As part of the Emergency Economic Stabilization Act of 2008, the mental health parity requirements found in ERISA, the Public Health Service Act, and the Internal Revenue Code have been expanded and made permanent. (Public Law 110-343, Division C, Section 512) The new requirements become effective for plan years beginning after October 3, 2009 (i.e., January 1, 2010 for calendar year plans), although a special rule applies to plans maintained pursuant to collective bargaining agreements. New regulations should be issued by the Secretaries of Labor, Health and Human Services, and the Treasury within the coming year.
The current federal mental health parity law generally requires that if a group health plan offers both medical/surgical benefits and mental health benefits, the plan cannot have lower lifetime or annual expenditure limits for mental health benefits. Like the current law, the new law does not require a plan to provide mental health or substance use disorder benefits but does require parity if the plan offers such benefits.
The new law imposes significant substantive requirements that will require the redesign of many employer-sponsored group health plans, particularly self-funded ones. Although some aspects of the new law will benefit from regulatory clarification, we recommend that employers start the planning process for the 2010 plan year early in 2009.
The new law’s provisions are outlined below.
Substance abuse coverage: The new law includes parity for substance use disorder benefits. This means the current mental health parity rules regarding aggregate lifetime and annual limits have been extended to substance use disorder benefits.
Aggregate lifetime limits: Generally, the aggregate lifetime limit on expenditures for mental health and substance use disorder benefits must be equal to or greater than the aggregate lifetime limit for substantially all medical/surgical benefits. Alternatively, mental health and substance use disorder benefits can be included in the aggregate lifetime limit. More specifics on regulation of lifetime limits under the new law follow:
- No lifetime limit: If the plan contains no aggregate lifetime limit on substantially all medical/surgical benefits, the plan may not impose an aggregate lifetime limit on mental health or substance use disorder benefits.
- Lifetime limit: If the plan contains an aggregate lifetime limit on substantially all medical/surgical benefits, then the plan must either apply the lifetime limit to both medical/surgical benefits and mental health and substance use disorder benefits, or apply a separate lifetime limit to mental health and substance use disorder benefits that is not less than the medical/surgical benefits limit.
- Different lifetime limits: If a plan includes different limits for different categories of medical/surgical benefits, then the plan may impose a lifetime limit on mental health and substance use disorder benefits that is an average aggregate lifetime limit calculated as described by the regulations that will be issued.
Annual limits: The rules regarding annual limits on mental health and substance use disorder benefits mirror those for lifetime limits. Generally, the annual limits for mental health and substance use disorder benefits must be equal to or greater than those available for substantially all medical/surgical benefits or included without distinction in the annual limit.
Financial requirements and treatment limitations: The financial requirements and treatment limitations for mental health and substance use disorder benefits cannot be more restrictive than those “predominantly” applied to substantially all medical/surgical benefits. “Predominant” is defined as the most common or frequent type of limit or requirement imposed on covered medical/surgical benefits. “Financial requirements” include deductibles, copayments, coinsurance, and out-of-pocket expenses. “Treatment limitations” include limits on the frequency of treatment, number of visits, days of coverage, and other limits on the scope or duration of treatment. These provisions ensure that plans do not impose higher cost-sharing requirements or more restrictive scope and duration of treatment requirements for mental health and substance use disorder benefits. Many plans will require changes respecting these provisions, as special limits for mental health benefits (such as a 30-day maximum for in-patient care) are common. This is also an area where clarification of the statutory language in the regulations will be welcome.
Out-of-network providers: If a plan permits medical/surgical benefits to be provided by out-of-network providers, then the plan must also permit mental health and substance use disorder benefits to be provided by out-of-network providers in a manner consistent with the various requirements of the new law. The regulations may further clarify this requirement.
Plan information: The criteria for medical necessity determinations under the plan for mental health and substance use disorder benefits must be made available by the plan administrator or issuer to current or potential participants or contracting providers. Participants must also be provided with the reasons for any denied benefits “in accordance with regulations.”
Small employer exemption: The parity requirements generally do not apply to any group health plan offered by a small employer that has an average of fifty or fewer employees in the previous year (measured on a controlled group basis).
Cost exemption: Under complex rules, plan sponsors may apply for some relief from the parity rules if their costs increase by a certain amount. A plan may qualify for an exemption during the following plan year if the increase in the actual total costs of coverage for medical/surgical benefits and mental health and substance use disorder benefits exceeds a certain percentage of actual total plan costs. Those percentages are 2% in the first plan year or 1% in each following year. An actuary must determine the increase in actual costs under a plan. A plan sponsor may continue to apply the parity rules despite a cost increase. Plans intending to use the exemption must notify the Secretary of Labor, appropriate state agencies, and participants and beneficiaries. Additional rules apply to the exemption process, and the new law also provides plans using the exemption may be audited.
Rules regarding enforcement and penalties for noncompliance have not been changed. Participants, beneficiaries, and the Department of Labor may still file civil actions under ERISA to enforce the parity requirements; the IRS can impose excise taxes for noncompliance as well.