On February 2, 2010, Interim Final Rules (the “Regulations”) under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the “Act”) were issued by the Internal Revenue Service, the Department of Labor and the Department of Health and Human Services. These Regulations amend the Internal Revenue Code, the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Public Health Service Act.
The Act was signed into law on October 3, 2008. For more information on the Act see our October 2008 Special Alert. The Act does not require health plans or health insurance issuers to provide benefits for mental health conditions or substance use disorders. However, the Act does require health plans of employers with 50 or more employees who provide benefits for one or more mental health conditions or substance use disorders to ensure that the financial requirements and treatment limitations that apply to mental health and substance use disorder benefits are no more restrictive than those that apply to substantially all of the medical/surgical benefits covered by the plan. If benefits are provided for mental health conditions or substance use disorders, then they must be provided in each classification (defined below) for which medical/surgical benefits are provided under the plan.
The Act generally applies to plan years beginning on and after October 3, 2009.¹ Since the Act generally became effective on January 1, 2010 for calendar year plans, employers and health insurance issuers have been anxiously awaiting the publication of these Regulations. The good news is that the Regulations apply for plan years beginning on or after July 1, 2010, so calendar year plans will have until January 1, 2011 to comply.
The Act provides that mental health and substance use disorder benefits are to be defined under the terms of the plan and in accordance with applicable State and Federal law. The Regulations expand on this by requiring that the plan’s definitions of mental health and substance use disorder benefits must also be consistent with “generally recognized independent standards of current medical practice.” For example, the plan could follow the most current version of the Diagnostic and Statistical Manual of Mental Disorders (DSM) or the International Classification of Diseases (ICD).
ERISA-governed self-funded plans should be able to define their mental health and substance use disorder benefits as they wish subject to the above requirements. However, when benefits are provided through an insured plan that is subject to state insurance regulations the plan may also have to comply with state mandates on coverage for mental health and substance use disorder benefits.
Six Classifications of Benefits
Financial requirements and treatment limitations may only be compared to the financial requirements and treatment limitations of the same type (e.g., copayment, coinsurance, annual visit limits, episode visit limits, etc.) within a classification. The Regulations provide for only six classifications of benefits as follows:
- Inpatient in-network
- Inpatient out-of-network
- Outpatient in-network
- Outpatient out-of-network
- Emergency care
- Prescription drugs
The terms inpatient, outpatient and emergency care are to be defined by the plan and must be applied uniformly with respect to medical/surgical benefits and mental health or substance use disorder benefits. If a plan provides both medical/surgical benefits and mental health or substance use disorder benefits, then the plan must provide mental health or substance use disorder benefits in all of the classifications in which it provides medical/surgical benefits. Therefore, if a plan provides out-of-network coverage for medical/surgical benefits, and the plan provides mental health and substance use disorder benefits, then the plan must provide out-of-network coverage for the mental health and substance use disorder benefits.
Note that the Regulations specifically state that generalists and specialists are not separate classifications for purposes of determining the predominant financial requirement that applies to substantially all medical/surgical benefits.
General Parity Requirements
A plan may not apply any financial requirement or treatment limitation (including both quantitative treatment limitations and nonquantitative treatment limitations) to mental health and substance use disorder benefits that is more restrictive than the predominant financial requirement or treatment limitation applied to substantially all of the medical/surgical benefits in a classification. Financial requirements include deductibles, copayments and coinsurance. Quantitative treatment limitations include annual limits, episode limits, lifetime day and visit limits or other similar limits on the scope or duration of treatment. Nonquantitative treatment limitations are discussed below.
The parity requirements apply separately for each type of financial requirement or quantitative treatment limitation within a classification. In addition, the parity requirements apply separately to each combination of medical/surgical and mental health or substance use disorder benefits available under the group health plan. For example, if an employer offers a choice between a PPO and an HMO and employees enrolling in either are also eligible for benefits under a carved-out plan providing mental health and substance use disorder benefits, you would separately consider:
- the medical benefits provided under the PPO plus the mental health and substance use disorder benefits; and
- the medical benefits provided under the HMO plus the mental health and substance use disorder benefits.
To perform the parity analysis, the plan must determine the portion of payments made for medical/surgical benefits that are subject to a financial requirement or quantitative treatment limitation under each classification. This determination is based on total plan payments for medical/surgical benefits, and can be determined using any “reasonable method.”
The first step of the parity analysis is to determine whether a financial requirement or quantitative treatment limitation applies to substantially all of the medical/surgical benefits in a classification. “Substantially all” is defined as at least two-thirds. If a financial requirement or quantitative treatment limitation does not apply to at least two-thirds of the medical/surgical benefits in a classification then the financial requirement or quantitative treatment limitation cannot be applied to mental health or substance use disorder benefits.
If the financial requirement or quantitative treatment limitation does apply to at least two-thirds of the medical/surgical benefits in a classification then it is also the predominant level. However, if the financial requirement or quantitative treatment limitation applies to at least two-thirds of all medical/ surgical benefits in a classification but there are multiple levels (such as copayments of $20 for some services and $40 for other services) and no single level applies to at least two-thirds of all medical/surgical benefits in the classification then further analysis is required to determine the predominant level.
