Employee Benefits and Compensation Attorneys

Thomas R. Hoecker
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Marvin S. Swift, Jr.
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Nancy K. Campbell
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Anne M. Meyer
602.382.6595
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Denise L. Atwood
602.382.6297
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Greg R. Gautam
602.382.6356
ggautam@swlaw.com

Amanda K. Hines
602.382.6529
ahines@swlaw.com

Eva N. Kerr
602.382.6245
ekerr@swlaw.com

Sara R. Van Houten
602.382.6342
svanhouten@swlaw.com

 

 
  Snell & Wilmer L.L.P. Snell & Wilmer L.L.P.
The Corporate Communicator
 
March 25, 2010
 

Agencies Issue Mental Health Parity Regulations

I.  Background

As reported in our October 2009 Employee Benefits Update, the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (“New MHP”) is effective for non-union plans for plan years beginning on or after October 4, 2009 (i.e., January 1, 2010 for calendar year plans). New MHP required regulations to be issued by October 3, 2009, but the interim final regulations were not issued until February 2, 2010.

Release of the regulations is welcome news because as highlighted in our October 2009 Employee Benefits Update, the statutory language of the New MHP left many unanswered questions. Unfortunately the regulations do not address the increased cost exemption or the extent to which a plan is required to provide benefits for any particular treatment or treatment setting (such as counseling or non-hospital residential treatment) if benefits for the treatment or treatment setting are not provided for medical/surgical conditions.

The interim final regulations replace the regulations published on December 22, 1997, which implemented the Mental Health Parity Act (“Old MHP”).

As highlighted in our October 2009 Employee Benefits Update, the statutory language of New MHP left a couple of key issues unanswered. The regulations provide the following guidance on those issues:

  • Specialists – A common plan design imposes lower copayments for treatment from a primary care provider (for example, an internist or a pediatrician) as compared to higher copayments for treatment from a specialist (such as a cardiologist or an orthopedist). Some plans identify a large range of mental health and substance use disorder providers as specialists. The regulations do not allow the separate classification of generalists and specialists in determining the predominant financial requirement that applies to substantially all medical/surgical benefits.
  • Separate limits for mental health/substance abuse benefits – The regulations provide that a plan may not apply cumulative financial requirements or cumulative quantitative treatment limitations 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. So, for example, a plan may not impose separate but equal deductibles.
  • Separate mental health benefit plans - The regulations clarify that the parity rules apply separately with respect to each combination of medical/surgical coverage and mental health or substance use disorder coverage that any participant or beneficiary can simultaneously receive from an employer's plans that provide medical/surgical benefits. For example, if an employer with a single benefit plan for medical/surgical benefits also has a separately administered benefit plan for mental health and substance use disorder benefits, the parity requirements apply to the combined benefit package and the combined benefit package is considered a single plan for purposes of the parity requirements.

II.  NEW DEFINITIONS AND CONCEPTS

The regulations add a number of new definitions and concepts.

  • Mental Health Benefits and Substance Use Disorder Benefits” – Means benefits with respect to services for mental health conditions and substance use disorders, as defined under the terms of the plan and in accordance with applicable Federal and State law. The regulations further provide that the plan terms defining whether the benefits are mental health or substance use disorder benefits must be consistent with “generally” recognized independent standards of current medical practice. This requirement is included to ensure that a plan does not misclassify a benefit in order to avoid complying with the parity requirements. The regulations cite the most current version of the Diagnostic and Statistical Manual of Mental Disorders (DSM), the most current version of the International Classification of Diseases (ICD), and state guidelines as examples of independent standards.
  • Cumulative Financial Requirements” – Means a financial requirement that typically operates as a threshold amount that, once satisfied, will determine whether, or to what extent, benefits are provided. A common example of a cumulative financial requirement is a deductible that must be satisfied before a plan will start paying for benefits. Aggregate lifetime and annual dollar limits are excluded from being cumulative financial requirements.
  • Cumulative Quantitative Treatment Limitations” – Means a treatment limitation that will determine whether, or to what extent, benefits are provided based on an accumulated amount. A common example of a cumulative quantitative treatment limitation is an annual or lifetime visit limit.
  • Treatment Limitations” – Includes 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. The regulations distinguish between a quantitative and a nonquantitative treatment limitation and indicate that the parity requirements apply to both.

