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The MHPAEA Proposed Rule: Scalability and the Plight of the Small(er) Self-Funded Plan

by | Jan 4, 2024 | , ,

After a brief hiatus to discuss the pleading standards adopted by the US Court of Appeals for the Tenth Circuit in E.W. v. Health Net Life Insurance Company, we return to our examination of the comments submitted in response to the proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA). The US Departments of Labor, Health and Human Services and the Treasury (the Departments) issued the proposed regulations in 2023. Our previous MHPAEA content is available here.

In this post, we examine the impact of the proposed regulations on small and medium-sized self-funded plans through the lens of a National Association of Benefits and Insurance Professionals (NABIP) comment letter.

The MHPAEA governs the conduct of group health plans and health insurance issuers. This structure works fine in the case of fully insured group health plans, since compliance by the issuer or carrier generally results in compliance by the plan. The former acts on the latter’s behalf. The calculus is different, however, in the case of self-funded plans that typically rely on third-party administrators for their MHPAEA compliance. Often, the third-party administrator is also a licensed carrier that is providing services on an “administrative services only” basis. Here, the group health plan alone bears the responsibility for MHPAEA compliance even though, as a practical matter, the plan will rely heavily, if not entirely, on its administrative services only provider to comply.

One of the attractions of self-funding is that the plan has the ability (in theory) to customize plan design features and strategies, including mental health benefits. In practice, only large employers have the bargaining leverage to modify their group health plan’s design features, however. Other employers are essentially beholden to their service provider(s) for their mental health benefits and other plan designs. To date, that compliance has been less than robust. See, e.g., a comment letter submitted by the state attorneys general of New York, California, Colorado, Delaware, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, Oregon, Pennsylvania, Rhode Island, Vermont and Washington addressing their efforts to enforce their mental health and substance use parity laws against carriers. In this sense, then, it can be said that MHPAEA compliance does not “scale.” As a plan’s leverage over its service providers decreases, so does its design flexibility and options.

There is another, perhaps more basic, sense in which the MHPAEA rules do not scale. The cost of compliance can be substantial. That cost may be manageable when spread over hundreds of thousands of covered lives but not so much when spread over hundreds of lives. The net effect of this disparity is that small plans will likely be forced to adopt far simpler, prepackaged and potentially less effective nonquantitative treatment limitation (NQTL) design strategies.

The NABIP’s comment letter addressed the following issues, principally from the perspective of self-funded plans:



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Parsing MHPAEA Claims Under the Proposed Rule: E.W. v. Health Net Life Insurance Company

by | Dec 28, 2023 | ,

In a series of recent posts, we have examined a sampling of comments submitted in response to proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA). The proposed regulations were issued earlier this year by the US Departments of Labor, Health and Human Services and the Treasury (the Departments). Our previous MHPAEA content is available here.

This post considers a MHPAEA-related case decided by the US Court of Appeals for the Tenth Circuit, E.W. v. Health Net Life Insurance Company (available here). The case is notable because it represents the first US court of appeals to establish the elements required to state a claim under the current 2013 MHPAEA final regulations; it also provides us with an opportunity to consider how things might differ if the proposed regulation is adopted as a final rule.

Health Net involved a claim against Health Net Insurance Company and Health Net of Arizona, Inc. (collectively, Health Net) by the parents of a minor (I.W.). I.W. was admitted to a subacute care facility (an adolescent mental health residential treatment center), but her stay was cut short because it was determined that her treatment was no longer medically necessary. The determination of medical necessity was based on the application of the McKesson InterQual Behavioral Health 2016.3 Child and Adolescent Psychiatry Criteria (the InterQual Criteria).

