ABA Health eSource
March 2010 Volume 6 Number 7

Will the Mental Health Parity and Addiction Equity Act of 2008 Successfully Encourage Employers to Provide Benefits for Inpatient Mental Health Treatment?

By John T. Seybert, Esq. and Edward Stumpp, Esq., Sedgwick, Detert, Moran & Arnold, LLP 1

AuthorAuthorFor more than four decades, lawmakers have struggled to enact laws requiring employee benefit plans to provide mental health treatment benefits to participants subject to the same terms, conditions and limitations as the medical treatment benefits afforded under the same health benefit plan. 2 Most attempts at reaching this goal have failed to achieve such parity, particularly with respect to inpatient mental health treatment. The question addressed in this article is whether the enactment of The Mental Health Parity And Addiction Equity Act of 2008 (“MHPAEA”) effective October 3, 2009 3 and the interim rules released on February 2, 2010, effective April 5, 2010, will finally achieve such parity. 4

The Dispute Over Whether Residential Treatment Is Medically Necessary

Mental illness or drug addiction can have a profound effect on the individual as well as his or her family and friends. 5 In many cases, the mental health provider recommends inpatient treatment for approximately twenty-eight days to remove patients from their “toxic” environment to a controlled residential facility.

Most insurance companies, however, will not provide coverage for residential treatment for mental illness or addiction unless the services are deemed “medically necessary.” In general, a plan defines “medically necessity” as “accepted medical practice or community standards of care; not for the convenience of the patient or provider; not experimental or investigational; and appropriate and effective.” 6 The Employee Retirement Income Security Act of 1974 (“ERISA”), which governs a majority of health benefit plans in this country, requires the claim fiduciary to consult with an appropriate medical provider in making any decision on administrative appeal involving medical judgment. 7 Many state laws also require a medical provider to make decisions as to whether treatment is medically necessary.

The debate at the heart of the matter is whether less intense treatment is appropriate in lieu of inpatient treatment. In many cases, outpatient treatment may be just as effective. 8 In other cases, outpatient care may not be sufficient; i.e. when a patient is a danger to himself or others.

Many advocates for coverage of inpatient mental health treatment make the claim that the treatment is necessary to avoid harm to claimants. For example, in Rubin-Schneiderman v. Merit-Behavioral Care Corp., 9 the plaintiff sought consequential damages associated with his failed suicide attempt. The plaintiff alleged that the insurance company’s decision to only provide benefits for outpatient care was wrong and had his coverage for inpatient treatment been approved, he would not have been able to attempt suicide. The U.S. Court of Appeals for the Second Circuit affirmed the district court’s dismissal of the claim because the consequential damages plaintiff sought were not available under the ERISA §502(a)(3), 29 U.S.C. §1132(a)(3). 10 As a result of a young child committing suicide while trying to obtain benefits for inpatient mental health treatment, the New York legislature passed “Timothy’s Law,” which requires health insurers doing business in the state and providing inpatient hospital care coverage to also provide coverage for inpatient mental health treatment. 11 Most other states similarly mandate health insurance companies to provide either a minimum mental health benefit or parity between medical and mental health benefits. 12

In general, the question of whether inpatient or outpatient treatment is appropriate only arises when the treating mental healthcare provider recommends inpatient treatment. Since the decision to approve benefits for inpatient treatment is generally reviewed by another medical doctor, a denial of those benefits often leads to a number of disputes as treating psychiatrists or psychologists feel their treatment decisions are being questioned. 13 Most states afford an enrollee an opportunity to appeal an insurance company’s adverse benefit determination through a statutory procedure. 14 In New York, approximately 70 percent of the appeals filed with the N.Y. Department of Insurance challenging a denial of coverage for inpatient rehabilitation services due to lack of medical necessity have been upheld by independent medical reviewers. 15 Studies in California showed that for the years 2001 and 2002, Independent Medical Review (“IMR”) conducted by the Department of Managed Health Care for mental health benefits resulted in denials being upheld or withdrawn 68 percent of the time and overturned 32 percent. 16

Residential Treatment May Not Be “Covered” For Reasons Other Than Medical Necessity

Many times a denial of coverage for inpatient mental health services has nothing to do with medical necessity. For example, in Anonymous Oxford Health Plan Member v. Oxford Health Plans (N.Y.), Inc., the plaintiff commenced a putative class action on behalf of his daughter (and other similarly situated enrollees) seeking coverage for treatment received in an out-of-network residential treatment facility. 17 The plan documents in that case established that there was no coverage for out-of-network residential mental health care treatment and the court dismissed the action. Also, in Dupree v. Holman Professional Counseling Centers, the U.S. Court of Appeals for the Ninth Circuit affirmed the denial of coverage for out-of-network residential treatment services because coverage for those services was excluded under the terms of the plan. 18

Most insurance plans limit the amount of days an enrollee is entitled to receive benefits regardless of whether residential treatment is determined to be medically necessary. This is generally done in order to cap a plan’s financial liability. 19 Accordingly as a result, these benefits may exhaust before treatment is completed. 20

A final common misconception is that a mental health benefit claim may seek benefits for services that are not “covered” when the claim is not paid in full. For example, most plans provide financial incentives to encourage participants to use in-network benefits, even if the plan provides coverage for out-of-network benefits by allocating greater out-of-pocket financial responsibility to an enrollee for out-of-network benefits. These financial requirements generally include payment of a deductible, co-insurance and co-payments, which can be significant. 21 These out-of-pocket costs sensitize patients to the costs of the services that they are seeking, but are often misconstrued as a failure by the health plan to pay claims for covered benefits. 22

Does The MHPAEA And Its Interim Rules Address These Issues?

