Final Mental Health Parity Rules Clarify Requirements Regarding Treatment Limitations and Plan Disclosure Obligations

by Manatt, Phelps & Phillips, LLP
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On November 8, 2013, over three years after issuing interim final regulations, the Obama administration released final rules implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), which is designed to ensure parity between mental health and substance use disorder benefits (MH/SUD benefits) and medical/surgical benefits.1 In the final rules, the Departments of the Treasury, Labor, and Health and Human Services (the Departments) clarify protections set forth under MHPAEA and the interim rules, which generally prohibit group health plans and health insurance issuers from imposing more stringent limitations on MH/SUD benefits than on corresponding medical/surgical benefits, for plans that offer MH/SUD benefits. MHPAEA requirements, which apply to large group health plans and issuers offering large group health insurance, were extended to the individual and small group insurance markets under the Affordable Care Act (ACA).

While the final regulations generally track the interim rules, they place tighter restrictions on the use of so-called “nonquantitative treatment limitations” (NQTLs) that limit the scope or duration of benefits for treatment under a plan or coverage, such as medical management standards limiting benefits based on medical necessity. In particular, the final rules eliminate the exception that permitted differences in the application of NQTLs to medical/surgical and MH/SUD benefits based on “clinically appropriate standards of care.” The final rules also clarify requirements regarding plan disclosure obligations concerning MH/SUD and medical/surgical benefits. The Departments have expressed an interest in increasing transparency regarding the application of NQTLs.

Background

MHPAEA expanded on the Mental Health Parity Act of 1996 to provide increased parity between MH/SUD benefits and medical/surgical benefits. MHPAEA did so, in part, by mandating that financial requirements and treatment limitations imposed by group health plans and health insurance issuers offering group health insurance coverage on MH/SUD benefits be no more restrictive than those applicable to substantially all medical/surgical benefits.

While MHPAEA does not mandate that plans and issuers cover MH/SUD benefits, if a plan does provide these benefits, then MHPAEA’s parity requirements apply. The Departments published interim final regulations under MHPAEA on February 2, 2010, which applied to group health plans and group health insurance issuers for plan years beginning on or after July 1, 2010. The ACA and implementing regulations extended applicability of MHPAEA’s requirements to individual and small group health insurance for policy years beginning on or after January 1, 2014. The final rules will apply for plan years beginning on or after July 1, 2014. Until then, plans or issuers subject to the interim final regulations must comply with those rules.2

Key Provisions

Elimination of exception regarding nonquantitative treatment limitations (NQTLs)

Under both the interim and final regulations, a plan or issuer may not impose NQTLs (which include, for example, medical management standards limiting benefits based on medical necessity or medical appropriateness, formulary design for prescription drugs, provider network tier design, or participation standards for provider networks, among others) with respect to MH/SUD benefits in any classification unless, under the terms of the plan as written and in operation, any processes or other factors used in applying the NQTL to MH/SUD benefits in the classification are comparable to and applied no more stringently than the processes or other factors used in applying the limitation with respect to medical/surgical benefits in the same classification. The Departments clarify that NQTLs cannot be evaluated mathematically.

The final regulations expand the list of “illustrative” NQTLs provided in the interim rule to include restrictions based on geographic location, facility type, provider specialty and other criteria that limit the scope or duration of benefits for services provided under a plan or coverage. With respect to geographic restrictions, the final rule provides the example of a plan that excludes coverage of certain inpatient, out-of-network MH/SUD benefits obtained outside the state. The plan, however, does not apply a comparable exclusion to medical/surgical benefits within the same classification. Therefore, the geographic restriction on MH/SUD benefits does not comply with the NQTL parity standard and may not be applied.

Notably, the final regulations remove an exception to this NQTL requirement, included in the interim regulations, which permitted variations applying NQTLs between MH/SUD and medical/surgical benefits, to the extent that recognized clinically appropriate standards of care permit a difference. The Departments appear concerned that some plans and issuers may be misusing this exception to justify applying an NQTL to all MH/SUD benefits in a classification while only applying the NQTL to some medical/surgical benefits in the same classification.

Nonetheless, plans will continue to retain a good deal of flexibility in applying NQTLs. The preamble to the final rules emphasizes the flexibility that plans and issuers will continue to have “to take into account clinically appropriate standards of care when determining whether and to what extent medical management techniques and other NQTLs apply to medical/surgical benefits and [MH/SUD] benefits.”

The preamble further clarifies that the final regulations do not require plans and issuers to apply the same NQTLs for MH/SUD benefits and medical/surgical benefits, nor do disparate results alone indicate that a plan is applying NQTLs in a disparate manner. Instead, the regulations require that the processes, strategies, evidentiary standards and other factors the plan or issuer uses to determine whether and to what extent a benefit is subject to an NQTL must be comparable to and applied no more stringently for MH/SUD benefits than for medical/surgical benefits. Therefore, despite elimination of the clinically appropriate standards of care exception, plans and issuers retain some ability to tailor NQTLs using clinically appropriate considerations.

