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Legal requirements for plan change.


Guest Caleb Boyd
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Guest Caleb Boyd

Can an employer change how a plan is administered without a plan amendment? For example plan used to provide $20,000 cap, but now says 20 visit limit. This change was not put down in writing or communicated to employees, but the plan is being administered in this fashion. Can an employee who wants the $20,000 cap force the employer to cover in this fashion?

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Guest HIPAAdrome

Are you talking about a cap on mental health benefits? If so, then the company is legally not allowed to use the $20,000 cap due to the Mental Health Parity Act. I think a participant would be very hard pressed to force the plan back to an illegal cap. Now, whether the plan can enforce the 20 day limit . . . that's another story.

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To expand on HIPAAdrome, the $20K cap sounds very much like a lifetime max benefit (if indeed this is on mental health benes), which was pretty common until MHPA. You're going to have a tough time bucking the 20 outpatient visits per year max. HMO's are typically allowing 20-30 per year for non-biologically based conditions. Note further that MHPA does NOT cover alcohol/substance abuse treatment, so plans can still impose a lifetime or annual dollar cap for that type of treatment.

Does the state in which the plan resides have regs surrounding bio-based mental health conditions? Many do, which require that plans treat bio-based under the same terms as all other medical and can only impose limits on non-bio conditions.

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One other thing, which I forgot to mention.

The plan may not have been amended, the entire contract may have been rewritten. The new provisions should have been provided at contract renewal time in a Summary of Material Modifications. SMM's can take many forms - we, and a number of the HMOs we sponsor - do it in the newsletter issued in the last quarter of the calendar year.

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Guest kchristy

It seems to me that the worst that can happen to the plan sponsor, assuming that the new limit language is in compliance, is to be slapped with a fine for not following proper amendment procedures and notifying beneficiaries in writing. I can't see that a beneficiary could force the administrator to pay according to an illegal plan provision. However, failure to properly amend a plan has in the past led to sponsors having to honor a plan of benefits in place even after they had ceased to administer according to plan.

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Guest Caleb Boyd

Clarification on question.

Will shoot straight and tell you I am a parent with a 33 month old boy who is autistic. The therapy (Lovaas/ABA) costs about $50K a year. I was hoping that given that the plan administrator failed to document the change to the visit limitations in the plan or communicate it to the employees that the old provision which is not in accordance with the MHPA was still effective. The hope being that I could receive reimbursement since the plan was not in compliance.

Am I dreaming? It is difficult to believe that an employer can just arbitrarily say that well we meant to change our plan and we have changed how it is administered, but we never bothered to put it down on paper.

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Do you know for certain that your employer OR insurance carrier (assuming it's not a self-funded plan) did not communicate the change in plan provisions made to comply with Fed regs? MHPA and HIPAA compliance changes would have been made during the late 1997/1998 plan year renewal process.

Have to ask; I'm a plan administrator and have had any number of my 5,000 insureds call me and tell me they didn't read the notifications.

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ERISA requires plans to be written and, among other things, to contain a procedure for amending the plan and for identifying the persons who have authority to amend. (However, such a procedure can be very simply stated and need not, for example, identify particular individuals--identifying the company is enough.) The DOL also takes the position in recently issued proposed regulations that current law requires the SPD to disclose this amendment procedure. Courts have required plans to take formal action before they will recognize plan amendments as effective. See, e.g., Confer v. Custom Engineering, 952 F.2d 41, 14 EBC 2065 (3rd Cir. 1991). Moreover, ERISA requires that participants and beneficiaries get notice of plan changes. In the case of a "material reduction" in benefits under a group health plan, this notice--called the summary of material modifications--must be distributed no later than 60 days after the date of adoption of the amendment (and there is some doubt whether a plan can make such a change retroactively). Sounds like none of these things were done in your plan and that, in addition, it is possible you had already incurred some of these expenses for your son before you learned that the plan was taking the position that the provision had changed. These issues can get complicated fast and particular facts can make a big difference in how sympathetic a court will be, but it seems that this plan didn't jump through all the hoops it should have.

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Guest HIPAAdrome

Everyone's comments seem well founded to me. The facts are very important in these types of cases, but it might be possible that the plan could enforce neither the 20K cap nor the 20 visit limit. You might want to visit the DOL website or give them a call for more information.

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Guest Caleb Boyd

Called the DOL. They sure were not very encouraging. They said that the company could be hit with penalties, but as to whether the plan could be forced to pay would be up to a court of law.

------------------

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Guest Caleb Boyd

"Courts have required plans to take formal action before they will recognize plan amendments as effective. See, e.g., Confer v. Custom Engineering, 952 F.2d 41, 14 EBC 2065 (3rd Cir. 1991). Moreover, ERISA requires that participants and beneficiaries get notice of plan changes."

Very helpful post. I looked out on the web in an attempt to find a copy of this case, but was unsuccessful. Can anyone direct me to a site which would have cases from 1991?

Even if the plan amendment was not effective, once I take them to court I suspect the plan would go to the trouble of communicating the change and actually creating a plan document. If that gets them out from under the liability, we get a few thousand dollars for the period of time before communication of the change, but then we would be cut off. Would everyone agree with this point?

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None of the cites I know go back to 1991. Your local law library (there should be one connected with the local court house) will have a hard copy. Going forward, I agree, the plan can correct mistakes they made in changing a plan term (assuming they have reserved the ability to amend the plan as they see fit.)

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