The Departments of the Treasury, Labor, and Health and Human Services (the departments) have jointly released final regulations implementing the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). The final regulations update interim final rules that were issued in 2010 and reflect changes to the law and frequently asked questions (FAQs) released since then.

Among other things, the final guidance addresses the following:

  • Subclassifications of benefits that may be used in an MHPAEA compliance analysis
  • Interaction with the Patient Protection and Affordable Care Act (PPACA)
  • Small-employer and increased cost exemptions
  • Coverage for “intermediate services” 
  • Nonquantitative treatment limits
  • Multi-tier provider networks
  • Disclosure requirements

Background

In October 2008, President Bush signed the Mental Health Parity and Addiction Equity Act into law, which expanded the original Mental Health Parity Act of 1996 (MHPA). The MHPA required parity only in aggregate annual and lifetime dollar limits for mental health benefits and medical/surgical (M/S) benefits. The MHPAEA amended the initial law to require insured and self-insured group health plans to provide full parity between M/S benefits and mental health and substance use disorder (MH/SUD) benefits.  

Specifically, a group health plan that offers M/S benefits and MH/SUD benefits may not impose greater financial requirements1 or quantitative treatment limitations2 on MH/SUD benefits than the “predominant” financial requirements or quantitative treatment limits imposed on “substantially all” M/S benefits.3 Group health plans must also provide parity in nonquantitative treatment limitations, such as prior authorization and utilization review. The PPACA expanded the MHPAEA to apply to the individual health insurance market and to qualified health plans offered in federal or state exchanges. Non-grandfathered health coverage in the individual and small group markets must comply with the MHPAEA to satisfy the PPACA’s essential health benefits requirement.

In February 2010, the departments issued interim final regulations on the MHPAEA. These regulations established six classifications of benefits for parity purposes: (1) inpatient, in-network; (2) inpatient, out-of-network; (3) outpatient, in-network; (4) outpatient, out-of-network; (5) emergency care; and (6) prescription drugs. 

Final regulations

Classification of benefits

The final regulations retain the six classifications and incorporate the subclassifications of office visits and all other visits for outpatient services provided in previous guidance. Other classifications and subclassifications may not be used for an MHPAEA analysis.

For purposes of the financial requirement and quantitative treatment limitation rules, the regulations also address plans with in-network multi-tiered coverage. Plans may divide their in-network benefits into subclassifications reflecting such network tiers as long as the tiers are based on reasonable factors and do not differentiate between MH/SUD and M/S providers. If there are an uneven number of tiers, the plan must treat the least restrictive financial requirement or quantitative treatment limitation applying to substantially all M/S benefits across all provider tiers in a classification as the predominant level applied to MH/SUD benefits in the same classification. (The final regulations adopt the substantially all and predominant standards.)

For example, suppose a plan has two tiers of network providers: preferred provider and participating provider. Provider placement must be based on reasonable factors, including accreditation, quality and performance measures (including customer feedback), and relative reimbursement rates. Tier placement must be determined without regard to whether a provider specializes in the treatment of MH/SUD conditions or M/S conditions.

Plans may divide in-network classifications into two subclassifications: in-network/preferred and in-network/participating. Any financial requirements or quantitative treatment limits on MH/SUD benefits in either of these subclassifications may not be any more restrictive than the predominant requirements or limits imposed on substantially all M/S benefits in each subclassification.

No annual analysis required

The departments clarify that plans and issuers need not perform a parity analysis every year unless they change the benefit design, cost-sharing structure or utilization in a way that would affect a financial requirement or treatment limitation.

Allowed amount determines benefits

As in the interim final regulations, the portion of M/S benefits in a classification subject to a financial requirement or quantitative treatment limitation must be based on the amount of all payments for M/S benefits in the classification expected to be paid for the plan year, as computed using any reasonable method. However, such dollar amount must be based on the amount the plan allows (before participant cost-sharing) rather than the amount the plan pays (after participant cost-sharing).