MHPAEA specifically prohibits application of separate treatment limitations only to MH/SUD benefits. The Departments state that “it is unlikely that a reasonable application of the NQTL requirement would result in all [MH/SUD] benefits being subject to an NQTL in the same classification in which less than all medical/surgical benefits are subject to the NQTL.”

Applicability of NQTL limitations to provider reimbursement

In the preamble, the Departments acknowledge comments seeking clarification regarding the applicability of NQTL requirements to provider reimbursement rates. In response, the Departments explain that plans and issuers may take a wide array of factors into consideration in setting provider reimbursement rates for medical/surgical and MH/SUD services. Such factors include, for example, demand for services, supply of providers, training, and experience and licensure of providers. The Departments emphasize that the final regulations regarding NQTLs require that these and other factors regarding provider reimbursement must be applied no more stringently in the MH/SUD context than the medical/surgical context. The Departments will continue to monitor questions and may issue additional guidance in the future.

Disclosure of NQTL standards and processes to ensure transparency

The preamble emphasizes the Departments’ interest in plan transparency regarding compliance with the MHPAEA NQTL requirements. In particular, the Departments echo stakeholder concerns about how to ensure that individuals have the necessary information to compare a plan’s application of NQTLs to medical/surgical benefits and MH/SUD benefits in compliance with MHPAEA. The Departments are soliciting comments regarding ways to increase plan transparency to participants and providers and have indicated they will focus on this area moving forward.3

Notably, the final regulations include additional language, previously articulated in guidance the Departments issued, clarifying that in addition to disclosure of medical necessity and denial information required by MHPAEA, other applicable laws, such as ERISA, impose disclosure requirements on plans concerning information relevant to medical/surgical and MH/SUD benefits. The final regulations explain that upon request, plans must provide documents, records, and other information relevant to a claimant’s claim for benefits. This “includes documents with information on medical necessity criteria for both medical/surgical benefits and [MH/SUD] benefits, as well as the processes, strategies, evidentiary standards, and other factors used to apply an [NQTL] with respect to medical/surgical benefits and [MH/SUD] benefits under the plan.” This language could potentially increase pressure on plans to provide more formal information regarding their NQTL processes.

Classification of benefits for parity of quantitative treatment limitations

The general quantitative parity requirement, adopted from the interim final regulations, prohibits plans and issuers from imposing financial requirements (such as co-payments) or quantitative treatment limitations (such as visit limits) on MH/SUD benefits that are more restrictive than the predominant financial requirements or quantitative treatment limitations that apply to substantially all medical/surgical benefits in the same classification. Under both the interim and final rules, parity compliance must be analyzed within each of six classifications of benefits: inpatient in-network, inpatient out-of-network, outpatient in-network, outpatient out-of-network, emergency care and prescription drugs.

The final regulations provide several clarifications regarding these six classifications of benefits. First, the final rules incorporate an enforcement “safe harbor” established under prior guidance the Departments issued, permitting subclassification of outpatient benefits into (1) office visits and (2) all other outpatient items and services.

In addition, the final regulations allow plans and issuers with tiered provider networks and designs (for example, preferred providers and participating providers) to create corresponding subclassifications for analyzing financial requirements and treatment limitations rules. For example, if a plan has multiple tiers of providers through which in-network benefits are provided, the plan may divide in-network benefits into subclassifications that reflect the plan’s network tiers. Tiering must be based on reasonable factors and cannot be based on whether a provider is an MH/SUD provider or a medical/surgical provider.

The final rule also clarifies that a plan’s compliance with Section 2713 of the Public Health Service Act does not require that plan to provide the full range of benefits for an MH/SUD condition. Section 2713, added by the ACA, requires nongrandfathered group health plans and health insurance issuers offering nongrandfathered group or individual coverage to cover certain preventive services, including alcohol misuse screening and counseling, depression counseling and tobacco use screening, without cost-sharing. Notwithstanding the requirement that, if a plan or issuer provides MH/SUD benefits in any classification, MH/SUD benefits must be provided in every classification in which medical/surgical benefits are provided, compliance with Section 2713, alone, does not require provision of a broader range of services for those plans that do not otherwise offer MH/SUD services.

Clarifications regarding requirements for scope of services

The preamble also addresses comments seeking clarification around the scope of services that must be included within each of the six classifications of benefits. In particular, the Departments make it clear that MHPAEA is not intended to create a “benefit mandate,” requiring greater MH/SUD benefits than medical/surgical benefits. However, the Departments also clarify that they did not intend that plans and issuers could exclude “intermediate levels of care,” such as residential treatment, from parity requirements on the grounds that these services do not clearly fall within one of the six classification levels.

