Under MHPAEA and the interim final regulations, the term “medical/surgical benefits” means benefits for medical or surgical services, as defined under the terms of the plan or health insurance coverage. This term does not include mental health or substance use disorder benefits. The terms “mental health benefits” and “substance use disorder benefits” mean benefits with respect to services for mental health conditions or substance use disorders, respectively, as defined under the terms of the plan and in accordance with applicable Federal and State law. The interim final regulations further provided that the plan terms defining whether the benefits are medical/surgical benefits or mental health or substance use disorder benefits must be consistent with generally recognized standards of current medical practice (for example, the most current version of the Diagnostic and Statistical Manual of Mental Disorders (DSM), the most current version of the International Classification of Diseases (ICD), or State guidelines).

These final regulations make minor, technical changes to the meaning of these terms for consistency and clarity. Specifically, the final regulations clarify that the definitions of “medical/surgical benefits,” “mental health benefits,” and “substance use disorder benefits” include benefits for items as well as services. The final regulations also clarify that medical conditions and surgical procedures, and mental health conditions and substance use disorders, are defined under the terms of the plan or coverage and in accordance with applicable Federal and State law.

One commenter suggested that the definitions of mental health benefits and substance use disorder benefits should be revised to refer only to the terms of the plan and applicable State law. The Departments decline to adopt this suggestion. The statutory definitions provided in MHPAEA specifically refer to applicable Federal law. Moreover, the reference to Federal law is appropriate because State law does not apply to all group health plans, and Federal law also identifies EHB categories, including the category of mental health and substance use disorder services, that non-grandfathered health plans in the individual and small group markets are required to cover beginning in 2014.

1. Classification of Benefits

As described earlier in this preamble, the interim final regulations set forth that the parity analysis be conducted on a classification-by-classification basis in six specific classifications of benefits. Subsequent to the issuance of the interim final regulations, several plans and issuers brought to the Departments' attention that, with respect to outpatient benefits, many plans and issuers require a copayment for office visits (such as physician or psychologist visits) and coinsurance for all other outpatient services (such as outpatient surgery). In response to this information, the Departments published an FAQ establishing an enforcement safe harbor under which the Departments would not take enforcement action against plans and issuers that divide benefits furnished on an outpatient basis into two sub-classifications ((1) office visits and (2) all other outpatient items and services) for purposes of applying the financial requirement and treatment limitation rules under MHPAEA.^[10]

The Departments have incorporated the terms of the FAQ in paragraph (c)(3)(iii)(C) of these final regulations, permitting sub-classifications for office visits, separate from other outpatient services. Other sub-classifications not specifically permitted in these final regulations, such as separate sub-classifications for generalists and specialists, must not be used for purposes of determining parity. After the sub-classifications are established, a plan or issuer may not impose any financial requirement or quantitative treatment limitation on mental health or substance use disorder benefits in any sub-classification (i.e., office visits or non-office visits) that is more restrictive than the predominant financial requirement or quantitative treatment limitation that applies to substantially all medical/surgical benefits in the sub-classification using the methodology set forth in paragraph (c)(3)(i) of these final regulations. Example 6 under paragraph (c)(3)(iv) of these final regulations illustrates the approach that plans and issuers may employ when dividing outpatient benefits into sub-classifications in accordance with these final regulations.

Additionally, commenters requested that the final regulations permit plans and issuers to create sub-classifications to address plan designs that have two or more network tiers of providers. Commenters asserted that utilizing tiered networks helps plans manage the costs and quality of care and requested that the final regulations allow plans to conduct the parity analysis separately with respect to these various network tiers.

The Departments have considered these comments and recognize that tiered networks have become an important tool for health plan efforts to manage care and control costs. Therefore, for purposes of applying the financial requirement and treatment limitation rules under MHPAEA, these final regulations provide that if a plan (or health insurance coverage) provides in-network benefits through multiple tiers of in-network providers (such as an in-network tier of preferred providers with more generous cost sharing to participants than a separate in-network tier of participating providers), the plan may divide its benefits furnished on an in-network basis into sub-classifications that reflect those network tiers, if the tiering is based on reasonable factors and without regard to whether a provider is a mental health or substance use disorder provider or a medical/surgical provider.^[11] After the sub-classifications are established, the plan or issuer may not impose any financial requirement or quantitative treatment limitation on mental health or substance use disorder benefits in any sub-classification that is more restrictive than the predominant financial requirement or quantitative treatment limitation that applies to substantially all medical/surgical benefits in the sub-classification using the methodology set forth in paragraph (c)(3)(i) of these final regulations.

The Departments are aware that some plans may have an uneven number of tiers between medical/surgical providers and mental health or substance use disorder providers (e.g., 3 tiers for medical/surgical providers and 2 tiers for mental health or substance use disorder providers). The Departments may provide additional guidance if questions persist with respect to plans with an uneven number of tiers or if the Departments become aware of tier structures that may be inconsistent with the parity analysis required under these final regulations. Until the issuance of further guidance, the Departments will consider a plan or issuer to comply with the financial requirement and quantitative treatment limitation rules under MHPAEA if a plan or issuer treats the least restrictive level of the financial requirement or quantitative treatment limitation that applies to at least two-thirds of medical/surgical benefits across all provider tiers in a classification as the predominant level that it may apply to mental health or substance use disorder benefits in the same classification.

Some commenters requested clarification that all medical/surgical benefits and mental health or substance use disorder benefits offered by a plan or coverage must be contained within the six classifications of benefits and that plans and issuers could not classify certain benefits outside of the six classifications in order to avoid the parity requirements. Other commenters suggested that specific mental health or substance use disorder benefits be cross-walked or paired with specific medical/surgical benefits (e.g., physical rehabilitation with substance use disorder rehabilitation) for purposes of the parity analysis.

The final regulations retain the six classifications enumerated in the interim final regulations, specify the permissible sub-classifications, and provide that the parity analysis be performed within each classification and sub-classification. The classifications and sub-classifications are intended to be comprehensive and cover the complete range of medical/surgical benefits and mental health or substance use disorder benefits offered by health plans and issuers. Medical/surgical benefits and mental health or substance use disorder benefits cannot be categorized as being offered outside of these classifications and therefore not subject to the parity analysis.

Cross-walking or pairing specific mental health or substance use disorder benefits with specific medical/surgical benefits is a static approach that the Departments do not believe is feasible, given the difficulty in determining “equivalency” between specific medical/surgical benefits and specific mental health and substance use disorder benefits and because of the differences in the types of benefits that may be offered by any particular plan.

2. Measuring Plan Benefits

Some commenters supported the “substantially all” and “predominant” tests as formulated in the interim final regulations, while other commenters were concerned that they were too restrictive and may create an administrative burden on plans. A few commenters requested clarification that the parity analysis would not need to be performed annually absent changes in plan design or indications that assumptions or data were inaccurate.

The interim final regulations incorporated the two-thirds “substantially all” numerical standard from the regulations implementing MHPA 1996, and quantified “predominant” to mean more than one-half of medical/surgical benefits in the classification are subject to the financial requirement or quantitative treatment limitation. The Departments believe group health plans and issuers have developed the familiarity and expertise to implement these parity requirements and therefore retain the numerical standards as set forth in the interim final regulations. The Departments clarify that a plan or issuer is not required to perform the parity analysis each plan year unless there is a change in plan benefit design, cost-sharing structure, or utilization that would affect a financial requirement or treatment limitation within a classification (or sub-classification).

These final regulations, like the interim final regulations, provide that the determination of the portion of medical/surgical benefits in a classification of benefits subject to a financial requirement or quantitative treatment limitation (or subject to any level of a financial requirement or quantitative treatment limitation) is based on the dollar amount of all plan payments for medical/surgical benefits in the classification expected to be paid under the plan for the plan year. Any reasonable method may be used to determine the dollar amount expected to be paid under the plan for medical/surgical benefits subject to a financial requirement or quantitative treatment limitation. One commenter asked whether plan benefits are measured based on allowed plan costs, for purposes of the “substantially all” and “predominant” tests. The dollar amount of plan payments is based on the amount the plan allows (before enrollee cost sharing) rather than the amount the plan pays (after enrollee cost sharing) because payment based on the allowed amount covers the full scope of the benefits being provided.

3. Cumulative Financial Requirements and Cumulative Quantitative Treatment Limitations

The interim final regulations provide that a plan or issuer may not apply cumulative financial requirements (such as deductibles and out-of-pocket maximums) or cumulative quantitative treatment limitations (such as annual or lifetime day or visit limits) for mental health or substance use disorder benefits in a classification that accumulate separately from any cumulative requirement or limitation established for medical/surgical benefits in the same classification. These final regulations retain this standard and continue to provide that cumulative requirements and limitations must also satisfy the quantitative parity analysis. Accordingly, these final regulations continue to prohibit plans and issuers from applying separate cumulative financial requirements and cumulative quantitative treatment limitations to medical/surgical and mental health and substance use disorder benefits in a classification, and continue to provide that such cumulative requirements or limitations are only permitted to be applied for mental health and substance use disorder benefits in a classification to the extent that such unified cumulative requirements or limitations also apply to substantially all medical/surgical benefits in the classification.

Several commenters argued that the requirement in the interim final regulations to use a single, combined deductible in a classification was burdensome and would require significant resources to implement, especially for Managed Behavioral Health Organizations (MBHOs) that often work with multiple plans. One commenter asserted that this requirement could impact the willingness of plan sponsors to offer mental health or substance use disorder benefits. A study sponsored by HHS, however, found that nearly all plans had eliminated the use of separate deductibles for mental health and substance use disorder benefits by 2011.^[12] According to this study, even in 2010, only a very small percentage of plans were using separate deductibles. This study and other research^[13] have shown that the overwhelming majority of plans have retained mental health and substance use disorder coverage after issuance of the interim final regulations and, for the very small percent of plans that have dropped mental health or substance use disorder coverage, there is no clear evidence they did so because of MHPAEA. Accordingly, these final regulations retain the requirement that plans and issuers use a single, combined deductible in a classification.

4. Interaction with PHS Act Section 2711 (No Lifetime or Annual Limits)

MHPA 1996 and paragraph (b) of the interim final regulations set forth the parity requirements with respect to aggregate lifetime and annual dollar limits on mental health benefits or substance use disorder benefits where a group health plan or health insurance coverage provides both medical/surgical benefits and mental health benefits or substance use disorder benefits.

PHS Act section 2711, as added by the Affordable Care Act, prohibits lifetime and annual limits on the dollar amount of EHB, as defined in section 1302(b) of the Affordable Care Act. The definition of EHB includes “mental health and substance use disorder services, including behavioral health treatment.”^[14] Thus, notwithstanding the provisions of MHPAEA that permit aggregate lifetime and annual dollar limits with respect to mental health or substance use disorder benefits as long as those limits are in accordance with the parity requirements for such limits, such dollar limits are prohibited with respect to mental health or substance use disorder benefits that are covered as EHB. While these final regulations generally retain the provisions of the interim final regulations regarding the application of the parity requirements to aggregate lifetime and annual dollar limits on mental health or substance use disorder benefits, language has been added specifying that these final regulations do not address the requirements of PHS Act section 2711. That is, the parity requirements regarding annual and lifetime limits described in these final regulations only apply to the provision of mental health and substance use disorder benefits that are not EHB. Because this greatly reduces the instances in which annual or lifetime limits will be permissible, the examples from the interim final regulations that expressly demonstrated how a plan could apply lifetime or annual dollar limits have been deleted.^[15]

5. Interaction with PHS Act Section 2713 (Coverage of Preventive Health Services)

The interim final regulations provide that if a plan or issuer provides mental health or substance use disorder benefits in any classification, mental health or substance use disorder benefits must be provided in every classification in which medical/surgical benefits are provided. Under PHS Act section 2713, as added by the Affordable Care Act, non-grandfathered group health plans and health insurance issuers offering non-grandfathered group and individual coverage are required to provide coverage for certain preventive services without cost sharing.^[16] These preventive services presently include, among other things, alcohol misuse screening and counseling, depression counseling, and tobacco use screening as provided for in the guidelines issued by the United States Preventive Services Task Force.

The Departments received several comments asking whether or to what extent a non-grandfathered plan that provides mental health or substance use disorder benefits pursuant to PHS Act section 2713 is subject to the requirements of MHPAEA. Many commenters urged the Departments to clarify that the provision of mental health and substance use disorder benefits in this circumstance does not trigger a broader requirement to comply with MHPAEA for non-grandfathered plans that do not otherwise offer mental health or substance use disorder benefits.

The Departments agree that compliance with PHS Act section 2713 should not, for that reason alone, require that the full range of benefits for a mental health condition or substance user disorder be provided under MHPAEA. Accordingly, paragraph (e)(3)(ii) of these final regulations provides that nothing in these regulations requires a group health plan (or health insurance issuer offering coverage in connection with a group health plan) that provides mental health or substance use disorder benefits only to the extent required under PHS Act section 2713 to provide additional mental health or substance use disorder benefits in any classification.

1. Exceptions for Clinically Appropriate Standards of Care

The final regulations generally retain the provision in the interim final regulations setting forth the parity requirements with respect to NQTLs. Under both the interim final regulations and these final regulations, a plan or issuer may not impose an NQTL with respect to mental health or substance use disorder benefits in any classification unless, under the terms of the plan as written and in operation, any processes, strategies, evidentiary standards, or other factors used in applying the NQTL to mental health or substance use disorder benefits in the classification are comparable to, and are applied no more stringently than, the processes, strategies, evidentiary standards, or other factors used in applying the limitation with respect to medical/surgical benefits in the same classification.

