (b), the plan sponsor is
considering each of the following options:
(A) Eliminating the plan's annual
limit on mental health benefits;
(B) Replacing the plan's previous annual limit on mental health
benefits with a $500,000 annual limit on all benefits (including
medical/surgical and mental health benefits); and
(C) Replacing the plan's previous
annual limit on mental health benefits with a $250,000 annual limit
on medical/surgical benefits and a $250,000 annual limit on mental
health benefits. (ii) In this
Example 1, each of the three options being considered by the plan
sponsor would comply with the requirements of this section because
they offer parity in the dollar limits placed on medical/surgical
and mental health benefits.
Example 2. (i) Prior to the effective date of the mental health
parity provisions, a group health plan had a $100,000 annual limit
on medical/surgical inpatient benefits, a $50,000 annual limit on
medical/surgical outpatient benefits, and a $100,000 annual limit on
all mental health benefits. To comply with the parity requirements
of this paragraph (b), the plan sponsor is considering each of the
following options: (A) Replacing
the plan's previous annual limit on mental health benefits with a
$150,000 annual limit on mental health benefits; and
(B) Replacing the plan's previous
annual limit on mental health benefits with a $100,000 annual limit
on mental health inpatient benefits and a $50,000 annual limit on
mental health outpatient benefits.
(ii) In this Example 2, each
option under consideration by the plan sponsor would comply with the
requirements of this section because they offer parity in the dollar
limits placed on medical/ surgical and mental health benefits.
Example 3. (i) A group health
plan that is subject to the requirements of this section has no
aggregate lifetime or annual limit for either medical/surgical
benefits or mental health benefits. While the plan provides
medical/surgical benefits with respect to both network and
out-of-network providers, it does not provide mental health benefits
with respect to out-of-network providers.
(ii) In this Example 3, the plan
complies with the requirements of this section because they offer
parity in the dollar limits placed on medical/surgical and mental
health benefits. Example 4. (i)
Prior to the effective date of the mental health parity provisions,
a group health plan had an annual limit on medical/surgical benefits
and a separate but identical
[[Page 66958]]
annual limit on mental health benefits. The plan included
benefits for treatment of substance abuse and chemical dependency in
its definition of mental health benefits. Accordingly, claims paid
for treatment of substance abuse and chemical dependency were
counted in applying the annual limit on mental health benefits. To
comply with the parity requirements of this paragraph (b), the plan
sponsor is considering each of the following options:
(A) Making no change in the plan
so that claims paid for treatment of substance abuse and chemical
dependency continue to count in applying the annual limit on mental
health benefits; (B) Amending the
plan to count claims paid for treatment of substance abuse and
chemical dependency in applying the annual limit on medical/surgical
benefits (rather than counting those claims in applying the annual
limit on mental health benefits);
(C) Amending the plan to provide a new category of benefits for
treatment of chemical dependency and substance abuse that is subject
to a separate, lower limit and under which claims paid for treatment
of substance abuse and chemical dependency are counted only in
applying the annual limit on this separate category; and
(D) Amending the plan to
eliminate distinctions between medical/ surgical benefits and mental
health benefits and establishing an overall limit on benefits
offered under the plan under which claims paid for treatment of
substance abuse and chemical dependency are counted with
medical/surgical benefits and mental health benefits in applying the
overall limit. (ii) In this
Example 4, the group health plan is described in paragraph (b)(3) of
this section. Because mental health benefits are defined in
paragraph (a) of this section as excluding benefits for treatment of
substance abuse and chemical dependency, the inclusion of benefits
for treatment of substance abuse and chemical dependency in applying
an aggregate lifetime limit or annual limit on mental health
benefits under option (A) of this Example 4 would not comply with
the requirements of paragraph (b)(3) of this section. However,
options (B), (C), and (D) of this Example 4 would comply with the
requirements of paragraph (b)(3) of this section because they offer
parity in the dollar limits placed on medical/surgical and mental
health benefits. (5) Determining
one-third and two-thirds of all medical/surgical benefits. For
purposes of this paragraph (b), the determination of whether the
portion of medical/surgical benefits subject to a limit represents
one-third or two-thirds of all medical/surgical benefits is based on
the dollar amount of all plan payments for medical/surgical benefits
expected to be paid under the plan for the plan year (or for the
portion of the plan year after a change in plan benefits that
affects the applicability of the aggregate lifetime or annual
limits). Any reasonable method may be used to determine whether the
dollar amounts expected to be paid under the plan will constitute
one-third or two-thirds of the dollar amount of all plan payments
for medical/ surgical benefits.
(6) Plan not described in paragraph (b)(2) or (3) of this section--
(i) In general. A group health plan (or group health insurance
coverage) that is not described in paragraph (b)(2) or (3) of this
section, must either-- (A) Impose
no aggregate lifetime or annual limit, as appropriate, on mental
health benefits; or (B) Impose an
aggregate lifetime or annual limit on mental health benefits that is
no less than an average limit calculated for medical/ surgical
benefits in the following manner. The average limit is calculated by
taking into account the weighted average of the aggregate lifetime
or annual limits, as appropriate, that are applicable to the
categories of medical/surgical benefits. Limits based on delivery
systems, such as inpatient/outpatient treatment or normal treatment
of common, low-cost conditions (such as treatment of normal births),
do not constitute categories for purposes of this paragraph
(b)(6)(i)(B). In addition, for purposes of determining weighted
averages, any benefits that are not within a category that is
subject to a separately-designated limit under the plan are taken
into account as a single separate category by using an estimate of
the upper limit on the dollar amount that a plan may reasonably be
expected to incur with respect to such benefits, taking into account
any other applicable restrictions under the plan.
(ii) Weighting. For purposes of
this paragraph (b)(6), the weighting applicable to any category of
medical/surgical benefits is determined in the manner set forth in
paragraph (b)(5) of this section for determining one-third or
two-thirds of all medical/surgical benefits.
(iii) Example. The rules of this
paragraph (b)(6) are illustrated by the following example:
Example. (i) A group health plan
that is subject to the requirements of this section includes a
$100,000 annual limit on medical/surgical benefits related to
cardio-pulmonary diseases. The plan does not include an annual limit
on any other category of medical/surgical benefits. The plan
determines that 40% of the dollar amount of plan payments for
medical/surgical benefits are related to cardio-pulmonary diseases.
The plan determines that $1,000,000 is a reasonable estimate of the
upper limit on the dollar amount that the plan may incur with
respect to the other 60% of payments for medical/surgical benefits.
(ii) In this Example, the plan is
not described in paragraph (b)(3) of this section because there is
not one annual limit that applies to at least two-thirds of all
medical/surgical benefits. Further, the plan is not described in
paragraph (b)(2) of this section because more than one-third of all
medical/surgical benefits are subject to an annual limit. Under this
paragraph (b)(6), the plan sponsor can choose either to include no
annual limit on mental health benefits, or to include an annual
limit on mental health benefits that is not less than the weighted
average of the annual limits applicable to each category of
medical/surgical benefits. In this example, the minimum weighted
average annual limit that can be applied to mental health benefits
is $640,000 (40% x $100,000 + 60% x $1,000,000 = $640,000).