Plans and issuers must assign intermediate MH/SUD benefits to the six benefit classifications in the same way that they assign intermediate medical/surgical benefits. The preamble provides the example that if a plan classifies care in a skilled nursing facility as inpatient care, then it must treat covered care in a residential treatment facility for MH/SUDs as inpatient care. The Departments do not anticipate that this clarification will result in a significant increase in costs due to the small number of enrollees that reportedly utilize intermediate levels of care.

Clarifications regarding quantitative testing of parity compliance

The final rules adopt the quantitative parity analysis established under the interim final rules. The preamble clarifies, however, that a plan or issuer is not required to perform this analysis each year unless there is a change in plan benefit design, cost-sharing structure, or utilization that would affect a financial requirement or treatment limitation within a classification (or subclassification).

Exemptions for small employers and increased costs

Group health plans of small employers remain exempt from MHPAEA. However, the HHS regulations on the essential health benefits (EHB) package require all coverage that must provide EHB—including nongrandfathered small group health insurance coverage—also to comply with MHPAEA. Because most small employers purchase health insurance instead of self-insuring, the MHPAEA small employer exemption will have limited effect.4

The final regulations also set forth updated procedures by which plans may claim an increased cost exemption under MHPAEA, applicable where a plan or issuer makes changes to comply with MHPAEA and incurs a cost increase of at least 2 percent in the first year that MHPAEA applies to the plan or coverage or at least 1 percent in any subsequent year. No plans have sought this exemption yet.

Applicability of parity provisions to managed behavioral health organizations (MBHOs)

The preamble clarifies that if a plan or issuer contracts with one or more entities to provide or administer MH/SUD benefits, the plan or issuer must remain responsible for ensuring compliance with MHPAEA and retain liability for MHPAEA violations. The preamble explains that a plan or issuer must provide sufficient information to an MBHO regarding plan structure and benefits to ensure that MH/SUD benefits are coordinated with medical/surgical benefits.

Interaction with state law

In addition, the preamble further clarifies MHPAEA’s interaction with state insurance laws that mandate coverage of MH/SUD benefits. The preamble explains that MHPAEA only supersedes state law to the extent that a state law prevents application of an MHPAEA requirement. A state law requirement to cover certain MH/SUD benefits could necessitate covering additional MH/SUD benefits because of MHPAEA’s requirement that a plan that covers any MH/SUD benefits offer MH/SUD benefits in every benefit classification in which medical/surgical benefits are offered. However, states also have significant leeway to impose more restrictive requirements than those mandated under federal law.

Conclusion

The issuance of these long-awaited final regulations, combined with the expanded applicability of parity requirements to the individual and small group insurance markets under the ACA, as well as certain Medicaid and CHIP programs, will likely draw increased public attention and regulatory scrutiny to MH/SUD parity requirements. Parity itself becomes incrementally more rigorous under these final rules. In particular, the final rules may increase pressure on plans and issuers to improve transparency of medical necessity and NQTL determinations and procedures. The more significant change is the new federal requirement, under the ACA and its EHB regulations, to provide MH/SUD benefits in many plans that have not previously been required to offer those benefits. In light of broader MH/SUD coverage, these final regulations will have broad implications for many aspects of plan design and administration.

The Departments do not anticipate that any increases in costs of covering MH/SUD benefits in connection with MHPAEA will have a substantial impact on overall plan spending or premiums in the large group market. A very small percentage of plans have reportedly dropped MH/SUD benefits after implementation of MHPAEA. It is not clear whether those plans that dropped coverage did so as a result of MHPAEA. In the small group market, the Departments report that application of MHPAEA may lead to an estimated 0.5 percent increase in spending.

1. 78 Fed. Reg. 68240 (Nov. 13, 2013).

2. Self-funded, non-federal governmental plans may opt out of MHPAEA requirements. Retiree-only group plans and employee assistance programs that qualify as excepted benefits are exempt from requirements under MHPAEA and the final regulations. Further, although the terms of these final regulations apply specifically to group health plans and insurers, CMS issued guidance earlier this year clarifying that certain MHPAEA requirements also apply to Medicaid managed care organizations, Medicaid alternative benefit plans (including benefit plans for Medicaid expansion populations), and the Children’s Health Insurance Program. See Dep’t of Health and Human Serv., SHO #13-001, Application of the Mental Health Parity and Addiction Equity Act to Medicaid MCOs, CHIP and Alternative Benefit (Benchmark) Plans (Jan. 16, 2013), available at http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SHO-13-001.pdf.

3. See http://www.dol.gov/ebsa/faqs/faq-aca17.html. The Departments request comments on additional potential disclosure requirements by January 8, 2014.

4. See 45 C.F.R. § 156.115(a)(3).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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