The interim final regulations also contained an exception to the NQTL requirements allowing for variation “to the extent that recognized clinically appropriate standards of care may permit a difference.” A few commenters expressed support for the exception, emphasizing inherent differences in treatment for medical/surgical conditions and mental health conditions and substance use disorders. Many other commenters raised concerns that this exception could be subject to abuse and recommended the Departments set clear standards for what constitutes a “recognized clinically appropriate standard of care.” For example, commenters suggested a recognized clinically appropriate standard of care must reflect input from multiple stakeholders and experts; be accepted by multiple nationally recognized provider, consumer, or accrediting organizations; be based on independent scientific evidence; and not be developed solely by a plan or issuer. Additionally, since publication of the interim final regulations, some plans and issuers may have attempted to invoke the exception to justify applying an NQTL to all mental health or substance use disorder benefits in a classification, while only applying the NQTL to a limited number of medical/surgical benefits in the same classification. These plans and issuers generally argue that fundamental differences in treatment of mental health and substance use disorders and medical/surgical conditions, justify applying stricter NQTLs to mental health or substance use disorder benefits than to medical/surgical benefits under the exception in the interim final regulations.

In consideration of these comments, the Departments are removing the specific exception for “recognized clinically appropriate standards of care.”^[17] Plans and issuers will continue to have the flexibility contained in the NQTL requirements to take into account clinically appropriate standards of care when determining whether and to what extent medical management techniques and other NQTLs apply to medical/surgical benefits and mental health and substance use disorder benefits, as long as the processes, strategies, evidentiary standards, and other factors used in applying an NQTL to mental health and substance use disorder benefits are comparable to and applied no more stringently than those with respect to medical/surgical benefits. In particular, the regulations do not require plans and issuers to use the same NQTLs for both mental health and substance use disorder benefits and medical/surgical benefits, but rather that the processes, strategies, evidentiary standards, and other factors used by the plan or issuer to determine whether and to what extent a benefit is subject to an NQTL are comparable to and applied no more stringently for mental health or substance use disorder benefits than for medical/surgical benefits. Disparate results alone do not mean that the NQTLs in use do not comply with these requirements. The final regulations provide examples of how health plans and issuers can comply with the NQTL requirements absent the exception for a recognized clinically appropriate standard of care.

However, MHPAEA specifically prohibits separate treatment limitations that are applicable only with respect to mental health or substance use disorder benefits. Moreover, as reflected in FAQs^[18] released in November 2011, it is unlikely that a reasonable application of the NQTL requirement would result in all mental health or substance use disorder benefits being subject to an NQTL in the same classification in which less than all medical/surgical benefits are subject to the NQTL.

2. Parity Standards for NQTLs Versus Quantitative Treatment Limitations

As mentioned earlier in this preamble, MHPAEA and the interim final regulations prohibit plans and issuers from imposing a financial requirement or quantitative treatment limitation on mental health and substance use disorder benefits that is more restrictive than the predominant financial requirement or quantitative treatment limitation that applies to substantially all medical/surgical benefits in the same classification. The interim final regulations incorporated the two-thirds “substantially all” numerical standard from the rules implementing the requirements of MHPA 1996, and quantified “predominant” to mean more than one-half. Using these numerical standards, the Departments established a mathematical test by which plans and issuers could determine what level of a financial requirement or quantitative treatment limitation, if any, is the most restrictive level that could be imposed on mental health or substance use disorder benefits within a classification.

The Departments recognized that plans and issuers impose a variety of NQTLs affecting the scope or duration of benefits that are not expressed numerically. Some commenters recommended that the Departments adopt the same quantitative parity analysis for NQTLs. While NQTLs are subject to the parity requirements, the Departments understood that such limitations cannot be evaluated mathematically. These final regulations continue to provide different parity standards with respect to quantitative treatment limitations and NQTLs, because although both kinds of limitations operate to limit the scope or duration of mental health and substance use disorder benefits, they apply to such benefits differently.^[19]

3. Clarification Regarding the Application of Certain NQTLs

Under the interim final regulations, the Departments set forth the parity requirement with respect to NQTLs and provided an illustrative list of NQTLs that plans and issuers commonly use. These NQTLs included: 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 policies or step therapy protocols); and exclusions based on failure to complete a course of treatment. The interim final regulations also included examples illustrating the operation of the requirements for NQTLs.

After the interim final regulations were issued, some stakeholders asked questions regarding the application of the NQTL rule to other features of medical management or general plan design not specifically addressed in the interim final regulations. Many commenters requested that the Departments address additional NQTLs, such as prior authorization and concurrent review, service coding, provider network criteria, policy coverage conditions, and both in- and out-of-network limitations.

These final regulations make clear that, while an illustrative list is included in these final regulations, all NQTLs imposed on mental health and substance use disorder benefits by plans and issuers subject to MHPAEA are required to be applied in accordance with these requirements. To the extent that a plan standard operates to limit the scope or duration of treatment with respect to mental health or substance use disorder benefits, the processes, strategies, evidentiary standards, or other factors used to apply the standard must be comparable to, and applied no more stringently than, those imposed with respect to medical/surgical benefits. By being comparable, the processes, strategies, evidentiary standards and other factors cannot be specifically designed to restrict access to mental health or substance use disorder benefits. Specifically, plan standards, such as in- and out-of-network geographic limitations, limitations on inpatient services for situations where the participant is a threat to self or others, exclusions for court-ordered and involuntary holds, experimental treatment limitations, service coding, exclusions for services provided by clinical social workers, and network adequacy, while not specifically enumerated in the illustrative list of NQTLs, must be applied in a manner that complies with these final regulations. In response to the comments received, in paragraph (c)(4)(ii) of these final regulations, the Departments added two additional examples of NQTLs to the illustrative list: network tier design and restrictions based on geographic location, facility type, provider specialty and other criteria that limit the scope or duration of benefits for services provided under the plan or coverage. Furthermore, the Departments included additional and revised examples on how NQTLs, enumerated in these final regulations or otherwise, may be applied in accordance with the requirements of these final regulations.

The Departments are aware that some commenters have asked how the NQTL requirements apply to provider reimbursement rates. Plans and issuers may consider a wide array of factors in determining provider reimbursement rates for both medical/surgical services and mental health and substance use disorder services, such as service type; geographic market; demand for services; supply of providers; provider practice size; Medicare reimbursement rates; and training, experience and licensure of providers. The NQTL provisions require that these or other factors be applied comparably to and no more stringently than those applied with respect to medical/surgical services. Again, disparate results alone do not mean that the NQTLs in use fail to comply with these requirements. The Departments may provide additional guidance if questions persist with respect to provider reimbursement rates.

Some commenters requested that the Departments require plans and issuers to comply with certain guidelines, independent national or international standards, or State government guidelines. While plans and issuers are not required under these final regulations to comply with any such guidelines or standards with respect to the development of their NQTLs, these standards, such as the behavioral health accreditation standards set forth by the National Committee for Quality Assurance or the standards for implementing parity in managed care set forth by URAC, may be used as references and best practices in implementing NQTLs, if they are applied in a manner that complies with these final regulations.

In response to the RFI and interim final regulations, the Departments received many comments addressing an issue characterized as “scope of services” or “continuum of care.” Scope of services generally refers to the types of treatment and treatment settings that are covered by a group health plan or health insurance coverage. Some commenters requested that, with respect to a mental health condition or substance use disorder that is otherwise covered, the regulations clarify that a plan or issuer is not required to provide benefits for any particular treatment or treatment setting (such as counseling or non-hospital residential treatment) if benefits for the treatment or treatment setting are not provided for medical/surgical conditions. Other commenters requested that the regulations require plans and issuers to provide benefits for the full scope of medically appropriate services to treat a mental health condition or substance use disorder if the plan or issuer covers the full scope of medically appropriate services to treat medical/surgical conditions, even if some treatments or treatment settings are not otherwise covered by the plan or coverage. Other commenters requested that MHPAEA be interpreted to require that group health plans and issuers provide benefits for any evidence-based treatment.

The interim final regulations established six broad classifications that in part define the scope of services under MHPAEA. The interim final regulations require that, if a plan or issuer provides coverage for mental health or substance use disorder benefits in any classification, mental health or substance use disorder benefits must be provided in every classification in which medical/surgical benefits are provided. The interim final regulations did not, however, address the scope of services that must be covered within those classifications. The Departments invited comments on whether and to what extent the final regulations should address the scope of services or continuum of care provided by a group health plan or health insurance coverage.

Many commenters requested that the Departments clarify how MHPAEA affects the scope of coverage for intermediate services (such as residential treatment, partial hospitalization, and intensive outpatient treatment) and how these services fit within the six classifications set forth by the interim final regulations. Some commenters suggested that the final regulations establish what intermediate mental health and substance use disorder services would be analogous to various intermediate medical/surgical services for purposes of the MHPAEA parity analysis. Other commenters suggested that the Departments not address scope of services in the final regulations.

The Departments did not intend that plans and issuers could exclude intermediate levels of care covered under the plan from MHPAEA's parity requirements. At the same time, the Departments did not intend to impose a benefit mandate through the parity requirement that could require greater benefits for mental health conditions and substance use disorders than for medical/surgical conditions. In addition, the Departments' approach defers to States to define the package of insurance benefits that must be provided in a State through EHB.^[20]

Although the interim final regulations did not define the scope of the six classifications of benefits, they directed that plans and issuers assign mental health and substance use disorder benefits and medical/surgical benefits to these classifications in a consistent manner. This general rule also applies to intermediate services provided under the plan or coverage. Plans and issuers must assign covered intermediate mental health and substance use disorder benefits to the existing six benefit classifications in the same way that they assign comparable intermediate medical/surgical benefits to these classifications. For example, if a plan or issuer classifies care in skilled nursing facilities or rehabilitation hospitals as inpatient benefits, then the plan or issuer must likewise treat any covered care in residential treatment facilities for mental health or substance user disorders as an inpatient benefit. In addition, if a plan or issuer treats home health care as an outpatient benefit, then any covered intensive outpatient mental health or substance use disorder services and partial hospitalization must be considered outpatient benefits as well.

These final regulations also include additional examples illustrating the application of the NQTL rules to plan exclusions affecting the scope of services provided under the plan. The new examples clarify that plan or coverage restrictions based on geographic location, facility type, provider specialty, and other criteria that limit the scope or duration of benefits for services must comply with the NQTL parity standard under these final regulations.

MHPAEA requires that the criteria for plan medical necessity determinations with respect to mental health or substance use disorder benefits (or health insurance coverage offered in connection with the plan with respect to such benefits) be made available by the plan administrator (or the health insurance issuer offering such coverage) to any current or potential participant, beneficiary, or contracting provider upon request in accordance with regulations. MHPAEA also requires that the reason for any denial under the plan (or coverage) of reimbursement or payment for services with respect to mental health or substance use disorder benefits in the case of any participant or beneficiary must be made available on request or as otherwise required by the plan administrator (or health insurance issuer) to the participant or beneficiary in accordance with regulations.

Several commenters expressed concern about the lack of health plan transparency, or made recommendations to improve transparency, including a request that plans and issuers be required to provide sufficient information to determine whether a plan is applying medical necessity criteria and other factors comparably to medical/surgical benefits and mental health and substance use disorder benefits. In addition, since the issuance of the interim final regulations, stakeholders have expressed concern that it is difficult to understand whether a plan complies with the NQTL provisions without information showing that the processes, strategies, evidentiary standards, and other factors used in applying an NQTL to mental health or substance use disorder benefits and medical/surgical benefits are comparable, impairing plan participants' means of ensuring compliance with MHPAEA.

In response to these concerns, the Departments published several FAQs clarifying the breadth of disclosure requirements applicable to group health plans and health insurance issuers under both MHPAEA and other applicable law, including ERISA and the Affordable Care Act.^[21] The substance of these FAQs is included in new paragraph (d)(3) of the final regulations, which reminds plans, issuers, and individuals that compliance with MHPAEA's disclosure requirements is not determinative of compliance with any other provision of applicable Federal or State law. In particular, in addition to MHPAEA's disclosure requirements, provisions of other applicable law require disclosure of information relevant to medical/surgical, mental health, and substance use disorder benefits. For example, ERISA section 104 and the Department of Labor's implementing regulations^[22] provide that, for plans subject to ERISA, instruments under which the plan is established or operated must generally be furnished by the plan administrator to plan participants^[23] within 30 days of request. Instruments under which the plan is established or operated include documents with information on medical necessity criteria for both medical/surgical benefits and mental health and substance use disorder benefits, as well as the processes, strategies, evidentiary standards, and other factors used to apply an NQTL with respect to medical/surgical benefits and mental health or substance use disorder benefits under the plan.

In addition, the Department of Labor's claims procedure regulations (applicable to ERISA plans), as well as the Departments' claims and appeals regulations under the Affordable Care Act (applicable to all non-grandfathered group health plans and health insurance issuers in the group and individual markets),^[24] set forth rules regarding claims and appeals, including the right of claimants (or their authorized representative) upon appeal of an adverse benefit determination (or a final internal adverse benefit determination) to be provided by the plan or issuer, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the claimant's claim for benefits.^[25] In addition, the plan or issuer must provide the claimant with any new or additional evidence considered, relied upon, or generated by the plan or issuer (or at the direction of the plan or issuer) in connection with a claim. If the plan or issuer is issuing an adverse benefit determination on review based on a new or additional rationale, the claimant must be provided, free of charge, with the rationale. Such evidence or rationale must be provided as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided to give the claimant a reasonable opportunity to respond prior to that date.^[26] The information required to be provided under these provisions includes documents of a comparable nature with information on medical necessity criteria for both medical/surgical benefits and mental health and substance use disorder benefits, as well as the processes, strategies, evidentiary standards, and other factors used to apply an NQTL with respect to medical/surgical benefits and mental health or substance use disorder benefits under the plan.

