[Federal Register Volume 75, Number 21 (Tuesday, February 2, 2010)]
[Rules and Regulations]
[Pages 5410-5451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-2167]


                                Tuesday,

February 2, 2010
             
             
             
             
             
             




Part IV

         Department of the Treasury

                   _________________________________


Internal Revenue Service
26 CFR Part 54

                   _________________________________

         Department of Labor

                   _________________________________


Employee Benefits Security Administration

29 CFR Part 2590

                   _________________________________

         Department of Health and Human Services

                   _________________________________


Centers for Medicare & Medicaid Services

                   _________________________________

45 CFR Part 146
Interim Final Rules Under the Paul Wellstone and Pete Domenici 
Mental Health Parity and Addiction Equity Act of 2008; Final Rule

  Federal Register / Vol. 75, No. 21 / Tuesday, February 2, 2010 / 
Rules and Regulations  

[[Page 5410]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9479]
RIN 1545-BJ05

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB30

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-4140-IFC]

45 CFR Part 146

RIN 0938-AP65


Interim Final Rules Under the Paul Wellstone and Pete Domenici 
Mental Health Parity and Addiction Equity Act of 2008

AGENCIES: Internal Revenue Service, Department of the Treasury; 
Employee Benefits Security Administration, Department of Labor; Centers 
for Medicare & Medicaid Services, Department of Health and Human 
Services.

ACTION: Interim final rules with request for comments.

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SUMMARY: This document contains interim final rules implementing the 
Paul Wellstone and Pete Domenici Mental Health Parity and Addiction 
Equity Act of 2008, which requires parity between mental health or 
substance use disorder benefits and medical/surgical benefits with 
respect to financial requirements and treatment limitations under group 
health plans and health insurance coverage offered in connection with a 
group health plan.

DATES: Effective date. These interim final regulations are effective on 
April 5, 2010.
    Comment date. Comments are due on or before May 3, 2010.
    Applicability date. These interim final regulations generally apply 
to group health plans and group health insurance issuers for plan years 
beginning on or after July 1, 2010.

ADDRESSES: Written comments may be submitted to any of the addresses 
specified below. Any comment that is submitted to any Department will 
be shared with the other Departments. Please do not submit duplicates.
    All comments will be made available to the public. WARNING: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments are posted on the 
Internet exactly as received, and can be retrieved by most Internet 
search engines. No deletions, modifications, or redactions will be made 
to the comments received, as they are public records. Comments may be 
submitted anonymously.
    Department of Labor. Comments to the Department of Labor, 
identified by RIN 1210-AB30, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected].
     Mail or Hand Delivery: Office of Health Plan Standards and 
Compliance Assistance, Employee Benefits Security Administration, Room 
N-5653, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210, Attention: RIN 1210-AB30.
    Comments received by the Department of Labor will be posted without 
change to http://www.regulations.gov and http://www.dol.gov/ebsa, and 
available for public inspection at the Public Disclosure Room, N-1513, 
Employee Benefits Security Administration, 200 Constitution Avenue, 
NW., Washington, DC 20210.
    Department of Health and Human Services. In commenting, please 
refer to file code CMS-4140-IFC. Because of staff and resource 
limitations, we cannot accept comments by facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-4140-IFC, P.O. Box 8016, 
Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-4140-IFC, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201.

    (Because access to the interior of the Hubert H. Humphrey 
Building is not readily available to persons without Federal 
government identification, commenters are encouraged to leave their 
comments in the CMS drop slots located in the main lobby of the 
building. A stamp-in clock is available for persons wishing to 
retain a proof of filing by stamping in and retaining an extra copy 
of the comments being filed.)

    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call (410) 786-7195 in advance to schedule your arrival with one 
of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday

[[Page 5411]]

through Friday of each week from 8:30 a.m. to 4 p.m. EST. To schedule 
an appointment to view public comments, phone 1-800-743-3951.
    Internal Revenue Service. Comments to the IRS, identified by REG-
120692-09, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: CC:PA:LPD:PR (REG-120692-09), room 5205, Internal 
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 
20044.
     Hand or courier delivery: Monday through Friday between 
the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-120692-09), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC 20224.
    All submissions to the IRS will be open to public inspection and 
copying in room 1621, 1111 Constitution Avenue, NW., Washington, DC 
from 9 a.m. to 4 p.m.

FOR FURTHER INFORMATION CONTACT: Amy Turner or Beth Baum, Employee 
Benefits Security Administration, Department of Labor, at (202) 693-
8335; Russ Weinheimer, Internal Revenue Service, Department of the 
Treasury, at (202) 622-6080; Adam Shaw, Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, at (877) 267-2323, 
extension 61091.
    Customer Service Information: Individuals interested in obtaining 
information from the Department of Labor concerning employment-based 
health coverage laws, including the mental health parity provisions, 
may call the EBSA Toll-Free Hotline at 1-866-444-EBSA (3272) or visit 
the Department of Labor's Web site (http://www.dol.gov/ebsa). In 
addition, information from HHS on private health insurance for 
consumers (such as mental health and substance use disorder parity) can 
be found on the Centers for Medicare & Medicaid Services (CMS) Web site 
(http://www.cms.hhs.gov/HealthInsReformforConsume/01_Overview.asp).

SUPPLEMENTARY INFORMATION:

I. Background

    The Paul Wellstone and Pete Domenici Mental Health Parity and 
Addiction Equity Act of 2008 (MHPAEA) was enacted on October 3, 2008 as 
sections 511 and 512 of the Tax Extenders and Alternative Minimum Tax 
Relief Act of 2008 (Division C of Pub. L. 110-343).\1\ MHPAEA amends 
the Employee Retirement Income Security Act of 1974 (ERISA), the Public 
Health Service Act (PHS Act), and the Internal Revenue Code of 1986 
(Code). In 1996, Congress enacted the Mental Health Parity Act of 1996 
(MHPA 1996), which required parity in aggregate lifetime and annual 
dollar limits for mental health benefits and medical and surgical 
benefits. Those mental health parity provisions were codified in 
section 712 of ERISA, section 2705 of the PHS Act, and section 9812 of 
the Code, which apply to employment-related group health plans and 
health insurance coverage offered in connection with a group health 
plan. The changes made by MHPAEA are codified in these same sections 
and consist of new requirements as well as amendments to the existing 
mental health parity provisions. The changes made by MHPAEA are 
generally effective for plan years beginning after October 3, 2009.
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    \1\ A technical correction to the effective date for 
collectively bargained plans was made by Public Law 110-460, enacted 
on December 23, 2008.
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    On April 28, 2009, the Departments of the Treasury, Labor, and HHS 
(collectively, the Departments) published in the Federal Register (74 
FR 19155) a request for information (RFI) soliciting comments on the 
requirements of MHPAEA. After consideration of the comments received in 
response to the RFI, the Departments are publishing these interim final 
regulations. These regulations generally become applicable to plans and 
issuers for plan years beginning on or after July 1, 2010.

II. Overview of the Regulations

    These interim final regulations replace regulations published on 
December 22, 1997 at 62 FR 66932 implementing MHPA 1996. These 
regulations also make conforming changes to reflect modifications 
MHPAEA made to the original MHPA 1996 definitions and provisions 
regarding parity in aggregate lifetime and annual dollar limits, and 
incorporate new parity standards.

A. Meaning of Terms (26 CFR 54.9812-1T(a), 29 CFR 2590.712(a), and 45 
CFR 146.136(a))

    The paragraph with the heading ``definitions'' in the MHPA 1996 
regulations has been renamed ``meaning of terms'' under these 
regulations because some of the terms added by MHPAEA are not 
comprehensively defined. The change in heading reflects the fact that 
if a term is described as including a list of examples, the term may 
have a broader meaning than the illustrative list of examples.
1. Aggregate Lifetime and Annual Dollar Limits
    The word ``dollar'' has been added to the terms ``aggregate 
lifetime limit'' and ``annual limit'' under the MHPA 1996 regulations 
to distinguish them from lifetime and annual limits expressed in terms 
of days or visits which are subject to new requirements under MHPAEA.
2. Coverage Unit
    Paragraph (a) in these regulations cross-references the definition 
of coverage unit in paragraph (c)(1). Paragraph (c)(1) clarifies the 
term for purposes of the new MHPAEA rules and is discussed later in 
this preamble.
3. Cumulative Financial Requirements
    These regulations add a definition for the term ``cumulative 
financial requirements''. Under this definition, a cumulative financial 
requirement is a financial requirement that typically operates as a 
threshold amount that, once satisfied, will determine whether, or to 
what extent, benefits are provided. A common example of a cumulative 
financial requirement is a deductible that must be satisfied before a 
plan will start paying for benefits. However, aggregate lifetime and 
annual dollar limits are excluded from being cumulative financial 
requirements (because the statutory term financial requirements 
excludes aggregate lifetime and annual dollar limits).
4. Cumulative Quantitative Treatment Limitations
    These regulations add a definition for the term ``cumulative 
quantitative treatment limitations''. Similar to the definition for 
cumulative financial requirements, a cumulative quantitative treatment 
limitation is defined as a treatment limitation that will determine 
whether, or to what extent, benefits are provided based on an 
accumulated amount. A common example of a cumulative quantitative 
treatment limitation is a visit limit (whether imposed annually or on a 
lifetime basis).
5. Financial Requirements
    These regulations repeat the statutory language that provides the 
term ``financial requirements'' includes deductibles, copayments, 
coinsurance, and out-of-pocket maximums. The statute and these 
regulations exclude aggregate lifetime and annual dollar limits from 
the meaning of financial requirements; these limits are subject to

[[Page 5412]]

separate provisions originally enacted as part of MHPA 1996 that remain 
in paragraph (b).
6. Medical/Surgical Benefits, Mental Health Benefits, and Substance Use 
Disorder Benefits
    Among the changes enacted by MHPAEA is an expansion of the parity 
requirements for aggregate lifetime and annual dollar limits to include 
protections for substance use disorder benefits. Prior law specifically 
excluded substance abuse or chemical dependency benefits \2\ from those 
requirements. Consequently, these regulations amend the meanings of 
medical/surgical benefits and mental health benefits (and add a 
definition for substance use disorder benefits). Under these 
regulations, medical/surgical benefits are benefits for medical or 
surgical services, as defined under the terms of the plan or health 
insurance coverage, but do not include mental health or substance use 
disorder benefits. Mental health benefits and substance use disorder 
benefits are benefits with respect to services for mental health 
conditions and substance use disorders, as defined under the terms of 
the plan and in accordance with applicable Federal and State law. These 
regulations further provide that the plan terms defining whether the 
benefits are mental health or substance use disorder benefits must be 
consistent with generally recognized independent standards of current 
medical practice. This requirement is included to ensure that a plan 
does not misclassify a benefit in order to avoid complying with the 
parity requirements.
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    \2\ The terms ``substance abuse,'' ``chemical dependency, '' and 
``substance use disorder'' are variously used to refer to substance 
use disorders. Although they mean essentially the same thing, the 
term used in MHPAEA is ``substance use disorder''.
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    The word ``generally'' in the requirement ``to be consistent with 
generally recognized independent standards of current medical 
practice'' is not meant to imply that the standard must be a national 
standard; it simply means that a standard must be generally accepted in 
the relevant medical community. There are many different sources that 
would meet this requirement. For example, a plan may follow 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 a State guideline. All of these 
would be considered acceptable resources to determine whether benefits 
for a particular condition are classified as medical/surgical, mental 
health, or substance use disorder benefits.
7. Treatment Limitations
    These regulations repeat the statutory language with respect to the 
term ``treatment limitation'' and also distinguish between a 
quantitative and a nonquantitative treatment limitation. These 
regulations provide that the parity requirements in the statute apply 
to both quantitative and nonquantitative treatment limitations. A 
quantitative treatment limitation is a limitation that is expressed 
numerically, such as an annual limit of 50 outpatient visits. A 
nonquantitative treatment limitation is a limitation that is not 
expressed numerically, but otherwise limits the scope or duration of 
benefits for treatment. A non-exhaustive list of nonquantitative 
treatment limitations is included in these regulations in paragraph 
(c)(4). This list, as well as the application of these regulations to 
nonquantitative treatment limitations, is further discussed later in 
this preamble. However, these regulations provide that a permanent 
exclusion of all benefits for a specific condition or disorder is not a 
treatment limitation.

B. Conforming Amendments to Parity Requirements With Respect to 
Aggregate Lifetime and Annual Dollar Limits (26 CFR 54.9812-1T(b), 29 
CFR 2590.712(b), and 45 CFR 146.136(b))

    Paragraph (b) of these regulations addresses the parity 
requirements with respect to aggregate lifetime and annual dollar 
limits. The mechanics of these requirements generally remain the same 
as under the MHPA 1996 regulations, except that MHPAEA expanded the 
scope of the parity provisions to apply also to substance use disorder 
benefits. Accordingly, these regulations make conforming changes to 
reflect this expansion. Certain examples illustrating the application 
of MHPA 1996 to benefits for substance abuse and chemical dependency 
were deleted (as they are no longer accurate); other provisions were 
modified to include references to substance use disorder benefits as 
within the scope of the parity requirements for aggregate lifetime and 
annual dollar limits.

C. Parity Requirements With Respect to Financial Requirements and 
Treatment Limitations (26 CFR 54.9812-1T(c), 29 CFR 2590.712(c), and 45 
CFR 146.136(c))

    Paragraph (c) of these regulations implements the core of MHPAEA's 
new rules, which require parity with respect to financial requirements 
and treatment limitations.
1. Clarification of Terms
    In addition to the meaning of terms in paragraph (a), paragraph 
(c)(1) of these regulations clarifies certain terms that have been 
given specific meanings for purposes of MHPAEA.
    a. Classification of benefits. Paragraph (c)(1) cross-references 
the term ``classification of benefits'' in paragraph (c)(2)(ii). 
Paragraph (c)(2)(ii) describes the six benefit classifications and 
their application, which are discussed later in this preamble. These 
regulations provide that the parity requirements for financial 
requirements and treatment limitations are applied on a classification-
by-classification basis.
    b. Type. These regulations use the term ``type'' to refer to 
financial requirements and treatment limitations of the same nature. 
Different types include copayments, coinsurance, annual visit limits, 
and episode visit limits. Plans often apply more than one financial 
requirement or treatment limitation to benefits. These regulations 
specify that a financial requirement or treatment limitation must be 
compared only to financial requirements or treatment limitations of the 
same type within a classification. For example, copayments are compared 
only to other copayments, and annual visit limits are compared only to 
other annual visit limits; copayments are not compared to coinsurance, 
and annual visit limits are not compared to episode visit limits.
    c. Level. A type of financial requirement or treatment limitation 
may vary in magnitude. For example, a plan may impose a $20 copayment 
or a $30 copayment depending on the medical/surgical benefit. In these 
regulations, a ``level'' of a type of financial requirement or 
treatment limitation refers to the magnitude (such as the dollar, 
percentage, day, or visit amount) of the financial requirement or 
treatment limitation.
    d. Coverage unit. Plans typically distinguish between coverage for 
a single participant, for a participant plus a spouse, for a family, 
and so forth. Coverage unit is the term used in these regulations to 
refer to how a plan groups individuals for purposes of determining 
benefits, or premiums or contributions. These regulations provide that 
the general parity requirement of MHPAEA for financial requirements and 
treatment limitations is applied separately for each coverage unit.
2. General Parity Requirement for Financial Requirements and Treatment 
Limitations
    The general parity requirement of paragraph (c)(2) of these 
regulations

[[Page 5413]]

prohibits a plan (or health insurance coverage) from applying any 
financial requirement or treatment limitation to mental health or 
substance use disorder benefits in any classification that is more 
restrictive than the predominant financial requirement or treatment 
limitation applied to substantially all medical/surgical benefits in 
the same classification. For this purpose, the general parity 
requirement of MHPAEA applies separately for each type of financial 
requirement or treatment limitation (that is, for example, copayments 
are compared to copayments, and deductibles to deductibles). The test 
is applied somewhat differently to nonquantitative treatment 
limitations, as discussed later in this preamble.
    a. Classifications of benefits. Plans often vary the financial 
requirements and treatment limitations imposed on benefits based on 
whether a treatment is provided on an inpatient, outpatient, or 
emergency basis; whether a provider is a member of the plan's network; 
or whether the benefit is specifically for a prescription drug. 
Therefore, determining the predominant financial requirements and 
treatment limitations for the entire plan without taking these 
distinctions into account could potentially lead to absurd results. For 
example, if a plan generally requires a $100 copayment on inpatient 
medical/surgical benefits and a $10 copayment on outpatient medical/
surgical benefits, and most services (as measured by plan costs) are 
provided on an inpatient basis, the plan theoretically could charge a 
$100 copayment for outpatient mental health and substance use disorder 
benefits. Similarly, if most benefits are provided on an outpatient 
basis, the plan would only be able to charge a $10 copayment for 
inpatient mental health and substance use disorder benefits. Commenters 
generally agreed that the statute should be applied within several 
broad classifications of benefits.
    These regulations specify, in paragraph (c)(2)(ii), six 
classifications of benefits: Inpatient, in-network; inpatient, out-of-
network; outpatient, in-network; outpatient, out-of-network; emergency 
care; and prescription drugs. If a plan does not have a network of 
providers for inpatient or outpatient benefits, all benefits in the 
classification are characterized as out-of-network. These regulations 
provide that the parity requirements for financial requirements and 
treatment limitations are generally applied on a classification-by-
classification basis and these are the only classifications used for 
purposes of satisfying the parity requirements of MHPAEA. Moreover, 
these classifications must be used for all financial requirements and 
treatment limitations to the extent that a plan (or health insurance 
coverage) provides benefits in a classification and imposes any 
separate financial requirement or treatment limitation (or separate 
level of a financial requirement or treatment limitation) for benefits 
in the classification. Examples illustrate the application of this 
rule.
    Commenters noted that a common plan design imposes lower copayments 
for treatment from a primary care provider (for example, an internist 
or a pediatrician) as compared to higher copayments for treatment from 
a specialist (such as a cardiologist or an orthopedist). Some of these 
commenters requested that this distinction be permitted in applying the 
parity requirements by recognizing a separate classification for 
specialists; others of these commenters opposed allowing this 
distinction. Some plans (or health insurance coverage) identify a large 
range of mental health and substance use disorder providers as 
specialists. Allowing plans to provide less favorable benefits with 
respect to services by these providers than for services by providers 
of medical/surgical care that are classified by the plan as primary 
care providers would undercut the protections that the statute was 
intended to provide. These regulations, therefore, do not allow the 
separate classification of generalists and specialists in determining 
the predominant financial requirement that applies to substantially all 
medical/surgical benefits.
    Under these regulations, if a plan provides any benefits for a 
mental health condition or substance use disorder, benefits must be 
provided for that condition or disorder in each classification for 
which any medical/surgical benefits are provided. This follows from the 
statutory requirement that any treatment limitations applied to mental 
health or substance use disorder benefits may be no more restrictive 
than the predominant treatment limitations applied to substantially all 
medical/surgical benefits. Treatment limitation is not comprehensively 
defined under the statute. The statute describes the term as including 
limits on the frequency of treatment, number of visits, days of 
coverage, or other similar limits on the scope or duration of 
treatment, but it is not limited to such types of limits. Indeed, these 
regulations make a distinction between quantitative treatment 
limitations (such as day limits, visit limits, frequency of treatment 
limits) and non-quantitative treatment limitations (such as medical 
management, formulary design, step therapy). If a plan provides 
benefits for a mental health condition or substance use disorder in one 
or more classifications but excludes benefits for that condition or 
disorder in a classification (such as outpatient, in-network) in which 
it provides medical/surgical benefits, the exclusion of benefits in 
that classification for a mental health condition or substance use 
disorder otherwise covered under the plan is a treatment limitation. It 
is a limit, at a minimum, on the type of setting or context in which 
treatment is offered.
    This rule does not require an expansion of the range of mental 
health conditions or substance use disorders covered under the plan; it 
merely requires, for those conditions or disorders covered under the 
plan, that coverage also be provided for them in each classification in 
which medical/surgical coverage is provided. If a plan does not offer, 
for instance, any benefits for medical/surgical services on an 
outpatient basis by an out-of-network provider, then there is no 
requirement to provide benefits for mental health conditions or 
substance use disorders on an outpatient, out-of-network basis. 
Although this rule follows from the general parity requirement added by 
MHPAEA, the statute includes a specific provision in the case of out-
of-network benefits.\3\ The rule for out-of-network benefits is stated 
separately in these regulations to reflect the separate statutory 
provision, but the application of the general rule requires the same 
result with respect to all classifications.
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    \3\ See sections 9812(a)(5) of the Code, 712(a)(5) of ERISA, 
2705(a)(5) of the PHS Act.
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    These regulations do not define inpatient, outpatient, or emergency 
care. These terms are subject to plan design and their meanings may 
differ from plan to plan. Additionally, State health insurance laws may 
define these terms. A plan must apply these terms uniformly for both 
medical/surgical benefits and mental health or substance use disorder 
benefits. However, the manner in which they apply may differ from plan 
to plan. For example, a plan may treat a hospital stay of more than 12 
hours as inpatient care for medical/surgical benefits; in such case, it 
must also treat a hospital stay of more than 12 hours as inpatient care 
for mental health and substance use disorder benefits. However, another 
plan may treat a hospital stay that includes midnight as inpatient care 
for medical/surgical benefits; in such a case the plan must also treat 
a hospital stay that includes

[[Page 5414]]

midnight as inpatient care for mental health or substance use disorder 
benefits.
    b. Applying the general parity requirement to financial 
requirements and quantitative treatment limitations. Paragraph (c)(3) 
of these regulations addresses the application of the general parity 
requirement of MHPAEA to plan financial requirements and quantitative 
treatment limitations.
    (1) Measuring plan benefits. In order to apply the substantive 
rules, these regulations first establish standards for measuring plan 
benefits. These regulations, similar to the MHPA 1996 regulations, 
provide that the portion of plan payments subject to 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. 
Also similar to the MHPA 1996 regulations, 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.
    Some cumulative financial requirements, such as deductibles and 
out-of-pocket maximums, involve a threshold amount that causes the 
amount of a plan payment to change. These regulations clarify that, for 
purposes of deductibles, the dollar amount of plan payments includes 
all payments with respect to claims that would be subject to the 
deductible if it had not been satisfied. For purposes of out-of-pocket 
maximums, the dollar amount of plan payments includes all plan payments 
associated with out-of-pocket payments that were taken into account 
towards the out-of-pocket maximum as well as all plan payments 
associated with out-of-pocket payments that would have been made 
towards the out-of-pocket maximum if it had not been satisfied. Other 
threshold requirements are treated similarly.
    (2) ``Substantially all''. The first step of these regulations in 
applying the general parity requirement of MHPAEA is to determine 
whether a financial requirement or quantitative treatment limitation 
applies to substantially all medical/surgical benefits in a 
classification. Regulations issued under MHPA 1996 interpreted the term 
``substantially all'' to mean at least two-thirds. Under these 
regulations, a financial requirement or quantitative treatment 
limitation applies to substantially all medical/surgical benefits in a 
classification if it applies to at least two-thirds of the benefits in 
that classification. In determining whether a financial requirement or 
quantitative treatment limitation applies to substantially all medical/
surgical benefits in a classification, benefits expressed as subject to 
a zero level of a type of financial requirement are treated the same as 
benefits that are not subject to that type of requirement, and benefits 
expressed as subject to an unlimited quantitative treatment limitation 
are treated the same as benefits that are not subject to that type of 
limitation. For example, in the classification of outpatient, in-
network medical/surgical benefits, a plan could reduce the normal 
copayment amount of $15 to $0 for well baby care or routine physical 
examinations, while a copayment is not imposed on office visits for 
allergy shots. For purposes of this analysis, both of these benefits 
are treated as not subject to a copayment.
    If a type of financial requirement or quantitative treatment 
limitation does not apply to at least two-thirds of the medical 
surgical benefits in a classification, that type of requirement or 
limitation cannot be applied to mental health or substance use disorder 
benefits in that classification. If a single level of a type of 
financial requirement or quantitative treatment limitation applies to 
at least two-thirds of medical/surgical benefits in a classification, 
then it is also the predominant level and that is the end of the 
analysis. However, if the financial requirement or quantitative 
treatment limitation applies to at least two-thirds of all medical/
surgical benefits in a classification but has multiple levels and no 
single level applies to at least two-thirds of all medical/surgical 
benefits in the classification, then additional analysis is required. 
In such a case, the next step is to determine which level of the 
financial requirement or quantitative treatment limitation is 
considered predominant.
    (3) ``Predominant''. MHPAEA provides that a financial requirement 
or treatment limitation is predominant if it is the most common or 
frequent of a type of limit or requirement. Under these regulations, 
the predominant level of a type of financial requirement or 
quantitative treatment limitation is the level that applies to more 
than one-half of medical/surgical benefits subject to the financial 
requirement or quantitative treatment limitation in that 
classification. If a single level of a type of financial requirement or 
quantitative treatment limitation applies to more than one-half of 
medical/surgical benefits subject to the financial requirement or 
quantitative treatment limitation in a classification (based on plan 
costs, as discussed earlier in this preamble), the plan may not apply 
that particular financial requirement or quantitative treatment 
limitation to mental health or substance use disorder benefits at a 
level that is more restrictive than the level that has been determined 
to be predominant.
    If no single level applies to more than one-half of medical/
surgical benefits subject to a financial requirement or quantitative 
treatment limitation in a classification, plan payments for multiple 
levels of the same type of financial requirement or quantitative 
treatment limitation can be combined by the plan (or health insurance 
issuer) until the portion of plan payments subject to the financial 
requirement or quantitative treatment limitation exceeds one-half. For 
any combination of levels that exceeds one-half of medical/surgical 
benefits subject to the financial requirement or quantitative treatment 
limitation in a classification, the plan may not apply that particular 
financial requirement or quantitative treatment limitation to mental 
health and substance use disorder benefits at a level that is more 
restrictive than the least restrictive level within the combination. 
The plan may combine plan payments for the most restrictive levels 
first, with each less restrictive level added to the combination until 
the combination applies to more than one-half of the benefits subject 
to the financial requirement or treatment limitation. Examples in these 
regulations illustrate the application of this rule.
    These regulations provide an alternative, simpler method for 
compliance when a type of financial requirement or quantitative 
treatment limitation applies to at least two-thirds of medical surgical 
benefits in a classification but no single level applies to more than 
one-half of the medical/surgical benefits subject to the financial 
requirement or quantitative treatment limitation in that 
classification. In such a situation, a plan is permitted to treat the 
least restrictive level of the financial requirement or quantitative 
treatment limitation applied to medical/surgical benefits in that 
classification as the predominant level.
    If a plan provides benefits for more than one coverage unit and 
applies different levels of financial requirements or quantitative 
treatment limitations to these coverage units within a classification 
of benefits, determining the predominant level of a particular 
financial requirement or quantitative treatment limitation must be done 
separately for each coverage unit. Thus, for example, a plan with

[[Page 5415]]

different deductibles for self-only and family coverage units would not 
determine the predominant level of a deductible applied for benefits 
across both the self-only and family coverage units. Instead, the plan 
would determine the predominant level of the deductible for self-only 
coverage independently from the predominant level for family coverage.
    c. Special rule for prescription drug benefits with multiple levels 
of financial requirements. These regulations include, in paragraph 
(c)(3)(iii), a special rule for applying the general parity requirement 
of MHPAEA to prescription drug benefits. Although applying the general 
parity requirement to a prescription drug program with a single level 
of a type of financial requirement would be relatively uncomplicated, 
the analysis becomes more difficult if different financial requirements 
are imposed for different tiers of drugs. The placement of a drug in a 
tier is generally based on factors (such as cost and efficacy) 
unrelated to whether the drug is usually prescribed for the treatment 
of a medical/surgical condition or a mental health condition or 
substance use disorder. To the extent such a program does not 
distinguish between drugs as medical/surgical benefits or mental health 
or substance use disorder benefits, requiring the program to make that 
distinction solely for the purpose of determining the predominant 
financial requirement or quantitative treatment limitation that applies 
to substantially all medical/surgical benefits in a classification 
might impose significant burdens without ensuring any greater parity 
for mental health and substance use disorder benefits.
    Consequently, these regulations provide that if a plan imposes 
different levels of financial requirements on different tiers of 
prescription drugs based on reasonable factors (such as cost, efficacy, 
generic versus brand name, and mail order versus pharmacy pick-up), 
determined in accordance with the requirements for nonquantitative 
treatment limitations, and without regard to whether a drug is 
generally prescribed with respect to medical/surgical benefits or 
mental health or substance use disorder benefits, the plan satisfies 
the parity requirements with respect to the prescription drug 
classification of benefits. The special rule for prescription drugs, in 
effect, allows a plan or issuer to subdivide the prescription drug 
classification into tiers and apply the general parity requirement 
separately to each tier of prescription drug benefits. For any tier, 
the financial requirements and treatment limitations imposed with 
respect to the drugs prescribed for medical/surgical conditions are the 
same as (and thus not more restrictive than) the financial requirements 
and treatment limitations imposed with respect to the drugs prescribed 
for mental health conditions and substance use disorders in the tier. 
Moreover, because the financial requirements and treatment limitations 
apply to 100 percent of the medical/surgical drug benefits in the tier, 
they are the predominant financial requirements and treatment 
limitations that apply to substantially all of the medical/surgical 
drug benefits in the tier.
    d. Cumulative financial requirements and quantitative treatment 
limitations, including deductibles. While financial requirements such 
as copayments and coinsurance generally apply separately to each 
covered expense, other financial requirements (in particular, 
deductibles) accumulate across covered expenses. In the case of 
deductibles, generally an amount of otherwise covered expenses must be 
accumulated before the plan pays benefits. Financial requirements and 
quantitative treatment limitations that determine whether and to what 
extent benefits are provided based on accumulated amounts are defined 
in these regulations as cumulative financial requirements and 
cumulative quantitative treatment limitations.
    In response to the RFI, the Departments received a number of 
comments regarding how to apply the parity requirements to cumulative 
financial requirements, in particular to deductibles (although some 
also referred to out-of-pocket maximums). The comments reflect two 
opposing views. One view is that a plan can have deductibles that 
accumulate separately for medical/surgical benefits on the one hand, 
and mental health or substance use disorder benefits on the other, as 
long as the level of the two deductibles is the same (separately 
accumulating deductibles). The opposing view is that expenses for both 
mental health or substance use disorder benefits and medical/surgical 
benefits must accumulate to satisfy a single combined deductible before 
the plan provides either medical/surgical benefits or mental health or 
substance use disorder benefits (combined deductible).
    The provisions of the statute imposing parity on financial 
requirements and treatment limitations do not specifically address this 
issue; the language of the statute can be interpreted to support either 
position. The comments that supported allowing separately accumulating 
deductibles maintained that it is commonplace for plans to have such 
deductibles, and that the projected cost of converting systems to 
permit unified deductibles would be extremely high for the many plans 
that use a separate managed behavioral health organization (MBHO).\4\
---------------------------------------------------------------------------

