Guest Article

(From the August 31, 2009 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Mental Health Parity: Are Separate Deductibles and Out-of-Pocket Maximums Allowed?

Facing the challenge of complying with the new mental health parity requirements that become effective for plan years beginning after October 3, 2009, employers and their advisers are asking whether separate deductibles and out-of-pocket maximums are allowed for mental health and substance abuse disorder benefits. As we await official guidance, the law is less than clear.

New Financial Requirements Apply

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the "Act") was passed as part of the larger Emergency Economic Stabilization Act of 2008. It expands the mental health parity requirements in the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Services Act by imposing new mandates on group health plans that provide both medical and surgical benefits and mental health or substance abuse disorder benefits. Among the new requirements, such plans (or the health insurance coverage offered in connection with such plans) must ensure that:

The statute defines "financial requirements" as including deductibles, copayments, coinsurance, and out of-pocket expenses, and excluding aggregate lifetime limits and annual limits that are subject to other restrictions of the statute. No definition is provided for the term "cost sharing."

Employers, their health care consultants, insurers and advisors have been working to restructure their group health plans to meet the new requirements, which generally become effective for plan years beginning after October 3, 2009. In the process, some have concluded that the new law allows separate deductibles and out-of-pocket maximums as long as they are no more restrictive than those which apply to substantially all the medical and surgical benefits. Others have concluded that the statute prohibits such separate financial requirements for mental health or substance abuse disorder benefits.

Ambiguous Statute

Earlier this year, on April 28, the Internal Revenue Service, the Department of Labor, and the Department of Health and Human Services -- who have responsibility for promulgating regulations under the new law -- published a request for information in which they asked for public comment on several questions in anticipation of issuing regulations under the new law. The first question presented was specifically directed to this issue:

One commenter responded at length to the request, noting that there was ambiguity in the law and requesting clarification on "whether plans can continue to have separate and no more restrictive financial requirements (specifically deductibles and out-of-pocket maximums (OOP)) for behavioral illness services as compared to medical services or whether plans must only have a single deductible and/or out-of-pocket maximum that includes both medical and behavioral services." It urged that the law be interpreted to allow either separate or shared financial requirements, as long as they are no less restrictive for behavioral health services. In support, it explained that the imposition of shared financial requirements would pose substantial administrative challenges because specialized administrators are often used to administer the behavioral services. Communicating accurate, up-to-date deductible information would involve additional administration and costs. Moreover, the general perception that a shared deductible is less costly for the member would not be true if the plans opt to increase the behavioral health deductible to match the higher health care deductible. The commenter also pointed out that the current regulations regarding application of the annual and lifetime limits allow for either a single aggregate limit or two separate but equal limits.

In contrast, also in response to the request for information, twenty-four members of Congress submitted a letter to the Departments of Treasury, Labor and Health and Human Services which stated:

October 3, 2009 Deadline for Regulations

Clearly, there is some ambiguity in the statutory language and a need for clarification. The Act requires the Secretaries of Treasury, Labor, and Health and Human Services to issue regulations no later than October 3, 2009. In the event the regulations adopt a more restrictive interpretation of the statute, some have suggested that they include a delayed effective date or a good faith compliance period during which the plans (and coverage) can bring their design into compliance.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2009, Deloitte.