If you only read this first paragraph, that is okay. One of the most common issues we face with DOL investigations of employer health plans involves mental health parity compliance. For those of you who sponsor a qualified retirement plan like a 401(k) plan, you likely receive some kind of a compliance testing report each year from your recordkeeper or third-party administrator that tells you that your plan passed the relevant nondiscrimination tests. I recommend that you ask your health plan consultant to start providing something like that for you every year – which confirms that your plan passes mental health parity, so that you (a) know your plan complies; and (b) have proof that your plan complies if you ever go through a DOL investigation/audit. This may require the consultant to involve the network provider and/or the actuary. Regardless, this is critically necessary, especially for those of you who are self-funded.
Here is some background for you:
Group health plans are not required to provide benefits for mental health or substance use disorders, but if they do, the “mental health parity” rules require that there be parity between the plan’s (a) medical/surgical benefits (“Medical Benefits”); and (b) mental health or substance use disorder benefits (“Mental Health Benefits”).
Think of “parity” as generally requiring “equality.” In my opinion, these rules are unnecessarily complicated but they generally require:
- Parity as to Financial Requirements. Plans must provide parity between Medical Benefits and Mental Health Benefits as to financial requirements, such as deductibles, copays, coinsurance, and out-of-pocket maximums. For example, if a plan has a $25 copay for a typical doctor office visit but a $50 copay for a mental health office visit, this could violate the parity rules.
- Parity as to Quantitative Treatment Limitations. Plans must provide parity between Medical Benefits and Mental Health Benefits as to quantitative treatment limitations, such as number of visits, days, or treatments. Quantitative treatment limitations are limits that can be expressed numerically (e.g., number of covered visits per day, per episode, annually, or during the participant’s lifetime).
- Parity as to Nonquantitative Treatment Limitations. Plans must provide parity as to any nonquantitative treatment limitations, such as medical management standards (think non-financial requirements). For example, if a plan required a participant to go through some kind of a pre-certification process for treating anorexia (a mental health condition) that is stricter than the process required for Medical Benefits, this could be a violation of the parity rules. Or if a group health plan required participants to use employer-provided EAP benefits before accessing the plan’s Mental Health Benefits but did not require the same for Medical Benefits, that would likely violate the parity rules.
If you are not asleep yet and are interested in even more details, the parity rules as to the financial requirements and treatment limitations (#1 and #2 above) are particularly complex and often require a series of Wizard-of-Oz math calculations, which are probably impossible for you to run on your own. Generally, to run the testing, the benefits offered by a plan must first be divided into six separate classifications:
- inpatient, in-network;
- inpatient, out-of-network;
- outpatient, in-network (Note: office visits can be placed in a separate subclassification from all other outpatient items and services);
- outpatient, out-of-network;
- emergency care; and
- prescription drugs.
Within each of these classifications, the financial requirements and treatment limitations that apply to Mental Health Benefits must be compared to the financial requirements and treatment limitations that apply to Medical Benefits in that same classification so that they pass the following two tests:
- “Substantially All” Test. A financial requirement or treatment limitation must first be demonstrated to be applicable to “substantially all” of the Medical Benefits in a classification. This is a math test that means the requirement or limitation must apply to at least two-thirds of all Medical Benefits in the classification. This calculation is determined based on the dollar amount of all plan payments for Medical Benefits in the classification that are expected to be paid under the plan for the plan year. For example, if we were looking at the copay structure of your health plan, we might need to determine if the plan requires a copay of any kind for at least two-thirds of the Medical Benefits in the outpatient, in-network classification, before a copay could be imposed on Mental Health Benefits in the outpatient, in-network classification.
- “Predominant Level” Test. If and only if a financial requirement or treatment limitation does apply to “substantially all” of the Medical Benefits in a classification, that financial requirement or treatment limitation may be applied to Mental Health Benefits in that classification, but only if the “level” of that requirement or limitation is no more restrictive than the “predominant level” of that requirement or limitation when applied to Medical Benefits. A good example of a “level” would be two copayment levels of $25 and $50. A financial requirement or treatment limitation is considered to be “predominant” if it is the most common or frequent of such type of limit or requirement – that is, if it applies to more than one-half of the Medical Benefits in the classification. Carrying forward my example above involving a plan’s co-pay structure, if we determined that your plan does require a copay for at least two-thirds of the Medical Benefits in the outpatient, in-network classification (i.e., you pass the “substantially all” test), then we would need to determine what is the permitted/predominant copay level. This is easy if you only have one copay (e.g., $25 for everything). But if you have different copays within the outpatient, in-network classification (e.g., $25 for general and $50 for specialty), we would need to determine what copay level applies to more than half of the Medical Benefits in that classification – and only that copay level could be charged to Mental Health Benefits in that classification.
I have made a number of generalizations here to try to break down the rules and the testing for you, but to me this falls into the category of tasks that you should have someone else do for you (probably your consultant). I would ask them to give you something every year that clearly states that your plan passes mental health parity testing, preferably something signed off on by an actuary. If they tell you that your plan “passes automatically” because of its design, please ask them to explain that to you (in part to make sure they understand) and put that in writing anyway. This will save you a great deal of trouble and stress later.