New Mental Health and Addiction Insurance Coverage Rules Enacted as Part of the Emergency Economic Stabilization Act of 2008
The Mental Health Parity Act of 1996 (the “1996 MHPA”) was slated to sunset on December 31, 2008. Instead, on October 3, 2008, the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the “Act” or “2008 MHPAEA”) was enacted in the same package as the financial institutions bailout bill, making permanent the existing mental health parity requirements in the 1996 MHPA and also significantly expanding them. The new requirements apply to a group health plan starting with the first day of the plan year beginning after October 3, 2009. For a plan with a calendar year plan year, this means contracts and plans must comply by the new year, January 1, 2010 (a later effective date is provided for collectively bargained plans). Regulatory guidance will be necessary to flesh out many of the provisions of the 2008 MHPAEA, and, under the terms of the Act, regulations are required to be issued no later than October 3, 2009, by the Department of Labor, the Department of Health and Human Services, and the Treasury.
Similar to the 1996 MHPA, 2008 MHPAEA makes parallel amendments to Section 2705 of the Public Health Service Act, Section 712 of ERISA, and Section 9812 of the Internal Revenue Code. The 1996 MHPA required parity between mental and physical health coverage only with regard to aggregate lifetime limits and annual limits. The 2008 MHPAEA preserves those rules, extends them to substance abuse services (referred to as “substance use disorder benefits”), and with respect to both mental health and substance abuse services, adds parity requirements regarding financial limits, treatment limits, and out-of-network providers. The Act also includes disclosure rules for medical necessity criteria and reasons for denials. Finally, the Act provides that the definition of “mental health benefits” is defined not only by the plan, but also by Federal and state law.
Application to Substance Use Disorder Benefits
The 1996 MHPA parity requirements applied to group health plans that provided both (i) medical and surgical benefits and (ii) mental health benefits. However, the 1996 MHPA did not require any plan to provide mental health benefits (e.g., ERISA §712(b)(1)). Substance use disorder benefits were explicitly excluded from the definition of mental health benefits (e.g., ERISA §712(e)(4)).
Now, the 2008 MHPAEA also applies parity requirements to substance use disorder benefits. The group health plans subject to the 2008 parity requirements are those providing both (i) medical and surgical benefits and (ii) either mental health benefits or substance use disorder benefits (e.g., ERISA §712(a)(1), as amended by 2008 MHPAEA §512(a)(8)). However, like the 1996 MHPA, the 2008 MHPAEA does not require any plan to provide mental health or substance use disorder benefits.
New Parity Requirements for Financial Limits, Treatment Limits, & Out of Network Providers
The 1996 MHPA required parity only with regard to aggregate lifetime limits and annual limits (e.g., ERISA §712(a)(1), §712(a)(2)).
Now, the 2008 MHPAEA also requires parity with respect to both “financial requirements” (including deductibles, co-payments, coinsurance, and out-of-pocket expenses) and treatment limits (frequency of treatment, number of visits, days of coverage, or other similar limits on the scope or duration of treatment). The Act requires that no such plan coverage limits may simultaneously both (i) apply only to mental health benefits or substance use disorder benefits and (ii) not apply to medical and surgical benefits. Furthermore, those plan coverage limits applicable to mental health benefits or substance use disorder benefits cannot be “more restrictive” than the “predominant” plan coverage limits applied to “substantially all” medical and surgical benefits covered by the plan. The “predominant” plan coverage limits for medical and surgical benefits are defined as those most common or most frequent of that type of limit (e.g., ERISA §712(a)(3)(B)(ii), as added by 2008 MHPAEA §512(a)(1)).
The 2008 MHPAEA also adds parity requirements regarding coverage of treatment by out-ofnetwork providers. It provides that, in the event a plan covers medical or surgical benefits provided by out-of-network providers, the plan must also provide coverage for “mental health or substance use disorder benefits provided by out-of-network providers in a manner that is consistent with the requirements of this section” (e.g., ERISA §712(a)(5), as added by 2008 MHPAEA §512(a)(1)). The Act does not further define nor specify by what methods to judge the sufficiency of out-ofnetwork coverage of mental health or substance use disorder benefits.
New Disclosure Requirements for Medical Necessity Criteria and Reasons for Denial
The 1996 MHPA had no disclosure requirements, other than a requirement to provide notice if the plan was relying on the increased cost exemption described below and the usual summary plan description rules.
