Landmark Mental Health Parity Final Rule: What Plan Sponsors and Insurers Need to Know

BACKGROUND

The rules governing mental health parity have evolved over the last several decades. In 1996, Congress enacted the Mental Health Parity Act of 1996, which required parity in aggregate lifetime and annual dollar limits for mental health benefits and M/S benefits. The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) expanded the Mental Health Parity Act of 1996 by adding new requirements, including provisions to apply mental health parity to substance use disorder benefits. At a high level, MHPAEA generally requires that group health plans and group health insurance issuers ensure that (1) the financial requirements and treatment limitations applicable to MH/SUD benefits are no more restrictive (e.g., not permitting more restrictive lifetime or annual dollar limits, financial requirements, or treatment limitations) in writing or operation than those applicable to M/S benefits, and that (2) there are no separate financial requirements or treatment limitations applicable only with respect to MH/SUD benefits.

The CAA 2021 expanded MHPAEA by expressly requiring health plans that cover both M/S and MH/SUD benefits and impose NQTLs on MH/SUD benefits to perform and document their comparative analyses of the design and application of NQTLs beginning on February 10, 2021. Many recent Department audits of health plans have focused heavily on MHPAEA compliance. Since 2021, the Departments have also performed MHPAEA compliance-specific audits of health plans, which have not revealed satisfactory compliance to date.

THE FINAL MHPAEA REGULATIONS

The final regulations generally follow and adopt most of the provisions of the 2023 proposed regulation, which attracted nearly 10,000 comment letters. While the final regulations modify the proposed regulations in a handful of welcome respects, the fundamental structure of the proposed regulations remains intact.

• Definition of Key Terms

The final regulations carry forward the definitions set out in the proposed regulations with minor changes. Terms such as “medical/surgical benefits,” “mental health benefits,” and “substance use disorder benefits” are defined with reference to generally accepted standards of current medical practice. Importantly, the proposed regulations referred to state law and guidelines as a basis for establishing those standards for purposes of MHPAEA compliance but now refer solely to the International Classification of Diseases (ICD) and the American Psychiatric Association Diagnostic and Statistical Manual of Mental Disorders (DSM). New definitions have also been adopted substantially as proposed to describe the basic components of NQTL design and application. These include “processes,” “strategies,” “evidentiary standards,” and “factors.” Finally, the final rule adopts the proposed regulations to affirm that the list of illustrative treatment limitations is non-exhaustive and that a complete exclusion of benefits for a particular condition is not a treatment limitation.

• Demonstrating NQTL Compliance

The proposed rule would have established a three-pronged test, which included a “substantially all” requirement. Counterintitively, the “substantially all” test in the proposed rules would have applied to NQTLs a quantitative test similar to the test that currently applies to financial and quantitative treatment limitations. The requirement was roundly criticized in comments and the Departments abandoned it in the final regulation – a change that plan sponsors and issuers will likely welcome. The other two requirements relating to plan design and data evaluation were adopted with minor modifications.

In another significant change from the proposed regulations, separate exceptions relating to the design of NQTLs for generally recognized independent professional medical or clinical standards and for reasonable and appropriate measures to detect or prevent and prove fraud and abuse were not carried over into the final regulation. These exceptions were instead relegated to the status of factors that influence the NQTL design. Going forward, plans and issuers that rely on independent professional medical or clinical standards or fraud and abuse measures must comply with the general rule of the design and application requirement. If such a standard or measure is used as an NQTL, the plan or issuer also must comply with the relevant data evaluation requirements.

• The “Meaningful Benefit” Requirement 

Under the proposed regulations, a plan or issuer would not have been considered to provide MH/SUD benefits in every classification in which M/S benefits were provided unless, among other things, the plan or issuer provided “meaningful benefits” for the treatment for that condition or disorder in each such classification. This is an anti-abuse rule. Its purpose is to prevent plans or issuers from covering a broad range of M/S conditions while providing only limited MH/SUD benefits in the classification. The final regulations retain the meaningful benefit requirement but with some modifications. To qualify as “meaningful,” the plan or policy must cover a “core treatment” for each MH/SUD condition or disorder in each classification in which the plan covers a core treatment for one or more M/S benefits. This meaningful benefits requirement has been widely criticized as creating a benefit mandate and is arguably inconsistent with the intent of MHPAEA and may be vulnerable to litigation challenges.

• NQTL Contents

The final regulations adopt with little change the proposed content requirements for NQTL comparative analyses, consisting of six core content elements. They also specify how plans and issuers must make such a comparative analysis available to the Departments – within 10 business days of receiving a request – and any applicable state authority, participants, and beneficiaries upon request.

• Fiduciary Certification

The proposed regulations would have required a named Employee Retirement Income Security Act fiduciary to certify whether they found the plan’s comparative analysis of NQTLs to comply with the CAA 2021 NQTL content requirements. While the final regulation retains the fiduciary certification requirement, it cuts back substantially on the scope of the certification. Going forward, fiduciaries are merely required to confirm their engagement in a prudent process to select one or more qualified service providers to perform and document a comparative analysis in connection with the imposition of any NQTLs. According to the preamble to the final regulation, this will require the fiduciary to, among other things, “review the comparative analysis prepared by or on behalf of the plan with respect to an NQTL; [and] ask questions about the analysis and discuss it with service providers, as necessary, to understand the findings and conclusions documented in the analysis.” Practically, given the lack of service providers available to perform and document a comparative analysis and the unwillingness of major third-party administrators to provide assistance, plan sponsors will need to determine a path forward to meet this requirement.

In the preamble to the final regulations, the Departments explain that provisions added to MHPAEA by the CAA 2021 are self-implementing and have been in effect since February 10, 2021. The new features of the final regulations generally take effect for group health plan years commencing on or after January 1, 2025. However, certain of the regulations’ requirements, including the meaningful benefits standard, the prohibition on discriminatory factors and evidentiary standards, the relevant data evaluation requirements, and guidance regarding the design and scope of the comparative analyses apply in plan years commencing on or after January 1, 2026.

We foresee numerous difficulties for health plan sponsors in implementing the final regulations. Among these are the small headcount of individuals in a typical company benefits department which make meeting the ever-expanding regulatory requirements an uphill battle, the lack of willing third-party vendors to assist plans and plan sponsors with mental health parity compliance, and the continuing lack of clarity in how the rules apply. Given a recent US Supreme Court decision in Loper Bright Enterprises v. Raimondo effectively limiting deference to agency interpretations of ambiguous statutes, we anticipate that there may be legal challenges to the application of these MHPAEA final regulations. In the meantime, health plan sponsors and fiduciaries should work closely with their legal counsel and any third-party vendors to develop a compliance plan in light of approaching deadlines for MH/SUD benefits that may have already been finalized for the 2025 plan year.

For any questions regarding mental health parity, please contact your regular McDermott lawyer or one of the authors.