    \4\ Several commenters stated that the estimated cost to develop 
interfaces between MBHOs and the entity administering medical/
surgical claims would be $420,000-$750,000 per interface, and that 
in some cases multiple interfaces per MBHO (as many as 40-50) would 
be necessary. In response to these cost concerns, the Departments 
performed an independent analysis, which indicated that the initial 
cost per interface could be as low as $35,000. The Departments' 
lower estimated cost reflects, in part, the use of less expensive 
interface systems (for example, batch processing rather than real-
time), and the ability to model new interfaces on existing systems 
used to interface with pharmacy benefit managers and dental 
insurers. In addition, many MBHOs already have developed interfaces, 
because their clients requested combined deductibles. This should 
result in reduced costs, because interface development costs are 
incremental and should decrease after the first interface is 
created. For a further discussion of this issue, see section IV. 
Economic Impact and Paperwork Burden later in this preamble.
---------------------------------------------------------------------------

    By contrast, comments that supported requiring combined deductibles 
argued that allowing separately accumulating deductibles undermines a 
central goal of parity legislation, to affirm that mental health and 
substance use disorder benefits are integral components of 
comprehensive health care and generally should not be distinguished 
from medical/surgical benefits. Distinguishing between the two requires 
individuals who need both kinds of care to satisfy a deductible that is 
greater than that required for individuals needing only medical/
surgical care. Other comments that supported requiring combined 
deductibles noted that mental health and substance use disorder 
benefits typically comprise only 2 to 5 percent of a plan's costs, so 
that even using identical levels for separately accumulating 
deductibles imposes a greater barrier to mental health and substance 
use disorder benefits.
    The Departments carefully considered the positions advanced by both 
groups of comments regarding separately accumulating and combined 
deductibles. Given that the statutory language does not preclude either 
interpretation, the Departments' view is that prohibiting separately 
accumulating financial restrictions and quantitative treatment 
limitations is more consistent with the policy goals that led to the 
enactment of MHPAEA. Consequently, these regulations provide, in 
paragraph (c)(3)(v), that a plan may not apply cumulative financial 
requirements or cumulative quantitative treatment limitations to mental 
health or

[[Page 5416]]

substance use disorder benefits in a classification that accumulate 
separately from any such cumulative financial requirements or 
cumulative quantitative treatment limitations established for medical/
surgical benefits in the same classification.\5\ Examples in these 
regulations illustrate the application of this rule.
---------------------------------------------------------------------------

    \5\ This rule in the interim final regulations prohibiting 
separately accumulating financial requirements and quantitative 
treatment limitations does not apply with respect to aggregate 
lifetime and annual dollar limits. The statutory language of MHPA 
1996 specifically permitted plans to impose aggregate lifetime or 
annual dollar limits that distinguish between mental health benefits 
and medical/surgical benefits. MHPAEA left the language of this 
statutory provision intact, modifying it only to expand its 
applicability to include substance use disorder benefits.
---------------------------------------------------------------------------

    e. Application to nonquantitative treatment limitations. Plans 
impose a variety of limits affecting the scope or duration of benefits 
under the plan that are not expressed numerically. Nonetheless, such 
nonquantitative provisions are also treatment limitations affecting the 
scope or duration of benefits under the plan. These regulations provide 
an illustrative list of nonquantitative treatment limitations, 
including medical management standards; prescription drug formulary 
design; standards for provider admission to participate in a network; 
determination of usual, customary, and reasonable amounts; requirements 
for using lower-cost therapies before the plan will cover more 
expensive therapies (also known as fail-first policies or step therapy 
protocols); and conditioning benefits on completion of a course of 
treatment.
    Paragraph (c)(4) of these regulations generally prohibits the 
imposition of any nonquantitative treatment limitation to mental health 
or substance use disorder benefits unless certain requirements are met. 
Any processes, strategies, evidentiary standards, or other factors used 
in applying the nonquantitative treatment limitation to mental health 
or substance use disorder benefits in a classification must be 
comparable to, and 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 
classification. However, these requirements allow variations to the 
extent that recognized clinically appropriate standards of care may 
permit a difference. These requirements apply to the terms of the plan 
(or health insurance coverage) both as written and in operation.
    The phrase, ``applied no more stringently'' was included to ensure 
that any processes, strategies, evidentiary standards, or other factors 
that are comparable on their face are applied in the same manner to 
medical/surgical benefits and to mental health or substance use 
disorder benefits. Thus, for example, assume a claims administrator has 
discretion to approve benefits for treatment based on medical 
necessity. If that discretion is routinely used to approve medical/
surgical benefits while denying mental health or substance use disorder 
benefits and recognized clinically appropriate standards of care do not 
permit such a difference, the processes used in applying the medical 
necessity standard are considered to be applied more stringently to 
mental health or substance use disorder benefits. The use of discretion 
in this manner violates the parity requirements for nonquantitative 
treatment limitations.
    Different types of illnesses or injuries may require different 
review, as well as different care. The acute versus chronic nature of a 
condition, the complexity of it or the treatment involved, and other 
factors may affect the review. Although the processes, strategies, 
evidentiary standards, and other factors used in applying these 
limitations must generally be applied in a comparable manner to all 
benefits, the mere fact of disparate results does not mean that the 
treatment limitations do not comply with parity.
    Examples in these regulations illustrate the operation of the 
requirements for nonquantitative treatment limitations. Medical 
management standards are implemented by processes such as 
preauthorization, concurrent review, retrospective review, case 
management, and utilization review; the examples feature the 
application of these requirements to some of these processes. The facts 
in the examples reflect simple situations for purposes of better 
illustrating the application of the rules rather than reflecting the 
realistic, complex facts that would typically be found in a plan. The 
Departments invite comments on whether additional examples would be 
helpful to illustrate the application of the nonquantitative treatment 
limitation rule to other features of medical management or general plan 
design.
    Commenters asked if the MHPAEA requirements apply when eligibility 
for mental health and substance use disorder benefits under a major 
medical program is conditioned on exhausting some limited number of 
mental health and substance use disorder counseling sessions offered 
through an employee assistance program (EAP). Generally, the provision 
of mental health or substance use disorder benefits by an EAP in 
addition to the benefits offered by a major medical program that 
otherwise complies with the parity rules would not violate MHPAEA. 
However, requiring participants to exhaust the EAP benefits--making the 
EAP a gatekeeper--before an individual is eligible for the major 
medical program's mental health or substance use disorder benefits is a 
nonquantitative treatment limitation subject to the parity 
requirements. Consequently, if similar gatekeeping processes with a 
similar exhaustion requirement (whether or not through the EAP) are not 
applied to medical/surgical benefits, the requirement to exhaust mental 
health or substance use disorder benefits available under the EAP would 
violate the rule that nonquantitative treatment limitations be applied 
comparably and not more stringently to mental health and substance use 
disorder benefits.
    The Departments received many comments addressing an issue 
characterized as ``scope of services'' or ``continuum of care''. Some 
commenters requested, with respect to a mental health condition or 
substance use disorder that is otherwise covered, that the regulations 
clarify that a plan 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 clarify that a 
participant or beneficiary with a mental health condition or substance 
use disorder have coverage for the full scope of medically appropriate 
services to treat the condition or disorder if the plan 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. Other commenters requested that MHPAEA 
be interpreted to require that group health plans provide benefits for 
any evidence-based treatment.
    The Departments recognize that not all treatments or treatment 
settings for mental health conditions or substance use disorders 
correspond to those for medical/surgical conditions. The Departments 
also recognize that MHPAEA prohibits plans and issuers from imposing 
treatment limitations on mental health and substance use disorder 
benefits that are more restrictive than those applied to medical/
surgical benefits. These regulations do not address the scope of 
services issue. The Departments invite comments on whether and to what

[[Page 5417]]

extent MHPAEA addresses the scope of services or continuum of care 
provided by a group health plan or health insurance coverage.

D. Availability of Plan Information (26 CFR 54.9812-1T(d), 29 CFR 
2590.712(d), and 45 CFR 146.136(d))

    MHPAEA includes two new disclosure provisions for group health 
plans (and health insurance coverage offered in connection with a group 
health plan). First, the criteria for medical necessity determinations 
made under a plan (or health insurance coverage) with respect to mental 
health or substance use disorder benefits must be made available by the 
plan administrator (or the health insurance issuer offering such 
coverage) in accordance with regulations to any current or potential 
participant, beneficiary, or contracting provider upon request. These 
regulations repeat the statutory language without substantive change. 
The Departments invite comments on what additional clarifications might 
be helpful to facilitate compliance with this disclosure requirement 
for medical necessity criteria.
    MHPAEA also provides that 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 in the case of any participant or beneficiary must be made 
available, upon request or as otherwise required, by the plan 
administrator (or the health insurance issuer) to the participant or 
beneficiary in accordance with regulations. These regulations clarify 
that, in order for plans subject to ERISA (and health insurance 
coverage offered in connection with such plans) to satisfy this 
requirement, disclosures must be made in a form and manner consistent 
with the rules for group health plans in the ERISA claims procedure 
regulations,\6\ which provide (among other things) that such 
disclosures must be provided automatically and free of charge. In the 
case of non-Federal governmental and church plans (which are not 
subject to ERISA), and health insurance coverage offered in connection 
with such plans, these regulations provide that compliance with the 
form and manner of the ERISA claims procedure regulations for group 
health plans satisfies this disclosure requirement. The Departments 
invite comments regarding any additional clarifications that would be 
helpful to facilitate compliance with MHPAEA's disclosure requirements 
regarding denials of mental health or substance use disorder benefits.
---------------------------------------------------------------------------

    \6\ 29 CFR 2560.503-1.
---------------------------------------------------------------------------

E. General Applicability Provisions (26 CFR 54.9812-1T(e), 29 CFR 
2590.712(e), and 45 CFR 146.136(e))

    Paragraph (e) of these regulations addresses the applicability of 
these regulations to group health plans and health insurance issuers 
and clarifies the scope of these regulations.
1. Overview
    These regulations make a number of changes to the general 
applicability provisions in the MHPA 1996 regulations (paragraphs (c) 
and (d) in those regulations). Amendments made by MHPAEA require some 
of these changes. For example, the MHPA 1996 rules of construction 
specifically excluded any plan provisions relating to cost sharing, 
limits on the number of visits or days of coverage, and requirements 
relating to medical necessity from the application of the parity 
requirements for aggregate lifetime and annual dollar limits. MHPAEA 
replaces these exclusions with a rule providing that the provisions 
should not be construed as affecting the terms and conditions of the 
plan or coverage relating to mental health and substance use disorder 
benefits except as provided in the rules relating to financial 
requirements and treatment limitations. These regulations make 
corresponding changes to the MHPA 1996 regulations.
    These regulations also (1) establish a new rule with respect to the 
mental health and substance use disorder parity requirements for the 
determination of the number of plans that an employer or employee 
organization maintains, (2) combine what were in the MHPA 1996 
regulations separate rules for group health plans and benefit packages, 
and (3) make additional clarifications.
    a. Group health plans. In 2004, the Departments issued proposed 
regulations for a number of issues under Chapter 100 of the Code, Part 
7 of ERISA, and Title XXVII of the PHS Act, including rules for 
determining the number of group health plans that an employer or 
employee organization is considered to maintain for purposes of those 
provisions.\7\ Those proposed regulations generally would have 
respected the number of plans designated in the instruments governing 
the employer's or employee organization's arrangements to provide 
medical care benefits as long as the arrangements were operated 
pursuant to those instruments as separate plans. The 2004 proposed 
regulations included an anti-abuse clause, providing that, if a 
principal purpose of establishing separate plans was to evade any 
requirement of law, then the separate plans would be considered a 
single plan to the extent necessary to prevent the evasion.
---------------------------------------------------------------------------

    \7\ See 69 FR 78800 (December 30, 2004).
---------------------------------------------------------------------------

    The Departments recognized that under the 2004 proposed 
regulations, absent the anti-abuse clause, plan sponsors might attempt 
to provide mental health (and now substance use disorder) benefits 
under a plan that is separate from a plan that provides only medical/
surgical benefits. Because the mental health (and now substance use 
disorder) parity requirements apply only to plans that provide both 
mental health or substance use disorder benefits and medical/surgical 
benefits, the absence of medical/surgical benefits in a plan providing 
mental health or substance use disorder benefits would have resulted 
in, absent the anti-abuse clause, the inapplicability of the parity 
requirements. The 2004 proposed regulations included the anti-abuse 
clause to avoid this kind of evasion of the parity requirements. 
Commenters raised problems of proof with the subjective intent element 
of the proposed anti-abuse clause. While the 2004 rule remains 
proposed, these interim final regulations include a rule for 
determining the number of plans that an employer or employee 
organization maintains for the mental health and substance use disorder 
parity requirements that operates irrespective of the intent of a plan 
sponsor. The rule is that all medical care benefits provided by an 
employer or employee organization constitute a single group health 
plan.
    MHPAEA left unchanged the rule from MHPA 1996 requiring that the 
parity requirements be applied separately to each benefit package 
option under a group health plan. The MHPA 1996 regulations used the 
term ``benefit package'' rather than ``benefit package option'' and 
clarified that the parity requirements would apply separately to 
separate benefit packages also in situations in which the participants 
(or beneficiaries) had no choice between multiple benefit packages, 
such as where retirees are provided one benefit package and active 
employees a separate benefit package. Under these regulations, the 
statutory rule providing that the parity requirements apply separately 
to separate benefit package options (reflected in paragraph (c) of the 
MHPA 1996 regulations), the statutory rule providing that the parity 
requirements

[[Page 5418]]

apply to a group health plan providing both mental health or substance 
use disorder benefits and medical/surgical benefits (reflected in 
paragraph (d) of the MHPA 1996 regulations), and the determination of 
how many plans an employer or employee organization maintains have been 
combined as a single rule in paragraph (e)(1).
    The new combined rule in these regulations does not use the term 
benefit package. Instead, it 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. This new combined rule clearly prohibits what 
might have been formerly viewed as a 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). For 
example, if an employer with a single benefit package for medical/
surgical benefits also has a separately administered benefit package 
for mental health and substance use disorder benefits, the parity 
requirements apply to the combined benefit package and the combined 
benefit package is considered a single plan for purposes of the parity 
requirements.
    Similarly, if an employer offered three medical/surgical benefit 
packages, A, B, and C, and a mental health and substance use disorder 
benefit package, D, that could be combined with each of A, B, and C, 
then the parity requirements must be satisfied with respect to each of 
AD, BD, and CD. If the A benefit package had a standard option and a 
high option, A1 and A2, then the parity 
requirements would have to be satisfied with respect to each of 
A1D and A2D.
    b. Health insurance issuers. These regulations make a change 
regarding applicability with respect to health insurance issuers. Both 
the MHPA 1996 regulations and these regulations apply to an issuer 
offering health insurance coverage. The MHPA 1996 regulations provide 
that the health insurance coverage must be for both medical/surgical 
and mental health benefits in connection with a group health plan; the 
rule in these regulations provides that the health insurance coverage 
must be for mental health or substance use disorder benefits in 
connection with a group health plan subject to MHPAEA under paragraph 
(e)(1). Thus, under these regulations, an issuer offering health 
insurance coverage without any medical/surgical benefits is nonetheless 
subject to the parity requirements if it offers health insurance 
coverage with mental health or substance use disorder benefits in 
connection with a group health plan subject to the parity requirements. 
In addition, under these regulations, the parity requirements do not 
apply to an issuer offering health insurance coverage to a group health 
plan not subject to the parity requirements.
    c. Scope. Paragraph (e)(3) of these regulations provides that 
nothing in these regulations requires a plan or issuer to provide any 
mental health 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.
2. Interaction With State Insurance Laws
    Numerous comments requested guidance on how MHPAEA interacts with 
State insurance laws requiring parity for, or mandating coverage of, 
mental health or substance use disorder benefits. Some commenters 
sought clarification that MHPAEA does not preempt any State insurance 
law mandating a minimum level of coverage (such as a minimum dollar, 
day, or visit level) for mental health conditions or substance use 
disorders. Other commenters suggested that, while MHPAEA does not 
preempt State insurance parity and mandate laws to the extent that they 
do not prevent the application of MHPAEA, provisions in the State laws 
that are more restrictive than the requirements of MHPAEA are 
preempted.
    The preemption provisions of section 731 of ERISA and section 2723 
of the PHS Act (added by the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) and 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 HIPAA conference report 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.)
    A State law, for example, that mandates that an issuer offer a 
minimum dollar amount of mental health or substance use disorder 
benefits does not prevent the application of MHPAEA. Nevertheless, 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.

F. Small Employer Exemption (26 CFR 54.9812-1T(f), 29 CFR 2590.712(f), 
and 45 CFR 146.136(f))

    Paragraph (f) of these regulations amends the MHPA 1996 regulations 
to implement 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. For this purpose, a small employer is 
generally defined, 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.

G. Increased Cost Exemption (26 CFR 54.9812-1T(g), 29 CFR 2590.712(g), 
and 45 CFR 146.136(g))

    Both MHPA 1996 and MHPAEA include an increased cost exemption under 
which, if certain requirements are met, plans that incur increased 
costs above a certain threshold as a result of the application of the 
parity requirements of both these laws can be exempt from the statutory 
parity requirements. MHPAEA changed the MHPA 1996 increased cost 
exemption in several ways, including (1) raising the threshold for 
qualification from one percent to two percent for the first year for 
which the plan is subject to MHPAEA; (2) requiring certification by 
qualified and licensed actuaries who are members in good standing of 
the American Academy of Actuaries; and (3) revising the notice 
requirements. Under MHPAEA, plans 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 year, and the exemption lasts for one year. 
Thus, the increased cost exemption may only be claimed for alternating 
plan years.

[[Page 5419]]

    These regulations withdraw the MHPA 1996 regulatory guidance on the 
increased cost exemption and reserve paragraph (g). The Departments 
intend to issue, in the near future, guidance implementing the new 
requirements for the increased cost exemption under MHPAEA. The 
Departments invite comments on implementing the new statutory 
requirements for the increased cost exemption under MHPAEA, as well as 
information on how many plans expect to use the exemption.

H. Sale of Nonparity Health Insurance Coverage (26 CFR 54.9812-1T(h), 
29 CFR 2590.712(h), and 45 CFR 146.136(h))

    These regulations make a few changes to what was paragraph (g) in 
the MHPA 1996 regulations. That paragraph included a paragraph (g)(2) 
relating to how long the increased cost exemption applies once its 
requirements have been satisfied. It has been deleted because MHPAEA 
provides a new rule for how long the increased cost exemption applies. 
In addition, minor changes have been made to the presentation in what 
was paragraph (g)(1) in the MHPA 1996 regulations. Both that paragraph 
and paragraph (h) in these regulations address the circumstances of 
health insurance coverage that does not comply with the parity 
requirements being sold to a group health plan. The MHPA 1996 
regulations refer to an issuer selling a policy; these regulations 
refer to an issuer selling a policy, certificate, or contract of 
insurance. The longer phrase in these regulations includes health 
insurance coverage sold in a form that might not always be described by 
the term ``policy'' and is the more typical formulation used throughout 
the regulations under Chapter 100 of the Code, Part 7 of ERISA, and 
Title XXVII of the PHS Act. An additional change shifts the emphasis by 
stating the rule in terms of an issuer not being able to sell except in 
the described circumstances, rather than in terms of an issuer being 
able to sell only in the described circumstances. Finally, the cross-
reference contained in this paragraph to the parity requirements has 
been conformed to include the new requirements of MHPAEA.

I. Applicability Dates (26 CFR 54.9812-1T(i), 29 CFR 2590.712(i), and 
45 CFR 146.136(i))

    In general, the requirements of these regulations apply for plan 
years beginning on or after July 1, 2010. There is a special effective 
date for certain collectively-bargained plans, which provides that, for 
group health plans maintained pursuant to one or more collective 
bargaining agreements ratified before October 3, 2008, the requirements 
of these regulations do not apply to the plan (or health insurance 
coverage offered in connection with the plan) for plan years beginning 
before the later of either the date on which the last of the collective 
bargaining agreements relating to the plan terminates (determined 
without regard to any extension agreed to after October 3, 2008) or 
July 1, 2010. MHPAEA provides that any plan amendment made pursuant to 
a collective bargaining agreement solely to conform to the requirements 
of MHPAEA not be treated as a termination of the agreement.
    Many commenters requested guidance on what percentage of employees 
covered by a plan must be union employees for the plan to be considered 
a plan maintained pursuant to one or more collective bargaining 
agreements--some suggesting as low a percentage as 25 percent while 
others suggested 90 percent. This issue arises in a number of statutes 
that provide special rules for plans maintained pursuant to collective 
bargaining agreements. As such, the issue is beyond the scope of these 
regulations implementing the MHPAEA amendments and is not addressed in 
them.
    Because the statutory MHPAEA provisions are self-implementing and 
are generally effective for plan years beginning after October 3, 2009, 
many commenters asked for a good faith compliance period from 
Departmental enforcement until plans (and health insurance issuers) 
have time to implement changes consistent with these regulations. For 
purposes of enforcement, the Departments will take into account good-
faith efforts to comply with a reasonable interpretation of the 
statutory MHPAEA requirements with respect to a violation that occurs 
before the applicability date of paragraph (i) of these regulations. 
However, this does not prevent participants or beneficiaries from 
bringing a private action.

III. Interim Final Regulations and Request for Comments

    Section 9833 of the Code, section 734 of ERISA, and section 2792 of 
the PHS Act authorize the Secretaries of the Treasury, Labor, and HHS 
(collectively, the Secretaries) to promulgate any interim final rules 
that they determine are appropriate to carry out the provisions of 
Chapter 100 of Subtitle K of the Code, Part 7 of Subtitle B of Title I 
of ERISA, and Part A of Title XXVII of the PHS Act, which include the 
provisions of MHPAEA.
    Under Section 553(b) of the Administrative Procedure Act (5 U.S.C. 
551 et seq.) a general notice of proposed rulemaking is not required 
when an agency, for good cause, finds that notice and public comment 
thereon are impracticable, unnecessary, or contrary to the public 
interest.
    These rules are being adopted on an interim final basis because the 
Secretaries have determined that without prompt guidance some members 
of the regulated community may not know what steps to take to comply 
with the requirements of MHPAEA, which may result in an adverse impact 
on participants and beneficiaries with regard to their health benefits 
under group health plans and the protections provided under MHPAEA. 
Moreover, MHPAEA's requirements will affect the regulated community in 
the immediate future.
    The requirements of MHPAEA are generally effective for all group 
health plans and for health insurance issuers offering coverage in 
connection with such plans for plan years beginning after October 3, 
2009. Plan administrators and sponsors, issuers, and participants and 
beneficiaries need guidance on how to comply with the new statutory 
provisions. As noted earlier, these regulations take into account 
comments received by the Departments in response to the request for 
information on MHPAEA published in the Federal Register on April 28, 
2009 (74 FR 19155). For the foregoing reasons, the Departments find 
that the publication of a proposed regulation, for the purpose of 
notice and public comment thereon, would be impracticable, unnecessary, 
and contrary to the public interest.

IV. Economic Impact and Paperwork Burden

A. Summary--Department of Labor and Department of Health and Human 
Services

    As discussed earlier in this preamble, MHPAEA requires group health 
plans and group health insurance issuers to ensure that financial 
requirements (e.g., copayments, deductibles) and treatment limitations 
(e.g., visit limits) applicable to mental health or substance use 
disorder benefits are no more restrictive than the predominant 
financial requirements or treatment limitations applied to 
substantially all medical/surgical benefits. Under MHPAEA, a financial 
requirement or treatment limitation is considered to be predominant if 
it is the most common or frequent of such type of requirement or 
limitation. Additionally, there can be no separate cost-sharing 
requirements or

[[Page 5420]]

treatment limitations applicable only with respect to mental health or 
substance use disorder benefits. The statute does not mandate coverage 
for either mental health or substance use disorder benefits. Thus, 
self-insured plans are free to choose whether to provide mental health 
or substance use disorder benefits; insured plans may have to provide 
these benefits under state laws. Either type of plan that provides 
mental health or substance use disorder benefits must do so in 
accordance with MHPAEA's parity provisions.
    The Departments have crafted these regulations to secure the 
protections intended by Congress in as economically efficient a manner 
as possible. Although the Departments are unable to quantify the 
regulations' economic benefits, they have quantified some of the costs 
and have provided a qualitative discussion of some of the benefits and 
costs that may stem from these regulations.

B. Statement of Need for Regulatory Action

    Congress directed the Departments to issue regulations implementing 
the MHPAEA provisions. In response to this Congressional directive, 
these interim final regulations clarify and interpret the MHPAEA 
provisions under section 712 of ERISA, section 2705 of the PHS Act, and 
section 9812 of the Code. These regulations are needed to secure and 
implement MHPAEA's provisions and ensure that the rights provided to 
participants, beneficiaries, and other individuals under MHPAEA are 
fully realized. The Departments' assessment of the expected economic 
effects of these regulations is discussed in detail below.

C. Executive Order 12866--Department of Labor and Department of Health 
and Human Services

    Under Executive Order 12866 (58 FR 51735), the Department must 
determine whether a regulatory action is ``significant'' and therefore 
subject to review by the Office of Management and Budget (OMB). Section 
3(f) of the Executive Order defines a ``significant regulatory action'' 
as an action that is likely to result in a rule (1) having an annual 
effect on the economy of $100 million or more, or adversely and 
materially affecting a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local or tribal governments or communities (also referred to as 
``economically significant''); (2) creating a serious inconsistency or 
otherwise interfering with an action taken or planned by another 
agency; (3) materially altering the budgetary impacts of entitlement 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or (4) raising novel legal or policy issues arising 
out of legal mandates, the President's priorities, or the principles 
set forth in the Executive Order. 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 any one year. 
Accordingly, the Departments provide the following assessment of its 
potential costs and benefits. As elaborated below, the Department 
believes that the benefits of the rule justify its costs.
    Table 1, below, summarizes the costs associated with the rule. The 
estimates are explained in the following sections. Over the ten-year 
period of 2010 to 2019, the total undiscounted cost of the rule is 
estimated to be $115 million in 2010 Dollars. Columns E and F display 
the costs discounted at 3 percent and 7 percent, respectively. Column G 
shows a transfer of $25.6 billion over the ten-year period. All other 
numbers included in the text are not discounted, except where noted.

                                                              Table 1--Total Costs of Rule
                                                              [In millions of 2010 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Medical                          Total         Total 3%        Total 7%
                  Year                    General review     necessity        Single       undiscounted     discounted      discounted       Transfer
                                                            disclosure      deductible         costs           costs           costs      (undiscounted)
                                                   (A)               (B)             (C)           A+B+C             (E)             (F)             (G)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010...................................            $27.8            $1.2           $39.2           $68.2           $68.2           $68.2        $2,360.0
2011...................................              0               1.2             3.9             5.2             5.0             4.8         2,400.0
2012...................................              0               1.2             3.9             5.2             4.9             4.5         2,430.0
2013...................................              0               1.2             3.9             5.2             4.7             4.2         2,460.0
2014...................................              0               1.2             3.9             5.2             4.6             3.9         2,510.0
2015...................................              0               1.2             3.9             5.2             4.4             3.7         2,570.0
2016...................................              0               1.2             3.9             5.2             4.3             3.4         2,620.0
2017...................................              0               1.2             3.9             5.2             4.2             3.2         2,680.0
2018...................................              0               1.2             3.9             5.2             4.1             3.0         2,740.0
2019...................................              0               1.2             3.9             5.2             4.0             2.8         2,810.0
                                        ----------------------------------------------------------------------------------------------------------------
    Total..............................  ...............  ..............  ..............           114.6           108.4           101.8        25,600.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

    The Departments performed a comprehensive, unified analysis to 
estimate the costs and, to the extent feasible, provide a qualitative 
assessment of benefits attributable to the regulations for purposes of 
compliance with Executive Order 12866, the Regulatory Flexibility Act, 
and the Paperwork Reduction Act. The Departments' assessment and 
underlying analysis is set forth below.
1. Regulatory Alternatives
    Section 6(a)(3)(C)(iii) of Executive Order 12866 requires an 
economically significant regulation to include an assessment of the 
costs and benefits of potentially effective and reasonable alternatives 
to the planned regulation, and an explanation of why the planned 
regulatory action is preferable to the potential alternatives. As 
discussed earlier in this preamble, the Departments considered the 
alternative of whether to require the same separately accumulating 
deductible for medical/surgical benefits and mental health or substance 
use disorder benefits or a combined deductible for such benefits.

