California Governor Signs SB 855, Increasing Coverage for Mental Health and Substance Abuse Disorders

Morgan Lewis

Morgan LewisCalifornia Governor Gavin Newsom on September 25 signed Senate Bill 855, Health coverage: mental health or substance use disorders, into law. The law increases health and disability insurers’ coverage obligations for mental health and addiction diagnosis, prevention, and treatment in the state.

Commercial health plans and insurers that provide coverage in California are already subject to fairly expansive mental health parity laws (including the 1999 California Mental Health Parity Act and the federal Mental Health Parity and Addiction Equity Act of 2008), which, combined, require coverage of medically necessary treatment of severe mental illnesses, serious emotional disturbances of a child, and substance use disorders under the same terms and conditions applied to other medical/surgical conditions. The California Mental Health Parity Act required mental health parity to nine enumerated severe mental illnesses but did not require parity in the treatment of substance abuse, anxiety, opioid use, alcohol use, and post-traumatic stress disorders.

Senate Bill (SB) 855 expands mental health parity by extending its application to all medically necessary mental health and substance abuse addiction treatment. The law also provides new medical necessity standards and mandates criteria for clinical guidelines for assessing medical necessity. Existing law requires benefits to include outpatient services, inpatient hospital services, partial hospital services, and prescription drugs (if covered under the plan). SB 855 requires coverage of medically necessary basic healthcare services and intermediate services (including residential treatment, partial hospitalization, and intensive outpatient treatment) and prohibits limits on coverage to short-term or acute treatment.

Some of the most notable changes include the following:

  • Medical necessity determinations and utilization review criteria must be based on current generally accepted standards of mental health and substance use disorder care.
  • Healthcare service plans must apply the most recent utilization review criteria and guidelines developed by the nonprofit professional association for the relevant clinical specialty (for example, those issued by the American Society of Addiction Medicine).
  • When reviewing for the appropriate level of care, healthcare service plans shall not apply different, additional, conflicting, or more restrictive utilization review criteria than the criteria and guidelines set forth in those nonprofit professional association sources.

The bill authorizes the director of the California Department of Managed Health Care and the California insurance commissioner to assess administrative or civil penalties for violations related to use of improper utilization review criteria. It also voids plan provisions reserving discretionary authority to determine coverage, interpret terms, or provide standards of interpretation/review that are inconsistent with California law.

SB 855 does not prohibit contractual plan provisions that inform enrollees that the plan applies the terms of its contracts for making decisions regarding eligibility and benefits or explaining policies, procedures, and processes, so long as the provision will not give rise to a deferential standard of review in court. If these provisions are not found to be preempted by ERISA, this bill will effectively do away with the deferential standard of review afforded to ERISA plans and claim administrators that are granted discretionary authority to interpret and apply plan terms.

The overall effect of SB 855 will broaden healthcare service plans and insurers’ obligations for behavioral health coverage. Healthcare service plans and insurers will need to reassess their terms of coverage and utilization review processes and practices in order to ensure compliance with this new law. Doing so is important, as there is an active plaintiffs’ bar that will look for violations of this new law to spur the next round of mental health parity–related lawsuits, including class actions.

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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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