On November 13, 2013, the Departments of the Treasury, Labor and Health and Human Services (the “Departments”) issued final regulations under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). MHPAEA expanded previous federal mental health parity requirements to require that the conditions of coverage for behavioral health, in terms of the limitations placed on treatment and cost-sharing requirements, be no more restrictive than for coverage of medical and surgical benefits. The final regulations, which take effect for plan years commencing on and after January 1, 2014, impose standards for mental health or substance use disorder (MH/SUD) benefits that will affect most group health plans and health insurance issuers in the group insurance market and — as a result of the Patient Protection and Affordable Care Act (the “Affordable Care Act”) — qualified health plans (i.e., plans designated as “bronze,” “silver,” “gold,” and “platinum” marketed through public insurance exchanges), Medicaid non-managed care benchmark and benchmark-equivalent plans, and plans offered in the individual insurance market.

Background

The Mental Health Parity Act of 1996 (MHPA) required generally that group health plan annual or lifetime dollar limits on mental health benefits be no less restrictive than annual or lifetime dollar limits that applied to medical and surgical benefits. The goals and scope of MHPA were modest: it addressed only annual or lifetime dollar limits on mental health benefits. Cost sharing was unaffected. Thus, plans could require higher co-pays, deductibles, and out-of-pocket maximums on mental health benefits. MHPA did not mandate the coverage of substance abuse disorders, and plans and issuers were generally free to impose maximum numbers of provider visits and/or caps on the number of mental health treatment days. Nor did MHPA apply to group health plans or coverage offered by employers with fewer than 50 employees or in cases where its application resulted in an increase in the cost under the plan or coverage of at least one percent.

MHPAEA expanded the scope of the MHPA protections. In addition to requiring parity with respect to aggregate lifetime and annual dollar limits for mental health benefits, MHPAEA generally requires group health plans and health insurance issuers to ensure that “financial requirements” (e.g., co-pays, deductibles) and “treatment limitations” (e.g., visit limits) applicable to mental health or substance use disorder benefits are no more restrictive than the predominant requirements or limitations applied to substantially all medical/surgical benefits.

On February 2, 2010, the Departments published interim final regulations implementing MHPAEA. The interim final regulations established a general parity rule or standard, imposed a bar on separate accumulation of “cumulative financial requirements” (e.g., co-pays, deductibles, etc.), and prescribed rules that apply to “non-qualitative treatment limitations.” Sub-regulatory guidance in the form of Frequently Asked Questions followed. A June 30, 2010 FAQ established an enforcement safe harbor permitting two sub-classifications of outpatient benefits — office visits and all other outpatient items — for applying certain financial requirements and treatment limitations;¹ a December 22, 2010 FAQ provided details on excluded plans;² and an FAQ issued November 17, 2011 provided additional guidance on non-quantitative treatment limitations.³

The Final Regulations

The final regulations incorporate clarifications issued by the Departments through FAQs since the issuance of the interim final regulations, provide new clarifications on certain aspects of the rules, and implement the provisions of the MHPAEA for the individual health insurance market. They also continue the approach first taken in the 2010 interim final rules of applying the rules on the basis of “classifications” of coverage, i.e., (i) inpatient, in-network; (ii) inpatient, out-of-network; (iii) outpatient, in-network; (iv) outpatient, out-of-network; (v) emergency care; and (vi) prescription drugs. The final rules generally apply to group health plans and health insurance issuers offering individual and group health insurance coverage for plan and policy years beginning on or after January 1, 2014.

Aggregate lifetime and annual dollar limits

As a consequence of the Affordable Care Act, the MHPAEA rules governing lifetime and annual limits are largely, though not entirely, anachronistic. Public Health Service Act section 2711, as added by the Affordable Care Act, generally prohibits lifetime and annual limits on the dollar amount of “essential health benefits” or “EHB” (the “annual lifetime/dollar limit prohibition”). EHB is a set of 10 categories of benefits⁴ that must be included in policies of health insurance licensed in the small group and individual markets. While self-funded and large, fully insured group health plans are not required to provide coverage in each of the 10 EHB categories, once such coverage is provided it is subject to the annual lifetime/dollar limit prohibition.