Even with these important disclosure requirements under existing law,^[27] the Departments remain focused on transparency and whether individuals have the necessary information to compare NQTLs of medical/surgical benefits and mental health or substance use disorder benefits under the plan to effectively ensure compliance with MHPAEA. Accordingly, contemporaneous with the publication of these final regulations, the Departments of Labor and HHS are also publishing another set of MHPAEA FAQs, which, among other things, solicit comments on whether and how to ensure greater transparency and compliance.^[28]

Paragraph (f) of these final regulations implements the exemption for a group health plan (or health insurance issuer offering coverage in connection with a group health plan) for a plan year of a small employer. Prior to the Affordable Care Act, MHPAEA defined a small employer, in connection with a group health plan with respect to a calendar year and a plan year, as an employer who employed an average of not more than 50 employees on business days during the preceding calendar year.

Section 2791 of the PHS Act was amended by the Affordable Care Act to define a small employer as one that has 100 or fewer employees, while also providing States the option to use 50 employees rather than 100 for 2014 and 2015.^[29] This definition is incorporated by reference in the MHPAEA provisions contained in section 2726 of the PHS Act. However, the MHPAEA provisions codified in ERISA section 712 and Code section 9812, together with section 732(a) of ERISA and section 8931(a) of the Code, continue to define an exempt small employer as one that has 50 or fewer employees. The Departments issued an FAQ^[30] in December 2010 stating that, “for group health plans and health insurance issuers subject to ERISA and the Code, the Departments will continue to treat group health plans of employers with 50 or fewer employees as exempt from the MHPAEA requirements under the small employer exemption, regardless of any State insurance law definition of small employer.” The FAQ also acknowledged that, for non-Federal governmental plans, which are not subject to ERISA or the Code, the PHS Act was amended to define a small employer as one that has 100 or fewer employees. Consistent with the FAQs, the Department of Labor and the Department of the Treasury final regulations continue to exempt group health plans and group health insurance coverage of employers with 50 or fewer employees from MHPAEA. The HHS final regulations, which generally apply to non-Federal governmental plans, exempt group health plans and group health insurance coverage of employers with 100 or fewer employees (subject to State law flexibility for 2014 and 2015). Despite this difference, and certain other differences, in the applicability of the provisions of the Code, ERISA, and the PHS Act, the Departments do not find there to be a conflict in that no entity will be put in a position in which compliance with all of the provisions applicable to that entity is impossible.

At the same time, plans and issuers providing coverage in connection with group health plans sponsored by small employers should be aware that, on February 25, 2013, HHS published a final regulation on EHB^[31] that requires issuers of non-grandfathered plans in the individual and small group markets to ensure that such plans provide all EHB, including mental health and substance use disorder benefits. The extent of the coverage of EHB is determined based on benchmark plans that are selected by the States. Furthermore, the EHB final regulation at 45 CFR 156.115(a)(3) requires issuers providing EHB to provide mental health and substance use disorder benefits in compliance with the requirements of the MHPAEA regulations, even where those requirements would not otherwise apply directly. Thus, all insured, non-grandfathered, small group plans must cover EHB in compliance with the MHPAEA regulations, regardless of MHPAEA's small employer exemption. (Also, as discussed in section H.1. below, MHPAEA was amended to include individual health insurance coverage. Accordingly, both grandfathered and non-grandfathered coverage in the individual market must comply with MHPAEA.)

MHPAEA contains an increased cost exemption that is available for plans and health insurance issuers that make changes to comply with the law and incur an increased cost of at least two percent in the first year that MHPAEA applies to the plan or coverage or at least one percent in any subsequent plan or policy year. Under MHPAEA, plans or coverage that comply with the parity requirements for one full plan year and that satisfy the conditions for the increased cost exemption are exempt from the parity requirements for the following plan or policy year, and the exemption lasts for one plan or policy year. Thus, the increased cost exemption may only be claimed for alternating plan or policy years.^[32]

The interim final regulations reserved paragraph (g) regarding the increased cost exemption and solicited comments. The Departments issued guidance establishing an interim enforcement safe harbor under which a plan that has incurred an increased cost of two percent during its first year of compliance can obtain an exemption for the second plan year by following the exemption procedures described in the Departments' 1997 regulations implementing MHPA 1996,^[33] except that, as required under MHPAEA, for the first year of compliance the applicable percentage of increased cost is two percent and the exemption lasts only one year.^[34]

The Departments received several comments on the interim final regulations that requested guidance on attribution of cost increases to MHPAEA. Some commenters emphasized that the cost exemption must be based on actual total plan costs measured at the end of the plan year. Other commenters stated that plans should be permitted to estimate claims that have not yet been reported for purposes of calculating incurred expenditures. Additionally, some commenters stated that a plan's costs for purposes of the increased cost exemption should include not only claims costs, but also administrative expenses associated with complying with the parity requirements.

Paragraph (g) of these final regulations generally applies standards and procedures for claiming an increased cost exemption under MHPAEA consistent with MHPAEA's statutory standards and procedures as well as prior procedures set forth in the Departments' regulations implementing MHPA 1996. The test for an exemption must be based on the estimated increase in actual costs incurred by the plan or issuer that is directly attributable to expansion of coverage due to the requirements of this section and not otherwise due to occurring trends in utilization and prices, a random change in claims experience that is unlikely to persist, or seasonal variation commonly experienced in claims submission and payment patterns.

Under the final regulations, the increase in actual total costs attributable to MHPAEA is described by the formula [(E₁ – E₀)/T₀]-D> k, where E represents the level of health plan spending with respect to mental health and substance use disorder benefits over the measurement period, T is a measure of total actual costs incurred by a plan or coverage on all benefits (medical/surgical benefits and mental health and substance use disorder benefits under the plan), D is the average change in spending over the prior five years, and k is the applicable percentage of increased cost for qualifying for the cost exemption (i.e., one percent or two percent depending on the year). k will be expressed as a fraction for the purposes of this formula. The subscripts 1 and 0 refer to a base period and the most recent benefit period preceding the base period, respectively. Costs incurred under E include paid claims by the plan or coverage for services to treat mental health conditions and substance use disorders, and administrative costs associated with providing mental health or substance use disorder benefits (amortized over time).

In estimating the costs attributable to MHPAEA, a plan or issuer must rely on actual claims or encounter data incurred in the benefit period reported within 90 days of the end of the benefit period. Although MHPAEA specifies that determinations with regard to the cost exemption shall be made after a plan has complied with the law for six months of the plan year involved, the provision does not require that the benefit period used to make this calculation be limited to six months. Data from a six month period will not typically reflect seasonal variation in claims experience. To estimate E₁ – E₀, a plan or coverage must first calculate secular trends over five years in the volume of services and the prices paid for services for the major classifications of services by applying the formula (E₁ – E₀)/T₀ to mental health and substance use disorder spending to each of the five prior years and then calculating the average change in spending. The components of spending are estimated because secular trends can occur in prices and volume. After the average change in spending across the five years is calculated for each service type, the change in mental health and substance use disorder benefits spending attributable to MHPAEA is calculated net of the average annual spending growth that is due to a secular trend. This change in calculation is the main difference from the previous methodology used under prior guidance. It is recognized that for some smaller employers covered by MHPAEA, year to year spending may be somewhat unstable. In this case, an employer or issuer may propose an alternative estimation method. It is important to note that the language of the statute indicates that the base period against which the impact of MHPAEA is assessed moves up each year to the year prior to the current benefit year.

Administrative costs attributable to the implementation of MHPAEA must be reasonable and supported with detailed documentation from accounting records. Software and computing expenses associated with implementation of the prohibition on separate cumulative financial requirements or other provisions of the regulation should be based on a straight-line depreciation over the estimated useful life of the asset (computer hardware five years; software three years, according to the American Hospital Association's Estimated Useful Life of depreciable Hospital Assets). Any other fixed administrative costs should also be amortized.

Some commenters suggested additional clarifications regarding the statutory provision that determinations as to increases in actual costs must be made and certified by a qualified and licensed actuary who is a member in good standing of the American Academy of Actuaries. Some commenters suggested that the actuary must be qualified to perform such work based on meeting the Qualification Standards for Actuaries Issuing Statements of Actuarial Opinion in the United States. Other commenters suggested that the actuary must be independent and not employed by the group health plan or health insurance issuer claiming the exemption. The Departments believe the statutory language is sufficient to ensure reliable cost increase determinations. Moreover, this approach is consistent with the approach applicable to EHB in that the only qualification required for actuaries is that they be a member in good standing of the American Academy of Actuaries.^[35] Accordingly, the Departments decline to adopt these suggestions. Determinations as to increases in actual costs attributable to implementation of the requirements of MHPAEA must be made and certified by a qualified and licensed actuary who is a member in good standing of the American Academy of Actuaries. All such determinations must be based on the formula specified in these final regulations in a written report prepared by the actuary. Additionally, the written report, along with all supporting documentation relied upon by the actuary, must be maintained by the group health plan or health insurance issuer for a period of six years.

Several commenters expressed concern regarding the administrative burden that would result from qualifying for the increased cost exemption for one year and then having to comply with the law the following year. MHPAEA's statutory language specifies that plans and issuers may qualify for the increased cost exemption for only one year at a time, stating that if the application of MHPAEA “results in an increase for the plan year involved of the actual total costs of coverage . . . by an amount that exceeds the applicable percentage . . . the provisions of this section shall not apply to such plan (or coverage) during the following plan year, and such exemption shall apply to the plan (or coverage) for 1 plan year.”^[36]

Before a group health plan or health insurance issuer may claim the increased cost exemption, it must furnish a notice of the plan's exemption from the parity requirements to participants and beneficiaries covered under the plan, the Departments (as described below), and appropriate State agencies. The notification requirements for the increased cost exemption under these final regulations are consistent with the requirements under the Departments' 1997 regulations implementing MHPA 1996.

With respect to participants and beneficiaries, a group health plan subject to ERISA may satisfy this requirement by providing a summary of material reductions in covered services or benefits under 29 CFR 2520.104b-3(d), if it includes all the information required by these final regulations.

With respect to notification to the Departments, a plan or issuer must furnish a notice that satisfies the requirements of these final regulations. A group health plan that is a church plan (as defined in section 414(e) of the Code) must notify the Department of the Treasury. A group health plan subject to Part 7 of Subtitle B of Title I of ERISA must notify the Department of Labor. A group health plan that is a non-Federal governmental plan or a health insurance issuer must notify HHS. In all cases, the exemption is not effective until 30 days after notice has been sent to both participants and beneficiaries and to the appropriate Federal agency. The Departments will designate addresses for delivery of these notices in future guidance.

Finally, a plan or issuer must make available to participants and beneficiaries (or their representatives), on request and at no charge, a summary of the information on which the exemption was based. For purposes of this paragraph (g), an individual who is not a participant or beneficiary and who presents a notice described in paragraph (g)(6) of the final regulations is considered to be a representative. Such a representative may request the summary of information by providing the plan a copy of the notice provided to the participant or beneficiary with any personally identifiable information redacted. The summary of information must include the incurred expenditures, the base period, the dollar amount of claims incurred during the base period that would have been denied under the terms of the plan absent amendments required to comply with parity, and the administrative expenses attributable to complying with the parity requirements. In no event should a summary of information include individually identifiable information.

The increased cost exemption provision in paragraph (g) of these final regulations is effective for plan or policy years beginning on or after July 1, 2014 (see paragraph (i) of these final regulations), which for calendar year plans means the provisions apply on January 1, 2015. Accordingly, plans and issuers must use the formula specified in paragraph (g) of these final regulations to determine whether they qualify for the increased cost exemption in plan or policy years beginning on or after July 1, 2014. For claiming the increased cost exemption in plan or policy years beginning before July 1, 2014, plans and issuers should follow the interim enforcement safe harbor outlined in previously issued FAQs.^[37]

The interim final regulations combined in paragraph (e)(1) what had been separate rules under MHPA 1996 for (1) determining if a plan provides both medical/surgical and mental health or substance use disorder benefits; (2) applying the parity requirements on a benefit-package-by-benefit-package basis; and (3) counting the number of plans that an employer or employee organization maintains. The combined rule provides that (1) the parity requirements apply to a group health plan offering both medical/surgical benefits and mental health or substance use disorder benefits, (2) the parity requirements apply separately with respect to each combination of medical/surgical coverage and mental health or substance use disorder coverage that any participant (or beneficiary) can simultaneously receive from an employer's or employee organization's arrangement or arrangements to provide medical care benefits, and (3) all such combinations constitute a single group health plan for purposes of the parity requirements. Some comments expressed concern that the new combined rule would disrupt benefit programs that employers have maintained as separate plans for important reasons having nothing to do with a desire to escape the parity requirements and that the rule should be rescinded or issued only in proposed form. Other comments welcomed the rule as an important protection to prevent evasion of the parity requirements. The final regulations do not change the combined rule from the interim final regulations. In the Departments' view, the combined rule is necessary to prevent potential evasion of the parity requirements by allocating mental health or substance use disorder benefits to a plan or benefit package without medical/surgical benefits (when medical/surgical benefits are also otherwise available).

The preamble to the interim final regulations illustrated how the parity requirements would apply to various benefit package configurations, including multiple medical/surgical benefit packages combined with a single mental health and substance use disorder benefit package. One commenter asked for clarification in the case of a plan with an HMO option and a PPO option in which mental health and substance use disorder benefits are an integral part of each option. In such a case, the parity requirements apply separately to the HMO option and the PPO option.