Interaction with the PPACA

  • Lifetime and annual limit prohibitions: Under the PPACA, group health plans may not impose lifetime dollar limits (as of 2011) or annual dollar limits (as of 2014) on essential health benefits, which include MH/SUD services. The final regulations clarify that the parity requirements regarding annual and lifetime limits apply only to MH/SUD benefits that are not essential health benefits.
  • Preventive services requirement: The PPACA requires non-grandfathered group health plans to provide certain preventive services without cost-sharing, including alcohol misuse screening and counseling, depression counseling and tobacco use screening. However, the final regulations note that plans are not required to provide the full range of benefits for MH/SUD to comply with the preventive services requirement. In other words, while non-grandfathered plans must comply with the PPACA preventive care services mandate, they are not required to provide additional MH/SUD benefits in any classification under the MHPAEA.
  • Small-employer exemption: The PPACA changed the definition of “small employer” under the MHPAEA from 50 or fewer employees to 100 or fewer employees, while allowing states to use a standard of 50 or fewer employees for 2014 and 2015. The final regulations incorporate guidance the departments issued in a 2010 FAQ retaining the 50-or-fewer standard for plans subject to the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC), but applying the 100-or-fewer standard for nonfederal governmental plans not subject to ERISA or the IRC.

Nonquantitative treatment limits

Under the interim and final regulations, a plan may not impose a nonquantitative treatment limit on an MH/SUD benefit unless, under the terms of the plan, any processes, strategies, evidentiary standards or other factors used in applying such limits are comparable to and no more stringent than the corresponding factors applying the limitation to M/S benefits. However, the final regulations:

  • Remove the specific exception to this general rule for “recognized clinically appropriate standards of care” because of the potential for abuse 
  • Do not require plans to use the same nonquantitative treatment limitations for both MH/SUD and M/S benefits, but rather require the processes, strategies, evidentiary standards and other applicable factors to be comparable to and applied no more stringently for MH/SUD benefits than for M/S benefits (disparate results alone do not signify noncompliance)

    For example, training and state licensing requirements often vary among providers. Assume that, to participate in the provider network, all providers must meet the highest licensing requirements for supervised clinical experience under state law. Thus, post-degree, supervised clinical experience is required for master’s-level mental health therapists but not for master’s-level general medical providers because their state licensure does not require clinical experience. Moreover, the plan does not require post-degree, supervised clinical experience for psychiatrists or Ph.D.-level psychologists since their licensing already requires supervised training. In this example, the different requirement for master’s-level mental health therapists is permissible as long as the plan consistently applies the same standard to all providers, even if it has a disparate impact.
  • Provide that nonquantitative treatment limits may not be applied only to MH/SUD benefits
  • Provide different parity standards for quantitative and nonquantitative treatment limitations because they apply to benefits in a different manner
  • Retain the list of nonquantitative treatment limits from the interim final regulations (including medical necessity and medical appropriateness standards, methods for determining reasonable and customary charges, and standards for provider admission to a network), clarify that the list is illustrative and require that no nonquantitative treatment limitation be specifically designed to restrict access to MH/SUD benefits (the final regulations add two more examples of nonquantitative treatment limits to the illustrative list: network tier design, and restrictions based on geographic location, facility type, provider specialty and other criteria that limit scope or duration of benefits for services)

    For example, assume that a plan generally covers medically appropriate M/S benefits and MH/SUD benefits. The plan excludes coverage for inpatient, out-of-network treatment of chemical dependency when obtained outside of the state where the policy is written. There is no similar exclusion for M/S benefits within the same classification. In this case, the plan violates the MHPAEA. The plan is imposing a nonquantitative treatment limit that restricts benefits based on geographic location, and there is no comparable exclusion imposed on M/S benefits.

Intermediate services

The interim final regulations listed six classifications but did not address the services that must be covered within those classifications. Instead, the departments invited comments on whether and how the final regulations should address this issue. Although the departments did not intend for plans to exclude intermediate levels of care, such as residential treatment or intensive outpatient treatment, from MHPAEA requirements, they did not impose a mandate that could require greater benefits for MH/SUD benefits than for M/S benefits. Instead, the regulations direct plans to assign covered intermediate MH/SUD benefits to the six benefit classifications.

For example, assume a plan generally covers medically appropriate treatments. The plan automatically excludes coverage for inpatient SUD treatment in any setting outside of a hospital (such as a freestanding or residential treatment center). The plan covers inpatient treatment outside of a hospital (including freestanding or residential treatment centers) for MH and M/S conditions as long as the prescribing physician obtains authorization from the plan that the inpatient treatment is medically appropriate, based on clinically appropriate standards of care.