[[Page 5421]]

    The language of the statute can be interpreted to support either 
alternative. The comments that supported allowing separately 
accumulating deductibles maintained that it is commonplace for plans to 
have such deductibles, and that the projected cost of converting 
systems to permit unified deductibles would be extremely high for the 
many plans that use a separate managed behavioral health organization 
(MBHO).\8\ By contrast, comments that supported requiring combined 
deductibles argued that allowing separately accumulating deductibles 
undermines a central goal of parity legislation: To affirm that mental 
health and substance use disorder benefits are integral components of 
comprehensive health care and generally should not be distinguished 
from medical/surgical benefits. Distinguishing between the two requires 
individuals who need both kinds of care to satisfy a deductible that is 
greater than that required for individuals needing only medical/
surgical care. Other comments that supported requiring combined 
deductibles noted that mental health and substance use disorder 
benefits typically comprise only 2 to 5 percent of a plan's costs, so 
that even using identical levels for separately accumulating 
deductibles imposes a greater barrier to mental health and substance 
use disorder benefits.
---------------------------------------------------------------------------

    \8\ For a full discussion of the cost considerations involved 
with these alternatives, see section 4.b., below, Costs associated 
with cumulative financial requirements and quantitative treatment 
limitations, including deductibles.
---------------------------------------------------------------------------

    The Departments carefully considered the alternative of requiring 
separately accumulating or combined deductibles. Given that the 
statutory language does not preclude either interpretation, the 
Departments choose to require combined deductibles, because this 
position is more consistent with the policy goals that led to the 
enactment of MHPAEA.
2. Affected Entities and Other Assumptions
    The Departments expect MHPAEA to benefit the approximately 111 
million participants in 446,400 ERISA-covered employer group health 
plans, and an estimated 29 million participants in the approximately 
20,300 public, non-Federal employer group health plans sponsored by 
state and local governments.\9\ In addition, approximately 460 health 
insurance issuers providing mental health or substance use disorder 
benefits in the group health insurance market and at least 120 MBHOs 
providing mental health or substance use disorder benefits to group 
health plans are expected to be affected.\10\
---------------------------------------------------------------------------

    \9\ The Departments' estimates of the numbers of affected 
participants are based on DOL estimates using the 2008 CPS. ERISA 
plan counts are based on DOL estimates using the 2008 MEP-IC and 
Census Bureau statistics. The number of state and local government 
employer-sponsored plans was estimated using 2007 Census data and 
DOL estimates. Please note that the estimates are based on survey 
data that is not broken down by the employer size covered by MHPAEA 
making it difficult to exclude from estimates those participants 
employed by employers who employed an average of at least 2 but no 
more than 50 employees on the first day of the plan year.
    \10\ The Departments' estimate of the number of insurers is 
based on industry trade association membership. Please note that 
these estimates could undercount small state regulated insurers.
---------------------------------------------------------------------------

3. Benefits
    Congress first passed mental health parity legislation in 1996 with 
the enactment of MHPA 1996.\11\ As discussed earlier in this preamble, 
this law requires health insurance issuers and group health plans that 
offer mental health benefits to have aggregate annual and lifetime 
dollar limits on mental health benefits that are no more restrictive 
than those for all medical/surgical benefits.
---------------------------------------------------------------------------

    \11\ Pub. L. 104-204, title VII, 110 Stat. 2874, 2944-50.
---------------------------------------------------------------------------

    The impact of MHPA 1996 was limited, however, because it did not 
require parity with respect to day limits for inpatient or outpatient 
care, deductibles, co-payments or coinsurance, substance use disorder 
benefits, and prescription drug coverage.\12\ While a large majority of 
plans complied with the MHPA 1996 parity requirement regarding annual 
and lifetime dollar limits, many employer-sponsored group health plans 
contained plan design features that were more restrictive for mental 
health benefits than for medical/surgical benefits. For example, data 
on private insurance arrangements from the pre-MHPAEA era show that 
after MHPA 1996, the most significant disparities in coverage for 
mental health substance use treatment involve limits on the number of 
covered days of inpatient care and the number of outpatient visits. 
Survey data from the Kaiser/HRET national employer survey shows that 64 
percent of covered workers had more restrictive limits on the number of 
covered hospital days for mental health care and 74 percent had more 
restrictive limits on outpatient mental health visits. In addition, 22 
percent of covered workers had higher cost-sharing imposed on mental 
health care benefits. Among those workers with more restrictive limits 
on inpatient days, 77 percent had limits of 30 days or less.\13\ For 
these reasons, as discussed more fully below, the Departments expect 
that MHPAEA and these regulations will have their greatest impact on 
people needing the most intensive treatment and financial protection. 
The Departments do not have an estimate of the number of individuals 
who have exceeded the treatment limits. However, according to the FEHBP 
data used to analyze the FEHBP parity directive in the year before its 
implementation, the 90th percentile of the mental health spending 
distribution was corresponded to $2,134 in 1999 dollars. Among the 
people spending at the 90th percentile or higher, 12% had inpatient 
psychiatric stays and 20% of those above the 90th percentile had a 
diagnosis of schizophrenia or bipolar disorder, chronic conditions 
requiring prescription drugs and regular contact with mental health 
service providers. It is this group that experienced especially large 
declines in out of pocket payments after FEHBP implemented parity.
---------------------------------------------------------------------------

    \12\ GAO/HEHS-00-95, Implementation of the Mental Health Parity 
Act. In the report, GAO found that 87 percent of compliant plans 
contained at least one more restrictive provision for mental health 
benefits with the most prevalent being limits on the number of 
outpatient office visits and hospital day limits. Id. at 5.
    \13\ Barry, Colleen, et al. ``Design of Mental Health Benefits: 
Still Unequal After All These Years,'' Health Affairs Vol. 22, 
Number 5, 2003. Please note that the baseline data from the Kaiser 
HRET survey cited in this article are weighted by region, firm size 
and industry to reflect the national composition of employers. So 
the data cited establishing the baseline reflects the impact of 
state parity laws. It is important to realize that state parity laws 
frequently focus on a subset of diagnoses, e.g., biologically based 
disorders, and do not apply to self-funded insurance programs. Thus, 
in most states only a minority of insurance contracts is affected by 
state parity laws.
---------------------------------------------------------------------------

    Treatment for alcohol abuse disorders showed a similar trend: 
Surveys indicate that 74 percent of private industry employees were 
covered by plans that imposed more restrictive limits for inpatient 
detoxification benefits than medical and surgical benefits, 88 imposed 
more restrictive limits for inpatient rehabilitation, and 89 percent 
imposed more restrictive limits for outpatient rehabilitation.\14\
---------------------------------------------------------------------------

    \14\ Morton, John D. and Patricia Aleman. ``Trends in Employer-
provided Mental Health and Substance Abuse Benefits.'' Monthly Labor 
Review, April 2005.
---------------------------------------------------------------------------

    After MHPA 1996, many states also passed mental health parity laws. 
Research focused on the impacts of parity laws found that similar to 
MHPA 1996, even the most comprehensive state laws resulted in little or 
no increase in access to and utilization of

[[Page 5422]]

mental health services for covered individuals.\15\
---------------------------------------------------------------------------

    \15\ Id., at 9. The state mental health parity laws varied 
significantly with most of differences related the following areas: 
the type of mental health mandate, definition of mental illness, the 
inclusion of substance abuse coverage, small employers' coverage, 
and cost increase exceptions. Few state laws provide as extensive 
coverage as MHPAEA, particularly with regard to its prohibition of 
visit limitations.
---------------------------------------------------------------------------

    To address these issues, Congress amended MHPA 1996 by enacting 
MHPAEA. One of Congress' primary objectives in enacting MHPAEA was to 
improve access to mental health and substance use disorder benefits by 
eliminating discrimination that existed with respect to these benefits 
after MHPA 1996. Congress' intent in enacting MHPAEA was articulated in 
a floor statement from Representative Patrick Kennedy (D-RI), one of 
the chief sponsors of the legislation, who said ``[a]ccess to mental 
health services is one of the most important and most neglected civil 
rights issues facing the Nation. For too long, persons living with 
mental disorders have suffered discriminatory treatment at all levels 
of society.'' \16\ In a similar statement, Representative James Ramstad 
(R-MN) said, ``[i]t's time to end the discrimination against people who 
need treatment for mental illness and addition. It's time to prohibit 
health insurers from placing discriminatory barriers on treatment.'' 
\17\
---------------------------------------------------------------------------

    \16\ 153 Cong. Rec. S1864-5 (daily ed., February 12, 2007).
    \17\ 154 Cong. Rec. H8619 (daily ed., September 23, 2008).
---------------------------------------------------------------------------

    The Departments expect that the largest benefit associated with 
MHPAEA and these regulations will be derived from applying parity to 
cumulative quantitative treatment limitations such as annual or 
lifetime day or visit limits (visit limitations). As discussed above, a 
large percentage of plans imposed visit limitations pre-MHPAEA, and the 
GAO found that a major shortcoming of MHPA 1996 was its failure to 
apply parity to visit limitations. Applying parity to visit limitations 
will help ensure that vulnerable populations--those accessing 
substantial amounts of mental health and substance use disorder 
services--have better access to appropriate care. The Departments 
cannot estimate how large this benefit will be, because sufficient data 
is not available to estimate the number of covered individuals that had 
their benefits terminated because they reached their coverage limit. 
Though difficult to estimate, the number of beneficiaries who have a 
medical necessity for substantial amount of care are likely to be 
relatively small. Severe mental health disorders account for 2-3 
percent of people in private health insurance plans and a substantially 
larger share of mental health spending. Evidenced-based treatments for 
severe and persistent mental illnesses like schizophrenia, bipolar 
disorder and chronic major depression requires prolonged (possibly 
lifetime) maintenance treatment that consists of pharmacotherapy, 
supportive counseling and often rehabilitation services.\18\ The most 
common visit limits under current insurance arrangements are those for 
20 visits per year. That means assuming a minimal approach to treatment 
of one visit per week, people with severe and persistent mental 
disorders will exhaust their coverage in about five months. This often 
results in people foregoing outpatient treatment and a higher 
likelihood of non-adherence to treatment regimes that produce poor 
outcomes and the potential for increased hospitalization costs.
---------------------------------------------------------------------------

    \18\ See, Lehman AF ``Quality of care in mental health: the case 
of schizophrenia'' Health Affairs 18(5): 52-65.
---------------------------------------------------------------------------

    Increased coverage also should provide enhanced financial 
protection for this group by reducing out-of-pocket expenses for 
services that previously were needed but uncovered. This should help 
prevent bankruptcy and financial distress for these individuals and 
families and reduce cost-shifting of care to the public sector, both of 
which occur when covered benefits are exhausted. In addition, increased 
coverage for those seeking substantial amounts of care potentially 
could reduce emergency room use by ensuring that benefits for 
individuals with serious conditions are not terminated. Finally, 
reduced entry into disability programs may result from having more 
complete insurance coverage for mental health and substance use 
disorder treatment.
    Since the early 1990s, many health insurers and employers have made 
use of specialized vendors, known as behavioral health carve-outs to 
manage their mental health and substance abuse benefits. These vendors 
have specialized expertise in the treatment of mental and addictive 
disorders and organized specialty networks of providers. These vendors 
are known as behavioral health carve-outs. They use information 
technology, clinical algorithms and selective contracts to control 
spending on mental health and substance abuse treatment. There is an 
extensive literature that has examined the cost savings and impacts on 
quality of these organizations. Researchers \19\ have reviewed this 
literature and estimated reductions in private insurance spending of 20 
percent to 48 percent compared to fee-for-service indemnity 
arrangements. Also, it appears that the rate of utilization of mental 
health care rises under behavioral health carve out arrangements. The 
number of people receiving inpatient psychiatric care typically 
declines as does the average number of outpatient visits per episode.
---------------------------------------------------------------------------

    \19\ Sturm R, ``Tracking changes in behavioral health services: 
How carve-outs changed care?'' Journal of Behavioral Health Services 
and Research 26(4): 360-371, 1999. Frank RG and Garfield RL; 
``Managed Behavioral Health Carve-Outs: Past Performance and Future 
Prospects'' Annual Reviews of Public Health 2007, 28:11; 1-18. Frank 
RG and Garfield RL; ``Managed Behavioral Health Carve-Outs: Past 
Performance and Future Prospects'' Annual Reviews of Public Health 
2007, 28:11; 1-18.
---------------------------------------------------------------------------

    The OPM encouraged its insurers to consider carve-out arrangements 
when implementing the parity directive in 2000 for the FEHBP. This is 
because of the ability of behavioral health carve-outs to use 
utilization management tools to control utilization and spending in the 
face of reductions in cost-sharing and elimination of limits. Thus, 
parity in a world dominated by behavioral carve-outs has meant 
increased utilization rates, reduced provider fees, reduced rates of 
hospitalization and fewer very long episodes of outpatient care. 
Intensive treatment was more closely aligned with higher levels of 
severity.
    Another potential benefit associated with MHPAEA and these 
regulations is that use of mental health and substance use disorder 
benefits could improve.\20\ Untreated or under treated mental health 
conditions and substance use disorders are detrimental to individuals 
and the entire economy. Day and visit limits can interfere with 
appropriate treatment thereby reducing the impact of care for workers 
seeking treatment. Many people with mental health conditions and 
substance use disorders are employed and these debilitating conditions 
have a devastating impact on employee attendance and productivity, 
which results in lost productivity for employers and lost earnings for 
employees. For example, studies have

[[Page 5423]]

shown that the high prevalence of depression and the low productivity 
it causes have cost employers $31 billion to $51 billion annually in 
lost productivity in the United States.\21\ 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.\22\
---------------------------------------------------------------------------

    \20\ While studies have shown that state parity laws have 
increased access only marginally, most state laws still allowed 
disparate treatment limits for mental health conditions and 
substance use disorders, which limited access for those needing 
significant amounts of treatment. As discussed above, MHPAEA and 
these regulations prohibit the imposition of such disparate limits, 
which could increase access for those individuals. Nine states have 
treatment limit requirements similar to MHPAEA for mental health 
benefits, while 10 states have similar requirements for substance 
abuse disorder benefits.
    \21\ Stewart, W.F., Ricci, J.A., Chee, E., Hahn, S.R. & 
Morgenstein, D. (2003, June 18). ``Cost of lost productive work time 
among US workers with depression.'' JAMA: Journal of the American 
Medical Association. 289, 23, 3135-3144.
    Kessler, R.C., Akiskal, H.S., Ames, M., Birnbaum, H., Greenberg, 
P., Hirschfeld, H.M.A. et al. (2006). ``Prevalence and effects of 
mood disorders on work performance in a nationally representative 
sample of U.S. workers.'' American Journal of Psychiatry, 163, 1561-
1568.
    \22\ Stewart, W.F., Ricci, J.A., Chee, E., Hahn, S.R. & 
Morgenstein, D. (2003, June 18). ``Cost of lost productive work time 
among US workers with depression.'' JAMA: Journal of the American 
Medical Association. 289, 23, 3135-3144.
---------------------------------------------------------------------------

    Moreover, studies have consistently found that workers who report 
symptoms of mental disorders have lower earnings than other similarly-
situated coworkers. For example, a recent study funded by the National 
Institutes of Health's National Institute of Mental Health \23\ found 
that mental disorders cost employees at least $193 billion annually in 
lost earnings alone, a staggering number that probably is a 
conservative estimate because it did not include the costs associated 
with people in hospitals and prisons, and included very few 
participants with autism, schizophrenia and other chronic illnesses 
that are known to greatly affect a person's ability to work. The study 
also noted that individuals suffering from depression earn 40 percent 
less than non-depressed individuals.
---------------------------------------------------------------------------

    \23\ Kessler, Ronald C., Steven Heeringa, Matthew D. Lakoma, 
Maria Petukhova, Agnes E. Rupp, Michael Schoenbaum, Philip S. Wang, 
and Alan M. Zaslavsky. ``Individual and Societal Effects of Mental 
Disorders on Earnings in the United States: Results From the 
National Comorbidity Survey Replication.''
    The American Journal of Psychiatry; June 2008; 165, 6; Research 
Library pg. 703.
---------------------------------------------------------------------------

    Although accurately determining cause and effect can be difficult, 
studies have attempted to estimate the beneficial impact of treating 
mental disorders. One study found that treating individuals suffering 
from mental disorders helped close the gap in productivity between 
those with mental disorders and those who did not have a mental 
disorder.\24\ The finding that treatment can help increase the 
productivity of those suffering from mental illness suggests that 
increasing access to treatment of mental disorders could have a 
beneficial impact on lost productivity cost and lost earnings that stem 
from untreated and under treated mental health conditions and substance 
use disorders. The Departments, however, do not have sufficient data to 
determine whether this result will occur, and, if it does, the extent 
to which lost productivity cost and lost earnings could improve.
---------------------------------------------------------------------------

    \24\ Hilton, Michael F., Paul A. Schuffham, Judith Sheridan, 
Catherine M. Clearly, Neria Vecchio, and Harvey A. Whiteford. ``The 
Association Between Mental Disorders and Productivity in Treated and 
Untreated Employees.'' Journal of Occupational and Environmental 
Medicine. Volume 51, Number 9, September 2009.
---------------------------------------------------------------------------

    As noted above the combination of reduced cost sharing and the 
elimination of day and visit limits have the effect of making coverage 
more complete. The dominant role of managed behavioral health care in 
the market and the evidence about it success in controlling costs means 
that the moral hazard problem can be controlled (the evidence on this 
is discussed in more detail below). The implication is that more 
complete financial protection can be offered to people without a 
significant increase in social costs. This implies improved efficiency 
in the insurance market since more efficient risk spreading would occur 
without much welfare loss due to moral hazard.
    In order to comply with MHPAEA and these regulations, cost-sharing 
requirements for mental health and substance use disorder benefits 
cannot be any more restrictive than the predominant cost-sharing 
requirement applied to substantially all medical/surgical benefits. 
Because expenditures on mental health and substance use disorder 
benefits only comprise 3-6 percent of the total benefits covered by a 
group health plan and 8 percent of overall healthcare costs,\25\ the 
Departments expect that group health plans will lower cost-sharing on 
mental health and substance use disorder benefits instead of raising 
cost-sharing on medical/surgical benefits.
---------------------------------------------------------------------------

    \25\ Finch R.A., Phillips K. Center for Prevention and Health 
Services. ``An Employer's Guide to Behavioral Health Services: A 
Roadmap and Recommendations for Evaluating Designing, and 
Implementing Behavioral Health Services.'' National Business Group 
on Health 2005.
---------------------------------------------------------------------------

    MHPAEA and these interim final regulations could have a positive 
impact on the delivery system of mental health services. Currently, 
approximately half of mental health care is delivered solely by primary 
care physicians.\26\ This trend is likely due in part to the large 
discrepancies between insurance cost-sharing for services delivered by 
mental health professionals and primary care physicians. Historically, 
the cost-sharing associated with primary care physician visits is lower 
than cost-sharing for mental health professional visits. This 
difference in the relative price encouraged patients suffering from 
mental illness to visit primary care physicians for mental health-
related conditions. If MHPAEA and these regulations result in lowering 
the relative price of mental health care, more individuals suffering 
from mental illness could visit and receive care from mental health 
professionals. One study \27\ found that only 12.7 percent of 
individuals treated in the general medical sector received at least 
minimally adequate mental health care compared to 48.3 percent of 
patients treated in the specialty mental health sector.\28\ A shift in 
source of treatment from primary care physicians to mental health 
professionals could lead to more appropriate care, and thus, better 
health outcomes.\29\ The Departments, however, do not have sufficient 
data to estimate how large this shift in treatment could be or 
determine whether it will occur.
---------------------------------------------------------------------------

    \26\ Wang, P.S., Lane, M., Olfson, M., Pincus, H.A., Wells, 
K.B., and Kessler, R.C. (2005, June). ``Twelve month use of mental 
health services in the United States.'' Archives of General 
Psychiatry, 62, 629-640. The study found that 40 percent of people 
reporting mental health and substance use disorders receive some 
treatment in a year.
    \27\ Wang, P.S., Lane, M., Olfson, M., Pincus, H.A., Wells, 
K.B., and Kessler, R.C. (2005, June). ``Twelve month use of mental 
health services in the United states.'' Archives of General 
Psychiatry, 62, 629-640.
    \28\ Another analysis demonstrating poor adherence to evidence-
based treatment for mental disorders is:
    Wang PS, Berglund P, Kessler RC, Journal of General Internal 
Medicine. 2000; 15:284-292. Recent care of common mental disorders 
in the United States: Prevalence and conformance with evidence-based 
recommendations. This study finds that only 57.3 percent of people 
with major depression receive treatment during a year and less than 
one-third of those who receive treatment receive effective 
treatment.
    Based on expert opinion, Normand et al. rated the likely 
effectiveness of combinations of general medical visits, specialty 
visits (with psychotherapy) and drug treatment to demonstrate the 
correlation between adequate treatment for depression and the 
probability of remission. For patients with no anti-depressant 
medication, the probability of remission increased as the number of 
specialty visits increased from one or less during a year to ten or 
more. The probability of remission was greater for patients with 
antidepressant medication and improved with more specialty visits 
during the year. Normand SLT, Frank RG, McGuire, TG. ``Using 
elicitation techniques to estimate the value of ambulatory 
treatments for depression.'' Medical Decision Making, 2001; 22: 245-
261.
    \29\ The Healthcare Effectiveness Data and Information Set 
report card for 2007 produced by National Center for Quality 
Assurance shows that for treatment of depression, only 20 percent of 
patients get appropriate levels of provider contacts; about 45 
percent receive appropriate maintenance level medications and 62 
percent obtain adequate medication doses and duration during the 
acute phase of illness.
---------------------------------------------------------------------------

    Mental health and physical health are interrelated, and individuals 
with poor mental health are more likely to have

[[Page 5424]]

physical health problems as well. Increased access and utilization of 
mental health and substance use disorder benefits could result in a 
reduction of medical/surgical costs for individuals afflicted with 
mental health conditions and substance use disorders. The decrease in 
medical/surgical costs could be significant; however, the Departments 
do not have sufficient data to estimate how large these health care 
spending offsets could be or determine whether they will occur.
    There is disagreement among experts as to whether depression is an 
important antecedent risk factor for physical illness or whether the 
causal relationship acts in the opposite direction. Regardless, there 
is evidence that comorbid depression worsens the prognosis, prolongs 
recovery and may increase the risk of mortality associated with 
physical illness. In addition, comorbid depression has been shown to 
increase the costs of medical care, over and above the costs of 
treating the depression itself.\30\
---------------------------------------------------------------------------

    \30\ Conti R, Berndt ER, Frank RG. ``Early retirement and DI/SSI 
applications: Exploring the impact of depression'', in Culter DM, 
Wise DA. Health in Older Ages: The causes and consequences of 
declining disability among the elderly, (Chicago: National Bureau of 
Economic Research, 2008).
---------------------------------------------------------------------------

    The returns on investment from treatment of substance use disorders 
can be large.\31\ Studies in Washington state clinics demonstrated that 
each dollar invested in inpatient and outpatient substance abuse 
treatment yielded returns of about 10 and 23 times their initial 
investments, respectively.\32\ California and Oregon state treatment 
systems demonstrated a sevenfold return in their investments.\33\ Other 
studies show effects ranging from a return of one and a half times the 
cost in a large study of a treatment clinic in Chicago to a return of 5 
times the initial investment for a treatment for mentally ill chemical 
abusers,\34\ resulting in a net benefit of about $85,000 per client for 
an investment of nearly $20,000.\35\
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    \31\ The Office of National Drug Control Policy has information 
on effective treatment and cost savings at http://www.whitehousedrugpolicy.gov.
    \32\ French, M.T., H.J. Salome, A. Krupski, J.R. McKay, D.M. 
Donovan, A.T. McLellan, and J. Durrell. (2000). ``Benefit-cost 
analysis of residential and outpatient addiction treatment in the 
State of Washington.'' Evaluation Review, 24(6), 609-634.
    \33\ Ettner, S.L., D. Huang, E. Evans, D.R. Ash, M. Hardy, M. 
Jourabchi, and Y. Hser. (2006). ``Benefit-Cost in the California 
Treatment Outcome Project: Does Substance Abuse Treatment `Pay for 
Itself?''' Health Services Research, 41(1), 192-213.
    \34\ French, M.T., K.E. McCollister, S. Sacks, K. McKendrick, & 
G. De Leon. (2002). ``Benefit cost analysis of a modified 
therapeutic community for mentally ill chemical abusers.'' 
Evaluation and Program Planning, 25, 137-148.
    \35\ The returns are the ratio of benefits to costs. Benefits 
include personal as well as societal benefits including increased 
employment and reduced crime.
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4. Costs
    a. Cost associated with increased utilization of mental health and 
substance use disorder benefits. As discussed in the Benefits section 
earlier in this preamble, one of Congress' primary objectives in 
enacting MPHAEA was to eliminate barriers that impede access to and 
utilization of mental health and substance use disorder benefits. This 
has raised concerns among some that increased access and utilization of 
mental health and substance use disorder benefits will result in 
increases in associated payments and plan expenditures, which could 
lead to large premium increases that will make mental health and 
substance use disorder benefits unaffordable. The Departments are 
uncertain regarding the level of increased costs and premium increases 
that will result from MHPAEA and these regulations, but there is 
evidence that any increases will not be large.
    One theory for increased costs resulting from parity is based on 
the fact that cost-sharing for mental health and substance use disorder 
benefits will decrease. A frequent justification for higher cost-
sharing of mental health and substance use disorder benefits is the 
greater extent of moral hazard for these benefits; individuals will 
utilize more mental health and substance use disorder benefits at a 
higher rate when they are not personally required to pay the cost. To 
support this assumption, many have cited the RAND Health Insurance 
Experiment, conducted in 1977-1982, which demonstrated that individuals 
are more likely to increase their mental health care usage when their 
personal cost-sharing for mental health care services fall than they 
are to increase their physical health care usage when their personal 
cost-sharing for physical health care services decreases. Because this 
experiment was conducted nearly thirty years ago, researchers recently 
tested to determine whether this result held true.\36\ Their results 
indicate that individuals' sensitivity to changes in cost-sharing may 
have changed significantly over time. These changes are explained at 
least in part due to the expansion of managed behavioral health care 
(described earlier). The authors found that individuals' price 
responsiveness of ambulatory mental health treatment is now slightly 
lower than physical health treatment. These results indicate that if 
plans lower the cost-sharing associated with mental health services, 
costs will not rise as much as would be expected using the results from 
the RAND Experiment.\37\
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    \36\ Meyerhoefer, Chad D. and Samuel Zuvekas, 2006. ``New 
Estimates of the Demand for Physical and Mental Health Treatment.'' 
Agency for Healthcare Research and Quality Working Paper No. 06008.
    \37\ Another paper showing a similar result to the Myerhoefer 
paper cited above is: Lu CL, Frank, RG and McGuire TG. ``Demand 
Response Under Managed Care.'' Contemporary Economic Policy, 
27(1):1-15, 2009.
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    When the RAND Experiment was conducted, managed care was not nearly 
as prevalent as it is today. Health care economists have studied the 
impact of using cost control techniques associated with managed care to 
reduce the quantity of mental health and substance use disorder 
benefits utilized so that lowered cost sharing may result in only a 
small increase in spending.\38\ This research concluded that 
``comprehensive parity implemented in the context of managed care would 
have little impact on total spending.'' \39\
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    \38\ Barry, Frank, and McGuire. ``The Costs of Mental Health 
Parity: Still an Impediment?'' Health Affairs, no. 3:623 (2006).
    \39\ Id.
---------------------------------------------------------------------------

    These findings were similar to those of a recent study published in 
the New England Journal of Medicine examining the Federal Employees 
Health Benefits Program (FEHBP), which implemented parity for mental 
health and substance use disorder benefits in 2001.\40\ The primary 
concern has been that the existence of parity in the FEHBP would result 
in large increases in the use of mental health and substance-abuse 
services and spending on these services. However, the study concluded 
that these fears were unfounded and ``that parity of coverage of mental 
health and substance-abuse services, when coupled with management of 
care, is feasible and can accomplish its objectives of greater fairness 
and improved insurance protection without adverse consequences for 
health care costs.'' \41\ The study found average per user declines in 
out patient cost sharing of between zero and $87 depending on the

[[Page 5425]]

plan. The reductions were largest for high users of mental health care. 
The study also found that insurers were not likely to drop out of the 
FEHBP pool due to the implementation of parity.
---------------------------------------------------------------------------

    \40\ Goldman, et al., ``Behavioral Health Insurance Parity for 
Federal Employees,'' New England Journal of Medicine (March 30, 
2006) Vol. 354, No. 13. In 1999, President Clinton directed the 
Office of Personnel Management (OPM) to equalize benefits coverage 
in the FEHBP, and parity was implemented in 2001. Parity under the 
FEHBP is very similar to MHPAEA. It requires benefits coverage for 
plan mental health, substance abuse, medical, surgical, and hospital 
providers to have the same limitations and cost-sharing such as 
deductibles, coinsurance, and co-pays. When patients use plan 
providers and follow a treatment regime approved by their plan, all 
diagnostic categories of mental health and substance abuse 
conditions listed in the Diagnostic and Statistical Manual of Mental 
Disorders, Fourth Edition (DSM IV) are covered.
    \41\ Id.
---------------------------------------------------------------------------

    The experience of states that have enacted mental health parity 
laws with appropriate managed care also suggests that minimal increased 
cost results from implementing parity. One study found that ``with the 
implementation of mental health parity at the same time as managed 
behavioral health care, many states have discovered that overall health 
care costs increased minimally and in some cases even were reduced.'' 
\42\ For example, at least nine states--California, Maine, Maryland, 
Minnesota, North Carolina, Pennsylvania, Rhode Island, South Carolina, 
and Vermont--have actually documented experience that implementing 
mental health parity including cost controls through managed care 
resulted in lower costs and lowered premiums (or at most, very modest 
cost increases of less than one percent) within the first year of 
implementation.\43\
---------------------------------------------------------------------------

    \42\ Melek, Steve, ``The Costs of Mental Health Parity,'' Health 
Section News (March 2005).
    \43\ Bachman, Ronald, Mental Health Parity--Just the Facts 
(2000).
---------------------------------------------------------------------------

    Similarly, the Departments expect medical management and managed 
care techniques will help control any major cost impact resulting from 
MHPAEA and these regulations. As discussed earlier in this preamble, 
these regulations provide that medical management can be applied to 
mental health and substance use disorder benefits by plans as long as 
any processes, strategies, evidentiary standards, or other factors used 
in applying medical management are comparable to, and are applied no 
more stringently than, the processes, strategies, evidentiary 
standards, or other factors used in applying medical management to 
medical/surgical benefits.
    Although the increase in per plan costs associated with parity is 
not likely to be substantial, there may be plans that decide to drop 
coverage for mental health and substance use disorder benefits in 
response to higher costs, or individuals may decide to drop coverage 
even if it is offered. The Departments do not have an estimate of the 
number of plans that will drop coverage or the number of individuals 
that will lose benefits. Currently 98 percent of covered workers have 
some form of mental health benefits.\44\ The lack of coverage for 
mental health and substance use disorder benefits for these people may 
lead to many of the typical costs associated with uninsured 
individuals: Lack of access, decreased health, and increased financial 
burden. The Departments are not able to quantify these costs. Research 
on the introduction of state parity laws suggests few plans or 
individuals will drop insurance coverage due to parity.\45\
---------------------------------------------------------------------------

