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The ERISA Edit: President's FY 2025 Budget Seeks to Expand Mental Health Coverage and Protections

Employee Benefits Alert

FY 2025 Budget Proposal Alludes to Multiple Legislative Proposals Impacting Mental Health and Substance Use Disorder Coverage

The Biden administration released its fiscal year (FY) 2025 budget on March 11, 2024, and it contains multiple legislative proposals that, if enacted into law, would significantly impact mental health and substance use disorder coverage offered through ERISA health plans. Although a president's budget proposal is akin to a wish list, especially during an election year, the FY 2025 proposal reveals aspirational mental health initiatives that the current administration would like to see become law. 

Coverage of Three Behavioral Health Visits Without Cost-Sharing. Citing the role out-of-pocket costs play in deterring individuals from seeking behavioral health care and the importance of early detection of potentially serious behavioral health conditions, the proposal "seeks to improve health outcomes by requiring all plans and issuers to cover three behavioral health visits and three primary care visits each year without charging a copayment, coinsurance, or deductible-related fee."  

Enhanced Consumer Protections. The proposal also seeks to improve compliance with behavioral health parity standards "by requiring plans and issuers to use medical necessity criteria for behavioral health services that are consistent with the criteria developed by non-profit medical specialty associations." It also seeks authority for the Departments of Health and Human Services, Labor, and the Treasury (collectively, the Departments) "to regulate behavioral health network adequacy, and to issue regulations on a standard for parity in reimbursement rates based on the results of comparative analyses submitted by plans and issuers." 

Expanded Enforcement Authority. The budget proposal asks Congress to authorize the Departments to pursue violations of the Mental Health Parity and Addiction Equity Act (MHPAEA) "by entities that provide administrative services to [ERISA] group health plans," which would enable the them to enforce the parity law against third-party administrators. 

Civil Monetary Penalties. The proposal contains a provision to allow the Departments to impose civil monetary penalties for non-compliance with MHPAEA, an enforcement tool they have sought in prior years without success. The proposal estimates revenue of $35 million over 10 years were this provision to become law.

Extending MHPAEA to Medicare. Unlike most private and employer-based insurance and Medicaid plans, Medicare is not subject to MHPAEA. The budget proposal seeks to change that, extending MHPAEA's requirements to benefits offered through Medicare Advantage plans. This is in addition to other proposals impacting behavioral health services under Medicare, including allowing incentive payments to a broader range of Medicare practitioners in underserved areas and covering three behavioral health visits per year without cost-sharing. 

Other Proposals Impacting ERISA Health Plans. The proposal also refers to several other requirements on group health plans: limiting cost-sharing for insulin in the commercial market, expanding surprise billing protections to ground ambulances, "limiting utilization management controls for behavioral health," and "requir[ing] all health plans to cover mental health substance use disorder benefits." The budget also supports a standardized definition of mental health and substance use disorders and a permanent expansion of telehealth and other remote care services.

More Funding for Health Plan Enforcement. The budget proposes an appropriation of $500 million in mandatory funding to the Departments to replenish the supplemental funding provided under the Consolidated Appropriations Act, 2021 (CAA) for the continued implementation and enforcement of MHPAEA, as well as the No Surprises Act (NSA) and CAA transparency provisions. The original appropriation of $500 million under the CAA is set to expire at the end of 2024. In addition, the budget would allot $125 million in mandatory funding over five years to provide grants to states to enforce mental health and substance use disorder parity requirements.

Overall, the president's budget is slim on details with respect to many of these proposals, but cabinet secretaries may provide more detail under questioning from members of Congress in forthcoming hearings.   