(c) Rule in the case of separate
benefit packages. If a group health plan offers two or more benefit
packages, the requirements of this section, including the exemption
provisions in paragraph (f) of this section, apply separately to
each benefit package. Examples of a group health plan that offers
two or more benefit packages include a group health plan that offers
employees a choice between indemnity coverage or HMO coverage, and a
group health plan that provides one benefit package for retirees and
a different benefit package for current employees.
(d) Applicability--(1) Group
health plans. The requirements of this section apply to a group
health plan offering both medical/surgical benefits and mental
health benefits regardless of whether the mental health benefits are
administered separately under the plan.
(2) Health insurance issuers. The
requirements of this section apply to a health insurance issuer
offering health insurance coverage for both medical/surgical
benefits and mental health benefits in connection with a group
health plan. (3) Scope. This
section does not-- (i) Require a
group health plan (or health insurance issuer offering coverage in
connection with a group health plan) to provide any mental health
benefits; or (ii) Affect the
terms and conditions (including cost sharing, limits on the number
of visits or days of coverage, requirements relating to medical
necessity, requiring prior authorization for treatment, or requiring
primary care physicians' referrals for treatment) relating to the
amount, duration, or scope of the mental health benefits under the
plan (or coverage) except as specifically provided in paragraph (b)
of this section. (e) Small
employer exemption--(1) In general. The requirements of this section
do not apply to a group health plan (or health insurance issuer
offering coverage in connection with a group health plan) for a plan
year of a small employer. For purposes of this paragraph (e), the
term small employer means, in connection with a group
[[Page 66959]]
health plan with respect to a calendar year and a plan year, an
employer who employed an average of at least two but not more than
50 employees on business days during the preceding calendar year and
who employs at least two employees on the first day of the plan
year. See section 732(a) of the Act and Sec. 2590.732(a), which
provide that this section (and certain other sections) does not
apply to any group health plan (and health insurance issuer offering
coverage in connection with a group health plan) for any plan year
if, on the first day of the plan year, the plan has fewer than two
participants who are current employees.
(2) Rules in determining employer
size. For purposes of paragraph (e)(1) of this section--
(i) All persons treated as a
single employer under subsections (b), (c), (m), and (o) of section
414 of the Internal Revenue Code of 1986 (26 U.S.C. 414) are treated
as one employer; (ii) If an
employer was not in existence throughout the preceding calendar
year, whether it is a small employer is determined based on the
average number of employees the employer reasonably expects to
employ on business days during the current calendar year; and
(iii) Any reference to an
employer for purposes of the small employer exemption includes a
reference to a predecessor of the employer.
(f) Increased cost exemption--(1)
In general. A group health plan (or health insurance coverage
offered in connection with a group health plan) is not subject to
the requirements of this section if the requirements of this
paragraph (f) are satisfied. If a plan offers more than one benefit
package, this paragraph (f) applies separately to each benefit
package. Except as provided in paragraph (h) of this section, a plan
must comply with the requirements of paragraph (b)(1)(i) of this
section for the first plan year beginning on or after January 1,
1998, and must continue to comply with the requirements of paragraph
(b)(1)(i) of this section until the plan satisfies the requirements
in this paragraph (f). In no event is the exemption of this
paragraph (f) effective until 30 days after the notice requirements
in paragraph (f)(3) of this section are satisfied. If the
requirements of this paragraph (f) are satisfied with respect to a
plan, the exemption continues in effect (at the plan's discretion)
until September 30, 2001, even if the plan subsequently purchases a
different policy from the same or a different issuer and regardless
of any other changes to the plan's benefit structure.
(2) Calculation of the
one-percent increase--(i) Ratio. A group health plan (or group
health insurance coverage) satisfies the requirements of this
paragraph (f)(2) if the application of paragraph (b)(1)(i) of this
section to the plan (or to such coverage) results in an increase in
the cost under the plan (or for such coverage) of at least one
percent. The application of paragraph (b)(1)(i) of this section
results in an increased cost of at least one percent under a group
health plan (or for such coverage) only if the ratio below equals or
exceeds 1.01000. The ratio is determined as follows:
(A) The incurred expenditures
during the base period, divided by,
(B) The incurred expenditures
during the base period, reduced by--
(1) The claims incurred during
the base period that would have been denied under the terms of the
plan absent plan amendments required to comply with this section;
and (2) Administrative expenses
attributable to complying with the requirements of this section.
(ii) Formula. The ratio of
paragraph (f)(2)(i) of this section is expressed mathematically as
follows:
[GRAPHIC] [TIFF OMITTED] TR22DE97.003
(A) IE means the incurred
expenditures during the base period.
(B) CE means the claims incurred
during the base period that would have been denied under the terms
of the plan absent plan amendments required to comply with this
section (C) AE means
administrative costs related to claims in CE and other
administrative costs attributable to complying with the requirements
of this section. (iii) Incurred
expenditures. Incurred expenditures means actual claims incurred
during the base period and reported within two months following the
base period, and administrative costs for all benefits under the
group health plan, including mental health benefits and
medical/surgical benefits, during the base period. Incurred
expenditures do not include premiums.
(iv) Base period. Base period
means the period used to calculate whether the plan may claim the
one-percent increased cost exemption in this paragraph (f). The base
period must begin on the first day in any plan year that the plan
complies with the requirements of paragraph (b)(1)(i) of this
section and must extend for a period of at least six consecutive
calendar months. However, in no event may the base period begin
prior to September 26, 1996 (the date of enactment of the Mental
Health Parity Act (Pub. L. 104-204, 110 Stat. 2944)).
(v) Rating pools. For plans that
are combined in a pool for rating purposes, the calculation under
this paragraph (f)(2) for each plan in the pool for the base period
is based on the incurred expenditures of the pool, whether or not
all the plans in the pool have participated in the pool for the
entire base period. (However, only the plans that have complied with
paragraph (b)(1)(i) of this section for at least six months as a
member of the pool satisfy the requirements of this paragraph
(f)(2).) Otherwise, the calculation under this paragraph (f)(2) for
each plan is calculated by the plan administrator (or issuer) based
on the incurred expenditures of the plan.
(vi) Examples. The rules of this
paragraph (f)(2) are illustrated by the following examples:
Example 1. (i) A group health
plan has a plan year that is the calendar year. The plan satisfies
the requirements of paragraph (b)(1)(i) of this section as of
January 1, 1998. On September 15, 1998, the plan determines that
$1,000,000 in claims have been incurred during the period between
January 1, 1998 and June 30, 1998 and reported by August 30, 1998.