The MHPAEA applies to employer groups with more than fifty employees offering group medical and mental health benefits. 23 It requires such plans to provide substantially the same financial requirements and treatment limitations for mental health benefits as those provided for medical benefits under that same plan. 24 So, if an employer’s group plan does not offer mental health coverage, it is not required to provide that coverage under the new MHPAEA. 25 However, to the extent such group plan does offer mental health benefits, the coverage must be the same as provided for medical healthcare.

Specifically, the MHPAEA and the interim rules require that “nonquantitative treatment limitations” must be in parity for both medical and mental health benefits. These limitations include medical management standards and calculation of usual, customary and reasonable reimbursement rates. 26 The interim rules state that a plan may not provide for concurrent review of mental health services for medical necessity if the plan does not require the same concurrent review for medical services. 27 In other words, a plan cannot apply a more stringent standard for mental health services than it does for medical health benefits. The interim rules also state that where the processes for determining medical necessity are the same for mental health and medical services, the nonquantative parity requirement is met even if the benefits that ultimately result are not equal between mental health and medical services. 28

The MHPAEA requires that if a group plan offers mental health coverage and offers out-of-network medical or surgical benefits, it must also offer coverage for out-of-network mental health services. 29 In contrast, if a plan does not offer inpatient out-of-network medical benefits, it is not required to offer inpatient, out-of-network mental health benefits. 30

The MHPAEA mandates that group health plans provide equal treatment limitations for mental health services as it does for medical and surgical benefits. Treatment limitations include restrictions on frequency of treatment as well as the maximum number of visits or days of coverage. 31 A plan may also place a lifetime cap on mental health benefits as long as it is equal to the lifetime cap for medical benefits. 32

Finally, the MHPAEA obligates a plan to require the same financial requirements for mental health services as for medical and surgical benefits based on the “predominant financial requirements applied to substantially all medical and surgical benefits covered by the plan.” 33 The interim rules explain that a plan may have different financial requirements for inpatient in-network treatment rather than inpatient out-of-network treatment. But the interim rules use weighted averages among certain classifications of benefits to determine if there is parity between the mental health and medical benefits. 34

It is important to recognize the MHPAEA’s limitations. The MHPAEA does not mandate minimum mental health benefits but rather requires that those benefits to the extent provided in an employee benefit plan be in parity with the medical benefits offered under the plan. In other words, the MHPAEA is premised on the assumption that employers will continue to offer both mental health and medical benefits. But an employer may choose to stop offering mental health benefits completely and no longer be subject to the MHPAEA parity requirements. 35 An employer may also choose to reduce medical benefits in order to reduce the financial liabilities for providing equal mental health benefits. Thus, the MHPAEA is only effective in expanding coverage for mental health benefits to the extent an employer wants to provide robust medical benefits and provide mental health benefits under the same plan.

Will Parity Be Achieved For Inpatient Mental Health Benefits?

While the MHPAEA is directed at addressing the key issues associated with inpatient, residential treatment for mental health care, the increased costs to plans remains to be seen. Congress has allocated funds to study the added cost of these mandated benefits. Accordingly, only time will tell if this long anticipated legislation and the promulgated interim rules will achieve the desired results or will discourage employers from providing the same level of medical benefits in order to reduce their obligations to comply with federal requirements to provide equal mental health benefits.

