[Federal Register Volume 78, Number 219 (Wednesday, November 13, 2013)]
[Rules and Regulations]
[Pages 68240-68296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27086]



[[Page 68239]]

Vol. 78

Wednesday,

No. 219

November 13, 2013

Part III





Department of the Treasury





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Internal Revenue Service





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26 CFR Part 54





Department of Labor





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Employee Benefits Security Administration





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29 CFR Part 2590





Department of Health and Human Services





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45 CFR Parts 146 and 147





Final Rules Under the Paul Wellstone and Pete Domenici Mental Health 
Parity and Addiction Equity Act of 2008; Technical Amendment to 
External Review for Multi-State Plan Program; Final Rule

  Federal Register / Vol. 78 , No. 219 / Wednesday, November 13, 2013 / 
Rules and Regulations  

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9640]
RIN 1545-BI70

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB30

DEPARTMENT OF HEALTH AND HUMAN SERVICES

[CMS-4140-F]

45 CFR Parts 146 and 147

RIN 0938-AP65


Final Rules Under the Paul Wellstone and Pete Domenici Mental 
Health Parity and Addiction Equity Act of 2008; Technical Amendment to 
External Review for Multi-State Plan Program

AGENCY: 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: Final rules.

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SUMMARY: This document contains 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 group and individual health insurance coverage. This document 
also contains a technical amendment relating to external review with 
respect to the multi-state plan program administered by the Office of 
Personnel Management.

DATES: Effective date. These final regulations are effective on January 
13, 2014, except that the technical amendments to 29 CFR 2590.715-2719 
and 45 CFR 147.136 are effective on December 13, 2013.
    Applicability date. The mental health parity provisions of these 
final regulations apply to group health plans and health insurance 
issuers for plan years (or, in the individual market, policy years) 
beginning on or after July 1, 2014. Until the final rules become 
applicable, plans and issuers must continue to comply with the mental 
health parity provisions of the interim final regulations.

FOR FURTHER INFORMATION CONTACT: Amy Turner or Amber Rivers, Employee 
Benefits Security Administration, Department of Labor, at (202) 693-
8335; Karen Levin, Internal Revenue Service, Department of the 
Treasury, at (202) 622-6080 or (202) 317-5500; Jacob Ackerman, Centers 
for Medicare & Medicaid Services, Department of Health and Human 
Services, at (410) 786-1565.
    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 
(www.cms.gov/cciio) and information on health reform can be found at 
www.HealthCare.gov. In addition, information about mental health is 
available at www.mentalhealth.gov.

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/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, and 
applied to employment-related group health plans and health insurance 
coverage offered in connection with a group health plan. The changes 
made by MHPAEA were codified in these same sections and consist of new 
requirements, including parity for substance use disorder benefits, 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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    The Patient Protection and Affordable Care Act, Public Law 111-148, 
was enacted on March 23, 2010, and the Health Care and Education 
Reconciliation Act of 2010, Public Law 111-152, was enacted on March 
30, 2010 (collectively, the ``Affordable Care Act''). The Affordable 
Care Act reorganizes, amends, and adds to the provisions of part A of 
title XXVII of the PHS Act relating to group health plans and health 
insurance issuers in the group and individual markets. The Affordable 
Care Act adds section 715(a)(1) to ERISA and section 9815(a)(1) to the 
Code to incorporate the provisions of part A of title XXVII of the PHS 
Act into ERISA and the Code, and to make them applicable to group 
health plans and health insurance issuers providing health insurance 
coverage in connection with group health plans. The PHS Act sections 
incorporated by these references are sections 2701 through 2728.
    The Affordable Care Act extended MHPAEA to apply to the individual 
health insurance market and redesignated MHPAEA in the PHS Act as 
section 2726.\2\ Additionally, section 1311(j) of the Affordable Care 
Act applies section 2726 of the PHS Act to qualified health plans 
(QHPs) in the same manner and to the same extent as such section 
applies to health insurance issuers and group health plans. 
Furthermore, the Department of Health and Human Services (HHS) final 
regulation regarding essential health benefits (EHB) requires health 
insurance issuers offering non-grandfathered health insurance coverage 
in the individual and small group markets, through an Affordable 
Insurance Exchange (Exchange, also called a Health Insurance 
Marketplace or Marketplace) or outside of an Exchange, to comply with 
the requirements of the

[[Page 68241]]

MHPAEA regulations in order to satisfy the requirement to cover EHB.\3\
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    \2\ These final regulations apply to both grandfathered and non-
grandfathered health plans. See section 1251 of the Affordable Care 
Act and its implementing regulations at 26 CFR 54.9815-1251T, 29 CFR 
2590.715-1251, and 45 CFR 147.140. Under section 1251 of the 
Affordable Care Act, grandfathered health plans are exempted only 
from certain Affordable Care Act requirements enacted in Subtitles A 
and C of Title I of the Affordable Care Act. The provisions 
extending MHPAEA requirements to the individual market and requiring 
that qualified health plans comply with MHPAEA were not part of 
these sections.
    \3\ See 45 CFR 147.150 and 156.115 (78 FR 12834, February 25, 
2013).
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    On April 28, 2009, the Departments of the Treasury, Labor, and HHS 
published in the Federal Register (74 FR 19155) a request for 
information (RFI) soliciting comments on the requirements of MHPAEA. 
(Subsequent references to the ``Departments'' include all three 
Departments, unless the headings or context indicate otherwise.) On 
February 2, 2010, after consideration of the comments received in 
response to the RFI, the Departments published in the Federal Register 
(75 FR 5410) comprehensive interim final regulations implementing 
MHPAEA (interim final regulations). The interim final regulations 
generally became applicable to group health plans and group health 
insurance issuers for plan years beginning on or after July 1, 2010.
    The interim final regulations established six classifications of 
benefits \4\ and provided that the parity requirements be applied on a 
classification-by-classification basis. The general parity requirement 
set forth in paragraph (c)(2) of the interim final regulations 
prohibited plans and issuers from imposing a financial requirement or 
quantitative treatment limitation on mental health and substance use 
disorder benefits in any classification that is more restrictive than 
the predominant financial requirement or quantitative treatment 
limitation that applies to substantially all medical/surgical benefits 
in the same classification. For this purpose, the interim final 
regulations incorporated the two-thirds ``substantially all'' numerical 
standard from the regulations implementing MHPA 1996, and quantified 
``predominant'' to mean that more than one-half of medical/surgical 
benefits in the classification are subject to the financial requirement 
or quantitative treatment limitation in the relevant classification. 
Using these numerical standards, the Departments established a 
mathematical test by which plans and issuers could determine what level 
of a financial requirement or quantitative treatment limitation, if 
any, is the most restrictive level that could be imposed on mental 
health or substance use disorder benefits within a classification. 
(This mathematical test is referred to in this preamble as the 
quantitative parity analysis.)
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    \4\ The six classifications of benefits are inpatient, in-
network; inpatient, out-of-network; outpatient, in-network; 
outpatient, out-of-network; emergency care; and prescription drugs.
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    The interim final regulations also prohibited plans and issuers 
from applying cumulative financial requirements (such as deductibles or 
out-of-pocket maximums) or cumulative quantitative treatment 
limitations (such as annual or lifetime day or visit limits) to mental 
health or 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.
    Additionally, the interim final regulations set forth parity 
protections with respect to nonquantitative treatment limitations 
(NQTLs), which are limits on the scope or duration of treatment that 
are not expressed numerically (such as medical management techniques 
like prior authorization). The interim final regulations stated that a 
plan or issuer may not impose an NQTL with respect to mental health or 
substance use disorder benefits in any classification unless, under the 
terms of the plan as written and in operation, any processes, 
strategies, evidentiary standards, or other factors used in applying 
the NQTL to mental health or substance use disorder benefits in the 
classification are comparable to, and are applied no more stringently 
than, the processes, strategies, evidentiary standards, or other 
factors used in applying the limitation with respect to medical/
surgical benefits in the same classification, except to the extent that 
recognized clinically appropriate standards of care may permit a 
difference. The Departments also set forth a special rule for 
evaluating parity of multi-tiered prescription drug benefits. The 
interim final regulations included several examples to illustrate each 
of these parity standards.
    The interim final regulations also implemented MHPAEA's disclosure 
provisions requiring that the criteria for medical necessity 
determinations and the reason for any denial of reimbursement or 
payment under a group health plan (or health insurance coverage) with 
respect to mental health or substance use disorder benefits be made 
available upon request in certain circumstances.
    The interim final regulations also specifically requested comments 
in several areas, including whether additional examples would be 
helpful to illustrate the application of the NQTL rule to other 
features of medical management or general plan design; whether and to 
what extent MHPAEA addresses the ``scope of services'' or ``continuum 
of care'' provided by a group health plan or health insurance coverage; 
what additional clarifications might be helpful to facilitate 
compliance with the disclosure requirement for medical necessity 
criteria or denials of mental health or substance use disorder 
benefits; and 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.
    In light of the comments and other feedback received in response to 
the interim final regulations, the Departments issued clarifications in 
several rounds of Frequently Asked Questions (FAQs). In the first FAQ 
about MHPAEA, the Departments set forth an enforcement safe harbor 
under which the Departments would not take enforcement action against 
plans and issuers that divide benefits furnished on an outpatient basis 
into two sub-classifications--(1) office visits, and (2) all other 
outpatient items and services--for purposes of applying the financial 
requirement and treatment limitation rules under MHPAEA.\5\
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    \5\ See FAQ About Mental Health Parity and Addiction Equity Act, 
available at http://www.dol.gov/ebsa/faqs/faq-mhpaea.html.
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    The Departments issued additional FAQs providing further 
clarifications.\6\ The FAQs issued in December 2010 addressed the 
changes made to the definition of ``small employer'' after the 
enactment of the Affordable Care Act, made clear how the disclosure 
requirements under MHPAEA interact with other ERISA disclosure 
requirements (and that health care providers are entitled to request 
such information on behalf of participants), and provided temporary 
information on how to claim the increased cost exemption.\7\ Additional 
FAQs issued in November 2011 addressed specific NQTLs, such as prior 
authorization and concurrent review.\8\ The Departments

[[Page 68242]]

also clarified that plans and issuers may charge the specialist 
copayment for mental health and substance use disorder benefits only if 
it is determined that this level of copayment is the predominant level 
that applies to substantially all medical/surgical benefits within a 
classification.\9\
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    \6\ See FAQs about Affordable Care Act Implementation (Part V) 
and Mental Health Parity Implementation, available at http://www.dol.gov/ebsa/faqs/faq-aca5.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html, and 
FAQs about Affordable Care Act Implementation (Part VII) and Mental 
Health Parity Implementation, available at http://www.dol.gov/ebsa/faqs/faq-aca7.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs7.html#Mental Health Parity 
and Addiction Equity Act of 2008.
    \7\ See FAQs about Affordable Care Act Implementation (Part V) 
and Mental Health Parity Implementation, questions 8-11, available 
at http://www.dol.gov/ebsa/faqs/faq-aca5.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html.
    \8\ See FAQs about Affordable Care Act Implementation (Part VII) 
and Mental Health Parity Implementation, questions 2-6, available at 
http://www.dol.gov/ebsa/faqs/faq-aca7.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs7.html#Mental Health Parity and Addiction Equity Act of 2008.
    \9\ See FAQs about Affordable Care Act Implementation (Part VII) 
and Mental Health Parity Implementation, question 7, available at 
http://www.dol.gov/ebsa/faqs/faq-aca7.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs7.html#Mental Health Parity and Addiction Equity Act of 2008.
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    After consideration of the comments and other feedback received 
from stakeholders, the Departments are publishing these final 
regulations.