The plan also determines that $100,000 in administrative costs have
been incurred for all benefits under the group health plan,
including mental health benefits. Thus, the plan determines that its
incurred expenditures for the base period are $1,100,000. The plan
also determines that the claims incurred during the base period that
would have been denied under the terms of the plan absent plan
amendments required to comply with this section are $40,000 and that
administrative expenses attributable to complying with the
requirements of this section are $10,000. Thus, the total amount of
expenditures for the base period had the plan not been amended to
comply with the requirements of paragraph (b)(1)(i) of this section
are $1,050,000 ($1,100,000 - ($40,000 + $10,000) = $1,050,000).
(ii) In this Example 1, the plan
satisfies the requirements of this paragraph (f)(2) because the
application of this section results in an increased cost of at least
one percent under the terms of the plan ($1,100,000/$1,050,000 =
1.04762). Example 2. (i) A health
insurance issuer sells a group health insurance policy that is rated
on a pooled basis and is sold to 30 group health plans. One of the
group health plans inquires whether it qualifies for the one-percent
increased cost exemption. The issuer performs the calculation for
the pool as a whole and determines that the application of this
section results in an increased cost of 0.500 percent (for a ratio
under this paragraph (f)(2) of 1.00500) for the pool. The issuer
informs the requesting plan and the other plans in the pool of the
calculation. (ii) In this Example
2, none of the plans satisfy the requirements of this paragraph
[[Page 66960]]
(f)(2) and a plan that purchases a policy not complying with the
requirements of paragraph (b)(1)(i) of this section violates the
requirements of this section. In addition, an issuer that issues to
any of the plans in the pool a policy not complying with the
requirements of paragraph (b)(1)(i) of this section violates the
requirements of this section.
Example 3. (i) A partially insured plan is collecting the
information to determine whether it qualifies for the exemption. The
plan administrator determines the incurred expenses for the base
period for the self-funded portion of the plan to be $2,000,000 and
the administrative expenses for the base period for the self-funded
portion to be $200,000. For the insured portion of the plan, the
plan administrator requests data from the insurer. For the insured
portion of the plan, the plan's own incurred expenses for the base
period are $1,000,000 and the administrative expenses for the base
period are $100,000. The plan administrator determines that under
the self-funded portion of the plan, the claims incurred for the
base period that would have been denied under the terms of the plan
absent the amendment are $0 because the self-funded portion does not
cover mental health benefits and the plan's administrative costs
attributable to complying with the requirements of this section are
$1,000. The issuer determines that under the insured portion of the
plan, the claims incurred for the base period that would have been
denied under the terms of the plan absent the amendment are $25,000
and the administrative costs attributable to complying with the
requirements of this section are $1,000. Thus, the total incurred
expenditures for the plan for the base period are $3,300,000
($2,000,000 + $200,000 + $1,000,000 + $100,000 = $3,300,000) and the
total amount of expenditures for the base period had the plan not
been amended to comply with the requirements of paragraph (b)(1)(i)
of this section are $3,273,000 ($3,300,000-($0 + $1,000 + $25,000 +
$1,000) = $3,273,000). (ii) In this Example 3, the plan does not
satisfy the requirements of this paragraph (f)(2) because the
application of this section does not result in an increased cost of
at least one percent under the terms of the plan
($3,300,000/$3,273,000 = 1.00825).
(3) Notice of exemption--(i)
Participants and beneficiaries--(A) In general. A group health plan
must notify participants and beneficiaries of the plan's decision to
claim the one-percent increased cost exemption. The notice must
include the following information:
(1) A statement that the plan is
exempt from the requirements of this section and a description of
the basis for the exemption; (2)
The name and telephone number of the individual to contact for
further information; (3) The plan
name and plan number (PN); (4)
The plan administrator's name, address, and telephone number;
(5) For single-employer plans,
the plan sponsor's name, address, and telephone number (if different
from paragraph (f)(3)(i)(A)(3) of this section) and the plan
sponsor's employer identification number (EIN);
(6) The effective date of the
exemption; (7) The ability of
participants and beneficiaries to contact the plan administrator to
see how benefits may be affected as a result of the plan's claim of
the exemption; and (8) The
availability, upon request and free of charge, of a summary of the
information required under paragraph (f)(4) of this section.
(B) Use of summary of material
reductions in covered services or benefits. A plan may satisfy the
requirements of paragraph (f)(3)(i)(A) of this section by providing
participants and beneficiaries (in accordance with paragraph
(f)(3)(i)(C) of this section) with a summary of material reductions
in covered services or benefits required under Sec. 2520.104b-3(d)
that also includes the information of this paragraph (f)(3)(i).
However, in all cases, the exemption is not effective until 30 days
after notice has been sent. (C)
Delivery. The notice described in this paragraph (f)(3)(i) is
required to be provided to all participants and beneficiaries. The
notice may be furnished by any method of delivery that satisfies the
requirements of section 104(b)(1) of ERISA (e.g., first-class mail).
If the notice is provided to the participant at the participant's
last known address, then the requirements of this paragraph
(f)(3)(i) are satisfied with respect to the participant and all
beneficiaries residing at that address. If a beneficiary's last
known address is different from the participant's last known
address, a separate notice is required to be provided to the
beneficiary at the beneficiary's last known address.
(D) Example. The rules of this
paragraph (f)(3)(i) are illustrated by the following example:
Example. (i) A group health plan
has a plan year that is the calendar year and has an open enrollment
period every November 1 through November 30. The plan determines on
September 15 that it satisfies the requirements of paragraph (f)(2)
of this section. As part of its open enrollment materials, the plan
mails, on October 15, to all participants and beneficiaries a notice
satisfying the requirements of this paragraph (f)(3)(i).
(ii) In this Example, the plan
has sent the notice in a manner that complies with this paragraph
(f)(3)(i). (ii) Federal
agencies--(A) Church plans. A church plan (as defined in section
414(e) of the Internal Revenue Code) claiming the exemption of this
paragraph (f) for any benefit package must provide notice to the
Department of the Treasury. This requirement is satisfied if the
plan sends a copy, to the address designated by the Secretary in
generally applicable guidance, of the notice described in paragraph
(f)(3)(i) of this section identifying the benefit package to which
the exemption applies. (B) Group
health plans subject to Part 7 of Subtitle B of Title I of ERISA. A
group health plan subject to Part 7 of Subtitle B of Title I of
ERISA, and claiming the exemption of this paragraph (f) for any
benefit package, must provide notice to the Department of Labor.
