Bailout legislation expands mental health obligations for employer plans

Beginning with 2010 plan years, employer health plans and group health insurers will no longer be able to impose separate financial requirements or treatment limitations on mental health or substance use disorder benefits, under new mental health parity provisions contained in the economic bailout legislation signed into law by President George W. Bush on October 3.

These new provisions – formally, the “Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008” – greatly expand on the Mental Health Parity Act of 1997, which prohibited employer plans and group health insurers from setting lower annual limits and aggregate lifetime limits for mental health benefits than they did for other plan benefits. That restriction, however, applied only to dollar limitations, leaving plans free to retain limits based, for example, on inpatient days or office visits.

That won’t work anymore. Under the new Act, mental health and substance use disorder benefits offered under employer health plans (or by group health insurers) can no longer be subject to:

  • “Financial requirements” (including deductibles, copayments, coinsurance and out-of-pocket caps) that are more restrictive than the most common or frequent requirements applied to substantially all medical and surgical benefits; or
  • “Treatment limitations” (including limits on the frequency of treatment, number of visits, days of coverage or other similar limits in scope or duration) that are more restrictive than the most common or frequent requirements applied to substantially all medical and surgical benefits.

In addition to these no-more-restrictive standards, the Act also prohibits treatment limitations and financial requirements that specifically apply only to mental health or substance use disorder benefits. Earlier parity legislation allowed such separate treatment of mental health benefits.

In another significant departure from existing law, the Act’s parity requirements apply to benefits for treatment of substance abuse and chemical dependency. Congress defined “substance use disorder benefits” broadly as benefits for services related to “substance use disorders, as defined under the terms of the plan and in accordance with applicable Federal and State law.”

The new Act also specifically addresses out-of-network providers. If a plan or group health insurer covers medical and surgical services from out-of-network providers, it must also do so on the same basis for any mental health and substance use disorder benefits.

There is a cost-based exemption from these requirements built into the Act, though it would not give employers immediate relief. A one-year exemption from the Act’s requirements is available if complying raises the “actual total costs of coverage” – for medical and surgical and mental health and substance use disorder benefits combined – by more than 2% in the first year of compliance or 1% in later years.

Employers cannot use cost projections to support an exemption. Instead, an employer would have to comply with the Act for at least six months. Using that data, a licensed actuary would then have to determine, in a written report, that the plan’s “actual total costs of coverage” had increased beyond the 2%/1% standard. Once that determination is made, a plan would be allowed to forgo the Act’s requirements for one year, but would have to notify the federal government (most likely the Department of Labor for ERISA plans), along with appropriate state agencies and plan participants and beneficiaries, that it was utilizing the exemption.

Finally, the Act includes some increased disclosure requirements:

  • Medical necessity criteria for mental health or substance use disorder benefits would have to be made available (in accordance with regulations to be issued) to current or potential participants or beneficiaries or any contracting provider upon request. Participants themselves might have access to these materials already under ERISA rulings, but the Act provides new rights for potential participants and beneficiaries, along with providers.
  • Congress also appears to be trying to expand participant rights in the event of a benefit denial. Under the new Act, the plan administrator would, upon request, have to make available the reason for any denial of mental health or substance use disorder benefits (in accordance with regulations to be issued). It is unclear how this regimen differs from the current requirements under ERISA Section 503 and the related regulations, but federal regulators may well interpret the new Act as requiring something more than current law provides.

There is a special effective date for collectively bargained plans. For those health plans, the Act will not apply to plan years beginning before the later of: (1) January 1, 2009, and (2) the date on which the last of the collective bargaining agreements related to the plan terminates.