    • Quantitative treatment limitation” – Means a limitation that is expressed numerically, such as an annual limit of 50 outpatient visits.

    • Nonquantitative treatment limitation” – Means a limitation that is not expressed numerically, but otherwise limits the scope or duration of benefits for treatment.

III.  THE PARITY RULES

The regulations address the parity rules in three main areas:

  A. annual or aggregate lifetime dollar limits;

  B. financial requirements and quantitative treatment limitations; and

  C. nonquantitative treatment limitations.

       A. Annual or Aggregate Lifetime Dollar Limits. 

Old MHP already prohibited lower annual or aggregate lifetime dollar limits for mental health benefits. The regulations extend this protection to substance use disorder benefits, but otherwise do not substantively change the prior regulations on dollar limits.

      B. Financial Requirements and Quantitative Treatment Limitations.

The regulations prohibit a plan from applying any “type” of financial requirement or treatment limitation (or separate “levels” of financial requirement or treatment limitations) to mental health or substance use disorder benefits in any “classification” that is more restrictive than the “predominant” financial requirement or treatment limitation applied to “substantially all” medical/surgical benefits in the same classification.

If a plan provides any benefits for a mental health condition or substance use disorder, benefits must be provided for that condition or disorder in each classification for which any medical/surgical benefits are provided. If a plan provides benefits for a mental health condition or substance use disorder in one or more classifications but excludes benefits for that condition or disorder in a classification (such as outpatient, in-network) in which it provides medical/surgical benefits, the exclusion of benefits in that classification for a mental health condition or substance use disorder otherwise covered under the plan is an impermissible treatment limitation. If a plan does not offer, for instance, any benefits for medical/surgical services on an outpatient basis by an out-of-network provider, then there is no requirement to provide benefits for mental health conditions or substance use disorders on an outpatient, out-of-network basis.

The regulations provide the following important definitions:

  • Type” - The regulations use the term “type” to refer to financial requirements and treatment limitations of the same nature. Different types include copayments, coinsurance, annual visit limits, and episode visit limits. The regulations specify that a financial requirement or treatment limitation must be compared only to financial requirements or treatment limitations of the same type within a classification. For example, copayments are compared only to other copayments, and annual visit limits are compared only to other annual visit limits; copayments are not compared to coinsurance, and annual visit limits are not compared to episode visit limits.
  • Level” - In the regulations, a “level” of a type of financial requirement or treatment limitation refers to the magnitude (such as the dollar, percentage, day, or visit amount) of the financial requirement or treatment limitation. For example, a plan may impose a $20 copayment or a $30 copayment.
  • Classification” - The regulations specify six classifications of benefits.  If a plan does not have a network of providers for inpatient or outpatient benefits, all benefits in the classification are characterized as out-of-network. The six classifications are as follows:

    • inpatient, in-network;
    • inpatient, out-of-network;
    • outpatient, in-network;
    • outpatient, out-of-network;
    • emergency care; and
    • prescription drugs.

The regulations do not define inpatient, outpatient, or emergency care. These terms are subject to plan design and their meanings may differ from plan to plan. Additionally, state health insurance laws may define these terms. A plan must apply these terms uniformly for both medical/surgical benefits and mental health or substance use disorder benefits.