This requirement is satisfied if the plan sends a copy, to the
address designated by the Secretary in generally applicable
guidance, of the notice described in paragraph (f)(3)(i) of this
section identifying the benefit package to which the exemption
applies. (C) Nonfederal
governmental plans. A group health plan that is a nonfederal
governmental plan claiming the exemption of this paragraph (f) for
any benefit package must provide notice to the Department of Health
and Human Services (HHS). This requirement is satisfied if the plan
sends a copy, to the address designated by the Secretary in
generally applicable guidance, of the notice described in paragraph
(f)(3)(i) of this section identifying the benefit package to which
the exemption applies. (4)
Availability of documentation. The plan (or issuer) must make
available to participants and beneficiaries (or their
representatives), on request and at no charge, a summary of the
information on which the exemption was based. An individual who is
not a participant or beneficiary and who presents a notice described
in paragraph (f)(3)(i) of this section is considered to be a
representative. A representative may request the summary of
information by providing the plan a copy of the notice provided to
the participant under paragraph (f)(3)(i) of this section with any
individually identifiable information redacted. The summary of
information must include the incurred expenditures, the base period,
the dollar amount of claims incurred during the base period that
would have been denied under the terms of the plan absent amendments
required to comply with paragraph (b)(1)(i) of this section, the
administrative costs related to those claims, and other
administrative costs attributable to complying with the requirements
of this section. In no event should the summary of information
[[Page 66961]]
include any individually identifiable information.
(g) Special rules for group
health insurance coverage--(1) Sale of nonparity policies. An issuer
may sell a policy without parity (as described in paragraph (b) of
this section) only to a plan that meets the requirements of
paragraphs (e) or (f) of this section.
(2) Duration of exemption. After
a plan meets the requirements of paragraph (f) of this section, the
plan may change issuers without having to meet the requirements of
paragraph (f) of this section again before September 30, 2001.
(h) Effective dates--(1) In
general. The requirements of this section are applicable for plan
years beginning on or after January 1, 1998.
(2) Limitation on actions. (i)
Except as provided in paragraph (h)(3) of this section, no
enforcement action is to be taken by the Secretary against a group
health plan that has sought to comply in good faith with the
requirements of section 712 of the Act, with respect to a violation
that occurs before the earlier of--
(A) The first day of the first
plan year beginning on or after April 1, 1998; or
(B) January 1, 1999.
(ii) Compliance with the
requirements of this section is deemed to be good faith compliance
with the requirements of section 712 of Part 7 of Subtitle B of
Title I of ERISA. (iii) The rules
of this paragraph (h)(2) are illustrated by the following
examples:
Example 1. (i) A group health plan
has a plan year that is the calendar year. The plan complies with
section 712 of Part 7 of Subtitle B of Title I of ERISA in good
faith using assumptions inconsistent with paragraph (b)(6) of this
section relating to weighted averages for categories of benefits.
(ii) In this Example 1, no
enforcement action may be taken against the plan with respect to a
violation resulting solely from those assumptions and occurring
before January 1, 1999. Example
2. (i) A group health plan has a plan year that is the calendar
year. For the entire 1998 plan year, the plan applies a $1,000,000
annual limit on medical/surgical benefits and a $100,000 annual
limit on mental health benefits.
(ii) In this Example 2, the plan has not sought to comply with the
requirements of section 712 of the Act in good faith and this
paragraph (h)(2) does not apply.
(3) Transition period for increased cost exemption--(i) In general.
No enforcement action will be taken against a group health plan that
is subject to the requirements of this section based on a violation
of this section that occurs before April 1, 1998 solely because the
plan claims the increased cost exemption under section 712(c)(2) of
Part 7 of Subtitle B of Title I of ERISA based on assumptions
inconsistent with the rules under paragraph (f) of this section,
provided that a plan amendment that complies with the requirements
of paragraph (b)(1)(i) of this section is adopted and effective no
later than March 31, 1998 and the plan complies with the notice
requirements in paragraph (h)(3)(ii) of this section.
(ii) Notice of plan's use of
transition period. (A) A group health plan satisfies the
requirements of this paragraph (h)(3)(ii) only if the plan provides
notice to the applicable federal agency and posts such notice at the
location(s) where documents must be made available for examination
by participants and beneficiaries under section 104(b)(2) of ERISA
and the regulations thereunder (29 CFR 2520.104b- 1(b)(3)). The
notice must indicate the plan's decision to use the transition
period in paragraph (h)(3)(i) of this section by 30 days after the
first day of the plan year beginning on or after January 1, 1998,
but in no event later than March 31, 1998. For a group health plan
that is a church plan, the applicable federal agency is the
Department of the Treasury. For a group health plan that is subject
to Part 7 of Subtitle B of Title I of ERISA, the applicable federal
agency is the Department of Labor. For a group health plan that is a
nonfederal governmental plan, the applicable federal agency is the
Department of Health and Human Services. The notice must include--
(1) The name of the plan and the
plan number (PN); (2) The name,
address, and telephone number of the plan administrator;
(3) For single-employer plans,
the name, address, and telephone number of the plan sponsor (if
different from the plan administrator) and the plan sponsor's
employer identification number (EIN);
(4) The name and telephone number
of the individual to contact for further information; and
(5) The signature of the plan
administrator and the date of the signature.
(B) The notice must be provided
at no charge to participants or their representative within 15 days
after receipt of a written or oral request for such notification,
but in no event before the notice has been sent to the applicable
federal agency. (i) Sunset. This
section does not apply to benefits for services furnished on or
after September 30, 2001. Signed
at Washington, DC, this 16th day of December, 1997. Olena Berg,
Assistant Secretary, Pension Welfare Benefits Administration, U.S.
Department of Labor.
Health Care Financing Administration
45 CFR Subtitle A, Subchapter B
45 CFR Part 146 is amended as
follows:
PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET
1. The authority citation for Part
146 is revised to read as follows:
Authority: Secs. 2701 through
2763, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg through
300gg-63, 300gg-91, and 300gg-92).
2. A new Subpart C is added to
Part 146 to read as follows:
Subpart C--Requirements Related to Benefits
Sec. 146.136 Parity in the application of certain limits to
mental health benefits.
(a) Definitions. For purposes of
this section, except where the context clearly indicates otherwise,
the following definitions apply:
Aggregate lifetime limit means a dollar limitation on the total
amount of specified benefits that may be paid under a group health
plan (or group health insurance coverage offered in connection with
such plan) for an individual (or for a group of individuals
considered a single unit in applying this dollar limitation, such as
a family or an employee plus spouse).
Annual limit means a dollar
limitation on the total amount of specified benefits that may be
paid in a 12-month period under a plan (or group health insurance
coverage offered in connection with such plan) for an individual (or
for a group of individuals considered a single unit in applying this
dollar limitation, such as a family or an employee plus spouse).
Medical/surgical benefits means
benefits for medical or surgical services, as defined under the
terms of the plan or group health insurance coverage, but does not
include mental health benefits.
Mental health benefits means benefits for mental health services, as
defined under the terms of the plan or group health insurance
coverage, but does not include benefits for treatment of substance
abuse or chemical dependency. (b)
Requirements regarding limits on benefits--(1) In general--(i)
General parity requirement. A group health plan (or health insurance
coverage offered by an issuer in connection with a group
[[Page 66962]]
health plan) that provides both medical/surgical benefits and
mental health benefits must comply with paragraph (b)(2), paragraph
(b)(3), or paragraph (b)(6) of this section.
