1. This Employer Webinar Series program is presented by Spencer Fane Britt & Browne LLP in conjunction with United Benefit Advisors www.spencerfane.com www.ubabenefits.com Mental Health Parity and Addiction Equity Act This Employer Webinar Series program Presented by Spencer Fane Britt & Browne LLP Sponsored by California Corporate Benefits in conjunction with United Benefit Advisors

2. Copyright 2010 2 Mental Health Parity and Addiction Equity Act Presented by Kenneth A. Mason Julia M. Vander Weele

3. Copyright 2010 3 Presenters Ken Mason kmason@spencerfane.com 913-327-5138 Julia Vander Weele jvanderweele@spencerfane.com 816-292-8182

4. Copyright 2010 4 History of Mental Health Parity  Mental Health Parity Act (1996)  Prohibited lower annual or aggregate lifetime max  Did not apply to substance abuse  Mental Health Parity and Addiction Equity Act (2008)  Expanded to substance use disorder benefits  Imposes additional parity requirements in connection with financial requirements and treatment limits  Interim Final Regulations issued 2010

5. Copyright 2010 5 Which Plans are Covered?  Applies to “group health plans”  Fully insured and self-funded  Parallel provisions in ERISA, Tax Code, and PHSA  Includes governmental and church plans unless self-funded governmental plan has opted out  Does not include HIPAA “excepted benefits”

6. Copyright 2010 6 Aggregation of Plans  All medical care benefits provided by employer constitute a single group health plan for purposes of MHPAEA requirements  Cannot meet MHPAEA requirements by offering mental health and substance use disorder benefits under separate plans  Parity must be satisfied with respect to each separate medical/surgical benefit package

7. Copyright 2010 7 Small Employer Exception  Exemption for employer who employed an average of 50 or fewer employees during the preceding calendar year  Measured on a “controlled group” basis

8. Copyright 2010 8 Small Plan Exception  Exemption for plans that, on first day of plan year, have fewer than 2 participants who are current employees  May mean that retiree only plans are exempt

9. Copyright 2010 9 Health Insurance Issuers  Insurers prohibited from selling coverage that fails to comply with MHPAEA requirements  Exception: okay to sell to plan for a year for which plan qualifies for an exemption

10. Copyright 2010 10 Preemption of State Law  ERISA generally preempts state law  MHPAEA requirements not to be construed to supersede any provision of state law which establishes or continues in effect any standard or requirement solely relating to health insurance issuers in connection with group health insurance coverage, except to the extent that such standard or requirement prevents the application of a MHPAEA requirement  More onerous state insurance laws will still apply to fully insured plans

11. Copyright 2010 11 Overview of MHPAEA Requirements  Requires full parity between mental health benefits and medical/surgical benefits  Applies to “mental health” and “substance use disorder” benefits  Old MHPA restrictions on annual and lifetime limits extended to substance use disorder benefits  New MHPAEA restrictions on financial requirements and treatment limitations

12. Copyright 2010 12 “Mental Health” Benefits  Defined by plan  Must be consistent with generally recognized independent standards of current medical practice  Intended to ensure that plan does not misclassify a benefit in order to avoid complying with MHPAEA

13. Copyright 2010 13 “Substance Use Disorder” Benefits  Benefits with respect to substance use disorders (substance abuse or chemical dependency), as defined by plan  Subject to same consistency requirement as mental health benefits

14. Copyright 2010 14 MHPAEA General Rule  If a group health plan provides medical/surgical benefits and mental health benefits (or substance use disorder benefits), the “financial requirements” and “treatment limitations” that apply to mental health benefits (or substance use disorder benefits) must be no more restrictive than the “predominant” financial requirements or treatment limitations that apply to “substantially all” medical/surgical benefits

15. Copyright 2010 15 Financial Requirements  Deductibles  Can’t be different or separate  Copayments  Coinsurance  Out-of-pocket maximums  Not annual dollar or aggregate lifetime limits

16. Copyright 2010 16 Treatment Limits  Includes limits on benefits based on frequency of treatment, number of visits, days of coverage, days in a waiting period, or other similar limits on the scope or duration of treatment  Also includes non-quantitative treatment limitations (e.g., case management)

17. Copyright 2010 17 “Substantially All”  A type of financial requirement or treatment limitation applies to substantially all medical/surgical benefits in a coverage classification if it applies to at least 2/3 of the medical/surgical benefits in that classification  If does not apply to at least 2/3, then the financial requirement or treatment limitation cannot be applied to mental health or substance use disorder benefits in that classification

18. Copyright 2010 18 “Predominant”  Most common or frequent level of particular financial requirement or treatment limit  Predominant level is the level that applies to more than ½ of the medical/surgical benefits in that coverage classification  Levels may be combined to get to ½ (least restrictive level will apply)