Notes: The preamble to the final rules explains that, “Because [the annual lifetime/dollar limit prohibition] greatly reduces the instances in which annual or lifetime limits will be permissible, the examples from the interim final regulations that expressly demonstrated how a plan could apply lifetime or annual dollar limits have been deleted.” While understandable, the omission is unfortunate, since the examples greatly aid in understanding how these rules work.⁵

The Affordable Care Act also requires non-grandfathered group health plans and health insurance issuers offering non-grandfathered group and individual coverage to provide coverage for certain preventive services without cost sharing. (For a discussion of the grandfather rules, please see our Advisory of June 16, 2013.) These preventive services include, among other things, alcohol misuse screening and counseling, depression counseling, and tobacco use screening. The final regulations clarify that the provision of mental health and substance use disorder benefits for the purposes of complying with the preventive services requirement does not trigger a broader requirement to comply with MHPAEA for non-grandfathered plans that do not otherwise offer mental health or substance use disorder benefits.

Where it is possible for a plan to impose aggregate annual or lifetime dollar limits on mental health or substance use disorder benefits, the final regulations follow the scheme first established by regulations issued under MHPA. Generally, a group health plan (or health insurance coverage offered in connection with a group health plan) providing both medical/surgical benefits and mental health benefits may comply with MHPAEA parity requirements by:

• Not including any aggregate lifetime dollar limit or annual dollar limit on MH/SUD benefits;

• Imposing a single, combined aggregate lifetime or annual dollar limit on both MH and SUD;

• Imposing an aggregate lifetime dollar limit or annual dollar limit on MH/SUD benefits that is not less than the aggregate lifetime dollar limit or annual dollar limits on medical/surgical benefits; or

• Where aggregate annual or lifetime dollar limits differ for categories of medical/surgical benefits, calculating a weighted average aggregate annual or lifetime dollar limit for MH/SUD benefits based on a formula that takes into account the limits on different categories of medical/surgical benefits.

Parity for financial requirements and treatment limitations

The basic parity rule for financial requirements and treatment limitations provides as follows:

A group health plan (or health insurance coverage offered by an issuer in connection with a group health plan) that provides both medical/surgical benefits and mental health or substance use disorder benefits may not apply any “financial requirement” or “treatment limitation” to mental health or substance use disorder benefits in any “classification” that is more restrictive than the “predominant financial requirement” or “treatment limitation” of that type applied to “substantially all” medical/surgical benefits in the same classification.

The term “medical/surgical benefits” means benefits for medical or surgical services, as defined under the terms of the plan and in accordance with applicable federal and state law, but it does not include mental health or substance use disorder benefits. The terms “mental health benefits” and “substance use disorder benefits” mean benefits with respect to services for mental health conditions or substance use disorders, respectively, also as defined under the terms of the plan and in accordance with applicable federal and state law. In each case, whether they cover medical/surgical services or services for mental health conditions or substance use disorders, the benefits must be consistent with generally recognized standards of current medical practice.

• Financial requirements

Financial requirements include deductibles, copayments, coinsurance, or out-of-pocket maximums. Financial requirements do not include aggregate lifetime or annual dollar limits.

• Treatment limitations

Treatment limitations include limits on benefits based on the frequency of treatment, number of visits, days of coverage, days in a waiting period, or other similar limits on the scope or duration of treatment. Treatment limitations include both “quantitative treatment limitations,” which are expressed numerically (such as 50 outpatient visits per year), and non-quantitative treatment limitations, which otherwise limit the scope or duration of benefits for treatment under a plan or coverage. A permanent exclusion of all benefits for a particular condition or disorder is not a treatment limitation.

• Classification

As explained above, classifications of benefits include (i) inpatient, in-network; (ii) inpatient, out-of-network; (iii) outpatient, in-network; (iv) outpatient, out-of-network; (v) emergency care; and (vi) prescription drugs. Whether a financial requirement or treatment limitation is a predominant financial requirement or treatment limitation that applies to substantially all medical/surgical benefits in a classification is determined separately for each type of financial requirement or treatment limitation. Plans and issuers may, however, subdivide benefits furnished on an outpatient basis into two subclassifications: office visits and all other outpatient items and services. Once established, the plan or issuer may not impose any further financial requirements or treatment limitations on mental health that violate the parity rule. Thus, for example, separate subclassifications for generalists and specialists are not permitted.