(ii) Exception. The rule in
paragraph (b)(1)(i) of this section does not apply if a plan, or
coverage, satisfies the requirements of paragraph (e) or paragraph
(f) of this section. (2) Plan
with no limit or limits on less than one-third of all
medical/surgical benefits. If a plan (or group health insurance
coverage) does not include an aggregate lifetime or annual limit on
any medical/surgical benefits or includes aggregate lifetime or
annual limits that apply to less than one-third of all
medical/surgical benefits, it may not impose an aggregate lifetime
or annual limit, respectively, on mental health benefits.
(3) Plan with a limit on at least
two-thirds of all medical/ surgical benefits. If a plan (or group
health insurance coverage) includes an aggregate lifetime or annual
limit on at least two-thirds of all medical/surgical benefits, it
must either-- (i) Apply the
aggregate lifetime or annual limit both to the medical/surgical
benefits to which the limit would otherwise apply and to mental
health benefits in a manner that does not distinguish between the
medical/surgical and mental health benefits; or
(ii) Not include an aggregate
lifetime or annual limit on mental health benefits that is less than
the aggregate lifetime or annual limit, respectively, on the
medical/surgical benefits. (4)
Examples. The rules of paragraphs (b) (2) and (3) of this section
are illustrated by the following examples:
Example 1. (i) Prior to the
effective date of the mental health parity provisions, a group
health plan had no annual limit on medical/surgical benefits and had
a $10,000 annual limit on mental health benefits. To comply with the
parity requirements of this paragraph (b), the plan sponsor is
considering each of the following options:
(A) Eliminating the plan's annual
limit on mental health benefits;
(B) Replacing the plan's previous annual limit on mental health
benefits with a $500,000 annual limit on all benefits (including
medical/surgical and mental health benefits); and
(C) Replacing the plan's previous
annual limit on mental health benefits with a $250,000 annual limit
on medical/surgical benefits and a $250,000 annual limit on mental
health benefits. (ii) In this
Example 1, each of the three options being considered by the plan
sponsor would comply with the requirements of this section because
they offer parity in the dollar limits placed on medical/surgical
and mental health benefits.
Example 2. (i) Prior to the effective date of the mental health
parity provisions, a group health plan had a $100,000 annual limit
on medical/surgical inpatient benefits, a $50,000 annual limit on
medical/surgical outpatient benefits, and a $100,000 annual limit on
all mental health benefits. To comply with the parity requirements
of this paragraph (b), the plan sponsor is considering each of the
following options: (A) Replacing
the plan's previous annual limit on mental health benefits with a
$150,000 annual limit on mental health benefits; and
(B) Replacing the plan's previous
annual limit on mental health benefits with a $100,000 annual limit
on mental health inpatient benefits and a $50,000 annual limit on
mental health outpatient benefits.
(ii) In this Example 2, each
option under consideration by the plan sponsor would comply with the
requirements of this section because they offer parity in the dollar
limits placed on medical/ surgical and mental health benefits.
Example 3. (i) A group health
plan that is subject to the requirements of this section has no
aggregate lifetime or annual limit for either medical/surgical
benefits or mental health benefits. While the plan provides
medical/surgical benefits with respect to both network and
out-of-network providers, it does not provide mental health benefits
with respect to out-of-network providers.
(ii) In this Example 3, the plan
complies with the requirements of this section because they offer
parity in the dollar limits placed on medical/surgical and mental
health benefits. Example 4. (i)
Prior to the effective date of the mental health parity provisions,
a group health plan had an annual limit on medical/surgical benefits
and a separate but identical annual limit on mental health benefits.
The plan included benefits for treatment of substance abuse and
chemical dependency in its definition of mental health benefits.
Accordingly, claims paid for treatment of substance abuse and
chemical dependency were counted in applying the annual limit on
mental health benefits. To comply with the parity requirements of
this paragraph (b), the plan sponsor is considering each of the
following options: (A) Making no
change in the plan so that claims paid for treatment of substance
abuse and chemical dependency continue to count in applying the
annual limit on mental health benefits;
(B) Amending the plan to count
claims paid for treatment of substance abuse and chemical dependency
in applying the annual limit on medical/surgical benefits (rather
than counting those claims in applying the annual limit on mental
health benefits); (C) Amending
the plan to provide a new category of benefits for treatment of
chemical dependency and substance abuse that is subject to a
separate, lower limit and under which claims paid for treatment of
substance abuse and chemical dependency are counted only in applying
the annual limit on this separate category; and
(D) Amending the plan to
eliminate distinctions between medical/ surgical benefits and mental
health benefits and establishing an overall limit on benefits
offered under the plan under which claims paid for treatment of
substance abuse and chemical dependency are counted with
medical/surgical benefits and mental health benefits in applying the
overall limit. (ii) In this
Example 4, the group health plan is described in paragraph (b)(3) of
this section. Because mental health benefits are defined in
paragraph (a) of this section as excluding benefits for treatment of
substance abuse and chemical dependency, the inclusion of benefits
for treatment of substance abuse and chemical dependency in applying
an aggregate lifetime limit or annual limit on mental health
benefits under option (A) of this Example 4 would not comply with
the requirements of paragraph (b)(3) of this section. However,
options (B), (C), and (D) of this Example 4 would comply with the
requirements of paragraph (b)(3) of this section because they offer
parity in the dollar limits placed on medical/surgical and mental
health benefits.
(5) Determining one-third and
two-thirds of all medical/surgical benefits. For purposes of this
paragraph (b), the determination of whether the portion of
medical/surgical benefits subject to a limit represents one-third or
two-thirds of all medical/surgical benefits is based on the dollar
amount of all plan payments for medical/surgical benefits expected
to be paid under the plan for the plan year (or for the portion of
the plan year after a change in plan benefits that affects the
applicability of the aggregate lifetime or annual limits). Any
reasonable method may be used to determine whether the dollar
amounts expected to be paid under the plan will constitute one-third
or two-thirds of the dollar amount of all plan payments for medical/
surgical benefits. (6) Plan not
described in paragraph (b)(2) or paragraph (b)(3) of this
section--(i) In general. A group health plan (or group health
insurance coverage) that is not described in paragraph (b)(2) or
paragraph (b)(3) of this section, must either impose--
(A) No aggregate lifetime or
annual limit, as appropriate, on mental health benefits; or
(B) An aggregate lifetime or
annual limit on mental health benefits that is no less than an
average limit for medical/surgical benefits calculated in the
following manner. The average limit is calculated by taking into
account the weighted average of the aggregate lifetime or annual
limits, as appropriate, that are applicable to the categories of
medical/surgical benefits. Limits based on delivery systems, such as
inpatient/outpatient treatment, or normal treatment of common,
low-cost conditions (such as treatment of normal births), do not
constitute categories for purposes of this paragraph (b)(6)(i)(B).
