Plan Sponsors and Fiduciaries: Some Clarity on Mental Health Parity Compliance

A recently issued White House Fact Sheet, along with a regulatory package from the US Departments of the Treasury, Labor, and Health and Human Services (the Departments), provides some welcome clarity for plan sponsors and fiduciaries on the requirements imposed on group health plans by the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), while also raising key questions for stakeholders.

The regulatory package—which includes a News Release, a Technical Release, the 2023 MHPAEA Comparative Analysis Report to Congress, the 2022 Enforcement Fact Sheet, an MHPAEA Guidance Compendium, and a Proposed Rule—underscores the Biden administration’s focus on strengthening mental health and substance use disorder parity requirements in group health plans.

In a previous post, we previewed how the proposed rule seeks to increase mental health coverage through expanded plan oversight and implements the non-quantitative treatment limitation (NQTL) comparative analysis requirement added by the Consolidated Appropriations Act of 2021 (CAA).

Taken together, the regulatory package signals a change in how the Departments will enforce MHPAEA: with a clear focus on the outcomes of coverage rules that may limit access to mental health and substance use disorder (MH/SUD) benefits. The regulatory package also provides helpful guidance for stakeholders charged with evaluating the design and application of NQTLs in group health plans and demonstrating how such design and application complies with the MHPAEA.

BACKGROUND

Enacted in 2008, and bolstered by amendments in the CAA, MHPAEA does not mandate that group health plans provide MH/SUD benefits. If a group health provides MH/SUD benefits, MHPAEA mandates parity between MH/SUD benefits and medical/surgical benefits. At a high level, this mandate prohibits any undue limit on access to, or quality of, the MH/SUD benefits that a plan offers.

The Employee Retirement Income Security Act of 1974 (ERISA) incorporates MHPAEA and places responsibility for ensuring plan compliance on a plan’s fiduciaries. If coverage does not meet the parity requirements imposed by MHPAEA, plan fiduciaries are expected to take action to bring the plan into compliance. What’s more, if the MH/SUD benefits offered are in violation of MHPAEA’s requirements, the plan sponsor and plan fiduciaries are exposed to potential ERISA litigation.

PROPOSED REGULATIONS

The proposed rule amends the existing MHPAEA regulations with a renewed focus on NQTLs and creates a new regulation that codifies the CAA’s NQTL comparative analysis requirement. Both regulations require group health plans to collect and analyze data with respect to network composition, out-of-network reimbursement rates, prior authorization, and medical management techniques to show parity both in plan design and—for the first time—outcomes.

Health and Human Services is also proposing its own rule that includes a sunset provision for self-funded, non–federal governmental plan elections to opt out of compliance with MHPAEA, consistent with the CAA. That rule is outside the scope of this LawFlash.

Amendments to Existing Regulations

These amendments mainly focus on parity with respect to NQTLs. The current rules regarding financial requirements and quantitative treatment limitations (FR/QTLs) remain largely untouched, except to essentially codify certain clarifications that appeared in earlier FAQ guidance.

Purpose

The proposed rule includes a new “Purpose” section, which the Departments say is to prevent individuals from facing more restrictive limitations and requirements when accessing MH/SUD benefits compared to medical/surgical benefits.

Morgan Lewis Insight: While at first glance this may look like a throwaway provision, it signals the Departments’ shift in enforcing compliance with the statutory language of MHPAEA to actually ensuring parity in access to MH/SUD benefits.

Meaning of Terms

The proposed rules both amend existing definitions and add new definitions with the goal of providing clarity and guidance to group health plans when offering MH/SUD benefits. The proposed changes largely inform group health plans on what data they will be required to use when designing, applying, and analyzing parity with respect to NQTLs.

Morgan Lewis Insight: While even the new defined terms are mostly clarifications on concepts outlined in existing MHPAEA guidance, what’s particularly noteworthy are the amendments to the “Mental Health Benefits” and “Substance Use Disorder Benefits” definitions.

While historically the Departments gave group health plans some discretion in how they would define covered conditions under a plan for MHPAEA compliance purposes (as long as they are “consistent with generally recognized independent standards of current medical practice”), they now require group health plans to treat a condition as an MH or SUD if it is listed in any of the diagnostic categories (as applicable) in the ICD or DSM.

This means that any group health plan that covers Autism Spectrum Disorder must treat it as a mental health condition in compliance with MHPAEA. As a result, coverage for applied behavioral analysis (ABA) therapy will be subject to these proposed rules and cannot be excluded if the plan otherwise provides coverage for autism treatment.