II. Overview of the Regulations

    In general, these final regulations incorporate clarifications 
issued by the Departments through FAQs since the issuance of the 
interim final regulations, and provide new clarifications on issues 
such as NQTLs and the increased cost exemption. The HHS final 
regulation also implements the provisions of MHPAEA for the individual 
health insurance market.

A. Meaning of Terms

    Under MHPAEA and the interim final regulations, the term ``medical/
surgical benefits'' means benefits for medical or surgical services, as 
defined under the terms of the plan or health insurance coverage. This 
term does not include mental health or substance use disorder benefits. 
The terms ``mental health benefits'' and ``substance use disorder 
benefits'' mean benefits with respect to services for mental health 
conditions or substance use disorders, respectively, as defined under 
the terms of the plan and in accordance with applicable Federal and 
State law. The interim final regulations further provided that the plan 
terms defining whether the benefits are medical/surgical benefits or 
mental health or substance use disorder benefits must be consistent 
with generally recognized standards of current medical practice (for 
example, the most current version of the Diagnostic and Statistical 
Manual of Mental Disorders (DSM), the most current version of the 
International Classification of Diseases (ICD), or State guidelines).
    These final regulations make minor, technical changes to the 
meaning of these terms for consistency and clarity. Specifically, the 
final regulations clarify that the definitions of ``medical/surgical 
benefits,'' ``mental health benefits,'' and ``substance use disorder 
benefits'' include benefits for items as well as services. The final 
regulations also clarify that medical conditions and surgical 
procedures, and mental health conditions and substance use disorders, 
are defined under the terms of the plan or coverage and in accordance 
with applicable Federal and State law.
    One commenter suggested that the definitions of mental health 
benefits and substance use disorder benefits should be revised to refer 
only to the terms of the plan and applicable State law. The Departments 
decline to adopt this suggestion. The statutory definitions provided in 
MHPAEA specifically refer to applicable Federal law. Moreover, the 
reference to Federal law is appropriate because State law does not 
apply to all group health plans, and Federal law also identifies EHB 
categories, including the category of mental health and substance use 
disorder services, that non-grandfathered health plans in the 
individual and small group markets are required to cover beginning in 
2014.

B. Clarifications--Parity Requirements

1. Classification of Benefits
    As described earlier in this preamble, the interim final 
regulations set forth that the parity analysis be conducted on a 
classification-by-classification basis in six specific classifications 
of benefits. Subsequent to the issuance of the interim final 
regulations, several plans and issuers brought to the Departments' 
attention that, with respect to outpatient benefits, many plans and 
issuers require a copayment for office visits (such as physician or 
psychologist visits) and coinsurance for all other outpatient services 
(such as outpatient surgery). In response to this information, the 
Departments published an FAQ establishing an enforcement safe harbor 
under which the Departments would not take enforcement action against 
plans and issuers that divide benefits furnished on an outpatient basis 
into two sub-classifications ((1) office visits and (2) all other 
outpatient items and services) for purposes of applying the financial 
requirement and treatment limitation rules under MHPAEA.\10\
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    \10\ See FAQ About Mental Health Parity and Addiction Equity 
Act, available at http://www.dol.gov/ebsa/faqs/faq-mhpaea.html.
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    The Departments have incorporated the terms of the FAQ in paragraph 
(c)(3)(iii)(C) of these final regulations, permitting sub-
classifications for office visits, separate from other outpatient 
services. Other sub-classifications not specifically permitted in these 
final regulations, such as separate sub-classifications for generalists 
and specialists, must not be used for purposes of determining parity. 
After the sub-classifications are established, a plan or issuer may not 
impose any financial requirement or quantitative treatment limitation 
on mental health or substance use disorder benefits in any sub-
classification (i.e., office visits or non-office visits) that is more 
restrictive than the predominant financial requirement or quantitative 
treatment limitation that applies to substantially all medical/surgical 
benefits in the sub-classification using the methodology set forth in 
paragraph (c)(3)(i) of these final regulations. Example 6 under 
paragraph (c)(3)(iv) of these final regulations illustrates the 
approach that plans and issuers may employ when dividing outpatient 
benefits into sub-classifications in accordance with these final 
regulations.
    Additionally, commenters requested that the final regulations 
permit plans and issuers to create sub-classifications to address plan 
designs that have two or more network tiers of providers. Commenters 
asserted that utilizing tiered networks helps plans manage the costs 
and quality of care and requested that the final regulations allow 
plans to conduct the parity analysis separately with respect to these 
various network tiers.
    The Departments have considered these comments and recognize that 
tiered networks have become an important tool for health plan efforts 
to manage care and control costs. Therefore, for purposes of applying 
the financial requirement and treatment limitation rules under MHPAEA, 
these final regulations provide that if a plan (or health insurance 
coverage) provides in-network benefits through multiple tiers of in-
network providers (such as an in-network tier of preferred providers 
with more generous cost sharing to participants than a separate in-
network tier of participating providers), the plan may divide its 
benefits furnished on an in-network basis into sub-classifications that 
reflect those network tiers, if the tiering is based on reasonable 
factors and without regard to whether a provider is a mental health or 
substance use disorder provider or a medical/surgical provider.\11\ 
After the sub-

[[Page 68243]]

classifications are established, the plan or issuer may not impose any 
financial requirement or quantitative treatment limitation on mental 
health or substance use disorder benefits in any sub-classification 
that is more restrictive than the predominant financial requirement or 
quantitative treatment limitation that applies to substantially all 
medical/surgical benefits in the sub-classification using the 
methodology set forth in paragraph (c)(3)(i) of these final 
regulations.
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    \11\ Under PHS Act section 2719A (incorporated into ERISA and 
the Code) and its implementing regulations, non-grandfathered group 
health plans and non-grandfathered group or individual health 
insurance coverage are prohibited from imposing any cost-sharing 
requirement expressed as a copayment amount or coinsurance rate with 
respect to a participant or beneficiary for out-of-network emergency 
services that exceeds the cost-sharing requirement imposed with 
respect to a participant or beneficiary if the services were 
provided in-network. 26 CFR 54.9815-2719AT(b); 29 CFR 2590.715-
2719A(b); 45 CFR 147.138(b).
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    The Departments are aware that some plans may have an uneven number 
of tiers between medical/surgical providers and mental health or 
substance use disorder providers (e.g., 3 tiers for medical/surgical 
providers and 2 tiers for mental health or substance use disorder 
providers). The Departments may provide additional guidance if 
questions persist with respect to plans with an uneven number of tiers 
or if the Departments become aware of tier structures that may be 
inconsistent with the parity analysis required under these final 
regulations. Until the issuance of further guidance, the Departments 
will consider a plan or issuer to comply with the financial requirement 
and quantitative treatment limitation rules under MHPAEA if a plan or 
issuer treats the least restrictive level of the financial requirement 
or quantitative treatment limitation that applies to at least two-
thirds of medical/surgical benefits across all provider tiers in a 
classification as the predominant level that it may apply to mental 
health or substance use disorder benefits in the same classification.
    Some commenters requested clarification that all medical/surgical 
benefits and mental health or substance use disorder benefits offered 
by a plan or coverage must be contained within the six classifications 
of benefits and that plans and issuers could not classify certain 
benefits outside of the six classifications in order to avoid the 
parity requirements. Other commenters suggested that specific mental 
health or substance use disorder benefits be cross-walked or paired 
with specific medical/surgical benefits (e.g., physical rehabilitation 
with substance use disorder rehabilitation) for purposes of the parity 
analysis.
    The final regulations retain the six classifications enumerated in 
the interim final regulations, specify the permissible sub-
classifications, and provide that the parity analysis be performed 
within each classification and sub-classification. The classifications 
and sub-classifications are intended to be comprehensive and cover the 
complete range of medical/surgical benefits and mental health or 
substance use disorder benefits offered by health plans and issuers. 
Medical/surgical benefits and mental health or substance use disorder 
benefits cannot be categorized as being offered outside of these 
classifications and therefore not subject to the parity analysis.
    Cross-walking or pairing specific mental health or substance use 
disorder benefits with specific medical/surgical benefits is a static 
approach that the Departments do not believe is feasible, given the 
difficulty in determining ``equivalency'' between specific medical/
surgical benefits and specific mental health and substance use disorder 
benefits and because of the differences in the types of benefits that 
may be offered by any particular plan.
2. Measuring Plan Benefits
    Some commenters supported the ``substantially all'' and 
``predominant'' tests as formulated in the interim final regulations, 
while other commenters were concerned that they were too restrictive 
and may create an administrative burden on plans. A few commenters 
requested clarification that the parity analysis would not need to be 
performed annually absent changes in plan design or indications that 
assumptions or data were inaccurate.
    The interim final regulations incorporated the two-thirds 
``substantially all'' numerical standard from the regulations 
implementing MHPA 1996, and quantified ``predominant'' to mean more 
than one-half of medical/surgical benefits in the classification are 
subject to the financial requirement or quantitative treatment 
limitation. The Departments believe group health plans and issuers have 
developed the familiarity and expertise to implement these parity 
requirements and therefore retain the numerical standards as set forth 
in the interim final regulations. The Departments clarify that a plan 
or issuer is not required to perform the parity analysis each plan year 
unless there is a change in plan benefit design, cost-sharing 
structure, or utilization that would affect a financial requirement or 
treatment limitation within a classification (or sub-classification).
    These final regulations, like the interim final regulations, 
provide that the determination of the portion of medical/surgical 
benefits in a classification of benefits subject to a financial 
requirement or quantitative treatment limitation (or subject to any 
level of a financial requirement or quantitative treatment limitation) 
is based on the dollar amount of all plan payments for medical/surgical 
benefits in the classification expected to be paid under the plan for 
the plan year. Any reasonable method may be used to determine the 
dollar amount expected to be paid under the plan for medical/surgical 
benefits subject to a financial requirement or quantitative treatment 
limitation. One commenter asked whether plan benefits are measured 
based on allowed plan costs, for purposes of the ``substantially all'' 
and ``predominant'' tests. The dollar amount of plan payments is based 
on the amount the plan allows (before enrollee cost sharing) rather 
than the amount the plan pays (after enrollee cost sharing) because 
payment based on the allowed amount covers the full scope of the 
benefits being provided.
3. Cumulative Financial Requirements and Cumulative Quantitative 
Treatment Limitations
    The interim final regulations provide that a plan or issuer may not 
apply cumulative financial requirements (such as deductibles and out-
of-pocket maximums) or cumulative quantitative treatment limitations 
(such as annual or lifetime day or visit limits) for mental health or 
substance use disorder benefits in a classification that accumulate 
separately from any cumulative requirement or limitation established 
for medical/surgical benefits in the same classification. These final 
regulations retain this standard and continue to provide that 
cumulative requirements and limitations must also satisfy the 
quantitative parity analysis. Accordingly, these final regulations 
continue to prohibit plans and issuers from applying separate 
cumulative financial requirements and cumulative quantitative treatment 
limitations to medical/surgical and mental health and substance use 
disorder benefits in a classification, and continue to provide that 
such cumulative requirements or limitations are only permitted to be 
applied for mental health and substance use disorder benefits in a 
classification to the extent that such unified cumulative requirements 
or limitations also apply to substantially all medical/surgical 
benefits in the classification.
    Several commenters argued that the requirement in the interim final 
regulations to use a single, combined deductible in a classification 
was burdensome and would require significant resources to implement, 
especially for Managed Behavioral Health Organizations (MBHOs) that 
often work with multiple plans. One commenter asserted that this

