Federal Mental Health Parity: Brief Overview Francisca Azocar, PhD

1. Federal Mental Health Parity: Brief Overview Francisca Azocar, PhD June 27, 2010 Please note this presentation does not constitute substantive legal counsel/compliance advice and should not be relied upon as such.

2. General Rule and Categories Group health plans offering both medical/surgical benefits and mental health or substance use disorder benefits must ensure that the financial requirements and treatment limitations are no more restrictive than those predominately applied to substantially all medical/surgical benefits under the plan No coverage mandate – plans (or state law for insured plans) drive what is covered, but if you cover it, you must do so in parity 1. Financial Requirements: • Copayments • Coinsurance • Deductibles • Out-of-pocket maximums • Annual dollar limits on benefits* • Lifetime dollar limits on benefits* *Exceptions to Interim Final Rule per 1996 MHP Act requirements.

3. General Rule and Categories 2. Quantitative Limits (illustrative list, not exhaustive): Examples: • Day limits • Visit limits • Limits on number of episodes of treatment 3. Non-Quantitative Limits (illustrative list, not exhaustive): • Medical management standards limiting or excluding benefits based on medical necessity or medical appropriateness, or based on whether the treatment is experimental or investigative • Formulary design for prescription drugs • Standards for provider admission to participate in a network, including reimbursement rates • Plan methods for determining usual, customary and reasonable charges • Refusal to pay for higher-cost therapies until it can be shown that a lower-cost therapy is not effective (also known as fail-first or step therapy protocols) – Example: EAP gatekeeper models • Exclusions based on failure to complete a course of treatment

4. Benefit Category Classification Classification Type • The Rule establishes six benefit classifications: • Refers to a requirement or limitation of the same nature (e.g., copayments, coinsurance and deductibles are different types of financial requirements) • Compare type to type 1 Inpatient, In-Network 2 Inpatient, Out-of-Network 3 Outpatient, In-Network Level • Refers to varied magnitudes of a single type that may exist (e.g., copayments of $10, $20 or $30 based on service, each of those is a Level of the copayment Type) • Apply the predominant level 4 Outpatient, Out-of-Network 5 Pharmacy 6 Emergency Coverage Unit • Refers to groupings of individuals used to determine benefits, premiums or contributions (e.g., individual, individual + spouse, family, etc.) • Assess parity for coverage unit The Interim Final Rule organizes benefits by Classification You must align the Type, Level and Coverage Unit for each classification Parity is to be assessed classification by classification

5. Applying General Rule to Financial Requirements If Type applies to less than two-thirds of medical benefits in Classification, it may not be applied to MH/SUD benefits in the same Classification A If Type applies to two-thirds or more of medical benefits in Classification and only one Level, match that Level to comply B C If more than one Level, assess which level is “predominant” General Rule applied to financial requirements via defined formulaic test Assess parity by: Classification (e.g., Outpatient, In-Network) Type (e.g., copayment) Level (e.g., $20 general office visit/$40 specialist office visit) Formulaic test to determine: Does Type apply to “substantially all” medical/surgical benefits in the Classification? “Substantially all” is measured by total dollar amount for medical benefits in the classification. Plans may use any reasonable method to determine.

6. Applying General Rule to Financial Requirements A The Interim Final Rule makes clear that you may not use separate cumulative financial requirements (e.g., deductibles and out-of-pocket maximums) – these must be combined between medical and behavioral B Exception: annual and lifetime dollar limits may continue to be separate Formulaic test to determine: Which Level is “predominant”? “Predominant” is determined by the total dollar amount of plan benefit payments for which Type applies in that Classification; the Level considered predominant is one for which more than half of the total dollar amount is paid If no Level meets the more-than-half threshold, you can combine Levels until you exceed the one-half threshold and then align the requirement to the least restrictive of the combined Levels The key rules for Financial Requirements

7. Quantitative Treatment Limitations Quantitative treatment limitations (e.g., day and visit limits): Apply the same test as financial requirements Cumulative quantitative treatment limitations may not be separate! Inpatient, in-network limit of 60 days for medical and 60 days for MH/SUD does not comply, must have a single combined day limit

8. Non-Quantitative Treatment Limitations General parity rule is applied differently to non-quantitative treatment limits than for financial requirements and quantitative treatment limits • No “substantially all” or “predominant” test applies to non-quantitative treatment limits • The rule for non-quantitative treatment limits is stated as: The processes, strategies, evidentiary standards or other factors used in applying non-quantitative treatment limits must be “comparable”, and “applied no more stringently” for mental health and substance use disorder benefits, to the processes, strategies, etc. applied to medical/surgical benefits in the same Classification • Processes for applying medical management standards specifically include: pre-authorization, concurrent review, retrospective review, case management and utilization review

9. Parity for Group Health Plans and Exemptions Group Health Plans and Benefit Packages: Exemptions: • Rule requires all medical and MH/SUD benefits be treated as a single group health plan for purposes of determining compliance • Each benefit package and combination of medical and MH/SUD benefits which a plan participant must elect must be in parity Example: • XYZ, Inc. has three medical plan options (A), (B) and (C), and a single MH/SUD package for all employees (D) • Parity must be achieved for each combination of plans: A-D, B-D and C-D • Cost-Based Exemption • Rule provides no guidance on process to obtain; coming “shortly” • Rule did clarify the exemption is only good for one year and only available for a plan every other year – need to show plan experience to support cost exemption • Small Employer Exemption • Employers with 50 or fewer employees are exempt • Government-Sponsored Plan “Opt Out” • Established process under Public Health Services Act, applies only to self-insured government sponsored plans

10. State Law and Compliance State Law & Preemption: • Rule restated law’s preemption standard • Narrow standard – parity law and rule preempt state law only if the state law prevents application of the parity rule • Example: • State law autism mandates that specify an annual maximum dollar amount would appear to prevent application of Rule’s requirements Compliance: • Rule commentary notes that some areas remain undefined, and for those areas regulators will recognize “reasonable” approaches and efforts to comply • Areas that are clear in law and Rule – “egregious” violations will be the focus of enforcement