The Departments are aware that employers and health insurance issuers sometimes contract with MBHOs or similar entities to provide or administer mental health or substance use disorder benefits in group health plans or in health insurance coverage. The fact that an employer or issuer contracts with one or more entities to provide or administer mental health or substance use disorder benefits does not, however, relieve the employer, issuer, or both of their obligations under MHPAEA. The coverage as a whole must still comply with the applicable provisions of MHPAEA, and the responsibility for compliance rests on the group health plan and/or the health insurance issuer, depending on whether the coverage is insured or self-insured. This means that the plan or issuer will need to provide sufficient information in terms of plan structure and benefits to the MBHO to ensure that the mental health and substance use disorder benefits are coordinated with the medical/surgical benefits for purposes of compliance with the requirements of MHPAEA. Liability for any violation of MHPAEA rests with the group health plan and/or health insurance issuer.

Several commenters requested clarification about whether a plan or issuer may exclude coverage for specific diagnoses or conditions under MHPAEA. These final regulations continue to provide that nothing in these regulations requires a plan or issuer to provide any mental health benefits or substance use disorder benefits. Moreover, the provision of benefits for one or more mental health conditions or substance use disorders does not require the provision of benefits for any other condition or disorder. Other Federal and State laws may prohibit the exclusion of particular disorders from coverage where applicable, such as the Americans with Disabilities Act. Other Federal and State laws may also require coverage of mental health or substance use disorder benefits, including the EHB requirements under section 2707 of the PHS Act and section 1302(a) of the Affordable Care Act.

1. Individual Health Insurance Market

Section 1563(c)(4) of the Affordable Care Act^[38] amended section 2726 of the PHS Act to apply MHPAEA to health insurance issuers in the individual health insurance market. These changes are effective for policy years beginning on or after January 1, 2014. The HHS final regulation implements these requirements in new section 147.160 of title 45 of the Code of Federal Regulations. Under these provisions, unless otherwise specified, the parity requirements outlined in 45 CFR 146.136 of these final regulations apply to health insurance coverage offered by a health insurance issuer in the individual market in the same manner and to the same extent as such provisions apply to health insurance coverage offered by a health insurance issuer in connection with a group health plan in the large group market. These provisions apply to both grandfathered and non-grandfathered individual health insurance coverage for policy years beginning on or after the applicability dates set forth in paragraph (i) of these final regulations.

2. Non-Federal governmental plans

Prior to enactment of the Affordable Care Act, sponsors of self-funded, non-Federal governmental plans were permitted to elect to exempt those plans from (“opt out of”) certain provisions of title XXVII of the PHS Act. This election was authorized under section 2721(b)(2) of the PHS Act (renumbered as section 2722(a)(2) by the Affordable Care Act). The Affordable Care Act made a number of changes, with the result that sponsors of self-funded, non-Federal governmental plans can no longer opt out of as many requirements of title XXVII of the PHS Act. However, under the PHS Act, sponsors of self-funded, non-Federal governmental plans may continue to opt out of the requirements of MHPAEA.^[39] If the sponsor of a self-funded, non-Federal governmental plan wishes to exempt its plan from the requirements of MHPAEA, it must follow the procedures and requirements outlined in section 2722 and corresponding Centers for Medicare & Medicaid Services (CMS) guidance, which includes notifying CMS to that effect in writing.^[40]

3. Retiree-only plans

Some commenters requested clarification regarding the applicability of these final regulations to retiree-only plans. ERISA section 732(a) generally provides that part 7 of ERISA—and Code section 9831(a) generally provides that chapter 100 of the Code—does not apply to group health plans with less than two participants who are current employees (including retiree-only plans that, by definition, cover less than two participants who are current employees).^[41] The Departments previously clarified in FAQs that the exceptions of ERISA section 732 and Code section 9831, including the exception for retiree-only health plans, remain in effect.^[42] Since the provisions of MHPAEA contained in ERISA section 712 and Code section 9812 are contained in part 7 of ERISA and chapter 100 of the Code, respectively, group health plans that do not cover at least two employees who are current employees (such as plans in which only retirees participate) are exempt from the requirements of MHPAEA and these final regulations.^[43]

4. Employee Assistance Programs

Several comments also requested clarification regarding the applicability of the parity requirements to employee assistance programs (EAPs). An example in the interim final regulations clarified that a plan or issuer that limits eligibility for mental health and substance use disorder benefits until after benefits under an EAP are exhausted has established an NQTL subject to the parity requirements, and stated that if no comparable requirement applies to medical/surgical benefits, such a requirement could not be applied to mental health or substance use disorder benefits.^[44] The final regulations retain this example and approach.^[45]

The Departments have also received questions regarding whether benefits under an EAP are considered to be excepted benefits. The Departments recently published guidance announcing their intentions to amend the excepted benefits regulations^[46] to provide that benefits under an EAP are considered to be excepted benefits, but only if the program does not provide significant benefits in the nature of medical care or treatment.^[47] Under this approach, EAPs that qualify as excepted benefits will not be subject to MHPAEA or these final regulations.

The guidance provides that until rulemaking regarding EAPs is finalized, through at least 2014, the Departments will consider an EAP to constitute excepted benefits only if the EAP does not provide significant benefits in the nature of medical care or treatment. For this purpose, employers may use a reasonable, good faith interpretation of whether an EAP provides significant benefits in the nature of medical care or treatment.

5. Medicaid and CHIP Managed Care Plans

These final regulations apply to group health plans and health insurance issuers. These final regulations do not apply to Medicaid managed care organizations (MCOs), alternative benefit plans (ABPs), or the Children's Health Insurance Program (CHIP). However, MHPAEA requirements are incorporated by reference into statutory provisions that do apply to those entities. On January 16, 2013, CMS released a State Health Official Letter regarding the application of the MHPAEA requirements to Medicaid MCOs, ABPs, and CHIP.^[48] In this guidance, CMS adopted the basic framework of MHPAEA and applied the statutory principles as appropriate across these Medicaid and CHIP authorities. The letter also stated that CMS intends to issue additional guidance that will assist States in their efforts to implement the MHPAEA requirements in their Medicaid programs.

Several commenters requested that the final regulations clearly describe how MHPAEA interacts with State insurance laws. Commenters sought clarification as to how MHPAEA may or may not preempt State laws that require parity for mental health or substance use disorder benefits, mandate coverage of mental health or substance use disorder benefits, or require a minimum level of coverage (such as a minimum dollar, day, or visit level) for mental health conditions or substance use disorders. These commenters expressed a desire that the final regulations articulate that existing State laws on mental health or substance use disorder benefits would remain in effect to the extent they did not prevent the application of MHPAEA.

The preemption provisions of section 731 of ERISA and section 2724 of the PHS Act (added by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and implemented in 29 CFR 2590.731 and 45 CFR 146.143(a)) apply so that the MHPAEA requirements are not to be “construed to supersede any provision of State law which establishes, implements, 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 requirement” of MHPAEA and other applicable provisions.^[49] The HIPAA conference report indicates that this is intended to be the “narrowest” preemption of State laws.^[50]

For example, a State law may mandate that an issuer offer coverage for a particular condition or require that an issuer offer a minimum dollar amount of mental health or substance use disorder benefits. (While MHPAEA does not require plans or issuers to offer any mental health benefits, once benefits are offered, for whatever reason (except as previously described related to PHS Act section 2713), MHPAEA applies to the benefits.) These State law provisions do not prevent the application of MHPAEA, and therefore would not be preempted. To the extent the State law mandates that an issuer provide some coverage for any mental health condition or substance use disorder, benefits for that condition or disorder must be provided in parity with medical/surgical benefits under MHPAEA. This means that an issuer subject to MHPAEA may be required to provide mental health or substance use disorder benefits beyond the State law minimum in order to comply with MHPAEA.

Comments received in response to the interim final regulations suggested some confusion and concern regarding the Departments' authority to impose penalties and ensure compliance with the requirements under MHPAEA. The enforcement responsibilities of the Federal government and the States with respect to health insurance issuers are set forth in the PHS Act. Pursuant to PHS Act section 2723(a), States have primary enforcement authority over health insurance issuers regarding the provisions of part A of title XXVII of the PHS Act, including MHPAEA. HHS (through CMS) has enforcement authority over the issuers in a State if the State notifies CMS that it has not enacted legislation to enforce or is otherwise not enforcing, or if CMS determines that the State is not substantially enforcing, a provision (or provisions) of part A of title XXVII of the PHS Act. Currently, CMS believes that most States have the authority to enforce MHPAEA and are acting in the areas of their responsibility. In States that lack the authority to enforce MHPAEA, CMS is either directly enforcing MHPAEA or collaborating with State departments of insurance to ensure enforcement.

The Departments of Labor and the Treasury generally have primary enforcement authority over private sector employment-based group health plans, while HHS has primary enforcement authority over non-Federal governmental plans, such as those sponsored by State and local government employers.

Some commenters suggested that States need a stronger understanding of MHPAEA and its implementing regulations to better inform the public about the protections of the law and to ensure proper compliance by issuers. These commenters believed that States would benefit from additional and continued guidance from CMS regarding the requirements of MHPAEA and its impact upon State law. The Departments encourage State regulators to familiarize themselves with the MHPAEA requirements, in particular the rules governing NQTLs, and any guidance issued by the Departments, so that the States can instruct issuers in their jurisdictions on the correct implementation of the statute and regulations, and appropriately enforce the provisions. The Departments will continue to provide technical assistance to State regulators either individually or through the National Association of Insurance Commissioners to ensure that the States have the tools they need to implement and enforce MHPAEA.

MHPAEA's statutory provisions were self-implementing and generally became effective for plan years beginning after October 3, 2009.^[51] The requirements of the interim final regulations generally became effective on the first day of the first plan year beginning on or after July 1, 2010. These final regulations apply to group health plans and health insurance issuers offering group health insurance coverage on the first day of the first plan year beginning on or after July 1, 2014. Examples, cross-references, and other clarifications have been added in some places to facilitate compliance and address common questions, much of which has already been published by the Departments.^[52] Each plan or issuer subject to the interim final regulations must continue to comply with the applicable provisions of the interim final regulations until the corresponding provisions of these final regulations become applicable to that plan or issuer.

This document also contains a technical amendment relating to external review with respect to the Multi-State Plan Program (MSPP) administered by the Office of Personnel Management (OPM). Section 2719 of the PHS Act and its implementing regulations provide that group health plans and health insurance issuers must comply with either a State external review process or the Federal external review process. Generally, if a State has an external review process that meets, at a minimum, the consumer protections set forth in the interim final regulations on internal claims and appeals and external review,^[53] then an issuer (or a plan) subject to the State process must comply with the State process.^[54] For plans and issuers not subject to an existing State external review process (including self-insured plans), a Federal external review process applies.^[55] The statute requires the Departments to establish standards, “through guidance,” governing a Federal external review process. Through guidance issued by the Departments, HHS has established a Federal external review process for self-insured non-Federal governmental health plans, as well as for plans and issuers in States that do not have an external review process that meets the minimum consumer protections in the regulations.

In proposed regulations published on March 21, 2013 (78 FR 17313), the Departments proposed to amend the interim final regulations implementing PHS Act section 2719 to specify that MSPs will be subject to the Federal external review process under PHS Act section 2719(b)(2) and paragraph (d) of the internal claims and appeals and external review regulations. This proposal reflects the Departments' interpretation of section 2719(b)(2) as applicable to all plans not subject to a State's external review process. OPM has interpreted section 1334(a)(4) of the Affordable Care Act to require OPM to maintain authority over external review because Congress directed that OPM implement the MSPP in a manner similar to the manner in which it implements the contracting provisions of the FEHBP, and in the FEHBP, OPM resolves all external appeals on a nationwide basis as a part of its contract administration responsibilities.^[56] This assures consistency in benefit administration for those OPM plans that are offered on a nationwide basis. Accordingly, under OPM's interpretation, it would be inconsistent with section 1334(a)(4) of the Affordable Care Act for MSPs and MSPP issuers to follow State-specific external review processes under section 2719(b)(1) of the PHS Act. OPM's final rule on the establishment of the multi-State plan program nonetheless does require the MSPP external review process to meet the requirements of PHS Act section 2719 and its implementing regulations.^[57]

The Departments also proposed to amend the interim final regulations implementing PHS Act section 2719 to specify that the scope of the Federal external review process, as described in paragraph (d)(1)(ii), is the minimum required scope of claims eligible for external review for plans using a Federal external review process, and that Federal external review processes developed in accordance with paragraph (d) may have a scope that exceeds the minimum requirements.

The Departments did not receive any comments relating to these proposed amendments and therefore retain the amendments in this final rule without change, except for one minor correction.^[58] The Departments made a typographical error in the March 21, 2013 proposed rule, inadvertently omitting the word “internal” from paragraph (d)(1)(i). That provision should have stated that the Federal external review process “applies, at a minimum, to any adverse benefit determination or final internal adverse benefit determination . . . ” (emphasis added). The Departments did not intend to remove the word “internal” from the interim final rule through the proposed amendment, and we are correcting the final amendment to include the word.

The Departments have determined that this regulatory action is economically significant within the meaning of section 3(f)(1) of the Executive Order, because it is likely to have an effect on the economy of $100 million or more in at least one year. Accordingly, the Departments provide the following assessment of the potential costs and benefits of these final regulations. As elaborated below, the Departments believe that the benefits of the rule justify its costs.

As described earlier in this preamble, these final regulations expand on the protections and parity requirements set forth in the interim final regulations, incorporate clarifications issued by the Departments through sub-regulatory guidance since the issuance of the interim final regulations, and provide clarifications related to NQTLs and disclosure requirements. These final regulations also include additional clarifications and examples illustrating the parity requirements and their applicability, as well as provisions to implement the increased cost exemption with respect to financial requirements and treatment limitations. The HHS final regulation also implements the parity requirements for individual health insurance coverage.