  • Substantially all” - Under the regulations, substantially all means at least two-thirds. If a type of financial requirement or quantitative treatment limitation does not apply to at least two-thirds of the medical surgical benefits in a classification, that type of requirement or limitation cannot be applied to mental health or substance use disorder benefits in that classification.  If a single level of a type of financial requirement or quantitative treatment limitation applies to at least two-thirds of medical/surgical benefits in a classification, then it is also the predominant level and that is the end of the analysis. However, if the financial requirement or quantitative treatment limitation applies to at least two-thirds of all medical/surgical benefits in a classification but has multiple levels and no single level applies to at least two-thirds of all medical/surgical benefits in the classification, then additional analysis is required. In such a case, the next step is to determine which level of the financial requirement or quantitative treatment limitation is considered predominant.
  • Predominant”  -  Under the regulations, the predominant level of a type of financial requirement or quantitative treatment limitation is the level that applies to more than one-half of medical/surgical benefits subject to the financial requirement or quantitative treatment limitation in that classification. If a single level of a type of financial requirement or quantitative treatment limitation applies to more than one-half of medical/surgical benefits subject to the financial requirement or quantitative treatment limitation in a classification (based on plan costs, as discussed above), the plan may not apply that particular financial requirement or quantitative treatment limitation to mental health or substance use disorder benefits at a level that is more restrictive than the level that has been determined to be predominant. If no single level applies to more than one-half of medical/surgical benefits subject to a financial requirement or quantitative treatment limitation in a classification, plan payments for multiple levels of the same type of financial requirement or quantitative treatment limitation can be combined by the plan until the portion of plan payments subject to the financial requirement or quantitative treatment limitation exceeds one-half. For any combination of levels that exceeds one-half of medical/surgical benefits subject to the financial requirement or quantitative treatment limitation in a classification, the plan may not apply that particular financial requirement or quantitative treatment limitation to mental health and substance use disorder benefits at a level that is more restrictive than the least restrictive level within the combination. The plan may combine plan payments for the most restrictive levels first, with each less restrictive level added to the combination until the combination applies to more than one-half of the benefits subject to the financial requirement or treatment limitation. The regulations include examples that illustrate the application of this rule.

    • Alternate method of compliance - The regulations provide an alternative, simpler method for compliance when a type of financial requirement or quantitative treatment limitation applies to at least two-thirds of medical surgical benefits in a classification but no single level applies to more than one-half of the medical/surgical benefits subject to the financial requirement or quantitative treatment limitation in that classification. In such a situation, a plan may treat the least restrictive level of the financial requirement or quantitative treatment limitation applied to medical/surgical benefits in that classification as the predominant level.

    • Coverage units - If a plan provides benefits for more than one “coverage unit” and applies different levels of financial requirements or quantitative treatment limitations to these coverage units within a classification of benefits, determining the predominant level of a particular financial requirement or quantitative treatment limitation must be done separately for each coverage unit. Thus, for example, a plan with different deductibles for self-only and family coverage units would not determine the predominant level of a deductible applied for benefits across both the self-only and family coverage units. Instead, the plan would determine the predominant level of the deductible for self-only coverage independently from the predominant level for family coverage.

      • Coverage unit” - Coverage unit is the term used in the regulations to refer to how a plan groups individuals for purposes of determining benefits, premiums, or contributions (e.g. employee-only, employee-plus-spouse, family, and so forth).

Special rule for prescription drug benefits. The regulations include a special rule for applying the parity requirement to prescription drug benefits. The regulations provide that if a plan imposes different levels of financial requirements on different tiers of prescription drugs based on reasonable factors (such as cost, efficacy, generic versus brand name, and mail order versus pharmacy pick-up), determined in accordance with the requirements for nonquantitative treatment limitations, and without regard to whether a drug is generally prescribed with respect to medical/surgical benefits or mental health or substance use disorder benefits, the plan satisfies the parity requirements with respect to the prescription drug classification of benefits. The special rule for prescription drugs, in effect, allows a plan to subdivide the prescription drug classification into tiers and apply the general parity requirement separately to each tier of prescription drug benefits. For any tier, the financial requirements and treatment limitations imposed with respect to the drugs prescribed for medical/surgical conditions are the same as (and thus not more restrictive than) the financial requirements and treatment limitations imposed with respect to the drugs prescribed for mental health conditions and substance use disorders in the tier. Moreover, because the financial requirements and treatment limitations apply to one hundred percent (100%) of the medical/surgical drug benefits in the tier, they are the predominant financial requirements and treatment limitations that apply to substantially all of the medical/surgical drug benefits in the tier.