At trial, the plaintiffs claimed that Health Net violated the MHPAEA by imposing medical necessity criteria for mental health benefits that were more stringent than those for medical/surgical benefits. The district court did not agree. On appeal, the Tenth Circuit reversed the MHPAEA claim based on the 2013 MHPAEA final regulations. (There was also an Employee Retirement Income Security Act-related claim, the dismissal of which by the district court was affirmed by the Tenth Circuit.) The Tenth Circuit held the medical necessity criteria applied by the plan to medical/surgical benefits in a subacute setting was less stringent than analogous, intermediate-level metal health benefits. In its holding, the court fashioned the following test under which, to state a claim under the MHPAEA, a plaintiff must:

  1. Plausibly allege that the relevant group health plan is subject to the MHPAEA;
  2. Identify a specific treatment limitation on mental health or substance use disorder benefits covered by the plan;
  3. Identify medical or surgical care covered by the plan that is analogous to the mental health or substance use disorder care for which the plaintiffs seek benefits; and
  4. Plausibly allege a disparity between the treatment limitation on mental health or substance use disorder benefits as compared to the limitations that defendants would apply to the medical or surgical analog.

Item (1) was not in dispute; the relevant group health plan was clearly subject to the MHPAEA. The court instead focused on, and dealt exhaustively with, each of the other three items:

  • Identify a specific treatment limitation on mental health or substance use disorder benefits covered by the plan.

The plaintiffs alleged [...]

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The Proposed MHPAEA Regulations: Comments on Behavioral Health Carve-Out Vendors

by | Dec 5, 2023 | , ,

This post continues our focus on comment letters submitted in response to proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA). The proposed regulations were issued earlier this year by the US Departments of Labor, Health and Human Services and the Treasury (the Departments). Our previous MHPAEA content is available here.

The MHPAEA generally requires parity between mental health/substance use disorder (MH/SUD) benefits and medical/surgical (M/S) benefits with respect to annual and lifetime dollar limits, financial requirements and treatment limitations. Treatment limitations may be quantitative (quantitative treatment limitations or QTLs) or nonquantitative (nonquantitative treatment limitations or NQTLs). As the names suggest, QTLs involve limits to which numbers may be applied, e.g., cost-sharing amounts or length of a hospital stay, while NQTLs involved limitations that are not so restricted. The Consolidated Appropriations Act, 2021 added a requirement that plans and issuers perform and document comparative analyses of the design and application of NQTLs on MH/SUD and M/S benefits. The proposed regulations focus on the regulation of NQTLs and compliance with the comparative analyses requirement.

The proposed regulations establish a three-prong test that plans and issuers must pass to impose an NQTL in a classification. To qualify, an NQTL:

  • Must be no more restrictive when applied to MH/SUD benefits as compared to M/S benefits;
  • The plan or issuer must meet specified design and applications requirements; and
  • The plan or issuer must collect, evaluate and consider the impact of relevant data on access to MH/SUD benefits as opposed to M/S benefits and take reasonable action to address any material differences.

These requirements, if adopted as proposed, could make it difficult for group health plans to use third-party payers that manage their MH/SUD benefits under so-called “MH/SUD carve-out” vendor arrangements. Also referred to generically as “managed behavioral health organizations,” MH/SUD carve-out vendors are payers that claim specialized expertise with, and focus exclusively on the treatment of, mental health and substance use disorders. Plans contract with these providers for reasons of cost, quality and ease of administration. Even under current law, demonstrating compliance for a single NQTL involves a number of steps, each of which must be repeated for each additional NQTL. NQTLs designed and adopted by mainstream M/S providers and administrative services vendors and carve-out vendors will differ in their particulars. Layering on new, quantitative “no more restrictive” and “data collection” requirements will add a new level of complexity that may be prohibitively costly for plans that seek to use MH/SUD carve-out vendors.

Even if plans using MH/SUD carve-out vendors could manage to obtain and process all the required data, there is another concern: These entities typically design and adopt their own NQTLs that are presumably informed by their expertise adjudicating MH/SUD claims. These NQTLs will at least in some if not many instances bear little resemblance to the NQTLs adopted by a plan’s M/S benefit vendors, networks and payers. The proposed regulations include exceptions under which an NQTL applied to MH/SUD benefits [...]