A recent study on plan responses to MHPAEA indicates that by 2011, most plans had removed most financial requirements and treatment limitations that did not meet the requirements of MHPAEA and the interim final regulations.^[59] The use of higher copays and coinsurance for inpatient mental health and substance use disorder services declined rapidly in large employer plans following implementation of MHPAEA.^[60] In addition, nearly all plans had eliminated the use of separate deductibles for mental health or substance use disorder out-of-pocket costs by 2011.^[61] (Even by 2010, only 3.2 percent of plans had used separate deductibles.) The HHS study also found that the number of plans that applied unequal inpatient day limits, outpatient visit limits or other quantitative treatment limitations for mental health or substance use disorder benefits had dropped significantly by 2011.

Since this study found that the implementation of the requirements of MHPAEA has progressed consistent with the interim final rules, this impact analysis includes estimates of any additional costs and benefits resulting from changes made to the provisions in the interim final regulations by these final regulations. As background, in section III.D of this preamble, the Departments summarize the cost estimates included in the interim final regulations.

Congress directed the Departments to issue regulations implementing the MHPAEA provisions. In response to this Congressional directive, these final regulations clarify and interpret the MHPAEA provisions under section 712 of ERISA, section 2726 of the PHS Act, and section 9812 of the Code. Historically, plans have offered coverage for mental health conditions and substance use disorders at lower levels than coverage for other conditions. Plans limited coverage through restrictive benefit designs that discouraged enrollment by individuals perceived to be high-cost due to their behavioral health conditions and by imposing special limits on mental health and substance use disorder benefits out of concern that otherwise utilization and costs would be unsustainable. Parity advocates argued that these approaches were unfair and limited access to needed treatment for vulnerable populations. In addition, research demonstrated that restrictive benefit designs were not the only way to address costs.^[62] Initially, MHPA 1996 was designed to eliminate more restrictive annual and lifetime dollar limits on mental health benefits. However, as illustrated in a General Accountability Office report on implementation of MHPA 1996, the statute had an unintended consequence: most plans coming into compliance instead turned to more restrictive financial requirements and treatment limitations.^[63]

These final regulations provide the specificity and clarity needed to effectively implement the provisions of MHPAEA and prevent the use of prohibited limits on coverage, including nonquantitative treatment limitations that disproportionately limit coverage of treatment for mental health conditions or substance use disorders. The requirements in these final regulations are needed to address questions and concerns that have been raised regarding the implications of the interim final regulations with regard to intermediate level services, NQTLs, and the increasing use of multi-tiered provider networks. The Departments' assessment of the expected economic effects of these regulations is discussed in detail below.

The Departments received the following public comments regarding the economic impact analysis in the interim final regulations.

One commenter urged that the discussion on cost implications for increased utilization of mental health and substance use disorder services must take into account the cost savings that will result from the elimination of the costs associated with ”unique and discriminatory medical management controls” (or NQTLs). Although the Departments concur that the nature and rigor of utilization management affects the cost of care and the administrative expenses associated with care management, there is scant evidence at this time on the way that utilization management will evolve under MHPAEA. Existing evidence suggests that plans and issuers can apply a range of tools to manage care and that even when management of care is consistent with the principles of parity, care management continues. (See the discussion of Oregon state parity law later in this preamble).

Several commenters asserted that the Departments had underestimated the cost and burden of complying with the interim final regulations. However, a study sponsored by HHS found that by 2011 most plans had removed most financial requirements that did not meet the requirements of MHPAEA and the interim final regulations.^[64] In addition, the number of plans that applied unequal inpatient day limits, outpatient visit limits, or other quantitative treatment limitations for mental health or substance use disorder benefits had dropped significantly by 2011. Yet, there is no evidence that plans' costs and burdens have been significantly impacted by the requirements of the statute and its implementing interim final regulations. Research has shown that only a very small percentage of plans have dropped mental health or substance use disorder benefits after implementation of MHPAEA and even for those plans that did so, there is no clear evidence that they dropped mental health or substance use disorder benefits because of MHPAEA. Moreover, no plans have applied for the increased cost exemption under MHPAEA. Finally, in spending reports that have been reported in the aggregate, there is no evidence that spending growth for behavioral health saw a significant upturn in 2011, the first full year in which the interim final regulations generally were in effect.

One commenter asserted that plans are not set up to conduct a parity analysis within the six classifications and as a result the interim final regulations impose a substantial burden, especially on employers that offer multiple plans. In response, the Departments note that the alternative to using the six classifications would require conducting a parity analysis across all types of benefits grouped together that would have resulted in incongruous and unintended consequences with, for example, day limits for inpatient care being the standard for outpatient benefits. Moreover, there is no evidence that plans or issuers have found these requirements to be overly burdensome.

One commenter stated that the Federal Employees' Health Benefits Program (FEHBP) parity requirements and State parity laws are not comparable to the standards in the interim final regulations and therefore are not predictive of the possible cost impacts of the interim final regulations, especially regarding NQTLs. In response, the Departments note that, like MHPAEA, the parity requirements for FEHBP apply to financial requirements and treatment limitations for both mental health conditions and substance use disorders. Furthermore, the FEHBP requirements are more expansive in that “plans must cover all categories of mental health or substance use disorders to the extent that the services are included in authorized treatment plans . . . developed in accordance with evidence-based clinical guidelines, and meet[ing] medical necessity criteria.”^[65] Under the MHPAEA statute, plans and issuers have discretion as to which diagnoses and conditions are covered under the plan.

Several State parity laws are very similar to MHPAEA. For example, Vermont's parity law applies to both mental health and substance use disorder benefits.^[66] The Vermont parity law also requires that management of care for these conditions be in accordance with rules adopted by the State Department of Insurance to assure that timely and appropriate access to care is available; that the quantity, location and specialty distribution of health care providers is adequate and that administrative or clinical protocols do not serve to reduce access to medically necessary treatment.^[67] These requirements are very similar to the NQTL requirements under MHPAEA which likewise seek to ensure plans and issuers do not inequitably limit access to mental health or substance use disorder treatment. In addition, the NQTLs requirements likewise require comparable approaches to utilization management through protocols and other strategies in determining coverage of mental health and substance use disorder treatment compared to medical/surgical treatment. A study of this State parity law also did not find significant increases in cost.^[68]

The Oregon State parity law is also very similar to MHPAEA in that it applies to mental health and substance use disorder financial requirements and treatment limitations and also applies to NQTLs. According to the Oregon Insurance Division, utilization management tools such as “selectively contracted panels of providers, health policy benefit differential designs, preadmission screening, prior authorization, case management, utilization review, or other mechanisms designed to limit eligible expenses to treatment that is medically necessary” may not be used for management of mental health or substance use disorder benefits unless they were used in the same manner that such methods were used for other medical conditions.^[69] A study of the Oregon parity law found that plans removed coverage limits as required and used management techniques to the same degree or less under this law and the impact on mental health and substance use disorder spending was minimal.^[70] Together, the similarities between the FEHBP, Vermont, and Oregon parity requirements lead the Departments to conclude that any differences in terms of the impacts on cost would be small.

Several commenters argued that the requirement in the interim final regulations to use a single or shared deductible in a classification is overly burdensome and would require significant resources to implement, particularly by MBHOs since they often work with multiple plans. One commenter asserted that this requirement could impact the willingness of sponsors to offer mental health or substance use disorder benefits. In response, the Departments note that a study sponsored by HHS found that nearly all plans had eliminated the use of separate deductibles for mental health and substance use disorder benefits by 2011.^[71] According to this study, even in 2010, only a very small percentage of plans were using separate deductibles. This study and other research have shown that only a very small percent of plans have dropped mental health or substance use disorder benefits after implementation of MHPAEA and there is no clear evidence they did so because of MHPAEA.

One commenter urged that the regulations be revised to be less burdensome for plans that are part of a more comprehensive network of benefits within Medicaid healthcare delivery systems. These final regulations apply to group health plans and health insurance issuers but do not, by their own terms, apply to Medicaid. In response, the Departments note that CMS oversees implementation of federal requirements for the Medicaid program. CMS issued a state health official letter on the application of MHPAEA to Medicaid managed care organizations, the Children's Health Insurance Program, and Alternative Benefit (Benchmark) plans on January 16, 2013.^[72]

Two commenters raised concerns about the burden imposed on plans by the requirement that provider reimbursement rates be based on comparable criteria particularly for MBHOs that may as a result have to use multiple rate schedules. The Departments believe that the process of establishing rate schedules is already complex, that MBHOs that contract with other multiple plans are likely to already have multiple rate schedules, and that adding a parity requirement to ensure that rates for behavioral health providers are based on comparable criteria to those used for medical/surgical providers does not add much to this complexity.

One commenter argued that the costs for outpatient mental health and substance use disorder benefits will be higher than estimated because the NQTL parity standard would hamper plans' ability to manage care and control costs. In response, the Departments note that, as discussed above, the Oregon State parity law also applies to NQTLs and a study of this law found that plans in that State removed coverage limits as required and used management techniques to the same degree or less under the Oregon law and the impact on mental health and substance use disorder spending was minimal.^[73]

In the regulatory impact analysis for the interim final regulations, the Departments quantified the costs associated with three aspects of that rulemaking: the cost of implementing a unified deductible, compliance review costs, and costs associated with information disclosure requirements in MHPAEA. The Departments estimated the cost of developing the interface necessary to implement a single deductible as $35,000 per affected interface between a managed behavioral health company and a group health plan with a total estimated cost at $39.2 million (amounting to $0.60 per health plan enrollee) in the first year. The interim final regulations' impact analysis estimated the cost to health plans and insurance issuers of reviewing coverage for compliance with MHPAEA and the interim final regulations at $27.8 million total. This estimate was based on findings that there were about 460 issuers and at least 120 MBHOs and assumed that per-plan compliance costs would be low because third party administrators for self-insured plans would spread the cost across multiple client plans.

Regarding the requirement to disclose medical necessity criteria, the Departments assumed that each plan would receive one such request on average, that it would take a trained staff person about five minutes to respond, and with an average hourly rate of $27, the total annual cost would be about $1 million. The Departments assumed only 38 percent of requests would be delivered electronically with de minimis cost and that the materials, printing and postage costs of responding to about 290,000 requests by paper would be an additional $192,000 for a total of about $1.2 million per year. These costs totaled $114.6 million undiscounted over ten years (2010–2019). The Departments did not include a cost for the requirement in MHPAEA to disclose the reasons for any claims denials because the Department of Labor's claims procedure regulation (at 29 CFR 2560.503-1) already required such disclosures and the same third-party administrators and insurers are hired by ERISA and non-ERISA covered plans so both types of plans were likely to already be in compliance with these rules.

In terms of transfers, in the interim final regulations impact analysis, the Departments estimated premiums would rise 0.4 percent due to MHPAEA, reflecting a transfer from individuals not using mental health and substance use disorder benefits to those that do. This estimated increase in premiums amounted to a transfer of $2.36 billion in 2010 gradually increasing each year over a ten year period to $2.81 billion in 2019. This estimate was based on findings in the literature. For a more complete discussion, see section III.I later in this preamble.

Table 1, below, summarizes the costs associated with the final regulations above the costs estimated for the interim final regulations. Over a five-year period of 2014 to 2018, the total undiscounted cost of the rule is estimated to be $1.16 billion in 2012 dollars. Columns D and E display the costs discounted at 3 percent and 7 percent, respectively. Column F shows a transfer of $3.5 billion over the five-year period. All other numbers included in the text are not discounted, except where noted.

1. Estimated Number of Affected Entities

MHPAEA has already brought about coverage changes for approximately 103 million participants in 420,700 ERISA-covered employment-based group health plans with more than 50 participants, and an estimated 29.5 million participants in the approximately 23,000 public, non-Federal employer group health plans with more than 50 participants sponsored by State and local governments. Plans with 50 or fewer participants were previously exempt from MHPAEA.^[74] In addition, approximately 510 health insurance issuers providing mental health or substance use disorder benefits in the group and individual health insurance markets and at least 120 MBHOs providing mental health or substance use disorder benefits to group health plans are also affected by these final regulations.^[75]

As discussed earlier, the Affordable Care Act extended MHPAEA to apply to a health insurance issuer offering individual health insurance coverage and the HHS final regulation regarding EHB requires QHPs and non-grandfathered health insurance plans in the individual and small group markets to provide covered mental health and substance use disorder services in a manner that complies with the parity requirements of the MHPAEA implementing regulations in order to satisfy the requirement to cover EHB. According to the 2012 Medical Loss Ratio filings, about 11 million people are covered in the individual market; another 7 million are expected to gain coverage in 2014 under the Affordable Care Act.^[76] There are an estimated 12.3 million participants in about 837,000 non-grandfathered ERISA-covered employment-based group plans with 50 or fewer participants, and an estimated 800,000 participants in approximately 59,000 non-grandfathered public, non-Federal employer group health plans with 50 or fewer participants sponsored by State and local governments which were previously exempt from MHPAEA.

About one-third of those who are currently covered in the individual market have no coverage for substance use disorder services and nearly 20 percent have no coverage for mental health services, including outpatient therapy visits and inpatient crisis intervention and stabilization.^[77] In addition, even when individual market plans provide these benefits, the federal parity law previously did not apply to these plans to ensure that coverage for mental health and substance use disorder services is generally comparable to coverage for medical and surgical care.

In the small group market, coverage of mental health and substance use disorder treatment is more common than in the individual market. We estimate that about 95 percent of those with small group market coverage have substance abuse and mental health benefits.^[78] Again, the federal parity law previously did not apply to small group plans. In many States, State parity laws offer those covered in this market some parity protection, but most State parity laws are narrower than the federal parity requirement.