[[Page 68244]]

requirement could impact the willingness of plan sponsors to offer 
mental health or substance use disorder benefits. A study sponsored by 
HHS, however, found that nearly all plans had eliminated the use of 
separate deductibles for mental health and substance use disorder 
benefits by 2011.\12\ According to this study, even in 2010, only a 
very small percentage of plans were using separate deductibles. This 
study and other research \13\ have shown that the overwhelming majority 
of plans have retained mental health and substance use disorder 
coverage after issuance of the interim final regulations and, for the 
very small percent of plans that have dropped mental health or 
substance use disorder coverage, there is no clear evidence they did so 
because of MHPAEA. Accordingly, these final regulations retain the 
requirement that plans and issuers use a single, combined deductible in 
a classification.
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    \12\ Final Report: Consistency of Large Employer and Group 
Health Plan Benefits with Requirements of the Paul Wellstone and 
Pete Domenici Mental Health Parity and Addiction Equity Act of 2008. 
NORC at the University of Chicago for the Office of the Assistant 
Secretary for Planning and Evaluation. This study analyzed 
information on large group health plan benefit designs from 2009 
through 2011 in several databases maintained by benefits consulting 
firms that advise plans on compliance with MHPAEA as well as other 
requirements.
    \13\ The 2010 Kaiser Family Foundation/HRET and the 2010 Mercer 
survey found that fewer than 2% of firms with over 50 employees 
dropped coverage of mental health or substance use disorder 
benefits. Final Report: Consistency of Large Employer and Group 
Health Plan Benefits with Requirements of the Paul Wellstone and 
Pete Domenici Mental Health Parity and Addiction Equity Act of 2008. 
NORC at the University of Chicago for the Office of the Assistant 
Secretary for Planning and Evaluation, pp. 43-44.
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4. Interaction With PHS Act Section 2711 (No Lifetime or Annual Limits)
    MHPA 1996 and paragraph (b) of the interim final regulations set 
forth the parity requirements with respect to aggregate lifetime and 
annual dollar limits on mental health benefits or substance use 
disorder benefits where a group health plan or health insurance 
coverage provides both medical/surgical benefits and mental health 
benefits or substance use disorder benefits.
    PHS Act section 2711, as added by the Affordable Care Act, 
prohibits lifetime and annual limits on the dollar amount of EHB, as 
defined in section 1302(b) of the Affordable Care Act. The definition 
of EHB includes ``mental health and substance use disorder services, 
including behavioral health treatment.'' \14\ Thus, notwithstanding the 
provisions of MHPAEA that permit aggregate lifetime and annual dollar 
limits with respect to mental health or substance use disorder benefits 
as long as those limits are in accordance with the parity requirements 
for such limits, such dollar limits are prohibited with respect to 
mental health or substance use disorder benefits that are covered as 
EHB. While these final regulations generally retain the provisions of 
the interim final regulations regarding the application of the parity 
requirements to aggregate lifetime and annual dollar limits on mental 
health or substance use disorder benefits, language has been added 
specifying that these final regulations do not address the requirements 
of PHS Act section 2711. That is, the parity requirements regarding 
annual and lifetime limits described in these final regulations only 
apply to the provision of mental health and substance use disorder 
benefits that are not EHB. Because this greatly reduces the instances 
in which annual or lifetime limits will be permissible, the examples 
from the interim final regulations that expressly demonstrated how a 
plan could apply lifetime or annual dollar limits have been 
deleted.\15\
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    \14\ See section 1302(b)(1)(E) of the Affordable Care Act.
    \15\ For self-insured group health plans, large group market 
health plans, and grandfathered health plans, to determine which 
benefits are EHB for purposes of complying with PHS Act section 
2711, the Departments have stated that they will consider the plan 
to have used a permissible definition of EHB under section 1302(b) 
of the Affordable Care Act if the definition is one that is 
authorized by the Secretary of HHS (including any available 
benchmark option, supplemented as needed to ensure coverage of all 
ten statutory categories). Furthermore, the Departments intend to 
use their enforcement discretion and work with those plans that make 
a good faith effort to apply an authorized definition of EHB to 
ensure there are no annual or lifetime dollar limits on EHB. See 
FAQ-10 of Frequently Asked Questions on Essential Health Benefits 
Bulletin (published February 17, 2012), available at: http://www.cms.gov/CCIIO/Resources/Files/Downloads/ehb-faq-508.pdf.
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5. Interaction With PHS Act Section 2713 (Coverage of Preventive Health 
Services)
    The interim final regulations provide that if a plan or issuer 
provides mental health or substance use disorder benefits in any 
classification, mental health or substance use disorder benefits must 
be provided in every classification in which medical/surgical benefits 
are provided. Under PHS Act section 2713, as added by the Affordable 
Care Act, non-grandfathered group health plans and health insurance 
issuers offering non-grandfathered group and individual coverage are 
required to provide coverage for certain preventive services without 
cost sharing.\16\ These preventive services presently include, among 
other things, alcohol misuse screening and counseling, depression 
counseling, and tobacco use screening as provided for in the guidelines 
issued by the United States Preventive Services Task Force.
---------------------------------------------------------------------------

    \16\ See 26 CFR 54.9815-2713T; 29 CFR 2590.715-2713; 45 CFR 
147.130.
---------------------------------------------------------------------------

    The Departments received several comments asking whether or to what 
extent a non-grandfathered plan that provides mental health or 
substance use disorder benefits pursuant to PHS Act section 2713 is 
subject to the requirements of MHPAEA. Many commenters urged the 
Departments to clarify that the provision of mental health and 
substance use disorder benefits in this circumstance does not trigger a 
broader requirement to comply with MHPAEA for non-grandfathered plans 
that do not otherwise offer mental health or substance use disorder 
benefits.
    The Departments agree that compliance with PHS Act section 2713 
should not, for that reason alone, require that the full range of 
benefits for a mental health condition or substance user disorder be 
provided under MHPAEA. Accordingly, paragraph (e)(3)(ii) of these final 
regulations provides that nothing in these regulations requires a group 
health plan (or health insurance issuer offering coverage in connection 
with a group health plan) that provides mental health or substance use 
disorder benefits only to the extent required under PHS Act section 
2713 to provide additional mental health or substance use disorder 
benefits in any classification.

C. Nonquantitative Treatment Limitations

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

[[Page 68245]]

medical/surgical benefits in the same classification.
    The interim final regulations also contained an exception to the 
NQTL requirements allowing for variation ``to the extent that 
recognized clinically appropriate standards of care may permit a 
difference.'' A few commenters expressed support for the exception, 
emphasizing inherent differences in treatment for medical/surgical 
conditions and mental health conditions and substance use disorders. 
Many other commenters raised concerns that this exception could be 
subject to abuse and recommended the Departments set clear standards 
for what constitutes a ``recognized clinically appropriate standard of 
care.'' For example, commenters suggested a recognized clinically 
appropriate standard of care must reflect input from multiple 
stakeholders and experts; be accepted by multiple nationally recognized 
provider, consumer, or accrediting organizations; be based on 
independent scientific evidence; and not be developed solely by a plan 
or issuer. Additionally, since publication of the interim final 
regulations, some plans and issuers may have attempted to invoke the 
exception to justify applying an NQTL to all mental health or substance 
use disorder benefits in a classification, while only applying the NQTL 
to a limited number of medical/surgical benefits in the same 
classification. These plans and issuers generally argue that 
fundamental differences in treatment of mental health and substance use 
disorders and medical/surgical conditions, justify applying stricter 
NQTLs to mental health or substance use disorder benefits than to 
medical/surgical benefits under the exception in the interim final 
regulations.
    In consideration of these comments, the Departments are removing 
the specific exception for ``recognized clinically appropriate 
standards of care.'' \17\ Plans and issuers will continue to have the 
flexibility contained in the NQTL requirements to take into account 
clinically appropriate standards of care when determining whether and 
to what extent medical management techniques and other NQTLs apply to 
medical/surgical benefits and mental health and substance use disorder 
benefits, as long as the processes, strategies, evidentiary standards, 
and other factors used in applying an NQTL to mental health and 
substance use disorder benefits are comparable to, and applied no more 
stringently than, those with respect to medical/surgical benefits. In 
particular, the regulations do not require plans and issuers to use the 
same NQTLs for both mental health and substance use disorder benefits 
and medical/surgical benefits, but rather that the processes, 
strategies, evidentiary standards, and other factors used by the plan 
or issuer to determine whether and to what extent a benefit is subject 
to an NQTL are comparable to and applied no more stringently for mental 
health or substance use disorder benefits than for medical/surgical 
benefits. Disparate results alone do not mean that the NQTLs in use do 
not comply with these requirements. The final regulations provide 
examples of how health plans and issuers can comply with the NQTL 
requirements absent the exception for a recognized clinically 
appropriate standard of care.
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    \17\ HHS convened a technical expert panel on March 3, 2011 to 
provide input on the use of NQTLs for mental health and substance 
use disorder benefits. The panel was comprised of individuals with 
clinical expertise in mental health and substance use disorder 
treatment as well as general medical treatment. These experts were 
unable to identify situations for which the clinically appropriate 
standard of care exception was warranted--in part because of the 
flexibility inherent in the NQTL standard itself.
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    However, MHPAEA specifically prohibits separate treatment 
limitations that are applicable only with respect to mental health or 
substance use disorder benefits. Moreover, as reflected in FAQs \18\ 
released in November 2011, it is unlikely that a reasonable application 
of the NQTL requirement would result in all mental health or substance 
use disorder benefits being subject to an NQTL in the same 
classification in which less than all medical/surgical benefits are 
subject to the NQTL.
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    \18\ See FAQs About Affordable Care Act Implementation (Part 
VII) and Mental Health Parity Implementation, question 5, available 
at: http://www.dol.gov/ebsa/faqs/faq-aca7.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs7.html.
---------------------------------------------------------------------------