19. Copyright 2010 19 Measurement  “Predominant” and “substantially all” standards are measured based upon dollar amount of benefits expected to be paid for plan year  Any reasonable method may be used to determine dollar amount expected to be paid

20. Copyright 2010 20 Coverage Classifications  Whether a financial requirement or treatment limit is “predominant” and whether it applies to “substantially all” medical/surgical benefits is determined separately for each type of financial requirement or treatment limitation  Six types of coverage classifications

21. Copyright 2010 21 Coverage Classifications (continued)  Inpatient in-network  Inpatient out-of-network  Outpatient in-network  Outpatient out-of-network  Emergency care  Prescription drugs  No other coverage classifications allowed

22. Copyright 2010 22 Coverage Classifications (continued)  If plan provides mental health or substance use disorder benefits in any coverage classification, must provide such benefits in every coverage classification in which medical/surgical benefits are provided  Regulations do not define inpatient, outpatient, or emergency care  Subject to plan design  Must be applied uniformly

23. Copyright 2010 23 Prescription Drug Tiers  Plan will satisfy parity requirements as long as different tiers are based on reasonable factors (e.g., cost, efficacy, generic vs. brand) and without regard to condition for which drug is prescribed

24. Copyright 2010 24 Specialists vs. General Practitioners  Regulations appear to prohibit charging higher “specialist” co-pays for mental health providers  Due to “predominant” and “substantially all” requirements

25. Copyright 2010 25 Example One  A health plan imposes five different coinsurance rates for inpatient, out-of-network medical/surgical benefits:  0%  10%  15%  20%  30%  Using reasonable methods, the plan projects its payments in each of these categories for the upcoming year, as shown in the following table:

26. Copyright 2010 26 Example One (continued) Coinsurance Rates 0%10%15%20%30%Total Plan's projected payments at the coinsurance rate $200,000$100,000$450,000$100,000$150,000$1 million

27. Copyright 2010 27 Example One (continued)  Must first determine if “substantially all” medical/surgical benefits are subject to coinsurance.  To do so, plan must identify percentage of total expected costs subject to each level of coinsurance, as shown in 3 rd row of table:

28. Copyright 2010 28 Example One (continued) Coinsurance Rates 0%10%15%20%30%Total Plan's projected payments at the coinsurance rate $200,000$100,000$450,000$100,000$150,000$1 million % of total plan costs paid at the coinsurance rate 20%10%45%10%15% 100%

29. Copyright 2010 29 Example One (continued)  Total expected medical/surgical benefits subject to coinsurance are 80% of total medical/surgical benefits.  Because 80% is > 2/3, coinsurance applies to “substantially all” medical/surgical benefits in this classification.

30. Copyright 2010 30 Example One (continued)  Next question is which coinsurance rate is the “predominant” one.  Must determine percentage of those medical/surgical benefits that are subject to coinsurance ($800,000) falling within each coinsurance rate group.  E.g., 10% rate = $100,000  $800,000 = 12.5%.  The following chart shows similar percentages for all coinsurance rates:

31. Copyright 2010 31 Example One (continued) Coinsurance Rates 0%10%15%20%30%Total Plan's projected payments at the coinsurance rate $200,000$100,000$450,000$100,000$150,000$1 million % of total plan costs paid at the coinsurance rate 20%10%45%10%15% 100% % of total plan costs that are subject to coinsurance N/A12.5%56.25%12.5%18.75%100%

32. Copyright 2010 32 Example One (wrap up)  The 15% coinsurance rate represents 56.25% of all projected medical/surgical benefits in this classification that are subject to coinsurance.  Because 56.25% > 50%, the “predominant” coinsurance rate is 15%.  Accordingly, mental health or substance use disorder benefits in this classification may be subject to a coinsurance rate of up to 15%.

33. Copyright 2010 33 Example Two  Plan imposes five different copayment amounts for outpatient, in-network medical/surgical benefits:  $0  $10  $15  $20  $50  Using reasonable methods, the plan projects that, for the following year, these copayment amounts will apply to the benefit payment amounts shown in the following table:

34. Copyright 2010 34 Example Two (continued) Copayment Rate$0$10$15$20$50Total Plan's projected payments at the copayment rate $200,000 $300,000$100,000$1 million

35. Copyright 2010 35 Example Two (continued)  Must first determine if “substantially all” medical/surgical benefits are subject to copayment requirement.  To do so, plan must identify percentage of total expected costs subject to each level of copayment, as shown in 3 rd row of table:

36. Copyright 2010 36 Example Two (continued) Copayment Rate$0$10$15$20$50Total Plan's projected payments at the copayment rate $200,000 $300,000$100,000$1 million % of total plan costs paid at the copayment rate 20% 30%10%100%

37. Copyright 2010 37 Example Two (continued)  80% of projected medical/surgical benefits in this classification are subject to a copayment.  Because 80% > 2/3, the copayment requirement applies to “substantially all” medical/surgical benefits in this classification.

