A limited form of parity between medical and surgical benefits and mental health benefits offered by group health plans and health insurance issuers has been required since Congress enacted the Mental Health Parity Act of 1996 (the 1996 Act).
These parity requirements were expanded with the enactment of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the 2008 Act). In addition, on January 29, 2010, the Departments of the Treasury, Labor, and Health and Human Services released interim final regulations under the 2008 Act on a joint basis.
The 2008 Act and the regulations generally require that mental health and substance use disorder benefits provided by group health plans must be available on an equivalent basis to any medical and surgical benefits. To establish parity, the regulations provide a framework for determining whether mental health and substance use disorder benefits are subject to the same “financial requirements” (deductibles, co-payments) and “treatment limitations” (number of treatments, days of coverage, conditioning benefits upon completion of a course of treatment) as medical and surgical benefits.
Effective Dates
The 2008 Act took effect January 1, 2010. The regulations are effective April 5, 2010 for plan years beginning on or after July 1, 2010. Therefore, calendar-year plans must comply with the new regulations beginning with the 2011 plan year.
Plans maintained pursuant to collective bargaining agreements ratified before October 3, 2008 have a delayed effective date. For these plans, the regulations do not apply to plan years beginning before the later of: (1) the date on which the last collective bargaining agreement relating to the group health plan terminates, or (2) July 1, 2010.
According to the regulations’ preamble, government enforcement of the 2008 Act will take into account good-faith efforts to comply with a reasonable interpretation of its requirements as to violations occurring before the regulations take effect. However, this does not preclude participants or beneficiaries from bringing private lawsuits to redress alleged violations of the 2008 Act.
Types of Plans/Insurance Coverage That Must Comply
The 2008 Act and the regulations apply to:
- Group health plans that cover more than 50 employees. This includes both insured and self-insured plans sponsored by public and private-sector employers.
- Health insurance issuers that offer coverage to employers with more than 50 employees. References in this article below to “plans” or “employers” include such health insurance issuers.
Neither the 2008 Act nor the regulations require employers to offer mental health or substance use benefits. However, when a plan does offer mental health and substance use disorder benefits alongside medical and surgical benefits, the 2008 Act and the regulations set parity standards. In addition, the Department of Labor and the Internal Revenue Service will enforce compliance with the regulations for private-sector employee plans subject to ERISA.
Employers that choose to offer mental health benefits do not have to offer those benefits under the same plan or program as medical/surgical benefits in order for the 2008 Act and the regulations to apply. Consequently, employers that offer mental health benefits under a separate plan or program are not automatically exempt from parity requirements.
Substance Use Disorder Treatments Now Included
The 2008 Act and the regulations apply the parity requirements to benefits for treatment of substance use disorders in addition to mental health benefits. As used below, the term “mental health benefits” includes treatment for substance use disorders.
Parity in Applying Aggregate Lifetime and Annual Dollar Limits
The 2008 Act and the regulations require the following:
- A plan that does not include an aggregate lifetime or annual dollar limit on medical/surgical benefits (or applies an aggregate lifetime or annual dollar limit to less than one third of those benefits) may not impose an aggregate lifetime or annual dollar limit on mental health benefits.
- A plan that includes an aggregate lifetime or annual dollar limit on at least two thirds of all medical/surgical benefits must either: Apply the aggregate lifetime or annual dollar limit to the medical/surgical benefits and the mental health benefits in the same manner (i.e., apply one limit across all types of benefits); or Not include an aggregate lifetime or annual dollar limit on mental health benefits less than the aggregate lifetime or annual dollar limit for medical/surgical benefits (e.g., apply an equal limit to both amounts).
- Apply the aggregate lifetime or annual dollar limit to the medical/surgical benefits and the mental health benefits in the same manner (i.e., apply one limit across all types of benefits); or
- Not include an aggregate lifetime or annual dollar limit on mental health benefits less than the aggregate lifetime or annual dollar limit for medical/surgical benefits (e.g., apply an equal limit to both amounts).
- Plans that are not described above must either: Not impose any aggregate or lifetime limit on mental health benefits; or Impose an aggregate or lifetime limit calculated using a weighted average.
- Not impose any aggregate or lifetime limit on mental health benefits; or
- Impose an aggregate or lifetime limit calculated using a weighted average.