This plan violates the MHPAEA. Although the same nonquantitative treatment limits — medical appropriateness — are applied to both MH/SUD benefits and M/S benefits, the plan’s unconditional exclusion of SUD treatment in any setting outside of a hospital is not comparable to the conditional exclusion of inpatient treatment outside of a hospital for mental health and M/S treatments.

Disclosure

Under the MHPAEA, the criteria for a medical necessity determination and the reason for any claim denial for MH/SUD benefits must be made available upon request by a participant, beneficiary or contracting provider. In FAQs issued contemporaneous with the final regulations, the departments ask for comments on whether and how to ensure greater transparency and compliance with the MHPAEA rules.

Increased cost exemption

If compliance requires changes that increase plan costs by at least 2% in the first year or at least 1% in any subsequent year, the law exempts the plan from the MHPAEA for the following plan year. The exemption lasts for one plan year and applies for alternating plan years. Under the final regulations, the exemption test may be based only on cost increases directly attributable to expanding coverage to meet MHPAEA requirements, rather than increases from trends in utilization and prices, random changes in claims experience or seasonal variations in claims submission and payment patterns.

 The regulations also provide a formula for calculating cost increases due to MHPAEA requirements, and the determination must be certified by a qualified and licensed actuary. The plan must retain written reports and supporting documentation for six years. Given that the exemption is available only for alternating plan years, it has not been widely used by employers.

General applicability

Neither the MHPAEA nor the regulations require a plan to provide any MH/SUD benefits, and providing benefits for one or more MH/SUD conditions does not require the plan to provide benefits for any other condition. Other laws, however, such as the Americans with Disabilities Act or the PPACA, may require such coverage.

The regulations provide the following applicability rules:

  • The PPACA makes the MHPAEA applicable to grandfathered and non-grandfathered health insurance issuers in the individual health insurance market for policy years beginning on or after January 1, 2014.
  • Sponsors of self-funded, nonfederal governmental plans may continue to opt out of the MHPAEA.
  • Plans covering fewer than two current employees (i.e., retiree-only plans) are not subject to the MHPAEA.
  • Through at least 2014, the departments will treat employee assistance programs (EAPs) as excepted benefits not subject to the MHPAEA as long as these programs do not provide significant benefits in the nature of medical care or treatment. Employers may use a reasonable, good-faith interpretation in making that determination. However, a major medical plan that requires participants to exhaust MH/SUD counseling sessions offered through an EAP before providing benefits under the plan but does not impose a similar requirement for M/S benefits under the major medical plan will violate the MHPAEA.
  • The final MHPAEA regulations do not apply to Medicaid managed care organizations, alternative benefit plans or the Children’s Health Insurance Program. However, the MHPAEA is incorporated by reference into statutory provisions that apply to those entities.

Interaction with state insurance laws

The MHPAEA does not preempt any state health insurance laws except to the extent they interfere with the MHPAEA. Thus, an insurer subject to the MHPAEA may need to comply with state law benefit mandates and provide MH/SUD benefits beyond the state law required minimum to comply with the MHPAEA.

Applicability dates

The MHPAEA took effect for plan years beginning after October 3, 2009, while the interim final regulations took effect for the first plan year beginning on or after July 1, 2010. Compliance with the final regulations is required on the first plan year beginning on or after July 1, 2014 (i.e., January 1, 2015, for calendar-year plans). Plans must continue to comply with the interim final regulations until that date.

Conclusion

A plan that is being redesigned in response to the PPACA should likely be reviewed for MHPAEA compliance as well. Many plan sponsors will also want to reassess nonquantitative treatment limitations and their eligibility for the increased cost exemption under the MHPAEA.


Endnotes

1Examples of financial requirements include deductibles, copayments, coinsurances and out-of-pocket maximums.

2Examples of quantitative treatment limitations include number of visits, days of coverage and days in a waiting period.

3Substantially all” means at least two-thirds, and “predominant” means more than one-half of the M/S benefits in the classification are subject to the financial requirement or quantitative treatment limitation.