In addition, for purposes of determining
[[Page 66963]]
weighted averages, any benefits that are not within a category
that is subject to a separately-designated limit under the plan are
taken into account as a single separate category by using an
estimate of the upper limit on the dollar amount that a plan may
reasonably be expected to incur with respect to such benefits,
taking into account any other applicable restrictions under the
plan. (ii) Weighting. For
purposes of this paragraph (b)(6), the weighting applicable to any
category of medical/surgical benefits is determined in the manner
set forth in paragraph (b)(5) of this section for determining
one-third or two-thirds of all medical/surgical benefits.
(iii) Examples. The rules of this
paragraph (b)(6) are illustrated by the following example:
Example. (i) A group health plan
that is subject to the requirements of this section includes a
$100,000 annual limit on medical/surgical benefits related to
cardio-pulmonary diseases. The plan does not include an annual limit
on any other category of medical/surgical benefits. The plan
determines that 40% of the dollar amount of plan payments for
medical/surgical benefits are related to cardio-pulmonary diseases.
The plan determines that $1,000,000 is a reasonable estimate of the
upper limit on the dollar amount that the plan may incur with
respect to the other 60% of payments for medical/surgical benefits.
(ii) In this Example, the plan is
not described in paragraph (b)(3) of this section because there is
not one annual limit that applies to at least two-thirds of all
medical/surgical benefits. Further, the plan is not described in
paragraph (b)(2) of this section because more than one-third of all
medical/surgical benefits are subject to an annual limit. Under this
paragraph (b)(6), the plan sponsor can choose either to include no
annual limit on mental health benefits, or to include an annual
limit on mental health benefits that is not less than the weighted
average of the annual limits applicable to each category of
medical/surgical benefits. In this example, the minimum weighted
average annual limit that can be applied to mental health benefits
is $640,000 (40% `` $100,000 + 60% `` $1,000,000 = $640,000).
(c) Rule in the case of separate
benefit packages. If a group health plan offers two or more benefit
packages, the requirements of this section, including the exemption
provisions in paragraph (f) of this section, apply separately to
each benefit package. Examples of a group health plan that offers
two or more benefit packages include a group health plan that offers
employees a choice between indemnity coverage or HMO coverage, and a
group health plan that provides one benefit package for retirees and
a different benefit package for current employees.
(d) Applicability--(1) Group
health plans. The requirements of this section apply to a group
health plan offering both medical/surgical benefits and mental
health benefits regardless of whether the mental health benefits are
administered separately under the plan.
(2) Health insurance issuers. The
requirements of this section apply to a health insurance issuer
offering health insurance coverage for both medical/surgical
benefits and mental health benefits in connection with a group
health plan. (3) Scope. This
section does not-- (i) Require a
group health plan (or health insurance issuer offering coverage in
connection with a group health plan) to provide any mental health
benefits; or (ii) Affect the
terms and conditions (including cost sharing, limits on the number
of visits or days of coverage, requirements relating to medical
necessity, requiring prior authorization for treatment, or requiring
primary care physicians' referrals for treatment) relating to the
amount, duration, or scope of the mental health benefits under the
plan (or coverage) except as specifically provided in paragraph (b)
of this section. (e) Small
employer exemption--(1) In general. The requirements of this section
do not apply to a group health plan (or health insurance issuer
offering coverage in connection with a group health plan) for a plan
year of a small employer. For purposes of this paragraph (e), the
term small employer means, in connection with a group health plan
with respect to a calendar year and a plan year, an employer who
employed an average of at least two but not more than 50 employees
on business days during the preceding calendar year and who employs
at least two employees on the first day of the plan year. See
regulations at Sec. 146.145(a), which provide that this section (and
certain other sections) does not apply to any group health plan (and
health insurance issuer offering coverage in connection with a group
health plan) for any plan year if, on the first day of the plan
year, the plan has fewer than two participants who are current
employees. (2) Rules in
determining employer size. For purposes of paragraph (e)(1) of this
section-- (i) All persons treated
as a single employer under subsections (b), (c), (m), and (o) of
section 414 of the Internal Revenue Code of 1986 (26 U.S.C. 414) are
treated as one employer; (ii) If
an employer was not in existence throughout the preceding calendar
year, whether it is a small employer is determined based on the
average number of employees the employer reasonably expects to
employ on business days during the current calendar year; and
(iii) Any reference to an
employer for purposes of the small employer exemption includes a
reference to a predecessor of the employer.
(f) Increased cost exemption--(1)
In general. A group health plan (or health insurance coverage
offered in connection with a group health plan) is not subject to
the requirements of this section if the requirements of this
paragraph (f) are satisfied. If a plan offers more than one benefit
package, this paragraph (f) applies separately to each benefit
package. Except as provided in paragraph (h) of this section, a plan
must comply with the requirements of paragraph (b)(1)(i) of this
section for the first plan year beginning on or after January 1,
1998, and must continue to comply with the requirements of paragraph
(b)(1)(i) of this section until the plan satisfies the requirements
in this paragraph (f). In no event is the exemption of this
paragraph (f) effective until 30 days after the notice requirements
in paragraph (f)(3) of this section are satisfied. If the
requirements of this paragraph (f) are satisfied with respect to a
plan, the exemption continues in effect (at the plan's discretion)
until September 30, 2001, even if the plan subsequently purchases a
different policy from the same or a different issuer and regardless
of any other changes to the plan's benefit structure.
(2) Calculation of the
one-percent increase--(i) Ratio. A group health plan (or group
health insurance coverage) satisfies the requirements of this
paragraph (f)(2) if the application of paragraph (b)(1)(i) of this
section to the plan (or to such coverage) results in an increase in
the cost under the plan (or for such coverage) of at least one
percent. The application of paragraph (b)(1)(i) of this section
results in an increased cost of at least one percent under a group
health plan (or for such coverage) only if the ratio below equals or
exceeds 1.01000. The ratio is determined as follows:
(A) The incurred expenditures
during the base period, divided by,
(B) The incurred expenditures
during the base period, reduced by--
(1) The claims incurred during
the base period that would have been denied under the terms of the
plan absent plan amendments required to comply with this section,
and (2) Administrative expenses
attributable to complying with the requirements of this section.
(ii) Formula. The ratio of
paragraph (f)(2)(i) is expressed mathematically as follows:
[[Page 66964]]
[GRAPHIC] [TIFF OMITTED] TR22DE97.004
(A) IE means the incurred
expenditures during the base period.
(B) CE means the claims incurred
during the base period that would have been denied under the terms
of the plan absent plan amendments required to comply with this
section. (C) AE means
administrative costs related to claims in CE and other
administrative costs attributable to complying with the requirements
of this section. (iii) Incurred
expenditures. Incurred expenditures means actual claims incurred
during the base period and reported within two months following the
base period, and administrative costs for all benefits under the
group health plan, including mental health benefits and
medical/surgical benefits, during the base period. Incurred
expenditures do not include premiums.