    \44\ Kaiser Family Foundation and Health Research & Educational 
Trust. Employer Health Benefits 2008 Annual Survey.
    \45\ Cseh, Attila. ``Labor Market Consequences of State Mental 
Health Parity Mandates,'' Forum for Health Economics & Policy, Vol. 
11, issue 2, 2008.
---------------------------------------------------------------------------

    b. Costs associated with cumulative financial requirements and 
quantitative treatment limitations, including deductibles. As discussed 
earlier in this preamble, paragraph (c)(3)(v) of these regulations 
provide that a group health plan may not apply cumulative financial 
requirements, such as deductibles, for mental health and substance use 
disorder benefits in a classification that accumulate separately from 
any such requirements or limitations established for medical/surgical 
benefits in the same classification. Some group health plans and health 
insurance issuers ``carve-out'' the administration and management of 
mental health and substance use disorder benefits to MBHOs. These 
entities obtain cost savings for plan sponsors by providing focused 
case management and directing care to a broad network of mental and 
behavioral health specialists (with whom they negotiate lower fees) who 
ensure that appropriate care for mental health conditions and substance 
use disorders is provided.\46\
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    \46\ Research papers have indicated that carve-out arrangements 
have reduced the cost of proving mental health and substance use 
disorder benefits by an estimated 25-40 percent. Frank, Richard G. 
and Thomas G. McGuire, ``Savings from a Carve-Out Program for Mental 
Health and Substance Abuse in Massachusetts Medicaid'' Psychiatric 
Services 48(9); 1147-1152, 1997; Ma, Ching-to Albert and Thomas G. 
McGuire, ``Costs and Incentives in a Behavioral Health Carve-out. 
Health Affairs March/April 1998.
---------------------------------------------------------------------------

    When a group health plan or health insurance issuer uses a carve-
out arrangement, at least two entities are involved in separately 
managing and administering medical/surgical and mental health and 
substance use disorder benefits.\47\ The imposition of a single 
deductible requires entities providing medical/surgical and mental 
health and substance use disorder benefits to develop and program a 
communication network often referred to as an ``interface'' or an 
``accumulator'' that will allow them to exchange the data necessary to 
make timely and accurate determinations of when participants have 
incurred sufficient combined medical/surgical and mental health and 
substance use disorder expenses to satisfy the single deductible.
---------------------------------------------------------------------------

    \47\ This can create a coordination issue that has cost 
implications that otherwise do not exist when a single vendor is 
used.
---------------------------------------------------------------------------

    Two comments received in response to the RFI indicate that MBHOs 
would confront significant costs to develop real-time interfaces that 
could range from $420,000-$750,000 with an additional $40,000-$70,000 
required for annual maintenance.\48\ The Departments held discussions 
with the regulated community which indicated that interface development 
costs may not be as high as stated in the RFI comments. For example, 
the Departments have learned that MBHOs could develop less costly 
``batch process'' interfaces that exchange data on a daily or weekly 
basis rather than real-time for as low as approximately $35,000 per 
interface.\49\
---------------------------------------------------------------------------

    \48\ RFI comments. MHPAEA RFI comments can be viewed at http://www.dol.gov/ebsa/regs/cmt-MHPAEA.html.
    \49\ An additional undetermined expense would be required to 
reconcile and make adjustments in instances when two claims are 
received on the same day satisfying the unified deductible. While 
this alternative would produce a much lower cost than real-time 
interfaces, the costs remain significant. A low-end estimate of the 
first year cost for MBHOs and insurers to create, on average, at 
least 20 new interfaces would be $700,000 per insurer. There is 
uncertainty regarding the total cost, because the number of entities 
that would need to create interfaces is unclear. The Departments are 
aware of 460 health insurance issuers and at least 120 MBHOs that 
could be affected.
---------------------------------------------------------------------------

    It also appears that some plan sponsors using carve-out 
arrangements already are implementing a unified, single deductible, and 
MBHOs have created interfaces to service these clients. For example, 
the Departments' discussions found that one MBHO already has 
established 10-15 accumulators, because its plan sponsor clients 
requested a single deductible. The MBHO reported that another 10-15 
accumulators were being implemented for the current benefit year, 
because plan sponsors wanted to ensure that they were compliant with 
MHPAEA. This finding suggests that while costly, putting these 
accumulators in place is not cost prohibitive for the MBHOs and plan 
sponsors. Moreover, plans and issuers have created and used interfaces 
with separate pharmacy benefit managers and dental insurers for years. 
Interface development costs should decrease after the first interface 
is created. The experience and lessons learned from creating these 
interfaces should reduce the cost associated with designing and 
implementing interfaces with MBHOs.
    While the RFI comment letters suggested that MBHOs would have to 
create 40-50 interfaces each, this

[[Page 5426]]

number most likely only relates to the largest MBHOs. The smallest 
MBHOs would need to create fewer interfaces. The Departments assume 
that a significant number of smaller MBHOs exist; therefore, the 
Departments estimate that, on average, seven interfaces would have to 
be created per insurer. The Departments acknowledge that there is 
uncertainty in this estimate due to incomplete information about the 
MBHO industry.
    For purposes of this analysis, the Departments have used an 
estimated interface development cost of $35,000 per interface, because 
the Departments were not able to substantiate the higher estimated 
costs provided in the RFI comment letters, and the propensity of the 
evidence leads to the conclusion that the cost could be significantly 
less. Based on the foregoing, the Departments estimate total interface 
development costs of approximately $39.2 million.\50\
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    \50\ Please note that using the $420,000 per interface estimate 
cited in the RFI comment letters would result in total interface 
development costs of $470 million, with annual maintenance costs of 
$47 million. Based on this estimate, the per-participant first year 
interface development costs would be $7, and the annual maintenance 
costs in subsequent years would be $.06 cents per participant per 
month.
---------------------------------------------------------------------------

    Once the interfaces are created, ongoing annual maintenance costs 
will be incurred. One industry source suggested that ongoing 
maintenance costs could be one-tenth of the development costs, and 
based on this information, the Departments estimate that maintenance 
cost of $3.9 million will be incurred annually after the interfaces are 
created.
    While the total interface development and maintenance costs are 
large, a useful measure to examine is the per-participant cost impact. 
While reliable estimates of the number of participants enrolled in 
plans utilizing MBHOs are not available, based on the best available 
information, the Departments estimate that at least 70 million 
participants are covered by MBHOs. Based on this count, the per-
participant first year interface development costs would be $0.60, and 
the maintenance costs in subsequent years would be less than one cent.
    Comments from health insurance issuers have suggested that the 
costs of creating these interfaces would be passed on to participants 
in the form of higher premiums; however, no independent information has 
been found to corroborate this assertion.
    c. Compliance review costs. The Departments expect that group 
health plans and health insurance issuers will conduct a compliance 
review to ensure that their plan documents, summary plan descriptions, 
and any associated policies and procedures comply with the requirements 
of MHPAEA and these regulations. While the Departments do not know the 
total number of issuers that will be affected by the regulations, the 
Departments estimate that there are approximately 460 issuers operating 
in the group market. In addition, the Departments are aware of at least 
120 MBHOs.\51\ The Departments believe smaller MBHOs exist but were 
unable to obtain a count.
---------------------------------------------------------------------------

    \51\ There are about 460 issuers in the group market; this is an 
average of 1,000 plans per issuers. In addition, there are at least 
120 MBHOs.
---------------------------------------------------------------------------

    The Departments assume that insured plans will rely on the issuers 
providing coverage to ensure compliance, and that self-insured plans 
will rely on third-party administrators to ensure compliance. The per-
plan compliance costs are expected to be low, because vendors and 
issuers will be able to spread these costs across multiple client 
plans. These regulations provide examples illustrating the application 
of the rules to specific situations, which are intended to reduce the 
compliance burden.
    The Departments assume that the average burden per plan will be 
one-half hour of a legal professional's time at an hourly labor rate of 
$120 to conduct the compliance review and make the needed changes to 
the plan and related documents. This results in a total cost of $27.8 
million in the first year. The Departments welcome public comments on 
this estimate.
    d. Costs associated with MHPAEA disclosures. MHPAEA and these 
regulations contain two new disclosure provisions for group health 
plans and health insurance coverage offered in connection with a group 
health plan that are addressed in paragraph (d) of the rules.
    (1) Medical necessity disclosure. The first disclosure requires 
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 that will be received by 
plan administrators based on this requirement. However, the Departments 
have assumed that, on average, each plan affected by the rule will 
receive one request. For purposes of this estimate, the Departments 
assume that it will take a medically trained clerical staff member five 
minutes to respond to each request at a labor rate of $26.85 per hour 
resulting in an annual cost of approximately $1,044,000.\52\
---------------------------------------------------------------------------

    \52\ EBSA estimates of labor rates include wages, other 
benefits, and overhead based on the National Occupational Employment 
Survey (May 2008, Bureau of Labor Statistics) and the Employment 
Cost Index (June 2009, Bureau of Labor Statistics).
---------------------------------------------------------------------------

    The Departments also estimated the cost to deliver the requested 
criteria for medical necessity determinations. Many insurers already 
have the information prepared in electronic form, and the Departments 
assume that 38 percent \53\ of requests will be delivered 
electronically resulting in a de minimis cost. The Departments estimate 
that the cost associated with distributing the approximately 290,000 
requests sent by paper will be approximately $192,000.\54\
---------------------------------------------------------------------------

    \53\ For purposes of this burden estimate, the Departments 
assume that 38 percent of the disclosures will be provided through 
electronic means in accordance with the Department's standards for 
electronic communication of required information provided under 29 
CFR 2520.104b-1(c).
    \54\ This estimate is based on an average document size of four 
pages, $.05 cents per page material and printing costs, $.44 cent 
postage costs.
---------------------------------------------------------------------------

    (2) Claims denial disclosure. MHPAEA and these regulations also 
provide that 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 in the 
case of any participant or beneficiary must be made available upon 
request or as otherwise required by the plan administrator (or the 
health insurance issuer offering such coverage) to the participant or 
beneficiary. The Department of Labor's ERISA claims procedure 
regulation (29 CFR 2560.503-1) requires, among other things, such 
disclosures to be provided automatically to participants and 
beneficiaries free of charge. Although non-ERISA covered plans, such as 
plans sponsored by state and local governments that are subject to the 
PHS Act, are not required to comply with the ERISA claims procedure 
regulation, these regulations provide that such 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.
    For purposes of this cost analysis, the Departments assume that 
non-Federal governmental plans will satisfy the safe harbor, because 
the same third-party administrators and insurers are hired by ERISA- 
and non-ERISA-covered plans, and these entities provide the same claims 
denial notifications to participants covered by ERISA- and non-ERISA-
covered plans. Therefore,

[[Page 5427]]

based on the foregoing, the Departments have not included a cost for 
plans to provide the claims denial disclosures.
5. Transfer Resulting for Premium Increase Due to MHPAEA
    The evaluation of mental health and substance use disorder parity 
in the Federal Employees Health Benefit Program (FEHBP) estimated the 
overall impact of parity on total spending for mental health and 
substance use disorder services relative to a set of control plans that 
did not experience any increase in mental health coverage.\55\ That 
evaluation also assessed changes in out-of-pocket spending. The overall 
results on total mental health and substance use disorder (MH/SUD) 
spending (health plan spending plus out of pocket spending) showed 
essentially no significant increase in total MH/SUD spending. The 
evaluation also showed that in general parity resulted in a 
statistically significant decrease in out-of-pocket spending. This 
means that while there was no increase in the total spending on MH/SUD 
services there was a significant shift in the final responsibility for 
paying for these services. In other words, health plan spending 
expanded due to parity. The magnitude of the change implies an 
estimated increase in total health care premiums of 0.4 percent.\56\ 
Thus the 0.4 percent increase derived from the FEHBP evaluation is due 
entirely to a shift in final responsibility for payment.
---------------------------------------------------------------------------

    \55\ Goldman, et al., ``Behavioral Health Insurance Parity for 
Federal Employees,'' New England Journal of Medicine (March 30, 
2006) Vol. 354, No. 13.
    \56\ The estimated .04 percent increase was derived from an 
authors' final calculation based on data from the report cited in 
the previous footnote.
---------------------------------------------------------------------------

    The Congressional Budget Office \57\ estimated the direct and 
indirect costs to the private and public sector of implementing MHPAEA 
and similarly found that health insurance premiums would go up by 
approximately 0.4 percent. The FEHBP estimate contrasts with the CBO 
estimate, because the CBO estimate appears to include some shift in 
final payment along with an increase in service utilization.
---------------------------------------------------------------------------

    \57\ Congressional Budget Office Cost Estimate on H.R. 1424--
Paul Wellstone Mental Health and Addiction Equity Act of 2007, 21 
November 2007.
---------------------------------------------------------------------------

    The Departments estimate that total health care premiums will rise 
0.4 percent due to MHPAEA based on data and analysis from the FEHBP 
evaluation. The premium increase is a transfer from those not using MH/
SUD benefits to those who do, because given the size of the estimated 
impacts and the known changes in coverage from baseline discussed 
earlier in this Regulatory Impact Analysis, any change in utilization 
must be very small again suggesting that premium changes were primarily 
due to a shift in responsibility for final payments for MH/SUD care.
    Using data on private health insurance premiums from the National 
Health Expenditure Projections \58\ and data on premiums for individual 
insurance \59\ from the National Association of Insurance 
Commissioners, the Departments estimate that the dollar amount of the 
0.4 percent premium increases attributable to MHPAEA would be 
approximately $25.6 billion over the ten-year period 2010-2019. The 
ten-year value using a discount rate of seven percent is $19.0 billion, 
and it is $22.4 billion using a three percent discount rate. Yearly 
estimates are reported in Table 1, column G. Due to the magnitude of 
this transfer, this regulatory action is economically significant 
pursuant to section 3(f)(1) of Executive Order 12866.
---------------------------------------------------------------------------

    \58\ National Health Expenditures Projections 2008-2018, Centers 
for Medicare & Medicaid Services, Office of the Actuary, http://www.cms.hhs.gov/NationalHealthExpendData/.
    \59\ The National Health Expenditure estimate of total spending 
on private health insurance includes premiums for purchases made in 
the individual market, which is not affected by MHPAEA. Therefore it 
needs to be subtracted from the total. The NAIC data does not 
contain information from California; therefore, an adjustment based 
on the number of lives covered in California and average premiums 
was used to impute a value for California.
---------------------------------------------------------------------------

D. Regulatory Flexibility Act--Department of Labor and Department of 
Health and Human Services

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (APA) (5 U.S.C. 551 et seq.) and that are 
likely to have a significant economic impact on a substantial number of 
small entities. Under Section 553(b) of the Administrative Procedures 
Act (APA), a general notice of proposed rulemaking is not required when 
an agency, for good cause, finds that notice and public comment thereon 
are impracticable, unnecessary, or contrary to the public interest. 
These interim final regulations are exempt from APA, because the 
Departments made a good cause finding that a general notice of proposed 
rulemaking is not necessary earlier in this preamble. Therefore, the 
RFA does not apply and the Departments are not required to either 
certify that the rule would not have a significant economic impact on a 
substantial number of small entities or conduct a regulatory 
flexibility analysis.
    Nevertheless, the Departments carefully considered the likely 
impact of the rule on small entities in connection with their 
assessment under Executive Order 12866. The Departments expect the 
rules to reduce the compliance burden imposed on plans and insurers by 
clarifying definitions and terms contained in the statute and providing 
examples of acceptable methods to comply with specific provisions. The 
Departments believe that the rule's impact on small entities will be 
minimized by the fact that MHPAEA does not apply to small employers who 
have between two and 50 employees.

E. Special Analyses--Department of the Treasury

    Notwithstanding the determinations of the Department of Labor and 
Department of Health and Human Services, 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. 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. For the 
applicability of the RFA, refer to the Special Analyses section in the 
preamble to the cross-referencing notice of proposed rulemaking 
published elsewhere in this issue of the Federal Register. Pursuant to 
section 7805(f) of the Code, these temporary regulations have been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small businesses.

F. Paperwork Reduction Act

1. Departments of Labor and the Treasury
    As part of their continuing efforts to reduce paperwork and 
respondent burden, the Departments conduct a preclearance consultation 
program to provide the general public and federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested 
data can be provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the impact of collection requirements on respondents 
can be properly assessed.

[[Page 5428]]

    As discussed earlier in this preamble, MHPAEA includes two new 
disclosure provisions for group health plans and health insurance 
coverage offered in connection with a group health plan. First, the 
criteria for medical necessity determinations made under a group health 
plan 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) must be made available in accordance with 
regulations by the plan administrator (or the health insurance issuer 
offering such coverage) to any current or potential participant, 
beneficiary, or contracting provider upon request (``medical necessity 
disclosure'').
    MHPAEA also requires 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 in the case of any participant or beneficiary must be made 
available upon request or as otherwise required by the plan 
administrator (or the health insurance issuer offering such coverage) 
to the participant or beneficiary in accordance with regulations 
(``claims denial notice'').
    The MHPAEA disclosures are information collection requests (ICRs) 
subject to the PRA. The Departments are not soliciting comments 
concerning an ICR pertaining to the claims denial notice, because the 
Department of Labor's ERISA claims procedure regulation (29 CFR 
2560.503-1) requires (among other things) ERISA-covered group health 
plans to provide such disclosures automatically to participants and 
beneficiaries free of charge. Although non-ERISA covered plans, such as 
certain church plan under Treasury/IRS jurisdiction and plans sponsored 
by state and local governments that are subject to the PHS Act and 
under HHS jurisdiction (these plans are discussed under the HHS ICR 
discussion below) are not required to comply with the ERISA claims 
procedure regulation, these regulations provide that such 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. For purposes of 
this PRA analysis, the Departments assume that non-ERISA plans will 
satisfy the safe harbor, because the same third-party administrators 
and insurers are hired by ERISA- and non-ERISA-covered plans, and these 
entities provide the same claims denial notifications to participants 
covered by ERISA- and non-ERISA-covered plans. Therefore, the 
Departments hereby determine that the hour and cost burden associated 
with the claims denial notice already is accounted for in the ICR for 
the ERISA claims procedure regulation that is approved under OMB 
Control Number 1210-0053.
    Currently, the Departments are soliciting comments concerning the 
medical necessity disclosure. The Departments have submitted a copy of 
these interim final regulations to OMB in accordance with 44 U.S.C. 
3507(d) for review of the information collections. The Departments and 
OMB are particularly interested in comments that:
     Evaluate whether the collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, for example, by 
permitting electronic submission of responses.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Attention: Desk Officer for the Employee Benefits Security 
Administration either by fax to (202) 395-7285 or by e-mail to [email protected]. Although comments may be submitted through 
April 5, 2010, OMB requests that comments be received within 30 days of 
publication of these interim final regulations to ensure their 
consideration. A copy of the ICR may be obtained by contacting the PRA 
addressee: G. Christopher Cosby, Office of Policy and Research, U.S. 
Department of Labor, Employee Benefits Security Administration, 200 
Constitution Avenue, NW., Room N-5718, Washington, DC 20210. Telephone: 
(202) 693-8410; Fax: (202) 219-4745. These are not toll-free numbers. 
E-mail: [email protected]. ICRs submitted to OMB also are available at 
reginfo.gov (http://www.reginfo.gov/public/do/PRAMain).
    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 approximately 93 percent of 
large plans and all small plans administer claims using service 
providers; therefore, 5.1 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 $27 per hour. This results in an annual hour burden of nearly 
1,900 hours and an associated equivalent cost of nearly $51,000 for the 
approximately 23,000 requests done in-house by plans. The remaining 
424,000 medical necessity criteria disclosures will be provided through 
service providers resulting in a cost burden of approximately $950,000.
    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 
277,000 medical necessity criteria disclosures sent by paper will be 
approximately $177,000.\60\ 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.\61\
---------------------------------------------------------------------------

    \60\ This estimate is based on an average document size of four 
pages, $.05 cents per page material and printing costs, $.44 cent 
postage costs.
    \61\ 5 CFR 1320.1 through 1320.18.
---------------------------------------------------------------------------

    These paperwork burden estimates are summarized as follows:
    Type of Review: New collection.
    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-NEW; 1545-NEW.
    Affected Public: Business or other for-profit; not-for-profit 
institutions.
    Total Respondents: 446,400.

[[Page 5429]]

    Total Responses: 446,400.
    Frequency of Response: Occasionally.
    Estimated Total Annual Burden Hours: 950 hours (Employee Benefits 
Security Administration); 950 hours (Internal Revenue Service).
    Estimated Total Annual Burden Cost: $562,500 (Employee Benefits 
Security Administration); $562,500 (Internal Revenue Service).
2. Department of Health and Human Services
    Under the PRA, we are required to provide 30-days notice in the 
Federal Register and solicit public comment before a collection of 
information requirement is submitted to the Office of Management and 
Budget (OMB) for review and approval. In order to fairly evaluate 
whether an information collection should be approved by OMB, section 
3506(c)(2)(A) of the PRA requires that we solicit comment on the 
following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs):
ICRs Regarding Parity in Mental Health and Substance Use Disorder 
Benefits. (45 CFR 146.136(d))
    As discussed above, MHPAEA includes two new disclosure provisions 
for group health plans and health insurance coverage offered in 
connection with a group health plan. First, the criteria for medical 
necessity determinations made under a group health plan 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) must be made available in accordance with regulations by the 
plan administrator (or the health insurance issuer offering such 
coverage) to any current or potential participant, beneficiary, or 
contracting provider upon request (``medical necessity disclosure'').
    MHPAEA also requires 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 in the case of any participant or beneficiary must be made 
available upon request or as otherwise required by the plan 
administrator (or the health insurance issuer offering such coverage) 
to the participant or beneficiary in accordance with regulations 
(``claims denial disclosure'').
Medical Necessity Disclosure
    The Department estimates that there are 29.1 million participants 
covered by 20,300 state and local public plans that are subject to the 
MHPAEA disclosure requirements that are employed by employers with more 
than 50 employees.\62\
---------------------------------------------------------------------------

    \62\ Non-Federal governmental plans may opt-out of MHPAEA and 
certain other requirements under Section 2721 of the PHS Act. Since 
past experience has shown that the number of non-Federal 
governmental plans that opt-out is small, the impact of the opt-out 
election should be immaterial on the Department's estimates.
---------------------------------------------------------------------------

    The Department is unable to estimate with certainty the number of 
requests for medical necessity criteria disclosures that will be 
received by plan administrators; however, the Department has assumed 
that, on average, each plan affected by the rule will receive one 
request. CMS estimates that approximately 93 percent of large plans 
administer claims using third party providers. 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 providers the costs are reported as cost burden while for plans 
that administer claims in-house the burden is reported as an hour 
burden. For purposes of this estimate, the Department 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 per hour. This results 
in an annual hour burden of 86 hours and an associated equivalent cost 
of about $2,300 for the approximately 1,000 requests handled by plans. 
The remaining 19,300 claims (94.9 percent) are provided through a 
third-party provider or an issuer and results in a cost burden of 
approximately $43,000.
Claims Denial Disclosure
    MHPAEA requires plans to disclose to participants and beneficiaries 
upon request 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. The Department of Labor's ERISA claims 
procedure regulation (29 CFR 2560.503-1) requires, among other things, 
such disclosures to be provided automatically to participants and 
beneficiaries free of charge. Although non-ERISA covered plans, such as 
plans sponsored by state and local governments that are subject to the 
PHS Act, are not required to comply with the ERISA claims procedure 
regulation, the interim 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, the Department estimates that there will be 
approximately 29.7 million claims for mental health or substance use 
disorder benefits with approximately 4.45 million denials that could 
result in a request for an explanation of reason for denial. The 
Department 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 (445,000 requests).
    The Department estimates that a medically trained clerical staff 
member may require five minutes to respond to each request at a labor 
rate of $27 per hour. This results in an annual hour burden of nearly 
1,900 hours and an associated equivalent cost of nearly $51,000 for the 
approximately 22,700 requests completed by plans. The remaining 422,300 
are provided through an issuer or a third-party provider, which results 
in a cost burden of approximately $945,000.
    In association with the explanation of denial, participants may 
request a copy of the medical necessity criteria. While the Department 
does not know how many notices of denial will result in a request for 
the criteria of medical necessity, the Department assumes that ten 
percent of those requesting an explanation of the reason for denial 
will also request the criteria of medical necessity, resulting in 
44,500 requests, 2,300 of which will be completed in-house with an hour 
burden of 190 hours and equivalent cost of $5,000 and 42,000 requests 
handled by issuers or third-party providers with a cost burden of 
$95,000.
    The Department also calculated the cost to deliver the requested 
information. Many insurers or plans may already have the information 
prepared in electronic format, and the Department assumes that requests 
will be delivered electronically resulting in a

[[Page 5430]]

de minimis cost.\63\ The Department estimates that the cost burden 
associated with distributing the approximately 135,000 disclosures sent 
by paper will be approximately $86,000.\64\ The Department notes 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.\65\
---------------------------------------------------------------------------

    \63\ Following the assumption in the ERISA claims regulation, it 
was assumed 75 percent of the explanation of denials disclosures 
would be delivered electronically, while it was assumed that 38 
percent of non-denial related requests for the medical necessity 
criteria would be delivered electronically.
    \64\ This estimate is based on an average document size of four 
pages, $.05 cents per page material and printing costs, $.44 cent 
postage costs.
    \65\ 5 CFR 1320.1 through 1320.18.
---------------------------------------------------------------------------

    These paperwork burden estimates are summarized as follows:
    Type of Review: New collection.
    Agency: Department of Health and Human Services.
    Title: Required Disclosures Under the Mental Health Parity and 
Addition Equity Act of 2008.
    OMB Number: 0938-NEW.
    Affected Public: State, Local, or Tribal Governments.
    Respondents: 20,300.
    Responses: 510,000.
    Frequency of Response: Occasionally.
    Estimated Total Annual Burden Hours: 2,200 hours.
    Estimated Total Annual Burden Cost: $1,169,000.
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget,
    Attention: CMS Desk Officer, 4140-IFC
    Fax: (202) 395-6974; or
    E-mail: [email protected].

G. Congressional Review Act

    These 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.) and have been transmitted to Congress and 
the Comptroller General for review.

H. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires 
agencies to prepare several analytic statements before proposing any 
rules that may result in annual expenditures of $100 million (as 
adjusted for inflation) by state, local and tribal governments or the 
private sector. These rules are not subject to the Unfunded Mandates 
Reform Act because they are being issued as interim final rules. 
However, consistent with the policy embodied in the Unfunded Mandates 
Reform Act, the regulation has been designed to be the least burdensome 
alternative for state, local and tribal governments, and the private 
sector, while achieving the objectives of MHPAEA.

I. Federalism Statement--Department of Labor and Department of Health 
and Human Services

    Executive Order 13132 outlines fundamental principles of 
federalism, and requires the adherence to specific criteria by federal 
agencies in the process of their formulation and implementation of 
policies that have ``substantial direct effects'' on the States, the 
relationship between the national government and States, or on the 
distribution of power and responsibilities among the various levels of 
government. Federal agencies promulgating regulations that have these 
federalism implications must consult with State and local officials, 
and describe the extent of their consultation and the nature of the 
concerns of State and local officials in the preamble to the 
regulation.
    In the Departments' view, these regulations have federalism 
implications, because they have direct effects on the States, the 
relationship between the national 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 2723 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. It is expected 
that the Departments will 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.

[[Page 5431]]

V. Statutory Authority

    The Department of the Treasury temporary and final regulations are 
adopted pursuant to the authority contained in sections 7805 and 9833 
of the Code.
    The Department of Labor interim final regulations are adopted 
pursuant to the authority contained in 29 U.S.C. 1027, 1059, 1135, 
1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 
1191b, and 1191c; sec. 101(g), Public Law 104-191, 110 Stat. 1936; sec. 
401(b), Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 
512(d), Public Law 110-343, 122 Stat. 3765; Public Law 110-460, 122 
Stat. 5123; Secretary of Labor's Order 6-2009, 74 FR 21524 (May 7, 
2009).
    The Department of Health and Human Services interim final 
regulations are adopted pursuant to the authority contained in sections 
2701 through 2763, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg 
through 300gg-63, 300gg-91, and 300gg-92), as amended.

List of Subjects

26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Health insurance, Medical child support, 
Reporting and recordkeeping requirements.

45 CFR Part 146

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

Internal Revenue Service

    26 CFR Chapter 1

0
Accordingly, 26 CFR parts 54 and 602 are amended as follows:

PART 54--PENSION EXCISE TAXES

0
Paragraph 1. The authority citation for part 54 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805. * * *

0
Par. 2. Section 54.9812-1T is revised to read as follows:


Sec.  54.9812  Parity in mental health and substance use disorder 
benefits (temporary).