2. Anticipated Benefits

a. Benefits Attributable to the Statute or Interim Final Regulations

In enacting MHPAEA, one of Congress' primary objectives was to improve access to mental health and substance use disorder benefits by eliminating more restrictive visit limits and inpatient days covered as well as higher cost-sharing for mental health and substance use disorder benefits that were prevalent in private insurance plans after implementation of MHPA 1996.^[79]

A recent study funded by HHS found that large group health plans and insurance issuers have made significant changes to financial requirements and treatment limitations for mental health and substance use disorder benefits in the first few years following enactment of MHPAEA.^[80] The statute went into effect for plan years beginning after October 3, 2009 (calendar year 2010 for many plans) and the interim final regulations went into effect for plans years beginning on or after July 10, 2010 (calendar year 2011 for many plans). This HHS study found that by 2011, most plans had removed most financial requirements and treatment limitations that did not meet the requirements of MHPAEA and its implementing interim final regulations.

According to this HHS study, in 2010, ten percent of a nationally representative sample of large employers' behavioral health benefits had inpatient financial requirements (e.g., deductibles, co-pays, or co-insurance) that needed modification to comply with MHPAEA. Analysis of a separate set of large employer-based plans for 2011 found virtually all 230 large employer-based plans included had inpatient benefits that conformed to MHPAEA standards. A third database of plan designs from 2009 through 2011 confirmed that the use of higher copayments and coinsurance for inpatient mental health and substance use disorder services declined rapidly in large employer plans following implementation of MHPAEA.^[81]

Among the representative sample of plans for 2010 included in this study, more than 30 percent had copayments or coinsurance rates for outpatient mental health and substance use disorder benefits that were inconsistent with MHPAEA. In a separate sample of large employer-based plans for 2011, the use of higher coinsurance for mental health and substance use disorder benefits dropped dramatically. However, the study found that about 20 percent of the 140 plans tested continued to utilize outpatient in-network co-pays that failed to meet MHPAEA standards. A third database of plan designs for 2009 through 2011 confirmed a dramatic decline in the use of more restrictive cost-sharing for outpatient mental health and substance use disorder benefits although a minority continued to use high copays.

Nearly all plans had eliminated the use of separate deductibles for mental health or substance use disorder out-of-pocket costs by 2011. (Even by 2010, only 3.2 percent of plans had used separate deductibles.)^[82]

The HHS study also found that the number of plans that applied unequal inpatient day limits, outpatient visit limits or other quantitative treatment limitations for mental health or substance use disorder benefits had dropped significantly by 2011. In 2010, it found that most large employer-based plans used day limits on mental health inpatient benefits that generally conformed to MHPAEA standards. While almost 20 percent of these plans imposed more restrictive day limits on in-network, inpatient benefits for substance use disorders than applied to medical/surgical benefits, the separate sample of 2011 large employer-based plans indicated a significant decline with only eight percent of plans using stricter day limits for inpatient benefits for substance use disorders. These findings were corroborated by analysis of an additional database of plan designs from 2009 through 2011, which also indicated a dramatic decline in the proportion of plans using more restrictive inpatient day limits on mental health and substance use disorder benefits (from 50 percent in 2009 to ten percent in 2010).

In 2010, more than 50 percent of large employer-based plans in the study's representative sample used more restrictive visit limits for outpatient mental health and substance use disorder services that did not conform to MHPAEA standards. But, in the 2011 sample of large employer-based health plans, less than seven percent were using unequal visit limits. This trend was also evident in the plan design database comparing plans across 2009, 2010, and 2011. There too, substantial reductions in quantitative treatment limitations for mental health and substance use disorder benefits in large employer-based plans were seen after enactment of MHPAEA.

b. Potential Benefits of the Final Regulations

The Departments expect that MHPAEA and these final regulations will have their greatest impact on people needing the most intensive treatment and financial protection. The Departments cannot estimate how large this impact will be, but the numbers of beneficiaries who have a medical necessity for substantial amount of care are likely to be relatively small.

Improving coverage in the small group and individual markets will also expand financial protection for a significant segment of those covered and soon to be covered by private health insurance. One indicator of the consequences of unprotected financial risk is bankruptcies. The literature on bankruptcies identifies mental health care as a source of high spending that is less protected than other areas of health care.^[83] One estimate is that about 17 percent of bankruptcies are due to health care bills.^[84] Another estimate using the same data is that about ten percent of medical bankruptcies are attributable to high mental health care costs, and an additional two to three percent of bankruptcies are attributable to drug and alcohol abuse.^[85] Improvements in coverage of mental health and substance use disorder services expected to result from implementation of MHPAEA can be expected to reduce some of the financial risk and also yield successful treatment for people with mental health or substance use disorder problems.

Earlier entry into treatment may have a salutary impact on entry into disability programs. Of the 8.6 million disabled workers receiving Social Security Disability Insurance benefits, 28 percent are identified as having a disability related to mental disorders, not including intellectual disability. Mental disorders are the second largest diagnostic category among awards to disabled workers, after conditions associated with the musculoskeletal system and connective tissue (29 percent) but ahead of those related to the circulatory system (8.5 percent).^[86]

Improving coverage of mental health and substance use disorder treatment could also more generally improve productivity and improve earnings among those with these conditions. Studies have shown that the high prevalence of depression causes $31 billion to $51 billion annually in lost productivity in the United States.^[87] More days of work loss and work impairment are caused by mental illness than by various other chronic conditions, including diabetes and lower back pain.^[88] A recent meta-analysis of randomized studies that examined the impact of treating depression on labor market outcomes showed that while the labor supply effects were smaller than the impact on clinical symptoms, there were consistently significant and positive effects of treatment on labor supply.^[89].^[90] Although the expected impact of MHPAEA on labor supply is likely modest for large employers, it is probably considerably larger for small group and individual plans where pre-MHPAEA coverage was more limited than in the large group market.

As stated earlier, these final regulations clarify that the general rule regarding consistency in classification of benefits applies to intermediate services provided under the plan or coverage. These final regulations are expected to maintain or perhaps slightly improve coverage for intermediate levels of care. These services that fall between inpatient care for acute conditions and regular outpatient care can be effective at improving outcomes for people with mental health conditions or substance use disorders.^{[91] [92] [93]}

This final rule allows for policies such as multi-tiered provider networks. Multi-tiered networks are spreading rapidly among large group policies. There is some early evidence that such approaches can successfully attenuate costs and improve quality of care.

3. Anticipated Costs

a. Illustrative Results from Past Policy Interventions

Existing evidence on implementation of parity in States and FEHBP suggests there will not be significant increases in plan expenditures and premiums as a result of the increased access to mental health and substance use disorder services that are expected to result from these final regulations. Since the effective date of the interim final regulations, no employer has applied for a cost exemption. A recent research study funded by HHS shows that in general, large employer-sponsored plans eliminated higher financial requirements and more limited inpatient day limits, outpatient visit limits and other quantitative treatment limitations for mental health or substance use disorder benefits fairly quickly in the first few years following the enactment of MHPAEA. Differences in cost sharing for prescription medications and emergency care also declined, and by 2011 almost all large employer-based plans studied appeared to comply with MHPAEA for those benefits.^[94] Over that same period, a very small percent of employers dropped mental health or substance use disorder coverage. Moreover, there is no clear evidence that the small number of plans that did drop mental health and substance use disorder coverage did so because of MHPAEA.

Furthermore, evidence suggests that plans did not exclude more mental health or substance use disorder diagnoses from coverage in response to MHPAEA and there is no evidence that plans or employers reduced medical/surgical benefits to comply with parity requirements.^[95] All of these findings indicate that any increases in the costs of covering mental health and substance use disorder benefits following implementation of MHPAEA did not have a substantial impact on overall plan spending.

Other recent analyses of claims data from self-insured employer-sponsored group health plans have suggested that an overwhelming majority of privately insured individuals who used mental health or substance use disorder services prior to MHPAEA did so at a rate far below pre-parity limits on benefits.^[96] Using econometric models to estimate the effect of MHPAEA on high-utilization beneficiaries who are most likely to use expanded coverage, researchers have estimated that MHPAEA may at most increase total health care costs by 0.6 percent.^[97] Furthermore, a recent study of substance use disorder spending from 2001 to 2009 by large employer-sponsored health plans shows that substance use disorder spending remained a relatively constant share of all health spending, comprising about 0.4 percent of all health spending in 2009. This low share of overall spending means that even large increases in utilization of substance use disorder treatment are unlikely to have a significant impact on premiums.^[98]

Although most State parity laws are more limited than MHPAEA, some are comparable, and studies on the impact of these more comparable laws provide a fair indication of the effect of MHPAEA. For example, Oregon's State parity law enacted in 2007 is quite comparable in that it applies to treatment limits (including NQTLs) and financial requirements for mental health and substance use disorder benefits. A study of the Oregon parity law found that plans removed coverage limits and used management techniques more consistently but did not significantly increase spending on mental health and substance use disorder care.^[99] Vermont's parity law also applies to both mental health and substance use disorder services. A study of this State parity law also did not find significant increases in spending.^[100]

b. Costs (and Transfers) Attributable to the Final Regulations

The Departments do not expect the clarification that plans should classify intermediate services consistently for mental health and substance use disorders and medical/surgical benefits will result in a significant increase in costs. Nor do the Departments expect the clarification that the NQTL rules apply to these types of services to cause a substantial increase in plan spending. Analyses of claims data for large group health plans conducted by two different contractors for HHS indicate that most plans cover intermediate behavioral health services, particularly partial hospitalization and intensive outpatient services, but intermediate services account for less than one percent of total health plan spending.^[101] Internal research and analysis by HHS indicates that the number of enrollees who use intermediate services for mental health and substance use disorders is very small. Furthermore, those who used intermediate services did so at modest rates. In addition, the number of enrollees who used intermediate services for medical/surgical benefits was similarly small. Available data suggest that intermediate behavioral health services account for between eight percent and eleven percent of total behavioral health spending in private insurance. This means that since behavioral health care accounts for about 5.5 percent of health plan spending, intermediate behavioral health spending amounts to between 0.4 and 0.6 percent of total health plan spending. In light of the small number of enrollees that utilize this intermediate level of care and the small percentage of total costs that intermediate mental health and substance use disorder services comprise, the Departments expect that any increase in coverage would be very unlikely to have any significant effect on total health plan spending.

Moreover, the Departments investigated the patterns of classification of intermediate services and found that they are generally covered in the six classifications set out in the interim final regulations. Behavioral health intermediate services are generally categorized in a similar fashion as analogous medical services; for example, residential treatment tends to be categorized in the same way as skilled nursing facility care in the inpatient classification. Thus, the Departments do not expect much change in how most plans consider intermediate behavioral health care in terms of the six existing benefit classifications.

Tiered provider networks are expanding in private health insurance. The interim final regulations made no allowance for such insurance innovations. The final regulations clarify how the parity requirements apply to multi-tiered provider networks. The evidence on the impact of these networks is beginning to emerge.^[102] There is some evidence that points to small reductions in health spending associated with tiered provider networks. There are also studies showing little to no savings associated with these network designs. Some modest impact on quality has been observed in some cases and none in others.^[103] The Departments are therefore assuming no cost impact of this provision.

There is limited data on spending for mental health and substance use disorder treatment under individual health insurance plans. The Departments therefore rely on some recent tabulations from the Medical Expenditure Panel Survey (MEPS) and a recent report on premiums and coverage in the individual health insurance market along with information from several other sources to make projections of the likely impact of applying MHPAEA to the individual market.^[104] The Departments began by estimating baseline spending in the individual market. The Departments calculate the weighted average premium for the individual insurance market from the paper by Whitmore and colleagues that was reported in 2007 dollars and inflate it to 2012 dollars using the GDP deflator. Because premiums report more than just health care costs, the Departments convert the premium into plan payments for services by applying the medical loss ratio of 0.70 reported in the technical appendix to the Medical Loss Ratio interim final rule.^[105] The resulting estimate is $2437 in 2012 dollars. That figure represents total health spending by plans per member per year. The Departments obtain an estimate of the behavioral health costs by assuming that about four percent of those expenditures are for behavioral health. That figure is obtained by recognizing that coverage for behavioral health in the individual market is more limited than in the employer sponsored insurance market where mental health and substance use disorder care accounts for about 5.5 percent of spending overall.^[106] Applying the four percent figure to the plan spending estimates results in an estimate of $98 per member per year in plan spending for mental health and substance use disorder benefits. The Departments then calculate the share of spending paid out-of-pocket by using the MEPS data to obtain an estimate of outpatient mental health and substance use disorder out-of-pocket spending, because outpatient services generally carry higher cost sharing than inpatient care and because overall non-inpatient care accounts for about 65 to 70 percent of behavioral health care. The MEPS data indicate that out-of-pocket costs for mental health and substance use disorder care accounts for 47 percent of total spending. This contrasts with an estimate of 26 percent for medical/surgical care. The implication of this is a total (plan and out-of-pocket) spending estimate for mental health and substance use disorder benefits of $185 per member per year in 2012. It is important to recognize that roughly 40 percent of total behavioral health spending in private insurance is accounted for by spending on psychotropic drugs and drug benefits will remain relatively unchanged, to the extent prescription drug tiers are based on neutral factors independent of whether a particular drug is prescribed to treat a medical/surgical condition, or a mental health condition or substance use disorder. This is because psychotropic drugs are typically under the same benefit design and formulary rules as all other drugs in private health insurance. Thus the baseline spending that would be affected by MHPAEA is estimated to be $111 per member per year.