1 John T. Seybert is an associate in Sedgwick, Detert, Moran & Arnold, LLP’s New York City Office. Edward Stumpp is an Special Counsel in Sedgwick’s Los Angeles Office. Both are members of the firm’s national Healthcare Group.
2 Jessica Dye, Agencies Roll Out Rules On Mental Health Coverage, Law 360 (Feb. 3, 2010); see alsoObama Administration Issues Rules Requiring Parity For Substance Abuse Disorders, U.S. Dept. Of Health & Human Servs., www.hhs.gov/news/press/2010pres/01/20100129a.html . Timothy Lake, A Snapshot of the Implementation of California's Mental Health Parity Law,Mathematica Policy Research, Inc. (March 2002) http://www.chcf.org/topics/healthinsurance/index.cfm?itemID=19736
3 Employee Retirement income Security Act of 1974 (“ERISA”) §712, 29 U.S.C. §1185a. Centers for Medicare & Medicaid Services, Details for: The Mental Health Parity And Addiction Equity Act of 2008 (MPHAEA), Jan. 29, 2010, www.cms.hhs.gov/pf/ .
4 The laws will affect insurance plans commencing July 1, 2010. Interim Final Rules Under The Paul Wellstone And Pete Domenici Mental Health Parity And Addiction Equity Act of 2008; Final Rule; 75 Fed. Reg. 5,410 (2010) (the “ Interim Rules”)
5 Newsday’s series on Heroin on Long Island. See www.newsday.com/heroin .
6 Sherry A. Glied & Richard G Frank, Shuffling Toward Parity—Bringing Mental Health Care Under The Umbrella, New Eng. J. Med., July 10, 2008, p. 113 (quoting Berthgold LA. Medical Necessity: do we need it?”) (emphasis supplied).
7 29 C.F.R. §2560.503.1(h)(2)(iii); N.Y. Ins. Law §§4902(a)(1); 4912(b)(1) (McKinney’s 2008) (requiring that a Medical Director review a claim involving medical necessity before it is submitted to the N.Y. external review agent).
8 Daniel le Grange, PhD & James Lock, M.D., Treating Bulimia in Adolescents: A Family-Based Approach (The Guilford Press 2007).
9 193 Fed. Appx. 70 (2d Cir. 2006).
10 Rubin Schneiderman, 193 Fed. Appx. at 70.
11 Timothy’s Law: N.Y. I NS . L AW §3221(l)(5)(A)(i) (2007) requires all group health insurance polices issued after January 1, 2007 for employers of 50 or more to provide at least thirty days of inpatient mental health coverage.
12 National Conference Of State Legislatures, State Laws Mandating Or Regulating Mental Health Benefit , .
13 See Black & Decker Disability Plan v. Nord, 538 U.S. 822, 825 (2003).
14 See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002) (holding that Illinois statute requiring an independent medical review of a health maintenance organization’s denial of a medical procedure on medical necessity grounds was not preempted by ERISA)
15 Michael Amon, New Look At Rehab Denials, Newsday, Dec. 17, 2009, p. A7.
16 Kenneth H. Chuang, Independent Medical Review Of Health Plan Coverage Denials: Early Trends, Health Affairs, 23, no. 6 (2004): 163-169 doi: 10.1377/hlthaff.23.6.163 ).
17 No. 08 Civ. 943 (PAC), 2009 WL 667237 (S.D.N.Y. Mar. 16, 2009).
18 572 F.3d 1094 (9th Cir. 2009).
19 Sing, M., Hill, S. & Puffer, L. (2001), Special Report: Improving Mental Health Insurance Benefits Without Increasing Costs. A copy is obtainable at http://mentalhealth.samhsa.gov/publications/allpubs/SMA-01-3542/default.asp .
20 See Fay v. Oxford Health Plans, Inc., 287 F.3d 96, 105 (2d Cir. 2002) (noting that skilled-nursing care was limited to 200 home care visits).
21 See Michael H. Bernstein & John T. Seybert, Everyone Pays The Price When Healthcare Providers Waive Patents’ Co-Insurance Obligations, ABA, The Health Lawyer, p. 20 (Dec. 2008).
22 See SAMHSA’s Special Report, supra note 19 (noting that one study found mental health services to double when there was a reduction in the out-of-pocket cost sharing obligations).
23 Interim Rules; supra. note 4 , 75 Fed. Reg. 5,418 (2010). The MHPAEA also provides an additional exemption for those plans that can demonstrate that the increased costs associated with compliance will increase the plan costs by 2% in the first plan year and 1% in each subsequent year. See ERISA §712(a)(2), 29 U.S.C. 1185a(a)(2).
24 Interim Rules; supra. note 4 ,, 75 Fed. Reg. 5,418 (2010) (an employer is prevented from creating two separate plans to avoid creating parity).
25 ERISA §712(b), 29 U.S.C. §1185a(b); s ee N.J. Dept. Of Ins., 2010-2 Bulletin, n. 5 (Jan. 14, 2010).
26 See Details for The Mental Health Parity And Addiction Equity Act of 2008 (MPHAEA), supra. note 3.
27 Interim Rules; supra. note 4 , , 75 Fed. Reg. 5,443 (to be codified at 29 C.F.R. §2590.712(c)(4)(iii)).
28 Id. (Example 3).
29 ERISA §712(a)(5), 29 U.S.C. §1185a(a)(5); see Details for: The Mental Health Parity And Addiction Equity Act of 2008 (MPHAEA), supra. note 3; N.Y. Dept. Of Ins., 2009-20 Cir. Letter (Sep. 10, 2009).
30 Id.
31 N.Y. Dept. Of Ins., 2009-20 Cir. Letter, supra note 31.
32 29 C.F.R. §146.136(b)(4) (Example 1).
33 ERISA §712(a)(3)(A)(ii); 29 U.S.C. §1185a(a)(3)(A)(ii).
34 29 C.F.R. §146.136(c)(4).
35 It is important to note that the Interim Rules have deemed that “all medical care benefits provided by an employer or employee organization constitute a single group health plan.” Interim Rules,supra note 4 , , 75 Fed. Reg. 5,417. This rule has been proposed to avoid “a potential evasion of the parity requirements by allocating mental health or substance use disorder benefits to a plan or benefit package without medical/surgical benefits (when medical/surgical benefits are also otherwise available).” Id. at 5,418.
36 Subtitle B—Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, Public 110-3443, sect. 9812. (2008).

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