Labor and Employment Alert: 21st Century Cures Act

Related Practices

Attorneys & Professionals

On December 13, 2016, President Obama signed the 21st Century Cures Act (H.R. 34) into law.  The 21st Century Cures Act contains two provisions that relate to group health coverage.

Small Employer HRAs

Starting with the publication of IRS Notice 2013-54, the IRS prohibited standalone health reimbursement arrangements (HRAs).  In particular, IRS Notice 2013-54 was meant to prevent employers from reimbursing employees for premiums for individual health insurance.  The IRS classified the practice as a group health plan that failed to satisfy certain patient protection provisions of the Affordable Care Act (ACA), namely the prohibition on imposing an annual limit on minimum essential coverage and mandating the provision of preventive coverage at no cost to participants.  Under this interpretation, an employer that offered a standalone HRA would be subject to an excise tax of $100 per day per impacted employee. 

Because the practice of using standalone HRAs was common among small employers, the IRS issued guidance in IRS Notice 2015-17 suspending the application of the excise tax to small employers through June 30, 2015 to allow additional time for small employers to cease using standalone HRAs. 

The 21st Century Cures Act further suspends the application of the excise tax through December 31, 2016 and adds a new permissible form of standalone HRA, the qualified small employer health reimbursement arrangement (QSEHRA).  Beginning January 1, 2017, a small employer will be able to establish a QSEHRA that can be used by its employees to pay for medical care expenses, including paying premiums for individual health insurance policies.

In order to constitute a QSEHRA, the following requirements must be satisfied:

Small employers considering establishing a QSEHRA for its employees will want to take into consideration that eligibility for a QSEHRA will impact an employee’s eligibility for a federal subsidy for the purchase of individual health insurance through the Marketplace. 

The 21st Century Cures Act further amends the definition of “group health plan” under ERISA to exclude QSEHRAs.  This revision means that QSEHRAs are not subject to COBRA or ACA group health plan provisions (other than the Cadillac excise tax which will apply in 2020 unless further delayed or repealed). 

Mental Health Parity

Mental health parity has proven elusive.  We continue to see many arrangements that contain questionable quantitative treatment limits or non-comparable non-quantitative treatment limits.  The 21st Century Cures Act tasks the HHS, DOL and Treasury with coming up with additional guidance on compliance with the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA).  The guidance is supposed to help health plans, patients and health care providers identify compliant and non-compliant plan designs with a particular focus on determining parity in non-quantitative treatment limitations such as standards for medical necessity, preauthorization, provider reimbursement rates, fail‑first therapy and step therapy.  The guidance will include “clarifying information and illustrative examples” of how a health plan should provide individuals and their representatives access to plan information to verify a plan’s compliance with the MHPAEA.  This chart provides more details on the mental health parity provisions of the 21st Century Cures Act. 

Expect the government’s focus on mental health parity to continue.  Congressional action to amend or even repeal the ACA will not impact the mental health parity standards applicable to group health plans.  You should verify and monitor your health plan’s compliance with the government’s evolving views of mental health parity.