    (a) Meaning of terms. For purposes of this section, except where 
the context clearly indicates otherwise, the following terms have the 
meanings indicated:
    Aggregate lifetime dollar limit means a dollar limitation on the 
total amount of specified benefits that may be paid under a group 
health plan for any coverage unit.
    Annual dollar limit means a dollar limitation on the total amount 
of specified benefits that may be paid in a 12-month period under a 
group health plan for any coverage unit.
    Coverage unit means coverage unit as described in paragraph 
(c)(1)(iv) of this section.
    Cumulative financial requirements are financial requirements that 
determine whether or to what extent benefits are provided based on 
accumulated amounts and include deductibles and out-of-pocket maximums. 
(However, cumulative financial requirements do not include aggregate 
lifetime or annual dollar limits because these two terms are excluded 
from the meaning of financial requirements.)
    Cumulative quantitative treatment limitations are treatment 
limitations that determine whether or to what extent benefits are 
provided based on accumulated amounts, such as annual or lifetime day 
or visit limits.
    Financial requirements include deductibles, copayments, 
coinsurance, or out-of-pocket maximums. Financial requirements do not 
include aggregate lifetime or annual dollar limits.
    Medical/surgical benefits means benefits for medical or surgical 
services, as defined under the terms of the plan, but does not include 
mental health or substance use disorder benefits. Any condition defined 
by the plan as being or as not being a medical/surgical condition must 
be defined to be consistent with generally recognized independent 
standards of current medical practice (for example, the most current 
version of the International Classification of Diseases (ICD) or State 
guidelines).
    Mental health benefits means benefits with respect to services for 
mental health conditions, as defined under the terms of the plan and in 
accordance with applicable Federal and State law. Any condition defined 
by the plan as being or as not being a mental health condition must be 
defined to be consistent with generally recognized independent 
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 ICD, or State guidelines).
    Substance use disorder benefits means benefits with respect to 
services for substance use disorders, as defined under the terms of the 
plan and in accordance with applicable Federal and State law. Any 
disorder defined by the plan as being or as not being a substance use 
disorder must be defined to be consistent with generally recognized 
independent standards of current medical practice (for example, the 
most current version of the DSM, the most current version of the ICD, 
or State guidelines).
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, days in a 
waiting period, or other similar limits on the scope or duration of 
treatment. Treatment limitations include both quantitative treatment 
limitations, which are expressed numerically (such as 50 outpatient 
visits per year), and nonquantitative treatment limitations, which 
otherwise limit the scope or duration of benefits for treatment under a 
plan. (See paragraph (c)(4)(ii) of this section for an illustrative 
list of nonquantitative treatment limitations.) A permanent exclusion 
of all benefits for a particular condition or disorder, however, is not 
a treatment limitation.
    (b) Parity requirements with respect to aggregate lifetime and 
annual dollar limits--(1)--General--(i) General parity requirement. A 
group health plan that provides both medical/surgical benefits and 
mental health or substance use disorder benefits must comply with 
paragraph (b)(2), (b)(3), or (b)(6) of this section.
    (ii) Exception. The rule in paragraph (b)(1)(i) of this section 
does not apply if a plan satisfies the requirements of paragraph (f) or 
(g) of this section (relating to exemptions for small employers and for 
increased cost).
    (2) Plan with no limit or limits on less than one-third of all 
medical/surgical benefits. If a plan does not include an aggregate 
lifetime or annual dollar limit on any medical/surgical benefits or 
includes an aggregate lifetime or annual dollar limit that applies to 
less than one-third of all medical/surgical benefits, it may not impose 
an aggregate lifetime or annual dollar limit, respectively, on mental 
health or substance use disorder benefits.
    (3) Plan with a limit on at least two-thirds of all medical/
surgical benefits. If a plan includes an aggregate lifetime or annual 
dollar limit on at least two-thirds of all medical/surgical benefits, 
it must either--
    (i) Apply the aggregate lifetime or annual dollar limit both to the 
medical/surgical benefits to which the limit would otherwise apply and 
to mental health or substance use disorder benefits in a manner that 
does not distinguish between the medical/

[[Page 5432]]

surgical benefits and mental health or substance use disorder benefits; 
or
    (ii) Not include an aggregate lifetime or annual dollar limit on 
mental health or substance use disorder benefits that is less than the 
aggregate lifetime or annual dollar limit, respectively, on medical/
surgical benefits. (For cumulative limits other than aggregate lifetime 
or annual dollar limits, see paragraph (c)(3)(v) of this section 
prohibiting separately accumulating cumulative financial requirements 
or cumulative quantitative treatment limitations.)

    (4) Examples. The rules of paragraphs (b)(2) and (b)(3) of this 
section are illustrated by the following examples:

    Example 1. (i) Facts. A group health plan has no annual limit on 
medical/surgical benefits and a $10,000 annual limit on mental 
health and substance use disorder benefits. To comply with the 
requirements of this paragraph (b), the plan sponsor is considering 
each of the following options:
    (A) Eliminating the plan's annual dollar limit on mental health 
and substance use disorder benefits;
    (B) Replacing the plan's annual dollar limit on mental health 
and substance use disorder benefits with a $500,000 annual limit on 
all benefits (including medical/surgical and mental health and 
substance use disorder benefits); and
    (C) Replacing the plan's annual dollar limit on mental health 
and substance use disorder benefits with a $250,000 annual limit on 
medical/surgical benefits and a $250,000 annual limit on mental 
health and substance use disorder benefits.
    (ii) Conclusion. In this Example 1, each of the three options 
being considered by the plan sponsor would comply with the 
requirements of this paragraph (b).
    Example 2. (i) Facts. A plan has a $100,000 annual limit on 
medical/surgical inpatient benefits and a $50,000 annual limit on 
medical/surgical outpatient benefits. To comply with the parity 
requirements of this paragraph (b), the plan sponsor is considering 
each of the following options:
    (A) Imposing a $150,000 annual limit on mental health and 
substance use disorder benefits; and
    (B) Imposing a $100,000 annual limit on mental health and 
substance use disorder inpatient benefits and a $50,000 annual limit 
on mental health and substance use disorder outpatient benefits.
    (ii) Conclusion. In this Example 2, each option under 
consideration by the plan sponsor would comply with the requirements 
of this section.

    (5) Determining one-third and two-thirds of all medical/surgical 
benefits. For purposes of this paragraph (b), the determination of 
whether the portion of medical/surgical benefits subject to an 
aggregate lifetime or annual dollar limit represents one-third or two-
thirds of all medical/surgical benefits is based on the dollar amount 
of all plan payments for medical/surgical benefits expected to be paid 
under the plan for the plan year (or for the portion of the plan year 
after a change in plan benefits that affects the applicability of the 
aggregate lifetime or annual dollar limits). Any reasonable method may 
be used to determine whether the dollar amount expected to be paid 
under the plan will constitute one-third or two-thirds of the dollar 
amount of all plan payments for medical/surgical benefits.
    (6) Plan not described in paragraph (b)(2) or (b)(3) of this 
section--(i) In general. A group health plan that is not described in 
paragraph (b)(2) or (b)(3) of this section with respect to aggregate 
lifetime or annual dollar limits on medical/surgical benefits, must 
either--
    (A) Impose no aggregate lifetime or annual dollar limit, as 
appropriate, on mental health or substance use disorder benefits; or
    (B) Impose an aggregate lifetime or annual dollar limit on mental 
health or substance use disorder benefits that is no less than an 
average limit calculated for medical/surgical benefits in the following 
manner. The average limit is calculated by taking into account the 
weighted average of the aggregate lifetime or annual dollar limits, as 
appropriate, that are applicable to the categories of medical/surgical 
benefits. Limits based on delivery systems, such as inpatient/
outpatient treatment or normal treatment of common, low-cost conditions 
(such as treatment of normal births), do not constitute categories for 
purposes of this paragraph (b)(6)(i)(B). In addition, for purposes of 
determining weighted averages, any benefits that are not within a 
category that is subject to a separately-designated dollar limit under 
the plan are taken into account as a single separate category by using 
an estimate of the upper limit on the dollar amount that a plan may 
reasonably be expected to incur with respect to such benefits, taking 
into account any other applicable restrictions under the plan.
    (ii) Weighting. For purposes of this paragraph (b)(6), the 
weighting applicable to any category of medical/surgical benefits is 
determined in the manner set forth in paragraph (b)(5) of this section 
for determining one-third or two-thirds of all medical/surgical 
benefits.
    (iii) Example. The rules of this paragraph (b)(6) are illustrated 
by the following example:

    Example. (i) Facts. A group health plan that is subject to the 
requirements of this section includes a $100,000 annual limit on 
medical/surgical benefits related to cardio-pulmonary diseases. The 
plan does not include an annual dollar limit on any other category 
of medical/surgical benefits. The plan determines that 40 percent of 
the dollar amount of plan payments for medical/surgical benefits are 
related to cardio-pulmonary diseases. The plan determines that 
$1,000,000 is a reasonable estimate of the upper limit on the dollar 
amount that the plan may incur with respect to the other 60 percent 
of payments for medical/surgical benefits.
    (ii) Conclusion. In this Example, the plan is not described in 
paragraph (b)(3) of this section because there is not one annual 
dollar limit that applies to at least two-thirds of all medical/
surgical benefits. Further, the plan is not described in paragraph 
(b)(2) of this section because more than one-third of all medical/
surgical benefits are subject to an annual dollar limit. Under this 
paragraph (b)(6), the plan sponsor can choose either to include no 
annual dollar limit on mental health or substance use disorder 
benefits, or to include an annual dollar limit on mental health or 
substance use disorder benefits that is not less than the weighted 
average of the annual dollar limits applicable to each category of 
medical/surgical benefits. In this example, the minimum weighted 
average annual dollar limit that can be applied to mental health or 
substance use disorder benefits is $640,000 (40% x $100,000 + 60% x 
$1,000,000 = $640,000).

    (c) Parity requirements with respect to financial requirements and 
treatment limitations--(1) Clarification of terms--(i) Classification 
of benefits. When reference is made in this paragraph (c) to a 
classification of benefits, the term ``classification'' means a 
classification as described in paragraph (c)(2)(ii) of this section.
    (ii) Type of financial requirement or treatment limitation. When 
reference is made in this paragraph (c) to a type of financial 
requirement or treatment limitation, the reference to type means its 
nature. Different types of financial requirements include deductibles, 
copayments, coinsurance, and out-of-pocket maximums. Different types of 
quantitative treatment limitations include annual, episode, and 
lifetime day and visit limits. See paragraph (c)(4)(ii) of this section 
for an illustrative list of nonquantitative treatment limitations.
    (iii) Level of a type of financial requirement or treatment 
limitation. When reference is made in this paragraph (c) to a level of 
a type of financial requirement or treatment limitation, level refers 
to the magnitude of the type of financial requirement or treatment 
limitation. For example, different levels of coinsurance include 20 
percent and 30 percent; different levels of a copayment include $15 and 
$20; different levels of a deductible include $250 and $500; and 
different levels of an episode limit include 21 inpatient days per 
episode and 30 inpatient days per episode.

[[Page 5433]]

    (iv) Coverage unit. When reference is made in this paragraph (c) to 
a coverage unit, coverage unit refers to the way in which a plan groups 
individuals for purposes of determining benefits, or premiums or 
contributions. For example, different coverage units include self-only, 
family, and employee-plus-spouse.
    (2) General parity requirement--(i) General rule. A group health 
plan that provides both medical/surgical benefits and mental health or 
substance use disorder benefits may not apply any financial requirement 
or treatment limitation to mental health or substance use disorder 
benefits in any classification that is more restrictive than the 
predominant financial requirement or treatment limitation of that type 
applied to substantially all medical/surgical benefits in the same 
classification. Whether a financial requirement or treatment limitation 
is a predominant financial requirement or treatment limitation that 
applies to substantially all medical/surgical benefits in a 
classification is determined separately for each type of financial 
requirement or treatment limitation. The application of the rules of 
this paragraph (c)(2) to financial requirements and quantitative 
treatment limitations is addressed in paragraph (c)(3) of this section; 
the application of the rules of this paragraph (c)(2) to 
nonquantitative treatment limitations is addressed in paragraph (c)(4) 
of this section.
    (ii) Classifications of benefits used for applying rules--(A) In 
general. If a plan provides mental health or substance use disorder 
benefits in any classification of benefits described in this paragraph 
(c)(2)(ii), mental health or substance use disorder benefits must be 
provided in every classification in which medical/surgical benefits are 
provided. In determining the classification in which a particular 
benefit belongs, a plan must apply the same standards to medical/
surgical benefits and to mental health or substance use disorder 
benefits. To the extent that a plan provides benefits in a 
classification and imposes any separate financial requirement or 
treatment limitation (or separate level of a financial requirement or 
treatment limitation) for benefits in the classification, the rules of 
this paragraph (c) apply separately with respect to that classification 
for all financial requirements or treatment limitations. The following 
classifications of benefits are the only classifications used in 
applying the rules of this paragraph (c):
    (1) Inpatient, in-network. Benefits furnished on an inpatient basis 
and within a network of providers established or recognized under a 
plan.
    (2) Inpatient, out-of-network. Benefits furnished on an inpatient 
basis and outside any network of providers established or recognized 
under a plan. This classification includes inpatient benefits under a 
plan that has no network of providers.
    (3) Outpatient, in-network. Benefits furnished on an outpatient 
basis and within a network of providers established or recognized under 
a plan.
    (4) Outpatient, out-of-network. Benefits furnished on an outpatient 
basis and outside any network of providers established or recognized 
under a plan. This classification includes outpatient benefits under a 
plan that has no network of providers.
    (5) Emergency care. Benefits for emergency care.
    (6) Prescription drugs. Benefits for prescription drugs. See 
special rules for multi-tiered prescription drug benefits in paragraph 
(c)(3)(iii) of this section.
    (B) Application to out-of-network providers. See paragraph 
(c)(2)(ii)(A) of this section, under which a plan that provides mental 
health or substance use disorder benefits in any classification of 
benefits must provide mental health or substance use disorder benefits 
in every classification in which medical/surgical benefits are 
provided, including out-of-network classifications.
    (C) Examples. The rules of this paragraph (c)(2)(ii) are 
illustrated by the following examples. In each example, the group 
health plan is subject to the requirements of this section and provides 
both medical/surgical benefits and mental health and substance use 
disorder benefits.

    Example 1. (i) Facts. A group health plan offers inpatient and 
outpatient benefits and does not contract with a network of 
providers. The plan imposes a $500 deductible on all benefits. For 
inpatient medical/surgical benefits, the plan imposes a coinsurance 
requirement. For outpatient medical/surgical benefits, the plan 
imposes copayments. The plan imposes no other financial requirements 
or treatment limitations.
    (ii) Conclusion. In this Example 1, because the plan has no 
network of providers, all benefits provided are out-of-network. 
Because inpatient, out-of-network medical/surgical benefits are 
subject to separate financial requirements from outpatient, out-of-
network medical/surgical benefits, the rules of this paragraph (c) 
apply separately with respect to any financial requirements and 
treatment limitations, including the deductible, in each 
classification.
    Example 2. (i) Facts. A plan imposes a $500 deductible on all 
benefits. The plan has no network of providers. The plan generally 
imposes a 20 percent coinsurance requirement with respect to all 
benefits, without distinguishing among inpatient, outpatient, 
emergency, or prescription drug benefits. The plan imposes no other 
financial requirements or treatment limitations.
    (ii) Conclusion. In this Example 2, because the plan does not 
impose separate financial requirements (or treatment limitations) 
based on classification, the rules of this paragraph (c) apply with 
respect to the deductible and the coinsurance across all benefits.
    Example 3. (i) Facts. Same facts as Example 2, except the plan 
exempts emergency care benefits from the 20 percent coinsurance 
requirement. The plan imposes no other financial requirements or 
treatment limitations.
    (ii) Conclusion. In this Example 3, because the plan imposes 
separate financial requirements based on classifications, the rules 
of this paragraph (c) apply with respect to the deductible and the 
coinsurance separately for--
    (A) Benefits in the emergency classification; and
    (B) All other benefits.
    Example 4. (i) Facts. Same facts as Example 2, except the plan 
also imposes a preauthorization requirement for all inpatient 
treatment in order for benefits to be paid. No such requirement 
applies to outpatient treatment.
    (ii) Conclusion. In this Example 4, because the plan has no 
network of providers, all benefits provided are out-of-network. 
Because the plan imposes a separate treatment limitation based on 
classifications, the rules of this paragraph (c) apply with respect 
to the deductible and coinsurance separately for--
    (A) Inpatient, out-of-network benefits; and
    (B) All other benefits.

    (3) Financial requirements and quantitative treatment limitations--
(i) Determining ``substantially all'' and ``predominant''--(A) 
Substantially all. For purposes of this paragraph (c), a type of 
financial requirement or quantitative treatment limitation is 
considered to apply to substantially all medical/surgical benefits in a 
classification of benefits if it applies to at least two-thirds of all 
medical/surgical benefits in that classification. (For this purpose, 
benefits expressed as subject to a zero level of a type of financial 
requirement are treated as benefits not subject to that type of 
financial requirement, and benefits expressed as subject to a 
quantitative treatment limitation that is unlimited are treated as 
benefits not subject to that type of quantitative treatment 
limitation.) If a type of financial requirement or quantitative 
treatment limitation does not apply to at least two-thirds of all 
medical/surgical benefits in a classification, then that type cannot be 
applied to mental health or substance use disorder benefits in that 
classification.
    (B) Predominant--(1) If a type of financial requirement or 
quantitative

[[Page 5434]]

treatment limitation applies to at least two-thirds of all medical/
surgical benefits in a classification as determined under paragraph 
(c)(3)(i)(A) of this section, the level of the financial requirement or 
quantitative treatment limitation that is considered the predominant 
level of that type in a classification of benefits is the level that 
applies to more than one-half of medical/surgical benefits in that 
classification subject to the financial requirement or quantitative 
treatment limitation.
    (2) If, with respect to a type of financial requirement or 
quantitative treatment limitation that applies to at least two-thirds 
of all medical/surgical benefits in a classification, there is no 
single level that applies to more than one-half of medical/surgical 
benefits in the classification subject to the financial requirement or 
quantitative treatment limitation, the plan may combine levels until 
the combination of levels applies to more than one-half of medical/
surgical benefits subject to the financial requirement or quantitative 
treatment limitation in the classification. The least restrictive level 
within the combination is considered the predominant level of that type 
in the classification. (For this purpose, a plan may combine the most 
restrictive levels first, with each less restrictive level added to the 
combination until the combination applies to more than one-half of the 
benefits subject to the financial requirement or treatment limitation.)
    (C) Portion based on plan payments. For purposes of this paragraph 
(c), 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 
(or for the portion of the plan year after a change in plan benefits 
that affects the applicability of the financial requirement or 
quantitative treatment limitation).
    (D) Clarifications for certain threshold requirements. For any 
deductible, the dollar amount of plan payments includes all plan 
payments with respect to claims that would be subject to the deductible 
if it had not been satisfied. For any out-of-pocket maximum, the dollar 
amount of plan payments includes all plan payments associated with out-
of-pocket payments that are taken into account towards the out-of-
pocket maximum as well as all plan payments associated with out-of-
pocket payments that would have been made towards the out-of-pocket 
maximum if it had not been satisfied. Similar rules apply for any other 
thresholds at which the rate of plan payment changes.
    (E) Determining the dollar amount of plan payments. Subject to 
paragraph (c)(3)(i)(D) of this section, any reasonable method may be 
used to determine the dollar amount expected to be paid under a plan 
for medical/surgical benefits subject to a financial requirement or 
quantitative treatment limitation (or subject to any level of a 
financial requirement or quantitative treatment limitation).
    (ii) Application to different coverage units. If a plan applies 
different levels of a financial requirement or quantitative treatment 
limitation to different coverage units in a classification of medical/
surgical benefits, the predominant level that applies to substantially 
all medical/surgical benefits in the classification is determined 
separately for each coverage unit.
    (iii) Special rule for multi-tiered prescription drug benefits. If 
a plan applies different levels of financial requirements to different 
tiers of prescription drug benefits based on reasonable factors 
determined in accordance with the rules in paragraph (c)(4)(i) of this 
section (relating to requirements for nonquantitative treatment 
limitations) and without regard to whether a drug is generally 
prescribed with respect to medical/surgical benefits or with respect to 
mental health or substance use disorder benefits, the plan satisfies 
the parity requirements of this paragraph (c) with respect to 
prescription drug benefits. Reasonable factors include cost, efficacy, 
generic versus brand name, and mail order versus pharmacy pick-up.
    (iv) Examples. The rules of paragraphs (c)(3)(i), (c)(3)(ii), and 
(c)(3)(iii) of this section are illustrated by the following examples. 
In each example, the group health plan is subject to the requirements 
of this section and provides both medical/surgical benefits and mental 
health and substance use disorder benefits.

    Example 1. (i) Facts. For inpatient, out-of-network medical/
surgical benefits, a group health plan imposes five levels of 
coinsurance. Using a reasonable method, the plan projects its 
payments for the upcoming year as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Coinsurance rate...............  0%                   10%                 15%                 20%                 30%                 Total
Projected payments.............  $200x                $100x               $450x               $100x               $150x               $1,000x
Percent of total plan costs....  20%                  10%                 45%                 10%                 15%                 ..................
Percent subject to coinsurance   N/A                  12.5%               56.25%              12.5%               18.75%              ..................
 level.                                               (100x/800x)         (450x/800x)         (100x/800x)         (150x/800x)
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The plan projects plan costs of $800x to be subject to 
coinsurance ($100x + $450x + $100x + $150x = $800x). Thus, 80 
percent ($800x/$1,000x) of the benefits are projected to be subject 
to coinsurance, and 56.25 percent of the benefits subject to 
coinsurance are projected to be subject to the 15 percent 
coinsurance level.
    (ii) Conclusion. In this Example 1, the two-thirds threshold of 
the substantially all standard is met for coinsurance because 80 
percent of all inpatient, out-of-network medical/surgical benefits 
are subject to coinsurance. Moreover, the 15 percent coinsurance is 
the predominant level because it is applicable to more than one-half 
of inpatient, out-of-network medical/surgical benefits subject to 
the coinsurance requirement. The plan may not impose any level of 
coinsurance with respect to inpatient, out-of-network mental health 
or substance use disorder benefits that is more restrictive than the 
15 percent level of coinsurance.
    Example 2. (i) Facts. For outpatient, in-network medical/
surgical benefits, a plan imposes five different copayment levels. 
Using a reasonable method, the plan projects payments for the 
upcoming year as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Copayment amount...............  $0                   $10                 $15                 $20                 $50                 Total
Projected payments.............  $200x                $200x               $200x               $300x               $100x               $1,000x
Percent of total plan costs....  20%                  20%                 20%                 30%                 10%                 ..................
Percent subject to copayments..  N/A                  25%                 25%                 37.5%               12.5%               ..................
                                                      (200x/800x)         (200x/800x)         (300x/800x)         (100x/800x)
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 5435]]

    The plan projects plan costs of $800x to be subject to 
copayments ($200x + $200x + $300x + $100x = $800x). Thus, 80 percent 
($800x/$1,000x) of the benefits are projected to be subject to a 
copayment.
    (ii) Conclusion. In this Example 2, the two-thirds threshold of 
the substantially all standard is met for copayments because 80 
percent of all outpatient, in-network medical/surgical benefits are 
subject to a copayment. Moreover, there is no single level that 
applies to more than one-half of medical/surgical benefits in the 
classification subject to a copayment (for the $10 copayment, 25 
percent; for the $15 copayment, 25 percent; for the $20 copayment, 
37.5 percent; and for the $50 copayment, 12.5 percent). The plan can 
combine any levels of copayment, including the highest levels, to 
determine the predominant level that can be applied to mental health 
or substance use disorder benefits. If the plan combines the highest 
levels of copayment, the combined projected payments for the two 
highest copayment levels, the $50 copayment and the $20 copayment, 
are not more than one-half of the outpatient, in-network medical/
surgical benefits subject to a copayment because they are exactly 
one-half ($300x + $100x = $400x; $400x/$800x = 50%). The combined 
projected payments for the three highest copayment levels--the $50 
copayment, the $20 copayment, and the $15 copayment--are more than 
one-half of the outpatient, in-network medical/surgical benefits 
subject to the copayments ($100x + $300x + $200x = $600x; $600x/
$800x = 75%). Thus, the plan may not impose any copayment on 
outpatient, in-network mental health or substance use disorder 
benefits that is more restrictive than the least restrictive 
copayment in the combination, the $15 copayment.
    Example 3. (i) Facts. A plan imposes a $250 deductible on all 
medical/surgical benefits for self-only coverage and a $500 
deductible on all medical/surgical benefits for family coverage. The 
plan has no network of providers. For all medical/surgical benefits, 
the plan imposes a coinsurance requirement. The plan imposes no 
other financial requirements or treatment limitations.
    (ii) Conclusion. In this Example 3, because the plan has no 
network of providers, all benefits are provided out-of-network. 
Because self-only and family coverage are subject to different 
deductibles, whether the deductible applies to substantially all 
medical/surgical benefits is determined separately for self-only 
medical/surgical benefits and family medical/surgical benefits. 
Because the coinsurance is applied without regard to coverage units, 
the predominant coinsurance that applies to substantially all 
medical/surgical benefits is determined without regard to coverage 
units.
    Example 4. (i) Facts. A plan applies the following financial 
requirements for prescription drug benefits. The requirements are 
applied without regard to whether a drug is generally prescribed 
with respect to medical/surgical benefits or with respect to mental 
health or substance use disorder benefits. Moreover, the process for 
certifying a particular drug as ``generic'', ``preferred brand 
name'', ``non-preferred brand name'', or ``specialty'' complies with 
the rules of paragraph (c)(4)(i) of this section (relating to 
requirements for nonquantitative treatment limitations).

----------------------------------------------------------------------------------------------------------------
                                            Tier 1             Tier 2             Tier 3             Tier 4
                                     ---------------------------------------------------------------------------
                                                                              Non-preferred
          Tier description                                                   brand name drugs
                                        Generic drugs     Preferred brand    (which may have    Specialty drugs
                                                             name drugs      Tier 1 or Tier 2
                                                                              alternatives)
----------------------------------------------------------------------------------------------------------------
Percent paid by plan................               90%                80%                60%                50%
----------------------------------------------------------------------------------------------------------------

     (ii) Conclusion. In this Example 4, the financial requirements 
that apply to prescription drug benefits are applied without regard 
to whether a drug is generally prescribed with respect to medical/
surgical benefits or with respect to mental health or substance use 
disorder benefits; the process for certifying drugs in different 
tiers complies with paragraph (c)(4) of this section; and the bases 
for establishing different levels or types of financial requirements 
are reasonable. The financial requirements applied to prescription 
drug benefits do not violate the parity requirements of this 
paragraph (c)(3).

    (v) No separate cumulative financial requirements or cumulative 
quantitative treatment limitations. (A) A group health plan may not 
apply any cumulative financial requirement or cumulative quantitative 
treatment limitation for mental health or substance use disorder 
benefits in a classification that accumulates separately from any 
established for medical/surgical benefits in the same classification.
    (B) The rules of this paragraph (c)(3)(v) are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan imposes a combined 
annual $500 deductible on all medical/surgical, mental health, and 
substance use disorder benefits.
    (ii) Conclusion. In this Example 1, the combined annual 
deductible complies with the requirements of this paragraph 
(c)(3)(v).
    Example 2. (i) Facts. A plan imposes an annual $250 deductible 
on all medical/surgical benefits and a separate annual $250 
deductible on all mental health and substance use disorder benefits.
    (ii) Conclusion. In this Example 2, the separate annual 
deductible on mental health and substance use disorder benefits 
violates the requirements of this paragraph (c)(3)(v).
    Example 3. (i) Facts. A plan imposes an annual $300 deductible 
on all medical/surgical benefits and a separate annual $100 
deductible on all mental health or substance use disorder benefits.
    (ii) Conclusion. In this Example 3, the separate annual 
deductible on mental health and substance use disorder benefits 
violates the requirements of this paragraph (c)(3)(v).
    Example 4. (i) Facts. A plan generally imposes a combined annual 
$500 deductible on all benefits (both medical/surgical benefits and 
mental health and substance use disorder benefits) except 
prescription drugs. Certain benefits, such as preventive care, are 
provided without regard to the deductible. The imposition of other 
types of financial requirements or treatment limitations varies with 
each classification. Using reasonable methods, the plan projects its 
payments for medical/surgical benefits in each classification for 
the upcoming year as follows:

----------------------------------------------------------------------------------------------------------------
                                                            Benefits subject                     Percent subject
                      Classification                          to deductible    Total benefits     to deductible
----------------------------------------------------------------------------------------------------------------
Inpatient, in-network.....................................           $1,800x           $2,000x                90
Inpatient, out-of-network.................................            1,000x            1,000x               100
Outpatient, in-network....................................            1,400x            2,000x                70
Outpatient, out-of-network................................            1,880x            2,000x                94
Emergency care............................................              300x              500x                60
----------------------------------------------------------------------------------------------------------------


[[Page 5436]]

     (ii) Conclusion. In this Example 4, the two-thirds threshold of 
the substantially all standard is met with respect to each 
classification except emergency care because in each of those other 
classifications at least two-thirds of medical/surgical benefits are 
subject to the $500 deductible. Moreover, the $500 deductible is the 
predominant level in each of those other classifications because it 
is the only level. However, emergency care mental health and 
substance use disorder benefits cannot be subject to the $500 
deductible because it does not apply to substantially all emergency 
care medical/surgical benefits.

    (4) Nonquantitative treatment limitations--(i) General rule. A 
group health plan may not impose a nonquantitative treatment limitation 
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 nonquantitative treatment limitation 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 classification, except to the extent that recognized clinically 
appropriate standards of care may permit a difference.
    (ii) Illustrative list of nonquantitative treatment limitations. 
Nonquantitative treatment limitations include--
    (A) Medical management standards limiting or excluding benefits 
based on medical necessity or medical appropriateness, or based on 
whether the treatment is experimental or investigative;
    (B) Formulary design for prescription drugs;
    (C) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (D) Plan methods for determining usual, customary, and reasonable 
charges;
    (E) 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
    (F) Exclusions based on failure to complete a course of treatment.
    (iii) Examples. The rules of this paragraph (c)(4) are illustrated 
by the following examples. In each example, the group health plan is 
subject to the requirements of this section and provides both medical/
surgical benefits and mental health and substance use disorder 
benefits.