Cumulative financial requirements and quantitative treatment limitations. The regulations provide that a plan may not apply cumulative financial requirements or cumulative quantitative treatment limitations 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. Accordingly, a plan may not have separate deductibles, out-of-pocket maximums or visit limits for mental health or substance use disorder benefits. For example, expenses for both mental health or substance use disorder benefits and medical/surgical benefits must accumulate to satisfy a single combined deductible before the plan provides either medical/surgical benefits or mental health or substance use disorder benefits (combined deductible).

     C. Nonquantitative Treatment Limitations

Plans impose a variety of limits affecting the scope or duration of benefits under the plan that are not expressed numerically. Such nonquantitative provisions are also treatment limitations affecting the scope or duration of benefits under the plan. The following non-exhaustive list of nonquantitative treatment limitations is included in the regulations:

  • Medical management standards limiting or excluding benefits based on medical necessity or medical appropriateness, or based on whether the treatment is experimental or investigative;
  • Formulary design for prescription drugs;
  • Standards for provider admission to participate in a network, including reimbursement rates;
  • Plan methods for determining usual, customary, and reasonable charges;
  • Refusal to pay for higher-cost therapies until it can be shown that a lower-cost therapy is not effective (also known as fail-first policies or step therapy protocols); and
  • Exclusions based on failure to complete a course of treatment.

The regulations generally prohibit the imposition of any nonquantitative treatment limitation to mental health or substance use disorder benefits unless certain requirements are met. Any processes, strategies, evidentiary standards, or other factors used in applying the nonquantitative treatment limitation to mental health or substance use disorder benefits in a classification must be comparable to, and 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 classification. However, the requirements allow variations to the extent that recognized clinically appropriate standards of care may permit a difference. The requirements apply to the terms of the plan both as written and in operation.

    • Example: Exhaustion of EAP Benefits - Requiring participants to exhaust the EAP benefits-making the EAP a gatekeeper - before an individual is eligible for the major medical program's mental health or substance use disorder benefits is a nonquantitative treatment limitation subject to the parity requirements. Consequently, if similar gatekeeping processes with a similar exhaustion requirement (whether or not through the EAP) are not applied to medical/surgical benefits, the requirement to exhaust mental health or substance use disorder benefits available under the EAP would violate the rule that nonquantitative treatment limitations be applied comparably and not more stringently to mental health and substance use disorder benefits.

IV. TWO NEW DISCLOSURE REQUIREMENTS

New MHP includes two new disclosure requirements. First, the criteria for medical necessity determinations made with respect to mental health or substance use disorder benefits must be made available upon request to current or potential participants, beneficiaries and contracting providers. Second, the reason for any denial 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, upon request. The regulations clarify that this disclosure must be made in a form and manner consistent with ERISA claims procedure regulations.

V. INTERACTION WITH STATE INSURANCE LAWS

The regulations clarify that New MHP requirements should not be construed to supersede any provision of state law as long as it does not prevent the application of New MHP.  For example, a state law that mandates a minimum dollar amount of mental health or substance use disorder benefits does not prevent the application of New MHP.

VI. EFFECTIVE DATES

The regulations apply for plan years beginning on or after July 1, 2010. There is a special effective date for certain collectively-bargained plans, which provides that, for group health plans maintained pursuant to one or more collective bargaining agreements ratified before October 3, 2008, the requirements of the regulations do not apply to the plan for plan years beginning before the later of either the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension agreed to after October 3, 2008) or July 1, 2010. New MHP provides that any plan amendment made pursuant to a collective bargaining agreement solely to conform to the requirements of New MHP is not treated as a termination of the agreement.

For purposes of enforcement, the Departments will take into account good-faith efforts to comply with a reasonable interpretation of the statutory New MHP requirements with respect to a violation that occurs before the effective date of the regulations. However, this does not prevent participants or beneficiaries from bringing a private action.

If you have any questions on the subject of this article or would like more information, you may contact the author or another Snell & Wilmer attorney at 602.382.6000.

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