To obtain the impact of extending MHPAEA to the individual market, the Departments assume that a primary impact of MHPAEA is to equalize cost sharing arrangements between mental health and substance use disorder benefits and medical/surgical benefits. The Departments therefore assume that the out-of-pocket share for mental health and substance use disorder services covered in the individual insurance market will decline from 47 percent to 26 percent. The Departments apply an estimate of the price elasticity of demand to the total spending level for mental health and substance use disorder for people covered in the individual market. Two recent studies have shown that the price elasticity of demand for mental health and substance use disorder care has declined significantly in the era of managed care.^[107] They show that the elasticity of demand for ambulatory care fell between −0.16 and −0.26. This is relevant because the Whitmore paper reports that roughly 95 percent of individual policies are either under managed care arrangements of some form or are part of a Health Savings Account policy (17.5 percent). The Departments therefore apply an elasticity of −0.21 to the 45 percent reduction in out-of-pocket costs for people using mental health and substance use disorder care. That yields a projected 9.5 percent increase in total spending for mental health and substance use disorder care for people in the individual market. Applying the 9.5 percent estimate to the $111 baseline subject to MHPAEA provisions results in an impact estimate of $10.55 per covered person in 2012 or a 5.7 percent increase in total mental health and substance use disorder spending and a 0.04 percent change in total plan spending. The Departments apply the per insured person cost of mental health and substance use disorder care in the individual market estimate to an estimate of the population that would be covered under individual coverage after January of 2014. Based on the Congressional Budget Office estimates of the impact of the Affordable Care Act, the Departments expect enrollment in the individual market to be approximately 18 million people as of 2014.^[108] Applying the $10.55 estimate to the 18 million people^[109] suggests a total spending increase of about $189.9 million in 2012 dollars. The Departments project that, by 2018, the 25 million-enrollee estimate shown in CBO's report will capture all individual plan coverage. Assuming a constant rate of growth in enrollment, the five-year cost will be $1.13 billion. This estimate reflects increased spending on mental health and substance use disorder services resulting from coverage expansion that is attributable to MHPAEA above and beyond historical levels in the small group and individual markets and beyond the EHB coverage requirements for mental health and substance use disorder coverage.

MHPAEA can be expected to affect coverage in the small group market through the provisions governing EHBs. The Departments estimate that there are currently approximately 27 million people insured under small group benefits. The Congressional Budget Office (CBO) and HHS projections are in agreement that there will be little change in the size of this market in the coming years. Thus for the purposes of this analysis the Departments assume that the market will remain stable at 27.3 million insured (including 26.1 million in ERISA plans and 1.2 million in public plans).^[110] In examining coverage in the small group market using data from 2012, the Departments find that plans used comparable levels of management to large group plans in that less than 1 percent of either small group or large group enrollees are covered by indemnity insurance arrangements. HMOs account for 15 percent of small group and 16 percent of large group enrollees. PPOs/POS plans account for 61 percent of small group and 67 percent of large group enrollees. High deductible plans make up 17 percent of small group and 24 percent of large group enrollees.^[111] In addition, other recent analyses show that the actuarial value of health insurance benefits in large and small group plans are largely identical.^[112] Data from recent studies of parity implementation in Oregon that focused in great part on small group coverage shows that parity had the effect of reducing out-of-pocket spending. Yet because it was done in the context of managed care arrangements (including regulations of management practices) there was no statistically significant impact on total spending on mental health and substance use disorder services attributable to parity.^[113] For this reason, the Departments assume that virtually all the impact of MHPAEA on the small group market involves a shift of final responsibility for payment from households to insurers. The Oregon parity results (McConnell et al., 2012) are consistent with a shift of roughly 0.5 percent of spending. This shift in cost constitutes a transfer (see additional analysis in section III.D.4 below).

The final regulations retain the disclosure provisions for group health plans and health insurance coverage offered in connection with a group health plan. In addition, these disclosure provisions are extended to non-grandfathered insurance coverage in the small group market through the EHB requirements and to the individual market as a result of the amendments to the PHS Act under the Affordable Care Act as discussed in section II.F and II.H.1 of this preamble. The burden and cost related to these disclosure requirements are discussed in detail in the Paperwork Reduction Act section below and are estimated to be approximately $4.3 million per year.

4. Transfers

The application of MHPAEA to the individual market will also shift responsibility for some existing payments from individuals to health plans by reducing cost sharing from 47 percent to 26 percent, or $336 million in the first year increasing to $467 million by 2018 reflecting increases in the number of individual enrollees. The Departments estimate that this shift in cost-sharing to plans combined with the increase in spending due to increased utilization discussed above could be expected to lead to an increase of 0.8% in premiums in the individual market. The small group plan average premium in 2012 was $5588. Applying the 0.5 percent estimated shift in spending derived above in section III.E.3 to the average premium as a proxy for plan spending, the Departments obtain a figure of $27.94. Multiplying that figure by 13 million enrollees in small group plans yields an estimated transfer amount of $363 million per year. Likewise, premiums in the small group market may be expected to increase by 0.5%.

In addition to the regulatory approach outlined in these final regulations, the Departments considered several alternatives when developing policy regarding NQTLs, disclosure requirements, multi-tier provider networks, and how parity applies to intermediate services.

Multiple stakeholders requested clarification regarding the application of the parity requirements to NQTLs. The Departments considered narrowing the clinically appropriate standard of care exception instead of eliminating it. However, this approach could result in even more confusion regarding how to apply the parity standard for NQTLs. Moreover, a technical expert panel comprised of individuals with clinical expertise in mental health and substance use disorder treatment as well as general medical treatment, and experience developing and using evidence-based practice guidelines, could not identify situations in which the exception allowing a clinically appropriate standard of care to justify a different use of NQTLs would be needed.^[114] Thus, the Departments believe that clarification in paragraph (c)(4) of the regulations will not reduce the flexibility afforded to plans and issuers by the underlying rule.

As stated earlier, concerns have also been raised regarding disclosure and transparency. The Departments considered whether participants and beneficiaries have adequate access to information regarding the processes, strategies, evidentiary standards, or other factors used to apply the NQTL and also comparable information regarding medical/surgical benefits to ensure compliance with MHPAEA. These final regulations make clear that plans and issuers are required to make this information available in accordance with MHPAEA and other applicable law, such as ERISA and the Affordable Care Act, more generally. The Departments also are publishing contemporaneously with publication of these final regulations, another set of FAQs.^[115] Among other things, these FAQs solicit comments on whether more should be done, and how, to ensure transparency and compliance.

The Departments are aware of the increasing use of multi-tier provider networks and commenters have asked how parity requirements should apply to those arrangements. The Departments considered as an alternative requiring plans to collapse their provider tiers in conducting an assessment of compliance with parity. However, this would have negated a primary reason to have provider tiers which is to offer incentives for providers to accept lower reimbursement in exchange for lower copays for their services and presumably greater patient volume. The Departments considered this alternative to be interfering unreasonably with legitimate plan cost-management techniques. The approach in the final regulations strikes a reasonable balance between allowing plans to use provider tiers to effectively manage costs and the policy principles of MHPAEA.

As described earlier in this preamble, many commenters to the interim final regulations requested that the Departments clarify how MHPAEA affects the scope of coverage for intermediate services (such as residential treatment for substance use disorders or mental health conditions, partial hospitalization, and intensive outpatient treatment) and how these services fit within the six classifications set forth by the interim final regulations. Some stakeholders recommended establishing a separate classification for this intermediate level of care. The Departments considered this approach but determined that whereas the existing classifications – inpatient, in-network; inpatient, out-of-network; outpatient, in-network; outpatient, out-of-network; emergency care, and prescription medications – are classifications commonly used by health plans and issuers, a separate classification for intermediate care is not commonly used by plans and issuers. The Departments believe that a clearer, more reasonable approach is to incorporate the principles of parity into existing benefit designs and care management strategies. Thus, the final regulations provide examples of intermediate services and clarify that plans and issuers must assign covered intermediate level mental health and substance use disorder benefits to the existing six benefit classifications in the same way that they assign comparable intermediate medical/surgical benefits to these classifications.

The Regulatory Flexibility Act (RFA) requires agencies that issue a rule to analyze options for regulatory relief of small businesses if a rule has a significant impact on a substantial number of small entities. The RFA generally defines a “small entity” as—(1) a proprietary firm meeting the size standards of the Small Business Administration (SBA), (2) a nonprofit organization that is not dominant in its field, or (3) a small government jurisdiction with a population of less than 50,000 (States and individuals are not included in the definition of “small entity”). A change in revenues of more than 3 percent to 5 percent is often used by the Departments of Labor and HHS as the measure of significant economic impact on a substantial number of small entities.

As discussed in the Web Portal interim final rule with comment period published on May 5, 2010 (75 FR 24481), HHS examined the health insurance industry in depth in the Regulatory Impact Analysis for the proposed rule on establishment of the Medicare Advantage program (69 FR 46866, August 3, 2004). In that analysis it was determined that there were few, if any, insurance firms underwriting comprehensive health insurance policies (in contrast, for example, to travel insurance policies or dental discount policies) that fell below the size thresholds for “small” business (currently $35.5 million in annual receipts for health insurance issuers).^[116] HHS also used the data from Medical Loss Ratio annual report submissions for the 2012 reporting year to develop an estimate of the number of small entities that offer comprehensive major medical coverage. These estimates may overstate the actual number of small health insurance issuers that would be affected by these regulations, since they do not include receipts from these companies' other lines of business. It is estimated that there are 58 small entities with less than $35.5 million each in earned premiums that offer individual or group health insurance coverage and would therefore be subject to the requirements of these regulations. Forty-three percent of these small issuers belong to larger holding groups, and many, if not all, of these small issuers are likely to have other lines of business that would result in their revenues exceeding $35.5 million. For these reasons, the Departments expect that these final regulations will not significantly affect a substantial number of small issuers.

As noted previously, MHPAEA provisions are extended to non-grandfathered insurance coverage in the small group market through the EHB requirements. Group health plans and health insurance coverage offered by small employers will incur costs to comply with the provisions of these final regulations. There are an estimated 837,000 ERISA-covered non-grandfathered employer group health plans with 50 or fewer participants, and an estimated 59,000 non-grandfathered public, non-Federal employer group health plans with 50 or fewer participants sponsored by State and local governments which were previously exempt from MHPAEA. Approximately 13 million participants of these plans will benefit from the provisions of these regulations. As explained earlier in this impact analysis, virtually all the impact of MHPAEA on the small group market will involve a shift of final responsibility for payment from households to insurers, resulting in an estimated increase of 0.5 percent in spending. The cost related to the disclosure requirements is estimated to be approximately $2.4 million for non-grandfathered small group plans that were previously exempt from MHPAEA. The Departments expect the rules to reduce the compliance burden imposed on plans and insurers by the statute and the implementing interim final regulations by clarifying definitions and terms contained in the statute and providing examples of acceptable methods to comply with specific provisions.

For purposes of the Department of the Treasury, it has been determined that this Treasury decision is not a significant regulatory action for purposes of Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collections of information contained in these final regulations will not have a significant impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required.

The final regulations generally apply to employers who provide health coverage through group health plans to employees that include benefits for mental health or substance use disorder conditions. The IRS expects the final regulations to reduce the compliance burden imposed on plans and issuers by clarifying definitions and terms contained in the statute and providing examples of acceptable methods to comply with specific provisions. MHPAEA and the regulations under it do not apply to employers with 50 or fewer employees (although, separately, the EHB regulations adopt MHPAEA). Moreover, small employers subject to the rule that have more than 50 employees will generally provide any health coverage through insurance or a third-party administrator. The issuers of insurance or other third-party administrators of the health plans, rather than the small employers, will as a practical matter, satisfy the requirements of the regulations in order to provide a marketable product. For this reason, the burden imposed by the reporting requirement of the statute and these final regulations on small entities is expected to be near zero. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these final regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses.

The table below summarizes the hour burden and costs related to the disclosure requirements in these regulations. For plans that use issuers or third party administrators, the costs are reported as cost burden while for plans that administer claims in-house, the burden is reported as hour burden.

1. Departments of Labor and the Treasury

In accordance with the requirements of the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)), the interim final regulations solicited comments on the information collections included therein. The Departments submitted an information collection request (ICR) to OMB in accordance with 44 U.S.C. 3507(d), contemporaneously with the publication of the interim final regulations for OMB's review. OMB approved the ICR on April 27, 2010, under OMB Control Numbers 1210-0138 (Department of Labor) and 1545-2165 (Department of the Treasury/IRS). The Departments also submitted an ICR to OMB in accordance with 44 U.S.C. 3507(d) for the ICR as revised by the final regulations. OMB approved the ICR under OMB control numbers 1210-0138 and 1545-2165, which will expire on November 30, 2016.

As discussed earlier in this preamble, the final regulations retain the disclosure provisions for group health plans and health insurance coverage offered in connection with a group health plan. (In addition, these disclosure provisions are extended to non-grandfathered insurance coverage in the small group market through the EHB requirements and to the individual market as a result of the amendments to the PHS Act under the Affordable Care Act, as discussed in section II.F and II.H.1 of this preamble.)

The MHPAEA disclosures are information collection requests (ICRs) subject to the PRA. The final regulations (29 CFR 2590.712(d)(2)) require a Claims Denial Disclosure to be made available upon request or as otherwise required by the plan administrator (or the health insurance issuer offering such coverage) to a participant or beneficiary that provides the reason for any denial under a group health plan (or health insurance coverage) of reimbursement or payment for services with respect to mental health or substance use disorder benefits.

The Departments did not submit an IRC to OMB for the Claims Denial Disclosure, because the Department of Labor's ERISA claims procedure regulation (29 CFR 2560.503-1) and disclosure regulation (29 CFR 2520.104b-1) already require such disclosure. The same third-party administrators and insurers are hired by ERISA and non-ERISA covered plans, so both types of plans were likely to already be in compliance with the Department of Labor rules. Therefore, the hour and cost burden associated with the claims denial notice already is accounted in the ICR for the ERISA claims procedure regulation that was approved under OMB Control Number 1210-0053.