(iv) Base period. Base period
means the period used to calculate whether the plan may claim the
one-percent increased cost exemption in this paragraph (f). The base
period must begin on the first day in any plan year that the plan
complies with the requirements of paragraph (b)(1)(i) of this
section and must extend for a period of at least six consecutive
calendar months. However, in no event may the base period begin
prior to September 26, 1996 (the date of enactment of the Mental
Health Parity Act (Pub. L. 104-204, 110 Stat. 2944)).
(v) Rating pools. For plans that
are combined in a pool for rating purposes, the calculation under
this paragraph (f)(2) for each plan in the pool for the base period
is based on the incurred expenditures of the pool, whether or not
all the plans in the pool have participated in the pool for the
entire base period. (However, only the plans that have complied with
paragraph (b)(1)(i) of this section for at least six months as a
member of the pool satisfy the requirements of this paragraph
(f)(2).) Otherwise, the calculation under this paragraph (f)(2) for
each plan is calculated by the plan administrator (or issuer) based
on the incurred expenditures of the plan.
(vi) Examples. The rules of this
paragraph (f)(2) are illustrated by the following examples:
Example 1. (i) A group health plan
has a plan year that is the calendar year. The plan satisfies the
requirements of paragraph (b)(1)(i) of this section as of January 1,
1998. On September 15, 1998, the plan determines that $1,000,000 in
claims have been incurred during the period between January 1, 1998
and June 30, 1998 and reported by August 30, 1998. The plan also
determines that $100,000 in administrative costs have been incurred
for all benefits under the group health plan, including mental
health benefits. Thus, the plan determines that its incurred
expenditures for the base period are $1,100,000. The plan also
determines that the claims incurred during the base period that
would have been denied under the terms of the plan absent plan
amendments required to comply with this section are $40,000 and that
administrative expenses attributable to complying with the
requirements of this section are $10,000. Thus, the total amount of
expenditures for the base period had the plan not been amended to
comply with the requirements of paragraph (b)(1)(i) of this section
are $1,050,000 ($1,100,000-- ($40,000 + $10,000) = $1,050,000).
(ii) In this Example 1, the plan
satisfies the requirements of this paragraph (f)(2) because the
application of this section results in an increased cost of at least
one percent under the terms of the plan ($1,100,000/$1,050,000 =
1.04762). Example 2. (i) A health
insurance issuer sells a group health insurance policy that is rated
on a pooled-basis and is sold to 30 group health plans. One of the
group health plans inquires whether it qualifies for the one percent
increased cost exemption. The issuer performs the calculation for
the pool as a whole and determines that the application of this
section results in an increased cost of 0.500 percent (for a ratio
under this paragraph (f)(2) of 1.00500) for the pool. The issuer
informs the requesting plan and the other plans in the pool of the
calculation. (ii) In this Example
2, none of the plans satisfy the requirements of this paragraph
(f)(2) and a plan that purchases a policy not complying with the
requirements of paragraph (b)(1)(i) of this section violates the
requirements of this section. In addition, an issuer that issues to
any of the plans in the pool a policy not complying with the
requirements of paragraph (b)(1)(i) of this section violates the
requirements of this section.
Example 3. (i) A partially-insured plan is collecting the
information to determine whether it qualifies for the exemption. The
plan administrator determines the incurred expenses for the base
period for the self-funded portion of the plan to be $2,000,000 and
the administrative expenses for the base period for the self-funded
portion to be $200,000. For the insured portion of the plan, the
plan administrator requests data from the insurer. For the insured
portion of the plan, the plan's own incurred expenses for the base
period are $1,000,000 and the administrative expenses for the base
period are $100,000. The plan administrator determines that under
the self-funded portion of the plan, the claims incurred for the
base period that would have been denied under the terms of the plan
absent the amendment are $0 because the self-funded portion does not
cover mental health benefits and the plan's administrative costs
attributable to complying with the requirements of this section are
$1,000. The issuer determines that under the insured portion of the
plan, the claims incurred for the base period that would have been
denied under the terms of the plan absent the amendment are $25,000
and the administrative costs attributable to complying with the
requirements of this section are $1,000. Thus, the total incurred
expenditures for the plan for the base period are $3,300,000
($2,000,000 + $200,000 + $1,000,000 + $100,000 = $3,300,000) and the
total amount of expenditures for the base period had the plan not
been amended to comply with the requirements of paragraph (b)(1)(i)
of this section are $3,273,000 ($3,300,000 - ($0 + $1,000 + $25,000
+ $1,000) = $3,273,000). (ii) In
this Example 3, the plan does not satisfy the requirements of this
paragraph (f)(2) because the application of this section does not
result in an increased cost of at least one percent under the terms
of the plan ($3,300,000/$3,273,000 = 1.00825).
(3) Notice of exemption--(i)
Participants and beneficiaries--(A) In general. A group health plan
must notify participants and beneficiaries of the plan's decision to
claim the one percent increased cost exemption. The notice must
include the following information:
(1) A statement that the plan is
exempt from the requirements of this section and a description of
the basis for the exemption. (2)
The name and telephone number of the individual to contact for
further information. (3) The plan
name and plan number (PN). (4)
The plan administrator's name, address, and telephone number.
(5) For single-employer plans,
the plan sponsor's name, address, and telephone number (if different
from paragraph (f)(3)(i)(A)(3) of this section) and the plan
sponsor's employer identification number (EIN).
(6) The effective date of such
exemption. (7) The ability of
participants and beneficiaries to contact the plan administrator to
see how benefits may be affected as a result of the plan's election
of the exemption. (8) The
availability, upon request and free of charge, of a summary of the
information required under paragraph (f)(4) of this section.
(B) Use of summary of material
reductions in covered services or benefits. A plan may satisfy the
requirements of paragraph (f)(3)(i)(A) by providing participants and
beneficiaries (in accordance with paragraph (f)(3)(i)(C)) with a
summary of material reductions in covered services or benefits
consistent with Department of Labor regulations at 29 CFR
2520.104b-3(d) that also includes the information of this paragraph
(f)(3)(i). However, in all cases, the exemption is not effective
until 30 days after notice has been sent.
(C) Delivery. The notice
described in this paragraph (f)(3)(i) is required to be
[[Page 66965]]
provided to all participants and beneficiaries. The notice may be
furnished by any method of delivery that satisfies the requirements
of section 104(b)(1) of ERISA (29 U.S.C. 1024(b)(1)) (e.g.,
first-class mail). If the notice is provided to the participant at
the participant's last known address, then the requirements of this
paragraph (f)(3)(i) are satisfied with respect to the participant
and all beneficiaries residing at that address. If a beneficiary's
last known address is different from the participant's last known
address, a separate notice is required to be provided to the
beneficiary at the beneficiary's last known address.