NQTLs

The proposed rules still do not include a formal definition of what constitutes an NQTL, but the “illustrative, non-exhaustive list of NQTLs” has been updated. The changes include the following:

1. Explicitly including prior authorization requirements as an example of a medical management standard limiting or excluding benefits based on medical necessity or appropriateness.
2. Expanding the description of NQTLs related to network composition to include standards for provider and facility admission, reimbursement rate determinations, credentialing, and procedures for ensuring an adequate number of providers and facilities.
3. Broadening the method for determining out-of-network rates from just “usual, customary, and reasonable charges” to include other methods, such as allowed amounts or application of external benchmarks.

Morgan Lewis Insight: We anticipate that the Departments will focus on these new and broader examples of NQTLs with respect to their enforcement of MHPAEA.

The proposed rules also set forth a three-pronged test for MHPAEA compliance with respect to NQTLs:

1. NQTLs must not be more restrictive when applied to MH/SUD benefits as compared to medical/surgical benefits. This requires group health plans to conduct a “predominant/substantially all” test, similar to what’s been historically required for financial requirements and quantitative treatment limitations. The rules, however, acknowledge that certain NQTLs may be based on independent professional medical or clinical standards or standards related to fraud, waste, and abuse. In such cases, the NQTLs would not be considered in violation of this “no more restrictive” requirement.
2. Group health plans must meet specific requirements related to the design and application of NQTLs. Here is where the Departments kept the concept that the “processes, strategies, evidentiary standards, and other factors” used to apply the NQTL to a MH/SUD benefit must be comparable to what is used to apply an NQTL to medical/surgical benefits, and now require that plans consider them when designing the NQTL in the first place. The rule establishes that group health plans are prohibited from relying on any factor or evidentiary standard that discriminates against MH/SUD benefits, as evidenced by less favorable treatment of such MH/SUD benefits.
3. Group health plans must collect, evaluate, and address relevant data on access to MH/SUD benefits as compared to medical/surgical benefits. This includes the number and percentage of claim denials, as well as network composition standards, including utilization rates, provider reimbursement rates, and other data on providers (e.g., time and distance data, whether providers are accepting new patients). There is an exception for group health plans that are unable to address material differences due to provider shortages. Such plans can avoid being cited for noncompliance with MHPAEA if they can demonstrate that they made other efforts to comply with the law. Plans that wish to rely on this exception will need to document actions taken to otherwise address these disparities.

In addition to the exceptions that apply to the specific prongs outlined above, there are two overall exceptions for independent professional medical or clinical standards, and standards to detect or prevent and prove fraud, waste, and abuse. For an NQTL to be eligible for the first exception, it must apply recognized independent medical or clinical standards to both medical/surgical benefits and MH/SUD benefits in a neutral manner, with no variations.

The second exception allows for NQTLs that aim to identify and prevent fraud, waste, and abuse, but these must be established on objective and impartial data. These NQTLs must be narrowly designed to minimize any adverse effects on access to appropriate MH/SUD benefits.

Morgan Lewis Insight: This three-pronged test eliminates much of the discretion that group health plans are currently able to rely on when designing and applying NQTLs. Historically, the Departments insisted that group health plans focus on the processes and strategies when designing their NQTLs and acknowledged that the outcomes were not expected to be the same. This represents a huge shift in enforcement priorities.

New Regulations

Pursuant to the CAA, a group health plan is required to provide a copy of its written comparative analysis to the Departments upon request. The comparative analysis is intended to demonstrate that the processes, strategies, and factors the group health plan used to apply an NQTL to a MH/SUD are comparable to and not more stringent than those used for medical/surgical benefits.

Content of the Comparative Analysis

The proposed regulations set forth six specific content requirements for these analyses:

1. A description of the NQTL
2. Identification and definition of the factors used to design or apply the NQTL
3. A description of how factors are used in the design or application of the NQTL
4. A demonstration of comparability and stringency, as written
5. A demonstration of comparability and stringency in operation
6. Findings and conclusions

Additionally, group health plans would need to prepare and provide a written list of all NQTLs imposed under the plan, along with a general description of information used in preparing each comparative analysis. The proposed rules provide that the analyses should address material differences in outcomes and any measures taken to mitigate disparities. The named fiduciary is required to certify and confirm compliance with these content requirements.

Requirement to Provide Comparative Analyses and Notices

The proposed rules provide that group health plans must be prepared to provide their comparative analyses to the Departments upon request. Plans will be given 10 business days to submit the comparative analysis; extensions may be granted on a case-by-case basis. If a group health plan’s comparative analysis is deemed insufficient, the Departments will specify additional information that must be submitted to address the request.