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The Proposed MHPAEA Regulations: A Comment on the Comments

by | Nov 14, 2023 | , ,

In our last post, we considered some of the comment letters submitted in response to proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA) issued by the US Departments of Labor, Health and Human Services and the Treasury (the Departments). Our previous MHPAEA content is available here.

The comment period for the proposed regulations closed on October 17, 2023. Stakeholders submitted more than 7,500 comments. While we have not read them all, we’ve seen enough to discern the broad contours. There are those in favor, those opposed and those that take some middle ground with recommended modifications. Among the latter, the modifications run the gamut from trivial to substantive. One particular comment generally approving of the rule but urging modifications caught our attention. It was submitted by the Brookings Institution, and it offered the following (at least in our view) useful insights.

Heterogeneity of Mental Health/Substance Use Disorder (MH/SUD) Benefits Versus Medical/Surgical (M/S) Benefits

The comment explains that roughly 41% of M/S visits are for chronic conditions, which are less likely to be subject to concurrent review. In contrast, between 64% and 69% of MH/SUD visits focus on treatment of mood disorders, anxiety disorders, psychoses and personality disorders, i.e., chronic recurring conditions. The comment notes: “Even if all chronic visits in general medical practice were subject to concurrent review, any concurrent review for mental health or substance use disorder services would fail the ‘substantially all’ test.” (Emphasis added)

The comment recommends that the Departments consider a more fine-grained method of comparing the use of nonquantitative treatment limitations (NQTLs) between MH/SUD benefits and those for M/S benefits.

Schematic Representation of NQTLs (and Why This Matters)

The comment expresses concern over the depth of the analysis that is required for each NQTL. Page four provides a useful schematic that fleshes out the particulars. The schematic makes the point that a substantial amount of effort is involved in demonstrating compliance for a single NQTL. The steps include “identifying which services apply [ ], identifying factors considered in the design of the NQTL, identifying sources used to define these factors, and demonstrating that the NQTL is applied no more stringently to mental health and substance use disorder benefits than medical/surgical benefits.”

Moreover, all steps must be repeated for each additional NQTL. While even a casual review of the proposal would lead the reader with the sense that compliance would be a challenge, the use of the visual schematic drives the point home visually.

The Exception for Independent Professional Medical or Clinical Standards

The proposed rule identifies two exceptions to the NQTL requirements, the first of which is based on “Independent Professional Medical or Clinical Standards.” While there is a good deal of disagreement as to its proper scope and even its utility, the Brookings comment worries that “the language in the proposed rule also opens the door to regulatory gaming because it is overly broad.” According to the comment: “If the [...]

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Discerning Congressional Purpose from the Proposed MHPAEA Regulations Comment Letters

by | Nov 8, 2023 | , ,

We continue our investigation of proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA) issued by the US Departments of Labor, Health and Human Services and the Treasury (the Departments). Our previous MHPAEA content is available here.

The comment period for the proposed regulations closed on October 17, 2023, and one thing is clear: Stakeholders are divided not so much over particulars of the proposal but rather on the broad scope and reach of the rule. The is no doubt that the rule is intended to enact an overarching policy goal of the Biden administration. One need look no further than the administration’s July 25, 2023, fact sheet, which touts the administration’s “comprehensive national strategy to transform how mental health is understood, accessed, treated, and integrated in and out of health care settings.” Nor is there any doubt that the proposed rule is granular and prescriptive, as we previously explained.

While many of the comment letters address the particulars of the rule, certain high-profile comments ask whether it should be adopted at all. On one side are the providers (see the American Hospital Association’s comments, which offer a full-throated endorsement of the rule); on the other are the carriers (see AHIP’s comments, which claim the rule is vague and impossible to administer and calls for its withdrawal.)