2. Parity Standards for NQTLs Versus Quantitative Treatment Limitations
    As mentioned earlier in this preamble, MHPAEA and the interim final 
regulations prohibit plans and issuers from imposing a financial 
requirement or quantitative treatment limitation on mental health and 
substance use disorder benefits that is more restrictive than the 
predominant financial requirement or quantitative treatment limitation 
that applies to substantially all medical/surgical benefits in the same 
classification. The interim final regulations incorporated the two-
thirds ``substantially all'' numerical standard from the rules 
implementing the requirements of MHPA 1996, and quantified 
``predominant'' to mean more than one-half. Using these numerical 
standards, the Departments established a mathematical test by which 
plans and issuers could determine what level of a financial requirement 
or quantitative treatment limitation, if any, is the most restrictive 
level that could be imposed on mental health or substance use disorder 
benefits within a classification.
    The Departments recognized that plans and issuers impose a variety 
of NQTLs affecting the scope or duration of benefits that are not 
expressed numerically. Some commenters recommended that the Departments 
adopt the same quantitative parity analysis for NQTLs. While NQTLs are 
subject to the parity requirements, the Departments understood that 
such limitations cannot be evaluated mathematically. These final 
regulations continue to provide different parity standards with respect 
to quantitative treatment limitations and NQTLs, because although both 
kinds of limitations operate to limit the scope or duration of mental 
health and substance use disorder benefits, they apply to such benefits 
differently.\19\
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    \19\ The Departments reiterated the different parity standards 
with respect to quantitative treatment limitations and 
nonquantitative treatment limitations in an FAQ. See FAQs on 
Understanding Implementation of the Mental Health Parity and 
Addiction Equity Act of 2008, question 6, available at http://www.dol.gov/ebsa/faqs/faq-mhpaeaimplementation.html.
---------------------------------------------------------------------------

3. Clarification Regarding the Application of Certain NQTLs
    Under the interim final regulations, the Departments set forth the 
parity requirement with respect to NQTLs and provided an illustrative 
list of NQTLs that plans and issuers commonly use. These NQTLs 
included: medical management standards limiting or excluding benefits 
based on medical necessity or medical appropriateness, or based on 
whether the treatment is experimental or investigative; formulary 
design for prescription drugs; standards for provider admission to 
participate in a network, including reimbursement rates; plan methods 
for determining usual, customary, and reasonable charges; refusal to 
pay for higher-cost therapies until it can be shown that a lower-cost 
therapy is not effective (also known as fail-first policies or step 
therapy protocols); and exclusions based on failure to complete a 
course of treatment. The interim final regulations also included 
examples illustrating the operation of the requirements for NQTLs.
    After the interim final regulations were issued, some stakeholders 
asked questions regarding the application of

[[Page 68246]]

the NQTL rule to other features of medical management or general plan 
design not specifically addressed in the interim final regulations. 
Many commenters requested that the Departments address additional 
NQTLs, such as prior authorization and concurrent review, service 
coding, provider network criteria, policy coverage conditions, and both 
in- and out-of-network limitations.
    These final regulations make clear that, while an illustrative list 
is included in these final regulations, all NQTLs imposed on mental 
health and substance use disorder benefits by plans and issuers subject 
to MHPAEA are required to be applied in accordance with these 
requirements. To the extent that a plan standard operates to limit the 
scope or duration of treatment with respect to mental health or 
substance use disorder benefits, the processes, strategies, evidentiary 
standards, or other factors used to apply the standard must be 
comparable to, and applied no more stringently than, those imposed with 
respect to medical/surgical benefits. By being comparable, the 
processes, strategies, evidentiary standards and other factors cannot 
be specifically designed to restrict access to mental health or 
substance use disorder benefits. Specifically, plan standards, such as 
in- and out-of-network geographic limitations, limitations on inpatient 
services for situations where the participant is a threat to self or 
others, exclusions for court-ordered and involuntary holds, 
experimental treatment limitations, service coding, exclusions for 
services provided by clinical social workers, and network adequacy, 
while not specifically enumerated in the illustrative list of NQTLs, 
must be applied in a manner that complies with these final regulations. 
In response to the comments received, in paragraph (c)(4)(ii) of these 
final regulations, the Departments added two additional examples of 
NQTLs to the illustrative list: network tier design and restrictions 
based on geographic location, facility type, provider specialty and 
other criteria that limit the scope or duration of benefits for 
services provided under the plan or coverage. Furthermore, the 
Departments included additional and revised examples on how NQTLs, 
enumerated in these final regulations or otherwise, may be applied in 
accordance with the requirements of these final regulations.
    The Departments are aware that some commenters have asked how the 
NQTL requirements apply to provider reimbursement rates. Plans and 
issuers may consider a wide array of factors in determining provider 
reimbursement rates for both medical/surgical services and mental 
health and substance use disorder services, such as service type; 
geographic market; demand for services; supply of providers; provider 
practice size; Medicare reimbursement rates; and training, experience 
and licensure of providers. The NQTL provisions require that these or 
other factors be applied comparably to and no more stringently than 
those applied with respect to medical/surgical services. Again, 
disparate results alone do not mean that the NQTLs in use fail to 
comply with these requirements. The Departments may provide additional 
guidance if questions persist with respect to provider reimbursement 
rates.
    Some commenters requested that the Departments require plans and 
issuers to comply with certain guidelines, independent national or 
international standards, or State government guidelines. While plans 
and issuers are not required under these final regulations to comply 
with any such guidelines or standards with respect to the development 
of their NQTLs, these standards, such as the behavioral health 
accreditation standards set forth by the National Committee for Quality 
Assurance or the standards for implementing parity in managed care set 
forth by URAC, may be used as references and best practices in 
implementing NQTLs, if they are applied in a manner that complies with 
these final regulations.

D. Scope of Services

    In response to the RFI and interim final regulations, the 
Departments received many comments addressing an issue characterized as 
``scope of services'' or ``continuum of care.'' Scope of services 
generally refers to the types of treatment and treatment settings that 
are covered by a group health plan or health insurance coverage. Some 
commenters requested that, with respect to a mental health condition or 
substance use disorder that is otherwise covered, the regulations 
clarify that a plan or issuer is not required to provide benefits for 
any particular treatment or treatment setting (such as counseling or 
non-hospital residential treatment) if benefits for the treatment or 
treatment setting are not provided for medical/surgical conditions. 
Other commenters requested that the regulations require plans and 
issuers to provide benefits for the full scope of medically appropriate 
services to treat a mental health condition or substance use disorder 
if the plan or issuer covers the full scope of medically appropriate 
services to treat medical/surgical conditions, even if some treatments 
or treatment settings are not otherwise covered by the plan or 
coverage. Other commenters requested that MHPAEA be interpreted to 
require that group health plans and issuers provide benefits for any 
evidence-based treatment.
    The interim final regulations established six broad classifications 
that in part define the scope of services under MHPAEA. The interim 
final regulations require that, if a plan or issuer provides coverage 
for mental health or substance use disorder benefits in any 
classification, mental health or substance use disorder benefits must 
be provided in every classification in which medical/surgical benefits 
are provided. The interim final regulations did not, however, address 
the scope of services that must be covered within those 
classifications. The Departments invited comments on whether and to 
what extent the final regulations should address the scope of services 
or continuum of care provided by a group health plan or health 
insurance coverage.
    Many commenters requested that the Departments clarify how MHPAEA 
affects the scope of coverage for intermediate services (such as 
residential treatment, partial hospitalization, and intensive 
outpatient treatment) and how these services fit within the six 
classifications set forth by the interim final regulations. Some 
commenters suggested that the final regulations establish what 
intermediate mental health and substance use disorder services would be 
analogous to various intermediate medical/surgical services for 
purposes of the MHPAEA parity analysis. Other commenters suggested that 
the Departments not address scope of services in the final regulations.
    The Departments did not intend that plans and issuers could exclude 
intermediate levels of care covered under the plan from MHPAEA's parity 
requirements. At the same time, the Departments did not intend to 
impose a benefit mandate through the parity requirement that could 
require greater benefits for mental health conditions and substance use 
disorders than for medical/surgical conditions. In addition, the 
Departments' approach defers to States to define the package of 
insurance benefits that must be provided in a State through EHB.\20\
---------------------------------------------------------------------------

    \20\ See 45 CFR 147.150 and 156.115 (78 FR 12834, February 25, 
2013).
---------------------------------------------------------------------------

    Although the interim final regulations did not define the scope of 
the six classifications of benefits, they directed that plans and 
issuers assign mental

[[Page 68247]]

health and substance use disorder benefits and medical/surgical 
benefits to these classifications in a consistent manner. This general 
rule also applies to intermediate services provided under the plan or 
coverage. Plans and issuers must assign covered intermediate mental 
health and substance use disorder benefits to the existing six benefit 
classifications in the same way that they assign comparable 
intermediate medical/surgical benefits to these classifications. For 
example, if a plan or issuer classifies care in skilled nursing 
facilities or rehabilitation hospitals as inpatient benefits, then the 
plan or issuer must likewise treat any covered care in residential 
treatment facilities for mental health or substance user disorders as 
an inpatient benefit. In addition, if a plan or issuer treats home 
health care as an outpatient benefit, then any covered intensive 
outpatient mental health or substance use disorder services and partial 
hospitalization must be considered outpatient benefits as well.
    These final regulations also include additional examples 
illustrating the application of the NQTL rules to plan exclusions 
affecting the scope of services provided under the plan. The new 
examples clarify that plan or coverage restrictions based on geographic 
location, facility type, provider specialty, and other criteria that 
limit the scope or duration of benefits for services must comply with 
the NQTL parity standard under these final regulations.

