On Friday, October 3, 2008, President Bush signed into law the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (“Wellstone Act” or the “Act”) as part of the Emergency Economic Stabilization Act of 2008. This Act will have a significant impact on employer-sponsored health plans that offer mental health and/or substance abuse benefits where the cost and treatment limitations of those benefits are more restrictive than those applicable to other medical and surgical benefits under the plan.
The intent of the Wellstone Act is to provide true parity between mental health/substance abuse benefits and other benefits covered under the plan. The Act does not require plans to cover mental health or substance abuse, nor does it require plans to cover one if they cover the other (note, however, that state insurance laws may mandate such coverage, thereby subjecting insured plans to certain coverage requirements). In this regard it is important to note that, for self-funded plans, substance use disorders and mental health conditions are defined as set forth under the terms of the plan.
The Employee Retirement Income Security Act (ERISA), the Public Health Service Act (PHSA), and the Internal Revenue Code (the “Code”) already contain mental health parity provisions which apply to all large group health plans, both self-funded and fully-insured.1 However, the current parity law only prohibits plans from applying specific lower dollar maximums (either annual or lifetime) to mental health benefits that are separate from the aggregate annual or lifetime maximum generally applicable to health benefits. The current law does not require parity with regard to other types of plan limitations such as co-pays, coinsurance, deductibles and out-of-pocket maximums (OOP); nor does the current law apply to substance abuse benefits at all.
The Wellstone Act expands and amends the current parity law in the following ways:
- Substance Abuse Included. Extends the current parity law provisions related to annual and lifetime maximums to include substance abuse benefits, as well as extends all the other provisions of the Wellstone Act to substance abuse benefits along with mental health benefits. In this regard, it is important to note that substance use disorders are defined as set forth under the terms of the plan.
- Financial Requirements. Requires that financial requirements under the plan with regard to deductibles, co-payments, coinsurance and out-of-pocket expenses for mental health and substance abuse benefits covered under the plan be the same or better than the financial requirements for medical and surgical benefits under the plan.
- Treatment Limitations. Prohibits treatment limitations (e.g., 30-day annual maximum for outpatient mental health treatment) for mental health and substance abuse benefits covered under the plan to the extent that medical and surgical treatments are not also limited.
- Out-of-Network Coverage. Requires that plans providing out-of-network coverage for medical and surgical benefits also provide out-of-network options for mental health and substance abuse benefits covered under the plan.
- Availability of Plan Information. The criteria for determining whether mental health and substance abuse treatment is “medically necessary” (to the extent this is a requirement for coverage under the plan) must be provided to participants and contracting providers upon request.
Financial Requirements and Treatment Limitations
The current parity law prohibits imposing annual or lifetime dollar limits for mental health benefits that are separate from and less than the aggregate annual or lifetime dollar limits for substantially all medical and surgical benefits. If the annual or lifetime dollar limits for mental health benefits are part of the plan’s aggregate annual or lifetime dollar limits, then no separate limitation can be imposed on the limits for mental health benefits. For example, a plan with a one million dollar lifetime maximum cannot impose a lifetime maximum of $20,000 for all mental health benefits. The mental health benefits must either be subject to a separate one million dollar maximum apart from the lifetime maximum for medical and surgical benefits, or the mental health benefits must be subject to the same single one million dollar maximum as the other medical and surgical benefits under the plan. The Wellstone Act expands these annual and lifetime dollar limit provisions to include substance abuse benefits as well.
The new provisions added by the Wellstone Act require plans (or “health insurance coverage offered in connection with such plans”) to ensure that the “financial requirements” and “treatment limitations” applicable to mental health or substance abuse benefits are “no more restrictive than the predominant” financial requirements or treatment limitations applied to “substantially all medical and surgical benefits covered by the plan.” The Act also prohibits separate cost sharing requirements that are applicable only with respect to mental health or substance abuse benefits. The term financial requirement “includes” deductibles, co-payments, coinsurance and out-of-pocket expenses. This implies that this list is not exclusive, and that other types of financial requirements may be included as well.
Practice Pointer: Plans should be reviewed for types of cost discrepancies in aspects other than deductibles, co-payments, coinsurance and out-of-pocket expenses. For example, some plans may penalize participants for emergency room use if the participant does not inform the plan within 24 hours (or some other prescribed time). Under some plans, failure to notify can result in a penalty or in the services being covered at a lower rate. Under the Act, the penalties for emergency room visits related to mental health or substance abuse emergencies should be no more restrictive than the penalties for medical and surgical emergencies.
While the financial requirements of the Wellstone Act are easy enough to apply to employer plans with consistent, across-the-board coverage levels for all medical, surgical and mental health and/or substance abuse benefits, they will not be so easy to apply to plans that have varying coverage levels. For example, some plans have a basic medical and a major medical component. Under basic medical, certain services such as inpatient hospital, surgical and physician may be covered at 100 percent up to a certain dollar amount or treatment limit (e.g., 180 days inpatient hospital). Any expenses over the basic medical limits are covered under major medical at 80 percent. Plans like this may be more difficult to analyze for parity with regard to cost. If the plan covers all mental health and substance abuse benefits under major medical at the 80 percent level, is this parity, or would some mental health and substance abuse benefits have to be offered under basic medical at 100 percent coverage, with similar dollar and treatment limits? The Act is not clear, and further guidance would be helpful.
Practice Pointer: Some plans exclude expenses associated with mental health and substance abuse from the out-of-pocket maximum. Sometimes this is done explicitly, and other times the out-of-pocket maximum will exclude expenses not subject to the deductible, which may include mental health and substance abuse expenses. Clearly the Act prohibits plans from explicitly excluding mental health and substance abuse expenses from the out-of-pocket maximum. In all likelihood, a blanket exclusion for “expenses not subject to the deductible” would also be prohibited to the extent that such expenses include mental health and/or substance abuse, but not substantially all medical and surgical benefits.