If the final rule looks anything like the proposal, there will be a challenge, the particulars of which will likely include one central question: Is the final rule consistent with Congress’ intent in the matter? Dueling comments by the majority and minority members of the House of Representatives Committee on Education and the Workforce and (in the case of the minority) the Subcommittee on Health, Employment, Labor, and Pensions frame the question as follows:

Comment letter of Virginia Foxx, Chairwoman, Committee on Education and the Workforce

Citing MHPAEA’s legislative history, the majority claims that “Congress did not intend to include NQTLs [nonquantitative treatment limitations] when enacting the MHPAEA.” According to the comment letter, “the [MHPAEA] Committee report does not contain one mention of an NQTL.” (While the letter refers to the “Consolidated Appropriations Act, 2021 (CAA),” it does not attach any significance to that law’s requirement for plans and issuers to prepare and furnish on-demand reports detailing their NQTL compliance.) The majority also expresses its view that measuring and analyzing outcomes data is both impractical and exceeds the scope of the law. The majority is perplexed that the Departments believe they have the authority “to require plans to measure outcomes data stems from the statutory language.”

Comment letter of Bobby Scott, Ranking Member, Committee on Education and the Workforce, and Mark DeSaulnier, Ranking Member, Subcommittee on Health, Employment, Labor, and Pensions.

The minority’s comments welcome the proposed rules’ “emphasis on access to behavioral health care” and make the claim that the imposition of rules governing NQTLs is “entirely consistent with the statutory [...]

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New MHPAEA Guidance Regarding NQTLs: Network Access and Composition

by and | Oct 5, 2023 | , ,

Federal regulators recently announced new mental health parity proposed rules that may add significant new compliance burdens for health plan sponsors, insurers and service providers. The proposed rules may also impact the operation of health plans. A Technical Release accompanied the rules that further explains and invites comment on certain provisions of the proposed rules relating to nonquantitative treatment limitation data collection requirements and network composition. Read more here.



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The Proposed MHPAEA Regulations’ ‘Meaning of Terms’ Part Two: Processes, Strategies, Evidentiary Standards and Other Factors

by | Oct 2, 2023 | , ,

This post continues our investigation of proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA) issued by the US Departments of Labor, Health and Human Services and the Treasury (the Departments). Our previous MHPAEA content is available here. In Part One, we examined the proposed regulations’ definitions of “medical or surgical benefits,” “mental health benefits” and “substance use disorder benefits.” The proposed regulations would, if adopted, make minor (albeit important) clarifications to these terms, which were previously defined in the 2013 final MHPAEA regulations. This post explains other terms defined in the proposed regulations that, while used in the 2013 final rules, regulators did not previously define. MHPAEA generally requires parity between a group health plan’s and health insurance issuer’s financial requirements and treatment limitations applicable to mental health or substance use disorder (MH/SUD) and medical or surgical (M/S) benefits. Treatment limitations include nonquantitative treatment limitations (NQTLs). Under the 2013 final MHPAEA regulations, a group health plan (or health insurance coverage) must not impose an NQTL with respect to MH/SUD benefits in any classification unless:

  • Any processes, strategies, evidentiary standards or other factors used in applying the NQTL to MH/SUB benefits in the classification are comparable to the processes, strategies, evidentiary standards or other factors used in applying the limitation with respect to M/S benefits in the same classification.

(“Classifications” for this purpose include inpatient, in-network, inpatient, out-of-network, outpatient, in-network, outpatient, out-of-network, emergency care and prescription drugs.) The proposed regulations retain this rule, relabeling it as the “design and application” requirement. The 2013 final MHPAEA regulations use—but do not define—the terms, “processes,” “strategies,” “evidentiary standards” or “other factors.” Citing the need to “provide clarity to plans and issuers” and to help them properly apply the law’s rules governing NQTL requirements, the Departments now propose to define these other terms as follows:

  • Processes: Processes are actions, steps or procedures that a group health plan uses to apply an NQTL. This includes actions, steps or procedures established by the plan as requirements for a participant or beneficiary to access benefits, such as through actions by a participant’s or beneficiary’s authorized representative or a provider or facility. Examples include:
    • Procedures to submit information to authorize coverage for an item or service prior to receiving the benefit or while treatment is ongoing (including requirements for peer or expert clinical review of that information);
    • Provider referral requirements; and
    • The development and approval of a treatment plan.
  • Strategies: Strategies are practices, methods or internal metrics that a plan considers, reviews or uses to design an NQTL. Examples include:
    • The development of the clinical rationale used in approving or denying benefits;
    • Deviation from generally accepted standards of care;
    • The selection of information deemed reasonably necessary to make a medical necessity determination;
    • Reliance on treatment guidelines or guidelines provided by third-party organizations; and
    • Rationales used in selecting and adopting certain threshold amounts, [...]

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The Proposed MHPAEA Regulations’ ‘Meaning of Terms’ Part One: Benefits

by | Sep 26, 2023 | , ,

This post continues our investigation of proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA) issued by the US Departments of Labor, Health and Human Services and the Treasury (the Departments). Our previous MHPAEA content is available here.

The purpose of MHPAEA is to ensure that participants and beneficiaries in a group health plan or in group health insurance coverage that includes mental health or substance use disorder benefits are not subject to greater restrictions when seeking these benefits than when they seek medical/surgical benefits under the terms of the plan or coverage. Thus, how the terms “medical or surgical benefits,” “mental health benefits” and “substance use disorder benefits” are defined is of paramount importance. Under current law, any condition defined by the plan or coverage as being or as not being a medical/surgical condition, mental health condition or substance use disorder, respectively, must be defined to be consistent with generally recognized independent standards of current medical practice. These standards include the Diagnostic and Statistical Manual of Mental Disorders, the most current version of the International Classification of Diseases or state guidelines.

In the preamble to the proposed regulations, the Departments cite two problems with the existing definitions:

  • There appears to be some confusion about what it means for a definition of a mental health condition or substance use disorder to be ‘‘consistent with’’ generally recognized independent standards of current medical practice.
  • Plans and issuers sometimes rely on state law standards that may not be applicable to the plan or coverage at issue to classify a condition as medical or surgical in nature, which is more properly treated as a mental health or substance use disorder benefit. For example, a self-funded plan may seek to rely on state insurance law definition despite the fact that state insurance does not apply to self-funded plans.

According to the Departments, some plans had classified applied behavior analysis (ABA) therapy for the treatment of autism spectrum disorder (ASD) as a medical or surgical benefit. Noting that ABA therapy is now considered one of the primary treatments for children with ASD, the proposed regulations make clear that ASD is a mental health condition. The Departments also point to nutrition counseling as one of the primary treatments for eating disorders, which Congress previously identified as mental health conditions in the 21st Century Cures Act.

What constitutes medical or surgical benefits, mental health benefits and substance use disorder benefits is important both for substantive compliance and for purposes of preparing the nonquantitative treatment limitation (NQTL) comparative analyses. Among other things, comparative analyses must identify “all mental health or substance use disorder benefits and medical/surgical benefits to which the [NQTL] applies,” including a list of which benefits are considered mental health or substance use disorder benefits and which benefits are considered medical/surgical benefits.



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Code § 4980D and Violations of the NQTL Analysis Requirement Under the Proposed MHPAEA Regulations

by | Sep 21, 2023 | , ,

This post continues our investigation of proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA) issued by the US Departments of Labor, Health and Human Services and the Treasury (the Departments). Our previous MHPAEA content is available here.

The proposed regulations establish a formal structure for how the Departments will enforce the requirement that plans and issuers comply with their obligations to provide a nonquantitative treatment limitation (NQTL) analysis on request. The structure includes the following steps:

  • Plans and health insurance issuers must provide the NQTL analysis within 10 business days of receipt of the request.
  • If the Departments determine that the NQTL analysis is deficient, upon notification, the plan/issuer has 10 business days to furnish any additional information to the Departments.
  • If the Departments determine that the NQTL analysis is deficient, plans/issuers must also undertake corrective actions and resubmit to the Departments a compliant NQTL analysis no later than 45 calendar days after notification of a noncompliant NQTL analysis.
  • If the plan or issuer remains out of compliance following the 45-calendar-day corrective action period, the plan or issuer must notify the plan participants of the plan’s/issuer’s noncompliance within seven calendar days of the receipt of the final determination of noncompliance.
  • The plan or issuer must also provide a copy of the notice to the Department of Labor or Health and Human Services, any service provider involved in the claims process and any fiduciary responsible for deciding benefit claims within the same seven calendar days.