E. Disclosure of Underlying Processes and Standards

    MHPAEA requires that the criteria for plan medical necessity 
determinations with respect to mental health or substance use disorder 
benefits (or health insurance coverage offered in connection with the 
plan with respect to such benefits) be made available by the plan 
administrator (or the health insurance issuer offering such coverage) 
to any current or potential participant, beneficiary, or contracting 
provider upon request in accordance with regulations. MHPAEA also 
requires that the reason for any denial under the plan (or coverage) of 
reimbursement or payment for services with respect to mental health or 
substance use disorder benefits in the case of any participant or 
beneficiary must be made available on request or as otherwise required 
by the plan administrator (or health insurance issuer) to the 
participant or beneficiary in accordance with regulations.
    Several commenters expressed concern about the lack of health plan 
transparency, or made recommendations to improve transparency, 
including a request that plans and issuers be required to provide 
sufficient information to determine whether a plan is applying medical 
necessity criteria and other factors comparably to medical/surgical 
benefits and mental health and substance use disorder benefits. In 
addition, since the issuance of the interim final regulations, 
stakeholders have expressed concern that it is difficult to understand 
whether a plan complies with the NQTL provisions without information 
showing that the processes, strategies, evidentiary standards, and 
other factors used in applying an NQTL to mental health or substance 
use disorder benefits and medical/surgical benefits are comparable, 
impairing plan participants' means of ensuring compliance with MHPAEA.
    In response to these concerns, the Departments published several 
FAQs clarifying the breadth of disclosure requirements applicable to 
group health plans and health insurance issuers under both MHPAEA and 
other applicable law, including ERISA and the Affordable Care Act.\21\ 
The substance of these FAQs is included in new paragraph (d)(3) of the 
final regulations, which reminds plans, issuers, and individuals that 
compliance with MHPAEA's disclosure requirements is not determinative 
of compliance with any other provision of applicable Federal or State 
law. In particular, in addition to MHPAEA's disclosure requirements, 
provisions of other applicable law require disclosure of information 
relevant to medical/surgical, mental health, and substance use disorder 
benefits. For example, ERISA section 104 and the Department of Labor's 
implementing regulations \22\ provide that, for plans subject to ERISA, 
instruments under which the plan is established or operated must 
generally be furnished by the plan administrator to plan participants 
\23\ within 30 days of request. Instruments under which the plan is 
established or operated include documents with information on medical 
necessity criteria for both medical/surgical benefits and mental health 
and substance use disorder benefits, as well as the processes, 
strategies, evidentiary standards, and other factors used to apply an 
NQTL with respect to medical/surgical benefits and mental health or 
substance use disorder benefits under the plan.
---------------------------------------------------------------------------

    \21\ See FAQs for Employees about the Mental Health Parity and 
Addiction Equity Act, available at http://www.dol.gov/ebsa/faqs/faq-mhpaea2.html; FAQs about Affordable Care Act Implementation (Part V) 
and Mental Health Parity Implementation, available at http://www.dol.gov/ebsa/faqs/faq-aca5.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html.
    \22\ 29 CFR 2520.104b 1.
    \23\ ERISA section 3(7) defines the term ``participant'' to 
include any employee or former employee who is or may become 
eligible to receive a benefit of any type from an employee benefit 
plan or whose beneficiaries may become eligible to receive any such 
benefit. Accordingly, employees who are not enrolled but are, for 
example, in a waiting period for coverage, or who are otherwise 
shopping amongst benefit package options at open season, generally 
are considered plan participants for this purpose.
---------------------------------------------------------------------------

    In addition, the Department of Labor's claims procedure regulations 
(applicable to ERISA plans), as well as the Departments' claims and 
appeals regulations under the Affordable Care Act (applicable to all 
non-grandfathered group health plans and health insurance issuers in 
the group and individual markets),\24\ set forth rules regarding claims 
and appeals, including the right of claimants (or their authorized 
representative) upon appeal of an adverse benefit determination (or a 
final internal adverse benefit determination) to be provided by the 
plan or issuer, upon request and free of charge, reasonable access to 
and copies of all documents, records, and other information relevant to 
the claimant's claim for benefits.\25\ In addition, the plan or issuer 
must provide the claimant with any new or additional evidence 
considered, relied upon, or generated by the plan or issuer (or at the 
direction of the plan or issuer) in connection with a claim. If the 
plan or issuer is issuing an adverse benefit determination on review 
based on a new or additional rationale, the claimant must be provided, 
free of charge, with the rationale. Such evidence or rationale must be 
provided as soon as possible and sufficiently in advance of the date on 
which the notice of adverse benefit determination on

[[Page 68248]]

review is required to be provided to give the claimant a reasonable 
opportunity to respond prior to that date.\26\ The information required 
to be provided under these provisions includes documents of a 
comparable nature with information on medical necessity criteria for 
both medical/surgical benefits and mental health and substance use 
disorder benefits, as well as the processes, strategies, evidentiary 
standards, and other factors used to apply an NQTL with respect to 
medical/surgical benefits and mental health or substance use disorder 
benefits under the plan.
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    \24\ 29 CFR 2560.503-1. See also 26 CFR 54.9815-2719T(b)(2)(i), 
29 CFR 2590.715-2719(b)(2)(i), and 45 CFR 147.136(b)(2)(i), 
requiring non-grandfathered plans and issuers to incorporate the 
internal claims and appeals processes set forth in 29 CFR 2560.503-
1.
    \25\ See 29 CFR 2560.503-1. The Department of Labor's claim 
procedure regulation stipulates specific timeframes in which a plan 
administrator must notify a claimant of the plan's benefit 
determination, which includes, in the case of an adverse benefit 
determination, the reason for the denial. Accordingly, a plan 
administrator must notify a claimant of the plan's benefit 
determination with respect to a pre-service claim within a 
reasonable time period appropriate to the medical circumstances, but 
not later than 15 days after the receipt of the claim. With respect 
to post-service claims, a plan administrator must notify the 
claimant within a reasonable time period, but not later than 30 days 
after the receipt of the claim. In the case of an urgent care claim, 
a plan administrator must notify the claimant of the plan's benefit 
determination, as soon as possible, taking into account the medical 
exigencies, but not later than 72 hours after the receipt of the 
claimant's request.
    \26\ See 26 CFR 54.9815-2719T(b)(2)(ii)(C), 29 CFR 2590.715-
2719(b)(2)(ii)(C), and 45 CFR 147.136(b)(2)(ii)(C).
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    Even with these important disclosure requirements under existing 
law,\27\ the Departments remain focused on transparency and whether 
individuals have the necessary information to compare NQTLs of medical/
surgical benefits and mental health or substance use disorder benefits 
under the plan to effectively ensure compliance with MHPAEA. 
Accordingly, contemporaneous with the publication of these final 
regulations, the Departments of Labor and HHS are also publishing 
another set of MHPAEA FAQs, which, among other things, solicit comments 
on whether and how to ensure greater transparency and compliance. \28\
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    \27\ For other disclosure requirements that may be applicable to 
plans and issuers under existing Federal law, including disclosure 
requirements regarding prescription drug formulary coverage, see the 
summary plan description requirements for ERISA plans under 29 CFR 
2520.102-3(j)(2) and (j)(3) and the preamble discussion at 65 FR 
70226, 70237 (Nov. 11, 2000), as well as Department of Labor 
Advisory Opinion 96-14A (available at http://www.dol.gov/ebsa/programs/ori/advisory96/96-14a.htm). See also the summary of 
benefits and coverage requirements under 26 CFR 54.9815-
2715(a)(2)(i)(K), 29 CFR 2590.715-2715(a)(2)i)(K), and 45 CFR 
147.200(a)(2)(i)(K).
    \28\ Available at http://www.dol.gov/ebsa/healthreform/ and 
http://www.cms.gov/cciio/Resources/Fact-Sheets-and-FAQs/index.html.
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F. Small Employer Exemption

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

    \29\ See section 1304(b)(3) of the Affordable Care Act.
    \30\ See FAQs about Affordable Care Act Implementation (Part V) 
and Mental Health Parity Implementation, question 8, available at 
http://www.dol.gov/ebsa/faqs/faq-aca5.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html.
---------------------------------------------------------------------------

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

    \31\ 78 FR 12834.
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G. Increased Cost Exemption

    MHPAEA contains an increased cost exemption that is available for 
plans and health insurance issuers that make changes to comply with the 
law and incur an increased cost of at least two percent in the first 
year that MHPAEA applies to the plan or coverage or at least one 
percent in any subsequent plan or policy year. Under MHPAEA, plans or 
coverage that comply with the parity requirements for one full plan 
year and that satisfy the conditions for the increased cost exemption 
are exempt from the parity requirements for the following plan or 
policy year, and the exemption lasts for one plan or policy year. Thus, 
the increased cost exemption may only be claimed for alternating plan 
or policy years.\32\
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    \32\ An employer or issuer may elect to continue to provide 
mental health and substance use disorder benefits in compliance with 
this section with respect to the plan or coverage involved 
regardless of any increase in total costs. That is, mere eligibility 
for the exemption does not require an employer or issuer to use it. 
An exempt plan or coverage can continue to provide mental health and 
substance use disorder benefits during the exemption period in 
compliance with some, all, or none of the parity provisions.
---------------------------------------------------------------------------

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

[[Page 68249]]

the first year of compliance the applicable percentage of increased 
cost is two percent and the exemption lasts only one year.\34\
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    \33\ 62 FR 66932, December 22, 1997.
    \34\ See FAQs about Affordable Care Act Implementation (Part V) 
and Mental Health Parity Implementation, question 11, available at: 
http://www.dol.gov/ebsa/faqs/faq-aca5.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html.
---------------------------------------------------------------------------