The Wellstone Act mandates that mental health and substance abuse coverage be available with out-of-network providers if the plan covers expenses for medical and surgical care provided by out-of-network providers. If, however, the plan provides no out-of-network coverage for any medical or surgical benefits, then no outof- network coverage is required for mental health and substance abuse.
Availability of Plan Information
To the extent that the plan covers only those mental health or substance abuse services that are “medically necessary”, the criteria for medical necessity determinations must be made available by the plan administrator (or the insurer) “in accordance with regulations to any current or potential participant, beneficiary or contracting provider upon request.” Note the use of “potential” here. Presumably this means only those persons that are eligible or will soon be eligible for participation in the plan, but clearly does not require that this information be included in enrollment materials or SPDs.
There are two ways a plan can be exempt from the Wellstone Act. First, certain small employers are totally exempt from all compliance requirements. Second, employers who experience a cost increase may be eligible for a limited one-year exemption from compliance, but only for the plan year following the year on which the basis for the exemption is made.
Under the Wellstone Act, the following small employers are exempt:
An employer who employed an average of at least 2 (or 1 in the case of an employer residing in a state that permits small groups to include a single individual) but not more than 50 employees on business days during the preceding calendar year.
The Act also provides some relief in the form of a one-year exemption from compliance for certain plans that experience a cost increase as a result of compliance. If complying with the Wellstone Act causes the plan’s actual total cost of coverage with respect to medical, surgical, mental health and substance abuse combined to increase by (i) two percent or more, in the case of the first plan year of Wellstone Act compliance, or (ii) one percent in the case of each subsequent plan year, then the plan will be exempt from complying with the Wellstone Act for the following plan year. Of course, plan sponsors may voluntarily continue to comply regardless of the increase in costs.
For plan sponsors wishing to take advantage of this exemption, the following actions are required:
- Determination by Qualified and Licensed Actuary. The determination that Wellstone Act compliance has increased plan costs by a particular percentage must be determined and certified by a qualified and licensed actuary who is a member in good standing of the American Academy of Actuaries. The report and all underlying documentation relied on for the report must be maintained for at least six years following notification as described below.
- Six-Month Rule. Plans must be in compliance with the Wellstone Act for at least the first six months of the plan year involved before an actuarial determination can be made on that plan year for purposes of seeking an exemption. The exemption would not apply until the following plan year.
- Notification. If a plan meeting the applicable cost increase threshold chooses to take advantage of the compliance exemption for the following plan year, the plan must “promptly” notify the Secretary of Labor, any appropriate state agencies, the plan participants and plan beneficiaries of such election. There is no application and approval process required. The notification to the DOL must include
–– a “description” of the number of covered lives under the plan at the time of the notification, as well as at the time of any prior notification for the exemption;
–– a “description” of the actual total costs of coverage for medical, surgical, mental health and substance abuse combined for both the plan year at issue and the prior plan year; and
–– a “description” of the actual total costs of coverage for mental health and substance abuse, as separate from the medical and surgical costs, for both the plan year at issue and the prior plan year.
- Audit. The plan must be willing to undergo an audit by the DOL and/or any applicable state agency for compliance with the cost exemption requirements.
A number of questions are raised by these requirements. First, it is unclear the extent to which an employer can “game” the cost determination based on when the test is performed. For example, what if a plan incurs unusually large expenses for mental health and substance abuse benefits, and then later in the year the plan incurs unusually large expenses for medical and surgical benefits? If the plan decides to make the cost determination right at the six month mark, the actuarial report may very well reflect a one or two percent increase. However, if the plan waits until the end of the year, falling mental health and substance abuse claims and rising medical and surgical claims could cause an end-of-year actuarial report to yield a different result than the mid-year report. A plan may choose to obtain an actuarial determination sooner rather than later to the extent that a determination based on mid-year numbers are more favorable to obtaining an exemption.
The notification provision will no doubt be a big compliance issue for the DOL and other regulatory agencies. There are, however, no specific guidelines for what constitutes “prompt” notice or the content requirements for notice to plan participants and beneficiaries. Do plan participants need to be told at open enrollment? If the plan decides after open enrollment (but before the beginning of the next plan year) to elect the cost exemption for the following plan year, must the plan permit individuals to change their elections for the following year?
The cost exemption itself is a one-year exemption. Presumably the plan would have to comply again the year following the exemption and, if compliance still increased the plan’s costs, the plan would undergo another actuarial determination for exemption the following year. This process seems cumbersome, especially if compliance significantly increases plan costs well above threshold levels. It is unlikely, for example, that, if compliance increases plan costs by 10 percent one year, the costs increase would drop below the one percent level by the year after the exemption.
Effective Dates and Union Plans
The Wellstone Act becomes effective the first day of the plan year beginning one year after the date of enactment, which means January 1, 2010, for calendar year plans. There is, however, a special rule for plans maintained pursuant to collective bargaining agreements (CBA) that could require compliance as early as January 1, 2009. For plans maintained pursuant to one or more CBAs, the Wellstone Act is effective the later of (i) the date on which the last CBA relating to the plan terminates (determined without regard to any extension agreed to after the enactment of the Wellstone Act) or (ii) January 1, 2009. This means that plans maintained under a CBA that terminates in 2008 will be required to comply on January 1, 2009. The Wellstone Act also provides that, to the extent a plan maintained pursuant to a CBA is amended for the purposes of complying with the Wellstone Act, such amendment shall not be treated as a termination of the CBA for purposes of (i) above.