38. Copyright 2010 38 Example Two (continued)  Accordingly, the “predominant” copayment rate may be applied to mental health or substance abuse disorder benefits.  To determine the “predominant” copayment rate, must determine percentage of those medical/surgical benefits that are subject to copayment requirement ($800,000) falling within each copayment category:

39. Copyright 2010 39 Example Two (continued) Copayment Rate$0$10$15$20$50Total Plan's projected payments at the copayment rate $200,000 $300,000$100,000$1 million % of total plan costs paid at the copayment rate 20% 30%10%100% % of total plan costs that are subject to copayment N/A no copay 25% 37.5%12.5%100%

40. Copyright 2010 40 Example Two (continued)  Because no single copayment rate represents more than 50% of all benefits subject to a copayment, must aggregate multiple copayment rates to arrive at “predominant” rate.  $50 and $20 copayment rates apply to 50% of projected benefits (37.5% + 12.5%).  However, 50% is not more than 50% of projected benefits subject to copayment.  Therefore, must include $15 copayment rate, as well.

41. Copyright 2010 41 Example Two (continued)  75% of projected medical/surgical benefits are subject to a copayment rate of at least $15 (12.5% + 35.5% + 25%).  The lowest of these three copayment amounts is treated as the “predominant” copayment rate for medical/surgical benefits.  Accordingly, mental health or substance use disorder benefits in this classification may be subject to a copayment rate of no more than $15.

42. Copyright 2010 42 Cumulative Requirements or Limitations  General Rule -- Plan may not apply any financial requirement or quantitative treatment limitation for mental health or substance use disorder benefits within a classification that accumulates separately from any such requirement or limitation applicable to medical/surgical benefits within that classification.  Applies to financial requirements, such as deductibles or out-of-pocket maximums.  Also applies to quantitative treatment limitations, such as maximum annual outpatient visits or days of inpatient coverage per year.

43. Copyright 2010 43 Cumulative Requirements or Limitations  Note: Annual or lifetime maximum coverage amounts are not cumulative financial requirements.  Thus, just as under Mental Health Parity Act, plan may have separate annual or lifetime limits for medical/surgical benefits and either mental health or substance use disorder benefits.

44. Copyright 2010 44 Example Three  Plan imposes $250 annual deductible on medical/surgical benefits and separate $250 annual deductible on mental health and substance use disorder benefits.  This is impermissible, because the two deductibles accumulate separately from each other.

45. Copyright 2010 45 Example Four  Plan imposes $300 annual deductible on medical/surgical benefits and separate $100 annual deductible on mental health or substance use disorder benefits.  As in Example Three, this is impermissible, even though deductible for mental health and substance use disorder benefits is lower than deductible for medical/surgical benefits.

46. Copyright 2010 46 Example Five  Plan imposes combined $500 annual deductible on medical/surgical, mental health, and substance use disorder benefits.  This is permissible, because the deductible accumulates in the aggregate for all benefits.

47. Copyright 2010 47 Example Six  Plan imposes combined $500 annual deductible on all benefits (including medical/surgical, mental health, and substance use disorder benefits), except for prescription drugs.  Using reasonable methods, plan projects its payments for medical/surgical benefits in each of the other five classifications for the upcoming year, as follows:

48. Copyright 2010 48 Example Six (continued) Classification Benefits Subject to Deductible Total Benefits % of Benefits Subject to Deductible Inpatient, in-network$1,800,000$2,000,00090% Inpatient, out-of- network $1,000,000 100% Outpatient, in- network $1,400,000$2,000,00070% Outpatient, out-of- network $1,880,000$2,000,00094% Emergency care$300,000$500,00060%

49. Copyright 2010 49 Example Six (continued)  With the exception of emergency care, more than 2/3 of medical/surgical benefits in each classification are subject to the deductible. Accordingly, the “substantially all” requirement is satisfied.  Moreover, because the $500 deductible is the only level in each classification, it is also the “predominant” level.

50. Copyright 2010 50 Example Six (continued)  Accordingly, mental health or substance use disorder benefits in each of those four classifications may be subject to a $500 deductible.  However, because less than 2/3 of projected emergency care claims are subject to the deductible, mental health or substance use disorder benefits for emergency care may not be subject to a deductible.

