HR Compliance Update for 2024

This webpage does not, and is not intended to, constitute legal advice, and is for general informational purposes only.

The top compliance changes, trends, and news HR should keep on their radar.

Compliance updates are most likely not HR’s favorite topic, but they are one of their most important responsibilities. I had the pleasure of sitting down with Ben Conley, Partner at Seyfarth Shaw, to take a deep dive into the crucial updates that HR and Benefits professionals need to keep in mind as we start the new year.

Here are some of the most significant changes, to set yourself up for success now for the rest of 2024.

The Mental Health Parity and Addiction Equity Act (MHPAEA)

What is it: The Mental Health Parity and Addiction Equity Act requires that any mental health benefits employers offer can’t have non-quantitative restrictions on treatment that are more restrictive than what’s in place for the medical/surgical offering. This includes prior authorization requirements, admission standards, etc.

Further, with the Consolidated Appropriations Act updates to the MHPAEA, employers must create a written description showing these limits and ensure they are in parity with medical/surgical benefits.

What you should keep a pulse on: In 2024, the need for mental health services is at an all-time high. The Department of Labor proposed new regulations, expected to be finalized in the first half of the year, that may make staying in compliance a little more challenging. These regulations require a detailed analysis of outcomes for mental health and substance use disorders. The struggle that employers are facing is that there are often factors in play beyond their control, like the current mental health crisis and high demand for services. So, employers are finding it challenging to meet the proposed regulations.

Compliance is required by January 1, 2025, making it a complex and time-consuming task for employers and their HR teams. Employers must work with their carriers to meet these requirements and should begin having those conversations sooner, rather than later.

Fee transparency and gag clauses

What is it: Effective in December 2023, employers must submit the plan’s Gag Clause Attestation, declaring that they haven’t entered into contracts that limit pricing or quality of care information. This is the first attestation of this kind.

What you should keep a pulse on: While the filing process for the attestation was fairly simple, this adds yet another end-of-year process to the already full plate of HR and benefits professionals. Additionally, there are increasing fears that recent transparency requirements will potentially fuel claims against plans targeting employer’s fiduciary responsibilities. While historically these types of lawsuits were found in 401(k) administration, there are indications that some law firms are seeking to shift some of this focus to health and wellness benefits. Employers should review data regularly for benchmarking, ensure they are diligent in their documentation and procurement processes, and watch the industry for additional indications of where these legal actions are headed.

Fixed indemnity plans and taxation

What is it: There’s an interesting development in the compliance world about fixed indemnity plans. Some organizations promote these plans. Some benefits leaders have been cautious and avoided fixed indemnity plans due to tax concerns. And it turns out this caution was justified. The IRS has declared that many of these plans are impermissible.

Some fixed indemnity plans allow individuals to pay a high premium, receive a service, and then get their entire premium back tax-free. But that’s not really that beneficial for the employee, as this setup prioritizes tax benefits over actual health benefits for participants. While there are legitimate fixed indemnity products that may be of value to employees, some organizations have tried to misuse them by creating an impermissible tax shelter without real health benefits. So now, the IRS has stepped in to prevent misuse, proposing regulations that limit tax-free payments from fixed indemnity plans.

What you should keep a pulse on: So, it should be no surprise that the IRS’s clarification reinforces what many already suspected—that some of the recently promoted plan designs are not allowed due to their focus on tax advantages rather than promoting health benefits. If passed, payments can only be tax-free if the person had qualifying medical expenses not reimbursed elsewhere and substantiated by the employer. This is a significant change as, historically, payments were made without substantiation.

As it stands now, having a fixed indemnity policy isn’t illegal, but it’s essential to stay informed as these regulations could impact how these benefits function in the future.

All that to say, 2024 is shaping up to be full of regulatory changes. The Mental Health Parity and Addiction Equity Act, fee transparency, and fixed indemnity plans are three of the biggest “rocks” on HR’s plate—and that is a lot! But there is so much more in compliance that HR needs to keep tabs on this year and beyond. Staying informed and taking proactive steps will be crucial for HR and benefits professionals navigating these compliance changes.

In my conversation with Ben, we discussed these topics in more detail, plus a ton more updates and key dates that HR pros need to keep a pulse on. For more about the compliance updates you need to know, tune into the full conversation between Ben and me on Episode 2 of the Benefits Pulse Vodcast.