AT&T and State Street Sued in Connection with Pension De-Risking Transaction

On March 11, 2024, a group of retirees who were participants in the AT&T Pension Benefit Plan filed a putative class action against AT&T, Inc. and AT&T Services, Inc. (collectively, AT&T) and State Street Global Advisors (State Street) alleging that the defendants violated their fiduciary duties and engaged in prohibited transactions under ERISA when de-risking more than $8 billion in pension plan liabilities through the purchase of group annuity contracts offered by Athene Annuity Life Insurance Company and its affiliates (collectively Athene). Piercy v. AT&T, Inc., No. 1:24-cv-10608 (D. Mass. Mar. 11, 2024). According to the complaint, AT&T and State Street, which served as independent fiduciary for the April 2023 de-risking transaction, did not act prudently and in the best interests of a class of 96,000 participants and beneficiaries when selecting Athene, whom the plaintiffs describe as "one of a new class of private equity-backed insurers ('Risk-Taking Insurers') engaged in the dicey 'shadow banking' sector," as the annuity provider to assume the plan's liabilities.

The complaint alleges that AT&T and State Street selected Athene because it was cheaper than "safer, traditional annuity providers that have a proven record of financial strength." The plaintiffs assert that Risk-Taking Insurers such as Athene are more likely than traditional annuity providers to become insolvent because, among other things, they re-insure annuities through offshore insurance companies that are not required to set reserves as high as traditional U.S.-based insurers and invest in assets that are riskier and less liquid than those in traditional annuity investment portfolios. According to the complaint, "approximately one-fifth of Athene's portfolio is invested in risky asset backed securities and leveraged loans made to companies highly in debt, and approximately 80% of its 'Pension Risk Transfer' liabilities are reinsured through Bermuda affiliates owned by Athene's parent, [Apollo Global Management]." In addition, the plaintiffs allege that Athene has a low surplus to liabilities ratio when compared to other insurance companies, artificially inflates its risk-based capital ratio through modified co-insurance arrangements with Bermuda affiliates and has a high concentration of risky assets relative to its surplus. 

The lawsuit cites the Department of Labor's (DOL) Interpretive Bulleting (IB) 95-1, which describes factors a prudent fiduciary should consider when identifying and selecting an annuity provider for a de-risking transaction such as the one at issue. With some exceptions, IB 95-1 directs the fiduciary to select the "safest annuity available." DOL recognized and discussed in the IB situations where it may be in the best interest of participants and beneficiaries to purchase other than the safest available annuity.

The plaintiffs allege that AT&T and State Street did not conduct an independent and impartial investigation aimed at identifying and selecting an annuity provider in the plan participants' best interest as IB 95-1 requires. The complaint does not, however, contain any specific allegations about the process used by AT&T and State Street when selecting Athene and asserts only that they "either did not solicit bids and other information that would have revealed that Athene was not a safe or reasonable selection," or they disregarded such bids and information and "public red flags" allegedly associated with Athene. 

The plaintiffs claim as harm an increased risk to their retirement benefits. According to the complaint, whereas the plaintiffs' retirement benefits were safe and secure and benefited from ERISA's protections and AT&T's financial backing before the transaction, the risk that they will not receive those benefits has greatly increased with only Athene backing up their benefits. The plaintiffs seek an injunction requiring AT&T to guarantee retirement benefits to affected participants and compelling AT&T and State Street to disgorge all profits they earned in connection with the transaction. They also seek an order transferring the annuity contracts to the plan, which would make the contracts plan assets subject to ERISA's protections, and an order returning the affected retirees to their former status as plan participants. A motion to dismiss the complaint is sure to follow.

DOL was tasked in the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act of 2022 to review IB 95-1 and to report to Congress by the end of 2023 what recommendations it has, if any, for modifying that guidance. DOL has not yet released a report.

Upcoming Speaking Engagements and Events

On April 12, Joanne and Anthony will serve as facilitators for the workshop "Case Law Updates" at the 2024 NOPLG Conference in Seattle, WA.

Joanne will speak at the American Bar Association's Joint Committee on Employee Benefits (JCEB) and the American College of Employee Benefits Counsel's "ERISA: Beyond the Basics" CLE program on May 7.

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