The predominant level of a type of financial requirement or quantitative treatment limitation is defined as the level that applies to more than one-half of the medical/surgical benefits in a classification. If there are multiple levels, then different levels may be combined to reach the more than one-half threshold. The plan may combine levels beginning with the most restrictive level and working its way downward. In this case, once a combination of levels reaches the more than one-half threshold, the least restrictive financial requirements and quantitative treatment limitations included in the combination for medical/surgical benefits in a classification are the ones that may be applied to mental health or substance use disorder benefits in that classification.
If a plan has more than one “coverage unit” such as employee only or employee plus family, and different levels of financial requirements and quantitative treatment limitations apply, then the predominant level must be determined separately for each coverage unit.
These rules are very complex and the Regulations provide several examples of how to determine whether a financial requirement or quantitative treatment limitation applies to substantially all of the medical/surgical benefits and how to determine what is the predominant level.
Special Rule for Tiered Prescription Drug Benefits
If the plan provides different levels of financial requirements with respect to prescription drugs that are based on reasonable factors (such as having different copayments for generic vs. brand name drugs, retail vs. mail-order pharmacy, etc.) the plan will satisfy the parity requirements if it applies these financial requirements consistently within each tier without regard to whether a drug is prescribed for medical/surgical benefits or mental health or substance use disorder benefits.
NonQuantitative Treatment Limitations
The Regulations clarify that the parity requirements apply to nonquantitative treatment limitations. These can include:
- Medical management standards (such as preauthorization, concurrent or retrospective review, case management or utilization review) for determining if a treatment is medically necessary or is experimental or investigative
- Prescription drug formulary design
- Standards for provider admission to a network
- Determination of usual customary and reasonable amounts
- Step-therapy protocols
Processes, strategies and evidentiary standards used in applying nonquantitative treatment limitations on mental health or substance use disorder benefits must be comparable to and applied no more stringently to such benefits than they are to medical/surgical benefits in a classification.
For example, a plan cannot require prior authorization for coverage of all outpatient out-of-network mental health or substance use disorder benefits unless the plan also requires prior authorization for coverage of all outpatient out-of-network medical/surgical benefits.
These requirements apply to the plan both as it is written and as it is operated.
Number of Plans
The Regulations provide a new rule for determining the number of plans an employer maintains. This rule states that all plans sponsored by an employer or an employee organization that provide medical care benefits are treated as a single group health plan. This means that if an employer offers one plan that provides medical benefits and another plan that provides carved-out mental health/substance use disorder benefits, the two plans will be treated as one and the parity requirements of the Act will apply.
Application to EAPS
Many employers and organizations that provided comments in connection with the issuance of these Regulations wondered if and how the Act would apply to stand- alone Employee Assistance Plans (“EAPs”) that generally provide a limited number of counseling sessions for a specific problem. Many current plan designs require that these EAP sessions be exhausted before mental health and/or substance use disorder benefits are provided under the major medical plan. The Regulations clarify that the Act applies to EAPs, and states that requiring exhaustion of EAP benefits would be a nonquantitative treatment limitation. As a result of the new rule discussed above, the EAP and the employer’s major medical plan will now be treated as a single group health plan, and the parity requirements of the Act will apply to the benefits provided by the combination of the medical plan and the EAP.
New Disclosure Requirements
The Act requires group health plans and health insurance issuers who offer coverage in connection with a group health plan to furnish their criteria for making medical necessity determinations for mental health or substance use disorder benefits under the plan to any current or potential participant or beneficiary or to a contracting provider upon request.
The Act also requires that if a mental health or substance use disorder benefit claim is denied the plan administrator or health insurance issuer must provide notice of the reason. The Regulations provide that a plan subject to ERISA must make this disclosure in accordance with the requirements of the ERISA claims procedure regulations. If a plan is not subject to ERISA, such as a government or church plan, the Regulations provide that disclosure in the form and manner required by the ERISA claims procedure regulations will satisfy the disclosure requirement.
Small employers, defined as those who employed an average of not more than 50 employees on business days during the preceding calendar year, are exempt from the requirements of the Act. In addition, the Act provides a cost exemption if the actual costs of providing mental health/substance use disorder benefits exceed 2% of the plan’s total costs in the first plan year (or 1% in subsequent plan years). This determination must be made and certified by an actuary after the plan has provided mental health and/or substance use disorder benefits for the first six months of the plan year. In order to apply for the exemption, a plan must comply with the parity requirements for one full plan year, and if the cost increase requirements are met the plan does not have to comply the following plan year. As a result, under the requirements of the Act the cost exemption is only available every other year. The Regulations do not address the cost exemption but instead reserve this section and state that the Departments will issue guidance on this issue in the near future.
Interaction with State Insurance Laws
The Regulations state that the Act’s requirements are not to be “construed to supersede any provision of State law which establishes, implements, or continues in effect any standard or requirement solely relating to health insurance issuers in connection with group health insurance coverage except to the extent that such standard or requirement prevents the application of a requirement” of the Act. As a result, an employer or employee organization that provides benefits for mental health conditions or substance use disorders under an insured plan may be subject to additional State law requirements with respect to the provision of such benefits.
Please contact us if you would like assistance in reviewing the mental health and substance use disorder provisions of your group health plans for compliance with these Regulations.
¹ For collectively bargained plans, the Act applies to plan years beginning after the later of January 1, 2009; or the date on which the last collective bargaining agreement terminates if the collective bargaining agreement was ratified prior to October 3, 2008.