The above parity requirements are basically the same as under the 1996 Act, except that benefits for treatment of substance use disorders must be considered mental health benefits.
Parity in Benefits: Financial Requirements and Treatment Limitations
Generally, under the 2008 Act and regulations, a group health plan providing both medical/surgical benefits and mental health benefits may not apply any financial requirement or treatment limitations to mental health benefits in a manner that is more restrictive than the predominant financial requirement or treatment limitation applied to substantially all medical/surgical benefits in the same classification. This is a new requirement not found in the 1996 Act.
- A financial requirement is a monetary condition placed on the receipt of benefits, such as deductibles, co-payments, co-insurance, out-of-pocket limitations, and annual and lifetime dollar limitations
- A treatment limitation can be quantitative and non-quantitative. Quantitative treatment limitations, such as number of visits or the duration of treatment, are subject to the same test as financial requirements. Non-quantitative treatment limitations (medical management standards, determination of usual/customary/reasonable amounts, prescription drug formulary design, conditioning benefits on completion of a course of treatment) are subject to plan design, and therefore are subject to a parity requirement that focuses on whether the medical/surgical benefits and mental health benefits are subject to equal limits under the plan.
- Quantitative treatment limitations, such as number of visits or the duration of treatment, are subject to the same test as financial requirements.
- Non-quantitative treatment limitations (medical management standards, determination of usual/customary/reasonable amounts, prescription drug formulary design, conditioning benefits on completion of a course of treatment) are subject to plan design, and therefore are subject to a parity requirement that focuses on whether the medical/surgical benefits and mental health benefits are subject to equal limits under the plan.
- A predominant financial requirement or treatment limitation is one that applies to at least half of all medical/surgical benefits in a classification.
- A financial requirement or treatment limitation applies to substantially all medical/surgical benefits where it applies to at least two thirds of all medical/surgical benefits in a classification.
- The classifications under which mental health benefits must be provided under the same predominant standard as substantially all medical/surgical benefits include: Inpatient, in-network Inpatient, out-of-network Outpatient, in-network Outpatient, out-of-network Emergency care Prescription drugs
- Inpatient, in-network
- Inpatient, out-of-network
- Outpatient, in-network
- Outpatient, out-of-network
- Emergency care
- Prescription drugs
Special Rules for Prescription Drug Programs
The regulations provide an easier parity analysis for prescription drug coverage where a plan offers prescription drug benefits through different tiers. Generally, where prescription drugs are placed into tiers based on reasonable factors (e.g., cost, efficacy, generic vs. brand name, retail vs. mail order) rather than the purpose for which the drug is being used, the plan does not have to establish parity for mental health prescription drug coverage using the financial requirements and treatment limitations tests.
Benefit Information Must Be Available for Participants
Under the 2008 Act and the regulations, certain information must now be made available to participants and beneficiaries about mental health benefits. This information includes the criteria for medical-necessity determinations as to these types of benefits. Additionally, the reason for any denial of reimbursement or payment for services must be provided, consistent with ERISA claims procedures regulations for group health plans.
Updated Cost Exemption: Plans That Do Not Need to Meet Parity Requirements
Although the 1996 Act contained a compliance exemption for those plans that incurred increased costs above a certain threshold as a result of the application of the parity requirements, the 2008 Act has made that exemption more difficult to obtain by:
- Raising the cost threshold from 1% to 2% for the first year in which the plan is subject to the 2008 Act’s requirements (the threshold remains 1% for subsequent years).
- Requiring actuarial reports substantiating the cost increase.
- Including a notice requirement to the Secretary of the Treasury (or, if applicable, the appropriate state agency).
- Providing that a plan can only qualify for the increased cost exemption in alternating plan years.
Regulations have not yet been issued in connection with the cost exemption requirements under the 2008 Act.
What Group Health Plan Sponsors Should Do Now
Plan sponsors should review their group health plans to ensure that the expanded parity requirements of the 2008 Act and regulations are met as to any mental health benefits offered under their plans, and to confirm that communications about these benefits comply with ERISA standards.
For assistance complying with the 2008 Act and the regulations or other legal requirements applicable to group health plans, please contact the authors or any other member of the McGuireWoods Employee Benefits team.