Mental Health Parity: Is Your Health Plan Ready?

While awaiting what (if anything) is to come from “healthcare reform,” the stream of regulation of employer-sponsored group health plans continues. Employers must adapt as they face benefit planning for 2010 and open enrollment.  

A number of legislative and regulatory changes affecting group health plans recently have or soon will become effective in the 15 months between October 1, 2008, and January 1, 2010:

• The COBRA subsidy;
• Michelle’s Law;
• Genetic Information Nondiscrimination Act;
• Special enrollment rights for persons losing CHIP or Medicare coverage or obtaining premium assistance from a state under a CHIP or Medicare program;
• HIPAA privacy and security changes, including a breach notification requirement;
• Final cafeteria plan regulations; and
• Changes in state health insurance laws, such as the expansion of the available continuation coverage period from 18 to 36 months (New York) and modifications to the Massachusetts Health Care Reform Act.

And One More . . .

The Mental Health Parity and Addiction Equity Act of 2008 (Parity Act) becomes effective for plan years beginning after October 3, 2009 (a special rule applies to collectively bargained plans). Thus, the effective date is January 1, 2010, for calendar year plans. The statute mandates that the Secretaries of Labor, Health and Human Services, and the Treasury issue regulations no later than October 3, 2009, to carry out the Parity Act. Therefore, these regulations are expected soon.

Key Provisions of the Parity Act

The Parity Act amends ERISA, the Internal Revenue Code and the Public Health Services Act to bring parity between medical and surgical benefits on the one hand, and mental health and substance use disorder benefits on the other. The new law does not require plans to provide mental health and substance use disorder benefits if they do not already do so. What the law does require is certain changes to plans that provide both kinds of benefits (most plans likely fall in this category), including changes to their cost structures and benefit provisions. These changes will be particularly important for self-funded plans.

Key changes that will affect most group health plans include:

• Annual and Lifetime Limitation Provisions Made Permanent. The Mental Health Parity Act of 1996 prohibited group health plans from having annual or lifetime dollar maximums for mental health benefits that were lower than medical or surgical benefits. The Parity Act makes this permanent.
• Parity for Substance Abuse Disorders Added. The Mental Health Parity Act of 1996 applied only to mental health benefits. The Parity Act expands those requirements to substance use disorder benefits.
• Expansion of Parity Requirement to “Financial Requirements” and “Treatment Limitations”. While the Mental Health Parity Act of 1996 required parity with regard to annual and lifetime dollar maximums, it did not apply to a plan’s cost sharing provisions, such as deductibles or co-pays, or to a plan’s terms regarding the amount, duration or scope of mental health benefits. This is why many group health plans currently have limits on mental health benefits that are less favorable than medical or surgical benefits, such as the number of office visits per year. The Parity Act removes these disparities.

The new law requires that the “financial requirements” and “treatment limitations” for mental health benefits and substance use disorder benefits be no more restrictive than the most common or frequent “financial requirements” or the “treatment limitations” applicable to substantially all medical and surgical benefits under the plan. The new law defines "financial requirements" to include deductibles, co-payments, co-insurance, and out-of-pocket expenses, and "treatment limitations" to include limits on the frequency of treatment, number of visits, days of coverage, and other limits on the scope or duration of treatment.

• Medical Necessity Criteria and Benefit Denial Information to be Made Available. The new law requires plan administrators, upon request, to provide the criteria used for medical necessity determinations made with respect to mental health benefits and substance use disorder benefits, as well as the reasons for denials of benefits. Regulations are expected to direct how this information must be provided.
• Out-of-Network Providers.  Under the Parity Act, plans that cover medical/surgical services provided by out-of-network providers generally must also permit mental health and substance use disorder benefits to be provided by out-of-network providers.

Small Employer and Cost Exemption

Like the Mental Health Parity Act of 1996, the Parity Act does not apply to group health plans that are sponsored by “small employers.” For the purpose of the Parity Act, a small employer generally means an employer that employs 50 or fewer employees on average during the prior calendar year. However, in determining the number of employees, employers must include the employees of certain related employers under special aggregation rules, a consideration often missed by many smaller companies. 

Plans can seek a one-year exemption from the Parity Act if their costs increase by at least a certain percentage because of the Act’s requirements (2% in the first plan year the law applies to the plan and 1% for all subsequent years).

However, it appears that obtaining the exemption will be complicated, costly and time consuming. For example, an actuary must make and certify in writing the determination of whether the cost increase is sufficient to meet the exemption, and the records on which the determination is made must be maintained for six years. If successful in obtaining the exemption, the plan must notify the Secretary of Labor, plan participants and beneficiaries, and certain state agencies, where applicable. For six years following the notice, the books and records of the plan concerning the exemption would be subject to audit by the Secretary of Labor and certain state agencies.