Medical Plan Design Caught In The Crossfire

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.

By Greta Cowart, Esq.
Haynes and Boone, LLP, Dallas, TX

Recent legislation, including The Genetic Information Nondiscrimination Act of 2008,1 Michelle's Law,2 The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008,3 The Children's Health Insurance Program Reauthorization Act of 2009,4 The Americans with Disabilities Amendments Act of 2008,5 the COBRA subsidy added by the American Recovery and Reinvestment Act of 2009 ("ARRA"),6 and impending health reform legislation, all have swirled health plan design in a sea of changes. The enactment of the COBRA subsidy and the subsequent COBRA subsidy extension7 have kept health plan administration reeling to keep up with the continual changes. As employers move into the next years they need to constantly consider all of the changes, both in their documents and in the administration of their plans and in the coordination of their plans with their payroll systems so that the appropriate records are maintained. The COBRA subsidy and the COBRA subsidy extension require extensive coordination between COBRA administration and the payroll function so that the payroll tax returns are filed accurately. Employers should monitor the U.S. Department of Labor and IRS websites dedicated to the COBRA subsidy to watch for changes, new model notices and additional guidance on payroll coordination.8 Employers should pay careful attention to ensure that its health plan administration and payroll administration are coordinated.

In addition to the changes to the substantive requirements applicable to health plans under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act's statutory provisions, employers must also watch for how the regulations implementing this Act will impact plans and interpret such Act. At this time, the legislation prohibits financial requirements and treatment limitations from being different between medical surgical care and mental health or substance abuse care under the plan. Treatment limitations and financial requirements are each defined broadly. Employers need to carefully watch their health plan design and care management requirements that apply to mental health as opposed to medical surgical treatments to ensure that its plan does not have treatment limitations on mental health that are not similarly applied to the medical surgical benefit.  Employers seeking to eliminate mental health care benefits to avoid application of the parity requirements must carefully review how their plan may actually reimburse for mental health care such as covering prescription drugs for mental health care or treatment and thus bringing on all mental health parity requirements because mental health benefits are not fully excluded from coverage.

2010 also brings changes to health plan privacy and security requirements from ARRA and new breach notification requirements applicable to group health plans in 2010 that require changes to health plan privacy notices and operations. Plan sponsors should verify that their plans are meeting these continually changing requirements.  These changes also impact the content of business associate agreements requiring amendments to the previously executed business associate agreements. Plans should review their business associate agreements to determine which are still applicable and must be updated for the ARRA changes. The business associate agreements should determine which entity will be responsible for a breach notification, if a breach occurs and such a notice becomes necessary and who will approve the notice content and what notification may be required between the parties to coordinate so that the regulation's requirements are satisfied and duplicate notices are not sent.

While the legislative changes in the last year have been numerous, we may see substantial additional changes due to the pending health care reform bills. Although the pending healthcare reform bills are voluminous, many provisions have delayed effective dates and will not immediately impact employer's health plan design, while others may have a more immediate impact. Careful attention to the changing legislative and regulatory front for health plans requires continuous monitoring in order to keep the health plans in compliance.

 For more information, in the Tax Management Portfolios, see Kenty, 389 T.M., Medical Plans — COBRA, HIPAA, HRAs, HSAs and Disability,  and in Tax Practice Series, see ¶5920, Health & Disability Plans.


 1 P.L. 110-223.


 2 P.L. 110-381.


 3 P.L. 110-343.


 4 P.L. 111-3.


 5 P.L. 110-325.


 6 P.L. 111-5.


 7 Department of Defense Appropriations Act of 2010, P.L. 111-118.




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