(D) Example. The rules of this
paragraph (f)(3)(i) are illustrated by the following example:
Example. (i) A group health plan
has a plan year that is the calendar year and has an open enrollment
period every November 1 through November 30. The plan determines on
September 15 that it satisfies the requirements of paragraph (f)(2)
of this section. As part of its open enrollment materials, the plan
mails, on October 15, to all participants and beneficiaries a notice
satisfying the requirements of this paragraph (f)(3)(i).
(ii) In this Example, the plan
has sent the notice in a manner that complies with this paragraph
(f)(3)(i).
(ii) Federal agencies--(A) Church
plans. A church plan (as defined in section 414(e) of the Internal
Revenue Code) claiming the exemption of this paragraph (f) for any
benefit package must provide notice to the Department of the
Treasury. This requirement is satisfied if the plan sends a copy, to
the address designated by the Secretary in generally applicable
guidance, of the notice described in paragraph (f)(3)(i) of this
section identifying the benefit package to which the exemption
applies. (B) Group health plans
subject to Part 7 of Subtitle B of Title I of ERISA. A group health
plan subject to Part 7 of Subtitle B of Title I of ERISA, and
claiming the exemption of this paragraph (f) for any benefit
package, must provide notice to the Department of Labor. This
requirement is satisfied if the plan sends a copy, to the address
designated by the Secretary in generally applicable guidance, of the
notice described in paragraph (f)(3)(i) of this section identifying
the benefit package to which the exemption applies.
(C) Nonfederal governmental
plans. A group health plan that is a nonfederal governmental plan
claiming the exemption of this paragraph (f) for any benefit package
must provide notice to the Department of Health and Human Services
(HHS). This requirement is satisfied if the plan sends a copy, to
the address designated by the Secretary in generally applicable
guidance, of the notice described in paragraph (f)(3)(i) of this
section identifying the benefit package to which the exemption
applies. (4) Availability of
documentation. The plan (or issuer) must make available to
participants and beneficiaries (or their representatives), on
request and at no charge, a summary of the information on which the
exemption was based. An individual who is not a participant or
beneficiary and who presents a notice described in paragraph
(f)(3)(i) of this section is considered to be a representative. A
representative may request the summary of information by providing
the plan a copy of the notice provided to the participant under
paragraph (f)(3)(i) of this section with any individually
identifiable information redacted. The summary of information must
include the incurred expenditures, the base period, the dollar
amount of claims incurred during the base period that would have
been denied under the terms of the plan absent amendments required
to comply with paragraph (b)(1)(i) of this section, the
administrative costs related to those claims, and other
administrative costs attributable to complying with the requirements
for the exemption. In no event should the summary of information
include any individually identifiable information.
(g) Special rules for group
health insurance coverage--(1) Sale of nonparity policies. An issuer
may sell a policy without parity (as described in paragraph (b) of
this section) only to a plan that meets the requirements of
paragraph (e) or paragraph (f) of this section.
(2) Duration of exemption. After
a plan meets the requirements of paragraph (f) of this section, the
plan may change issuers without having to meet the requirements of
paragraph (f) of this section again before September 30, 2001.
(h) Effective dates--(1) In
general. The requirements of this section are applicable for plan
years beginning on or after January 1, 1998.
(2) Limitation on actions. (i)
Except as provided in paragraph (h)(3) of this section, no
enforcement action is to be taken by the Secretary against a group
health plan that has sought to comply in good faith with the
requirements of section 2705 of the PHS Act, with respect to a
violation that occurs before the earlier of--
(A) The first day of the first
plan year beginning on or after April 1, 1998; or
(B) January 1, 1999.
(ii) Compliance with the
requirements of this section is deemed to be good faith compliance
with the requirements of section 2705 of the PHS Act.
(iii) The rules of this paragraph
(h)(2) are illustrated by the following examples:
Example 1. (i) A group health plan
has a plan year that is the calendar year. The plan complies with
section 2705 of the PHS Act in good faith using assumptions
inconsistent with paragraph (b)(6) of this section relating to
weighted averages for categories of benefits.
(ii) In this Example 1, no
enforcement action may be taken against the plan with respect to a
violation resulting solely from those assumptions and occurring
before January 1, 1999.
Example 2. (i) A group health plan
has a plan year that is the calendar year. For the entire 1998 plan
year, the plan applies a $1,000,000 annual limit on medical/surgical
benefits and a $100,000 annual limit on mental health benefits.
(ii) In this Example 2, the plan
has not sought to comply with the requirements of section 2705 of
the PHS Act in good faith and this paragraph (h)(2) does not
apply.
(3) Transition period for
increased cost exemption--(i) In general. No enforcement action will
be taken against a group health plan that is subject to the
requirements of this section based on a violation of this section
that occurs before April 1, 1998 solely because the plan claims the
increased cost exemption under section 2705(c)(2) of the PHS Act
based on assumptions inconsistent with the rules under paragraph (f)
of this section, provided that a plan amendment that complies with
the requirements of paragraph (b)(1)(i) of this section is adopted
and effective no later than March 31, 1998 and the plan complies
with the notice requirements in paragraph (h)(3)(ii) of this
section. (ii) Notice of plan's
use of transition period. (A) A group health plan satisfies the
requirements of this paragraph (h)(3)(ii) only if the plan provides
notice to the applicable federal agency and posts the notice at the
location(s) where documents must be made available for examination
by participants and beneficiaries under section 104(b)(2) of ERISA
and the regulations thereunder (29 CFR 2520.104b-1(b)(3)). The
notice must indicate the plan's decision to use the transition
period in paragraph (h)(3)(i) of this section by 30 days after the
first day of the plan year beginning on or after January 1, 1998,
but in no event later than March 31, 1998. For a group health plan
that is a church plan, the applicable federal agency is the
Department of the Treasury. For a group
[[Page 66966]]
health plan that is subject to Part 7 of Subtitle B of Title I of
ERISA, the applicable federal agency is the Department of Labor. For
a group health plan that is a nonfederal governmental plan, the
applicable federal agency is the Department of Health and Human
Services. The notice must include--
(1) The name of the plan and the
plan number (PN); (2) The name,
address, and telephone number of the plan administrator;
(3) For single-employer plans,
the name, address, and telephone number of the plan sponsor (if
different from the plan administrator) and the plan sponsor's
employer identification number (EIN);
(4) The name and telephone number
of the individual to contact for further information; and
(5) The signature of the plan
administrator and the date of the signature.
(B) The notice must be provided
at no charge to participants or their representative within 15 days
after receipt of a written or oral request for such notification,
but in no event before the notice has been sent to the applicable
federal agency. (i) Sunset. This
section does not apply to benefits for services furnished on or
after September 30, 2001.
Dated: December 16, 1997.
Nancy-Ann Min DeParle, Administrator, Health Care Financing
Administration. Dated: December
16, 1997. Donna E. Shalala, Secretary, Department of Health
and Human Services. [FR Doc. 97-33262 Filed 12-19-97; 8:45 am]
BILLING CODE 4830-01-P; 4510-29-P; 4120-01-P
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