The Federal Mental Health Parity Act: New Law Requires Group Health Plan Benefit Parity
by Jan R. Newsom, Locke Lord Bissell & Liddell LLP, Dallas, TX
As part of the overall Economic Recovery legislation passed by Congress and enacted into law on October 3, 2008, the "Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008," known more commonly as the "Mental Health Parity Act," will result in significant changes to many employer benefit programs. According to the Wall Street Journal, the new legislation will apply to about 150 million people, including more than 32 million children and adults covered by Medicaid managed care programs. The law is generally effective for group health plans with plan years beginning on and after October 3, 2009 (one year after the date of enactment), with special provisions for plans subject to collective bargaining arrangements. It includes all employer group health plans subject to ERISA, insured or self-insured, except for small employer plans (those with 50 or fewer employees), as well as certain other plans not included under ERISA.
The new law amends ERISA, the Public Health Service Act, and the Internal Revenue Code to require that group health plans that provide both medical and surgical benefits and mental health or substance use disorder benefits, ensure that the financial requirements applicable to the mental health or substance use disorder benefits are no more restrictive than the "predominant" financial requirements applied to substantially all medical and surgical benefits covered under the plan; ensure that treatment limitations are also no more restrictive for mental health or substance use disorder benefits; and, ensure that there are no separate treatment limitations applicable only to mental health or substance use disorder benefits.
Equalization of Financial Requirements of Benefit Plans Required
The parity achieved by equalizing financial requirements includes deductibles, co-payments, coinsurance, and out-of-pocket expenses. Parity for annual and aggregate lifetime benefit limits continues to be required in accordance with the current version of the federal mental health parity law that addresses only mental health benefits. Treatment limitations that must be eliminated or brought in line with medical-surgical benefits include limits on the frequency of treatment, number of visits, days of coverage, or other similar limits on the scope or duration of treatment. Where the plan includes coverage for out-of-network providers of medical and surgical benefits, it must also provide comparable benefits for out-of-network treatment for mental health and substance use disorder benefits.
Exception Allowed Based on Proven Increased Cost
There is a rather complicated exception to the new requirements based on increased cost to the group health plan. If the application of the new parity requirements increases the total costs of coverage under the plan for the year involved by an amount that exceeds a statutorily established percentage, an employer may elect to file for an exception to providing the coverage for the next plan year. The percentage amount is 2 percent the first plan year that the benefits are calculated, and 1 percent for each subsequent year. The determination of the increases in actual costs must be made by a certified, licensed actuary in a written report retained by the group health plan (or sponsor) for a minimum of six years following the notification of benefit discontinuance. The calculations and related records are subject to audit by the federal agencies involved.
If a group health plan decides to seek an exception, the cost determinations shall be made after the plan has complied with the new requirements for the first six months of the plan year involved, with the exception to apply to the following plan year. Using the exception calculations also requires specific notices to the federal agencies and employees covered under the plan.
Employers Have Certain Flexibility in Providing Benefits
The law does NOT require a group health plan to provide mental health or substance use disorder benefits, but if the plan provides any benefits for either category of conditions, then it must provide the full-parity benefits for that condition. Employers may increase premiums for employees due to the provision of additional benefits, and may differ on which benefits to provide, with some covering major problems such as depression, schizophrenia and substance abuse, but not attention deficit disorders or other conditions. All three federal agencies are required to coordinate further implementing regulations. The new law specifies that its effective date is October 3, 2009--regardless of whether regulations have been issued.
Potential Impact of Changes
The new Mental Health Parity Act goes well beyond prior law that required parity only in annual and lifetime aggregate benefits, if any, for mental health conditions (excluding substance use disorders) and all other medical and surgical conditions. Many providers develop treatment plans for mental health and substance use disorder conditions around available benefits, so it is quite possible that standards of treatment will change as more benefits become available to covered participants under affected group health plans. The new law also redefines mental health benefits to mean those benefits as defined under the terms of the plan and in accordance with federal and state law, which, particularly with insured plans, could vary significantly from state to state. Exceptions based on the increased cost of new benefits require that the benefits first be put in place and utilized for a year before the plan is eligible to drop the parity provisions on the basis of increased costs. Most employers would find it difficult to increase benefits and then subsequently cut those benefits in later years, so the usefulness of the exception is somewhat in doubt, as well.
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