Morgan Lewis Insight: ERISA group health plans must also make comparative analyses available to participants, beneficiaries, and authorized representatives within 30 days upon request, which was not required under the CAA. Group health plans should be performing and documenting their comparative analyses given the short turnaround time group health plans have for submitting their comparative analyses to the Departments. Comparative analyses should be kept up to date and reflect current plan terms and design, which may require an annual review.

If the plan is found to be noncompliant after an initial review, it must provide a corrective action plan and additional comparative analyses demonstrating compliance within 45 calendar days of the determination. A final determination of noncompliance will trigger the requirement for the plan to provide a standalone notice to participants and beneficiaries, as well as relevant parties, within seven calendar days. The notice must contain specific information, including the plan’s noncompliance status, actions taken for correction, and contact information for questions and complaints.

The notification to participants and beneficiaries will likely lead to litigation in this area. While the proposed rules do not provide for an additional private right of action, participants and beneficiaries can presumably sue under ERISA Section 502(a).

Applicability

The proposed rules would apply on the first day of the first plan year beginning on or after January 1, 2025. Until that date, group health plans will need to continue complying with the existing regulations and guidance.

With respect to the comparative analysis, however, the Departments emphasize that the statutory provisions added by the CAA have been in effect since February 10, 2021, and group health plans should continue performing and documenting comparative analyses in accordance with the statutory requirements. Group health plans will need to make those comparative analyses available to the Departments or applicable state authorities before the proposed applicability date of these rules.

Technical Release: Enhancing Network Composition

Alongside the proposed rules, the Departments also issued Technical Release 2023-01P seeking public comment to inform guidance under the proposed rule. The Technical Release sets standards regarding the implementation of relevant data and information that group health plans are required to gather and analyze for existing NQTLs related to network composition to demonstrate compliance with MHPAEA.

The Technical Release highlights the growing concern about the impact of NQTLs on access to MH/SUD benefits compared to medical/surgical benefits and notes that there are disparities in reimbursement rates between in-network MH/SUD providers and medical/surgical providers, leading to more frequent use of out-of-network providers for MH/SUD benefits. The release aims to gather input from stakeholders to streamline the data collection and evaluation process for NQTLs related to network composition.

The four specific data elements highlighted in the Technical Release are

1. Out-of-Network Utilization
2. Percentage of In-Network Providers Actively Submitting Claims
3. Time and Distance Standards
4. Reimbursement Rates

The Technical Release requests that the public answer 12-14 detailed questions for each data element (including additional subquestions) as well as a series of 18 questions (and subquestions) about how the Departments should implement the data collection requirements.

The Departments envision future guidance would be issued with two components:

1. Specifying the type, form, and manner of data that plans and issuers must collect and evaluate for NQTLs related to network composition; and
2. Defining standards and a potential enforcement safe harbor for plans and issuers that demonstrate compliance with NQTL requirements for MH/SUD and medical/surgical benefits.

The proposed safe harbor would provide enforcement relief for two calendar years if a plan demonstrates equal access to in-network MH/SUD and medical/surgical benefits. In order to maintain such safe harbor relief, plans cannot make changes in benefit design or to the processes, strategies, evidentiary standards, and other factors used to design or apply the plan’s/carrier’s NQTLs related to network composition that further restrict MH/SUD benefits or increase medical/surgical benefits without comparable increases to MH/SUD benefits.

Morgan Lewis Insight: While this safe harbor is a high bar to meet, it would provide welcome enforcement relief so that plans can relax knowing that they are compliant for at least two calendar years.

OTHER GUIDANCE

One piece of guidance that was not included in the latest regulatory package was an updated MHPAEA Self-Compliance Tool, the last of which was published by the DOL in 2020. We expect an updated Self-Compliance Tool will be issued at some point in the future, but it is unknown when that may be.

Morgan Lewis Insight: Plans should continue to utilize the 2020 MHPAEA Self-Compliance Tool until an updated version is issued when assessing its compliance with MHPAEA and drafting the required comparative analyses.

CONCLUSION

The Departments seek feedback on all aspects of the proposed rules, including clarifications that would assist plans and issuers in performing and documenting sufficient comparative analyses. They are also interested in understanding the challenges faced by plans and issuers in obtaining necessary information for conducting these analyses.

Comments on the proposed rules are due by October 2, 2023. If there is any specific feedback you would like to provide, we would be happy to work with you on a submission or pass along your feedback to one of the employee benefits public policy organizations that are working on a collective submission.