• Predominant financial requirement

A financial requirement is “predominant” if it applies to more than one-half of medical/surgical benefits in a classification.

• Substantially all

Generally, a financial requirement or treatment limitation is considered to apply to substantially all medical/surgical benefits if it applies to two-thirds or more of the medical/surgical benefits for the same classification and coverage unit. The determination is based on the dollar amount of all plan payments for medical/surgical benefits expected to be paid for the year (or portion of the plan year after a change in plan benefits that affects the applicability of the financial requirement or quantitative treatment limitation).

Bar on separate accumulation of cumulative financial requirements

Plans and issuers must not apply cumulative financial requirements (e.g., deductibles or out-of-pocket maximums) or cumulative quantitative treatment limitations (e.g., annual or lifetime day or visit limits) to mental health or substance use disorder benefits in a classification that accumulate separately from any such cumulative financial requirements or cumulative quantitative treatment limitations established for medical/surgical benefits in the same classification.

Non-quantitative treatment limitations (NQTLs)

Non-quantitative treatment limitations (NQTLs) are limits on the scope or duration of treatment that are not expressed numerically (such as medical management techniques like prior authorization). Plans and issuers may not impose NQTLs with respect to mental health or substance use disorder benefits in any classification unless, under the terms of the plan as written and in operation, any processes, strategies, evidentiary standards, or other factors used in applying the NQTL to mental health or substance use disorder benefits in the classification are comparable to, and are applied no more stringently than, the processes, strategies, evidentiary standards, or other factors used in applying the limitation with respect to medical/surgical benefits in the same classification.

Note: The 2010 interim final rules included an exception for differences in non-quantitative treatment limitations between medical/surgical benefits and mental health or substance use disorder benefits based on “clinically appropriate standards of care.” The final regulations omit this exception. In a set of frequently-asked-questions that accompanied the final regulations, the Departments explained that the exception “has been determined to be confusing, unnecessary, and subject to potential abuse.” The same FAQ goes on to assert that:

The underlying requirements regarding non-quantitative treatment limitations (even without this exception) are sufficiently flexible to allow plans and issuers to take into account clinical and other appropriate standards when applying non-quantitative treatment limitations such as medical management techniques to medical/surgical benefits and mental health or substance use disorder benefits.

Intermediate services

The final regulations clarify the manner in which MHPAEA affects the scope of coverage for “intermediate services” — i.e., residential treatment, partial hospitalization, and intensive outpatient treatment. Intermediate levels of mental health and substance use disorder benefits and those services that apply to medical/surgical benefits must be assigned to a category of coverage and treated consistently. The preamble to the final regulation provides the following example:

[I]f a plan or issuer classifies care in skilled nursing facilities or rehabilitation hospitals as inpatient benefits, then the plan or issuer must likewise treat any covered care in residential treatment facilities for mental health or substance user disorders as an inpatient benefit. In addition, if a plan or issuer treats home health care as an outpatient benefit, then any covered intensive outpatient mental health or substance use disorder services and partial hospitalization must be considered outpatient benefits as well.

The final regulations also clarify that plan or coverage restrictions based on geographic location, facility type, provider specialty, and other criteria that limit the scope or duration of benefits for services must comply with the NQTL parity standards.

Special rule for multi-tiered prescription drug benefits

The final regulations include a special rule that applies to multi-tiered prescription drug benefits. If a plan (or health insurance coverage) provides in-network benefits through multiple tiers of in-network providers (such as an in-network tier of preferred providers with more generous cost sharing to participants than a separate in-network tier of participating providers), the plan may divide its benefits furnished on an in-network basis into subclassifications that reflect those network tiers, if the tiering is based on reasonable factors and without regard to whether a provider is a mental health or substance use disorder provider or a medical/surgical provider.

Special rule for employee assistance programs

The final regulations include a special rule that applies to employee assistance programs (EAPs) under which plans and issuers may not condition eligibility for mental health and substance use disorder benefits on exhausting EAP benefits. Such a provision is treated as a NQTL. Thus if no comparable requirement applies to medical/surgical benefits, such a requirement could not be applied to mental health or substance use disorder benefits.