    Example 1. (i) Facts. A group health plan limits benefits to 
treatment that is medically necessary. The plan requires concurrent 
review for inpatient, in-network mental health and substance use 
disorder benefits but does not require it for any inpatient, in-
network medical/surgical benefits. The plan conducts retrospective 
review for inpatient, in-network medical/surgical benefits.
    (ii) Conclusion. In this Example 1, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--medical necessity--applies to both mental 
health and substance use disorder benefits and to medical/surgical 
benefits for inpatient, in-network services, the concurrent review 
process does not apply to medical/surgical benefits. The concurrent 
review process is not comparable to the retrospective review 
process. While such a difference might be permissible in certain 
individual cases based on recognized clinically appropriate 
standards of care, it is not permissible for distinguishing between 
all medical/surgical benefits and all mental health or substance use 
disorder benefits.
    Example 2. (i) Facts. A plan requires prior approval that a 
course of treatment is medically necessary for outpatient, in-
network medical/surgical, mental health, and substance use disorder 
benefits. For mental health and substance use disorder treatments 
that do not have prior approval, no benefits will be paid; for 
medical/surgical treatments that do not have prior approval, there 
will only be a 25 percent reduction in the benefits the plan would 
otherwise pay.
    (ii) Conclusion. In this Example 2, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--medical necessity--is applied both to mental 
health and substance use disorder benefits and to medical/surgical 
benefits for outpatient, in-network services, the penalty for 
failure to obtain prior approval for mental health and substance use 
disorder benefits is not comparable to the penalty for failure to 
obtain prior approval for medical/surgical benefits.
    Example 3. (i) Facts. A plan generally covers medically 
appropriate treatments. For both medical/surgical benefits and 
mental health and substance use disorder benefits, evidentiary 
standards used in determining whether a treatment is medically 
appropriate (such as the number of visits or days of coverage) are 
based on recommendations made by panels of experts with appropriate 
training and experience in the fields of medicine involved. The 
evidentiary standards are applied in a manner that may differ based 
on clinically appropriate standards of care for a condition.
    (ii) Conclusion. In this Example 3, the plan complies with the 
rules of this paragraph (c)(4) because the nonquantitative treatment 
limitation--medical appropriateness--is the same for both medical/
surgical benefits and mental health and substance use disorder 
benefits, and the processes for developing the evidentiary standards 
and the application of them to mental health and substance use 
disorder benefits are comparable to and are applied no more 
stringently than for medical/surgical benefits. This is the result 
even if, based on clinically appropriate standards of care, the 
application of the evidentiary standards does not result in similar 
numbers of visits, days of coverage, or other benefits utilized for 
mental health conditions or substance use disorders as it does for 
any particular medical/surgical condition.
    Example 4. (i) Facts. A plan generally covers medically 
appropriate treatments. In determining whether prescription drugs 
are medically appropriate, the plan automatically excludes coverage 
for antidepressant drugs that are given a black box warning label by 
the Food and Drug Administration (indicating the drug carries a 
significant risk of serious adverse effects). For other drugs with a 
black box warning (including those prescribed for other mental 
health conditions and substance use disorders, as well as for 
medical/surgical conditions), the plan will provide coverage if the 
prescribing physician obtains authorization from the plan that the 
drug is medically appropriate for the individual, based on 
clinically appropriate standards of care.
    (ii) Conclusion. In this Example 4, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--medical appropriateness--is applied to both 
mental health and substance use disorder benefits and medical/
surgical benefits, the plan's unconditional exclusion of 
antidepressant drugs given a black box warning is not comparable to 
the conditional exclusion for other drugs with a black box warning.
    Example 5. (i) Facts. An employer maintains both a major medical 
program and an employee assistance program (EAP). The EAP provides, 
among other benefits, a limited number of mental health or substance 
use disorder counseling sessions. Participants are eligible for 
mental health or substance use disorder benefits under the major 
medical program only after exhausting the counseling sessions 
provided by the EAP. No similar exhaustion requirement applies with 
respect to medical/surgical benefits provided under the major 
medical program.
    (ii) Conclusion. In this Example 5, limiting eligibility for 
mental health and substance use disorder benefits only after EAP 
benefits are exhausted is a nonquantitative treatment limitation 
subject to the parity requirements of this paragraph (c). Because no 
comparable requirement applies to medical/surgical benefits, the 
requirement may not be applied to mental health or substance use 
disorder benefits.

    (5) Exemptions. The rules of this paragraph (c) do not apply if a 
group health plan satisfies the requirements of paragraph (f) or (g) of 
this section (relating to exemptions for small employers and for 
increased cost).
    (d) Availability of plan information--(1) Criteria for medical 
necessity determinations. The criteria for medical necessity 
determinations made under a group health plan with respect to mental 
health or substance use disorder benefits must be made available by the 
plan administrator to any current or potential participant, 
beneficiary, or contracting provider upon request.

[[Page 5437]]

    (2) Reason for denial. The reason for any denial under a group 
health plan 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 by the plan 
administrator to the participant or beneficiary in accordance with this 
paragraph (d)(2).
    (i) Plans subject to ERISA. If a plan is subject to ERISA, it must 
provide the reason for the claim denial in a form and manner consistent 
with the requirements of 29 CFR 2560.503-1 for group health plans.
    (ii) Plans not subject to ERISA. If a plan is not subject to ERISA, 
upon the request of a participant or beneficiary the reason for the 
claim denial must be provided within a reasonable time and in a 
reasonable manner. For this purpose, a plan that follows the 
requirements of 29 CFR 2560.503-1 for group health plans complies with 
the requirements of this paragraph (d)(2)(ii).
    (e) Applicability--(1) Group health plans. The requirements of this 
section apply to a group health plan offering medical/surgical benefits 
and mental health or substance use disorder benefits. If, under an 
arrangement or arrangements to provide health care benefits by an 
employer or employee organization (including for this purpose a joint 
board of trustees of a multiemployer trust affiliated with one or more 
multiemployer plans), any participant (or beneficiary) can 
simultaneously receive coverage for medical/surgical benefits and 
coverage for mental health or substance use disorder benefits, then the 
requirements of this section (including the exemption provisions in 
paragraph (g) of this section) apply separately with respect to each 
combination of medical/surgical benefits and of mental health or 
substance use disorder benefits that any participant (or beneficiary) 
can simultaneously receive from that employer's or employee 
organization's arrangement or arrangements to provide health care 
benefits, and all such combinations are considered for purposes of this 
section to be a single group health plan.
    (2) Health insurance issuers. See 29 CFR 2590.712(e)(2) and 45 CFR 
146.136(e)(2), under which a health insurance issuer offering health 
insurance coverage for mental health or substance use disorder benefits 
is subject to requirements similar to those applicable to group health 
plans under this section if the health insurance coverage is offered in 
connection with a group health plan subject to requirements under 29 
CFR 2590.712 or 45 CFR 146.136 similar to those applicable to group 
health plans under this section.
    (3) Scope. This section does not--
    (i) Require a group health plan to provide any mental health 
benefits or substance use disorder benefits, and the provision of 
benefits by a plan for one or more mental health conditions or 
substance use disorders does not require the plan under this section to 
provide benefits for any other mental health condition or substance use 
disorder; or
    (ii) Affect the terms and conditions relating to the amount, 
duration, or scope of mental health or substance use disorder benefits 
under the plan except as specifically provided in paragraphs (b) and 
(c) of this section.
    (f) Small employer exemption--(1) In general. The requirements of 
this section do not apply to a group health plan for a plan year of a 
small employer. For purposes of this paragraph (f), the term small 
employer means, in connection with a group health plan with respect to 
a calendar year and a plan year, an employer who employed an average of 
at least two (or one in the case of an employer residing in a state 
that permits small groups to include a single individual) but not more 
than 50 employees on business days during the preceding calendar year. 
See section 9831(a)(2) and Sec.  54.9831-1(b), which provide that this 
section (and certain other sections) does not apply to any group health 
plan for any plan year if, on the first day of the plan year, the plan 
has fewer than two participants who are current employees.
    (2) Rules in determining employer size. For purposes of paragraph 
(f)(1) of this section--
    (i) All persons treated as a single employer under subsections (b), 
(c), (m), and (o) of section 414 are treated as one employer;
    (ii) If an employer was not in existence throughout the preceding 
calendar year, whether it is a small employer is determined based on 
the average number of employees the employer reasonably expects to 
employ on business days during the current calendar year; and
    (iii) Any reference to an employer for purposes of the small 
employer exemption includes a reference to a predecessor of the 
employer.
    (g) Increased cost exemption--[Reserved].
    (h) Sale of nonparity health insurance coverage. See 29 CFR 
2590.712(h) and 45 CFR 146.136(h), under which a health insurance 
issuer may not sell a policy, certificate, or contract of insurance 
that fails to comply with requirements similar to those under paragraph 
(b) or (c) of this section, except to a plan for a year for which the 
plan is exempt from requirements similar to those under paragraph (b) 
or (c) of this section because the plan meets requirements under 
paragraph (f) or (g) of 29 CFR 2590.712 or 45 CFR 146.136 similar to 
those under paragraph (f) or (g) of this section.
    (i) Effective/applicability dates--(1) In general. Except as 
provided in paragraph (i)(2) of this section, the requirements of this 
section are applicable for plan years beginning on or after July 1, 
2010.
    (2) Special effective date for certain collectively-bargained 
plans. For a group health plan maintained pursuant to one or more 
collective bargaining agreements ratified before October 3, 2008, the 
requirements of this section do not apply to the plan for plan years 
beginning before the later of either--
    (i) The date on which the last of the collective bargaining 
agreements relating to the plan terminates (determined without regard 
to any extension agreed to after October 3, 2008); or
    (ii) July 1, 2010.
    (j) Expiration date. This section expires on or before January 29, 
2013.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 3. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

    Par. 4. In Sec.  602.101, paragraph (b) is amended by adding the 
following entry in numerical order to the table:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described      control No.
------------------------------------------------------------------------
 
                                * * * * *
54.9812-1T.................................................    1545-2165
 
                                * * * * *
------------------------------------------------------------------------



[[Page 5438]]

    Approved: January 27, 2010.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
Michael F. Mundaca,
Acting Assistant Secretary of the Treasury (Tax Policy).

Employee Benefits Security Administration

29 CFR Chapter XXV

0
29 CFR Part 2590 is amended as follows:

PART 2590--RULES AND REGULATIONS FOR HEALTH INSURANCE PORTABILITY 
AND RENEWABILITY FOR GROUP HEALTH PLANS

0
1. The authority citation for Part 2590 is revised to read as follows:

    Authority: Secs. 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 
1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 
1191c; sec. 101(g), Public Law 104-191, 110 Stat. 1936; sec. 401(b), 
Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), 
Public Law 110-343, 122 Stat. 3765; Public Law 110-460, 122 Stat. 
5123; Secretary of Labor's Order 6-2009, 74 FR 21524 (May 7, 2009).

Subpart C--Other Requirements


0
2. Section 2590.712 is revised to read as follows:


Sec.  2590.712  Parity in mental health and substance use disorder 
benefits.

    (a) Meaning of terms. For purposes of this section, except where 
the context clearly indicates otherwise, the following terms have the 
meanings indicated:
    Aggregate lifetime dollar limit means a dollar limitation on the 
total amount of specified benefits that may be paid under a group 
health plan (or health insurance coverage offered in connection with 
such a plan) for any coverage unit.
    Annual dollar limit means a dollar limitation on the total amount 
of specified benefits that may be paid in a 12-month period under a 
group health plan (or health insurance coverage offered in connection 
with such a plan) for any coverage unit.
    Coverage unit means coverage unit as described in paragraph 
(c)(1)(iv) of this section.
    Cumulative financial requirements are financial requirements that 
determine whether or to what extent benefits are provided based on 
accumulated amounts and include deductibles and out-of-pocket maximums. 
(However, cumulative financial requirements do not include aggregate 
lifetime or annual dollar limits because these two terms are excluded 
from the meaning of financial requirements.)
    Cumulative quantitative treatment limitations are treatment 
limitations that determine whether or to what extent benefits are 
provided based on accumulated amounts, such as annual or lifetime day 
or visit limits.
    Financial requirements include deductibles, copayments, 
coinsurance, or out-of-pocket maximums. Financial requirements do not 
include aggregate lifetime or annual dollar limits.
    Medical/surgical benefits means benefits for medical or surgical 
services, as defined under the terms of the plan or health insurance 
coverage, but does not include mental health or substance use disorder 
benefits. Any condition defined by the plan as being or as not being a 
medical/surgical condition must be defined to be consistent with 
generally recognized independent standards of current medical practice 
(for example, the most current version of the International 
Classification of Diseases (ICD) or State guidelines).
    Mental health benefits means benefits with respect to services for 
mental health conditions, as defined under the terms of the plan and in 
accordance with applicable Federal and State law. Any condition defined 
by the plan as being or as not being a mental health condition must be 
defined to be consistent with generally recognized independent 
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 ICD, or State guidelines).
    Substance use disorder benefits means benefits with respect to 
services for substance use disorders, as defined under the terms of the 
plan and in accordance with applicable Federal and State law. Any 
disorder defined by the plan as being or as not being a substance use 
disorder must be defined to be consistent with generally recognized 
independent standards of current medical practice (for example, the 
most current version of the DSM, the most current version of the ICD, 
or State guidelines).
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, days in a 
waiting period, or other similar limits on the scope or duration of 
treatment. Treatment limitations include both quantitative treatment 
limitations, which are expressed numerically (such as 50 outpatient 
visits per year), and nonquantitative treatment limitations, which 
otherwise limit the scope or duration of benefits for treatment under a 
plan. (See paragraph (c)(4)(ii) of this section for an illustrative 
list of nonquantitative treatment limitations.) A permanent exclusion 
of all benefits for a particular condition or disorder, however, is not 
a treatment limitation.
    (b) Parity requirements with respect to aggregate lifetime and 
annual dollar limits--(1)--General--(i) General parity requirement. A 
group health plan (or health insurance coverage offered by an issuer in 
connection with a group health plan) that provides both medical/
surgical benefits and mental health or substance use disorder benefits 
must comply with paragraph (b)(2), (b)(3), or (b)(6) of this section.
    (ii) Exception. The rule in paragraph (b)(1)(i) of this section 
does not apply if a plan (or health insurance coverage) satisfies the 
requirements of paragraph (f) or (g) of this section (relating to 
exemptions for small employers and for increased cost).
    (2) Plan with no limit or limits on less than one-third of all 
medical/surgical benefits. If a plan (or health insurance coverage) 
does not include an aggregate lifetime or annual dollar limit on any 
medical/surgical benefits or includes an aggregate lifetime or annual 
dollar limit that applies to less than one-third of all medical/
surgical benefits, it may not impose an aggregate lifetime or annual 
dollar limit, respectively, on mental health or substance use disorder 
benefits.
    (3) Plan with a limit on at least two-thirds of all medical/
surgical benefits. If a plan (or health insurance coverage) includes an 
aggregate lifetime or annual dollar limit on at least two-thirds of all 
medical/surgical benefits, it must either--
    (i) Apply the aggregate lifetime or annual dollar limit both to the 
medical/surgical benefits to which the limit would otherwise apply and 
to mental health or substance use disorder benefits in a manner that 
does not distinguish between the medical/surgical benefits and mental 
health or substance use disorder benefits; or
    (ii) Not include an aggregate lifetime or annual dollar limit on 
mental health or substance use disorder benefits that is less than the 
aggregate lifetime or annual dollar limit, respectively, on medical/
surgical benefits. (For cumulative limits other than aggregate lifetime 
or annual dollar limits, see paragraph (c)(3)(v) of this section 
prohibiting separately accumulating cumulative financial requirements 
or cumulative quantitative treatment limitations.)

[[Page 5439]]

    (4) Examples. The rules of paragraphs (b)(2) and (b)(3) of this 
section are illustrated by the following examples:

    Example 1. (i) Facts. A group health plan has no annual limit on 
medical/surgical benefits and a $10,000 annual limit on mental 
health and substance use disorder benefits. To comply with the 
requirements of this paragraph (b), the plan sponsor is considering 
each of the following options--
    (A) Eliminating the plan's annual dollar limit on mental health 
and substance use disorder benefits;
    (B) Replacing the plan's annual dollar limit on mental health 
and substance use disorder benefits with a $500,000 annual limit on 
all benefits (including medical/surgical and mental health and 
substance use disorder benefits); and
    (C) Replacing the plan's annual dollar limit on mental health 
and substance use disorder benefits with a $250,000 annual limit on 
medical/surgical benefits and a $250,000 annual limit on mental 
health and substance use disorder benefits.
    (ii) Conclusion. In this Example 1, each of the three options 
being considered by the plan sponsor would comply with the 
requirements of this paragraph (b).
    Example 2. (i) Facts. A plan has a $100,000 annual limit on 
medical/surgical inpatient benefits and a $50,000 annual limit on 
medical/surgical outpatient benefits. To comply with the parity 
requirements of this paragraph (b), the plan sponsor is considering 
each of the following options--
    (A) Imposing a $150,000 annual limit on mental health and 
substance use disorder benefits; and
    (B) Imposing a $100,000 annual limit on mental health and 
substance use disorder inpatient benefits and a $50,000 annual limit 
on mental health and substance use disorder outpatient benefits.
    (ii) Conclusion. In this Example 2, each option under 
consideration by the plan sponsor would comply with the requirements 
of this section.

    (5) Determining one-third and two-thirds of all medical/surgical 
benefits. For purposes of this paragraph (b), the determination of 
whether the portion of medical/surgical benefits subject to an 
aggregate lifetime or annual dollar limit represents one-third or two-
thirds of all medical/surgical benefits is based on the dollar amount 
of all plan payments for medical/surgical benefits expected to be paid 
under the plan for the plan year (or for the portion of the plan year 
after a change in plan benefits that affects the applicability of the 
aggregate lifetime or annual dollar limits). Any reasonable method may 
be used to determine whether the dollar amount expected to be paid 
under the plan will constitute one-third or two-thirds of the dollar 
amount of all plan payments for medical/surgical benefits.
    (6) Plan not described in paragraph (b)(2) or (b)(3) of this 
section--(i) In general. A group health plan (or health insurance 
coverage) that is not described in paragraph (b)(2) or (b)(3) of this 
section with respect to aggregate lifetime or annual dollar limits on 
medical/surgical benefits, must either--
    (A) Impose no aggregate lifetime or annual dollar limit, as 
appropriate, on mental health or substance use disorder benefits; or
    (B) Impose an aggregate lifetime or annual dollar limit on mental 
health or substance use disorder benefits that is no less than an 
average limit calculated for medical/surgical benefits in the following 
manner. The average limit is calculated by taking into account the 
weighted average of the aggregate lifetime or annual dollar limits, as 
appropriate, that are applicable to the categories of medical/surgical 
benefits. Limits based on delivery systems, such as inpatient/
outpatient treatment or normal treatment of common, low-cost conditions 
(such as treatment of normal births), do not constitute categories for 
purposes of this paragraph (b)(6)(i)(B). In addition, for purposes of 
determining weighted averages, any benefits that are not within a 
category that is subject to a separately-designated dollar limit under 
the plan are taken into account as a single separate category by using 
an estimate of the upper limit on the dollar amount that a plan may 
reasonably be expected to incur with respect to such benefits, taking 
into account any other applicable restrictions under the plan.
    (ii) Weighting. For purposes of this paragraph (b)(6), the 
weighting applicable to any category of medical/surgical benefits is 
determined in the manner set forth in paragraph (b)(5) of this section 
for determining one-third or two-thirds of all medical/surgical 
benefits.
    (iii) Example. The rules of this paragraph (b)(6) are illustrated 
by the following example:

    Example. (i) Facts. A group health plan that is subject to the 
requirements of this section includes a $100,000 annual limit on 
medical/surgical benefits related to cardio-pulmonary diseases. The 
plan does not include an annual dollar limit on any other category 
of medical/surgical benefits. The plan determines that 40% of the 
dollar amount of plan payments for medical/surgical benefits are 
related to cardio-pulmonary diseases. The plan determines that 
$1,000,000 is a reasonable estimate of the upper limit on the dollar 
amount that the plan may incur with respect to the other 60% of 
payments for medical/surgical benefits.
    (ii) Conclusion. In this Example, the plan is not described in 
paragraph (b)(3) of this section because there is not one annual 
dollar limit that applies to at least two-thirds of all medical/
surgical benefits. Further, the plan is not described in paragraph 
(b)(2) of this section because more than one-third of all medical/
surgical benefits are subject to an annual dollar limit. Under this 
paragraph (b)(6), the plan sponsor can choose either to include no 
annual dollar limit on mental health or substance use disorder 
benefits, or to include an annual dollar limit on mental health or 
substance use disorder benefits that is not less than the weighted 
average of the annual dollar limits applicable to each category of 
medical/surgical benefits. In this example, the minimum weighted 
average annual dollar limit that can be applied to mental health or 
substance use disorder benefits is $640,000 (40% x $100,000 + 60% x 
$1,000,000 = $640,000).

    (c) Parity requirements with respect to financial requirements and 
treatment limitations--(1) Clarification of terms--(i) Classification 
of benefits. When reference is made in this paragraph (c) to a 
classification of benefits, the term ``classification'' means a 
classification as described in paragraph (c)(2)(ii) of this section.
    (ii) Type of financial requirement or treatment limitation. When 
reference is made in this paragraph (c) to a type of financial 
requirement or treatment limitation, the reference to type means its 
nature. Different types of financial requirements include deductibles, 
copayments, coinsurance, and out-of-pocket maximums. Different types of 
quantitative treatment limitations include annual, episode, and 
lifetime day and visit limits. See paragraph (c)(4)(ii) of this section 
for an illustrative list of nonquantitative treatment limitations.
    (iii) Level of a type of financial requirement or treatment 
limitation. When reference is made in this paragraph (c) to a level of 
a type of financial requirement or treatment limitation, level refers 
to the magnitude of the type of financial requirement or treatment 
limitation. For example, different levels of coinsurance include 20 
percent and 30 percent; different levels of a copayment include $15 and 
$20; different levels of a deductible include $250 and $500; and 
different levels of an episode limit include 21 inpatient days per 
episode and 30 inpatient days per episode.
    (iv) Coverage unit. When reference is made in this paragraph (c) to 
a coverage unit, coverage unit refers to the way in which a plan (or 
health insurance coverage) groups individuals for purposes of 
determining benefits, or premiums or contributions. For example, 
different coverage units include self-only, family, and employee-plus-
spouse.
    (2) General parity requirement--(i) General rule. A group health 
plan (or health insurance coverage offered by an issuer in connection 
with a group health plan) that provides both medical/surgical benefits 
and mental health or substance use disorder benefits may not

[[Page 5440]]

apply any financial requirement or treatment limitation to mental 
health or substance use disorder benefits in any classification that is 
more restrictive than the predominant financial requirement or 
treatment limitation of that type applied to substantially all medical/
surgical benefits in the same classification. Whether a financial 
requirement or treatment limitation is a predominant financial 
requirement or treatment limitation that applies to substantially all 
medical/surgical benefits in a classification is determined separately 
for each type of financial requirement or treatment limitation. The 
application of the rules of this paragraph (c)(2) to financial 
requirements and quantitative treatment limitations is addressed in 
paragraph (c)(3) of this section; the application of the rules of this 
paragraph (c)(2) to nonquantitative treatment limitations is addressed 
in paragraph (c)(4) of this section.
    (ii) Classifications of benefits used for applying rules--(A) In 
general. If a plan (or health insurance coverage) provides mental 
health or substance use disorder benefits in any classification of 
benefits described in this paragraph (c)(2)(ii), mental health or 
substance use disorder benefits must be provided in every 
classification in which medical/surgical benefits are provided. In 
determining the classification in which a particular benefit belongs, a 
plan (or health insurance issuer) must apply the same standards to 
medical/surgical benefits and to mental health or substance use 
disorder benefits. To the extent that a plan (or health insurance 
coverage) provides benefits in a classification and imposes any 
separate financial requirement or treatment limitation (or separate 
level of a financial requirement or treatment limitation) for benefits 
in the classification, the rules of this paragraph (c) apply separately 
with respect to that classification for all financial requirements or 
treatment limitations. The following classifications of benefits are 
the only classifications used in applying the rules of this paragraph 
(c):
    (1) Inpatient, in-network. Benefits furnished on an inpatient basis 
and within a network of providers established or recognized under a 
plan or health insurance coverage.
    (2) Inpatient, out-of-network. Benefits furnished on an inpatient 
basis and outside any network of providers established or recognized 
under a plan or health insurance coverage. This classification includes 
inpatient benefits under a plan (or health insurance coverage) that has 
no network of providers.
    (3) Outpatient, in-network. Benefits furnished on an outpatient 
basis and within a network of providers established or recognized under 
a plan or health insurance coverage.
    (4) Outpatient, out-of-network. Benefits furnished on an outpatient 
basis and outside any network of providers established or recognized 
under a plan or health insurance coverage. This classification includes 
outpatient benefits under a plan (or health insurance coverage) that 
has no network of providers.
    (5) Emergency care. Benefits for emergency care.
    (6) Prescription drugs. Benefits for prescription drugs. See 
special rules for multi-tiered prescription drug benefits in paragraph 
(c)(3)(iii) of this section.
    (B) Application to out-of-network providers. See paragraph 
(c)(2)(ii)(A) of this section, under which a plan (or health insurance 
coverage) that provides mental health or substance use disorder 
benefits in any classification of benefits must provide mental health 
or substance use disorder benefits in every classification in which 
medical/surgical benefits are provided, including out-of-network 
classifications.
    (C) Examples. The rules of this paragraph (c)(2)(ii) are 
illustrated by the following examples. In each example, the group 
health plan is subject to the requirements of this section and provides 
both medical/surgical benefits and mental health and substance use 
disorder benefits.

    Example 1. (i) Facts. A group health plan offers inpatient and 
outpatient benefits and does not contract with a network of 
providers. The plan imposes a $500 deductible on all benefits. For 
inpatient medical/surgical benefits, the plan imposes a coinsurance 
requirement. For outpatient medical/surgical benefits, the plan 
imposes copayments. The plan imposes no other financial requirements 
or treatment limitations.
    (ii) Conclusion. In this Example 1, because the plan has no 
network of providers, all benefits provided are out-of-network. 
Because inpatient, out-of-network medical/surgical benefits are 
subject to separate financial requirements from outpatient, out-of-
network medical/surgical benefits, the rules of this paragraph (c) 
apply separately with respect to any financial requirements and 
treatment limitations, including the deductible, in each 
classification.
    Example 2. (i) Facts. A plan imposes a $500 deductible on all 
benefits. The plan has no network of providers. The plan generally 
imposes a 20 percent coinsurance requirement with respect to all 
benefits, without distinguishing among inpatient, outpatient, 
emergency, or prescription drug benefits. The plan imposes no other 
financial requirements or treatment limitations.
    (ii) Conclusion. In this Example 2, because the plan does not 
impose separate financial requirements (or treatment limitations) 
based on classification, the rules of this paragraph (c) apply with 
respect to the deductible and the coinsurance across all benefits.
    Example 3. (i) Facts. Same facts as Example 2, except the plan 
exempts emergency care benefits from the 20 percent coinsurance 
requirement. The plan imposes no other financial requirements or 
treatment limitations.
    (ii) Conclusion. In this Example 3, because the plan imposes 
separate financial requirements based on classifications, the rules 
of this paragraph (c) apply with respect to the deductible and the 
coinsurance separately for--
    (A) Benefits in the emergency classification; and
    (B) All other benefits.
    Example 4. (i) Facts. Same facts as Example 2, except the plan 
also imposes a preauthorization requirement for all inpatient 
treatment in order for benefits to be paid. No such requirement 
applies to outpatient treatment.
    (ii) Conclusion. In this Example 4, because the plan has no 
network of providers, all benefits provided are out-of-network. 
Because the plan imposes a separate treatment limitation based on 
classifications, the rules of this paragraph (c) apply with respect 
to the deductible and coinsurance separately for--
    (A) Inpatient, out-of-network benefits; and
    (B) All other benefits.

    (3) Financial requirements and quantitative treatment limitations--
(i) Determining ``substantially all'' and ``predominant''--(A) 
Substantially all. For purposes of this paragraph (c), a type of 
financial requirement or quantitative treatment limitation is 
considered to apply to substantially all medical/surgical benefits in a 
classification of benefits if it applies to at least two-thirds of all 
medical/surgical benefits in that classification. (For this purpose, 
benefits expressed as subject to a zero level of a type of financial 
requirement are treated as benefits not subject to that type of 
financial requirement, and benefits expressed as subject to a 
quantitative treatment limitation that is unlimited are treated as 
benefits not subject to that type of quantitative treatment 
limitation.) If a type of financial requirement or quantitative 
treatment limitation does not apply to at least two-thirds of all 
medical/surgical benefits in a classification, then that type cannot be 
applied to mental health or substance use disorder benefits in that 
classification.
    (B) Predominant--(1) If a type of financial requirement or 
quantitative treatment limitation applies to at least two-thirds of all 
medical/surgical benefits in a classification as determined under 
paragraph (c)(3)(i)(A) of this section, the level of the financial 
requirement or quantitative treatment

[[Page 5441]]

limitation that is considered the predominant level of that type in a 
classification of benefits is the level that applies to more than one-
half of medical/surgical benefits in that classification subject to the 
financial requirement or quantitative treatment limitation.
    (2) If, with respect to a type of financial requirement or 
quantitative treatment limitation that applies to at least two-thirds 
of all medical/surgical benefits in a classification, there is no 
single level that applies to more than one-half of medical/surgical 
benefits in the classification subject to the financial requirement or 
quantitative treatment limitation, the plan (or health insurance 
issuer) may combine levels until the combination of levels applies to 
more than one-half of medical/surgical benefits subject to the 
financial requirement or quantitative treatment limitation in the 
classification. The least restrictive level within the combination is 
considered the predominant level of that type in the classification. 
(For this purpose, a plan may combine the most restrictive levels 
first, with each less restrictive level added to the combination until 
the combination applies to more than one-half of the benefits subject 
to the financial requirement or treatment limitation.)
    (C) Portion based on plan payments. For purposes of this paragraph 
(c), 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 
(or for the portion of the plan year after a change in plan benefits 
that affects the applicability of the financial requirement or 
quantitative treatment limitation).
    (D) Clarifications for certain threshold requirements. For any 
deductible, the dollar amount of plan payments includes all plan 
payments with respect to claims that would be subject to the deductible 
if it had not been satisfied. For any out-of-pocket maximum, the dollar 
amount of plan payments includes all plan payments associated with out-
of-pocket payments that are taken into account towards the out-of-
pocket maximum as well as all plan payments associated with out-of-
pocket payments that would have been made towards the out-of-pocket 
maximum if it had not been satisfied. Similar rules apply for any other 
thresholds at which the rate of plan payment changes.
    (E) Determining the dollar amount of plan payments. Subject to 
paragraph (c)(3)(i)(D) of this section, any reasonable method may be 
used to determine the dollar amount expected to be paid under a plan 
for medical/surgical benefits subject to a financial requirement or 
quantitative treatment limitation (or subject to any level of a 
financial requirement or quantitative treatment limitation).
    (ii) Application to different coverage units. If a plan (or health 
insurance coverage) applies different levels of a financial requirement 
or quantitative treatment limitation to different coverage units in a 
classification of medical/surgical benefits, the predominant level that 
applies to substantially all medical/surgical benefits in the 
classification is determined separately for each coverage unit.
    (iii) Special rule for multi-tiered prescription drug benefits. If 
a plan (or health insurance coverage) applies different levels of 
financial requirements to different tiers of prescription drug benefits 
based on reasonable factors determined in accordance with the rules in 
paragraph (c)(4)(i) of this section (relating to requirements for 
nonquantitative treatment limitations) and without regard to whether a 
drug is generally prescribed with respect to medical/surgical benefits 
or with respect to mental health or substance use disorder benefits, 
the plan (or health insurance coverage) satisfies the parity 
requirements of this paragraph (c) with respect to prescription drug 
benefits. Reasonable factors include cost, efficacy, generic versus 
brand name, and mail order versus pharmacy pick-up.
    (iv) Examples. The rules of paragraphs (c)(3)(i), (c)(3)(ii), and 
(c)(3)(iii) of this section are illustrated by the following examples. 
In each example, the group health plan is subject to the requirements 
of this section and provides both medical/surgical benefits and mental 
health and substance use disorder benefits.