These are not the only remedies or sanctions, however. Internal Revenue Code (Code) Section 4980D generally imposes a nondeductible excise tax of $100 per day per affected individual for failure to comply with Code Chapter 100, group health plan requirements. Noncompliant plans must self-report the Section 4980D excise tax on Form 8928. MHPAEA amends the Code, the Employee Retirement Income Security Act and the Public Health Service Act. The provisions amending the Code are in Section 9812, which is in Chapter 100. Thus, Code Section 4980D applies to violations of MHPAEA, including the requirement to prepare and provide NQTL analyses upon request.

According to a 2023 report to Congress, the Department of Labor alone sent some 182 requests, none of which were initially compliant. Shouldn’t all these plans (and many others) be self-reporting violations and paying excise taxes under Section 4980D? The proposed regulation takes up 117 pages of the Federal Register. Section 4980D is mentioned only once in a footnote. The accompanying text says merely that “plan sponsors are generally responsible for ensuring compliance and could, in certain circumstances, be liable for penalties for any violations.”

The application of Section 4980D to MHPAEA is an area that would benefit from regulatory attention and, hopefully, relief. For example, penalties should not at least in our view be enforced against plan sponsors acting in good faith whose NQTL analyses are initially deficient but are brought into compliance.



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The ‘Data Evaluation Requirement’ for NQTLs Under the Newly Proposed MHPAEA Regulations

by | Sep 7, 2023 | , ,

Last week’s post examined the “no more restrictive” requirement that would apply to non-quantitative treatment limitations (NQTLs) set out in recently proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA). (Our description of the proposed regulations is available here.) The proposed regulations deal principally with NQTLs, which are non-numeric benefit coverage limits that must be no more restrictive for mental health and substance use disorder (MH/SUD) benefits than for medical surgical (M/S) benefits. We previously claimed that “if adopted in final form [the proposed regulations] would vastly complicate compliance by group health plans and health insurance issuers with an already challenging set of mental health parity rules.” Our views have not changed.

The proposed regulations would, if adopted, impose a series of new requirements on NQTLs that include a “data evaluation requirement.” This new requirement would provide that the plan or issuer designing and applying an NQTL collect and evaluate relevant data to assess the impact of the NQTL on access to MH/SUD and M/S benefits. The plan or issuer would also consider whether the NQTL, in operation, complies with the mental health parity rules. The specific type, form, and manner of data collection and evaluation will be the subject of future guidance. (A technical release accompanied the proposed regulations, described here, which invites comment and suggests a possible, narrow safe harbor.)

The proposed regulations establish two new network-related rules governing NQTLs:

  • For NQTLs not involving network composition, a material difference in the metrics/data gathering for the NQTL as applied to MH/SUD and M/S benefits would be considered a strong indicator of a violation.
  • For NQTLs involving network composition, a violation is deemed to occur if the relevant data shows material differences in access to in-network MH/SUD benefits as compared to in-network M/S benefits.

The proposed regulations would make compliance depend on outcomes. This position represents a significant shift in, if not an outright reversal of, existing law. Under the 2013 final MHPAEA regulations, outcomes are not determinative of compliance. Rather, comparability turns on the application of processes, strategies, evidentiary standards and other design-based factors. Compliance under current law thus turns on an examination of inputs, not outcomes. While the proposed regulations include exceptions for professional medical/clinical standards and for standards to detect fraud, waste and abuse, the preamble to the proposed regulations advises that “these exceptions should be narrowly tailored.”



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