Exceptions

MHPAEA requirements do not apply to non-federal governmental plans that have 100 or fewer employees or employers with 50 or fewer employees. The Affordable Care Act extends MHPAEA’s requirements to the small group and individual market. Qualified Health Plans offered through the public insurance exchanges must include coverage for mental health and substance use disorders as one of the ten categories of essential health benefits. For MHPAEA purposes, a small group is defined as an employment-based plan that includes no more than 50 employees. Under the Affordable Care Act, however, beginning in 2016, small group plans will mean plans maintained by an employer with fewer than 100 employees on average business days in the prior calendar year. Following precedent established by a 2010 FAQ, the final regulations treat group health plans of employers with 50 or fewer employees as exempt from the MHPAEA.

MHPAEA requirements also do not apply to retiree-only plans, TriCare, Medicare, and traditional Medicaid (fee-for-service, non-managed care). Prior to the Affordable Care Act, self-funded non-federal governmental employers were permitted to opt-out of the requirements of MHPAEA. The Affordable Care Act eliminated this election. Thus, after January 1, 2014, non-federal governmental employers are subject to the requirements of MHPAEA.

Large groups may qualify for an exemption from MHPAEA based on increased cost. Where the cost to a large group health plan sponsor of complying with MHPAEA results in an increased cost of at least two percent in the first year that MHPAEA applies to the plan (i.e., the first plan year beginning after October 3, 2009) or at least one percent in any subsequent plan year, the sponsor may apply for a one-year exemption from MHPAEA based on increased cost. Where the increased cost thresholds are exceeded and the application is approved, the plan is exempt from MHPAEA requirements for the plan year following the year the cost was incurred. Plan sponsors that qualify for the increased cost exemption must notify plan participants and beneficiaries that MHPAEA does not apply to their coverage. Once the exemption expires, the plan may reapply if the plan incurs an increased cost of at least one percent in a subsequent plan year.

Disclosure of Medical Necessity Determinations

MHPAEA generally requires that the plan administrator of a group health plan or health insurance issuer make available the criteria for plan medical necessity determinations with respect to mental health or substance use disorder benefits to any current or potential participant, beneficiary, or contracting provider upon request. In addition, the reason for any denial under the plan (or coverage) of reimbursement or payment for services with respect to mental health or substance use disorder benefits in the case of any participant or beneficiary must be made available on request to the participant or beneficiary. These requirements are in addition to other provisions of applicable federal or state law. Thus, for example, under ERISA, instruments under which the plan is established or operated must generally be furnished by the plan administrator to plan participants within 30 days of request.

Enforcement

In the preamble to the final regulations, the Departments noted “some confusion and concern regarding the Departments’ authority to impose penalties and ensure compliance with the requirements under MHPAEA.” This is understandable, since MHPAEA is a three-agency rule under which enforcement is allocated among the Departments based on long-standing precedent.

• Health insurance issuers

The Public Health Service Act generally delegates enforcement in the case of health insurance issuers in the individual and group markets to the state insurance commissioners. In instances where the Department of Health and Human Services (HHS) determines that a state fails to enact legislation to enforce, or otherwise fails to substantially enforce, the federal law, HHS can exercise secondary enforcement authority.

• Group health plans

The Labor and Treasury Departments exercise primary enforcement authority over private sector employment-based group health plans, while HHS has primary enforcement authority over non-federal governmental plans, such as those sponsored by state and local government employers. Under ERISA, participants, beneficiaries, and the Department of Labor may file claims (e.g., for fiduciary breach or for payment of mental health benefits due under the plan) under that law’s civil enforcement provisions to enforce the MHPAEA’s requirements. Penalties under the Internal Revenue Code generally take the form of an excise tax of $100 per day for each individual to whom a failure relates.

_{¹ http://www.dol.gov/ebsa/faqs/faq-mhpaea.html}

_{² http://www.dol.gov/ebsa/faqs/faq-aca5.html}

_{³ http://www.dol.gov/ebsa/faqs/faq-aca7.html}

_{⁴ Essential health benefits must include items and services within the following 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services; and including oral and vision care.}

_{⁵ 75 Fed. Reg. p. 5,310 (Feb. 2, 2010) at 5,432. http://www.gpo.gov/fdsys/pkg/FR-2010-02-02/pdf/2010-2167.pdf}