    Example 1. (i) Facts. For inpatient, out-of-network medical/
surgical benefits, a group health plan imposes five levels of 
coinsurance. Using a reasonable method, the plan projects its 
payments for the upcoming year as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Coinsurance rate...............  0%                   10%                 15%                 20%                 30%                 Total
Projected payments.............  $200x                $100x               $450x               $100x               $150x               $1,000x
Percent of total plan costs....  20%                  10%                 45%                 10%                 15%                 ..................
Percent subject to coinsurance   N/A                  12.5%               56.25%              12.5%               18.75%              ..................
 level.                                               (100x/800x)         (450x/800x)         (100x/800x)         (150x/800x)
--------------------------------------------------------------------------------------------------------------------------------------------------------

The plan projects plan costs of $800x to be subject to coinsurance 
($100x + $450x + $100x + $150x = $800x). Thus, 80 percent ($800x/
$1,000x) of the benefits are projected to be subject to coinsurance, 
and 56.25 percent of the benefits subject to coinsurance are 
projected to be subject to the 15 percent coinsurance level.
    (ii) Conclusion. In this Example 1, the two-thirds threshold of 
the substantially all standard is met for coinsurance because 80 
percent of all inpatient, out-of-network medical/surgical benefits 
are subject to coinsurance. Moreover, the 15 percent coinsurance is 
the predominant level because it is applicable to more than one-half 
of inpatient, out-of-network medical/surgical benefits subject to 
the coinsurance requirement. The plan may not impose any level of 
coinsurance with respect to inpatient, out-of-network mental health 
or substance use disorder benefits that is more restrictive than the 
15 percent level of coinsurance.
    Example 2.  (i) Facts. For outpatient, in-network medical/
surgical benefits, a plan imposes five different copayment levels. 
Using a reasonable method, the plan projects payments for the 
upcoming year as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Copayment amount...............  $0                   $10                 $15                 $20                 $50                 Total
Projected payments.............  $200x                $200x               $200x               $300x               $100x               $1,000x
Percent of total plan costs....  20%                  20%                 20%                 30%                 10%                 ..................
Percent subject to copayments..  N/A                  25%                 25%                 37.5%               12.5%               ..................
                                                      (200x/800x)         (200x/800x)         (300x/800x)         (100x/800x)
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 5442]]

The plan projects plan costs of $800x to be subject to copayments 
($200x + $200x +$300x + $100x = $800x). Thus, 80 percent ($800x/
$1,000x) of the benefits are projected to be subject to a copayment.
    (ii) Conclusion. In this Example 2, the two-thirds threshold of 
the substantially all standard is met for copayments because 80 
percent of all outpatient, in-network medical/surgical benefits are 
subject to a copayment. Moreover, there is no single level that 
applies to more than one-half of medical/surgical benefits in the 
classification subject to a copayment (for the $10 copayment, 25%; 
for the $15 copayment, 25%; for the $20 copayment, 37.5%; and for 
the $50 copayment, 12.5%). The plan can combine any levels of 
copayment, including the highest levels, to determine the 
predominant level that can be applied to mental health or substance 
use disorder benefits. If the plan combines the highest levels of 
copayment, the combined projected payments for the two highest 
copayment levels, the $50 copayment and the $20 copayment, are not 
more than one-half of the outpatient, in-network medical/surgical 
benefits subject to a copayment because they are exactly one-half 
($300x + $100x = $400x; $400x/$800x = 50%). The combined projected 
payments for the three highest copayment levels--the $50 copayment, 
the $20 copayment, and the $15 copayment--are more than one-half of 
the outpatient, in-network medical/surgical benefits subject to the 
copayments ($100x + $300x + $200x = $600x; $600x/$800x = 75%). Thus, 
the plan may not impose any copayment on outpatient, in-network 
mental health or substance use disorder benefits that is more 
restrictive than the least restrictive copayment in the combination, 
the $15 copayment.
    Example 3. (i) Facts. A plan imposes a $250 deductible on all 
medical/surgical benefits for self-only coverage and a $500 
deductible on all medical/surgical benefits for family coverage. The 
plan has no network of providers. For all medical/surgical benefits, 
the plan imposes a coinsurance requirement. The plan imposes no 
other financial requirements or treatment limitations.
    (ii) Conclusion. In this Example 3, because the plan has no 
network of providers, all benefits are provided out-of-network. 
Because self-only and family coverage are subject to different 
deductibles, whether the deductible applies to substantially all 
medical/surgical benefits is determined separately for self-only 
medical/surgical benefits and family medical/surgical benefits. 
Because the coinsurance is applied without regard to coverage units, 
the predominant coinsurance that applies to substantially all 
medical/surgical benefits is determined without regard to coverage 
units.
    Example 4. (i) Facts. A plan applies the following financial 
requirements for prescription drug benefits. The requirements are 
applied without regard to whether a drug is generally prescribed 
with respect to medical/surgical benefits or with respect to mental 
health or substance use disorder benefits. Moreover, the process for 
certifying a particular drug as ``generic'', ``preferred brand 
name'', ``non-preferred brand name'', or ``specialty'' complies with 
the rules of paragraph (c)(4)(i) of this section (relating to 
requirements for nonquantitative treatment limitations).

----------------------------------------------------------------------------------------------------------------
                                            Tier 1             Tier 2             Tier 3             Tier 4
                                     ---------------------------------------------------------------------------
                                                                              Non-preferred
          Tier description                                                   brand name drugs
                                        Generic drugs     Preferred brand    (which may have    Specialty drugs
                                                             name drugs      Tier 1 or Tier 2
                                                                              alternatives)
----------------------------------------------------------------------------------------------------------------
Percent paid by plan................               90%                80%                60%                50%
----------------------------------------------------------------------------------------------------------------

     (ii) Conclusion. In this Example 4, the financial requirements 
that apply to prescription drug benefits are applied without regard 
to whether a drug is generally prescribed with respect to medical/
surgical benefits or with respect to mental health or substance use 
disorder benefits; the process for certifying drugs in different 
tiers complies with paragraph (c)(4) of this section; and the bases 
for establishing different levels or types of financial requirements 
are reasonable. The financial requirements applied to prescription 
drug benefits do not violate the parity requirements of this 
paragraph (c)(3).

    (v) No separate cumulative financial requirements or cumulative 
quantitative treatment limitations--(A) A group health plan (or health 
insurance coverage offered in connection with a group health plan) may 
not apply any cumulative financial requirement or cumulative 
quantitative treatment limitation for mental health or substance use 
disorder benefits in a classification that accumulates separately from 
any established for medical/surgical benefits in the same 
classification.
    (B) The rules of this paragraph (c)(3)(v) are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan imposes a combined 
annual $500 deductible on all medical/surgical, mental health, and 
substance use disorder benefits.
    (ii) Conclusion. In this Example 1, the combined annual 
deductible complies with the requirements of this paragraph 
(c)(3)(v).
    Example 2. (i) Facts. A plan imposes an annual $250 deductible 
on all medical/surgical benefits and a separate annual $250 
deductible on all mental health and substance use disorder benefits.
    (ii) Conclusion. In this Example 2, the separate annual 
deductible on mental health and substance use disorder benefits 
violates the requirements of this paragraph (c)(3)(v).
    Example 3. (i) Facts. A plan imposes an annual $300 deductible 
on all medical/surgical benefits and a separate annual $100 
deductible on all mental health or substance use disorder benefits.
    (ii) Conclusion. In this Example 3, the separate annual 
deductible on mental health and substance use disorder benefits 
violates the requirements of this paragraph (c)(3)(v).
    Example 4. (i) Facts. A plan generally imposes a combined annual 
$500 deductible on all benefits (both medical/surgical benefits and 
mental health and substance use disorder benefits) except 
prescription drugs. Certain benefits, such as preventive care, are 
provided without regard to the deductible. The imposition of other 
types of financial requirements or treatment limitations varies with 
each classification. Using reasonable methods, the plan projects its 
payments for medical/surgical benefits in each classification for 
the upcoming year as follows:

----------------------------------------------------------------------------------------------------------------
                                                            Benefits subject                     Percent subject
                      Classification                          to deductible    Total benefits     to deductible
----------------------------------------------------------------------------------------------------------------
Inpatient, in-network.....................................           $1,800x           $2,000x                90
Inpatient, out-of-network.................................            1,000x            1,000x               100
Outpatient, in-network....................................            1,400x            2,000x                70
Outpatient, out-of-network................................            1,880x            2,000x                94
Emergency care............................................              300x              500x                60
----------------------------------------------------------------------------------------------------------------


[[Page 5443]]

     (ii) Conclusion. In this Example 4, the two-thirds threshold of 
the substantially all standard is met with respect to each 
classification except emergency care because in each of those other 
classifications at least two-thirds of medical/surgical benefits are 
subject to the $500 deductible. Moreover, the $500 deductible is the 
predominant level in each of those other classifications because it 
is the only level. However, emergency care mental health and 
substance use disorder benefits cannot be subject to the $500 
deductible because it does not apply to substantially all emergency 
care medical/surgical benefits.
    (4) Nonquantitative treatment limitations--(i) General rule. A 
group health plan (or health insurance coverage) may not impose a 
nonquantitative treatment limitation with respect to mental health or 
substance use disorder benefits in any classification unless, under the 
terms of the plan (or health insurance coverage) as written and in 
operation, any processes, strategies, evidentiary standards, or other 
factors used in applying the nonquantitative treatment limitation 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 classification, except to the extent that recognized clinically 
appropriate standards of care may permit a difference.
    (ii) Illustrative list of nonquantitative treatment limitations. 
Nonquantitative treatment limitations include--
    (A) Medical management standards limiting or excluding benefits 
based on medical necessity or medical appropriateness, or based on 
whether the treatment is experimental or investigative;
    (B) Formulary design for prescription drugs;
    (C) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (D) Plan methods for determining usual, customary, and reasonable 
charges;
    (E) 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
    (F) Exclusions based on failure to complete a course of treatment.
    (iii) Examples. The rules of this paragraph (c)(4) are illustrated 
by the following examples. In each example, the group health plan is 
subject to the requirements of this section and provides both medical/
surgical benefits and mental health and substance use disorder 
benefits.

    Example 1. (i) Facts. A group health plan limits benefits to 
treatment that is medically necessary. The plan requires concurrent 
review for inpatient, in-network mental health and substance use 
disorder benefits but does not require it for any inpatient, in-
network medical/surgical benefits. The plan conducts retrospective 
review for inpatient, in-network medical/surgical benefits.
    (ii) Conclusion. In this Example 1, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--medical necessity--applies to both mental 
health and substance use disorder benefits and to medical/surgical 
benefits for inpatient, in-network services, the concurrent review 
process does not apply to medical/surgical benefits. The concurrent 
review process is not comparable to the retrospective review 
process. While such a difference might be permissible in certain 
individual cases based on recognized clinically appropriate 
standards of care, it is not permissible for distinguishing between 
all medical/surgical benefits and all mental health or substance use 
disorder benefits.
    Example 2. (i) Facts. A plan requires prior approval that a 
course of treatment is medically necessary for outpatient, in-
network medical/surgical, mental health, and substance use disorder 
benefits. For mental health and substance use disorder treatments 
that do not have prior approval, no benefits will be paid; for 
medical/surgical treatments that do not have prior approval, there 
will only be a 25 percent reduction in the benefits the plan would 
otherwise pay.
    (ii) Conclusion. In this Example 2, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--medical necessity--is applied both to mental 
health and substance use disorder benefits and to medical/surgical 
benefits for outpatient, in-network services, the penalty for 
failure to obtain prior approval for mental health and substance use 
disorder benefits is not comparable to the penalty for failure to 
obtain prior approval for medical/surgical benefits.
    Example 3.  (i) Facts. A plan generally covers medically 
appropriate treatments. For both medical/surgical benefits and 
mental health and substance use disorder benefits, evidentiary 
standards used in determining whether a treatment is medically 
appropriate (such as the number of visits or days of coverage) are 
based on recommendations made by panels of experts with appropriate 
training and experience in the fields of medicine involved. The 
evidentiary standards are applied in a manner that may differ based 
on clinically appropriate standards of care for a condition.
    (ii) Conclusion. In this Example 3, the plan complies with the 
rules of this paragraph (c)(4) because the nonquantitative treatment 
limitation--medical appropriateness--is the same for both medical/
surgical benefits and mental health and substance use disorder 
benefits, and the processes for developing the evidentiary standards 
and the application of them to mental health and substance use 
disorder benefits are comparable to and are applied no more 
stringently than for medical/surgical benefits. This is the result 
even if, based on clinically appropriate standards of care, the 
application of the evidentiary standards does not result in similar 
numbers of visits, days of coverage, or other benefits utilized for 
mental health conditions or substance use disorders as it does for 
any particular medical/surgical condition.
    Example 4.  (i) Facts. A plan generally covers medically 
appropriate treatments. In determining whether prescription drugs 
are medically appropriate, the plan automatically excludes coverage 
for antidepressant drugs that are given a black box warning label by 
the Food and Drug Administration (indicating the drug carries a 
significant risk of serious adverse effects). For other drugs with a 
black box warning (including those prescribed for other mental 
health conditions and substance use disorders, as well as for 
medical/surgical conditions), the plan will provide coverage if the 
prescribing physician obtains authorization from the plan that the 
drug is medically appropriate for the individual, based on 
clinically appropriate standards of care.
    (ii) Conclusion. In this Example 4, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--medical appropriateness--is applied to both 
mental health and substance use disorder benefits and medical/
surgical benefits, the plan's unconditional exclusion of 
antidepressant drugs given a black box warning is not comparable to 
the conditional exclusion for other drugs with a black box warning.
    Example 5.  (i) Facts. An employer maintains both a major 
medical program and an employee assistance program (EAP). The EAP 
provides, among other benefits, a limited number of mental health or 
substance use disorder counseling sessions. Participants are 
eligible for mental health or substance use disorder benefits under 
the major medical program only after exhausting the counseling 
sessions provided by the EAP. No similar exhaustion requirement 
applies with respect to medical/surgical benefits provided under the 
major medical program.
    (ii) Conclusion. In this Example 5, limiting eligibility for 
mental health and substance use disorder benefits only after EAP 
benefits are exhausted is a nonquantitative treatment limitation 
subject to the parity requirements of this paragraph (c). Because no 
comparable requirement applies to medical/surgical benefits, the 
requirement may not be applied to mental health or substance use 
disorder benefits.

    (5) Exemptions. The rules of this paragraph (c) do not apply if a 
group health plan (or health insurance coverage) satisfies the 
requirements of paragraph (f) or (g) of this section (relating to 
exemptions for small employers and for increased cost).
    (d) Availability of plan information--(1) Criteria for medical 
necessity determinations. The criteria for medical

[[Page 5444]]

necessity determinations made under a group health plan 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) must 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.
    (2) Reason for any denial. 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 in the case of any participant or beneficiary must be made 
available by the plan administrator (or the health insurance issuer 
offering such coverage) to the participant or beneficiary in a form and 
manner consistent with the rules in Sec.  2560.503-1 of this Part for 
group health plans.
    (e) Applicability--(1) Group health plans. The requirements of this 
section apply to a group health plan offering medical/surgical benefits 
and mental health or substance use disorder benefits. If, under an 
arrangement or arrangements to provide medical care benefits by an 
employer or employee organization (including for this purpose a joint 
board of trustees of a multiemployer trust affiliated with one or more 
multiemployer plans), any participant (or beneficiary) can 
simultaneously receive coverage for medical/surgical benefits and 
coverage for mental health or substance use disorder benefits, then the 
requirements of this section (including the exemption provisions in 
paragraph (g) of this section) apply separately with respect to each 
combination of medical/surgical benefits and of mental health or 
substance use disorder benefits that any participant (or beneficiary) 
can simultaneously receive from that employer's or employee 
organization's arrangement or arrangements to provide medical care 
benefits, and all such combinations are considered for purposes of this 
section to be a single group health plan.
    (2) Health insurance issuers. The requirements of this section 
apply to a health insurance issuer offering health insurance coverage 
for mental health or substance use disorder benefits in connection with 
a group health plan subject to paragraph (e)(1) of this section.
    (3) Scope. This section does not--
    (i) Require a group health plan (or health insurance issuer 
offering coverage in connection with a group health plan) to provide 
any mental health benefits or substance use disorder benefits, and the 
provision of benefits by a plan (or health insurance coverage) for one 
or more mental health conditions or substance use disorders does not 
require the plan or health insurance coverage under this section to 
provide benefits for any other mental health condition or substance use 
disorder; or
    (ii) Affect the terms and conditions relating to the amount, 
duration, or scope of mental health or substance use disorder benefits 
under the plan (or health insurance coverage) except as specifically 
provided in paragraphs (b) and (c) of this section.
    (f) Small employer exemption--(1) In general. The requirements of 
this section do not apply to 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. For purposes of this paragraph (f), the 
term small employer means, in connection with a group health plan with 
respect to a calendar year and a plan year, an employer who employed an 
average of at least two (or one in the case of an employer residing in 
a state that permits small groups to include a single individual) but 
not more than 50 employees on business days during the preceding 
calendar year. See section 732(a) of ERISA and Sec.  2590.732(b) of 
this Part, which provide that this section (and certain other sections) 
does not apply to any group health plan (and health insurance issuer 
offering coverage in connection with a group health plan) for any plan 
year if, on the first day of the plan year, the plan has fewer than two 
participants who are current employees.
    (2) Rules in determining employer size. For purposes of paragraph 
(f)(1) of this section--
    (i) All persons treated as a single employer under subsections (b), 
(c), (m), and (o) of section 414 of the Code are treated as one 
employer;
    (ii) If an employer was not in existence throughout the preceding 
calendar year, whether it is a small employer is determined based on 
the average number of employees the employer reasonably expects to 
employ on business days during the current calendar year; and
    (iii) Any reference to an employer for purposes of the small 
employer exemption includes a reference to a predecessor of the 
employer.
    (g) Increased cost exemption--[Reserved]
    (h) Sale of nonparity health insurance coverage. A health insurance 
issuer may not sell a policy, certificate, or contract of insurance 
that fails to comply with paragraph (b) or (c) of this section, except 
to a plan for a year for which the plan is exempt from the requirements 
of this section because the plan meets the requirements of paragraph 
(f) or (g) of this section.
    (i) Applicability dates--(1) In general. Except as provided in 
paragraph (i)(2) of this section, the requirements of this section are 
applicable for plan years beginning on or after July 1, 2010.
    (2) Special effective date for certain collectively-bargained 
plans. For a group health plan maintained pursuant to one or more 
collective bargaining agreements ratified before October 3, 2008, the 
requirements of this section do not apply to the plan (or health 
insurance coverage offered in connection with the plan) for plan years 
beginning before the later of either--
    (i) The date on which the last of the collective bargaining 
agreements relating to the plan terminates (determined without regard 
to any extension agreed to after October 3, 2008); or
    (ii) July 1, 2010.

Signed at Washington, DC, this 26th day of January 2010.

Phyllis C. Borzi,

Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.

Department of Health and Human Services

45 CFR Subtitle A

0
For the reasons set forth in the preamble, the Department of Health and 
Human Services is amending 45 CFR Subtitle A, Subchapter B, Part 146, 
Subpart C as follows:

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
1. The authority citation for Part 146 continues to read as follows:

    Authority: Secs. 2702 through 2705, 2711 through 2723, 2791, and 
2792 of the PHS Act (42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 
through 300gg-23, 300gg-91, and 300gg-92).
0
2. Section 146.136 is revised to read as follows:


Sec.  146.136  Parity in mental health and substance use disorder 
benefits.

    (a) Meaning of terms. For purposes of this section, except where 
the context clearly indicates otherwise, the following terms have the 
meanings indicated:
    Aggregate lifetime dollar limit means a dollar limitation on the 
total amount of specified benefits that may be paid under a group 
health plan (or health

[[Page 5445]]

insurance coverage offered in connection with such a plan) for any 
coverage unit.
    Annual dollar limit means a dollar limitation on the total amount 
of specified benefits that may be paid in a 12-month period under a 
group health plan (or health insurance coverage offered in connection 
with such a plan) for any coverage unit.
    Coverage unit means coverage unit as described in paragraph 
(c)(1)(iv) of this section.
    Cumulative financial requirements are financial requirements that 
determine whether or to what extent benefits are provided based on 
accumulated amounts and include deductibles and out-of-pocket maximums. 
(However, cumulative financial requirements do not include aggregate 
lifetime or annual dollar limits because these two terms are excluded 
from the meaning of financial requirements.)
    Cumulative quantitative treatment limitations are treatment 
limitations that determine whether or to what extent benefits are 
provided based on accumulated amounts, such as annual or lifetime day 
or visit limits.
    Financial requirements include deductibles, copayments, 
coinsurance, or out-of-pocket maximums. Financial requirements do not 
include aggregate lifetime or annual dollar limits.
    Medical/surgical benefits means benefits for medical or surgical 
services, as defined under the terms of the plan or health insurance 
coverage, but does not include mental health or substance use disorder 
benefits. Any condition defined by the plan as being or as not being a 
medical/surgical condition must be defined to be consistent with 
generally recognized independent standards of current medical practice 
(for example, the most current version of the International 
Classification of Diseases (ICD) or State guidelines).
    Mental health benefits means benefits with respect to services for 
mental health conditions, as defined under the terms of the plan and in 
accordance with applicable Federal and State law. Any condition defined 
by the plan as being or as not being a mental health condition must be 
defined to be consistent with generally recognized independent 
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 ICD, or State guidelines).
    Substance use disorder benefits means benefits with respect to 
services for substance use disorders, as defined under the terms of the 
plan and in accordance with applicable Federal and State law. Any 
disorder defined by the plan as being or as not being a substance use 
disorder must be defined to be consistent with generally recognized 
independent standards of current medical practice (for example, the 
most current version of the DSM, the most current version of the ICD, 
or State guidelines).
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, days in a 
waiting period, or other similar limits on the scope or duration of 
treatment. Treatment limitations include both quantitative treatment 
limitations, which are expressed numerically (such as 50 outpatient 
visits per year), and nonquantitative treatment limitations, which 
otherwise limit the scope or duration of benefits for treatment under a 
plan. (See paragraph (c)(4)(ii) of this section for an illustrative 
list of nonquantitative treatment limitations.) A permanent exclusion 
of all benefits for a particular condition or disorder, however, is not 
a treatment limitation.
    (b) Parity requirements with respect to aggregate lifetime and 
annual dollar limits--(1)--General--(i) General parity requirement. A 
group health plan (or health insurance coverage offered by an issuer in 
connection with a group health plan) that provides both medical/
surgical benefits and mental health or substance use disorder benefits 
must comply with paragraph (b)(2), (b)(3), or (b)(6) of this section.
    (ii) Exception. The rule in paragraph (b)(1)(i) of this section 
does not apply if a plan (or health insurance coverage) satisfies the 
requirements of paragraph (f) or (g) of this section (relating to 
exemptions for small employers and for increased cost).
    (2) Plan with no limit or limits on less than one-third of all 
medical/surgical benefits. If a plan (or health insurance coverage) 
does not include an aggregate lifetime or annual dollar limit on any 
medical/surgical benefits or includes an aggregate lifetime or annual 
dollar limit that applies to less than one-third of all medical/
surgical benefits, it may not impose an aggregate lifetime or annual 
dollar limit, respectively, on mental health or substance use disorder 
benefits.
    (3) Plan with a limit on at least two-thirds of all medical/
surgical benefits. If a plan (or health insurance coverage) includes an 
aggregate lifetime or annual dollar limit on at least two-thirds of all 
medical/surgical benefits, it must either--
    (i) Apply the aggregate lifetime or annual dollar limit both to the 
medical/surgical benefits to which the limit would otherwise apply and 
to mental health or substance use disorder benefits in a manner that 
does not distinguish between the medical/surgical benefits and mental 
health or substance use disorder benefits; or
    (ii) Not include an aggregate lifetime or annual dollar limit on 
mental health or substance use disorder benefits that is less than the 
aggregate lifetime or annual dollar limit, respectively, on medical/
surgical benefits. (For cumulative limits other than aggregate lifetime 
or annual dollar limits, see paragraph (c)(3)(v) of this section 
prohibiting separately accumulating cumulative financial requirements 
or cumulative quantitative treatment limitations.)
    (4) Examples. The rules of paragraphs (b)(2) and (b)(3) of this 
section are illustrated by the following examples:

    Example 1. (i) Facts. A group health plan has no annual limit on 
medical/surgical benefits and a $10,000 annual limit on mental 
health and substance use disorder benefits. To comply with the 
requirements of this paragraph (b), the plan sponsor is considering 
each of the following options--
    (A) Eliminating the plan's annual dollar limit on mental health 
and substance use disorder benefits;
    (B) Replacing the plan's annual dollar limit on mental health 
and substance use disorder benefits with a $500,000 annual limit on 
all benefits (including medical/surgical and mental health and 
substance use disorder benefits); and
    (C) Replacing the plan's annual dollar limit on mental health 
and substance use disorder benefits with a $250,000 annual limit on 
medical/surgical benefits and a $250,000 annual limit on mental 
health and substance use disorder benefits.
    (ii) Conclusion. In this Example 1, each of the three options 
being considered by the plan sponsor would comply with the 
requirements of this paragraph (b).
    Example 2. (i) Facts. A plan has a $100,000 annual limit on 
medical/surgical inpatient benefits and a $50,000 annual limit on 
medical/surgical outpatient benefits. To comply with the parity 
requirements of this paragraph (b), the plan sponsor is considering 
each of the following options--
    (A) Imposing a $150,000 annual limit on mental health and 
substance use disorder benefits; and
    (B) Imposing a $100,000 annual limit on mental health and 
substance use disorder inpatient benefits and a $50,000 annual limit 
on mental health and substance use disorder outpatient benefits.
    (ii) Conclusion. In this Example 2, each option under 
consideration by the plan sponsor would comply with the requirements 
of this section.

    (5) Determining one-third and two-thirds of all medical/surgical 
benefits. For purposes of this paragraph (b), the determination of 
whether the portion of

[[Page 5446]]

medical/surgical benefits subject to an aggregate lifetime or annual 
dollar limit represents one-third or two-thirds of all medical/surgical 
benefits is based on the dollar amount of all plan payments for 
medical/surgical benefits expected to be paid under the plan for the 
plan year (or for the portion of the plan year after a change in plan 
benefits that affects the applicability of the aggregate lifetime or 
annual dollar limits). Any reasonable method may be used to determine 
whether the dollar amount expected to be paid under the plan will 
constitute one-third or two-thirds of the dollar amount of all plan 
payments for medical/surgical benefits.
    (6) Plan not described in paragraph (b)(2) or (b)(3) of this 
section--(i) In general. A group health plan (or health insurance 
coverage) that is not described in paragraph (b)(2) or (b)(3) of this 
section with respect to aggregate lifetime or annual dollar limits on 
medical/surgical benefits, must either--
    (A) Impose no aggregate lifetime or annual dollar limit, as 
appropriate, on mental health or substance use disorder benefits; or
    (B) Impose an aggregate lifetime or annual dollar limit on mental 
health or substance use disorder benefits that is no less than an 
average limit calculated for medical/surgical benefits in the following 
manner. The average limit is calculated by taking into account the 
weighted average of the aggregate lifetime or annual dollar limits, as 
appropriate, that are applicable to the categories of medical/surgical 
benefits. Limits based on delivery systems, such as inpatient/
outpatient treatment or normal treatment of common, low-cost conditions 
(such as treatment of normal births), do not constitute categories for 
purposes of this paragraph (b)(6)(i)(B). In addition, for purposes of 
determining weighted averages, any benefits that are not within a 
category that is subject to a separately-designated dollar limit under 
the plan are taken into account as a single separate category by using 
an estimate of the upper limit on the dollar amount that a plan may 
reasonably be expected to incur with respect to such benefits, taking 
into account any other applicable restrictions under the plan.
    (ii) Weighting. For purposes of this paragraph (b)(6), the 
weighting applicable to any category of medical/surgical benefits is 
determined in the manner set forth in paragraph (b)(5) of this section 
for determining one-third or two-thirds of all medical/surgical 
benefits.
    (iii) Example. The rules of this paragraph (b)(6) are illustrated 
by the following example:

    Example. (i) Facts. A group health plan that is subject to the 
requirements of this section includes a $100,000 annual limit on 
medical/surgical benefits related to cardio-pulmonary diseases. The 
plan does not include an annual dollar limit on any other category 
of medical/surgical benefits. The plan determines that 40% of the 
dollar amount of plan payments for medical/surgical benefits are 
related to cardio-pulmonary diseases. The plan determines that 
$1,000,000 is a reasonable estimate of the upper limit on the dollar 
amount that the plan may incur with respect to the other 60% of 
payments for medical/surgical benefits.
    (ii) Conclusion. In this Example, the plan is not described in 
paragraph (b)(3) of this section because there is not one annual 
dollar limit that applies to at least two-thirds of all medical/
surgical benefits. Further, the plan is not described in paragraph 
(b)(2) of this section because more than one-third of all medical/
surgical benefits are subject to an annual dollar limit. Under this 
paragraph (b)(6), the plan sponsor can choose either to include no 
annual dollar limit on mental health or substance use disorder 
benefits, or to include an annual dollar limit on mental health or 
substance use disorder benefits that is not less than the weighted 
average of the annual dollar limits applicable to each category of 
medical/surgical benefits. In this example, the minimum weighted 
average annual dollar limit that can be applied to mental health or 
substance use disorder benefits is $640,000 (40% x $100,000 + 60% x 
$1,000,000 = $640,000).