    The Departments received several comments on the interim final 
regulations that requested guidance on attribution of cost increases to 
MHPAEA. Some commenters emphasized that the cost exemption must be 
based on actual total plan costs measured at the end of the plan year. 
Other commenters stated that plans should be permitted to estimate 
claims that have not yet been reported for purposes of calculating 
incurred expenditures. Additionally, some commenters stated that a 
plan's costs for purposes of the increased cost exemption should 
include not only claims costs, but also administrative expenses 
associated with complying with the parity requirements.
    Paragraph (g) of these final regulations generally applies 
standards and procedures for claiming an increased cost exemption under 
MHPAEA consistent with MHPAEA's statutory standards and procedures as 
well as prior procedures set forth in the Departments' regulations 
implementing MHPA 1996. The test for an exemption must be based on the 
estimated increase in actual costs incurred by the plan or issuer that 
is directly attributable to expansion of coverage due to the 
requirements of this section and not otherwise due to occurring trends 
in utilization and prices, a random change in claims experience that is 
unlikely to persist, or seasonal variation commonly experienced in 
claims submission and payment patterns.
    Under the final regulations, the increase in actual total costs 
attributable to MHPAEA is described by the formula [(E1 - 
E0)/T0] - D  k, where E represents the 
level of health plan spending with respect to mental health and 
substance use disorder benefits over the measurement period, T is a 
measure of total actual costs incurred by a plan or coverage on all 
benefits (medical/surgical benefits and mental health and substance use 
disorder benefits under the plan), D is the average change in spending 
over the prior five years, and k is the applicable percentage of 
increased cost for qualifying for the cost exemption (i.e., one percent 
or two percent depending on the year). k will be expressed as a 
fraction for the purposes of this formula. The subscripts 1 and 0 refer 
to a base period and the most recent benefit period preceding the base 
period, respectively. Costs incurred under E include paid claims by the 
plan or coverage for services to treat mental health conditions and 
substance use disorders, and administrative costs associated with 
providing mental health or substance use disorder benefits (amortized 
over time).
    In estimating the costs attributable to MHPAEA, a plan or issuer 
must rely on actual claims or encounter data incurred in the benefit 
period reported within 90 days of the end of the benefit period. 
Although MHPAEA specifies that determinations with regard to the cost 
exemption shall be made after a plan has complied with the law for six 
months of the plan year involved, the provision does not require that 
the benefit period used to make this calculation be limited to six 
months. Data from a six month period will not typically reflect 
seasonal variation in claims experience. To estimate E1 - 
E0, a plan or coverage must first calculate secular trends 
over five years in the volume of services and the prices paid for 
services for the major classifications of services by applying the 
formula (E1 - E0)/T0 to mental health 
and substance use disorder spending to each of the five prior years and 
then calculating the average change in spending. The components of 
spending are estimated because secular trends can occur in prices and 
volume. After the average change in spending across the five years is 
calculated for each service type, the change in mental health and 
substance use disorder benefits spending attributable to MHPAEA is 
calculated net of the average annual spending growth that is due to a 
secular trend. This change in calculation is the main difference from 
the previous methodology used under prior guidance. It is recognized 
that for some smaller employers covered by MHPAEA, year to year 
spending may be somewhat unstable. In this case, an employer or issuer 
may propose an alternative estimation method. It is important to note 
that the language of the statute indicates that the base period against 
which the impact of MHPAEA is assessed moves up each year to the year 
prior to the current benefit year.
    Administrative costs attributable to the implementation of MHPAEA 
must be reasonable and supported with detailed documentation from 
accounting records. Software and computing expenses associated with 
implementation of the prohibition on separate cumulative financial 
requirements or other provisions of the regulation should be based on a 
straight-line depreciation over the estimated useful life of the asset 
(computer hardware five years; software three years, according to the 
American Hospital Association's Estimated Useful Life of depreciable 
Hospital Assets). Any other fixed administrative costs should also be 
amortized.
    Some commenters suggested additional clarifications regarding the 
statutory provision that determinations as to increases in actual costs 
must be made and certified by a qualified and licensed actuary who is a 
member in good standing of the American Academy of Actuaries. Some 
commenters suggested that the actuary must be qualified to perform such 
work based on meeting the Qualification Standards for Actuaries Issuing 
Statements of Actuarial Opinion in the United States. Other commenters 
suggested that the actuary must be independent and not employed by the 
group health plan or health insurance issuer claiming the exemption. 
The Departments believe the statutory language is sufficient to ensure 
reliable cost increase determinations. Moreover, this approach is 
consistent with the approach applicable to EHB in that the only 
qualification required for actuaries is that they be a member in good 
standing of the American Academy of Actuaries.\35\ Accordingly, the 
Departments decline to adopt these suggestions. Determinations as to 
increases in actual costs attributable to implementation of the 
requirements of MHPAEA must be made and certified by a qualified and 
licensed actuary who is a member in good standing of the American 
Academy of Actuaries. All such determinations must be based on the 
formula specified in these final regulations in a written report 
prepared by the actuary. Additionally, the written report, along with 
all supporting documentation relied upon by the actuary, must be 
maintained by the group health plan or health insurance issuer for a 
period of six years.
---------------------------------------------------------------------------

    \35\ See 45 CFR 156.135(b).
---------------------------------------------------------------------------

    Several commenters expressed concern regarding the administrative 
burden that would result from qualifying for the increased cost 
exemption for one year and then having to comply with the law the 
following year. MHPAEA's statutory language specifies that plans and 
issuers may qualify for the increased cost exemption for only one year 
at a time, stating that if the application of MHPAEA ``results in an 
increase for the plan year involved of the actual total costs of 
coverage . . . by an amount that exceeds the applicable percentage . . 
. the

[[Page 68250]]

provisions of this section shall not apply to such plan (or coverage) 
during the following plan year, and such exemption shall apply to the 
plan (or coverage) for 1 plan year.'' \36\
---------------------------------------------------------------------------

    \36\ Code section 9812(c)(2), ERISA 712(c)(2), PHS Act section 
2726(c)(2).
---------------------------------------------------------------------------

    Before a group health plan or health insurance issuer may claim the 
increased cost exemption, it must furnish a notice of the plan's 
exemption from the parity requirements to participants and 
beneficiaries covered under the plan, the Departments (as described 
below), and appropriate State agencies. The notification requirements 
for the increased cost exemption under these final regulations are 
consistent with the requirements under the Departments' 1997 
regulations implementing MHPA 1996.
    With respect to participants and beneficiaries, a group health plan 
subject to ERISA may satisfy this requirement by providing a summary of 
material reductions in covered services or benefits under 29 CFR 
2520.104b-3(d), if it includes all the information required by these 
final regulations.
    With respect to notification to the Departments, a plan or issuer 
must furnish a notice that satisfies the requirements of these final 
regulations. A group health plan that is a church plan (as defined in 
section 414(e) of the Code) must notify the Department of the Treasury. 
A group health plan subject to Part 7 of Subtitle B of Title I of ERISA 
must notify the Department of Labor. A group health plan that is a non-
Federal governmental plan or a health insurance issuer must notify HHS. 
In all cases, the exemption is not effective until 30 days after notice 
has been sent to both participants and beneficiaries and to the 
appropriate Federal agency. The Departments will designate addresses 
for delivery of these notices in future guidance.
    Finally, a plan or issuer must make available to participants and 
beneficiaries (or their representatives), on request and at no charge, 
a summary of the information on which the exemption was based. For 
purposes of this paragraph (g), an individual who is not a participant 
or beneficiary and who presents a notice described in paragraph (g)(6) 
of the final regulations is considered to be a representative. Such a 
representative may request the summary of information by providing the 
plan a copy of the notice provided to the participant or beneficiary 
with any personally identifiable information redacted. The summary of 
information must include the incurred expenditures, the base period, 
the dollar amount of claims incurred during the base period that would 
have been denied under the terms of the plan absent amendments required 
to comply with parity, and the administrative expenses attributable to 
complying with the parity requirements. In no event should a summary of 
information include individually identifiable information.
    The increased cost exemption provision in paragraph (g) of these 
final regulations is effective for plan or policy years beginning on or 
after July 1, 2014 (see paragraph (i) of these final regulations), 
which for calendar year plans means the provisions apply on January 1, 
2015. Accordingly, plans and issuers must use the formula specified in 
paragraph (g) of these final regulations to determine whether they 
qualify for the increased cost exemption in plan or policy years 
beginning on or after July 1, 2014. For claiming the increased cost 
exemption in plan or policy years beginning before July 1, 2014, plans 
and issuers should follow the interim enforcement safe harbor outlined 
in previously issued FAQs.\37\
---------------------------------------------------------------------------

    \37\ See FAQs about Affordable Care Act Implementation (Part V) 
and Mental Health Parity Implementation, question 11, available at: 
http://www.dol.gov/ebsa/faqs/faq-aca5.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html.
---------------------------------------------------------------------------

H. General Applicability Provisions and Application to Certain Types of 
Plans and Coverage

    The interim final regulations combined in paragraph (e)(1) what had 
been separate rules under MHPA 1996 for (1) determining if a plan 
provides both medical/surgical and mental health or substance use 
disorder benefits; (2) applying the parity requirements on a benefit-
package-by-benefit-package basis; and (3) counting the number of plans 
that an employer or employee organization maintains. The combined rule 
provides that (1) the parity requirements apply to a group health plan 
offering both medical/surgical benefits and mental health or substance 
use disorder benefits, (2) the parity requirements apply separately 
with respect to each combination of medical/surgical coverage and 
mental health or substance use disorder coverage that any participant 
(or beneficiary) can simultaneously receive from an employer's or 
employee organization's arrangement or arrangements to provide medical 
care benefits, and (3) all such combinations constitute a single group 
health plan for purposes of the parity requirements. Some comments 
expressed concern that the new combined rule would disrupt benefit 
programs that employers have maintained as separate plans for important 
reasons having nothing to do with a desire to escape the parity 
requirements and that the rule should be rescinded or issued only in 
proposed form. Other comments welcomed the rule as an important 
protection to prevent evasion of the parity requirements. The final 
regulations do not change the combined rule from the interim final 
regulations. In the Departments' view, the combined rule is necessary 
to prevent potential evasion of the parity requirements by allocating 
mental health or substance use disorder benefits to a plan or benefit 
package without medical/surgical benefits (when medical/surgical 
benefits are also otherwise available).
    The preamble to the interim final regulations illustrated how the 
parity requirements would apply to various benefit package 
configurations, including multiple medical/surgical benefit packages 
combined with a single mental health and substance use disorder benefit 
package. One commenter asked for clarification in the case of a plan 
with an HMO option and a PPO option in which mental health and 
substance use disorder benefits are an integral part of each option. In 
such a case, the parity requirements apply separately to the HMO option 
and the PPO option.
    The Departments are aware that employers and health insurance 
issuers sometimes contract with MBHOs or similar entities to provide or 
administer mental health or substance use disorder benefits in group 
health plans or in health insurance coverage. The fact that an employer 
or issuer contracts with one or more entities to provide or administer 
mental health or substance use disorder benefits does not, however, 
relieve the employer, issuer, or both of their obligations under 
MHPAEA. The coverage as a whole must still comply with the applicable 
provisions of MHPAEA, and the responsibility for compliance rests on 
the group health plan and/or the health insurance issuer, depending on 
whether the coverage is insured or self-insured. This means that the 
plan or issuer will need to provide sufficient information in terms of 
plan structure and benefits to the MBHO to ensure that the mental 
health and substance use disorder benefits are coordinated with the 
medical/surgical benefits for purposes of compliance with the 
requirements of MHPAEA. Liability for any violation of MHPAEA rests 
with the group health plan and/or health insurance issuer.
    Several commenters requested clarification about whether a plan or 
issuer may exclude coverage for specific

