Introduction

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the "Act") was signed into law on October 3, 2008, as part of the Emergency Economic Stabilization Act of 2008. Generally, the Act requires group health plans of more than fifty employees that provide coverage for both physical and mental illnesses to do so without imposing financial requirements and treatment limitations on mental health and substance use disorder benefits that are more restrictive than those imposed on medical and surgical benefits. Currently, forty-eight states have some type of mental health parity law and the Act does not preempt stronger state parity laws. While state laws do not apply to self-insured plans, the Act applies to both self-insured and fully-insured plans. The Act will take effect for plan years beginning after October 3, 2009, which means that for calendar year plans, the effective date will be January 1, 2010.

Background

The federal mental health parity law that has been in effect prior to enactment of the Act was the Mental Health Parity Act of 1996 (MHPA), which took effect on January 1, 1998. Under MHPA, group health plans offering mental health benefits are not allowed to impose aggregate annual or lifetime dollar limits on mental health benefits that are lower than any such dollar limits placed on substantially all medical and surgical benefits. If the plan does not include an aggregate lifetime limit or annual limit on substantially all medical and surgical benefits, then the plan may not impose any such limits on mental health benefits. Notably, MHPA applies only to plans that offer mental health benefits — it does not mandate such coverage. MHPA does not apply to substance abuse or chemical dependency and it does not apply to employers with fifty or fewer employees. MHPA also contains a cost-exemption rule, which provides that if the costs of a group health plan increase one percent or more due to compliance with MHPA, then the plan may claim an exemption from MHPA's requirements. MHPA was originally set to expire on September 30, 2001, but Congress has extended its effectiveness annually since then.

New Mental Health Parity Requirements

The Act makes MHPA permanent and expands upon certain other provisions of MHPA. Consistent with MHPA, the Act does not require plans to provide mental health or substance use disorder benefits in addition to medical and surgical benefits; instead, the Act requires parity between the two types of benefits if they are both offered by the plan. But whereas MHPA requires parity only with respect to annual and lifetime limits between mental health coverage and medical and surgical coverage, the Act expands the parity requirements and extends such requirements to substance use disorder benefits. Specifically, the Act provides the following:

1. Financial Requirements: Financial requirements applicable to mental health or substance use disorder benefits, including deductibles, copayments, coinsurance and out-of-pocket expenses, can be no more restrictive than the most common or frequent of such type of financial requirements applied to substantially all medical and surgical benefits covered by the plan. Financial requirements do not include an aggregate lifetime limit or an annual limit, since the parity requirements of MHPA would remain in place with respect to such limits. There must be no separate cost sharing requirements that are applicable only with respect to mental health or substance use disorder benefits.

2. Treatment Limitations: Limits on scope or duration of treatment applicable to mental health or substance use disorder benefits, such as the frequency of treatment, number of visits, or days of coverage, can be no more restrictive than the most common or frequent treatment limitations applied to substantially all medical and surgical benefits covered by the plan. Further, there must be no separate treatment limitations that are applicable only with respect to mental health or substance use disorder benefits.

3. Plan Information: Upon request, the plan administrator or health insurance issuer must provide current or potential participants, beneficiaries, or contracting providers with the criteria for medical necessity determinations made under the plan with respect to mental health or substance use disorder benefits. The criteria for medical necessity determinations are the clinical information that the plan administrator or health insurance issuer uses to determine whether a benefit or service is medically necessary before the plan reimburses or pays for it. Additionally, the administrator or issuer must provide participants and beneficiaries, upon request or as otherwise required, with the reason for denial of a reimbursement or payment for services with respect to mental health or substance use disorder benefits.

4. Out-of-Network Providers: If a plan provides both medical and surgical benefits and mental health or substance use disorder benefits and it also provides coverage for medical or surgical benefits provided by out-of-network providers, the plan must include coverage for mental health or substance use disorder benefits provided by out-of-network providers in a consistent manner with respect to financial requirements, treatment limitations and plan information.

5. Cost Exemption Rule: If compliance with the Act's requirements results in a two-percent increase in the actual total costs of coverage with respect to medical and surgical benefits and mental health and substance use disorder benefits under the plan during the first plan year in which the Act applies, or a one-percent increase in the actual total costs of coverage during each subsequent plan year, the requirements of the Act will not apply to that plan for the following plan year. Determinations as to increases in actual costs under the plan must be made and certified in a written report prepared by a qualified and licensed actuary who is a member in good standing of the American Academy of Actuaries. To be eligible for the cost exemption, a group health plan must comply with the new mental health parity requirements for the first six months of the plan year involved. When a group health plan elects this exemption, it must notify the Department of Labor (the "DOL"), the Department of Health and Human Services (HHS), the appropriate state agencies and participants and beneficiaries of the plan. The notification must include (i) a description of the number of covered lives under the plan involved at the time of the notification and, as applicable, at the time of any prior election of the cost-exemption rule, (ii) a description of the actual total costs of coverage with respect to medical and surgical benefits and mental health and substance use disorder benefits under the plan for both the plan year upon which a cost exemption is sought and the year prior, and (iii) the actual total costs of coverage with respect to mental health and substance use disorder benefits under the plan for both the plan year upon which a cost exemption is sought and the year prior. During the six-year period following such notification, the appropriate federal and state agencies may audit the plan to determine compliance.

Enforcement

The DOL, HHS and Department of Treasury ("Treasury") must coordinate enforcement of the Act and issue regulations within one year after the enactment date. However, the Act will become effective by the effective date for the plan regardless of whether regulations have been issued by then. Treasury may impose an excise tax on any group health plan that fails to meet the requirements of the Act equal to US$100 for each day of noncompliance with respect to each individual to whom such noncompliance relates.

Conclusion

The new federal mental health parity requirements may have a substantial impact on group health plans of more than fifty employees.