Now, the 2008 MHPAEA requires that criteria for medical necessity determinations made under the plan with respect to mental health or substance use disorder benefits must be made available upon request to any current or potential participant, beneficiary, or contracting provider, in a manner in accordance with regulations. Furthermore, the reason for any denial of coverage or reimbursement under the plan with respect to mental health or substance use disorder benefits must be made available upon request or “as otherwise required” to the participant or beneficiary, in a manner in accordance with regulations (e.g., ERISA §712(a)(4), as added by 2008 MHPAEA §512(a)(1)).
Nearly every state has at least a limited mental parity law (see http://www.ncsl.org/programs/health/mentalben.htm). The normal ERISA preemption rules prevent such laws from applying to self-insured ERISA plans. However, Section 731(a) of ERISA specifically provides that such laws can apply to health insurance issuers to the extent the laws require more favorable treatment of mental health benefits (or substance use disorder benefits, once the 2008 MHPAEA becomes effective) than is required by federal law.
Small Employer Exemption Expanded
The 1996 MHPA provided an exemption for group health plans or insurance coverage of “small employers,” defined as employers who (i) “employed an average of at least 2 but not more than 50 employees on business days during the preceding calendar year” and (ii) “employ at least 2 employees on the first date of the plan year” (e.g., ERISA §712(c)(1)(B)).
Now, the 2008 MHPAEA expands the definition of “small employer” qualifying for exemption by eliminating (i) the minimum employee requirement with respect to the first date of the plan year and (ii) the requirement to employ an average of at least two employees during the preceding plan year if applicable state insurance law permits small groups to include a single individual (e.g., ERISA §712(c)(1)(B), as amended by 2008 MHPAEA §512(a)(3)(A)). An employer’s size continues to be determined on a controlled-group basis.
Increased Cost Exemption Modified
The 1996 MHPA provided an exemption for group health plans or insurance coverage that experience increased costs of at least one percent (e.g., ERISA §712(c)(2)). The 1997 Interim Final Regulations implementing the 1996 MHPA further provided that once satisfied, the exemption lasts until the sunset date of the MHPA, regardless of any changes to the plan structure (29 C.F.R. §2590.712(f)).
Now, the 2008 MHPAEA (i) provides an exemption only when costs increase by at least two percent in the first plan year the Act is applied or one percent in any subsequent plan year and (ii) provides that the exemption, if available, will apply only to the next plan year (e.g., ERISA §712(c)(2), as amended by 2008 MHPAEA §512(a)(3)(B)). Other changes to the requirements for the increased cost exemption may become apparent once the regulations are issued.
What Should Employers Do Now?
Employers should immediately take stock of the restrictions on mental health benefits and substance abuse benefits under their health insurance contracts and, in the case of self-insured arrangement, the management service agreements. It is not uncommon to see limits on the number of visits, significantly higher co-payments, and per visit caps on the insurance reimbursements unrelated to the usual and customary cost of services. If a group health plan sponsor decides to continue to provide benefits for mental health or substance abuse services, limitations like those just mentioned will have to be modified or eliminated depending on the plan’s design with respect to medical and surgical benefits. The insurance and other coverage contracts will have to be amended accordingly by the plan’s insurance providers.
Keep in mind that the statute itself provides operational requirements only, and does not explicitly require any general compliance statement. When regulations are issued, sponsors should revisit the issue whether such a compliance clause is necessary for the plan. Given the delayed effective date for the expanded protections, sponsors have time to give consideration to their approach in amending their plans.
New Requirements for Continued Health Insurance Coverage of College Students on Medically Necessary Leaves of Absence
On October 9, 2008, “Michelle’s Law” was enacted, amending ERISA, the Public Health Service Act, and the Internal Revenue Code. It is effective for plan years that begin on or after October 9, 2009, and on January 1, 2010, for calendar year plans.
Michelle’s Law applies to group health plans that provide insurance coverage to dependent children that is contingent upon the child’s status as a student enrolled at a postsecondary institution (e.g., ERISA §714(a)(3), §714(b)(2)(B), as added by Michelle’s Law §2(a)). The law requires that, upon a medically necessary leave of absence from the college, the plan must continue coverage for (i) at least one year following the first day of the medically necessary leave of absence or (ii) if earlier, until the date the coverage would have otherwise expired regardless of student status (e.g., ERISA §714(b)(1), as added by Michelle’s Law §2(a)). Such extended coverage shall continue with the same benefits as if student was not on a medically necessary leave of absence (e.g., ERISA §714(d), as added by Michelle’s Law §2(a)).
These requirements for continued coverage apply even if the student experiences a change in health insurance coverage or health insurance issuer: the rules are applied to the remainder of the period of the medically necessary leave of absence as if the changed coverage had been the previous coverage (e.g., ERISA §714(e), as added by Michelle’s Law §2(a)).