[[Page 68251]]

diagnoses or conditions under MHPAEA. These final regulations continue 
to provide that nothing in these regulations requires a plan or issuer 
to provide any mental health benefits or substance use disorder 
benefits. Moreover, the provision of benefits for one or more mental 
health conditions or substance use disorders does not require the 
provision of benefits for any other condition or disorder. Other 
Federal and State laws may prohibit the exclusion of particular 
disorders from coverage where applicable, such as the Americans with 
Disabilities Act. Other Federal and State laws may also require 
coverage of mental health or substance use disorder benefits, including 
the EHB requirements under section 2707 of the PHS Act and section 
1302(a) of the Affordable Care Act.
1. Individual Health Insurance Market
    Section 1563(c)(4) of the Affordable Care Act \38\ amended section 
2726 of the PHS Act to apply MHPAEA to health insurance issuers in the 
individual health insurance market. These changes are effective for 
policy years beginning on or after January 1, 2014. The HHS final 
regulation implements these requirements in new section 147.160 of 
title 45 of the Code of Federal Regulations. Under these provisions, 
unless otherwise specified, the parity requirements outlined in 45 CFR 
146.136 of these final regulations apply to health insurance coverage 
offered by a health insurance issuer in the individual market in the 
same manner and to the same extent as such provisions apply to health 
insurance coverage offered by a health insurance issuer in connection 
with a group health plan in the large group market. These provisions 
apply to both grandfathered and non-grandfathered individual health 
insurance coverage for policy years beginning on or after the 
applicability dates set forth in paragraph (i) of these final 
regulations.
---------------------------------------------------------------------------

    \38\ There are two sections numbered 1563 in the Affordable Care 
Act. The section 1563 that is the basis for this rulemaking is the 
section titled ``Conforming amendments.''
---------------------------------------------------------------------------

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

    \39\ See Memo on Amendments to the HIPAA Opt-Out Provision Made 
by the Affordable Care Act (September 21, 2010). Available at: 
http://www.cms.gov/CCIIO/Resources/Files/Downloads/opt_out_memo.pdf.
    \40\ See Self-Funded Non-Federal Governmental Plans: Procedures 
and Requirements for HIPAA Exemption Election. Available at: http://www.cms.gov/CCIIO/Resources/Files/hipaa_exemption_election_instructions_04072011.html.
---------------------------------------------------------------------------

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

    \41\ Prior to the enactment of the Affordable Care Act, the PHS 
Act had a parallel provision at section 2721(a); however, after the 
Affordable Care Act amended, reorganized, and renumbered title XXVII 
of the PHS Act, that exception no longer exists. See 75 FR 34538-
34539.
    \42\ See FAQs About the Affordable Care Act Implementation Part 
III, question 1, available at http://www.dol.gov/ebsa/faqs/faq-aca3.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs3.html, which states that ``statutory 
provisions in effect since 1997 exempting group health plans with 
`less than two participants who are current employees' from HIPAA 
also exempt such plans from the group market reform requirements of 
the Affordable Care Act.''
    \43\ Additionally, as provided in the interim final regulations 
regarding grandfathered health plans, HHS does not intend to use its 
resources to enforce the requirements of title XXVII of the PHS Act, 
including the requirements of MHPAEA and these final regulations, 
with respect to non-Federal governmental retiree-only plans and 
encourages States not to apply those provisions to issuers of 
retiree-only plans. HHS will not cite a State for failing to 
substantially enforce the provisions of part A of title XXVII of the 
PHS Act in these situations. See 75 FR at 34538, 34540 (June 17, 
2010).
---------------------------------------------------------------------------

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

    \44\ See Example 5 in paragraph (c)(4)(iii) of the interim final 
regulations.
    \45\ See Example 6 in paragraph (c)(4)(iii) of the final 
regulations.
---------------------------------------------------------------------------

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

    \46\ 26 CFR 54.9831-1(c), 29 CFR 2590.732(c), 45 CFR 146.145(c).
    \47\ See IRS Notice 2013-54 (available at http://www.irs.gov/pub/irs-drop/n-13-54.pdf) and DOL Technical Release 2013-03 
(available at http://www.dol.gov/ebsa/newsroom/tr13-03.html), Q&A 9. 
See also CMS Insurance Standards Bulletin--Application of Affordable 
Care Act Provisions to Certain Healthcare Arrangements (available at 
http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf).
---------------------------------------------------------------------------

    The guidance provides that until rulemaking regarding EAPs is 
finalized, through at least 2014, the Departments will consider an EAP 
to constitute excepted benefits only if the EAP does not provide 
significant benefits in the nature of medical care or treatment. For

[[Page 68252]]

this purpose, employers may use a reasonable, good faith interpretation 
of whether an EAP provides significant benefits in the nature of 
medical care or treatment.
5. Medicaid and CHIP Managed Care Plans
    These final regulations apply to group health plans and health 
insurance issuers. These final regulations do not apply to Medicaid 
managed care organizations (MCOs), alternative benefit plans (ABPs), or 
the Children's Health Insurance Program (CHIP). However, MHPAEA 
requirements are incorporated by reference into statutory provisions 
that do apply to those entities. On January 16, 2013, CMS released a 
State Health Official Letter regarding the application of the MHPAEA 
requirements to Medicaid MCOs, ABPs, and CHIP.\48\ In this guidance, 
CMS adopted the basic framework of MHPAEA and applied the statutory 
principles as appropriate across these Medicaid and CHIP authorities. 
The letter also stated that CMS intends to issue additional guidance 
that will assist States in their efforts to implement the MHPAEA 
requirements in their Medicaid programs.
---------------------------------------------------------------------------

    \48\ Application of the Mental Health Parity and Addiction 
Equity Act to Medicaid MCOs, CHIP, and Alternative Benefit 
(Benchmark) Plans, available at: http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SHO-13-001.pdf.
---------------------------------------------------------------------------

I. Interaction With State Insurance Laws

    Several commenters requested that the final regulations clearly 
describe how MHPAEA interacts with State insurance laws. Commenters 
sought clarification as to how MHPAEA may or may not preempt State laws 
that require parity for mental health or substance use disorder 
benefits, mandate coverage of mental health or substance use disorder 
benefits, or require a minimum level of coverage (such as a minimum 
dollar, day, or visit level) for mental health conditions or substance 
use disorders. These commenters expressed a desire that the final 
regulations articulate that existing State laws on mental health or 
substance use disorder benefits would remain in effect to the extent 
they did not prevent the application of MHPAEA.
    The preemption provisions of section 731 of ERISA and section 2724 
of the PHS Act (added by the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) and implemented in 29 CFR 2590.731 
and 45 CFR 146.143(a)) apply so that the MHPAEA requirements are not to 
be ``construed to supersede any provision of State law which 
establishes, implements, or continues in effect any standard or 
requirement solely relating to health insurance issuers in connection 
with group health insurance coverage except to the extent that such 
standard or requirement prevents the application of a requirement'' of 
MHPAEA and other applicable provisions.\49\ The HIPAA conference report 
indicates that this is intended to be the ``narrowest'' preemption of 
State laws.\50\
---------------------------------------------------------------------------

    \49\ The preemption provision of PHS Act section 2724 also 
applies to individual health insurance coverage.
    \50\ See House Conf. Rep. No. 104-736, at 205, reprinted in 1996 
U.S. Code Cong. & Admin. News 2008.
---------------------------------------------------------------------------

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

J. Enforcement

    Comments received in response to the interim final regulations 
suggested some confusion and concern regarding the Departments' 
authority to impose penalties and ensure compliance with the 
requirements under MHPAEA. The enforcement responsibilities of the 
Federal government and the States with respect to health insurance 
issuers are set forth in the PHS Act. Pursuant to PHS Act section 
2723(a), States have primary enforcement authority over health 
insurance issuers regarding the provisions of part A of title XXVII of 
the PHS Act, including MHPAEA. HHS (through CMS) has enforcement 
authority over the issuers in a State if the State notifies CMS that it 
has not enacted legislation to enforce or is otherwise not enforcing, 
or if CMS determines that the State is not substantially enforcing, a 
provision (or provisions) of part A of title XXVII of the PHS Act. 
Currently, CMS believes that most States have the authority to enforce 
MHPAEA and are acting in the areas of their responsibility. In States 
that lack the authority to enforce MHPAEA, CMS is either directly 
enforcing MHPAEA or collaborating with State departments of insurance 
to ensure enforcement.
    The Departments of Labor and the Treasury generally have primary 
enforcement authority over private sector employment-based group health 
plans, while HHS has primary enforcement authority over non-Federal 
governmental plans, such as those sponsored by State and local 
government employers.
    Some commenters suggested that States need a stronger understanding 
of MHPAEA and its implementing regulations to better inform the public 
about the protections of the law and to ensure proper compliance by 
issuers. These commenters believed that States would benefit from 
additional and continued guidance from CMS regarding the requirements 
of MHPAEA and its impact upon State law. The Departments encourage 
State regulators to familiarize themselves with the MHPAEA 
requirements, in particular the rules governing NQTLs, and any guidance 
issued by the Departments, so that the States can instruct issuers in 
their jurisdictions on the correct implementation of the statute and 
regulations, and appropriately enforce the provisions. The Departments 
will continue to provide technical assistance to State regulators 
either individually or through the National Association of Insurance 
Commissioners to ensure that the States have the tools they need to 
implement and enforce MHPAEA.

