Common health plan administration pitfalls

Employee benefits compliance is notoriously complicated and gets more challenging each year. Some lapses go undetected and are non-events, but others can result in significant legal liability and penalties, even when an employer is trying to "do the right thing." It is best to identify compliance issues before a plan is audited, before employees raise concerns, and before a potential sale or merger transaction involving the employer (all of which result in employers having to scramble).  

Below are brief summaries of two health plan compliance issues that we often see.

Health plan coverage for employees on leave
The Family and Medical Leave Act (FMLA) requires employers to continue to offer health insurance to eligible employees on FMLA leave under the same terms applicable to active employees, for up to 12 weeks.  But what happens after the leave ends if the employee is not terminated but does not return to work?  

Some employers do not focus on eligibility and simply keep the employee on the health plan, but that may result in coverage disputes with an insurer or stop loss provider.  Should the employee be issued a COBRA notice?  That depends. Hours of service are a key factor, since most health plans have a minimum hours requirement.

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Employers should consider:
1. Most importantly, the terms of the group health plan  
Does the plan provide for coverage during extended leaves of absence, disability, or while on workers compensation?

2. The plan's method for counting hours to determine full-time status
Does the plan use a monthly measurement period or a lookback and stability period? If the latter, an inactive employee may be eligible until the end of the current stability period.

3. ACA deemed-hours rules  
ACA guidance provides that if an employer contributes to an arrangement that provides disability pay, any disability leave period counts as hours of service when determining full-time status (assuming the employee has not been terminated). However, if an employee pays premiums for the disability coverage on an after-tax basis, the coverage is not contributed to by the employer, and the disability payment period does not represent hours of service. See IRS Notice 2015-87. 

If an employee ceases to be eligible due to a reduction in hours, that is most likely a qualifying event under COBRA, and a COBRA notice should be sent to the employee and dependents.  Failure to timely do so risks penalties of up to $110 per day, per violation.  Small employers not subject to COBRA should consult applicable state law.

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Mental health parity
Group health plans cannot discriminate in the treatment of mental health and substance use disorders as compared to other medical conditions, due to the Mental Health Parity and Addiction Equity Act (MHPAEA).  

Since 2021, employers maintaining a group health plan have been required to have available a Non-Quantitative Treatment Limitation (NQTL) analysis of their group health plan. Quantitative limits include caps on the number of visits and dollar limits, while non-quantitative provisions may include pre-authorization requirements, network restrictions and medical necessity standards.  

For fully-insured plans, this analysis is done by the insurer.  Self-insured health plan TPAs typically do not conduct NQTL analyses, so sponsors of self-insured plans typically engage consultants. As with any other benefit plan provider, employers should review service provider qualifications before signing a contract and should consider conducting an RFP.  

On May 15, 2025, federal agencies responsible for enforcing the MHPAEA announced a suspension of enforcement of the final 2024 MHPAEA regulations, following court challenges and an Executive Order aimed at reducing regulatory burdens. But the suspension only applies to newly added regulatory requirements. Ongoing Department of Labor (DOL) reviews of health plans make clear that the agencies continue to enforce MHPAEA requirements.  

Also, employers must still have on hand an NQTL report for their health plan. Such reports must be provided within 10 days of a request by the DOL, HHS or the IRS. Participants must be provided a copy within 30 days of a request, with penalties of up to $110 per day for noncompliance.  

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Some employers with self-funded plans have not yet conducted an NQTL analysis, or have outdated reports that should be updated. Although an NQTL analysis is not required on an annual basis, the analysis should be updated if there are material changes to the health plan and when there are changes in guidance (such as the 2024 final MHPAEA regulations, the enforcement of which is currently on hold).

The above issues are just two of a litany of potential traps for the unwary for employee benefit professionals. Employers should follow current developments, understand the compliance requirements applicable to the types of plans sponsored by the employer, and engage qualified professionals and consultants to help maintain compliance.