    (c) Parity requirements with respect to financial requirements and 
treatment limitations--(1) Clarification of terms--(i) Classification 
of benefits. When reference is made in this paragraph (c) to a 
classification of benefits, the term ``classification'' means a 
classification as described in paragraph (c)(2)(ii) of this section.
    (ii) Type of financial requirement or treatment limitation. When 
reference is made in this paragraph (c) to a type of financial 
requirement or treatment limitation, the reference to type means its 
nature. Different types of financial requirements include deductibles, 
copayments, coinsurance, and out-of-pocket maximums. Different types of 
quantitative treatment limitations include annual, episode, and 
lifetime day and visit limits. See paragraph (c)(4)(ii) of this section 
for an illustrative list of nonquantitative treatment limitations.
    (iii) Level of a type of financial requirement or treatment 
limitation. When reference is made in this paragraph (c) to a level of 
a type of financial requirement or treatment limitation, level refers 
to the magnitude of the type of financial requirement or treatment 
limitation. For example, different levels of coinsurance include 20 
percent and 30 percent; different levels of a copayment include $15 and 
$20; different levels of a deductible include $250 and $500; and 
different levels of an episode limit include 21 inpatient days per 
episode and 30 inpatient days per episode.
    (iv) Coverage unit. When reference is made in this paragraph (c) to 
a coverage unit, coverage unit refers to the way in which a plan (or 
health insurance coverage) groups individuals for purposes of 
determining benefits, or premiums or contributions. For example, 
different coverage units include self-only, family, and employee-plus-
spouse.
    (2) General parity requirement--(i) General rule. A group health 
plan (or health insurance coverage offered by an issuer in connection 
with a group health plan) that provides both medical/surgical benefits 
and mental health or substance use disorder benefits may not apply any 
financial requirement or treatment limitation to mental health or 
substance use disorder benefits in any classification that is more 
restrictive than the predominant financial requirement or treatment 
limitation of that type applied to substantially all medical/surgical 
benefits in the same classification. Whether a financial requirement or 
treatment limitation is a predominant financial requirement or 
treatment limitation that applies to substantially all medical/surgical 
benefits in a classification is determined separately for each type of 
financial requirement or treatment limitation. The application of the 
rules of this paragraph (c)(2) to financial requirements and 
quantitative treatment limitations is addressed in paragraph (c)(3) of 
this section; the application of the rules of this paragraph (c)(2) to 
nonquantitative treatment limitations is addressed in paragraph (c)(4) 
of this section.
    (ii) Classifications of benefits used for applying rules--(A) In 
general. If a plan (or health insurance coverage) provides mental 
health or substance use disorder benefits in any classification of 
benefits described in this paragraph (c)(2)(ii), mental health or 
substance use disorder benefits must be provided in every 
classification in which medical/surgical benefits are provided. In 
determining the classification in which a particular benefit belongs, a 
plan (or health insurance issuer) must apply the same standards to 
medical/surgical benefits and to mental health or substance use 
disorder benefits. To the extent that a plan (or health insurance 
coverage) provides benefits in a classification and imposes any 
separate financial requirement or treatment limitation (or separate 
level of a financial requirement or treatment limitation) for benefits 
in

[[Page 5447]]

the classification, the rules of this paragraph (c) apply separately 
with respect to that classification for all financial requirements or 
treatment limitations. The following classifications of benefits are 
the only classifications used in applying the rules of this paragraph 
(c):
    (1) Inpatient, in-network. Benefits furnished on an inpatient basis 
and within a network of providers established or recognized under a 
plan or health insurance coverage.
    (2) Inpatient, out-of-network. Benefits furnished on an inpatient 
basis and outside any network of providers established or recognized 
under a plan or health insurance coverage. This classification includes 
inpatient benefits under a plan (or health insurance coverage) that has 
no network of providers.
    (3) Outpatient, in-network. Benefits furnished on an outpatient 
basis and within a network of providers established or recognized under 
a plan or health insurance coverage.
    (4) Outpatient, out-of-network. Benefits furnished on an outpatient 
basis and outside any network of providers established or recognized 
under a plan or health insurance coverage. This classification includes 
outpatient benefits under a plan (or health insurance coverage) that 
has no network of providers.
    (5) Emergency care. Benefits for emergency care.
    (6) Prescription drugs. Benefits for prescription drugs. See 
special rules for multi-tiered prescription drug benefits in paragraph 
(c)(3)(iii) of this section.
    (B) Application to out-of-network providers. See paragraph 
(c)(2)(ii)(A) of this section, under which a plan (or health insurance 
coverage) that provides mental health or substance use disorder 
benefits in any classification of benefits must provide mental health 
or substance use disorder benefits in every classification in which 
medical/surgical benefits are provided, including out-of-network 
classifications.
    (C) Examples. The rules of this paragraph (c)(2)(ii) are 
illustrated by the following examples. In each example, the group 
health plan is subject to the requirements of this section and provides 
both medical/surgical benefits and mental health and substance use 
disorder benefits.

    Example 1. (i) Facts. A group health plan offers inpatient and 
outpatient benefits and does not contract with a network of 
providers. The plan imposes a $500 deductible on all benefits. For 
inpatient medical/surgical benefits, the plan imposes a coinsurance 
requirement. For outpatient medical/surgical benefits, the plan 
imposes copayments. The plan imposes no other financial requirements 
or treatment limitations.
    (ii) Conclusion. In this Example 1, because the plan has no 
network of providers, all benefits provided are out-of-network. 
Because inpatient, out-of-network medical/surgical benefits are 
subject to separate financial requirements from outpatient, out-of-
network medical/surgical benefits, the rules of this paragraph (c) 
apply separately with respect to any financial requirements and 
treatment limitations, including the deductible, in each 
classification.
    Example 2. (i) Facts. A plan imposes a $500 deductible on all 
benefits. The plan has no network of providers. The plan generally 
imposes a 20 percent coinsurance requirement with respect to all 
benefits, without distinguishing among inpatient, outpatient, 
emergency, or prescription drug benefits. The plan imposes no other 
financial requirements or treatment limitations.
    (ii) Conclusion. In this Example 2, because the plan does not 
impose separate financial requirements (or treatment limitations) 
based on classification, the rules of this paragraph (c) apply with 
respect to the deductible and the coinsurance across all benefits.
    Example 3. (i) Facts. Same facts as Example 2, except the plan 
exempts emergency care benefits from the 20 percent coinsurance 
requirement. The plan imposes no other financial requirements or 
treatment limitations.
    (ii) Conclusion. In this Example 3, because the plan imposes 
separate financial requirements based on classifications, the rules 
of this paragraph (c) apply with respect to the deductible and the 
coinsurance separately for--
    (A) Benefits in the emergency classification; and
    (B) All other benefits.
    Example 4. (i) Facts. Same facts as Example 2, except the plan 
also imposes a preauthorization requirement for all inpatient 
treatment in order for benefits to be paid. No such requirement 
applies to outpatient treatment.
    (ii) Conclusion. In this Example 4, because the plan has no 
network of providers, all benefits provided are out-of-network. 
Because the plan imposes a separate treatment limitation based on 
classifications, the rules of this paragraph (c) apply with respect 
to the deductible and coinsurance separately for--
    (A) Inpatient, out-of-network benefits; and
    (B) All other benefits.

    (3) Financial requirements and quantitative treatment limitations--
(i) Determining ``substantially all'' and ``predominant''--(A) 
Substantially all. For purposes of this paragraph (c), a type of 
financial requirement or quantitative treatment limitation is 
considered to apply to substantially all medical/surgical benefits in a 
classification of benefits if it applies to at least two-thirds of all 
medical/surgical benefits in that classification. (For this purpose, 
benefits expressed as subject to a zero level of a type of financial 
requirement are treated as benefits not subject to that type of 
financial requirement, and benefits expressed as subject to a 
quantitative treatment limitation that is unlimited are treated as 
benefits not subject to that type of quantitative treatment 
limitation.) If a type of financial requirement or quantitative 
treatment limitation does not apply to at least two-thirds of all 
medical/surgical benefits in a classification, then that type cannot be 
applied to mental health or substance use disorder benefits in that 
classification.
    (B) Predominant--(1) If a type of financial requirement or 
quantitative treatment limitation applies to at least two-thirds of all 
medical/surgical benefits in a classification as determined under 
paragraph (c)(3)(i)(A) of this section, the level of the financial 
requirement or quantitative treatment limitation that is considered the 
predominant level of that type in a classification of benefits is the 
level that applies to more than one-half of medical/surgical benefits 
in that classification subject to the financial requirement or 
quantitative treatment limitation.
    (2) If, with respect to a type of financial requirement or 
quantitative treatment limitation that applies to at least two-thirds 
of all medical/surgical benefits in a classification, there is no 
single level that applies to more than one-half of medical/surgical 
benefits in the classification subject to the financial requirement or 
quantitative treatment limitation, the plan (or health insurance 
issuer) may combine levels until the combination of levels applies to 
more than one-half of medical/surgical benefits subject to the 
financial requirement or quantitative treatment limitation in the 
classification. The least restrictive level within the combination is 
considered the predominant level of that type in the classification. 
(For this purpose, a plan may combine the most restrictive levels 
first, with each less restrictive level added to the combination until 
the combination applies to more than one-half of the benefits subject 
to the financial requirement or treatment limitation.)
    (C) Portion based on plan payments. For purposes of this paragraph 
(c), 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

[[Page 5448]]

the plan for the plan year (or for the portion of the plan year after a 
change in plan benefits that affects the applicability of the financial 
requirement or quantitative treatment limitation).
    (D) Clarifications for certain threshold requirements. For any 
deductible, the dollar amount of plan payments includes all plan 
payments with respect to claims that would be subject to the deductible 
if it had not been satisfied. For any out-of-pocket maximum, the dollar 
amount of plan payments includes all plan payments associated with out-
of-pocket payments that are taken into account towards the out-of-
pocket maximum as well as all plan payments associated with out-of-
pocket payments that would have been made towards the out-of-pocket 
maximum if it had not been satisfied. Similar rules apply for any other 
thresholds at which the rate of plan payment changes.
    (E) Determining the dollar amount of plan payments. Subject to 
paragraph (c)(3)(i)(D) of this section, any reasonable method may be 
used to determine the dollar amount expected to be paid under a plan 
for medical/surgical benefits subject to a financial requirement or 
quantitative treatment limitation (or subject to any level of a 
financial requirement or quantitative treatment limitation).
    (ii) Application to different coverage units. If a plan (or health 
insurance coverage) applies different levels of a financial requirement 
or quantitative treatment limitation to different coverage units in a 
classification of medical/surgical benefits, the predominant level that 
applies to substantially all medical/surgical benefits in the 
classification is determined separately for each coverage unit.
    (iii) Special rule for multi-tiered prescription drug benefits. If 
a plan (or health insurance coverage) applies different levels of 
financial requirements to different tiers of prescription drug benefits 
based on reasonable factors determined in accordance with the rules in 
paragraph (c)(4)(i) of this section (relating to requirements for 
nonquantitative treatment limitations) and without regard to whether a 
drug is generally prescribed with respect to medical/surgical benefits 
or with respect to mental health or substance use disorder benefits, 
the plan (or health insurance coverage) satisfies the parity 
requirements of this paragraph (c) with respect to prescription drug 
benefits. Reasonable factors include cost, efficacy, generic versus 
brand name, and mail order versus pharmacy pick-up.
    (iv) Examples. The rules of paragraphs (c)(3)(i), (c)(3)(ii), and 
(c)(3)(iii) of this section are illustrated by the following examples. 
In each example, the group health plan is subject to the requirements 
of this section and provides both medical/surgical benefits and mental 
health and substance use disorder benefits.

    Example 1. (i) Facts. For inpatient, out-of-network medical/
surgical benefits, a group health plan imposes five levels of 
coinsurance. Using a reasonable method, the plan projects its 
payments for the upcoming year as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------------------------------
Coinsurance rate............  0%                10%               15%               20%               30%               Total
Projected payments..........  $200x             $100x             $450x             $100x             $150x             $1,000x
Percent of total plan costs.  20%               10%               45%               10%               15%               ................
Percent subject to            N/A               12.5%             56.25%            12.5%             18.75%            ................
 coinsurance level.                             (100x/800x)       (450x/800x)       (100x/800x)       (150x/800x)
--------------------------------------------------------------------------------------------------------------------------------------------------------

The plan projects plan costs of $800x to be subject to coinsurance 
($100x + $450x + $100x + $150x = $800x). Thus, 80 percent ($800x/
$1,000x) of the benefits are projected to be subject to coinsurance, 
and 56.25 percent of the benefits subject to coinsurance are 
projected to be subject to the 15 percent coinsurance level.
    (ii) Conclusion. In this Example 1, the two-thirds threshold of 
the substantially all standard is met for coinsurance because 80 
percent of all inpatient, out-of-network medical/surgical benefits 
are subject to coinsurance. Moreover, the 15 percent coinsurance is 
the predominant level because it is applicable to more than one-half 
of inpatient, out-of-network medical/surgical benefits subject to 
the coinsurance requirement. The plan may not impose any level of 
coinsurance with respect to inpatient, out-of-network mental health 
or substance use disorder benefits that is more restrictive than the 
15 percent level of coinsurance.
    Example 2. (i) Facts. For outpatient, in-network medical/
surgical benefits, a plan imposes five different copayment levels. 
Using a reasonable method, the plan projects payments for the 
upcoming year as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------------------------------
Copayment amount............  $0                $10               $15               $20               $50               Total
Projected payments..........  $200x             $200x             $200x             $300x             $100x             $1,000x
Percent of total plan costs.  20%               20%               20%               30%               10%               ................
Percent subject to            N/A               25%               25%               37.5%             12.5%             ................
 copayments.                                    (200x/800x)       (200x/800x)       (300x/800x)       (100x/800x)
--------------------------------------------------------------------------------------------------------------------------------------------------------

The plan projects plan costs of $800x to be subject to copayments 
($200x + $200x + $300x + $100x = $800x). Thus, 80 percent ($800x/
$1,000x) of the benefits are projected to be subject to a copayment.
    (ii) Conclusion. In this Example 2, the two-thirds threshold of 
the substantially all standard is met for copayments because 80 
percent of all outpatient, in-network medical/surgical benefits are 
subject to a copayment. Moreover, there is no single level that 
applies to more than one-half of medical/surgical benefits in the 
classification subject to a copayment (for the $10 copayment, 25%; 
for the $15 copayment, 25%; for the $20 copayment, 37.5%; and for 
the $50 copayment, 12.5%). The plan can combine any levels of 
copayment, including the highest levels, to determine the 
predominant level that can be applied to mental health or substance 
use disorder benefits. If the plan combines the highest levels of 
copayment, the combined projected payments for the two highest 
copayment levels, the $50 copayment and the $20 copayment, are not 
more than one-half of the outpatient, in-network medical/surgical 
benefits subject to a copayment because they are exactly one-half 
($300x + $100x = $400x; $400x/$800x = 50%). The combined projected 
payments for the three highest copayment levels--the $50 copayment, 
the $20 copayment, and the $15 copayment--are more than one-half of 
the outpatient, in-network medical/surgical benefits subject to the 
copayments ($100x + $300x + $200x = $600x; $600x/$800x = 75%). Thus, 
the plan may not impose any copayment on outpatient, in-network 
mental health or substance use disorder benefits that is more 
restrictive than the least restrictive copayment in the combination, 
the $15 copayment.
    Example 3. (i) Facts. A plan imposes a $250 deductible on all 
medical/surgical benefits for self-only coverage and a $500 
deductible on all medical/surgical benefits for family coverage. The 
plan has no network of providers. For all medical/surgical benefits, 
the plan imposes a coinsurance requirement. The plan imposes no 
other

[[Page 5449]]

financial requirements or treatment limitations.
    (ii) Conclusion. In this Example 3, because the plan has no 
network of providers, all benefits are provided out-of-network. 
Because self-only and family coverage are subject to different 
deductibles, whether the deductible applies to substantially all 
medical/surgical benefits is determined separately for self-only 
medical/surgical benefits and family medical/surgical benefits. 
Because the coinsurance is applied without regard to coverage units, 
the predominant coinsurance that applies to substantially all 
medical/surgical benefits is determined without regard to coverage 
units.
    Example 4. (i) Facts. A plan applies the following financial 
requirements for prescription drug benefits. The requirements are 
applied without regard to whether a drug is generally prescribed 
with respect to medical/surgical benefits or with respect to mental 
health or substance use disorder benefits. Moreover, the process for 
certifying a particular drug as ``generic'', ``preferred brand 
name'', ``non-preferred brand name'', or ``specialty'' complies with 
the rules of paragraph (c)(4)(i) of this section (relating to 
requirements for nonquantitative treatment limitations).

----------------------------------------------------------------------------------------------------------------
                                            Tier 1             Tier 2             Tier 3             Tier 4
                                     ---------------------------------------------------------------------------
                                                                              Non-preferred
          Tier description                                                   brand name drugs
                                        Generic drugs     Preferred brand    (which may have    Specialty drugs
                                                             name drugs      Tier 1 or Tier 2
                                                                              alternatives)
----------------------------------------------------------------------------------------------------------------
Percent paid by plan................               90%                80%                60%                50%
----------------------------------------------------------------------------------------------------------------

     (ii) Conclusion. In this Example 4, the financial requirements 
that apply to prescription drug benefits are applied without regard 
to whether a drug is generally prescribed with respect to medical/
surgical benefits or with respect to mental health or substance use 
disorder benefits; the process for certifying drugs in different 
tiers complies with paragraph (c)(4) of this section; and the bases 
for establishing different levels or types of financial requirements 
are reasonable. The financial requirements applied to prescription 
drug benefits do not violate the parity requirements of this 
paragraph (c)(3).

    (v) No separate cumulative financial requirements or cumulative 
quantitative treatment limitations--(A) A group health plan (or health 
insurance coverage offered in connection with a group health plan) may 
not apply any cumulative financial requirement or cumulative 
quantitative treatment limitation for mental health or substance use 
disorder benefits in a classification that accumulates separately from 
any established for medical/surgical benefits in the same 
classification.
    (B) The rules of this paragraph (c)(3)(v) are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan imposes a combined 
annual $500 deductible on all medical/surgical, mental health, and 
substance use disorder benefits.
    (ii) Conclusion. In this Example 1, the combined annual 
deductible complies with the requirements of this paragraph 
(c)(3)(v).
    Example 2. (i) Facts. A plan imposes an annual $250 deductible 
on all medical/surgical benefits and a separate annual $250 
deductible on all mental health and substance use disorder benefits.
    (ii) Conclusion. In this Example 2, the separate annual 
deductible on mental health and substance use disorder benefits 
violates the requirements of this paragraph (c)(3)(v).
    Example 3. (i) Facts. A plan imposes an annual $300 deductible 
on all medical/surgical benefits and a separate annual $100 
deductible on all mental health or substance use disorder benefits.
    (ii) Conclusion. In this Example 3, the separate annual 
deductible on mental health and substance use disorder benefits 
violates the requirements of this paragraph (c)(3)(v).
    Example 4. (i) Facts. A plan generally imposes a combined annual 
$500 deductible on all benefits (both medical/surgical benefits and 
mental health and substance use disorder benefits) except 
prescription drugs. Certain benefits, such as preventive care, are 
provided without regard to the deductible. The imposition of other 
types of financial requirements or treatment limitations varies with 
each classification. Using reasonable methods, the plan projects its 
payments for medical/surgical benefits in each classification for 
the upcoming year as follows:

----------------------------------------------------------------------------------------------------------------
                                                            Benefits subject                     Percent subject
                      Classification                          to deductible    Total benefits     to deductible
----------------------------------------------------------------------------------------------------------------
Inpatient, in-network.....................................           $1,800x           $2,000x                90
Inpatient, out-of-network.................................            1,000x            1,000x               100
Outpatient, in-network....................................            1,400x            2,000x                70
Outpatient, out-of-network................................            1,880x            2,000x                94
Emergency care............................................              300x              500x                60
----------------------------------------------------------------------------------------------------------------

     (ii) Conclusion. In this Example 4, the two-thirds threshold of 
the substantially all standard is met with respect to each 
classification except emergency care because in each of those other 
classifications at least two-thirds of medical/surgical benefits are 
subject to the $500 deductible. Moreover, the $500 deductible is the 
predominant level in each of those other classifications because it 
is the only level. However, emergency care mental health and 
substance use disorder benefits cannot be subject to the $500 
deductible because it does not apply to substantially all emergency 
care medical/surgical benefits.

    (4) Nonquantitative treatment limitations--(i) General rule. A 
group health plan (or health insurance coverage) may not impose a 
nonquantitative treatment limitation with respect to mental health or 
substance use disorder benefits in any classification unless, under the 
terms of the plan (or health insurance coverage) as written and in 
operation, any processes, strategies, evidentiary standards, or other 
factors used in applying the nonquantitative treatment limitation 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 classification, except to the extent that recognized clinically 
appropriate standards of care may permit a difference.
    (ii) Illustrative list of nonquantitative treatment limitations. 
Nonquantitative treatment limitations include--
    (A) Medical management standards limiting or excluding benefits 
based on

[[Page 5450]]

medical necessity or medical appropriateness, or based on whether the 
treatment is experimental or investigative;
    (B) Formulary design for prescription drugs;
    (C) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (D) Plan methods for determining usual, customary, and reasonable 
charges;
    (E) 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
    (F) Exclusions based on failure to complete a course of treatment.
    (iii) Examples. The rules of this paragraph (c)(4) are illustrated 
by the following examples. In each example, the group health plan is 
subject to the requirements of this section and provides both medical/
surgical benefits and mental health and substance use disorder 
benefits.

    Example 1. (i) Facts. A group health plan limits benefits to 
treatment that is medically necessary. The plan requires concurrent 
review for inpatient, in-network mental health and substance use 
disorder benefits but does not require it for any inpatient, in-
network medical/surgical benefits. The plan conducts retrospective 
review for inpatient, in-network medical/surgical benefits.
    (ii) Conclusion. In this Example 1, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--medical necessity--applies to both mental 
health and substance use disorder benefits and to medical/surgical 
benefits for inpatient, in-network services, the concurrent review 
process does not apply to medical/surgical benefits. The concurrent 
review process is not comparable to the retrospective review 
process. While such a difference might be permissible in certain 
individual cases based on recognized clinically appropriate 
standards of care, it is not permissible for distinguishing between 
all medical/surgical benefits and all mental health or substance use 
disorder benefits.
    Example 2. (i) Facts. A plan requires prior approval that a 
course of treatment is medically necessary for outpatient, in-
network medical/surgical, mental health, and substance use disorder 
benefits. For mental health and substance use disorder treatments 
that do not have prior approval, no benefits will be paid; for 
medical/surgical treatments that do not have prior approval, there 
will only be a 25 percent reduction in the benefits the plan would 
otherwise pay.
    (ii) Conclusion. In this Example 2, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--medical necessity--is applied both to mental 
health and substance use disorder benefits and to medical/surgical 
benefits for outpatient, in-network services, the penalty for 
failure to obtain prior approval for mental health and substance use 
disorder benefits is not comparable to the penalty for failure to 
obtain prior approval for medical/surgical benefits.
    Example 3. (i) Facts. A plan generally covers medically 
appropriate treatments. For both medical/surgical benefits and 
mental health and substance use disorder benefits, evidentiary 
standards used in determining whether a treatment is medically 
appropriate (such as the number of visits or days of coverage) are 
based on recommendations made by panels of experts with appropriate 
training and experience in the fields of medicine involved. The 
evidentiary standards are applied in a manner that may differ based 
on clinically appropriate standards of care for a condition.
    (ii) Conclusion. In this Example 3, the plan complies with the 
rules of this paragraph (c)(4) because the nonquantitative treatment 
limitation--medical appropriateness--is the same for both medical/
surgical benefits and mental health and substance use disorder 
benefits, and the processes for developing the evidentiary standards 
and the application of them to mental health and substance use 
disorder benefits are comparable to and are applied no more 
stringently than for medical/surgical benefits. This is the result 
even if, based on clinically appropriate standards of care, the 
application of the evidentiary standards does not result in similar 
numbers of visits, days of coverage, or other benefits utilized for 
mental health conditions or substance use disorders as it does for 
any particular medical/surgical condition.
    Example 4. (i) Facts. A plan generally covers medically 
appropriate treatments. In determining whether prescription drugs 
are medically appropriate, the plan automatically excludes coverage 
for antidepressant drugs that are given a black box warning label by 
the Food and Drug Administration (indicating the drug carries a 
significant risk of serious adverse effects). For other drugs with a 
black box warning (including those prescribed for other mental 
health conditions and substance use disorders, as well as for 
medical/surgical conditions), the plan will provide coverage if the 
prescribing physician obtains authorization from the plan that the 
drug is medically appropriate for the individual, based on 
clinically appropriate standards of care.
    (ii) Conclusion. In this Example 4, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--medical appropriateness--is applied to both 
mental health and substance use disorder benefits and medical/
surgical benefits, the plan's unconditional exclusion of 
antidepressant drugs given a black box warning is not comparable to 
the conditional exclusion for other drugs with a black box warning.
    Example 5. (i) Facts. An employer maintains both a major medical 
program and an employee assistance program (EAP). The EAP provides, 
among other benefits, a limited number of mental health or substance 
use disorder counseling sessions. Participants are eligible for 
mental health or substance use disorder benefits under the major 
medical program only after exhausting the counseling sessions 
provided by the EAP. No similar exhaustion requirement applies with 
respect to medical/surgical benefits provided under the major 
medical program.
    (ii) Conclusion. In this Example 5, limiting eligibility for 
mental health and substance use disorder benefits only after EAP 
benefits are exhausted is a nonquantitative treatment limitation 
subject to the parity requirements of this paragraph (c). Because no 
comparable requirement applies to medical/surgical benefits, the 
requirement may not be applied to mental health or substance use 
disorder benefits.

    (5) Exemptions. The rules of this paragraph (c) do not apply if a 
group health plan (or health insurance coverage) satisfies the 
requirements of paragraph (f) or (g) of this section (relating to 
exemptions for small employers and for increased cost).
    (d) Availability of plan information--(1) Criteria for medical 
necessity determinations. The criteria for medical necessity 
determinations made under a group health plan 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) must 
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.
    (2) Reason for denial. The reason for any denial under a non-
Federal governmental plan (or health insurance coverage offered in 
connection with such plan) 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 within a 
reasonable time and in a reasonable manner by the plan administrator 
(or the health insurance issuer offering such coverage) to the 
participant or beneficiary upon request. For this purpose, a non-
Federal governmental plan (or health insurance coverage offered in 
connection with such plan) that provides the reason for the claim 
denial in a form and manner consistent with the requirements of 29 CFR 
2560.503-1 for group health plans complies with the requirements of 
this paragraph (d)(2).
    (e) Applicability--(1) Group health plans. The requirements of this 
section apply to a group health plan offering medical/surgical benefits 
and mental health or substance use disorder benefits. If, under an 
arrangement or arrangements to provide medical care benefits by an 
employer or employee organization (including for this purpose a joint 
board of trustees of a multiemployer trust affiliated with one or more 
multiemployer plans), any participant (or beneficiary) can

[[Page 5451]]

simultaneously receive coverage for medical/surgical benefits and 
coverage for mental health or substance use disorder benefits, then the 
requirements of this section (including the exemption provisions in 
paragraph (g) of this section) apply separately with respect to each 
combination of medical/surgical benefits and of mental health or 
substance use disorder benefits that any participant (or beneficiary) 
can simultaneously receive from that employer's or employee 
organization's arrangement or arrangements to provide medical care 
benefits, and all such combinations are considered for purposes of this 
section to be a single group health plan.
    (2) Health insurance issuers. The requirements of this section 
apply to a health insurance issuer offering health insurance coverage 
for mental health or substance use disorder benefits in connection with 
a group health plan subject to paragraph (e)(1) of this section.
    (3) Scope. This section does not--
    (i) Require a group health plan (or health insurance issuer 
offering coverage in connection with a group health plan) to provide 
any mental health benefits or substance use disorder benefits, and the 
provision of benefits by a plan (or health insurance coverage) for one 
or more mental health conditions or substance use disorders does not 
require the plan (or health insurance coverage) under this section to 
provide benefits for any other mental health condition or substance use 
disorder; or
    (ii) Affect the terms and conditions relating to the amount, 
duration, or scope of mental health or substance use disorder benefits 
under the plan (or health insurance coverage) except as specifically 
provided in paragraphs (b) and (c) of this section.
    (f) Small employer exemption--(1) In general. The requirements of 
this section do not apply to 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. For purposes of this paragraph (f), the 
term small employer means, in connection with a group health plan with 
respect to a calendar year and a plan year, an employer who employed an 
average of at least two but not more than 50 employees on business days 
during the preceding calendar year and who employs at least two 
employees on the first day of the plan year (except that for purposes 
of this paragraph, a small employer shall include an employer with one 
employee in the case of an employer residing in a State that permits 
small groups to include a single individual). See also section 2721(a) 
of the PHS Act and Sec.  146.145(b) of this Part, which provide that 
this section (and certain other sections) does not apply to any group 
health plan (and health insurance issuer offering coverage in 
connection with a group health plan) for any plan year if, on the first 
day of the plan year, the plan has fewer than two participants who are 
current employees.
    (2) Rules in determining employer size. For purposes of paragraph 
(f)(1) of this section--
    (i) All persons treated as a single employer under subsections (b), 
(c), (m), and (o) of section 414 of the Internal Revenue Code of 1986 
(26 U.S.C. 414) are treated as one employer;
    (ii) If an employer was not in existence throughout the preceding 
calendar year, whether it is a small employer is determined based on 
the average number of employees the employer reasonably expects to 
employ on business days during the current calendar year; and
    (iii) Any reference to an employer for purposes of the small 
employer exemption includes a reference to a predecessor of the 
employer.
    (g) Increased cost exemption--[Reserved]
    (h) Sale of nonparity health insurance coverage. A health insurance 
issuer may not sell a policy, certificate, or contract of insurance 
that fails to comply with paragraph (b) or (c) of this section, except 
to a plan for a year for which the plan is exempt from the requirements 
of this section because the plan meets the requirements of paragraph 
(f) or (g) of this section.
    (i) Applicability dates--(1) In general. Except as provided in 
paragraph (i)(2) of this section, the requirements of this section are 
applicable for plan years beginning on or after July 1, 2010.
    (2) Special effective date for certain collectively-bargained 
plans. For a group health plan maintained pursuant to one or more 
collective bargaining agreements ratified before October 3, 2008, the 
requirements of this section do not apply to the plan (or health 
insurance coverage offered in connection with the plan) for plan years 
beginning before the later of either--
    (i) The date on which the last of the collective bargaining 
agreements relating to the plan terminates (determined without regard 
to any extension agreed to after October 3, 2008); or
    (ii) July 1, 2010.

    Approved: November 12, 2009.

Charlene Frizzera,

Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: December 2, 2009.

Kathleen Sebelius,

Secretary.
[FR Doc. 2010-2167 Filed 1-29-10; 8:45 am]
BILLING CODE 4830-01-P; 4510-29-P; 4120-01-P