The final regulations (29 CFR 2590.712(d)(1)) also require plan administrators to make the plan's medical necessity determination criteria available upon request to potential participants, beneficiaries, or contracting providers. The Departments are unable to estimate with certainty the number of requests for medical necessity criteria disclosures that will be received by plan administrators; however, the Departments have assumed that, on average, each plan affected by the rule will receive one request. The Departments estimate that there are about 1,258,000 ERISA covered health plans affected by the regulations. The Departments estimate that approximately seven percent of large plans and all small plans administer claims using service providers; therefore, about 11 percent of the medical necessity criteria disclosures will be done in-house. For PRA purposes, plans using service providers will report the costs as a cost burden, while plans administering claims in-house will report the burden as an hour burden.

The Departments assume that it will take a medically trained clerical staff member five minutes to respond to each request at a wage rate of $26.85^[117] per hour. This results in an annual hour burden of nearly 12,000 hours and an associated equivalent cost of nearly $322,000 for the approximately 144,000 requests done in-house by plans. The remaining 1,114,000 medical necessity criteria disclosures will be provided through service providers resulting in a cost burden of approximately $2,493,000.

The Departments also calculated the cost to deliver the requested medical necessity criteria disclosures. Many insurers and plans already may have the information prepared in electronic form, and the Departments assume that 38 percent of requests will be delivered electronically resulting in a de minimis cost. The Departments estimate that the cost burden associated with distributing the approximately 780,000 medical necessity criteria disclosures sent by paper will be approximately $496,000.^[118] The Departments note that persons are not required to respond to, and generally are not subject to any penalty for failing to comply with, an ICR unless the ICR has a valid OMB control number.^[119] The Departments will provide notice of OMB approval via a Federal Register notice.

These paperwork burden estimates are summarized as follows:

Type of Review: Ongoing.

Agencies: Employee Benefits Security Administration, Department of Labor; Internal Revenue Service, U.S. Department of the Treasury,

Title: Notice of Medical Necessity Criteria under the Mental Health Parity and Addition Equity Act of 2008.

OMB Number: 1210-0138; 1545-2165.

Affected Public: Business or other for-profit; not-for-profit institutions.

Total Respondents: 1,258,000.

Total Responses: 1,258,000.

Frequency of Response: Occasionally.

Estimated Total Annual Burden Hours: 5,988 hours (Employee Benefits Security Administration); 5,988 hours (Internal Revenue Service).

Estimated Total Annual Burden Cost: $1,494,000 (Employee Benefits Security Administration); $1,494,000 (Internal Revenue Service).

2. Department of Health and Human Services

As discussed earlier in this preamble, the final regulations retain the disclosure provisions for group health plans and health insurance coverage offered in connection with a group health plan. (In addition, these disclosure provisions are extended to non-grandfathered insurance coverage in the small group market through the EHB requirements and to the individual market as a result of the amendments to the PHS Act under the Affordable Care Act, as discussed in section II.F and II.H.1 of this preamble.) The burden estimates below have been updated to reflect these changes.

In addition, as described earlier in this preamble, the final regulations reiterate that, in addition to MHPAEA's disclosure requirements, provisions of other applicable law require disclosure of information relevant to medical/surgical, mental health, and substance use disorder benefits. For example, the Departments' claims and appeals regulations under the Affordable Care Act (applicable to non-grandfathered group health plans (including non-ERISA plans) and non-grandfathered health insurance issuers in the group and individual markets),^[120] set forth rules regarding claims and appeals, including the right of claimants (or their authorized representative) upon appeal of an adverse benefit determination (or a final internal adverse benefit determination) to be provided, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the claimant's claim for benefits.^[121]

The burden associated with this disclosure is accounted for in the ICR approved under OMB control number 0938-1099.

Medical Necessity Disclosure

HHS estimates that there are about 30.2 million participants covered by approximately 82,0004 State and local public plans that are subject to the MHPAEA disclosure requirements.^[122] HHS is unable to estimate with certainty the number of requests for medical necessity criteria disclosures that will be received by plan administrators; however, HHS has assumed that, on average, each plan affected by the rule will receive one request. HHS estimates that approximately 93 percent of large plans administer claims using third party administrators. Furthermore the vast majority of all smaller employers usually are fully insured such that issuers will be administering their claims. Therefore 5.1 percent of claims are administered in-house. For plans that use issuers or third party administrators, the costs are reported as cost burden while for plans that administer claims in-house, the burden is reported as hour burden. For purposes of this estimate, HHS assumes that it will take a medically trained clerical staff member five minutes to respond to each request at a wage rate of $26.85^[123] per hour. This results in an annual hour burden of 350 hours and an associated equivalent cost of about $9,000 for the approximately 4,200 requests handled by plans. The remaining 78,000 claims (94.9 percent) are provided through a third-party administrator or an issuer and results in a cost burden of approximately $175,000.

In the individual market there will be an estimated 18 million enrollees^[124] enrolled in plans offered by 418 issuers offering coverage in multiple states. Assuming that, on average, each issuer will receive one request in each State that it offers coverage in, there will be a total of about 2,600 requests in each year. The annual burden to issuers for sending the medical necessity disclosures is estimated to be 220 hours with an associated equivalent cost of approximately $6,000.

Claims Denial Disclosure

As described earlier in this preamble, the Department of Labor's ERISA claims procedure regulation (29 CFR 2560.503-1) already requires such disclosures. Although non-ERISA covered plans, such as plans sponsored by State and local governments and individual plans that are subject to the PHS Act, are not required to comply with the ERISA claims procedure regulation, the final regulations provide that these plans (and health insurance coverage offered in connection with such plans) will be deemed to satisfy the MHPAEA claims denial disclosure requirement if they comply with the ERISA claims procedure regulation.

Using assumptions similar to those used for the ERISA claims procedure regulation, HHS estimates that for State and local public plans, there will be approximately 30.9 million claims for mental health or substance use disorder benefits with approximately 4.6 million denials that could result in a request for the reason for denial. HHS has no data on the percent of denials that will result in a request for an explanation, but assumed that ten percent of denials will result in a request for an explanation (464,000 requests). HHS estimates that a medically trained clerical staff member may require five minutes to respond to each request at a labor rate of $26.85 per hour. This results in an annual burden of nearly 2,000 hours and an associated equivalent cost of nearly $53,000 for the approximately 24,000 requests completed by plans. The remaining 440,000 are provided through an issuer or a third-party administrator, which results in a cost burden of approximately $984,000. In the individual market, under similar assumptions, HHS estimates that there will be approximately18.4 million claims for mental health or substance use disorder benefits with approximately 2.75 million denials that could result in a request for explanation of denial. Assuming ten percent of denials result in such a request, it is estimated that there will be about 275,000 requests for an explanation of reason for denial, which will be completed with a burden of 23,000 hours and equivalent cost of approximately $616,000.

In association with the explanation of denial, participants may request a copy of the medical necessity criteria. While HHS does not know how many notices of denial will result in a request for the criteria of medical necessity, HHS assumes that ten percent of those requesting an explanation of the reason for denial will also request the criteria of medical necessity, resulting in about 46,000 requests, 2,400 of which will be completed in-house with a burden of 200 hours and equivalent cost of approximately $5,000 and about 44,000 requests handled by issuers or third-party providers with a cost burden of approximately $98,000. In the individual market, under similar assumptions, HHS estimates that there will be about 27,500 requests for medical necessity criteria, which will be completed with a burden of 2,295 hours and equivalent cost of approximately $62,000.

HHS also calculated the cost to deliver the requested information. Many insurers or plans may already have the information prepared in electronic format, and HHS assumes that requests will be delivered electronically resulting in a de minimis cost.^[125] HHS estimates that the cost burden associated with distributing the approximately 256,000 disclosures sent by paper will be approximately $169,000.^[126]

The ICRs associated with the medical necessity and claims denial disclosures are currently approved under OMB control number 0938-1080. The Department will seek OMB approval for revised ICRs that will include the burden to small group health plans and individual market plans related to the disclosure requirements in the final regulations. A Federal Register notice will be published, providing the public with an opportunity to comment on the ICRs.

Section 202 of the Unfunded Mandates Reform Act (UMRA) of 1995 requires that agencies assess anticipated costs and benefits before issuing any final rule that includes a Federal mandate that could result in expenditure in any one year by State, local or tribal governments, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. In 2013, that threshold level is approximately $141 million. These regulations are not subject to the UMRA because they were not preceded by a notice of proposed rulemaking. However, consistent with policy embodied in the UMRA, these regulations have been designed to be a low-burden alternative for State, local and tribal governments, and the private sector while achieving the objectives of MHPAEA.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a final rule that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications.

In the Departments' view, these regulations have Federalism implications, because they have direct effects on the States, the relationship between the Federal government and States, or on the distribution of power and responsibilities among various levels of government. However, in the Departments' view, the Federalism implications of these regulations are substantially mitigated because, with respect to health insurance issuers, the Departments expect that the majority of States have enacted or will enact laws or take other appropriate action resulting in their meeting or exceeding the Federal MHPAEA standards.

In general, through section 514, ERISA supersedes State laws to the extent that they relate to any covered employee benefit plan, and preserves State laws that regulate insurance, banking, or securities. While ERISA prohibits States from regulating a plan as an insurance or investment company or bank, the preemption provisions of section 731 of ERISA and section 2724 of the PHS Act (implemented in 29 CFR 2590.731(a) and 45 CFR 146.143(a)) apply so that the MHPAEA requirements are not to be “construed to supersede any provision of State law which establishes, implements, 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 requirement'' of MHPAEA. The conference report accompanying HIPAA indicates that this is intended to be the “narrowest'' preemption of State laws. (See House Conf. Rep. No. 104–736, at 205, reprinted in 1996 U.S. Code Cong. & Admin. News 2018.)

States may continue to apply State law requirements except to the extent that such requirements prevent the application of the MHPAEA requirements that are the subject of this rulemaking. State insurance laws that are more stringent than the Federal requirements are unlikely to “prevent the application of'' MHPAEA, and be preempted. Accordingly, States have significant latitude to impose requirements on health insurance issuers that are more restrictive than the Federal law.

In compliance with the requirement of Executive Order 13132 that agencies examine closely any policies that may have Federalism implications or limit the policy making discretion of the States, the Departments have engaged in numerous efforts to consult with and work cooperatively with affected State and local officials. For example, HHS has provided training on MHPAEA for state regulators though the National Association Insurance Commissioners (NAIC) and has been available to State regulators to address any issues that arise. HHS has also collaborated with regulators in a number of States on MHPAEA enforcement strategies with the goal of maintaining state regulator involvement in the implementation and enforcement of MHPAEA in their States. It is expected that the Departments will continue to act in a similar fashion in enforcing the MHPAEA requirements.

Throughout the process of developing these regulations, to the extent feasible within the specific preemption provisions of HIPAA as it applies to MHPAEA, the Departments have attempted to balance the States' interests in regulating health insurance issuers, and Congress' intent to provide uniform minimum protections to consumers in every State. By doing so, it is the Departments' view that they have complied with the requirements of Executive Order 13132.

Pursuant to the requirements set forth in section 8(a) of Executive Order 13132, and by the signatures affixed to these regulations, the Departments certify that the Employee Benefits Security Administration and the Centers for Medicare & Medicaid Services have complied with the requirements of Executive Order 13132 for the attached regulations in a meaningful and timely manner.

These final regulations are subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.), which specifies that before a rule can take effect, the Federal agency promulgating the rule shall submit to each House of the Congress and to the Comptroller General a report containing a copy of the rule along with other specified information, and have been transmitted to Congress and the Comptroller General for review.

(a) Certain assignments. For purposes of §1.1001–1(a), the transfer or assignment of a derivative contract is not treated by the nonassigning counterparty as a deemed exchange of the original contract for a modified contract that differs materially either in kind or in extent if—

(1) Both the party transferring or assigning its rights and obligations under the derivative contract and the party to which the rights and obligations are transferred or assigned are either a dealer or a clearinghouse;

(2) The terms of the derivative contract permit the transfer or assignment of the contract, whether or not the consent of the nonassigning counterparty is required for the transfer or assignment to be effective; and

(3) The terms of the derivative contract are not otherwise modified in a manner that results in a taxable exchange under section 1001.

(b) Definitions—(1) Dealer. For purposes of this section, a dealer is a taxpayer who meets the definition of a dealer in securities in section 475(c)(1) or is a dealer in commodities derivative contracts.

(2) Clearinghouse. For purposes of this section, a clearinghouse is a derivatives clearing organization (as such term is defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a)) or a clearing agency (as such term is defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a))) that is registered, or exempt from registration, under each respective Act.

(3) Derivative contract. For purposes of this section, a derivative contract is a contract described in—

(i) Section 475(c)(2)(D), 475(c)(2)(E), or 475(c)(2)(F) without regard to the last sentence of section 475(c)(2) referencing section 1256;

(ii) Section 475(e)(2)(B), 475(e)(2)(C), or 475(e)(2)(D); or

(iii) Section 1.446–3(c)(1).

(c) Consideration for the assignment. Any payment between a party transferring or assigning its rights and obligations under the contract and the party to which the rights and obligations are transferred or assigned pursuant to a transfer or assignment described in paragraph (a) of this section will not affect the treatment of the nonassigning counterparty for purposes of this section. A payment described in the preceding sentence made or received to transfer or assign rights and obligations under a notional principal contract (as defined in §1.446–3(c)(1)) is not subject to §1.446–3(g)(4).

(d) Effective/applicability date. This section applies to transfers or assignments of derivative contracts on or after July 22, 2011.