51. Copyright 2010 51 Nonquantitative Treatment Limitations  General rule ─ Plan may not impose a nonquantitative treatment limitation with respect to mental health or substance use disorder benefits within any classification unless any such limitation is comparable to, and applied no more stringently than, limitations applied to medical/surgical benefits within that classification.  Exception for recognized clinically appropriate standards of care, which may permit a difference in these nonquantitative treatment limitations.

52. Copyright 2010 52 Nonquantitative Treatment Limitations (continued)  Examples of nonquantitative treatment limitations:  Medical management standards based on medical necessity, medical appropriateness, or exclusions for experimental or investigative treatments.  Formulary design for prescription drug benefit.  Standards for admission to provider networks, including reimbursement rates.  Methods for determining usual, customary, and reasonable charges.

53. Copyright 2010 53 Nonquantitative Treatment Limitations (continued)  Refusal to pay for higher-cost therapies until lower-cost therapies have been shown to be ineffective (“fail-first” policies or “step therapy protocols”).  Exclusions based on failure to complete a course of treatment.  Note: Plan may not condition access to mental health or substance use disorder benefits upon exhausting counseling sessions provided by employee assistance program (“EAP”) unless similar exhaustion requirement applies to medical/surgical benefits.

54. Copyright 2010 54 Disclosure Requirements  Upon request, criteria for medical necessity determinations involving mental health or substance use disorder benefits must be made available to any current or potential participant, beneficiary, or contracting provider.  Reason for any denial of reimbursement or payment for services involving mental health or substance use disorder benefits must be made available to participant or beneficiary in accordance with ERISA’s claims and appeals procedures.  Even non-ERISA plans (e.g., governmental or church) must comply with those ERISA procedures for this purpose.

55. Copyright 2010 55 Penalties and Enforcement  Violations may trigger excise tax of $100 per day per affected employee.  Tax is to be self-reported and paid by filing IRS Form 8928.  Plan participants and beneficiaries may also file suit to obtain benefits.

56. Copyright 2010 56 Effective Dates  Statutory effective date was first day of first plan year beginning after 10-3-2008.  Interim final regulations apply to plan years beginning on or after 7-1-2010.  Good-faith compliance with statutory requirements required prior to that date.  Collectively bargained plans subject to regulations as of later of general effective date or first day of first plan year beginning after expiration of last bargaining agreement in effect on 10-3-2008.

57. Copyright 2010 57 Cost Exemption  Requirements for this exemption are “reserved” in regulations. Agencies are seeking comments.  According to statute, plan is exempt from Act’s requirements if certain anticipated cost increases are demonstrated.  Based on at least six months of data, plan must demonstrate anticipated cost increase of at least 1% (2% during first year for which Act applies).  Any exemption applies for only one year.  Accordingly, a plan may rely on exemption only in alternate years.

58. Copyright 2010 58 Cost Exemption (continued)  Experts have estimated that most plans will see an increase in costs of only ½% due to this Act.  Some experts even project a long-term decrease in costs, due to savings resulting from better treatment of mental health or substance use disorders.

59. Copyright 2010 59 Compliance Alternatives  Option # 1 - Eliminate All Mental Health and Substance Use Disorder Benefits.  Group health plan is not required to provide mental health or substance use disorder coverage.  ADA implications?  Inadvertent provision of mental health benefits?

60. Copyright 2010 60 Compliance Alternatives (continued)  Option # 2 - Eliminate Some, But Not All, Mental Health and Substance Use Disorder Benefits.  Can you offer mental health benefits but eliminate substance use disorder benefits?  Yes – Provision of benefits for one or more mental health conditions or substance use disorders does not require plan to provide benefits for any other mental health condition or substance use disorder.

61. Copyright 2010 61 Compliance Alternatives (continued)  Option # 3 - Exclude Certain Conditions  A permanent exclusion of all benefits for a certain condition or disorder is not a treatment limitation (e.g., provide benefits for schizophrenia but exclude coverage for general depression)  ADA implications?

62. Copyright 2010 62 Compliance Alternatives (continued)  Option # 4 – Fully Comply with MHPAEA Requirements  Requires careful analysis of financial requirements and treatment limitations for each coverage classification  Review prescription drug formulary to ensure compliance with parity requirements

63. Copyright 2010 63 Compliance Alternatives (continued)  Option # 5 – Consider Cost-Based Exemption  Requires demonstrated cost increase based on actual claims experience  Practicality limited by every other year applicability

64. Copyright 2010 64 Questions and Answers Thank you for your time!

65. Thank You For Your Participation Kansas City   Omaha  Overland Park St. Louis  Jefferson City www.spencerfane.com www.ubabenefits.com Thank you for your participation in the Employer Webinar Series. To obtain a recording of this presentation, or to register for future presentations, contact your local UBA Member Firm.