K. Applicability Dates

    MHPAEA's statutory provisions were self-implementing and generally 
became effective for plan years beginning after October 3, 2009.\51\ 
The requirements of the interim final regulations generally became 
effective on the first day of the first plan year beginning on or after 
July

[[Page 68253]]

1, 2010. These final regulations apply to group health plans and health 
insurance issuers offering group health insurance coverage on the first 
day of the first plan year beginning on or after July 1, 2014. 
Examples, cross-references, and other clarifications have been added in 
some places to facilitate compliance and address common questions, much 
of which has already been published by the Departments.\52\ Each plan 
or issuer subject to the interim final regulations must continue to 
comply with the applicable provisions of the interim final regulations 
until the corresponding provisions of these final regulations become 
applicable to that plan or issuer.
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    \51\ There is a special effective date for group health plans 
maintained pursuant to one or more collective bargaining agreements 
ratified before October 3, 2008, which states that the requirements 
of the interim final 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 also provides that 
any plan amendment made pursuant to a collective bargaining 
agreement solely to conform to the requirements of MHPAEA will not 
be treated as a termination of the agreement.
    \52\ For additional examples and other clarifications published 
by the Departments to facilitate compliance under the interim final 
rules, see also http://www.dol.gov/ebsa/faqs/faq-mhpaea.html; FAQs 
about Affordable Care Act Implementation (Part V) and Mental Health 
Parity Implementation, available at http://www.dol.gov/ebsa/faqs/faq-aca5.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs5.html; FAQs about Affordable Care 
Act Implementation (Part VII) and Mental Health Parity 
Implementation, available at http://www.dol.gov/ebsa/faqs/faq-aca7.html and http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs7.html; FAQs on Understanding 
Implementation of the Mental Health Parity and Addiction Equity Act 
of 2008, available at http://www.dol.gov/ebsa/faqs/faq-mhpaeaimplementation.html; and FAQs for Employees about the Mental 
Health Parity and Addiction Equity Act, available at http://www.dol.gov/ebsa/faqs/faq-mhpaea2.html.
---------------------------------------------------------------------------

L. Technical Amendment Relating to OPM Multi-State Plan Program and 
External Review

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

    \53\ The interim final regulations relating to internal claims 
and appeals and external review processes are codified at 26 CFR 
54.9815-2719T, 29 CFR 2590.715-2719, and 45 CFR 147.136. These 
requirements do not apply to grandfathered health plans. The interim 
final regulations relating to status as a grandfathered health plan 
are codified at 26 CFR 54.9815-1251T, 29 CFR 2590.715-1251, and 45 
CFR 147.140.
    \54\ More information on the regulatory requirements for State 
external review processes, including the regulations, Uniform Health 
Carrier External Review Model Act promulgated by the National 
Association of Insurance Commissioners, technical releases, and 
other guidance, is available at http://www.dol.gov/ebsa and http://cciio.cms.gov.
    \55\ More information on the regulatory requirements for the 
Federal external review process, including the regulations, 
technical releases, and other guidance, is available at http://www.dol.gov/ebsa and http://cciio.cms.gov.
---------------------------------------------------------------------------

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

    \56\ See the OPM proposed rule on establishment of the MSPP, 77 
FR 72582, 72585 (Dec. 5, 2012); see also the final rule, 78 FR 
15559, 15574 (Mar. 11, 2013) (``we believe our approach to external 
review is required by section 1334 of the Affordable Care Act[.]''.
    \57\ See 45 CFR 800.115(k) and 45 CFR part 800; see also 78 FR 
at 15574 (``the level playing field provisions of section 1324 of 
the Affordable Care Act would not be triggered because MSPs and MSPP 
issuers would comply with the external review requirements in 
section 2719(b) of the PHS Act, just as other health insurance 
issuers in the group and individual markets are required to do.'').
---------------------------------------------------------------------------

    The Departments also proposed to amend the interim final 
regulations implementing PHS Act section 2719 to specify that the scope 
of the Federal external review process, as described in paragraph 
(d)(1)(ii), is the minimum required scope of claims eligible for 
external review for plans using a Federal external review process, and 
that Federal external review processes developed in accordance with 
paragraph (d) may have a scope that exceeds the minimum requirements.
    The Departments did not receive any comments relating to these 
proposed amendments and therefore retain the amendments in this final 
rule without change, except for one minor correction.\58\ The 
Departments made a typographical error in the March 21, 2013 proposed 
rule, inadvertently omitting the word ``internal'' from paragraph 
(d)(1)(i). That provision should have stated that the Federal external 
review process ``applies, at a minimum, to any adverse benefit 
determination or final internal adverse benefit determination. . . .'' 
(emphasis added). The Departments did not intend to remove the word 
``internal'' from the interim final rule through the proposed 
amendment, and we are correcting the final amendment to include the 
word.
---------------------------------------------------------------------------

    \58\ Treasury is not adopting amendments to the external review 
regulations in 26 CFR at this time. Any changes to the Treasury 
external review regulations will be made when the entire section of 
those regulations is adopted as final regulations.
---------------------------------------------------------------------------

III. Economic Impact and Paperwork Burden

    Executive Orders 12866 (Regulatory Planning and Review, September 
30, 1993) and 13563 (Improving Regulation and Regulatory Review, 
February 2, 2011) direct agencies to propose or adopt a regulation only 
upon a reasoned determination that its benefits justify its costs, to 
assess the costs and benefits of regulatory alternatives, and to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity).
    Agencies must determine whether a regulatory action is 
``significant'' which is defined in Executive Order 12866 as an action 
that is likely to result in a rule (1) having an annual effect on the

[[Page 68254]]

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.

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

    The Departments have determined that this regulatory action is 
economically significant within the meaning of section 3(f)(1) of the 
Executive Order, because it is likely to have an effect on the economy 
of $100 million or more in at least one year. Accordingly, the 
Departments provide the following assessment of the potential costs and 
benefits of these final regulations. As elaborated below, the 
Departments believe that the benefits of the rule justify its costs.
    As described earlier in this preamble, these final regulations 
expand on the protections and parity requirements set forth in the 
interim final regulations, incorporate clarifications issued by the 
Departments through sub-regulatory guidance since the issuance of the 
interim final regulations, and provide clarifications related to NQTLs 
and disclosure requirements. These final regulations also include 
additional clarifications and examples illustrating the parity 
requirements and their applicability, as well as provisions to 
implement the increased cost exemption with respect to financial 
requirements and treatment limitations. The HHS final regulation also 
implements the parity requirements for individual health insurance 
coverage.
    A recent study on plan responses to MHPAEA indicates that by 2011, 
most plans had removed most financial requirements and treatment 
limitations that did not meet the requirements of MHPAEA and the 
interim final regulations.\59\ The use of higher copays and coinsurance 
for inpatient mental health and substance use disorder services 
declined rapidly in large employer plans following implementation of 
MHPAEA.\60\ In addition, nearly all plans had eliminated the use of 
separate deductibles for mental health or substance use disorder out-
of-pocket costs by 2011.\61\ (Even by 2010, only 3.2 percent of plans 
had used separate deductibles.) The HHS study also found that the 
number of plans that applied unequal inpatient day limits, outpatient 
visit limits or other quantitative treatment limitations for mental 
health or substance use disorder benefits had dropped significantly by 
2011.
---------------------------------------------------------------------------

    \59\ Final Report: Consistency of Large Employer and Group 
Health Plan Benefits with Requirements of the Paul Wellstone and 
Pete Domenici Mental Health Parity and Addiction Equity Act of 2008. 
NORC at the University of Chicago for the Office of the Assistant 
Secretary for Planning and Evaluation. This study analyzed 
information on large group health plan benefit designs from 2009 
through 2011 in several databases maintained by benefits consulting 
firms that advise plans on compliance with MHPAEA as well as other 
requirements.
    \60\ Ibid.
    \61\ Ibid.
---------------------------------------------------------------------------

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

B. Need for Regulatory Action

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

    \62\ See discussion in the preamble to the interim final rule on 
the effect of managed care in controlling health plan spending on 
mental health and substance use disorder treatment under state 
parity laws and in the Federal Employee Health Benefit Program, 
Interim Final Rules Under the Paul Wellstone and Pete Domenici 
Mental Health Parity and Addiction Equity Act of 2008, 75 Fed. Reg. 
5410, 5424-5425 (see e.g., footnote 46) (February 2, 2010).
    \63\ General Accountability Office, Mental Health Parity Act: 
Despite New Federal Standards, Mental Health Benefits Remain 
Limited, May 2000, (GAO/HEHS-00-95), p. 5. In this 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.
---------------------------------------------------------------------------

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

C. Response to Comments on the Economic Impact Analysis for the Interim 
Final Regulations--Department of Labor and Department of Health and 
Human Services

    The Departments received the following public comments regarding 
the economic impact analysis in the interim final regulations.
    One commenter urged that the discussion on cost implications for 
increased utilization of mental health and substance use disorder 
services must take into account the cost savings that will result from 
the elimination of the costs associated with ``unique and 
discriminatory medical management controls'' (or NQTLs). Although the 
Departments concur that the nature and rigor of utilization management 
affects

[[Page 68255]]

the cost of care and the administrative expenses associated with care 
management, there is scant evidence at this time on the way that 
utilization management will evolve under MHPAEA. Existing evidence 
suggests that plans and issuers can apply a range of tools to manage 
care and that even when management of care is consistent with the 
principles of parity, care management continues. (See the discussion of 
Oregon state parity law later in this preamble).
    Several commenters asserted that the Departments had underestimated 
the cost and burden of complying with the interim final regulations. 
However, a study sponsored by HHS found that by 2011 most plans had 
removed most financial requirements that did not meet the requirements 
of MHPAEA and the interim final regulations.\64\ In addition, the 
number of plans that applied unequal inpatient day limits, outpatient 
visit limits, or other quantitative treatment limitations for mental 
health or substance use disorder benefits had dropped significantly by 
2011. Yet, there is no evidence that plans' costs and burdens have been 
significantly impacted by the requirements of the statute and its 
implementing interim final regulations. Research has shown that only a 
very small percentage of plans have dropped mental health or substance 
use disorder benefits after implementation of MHPAEA and even for those 
plans that did so, there is no clear evidence that they dropped mental 
health or substance use disorder benefits because of MHPAEA. Moreover, 
no plans have applied for the increased cost exemption under MHPAEA. 
Finally, in spending reports that have been reported in the aggregate, 
there is no evidence that spending growth for behavioral health saw a 
significant upturn in 2011, the first full year in which the interim 
final regulations generally were in effect.
---------------------------------------------------------------------------

    \64\ Final Report: Consistency of Large Employer and Group 
Health Plan Benefits with Requirements of the Paul Wellstone and 
Pete Domenici Mental Health Parity and Addiction Equity Act of 2008. 
NORC at the University of Chicago for the Office of the Assistant 
Secretary for Planning and Evaluation. This study analyzed 
information on large group health plan benefit designs from 2009 
through 2011 in several databases maintained by benefits consulting 
firms that advise plans on compliance with MHPAEA as well as other 
requirements.
---------------------------------------------------------------------------

    One commenter asserted that plans are not set up to conduct a 
parity analysis within the six classifications and as a result the 
interim final regulations impose a substantial burden, especially on 
employers that offer multiple plans. In response, the Departments note 
that the alternative to using the six classifications would require 
conducting a parity analysis across all types of benefits grouped 
together that would have resulted in incongruous and unintended 
consequences with, for example, day limits for inpatient care being the 
standard for outpatient benefits. Moreover, there is no evidence that 
plans or issuers have found these requirements to be overly burdensome.
    One commenter stated that the Federal Employees' Health Benefits 
Program (FEHBP) parity requirements and State parity laws are not 
comparable to the standards in the interim final regulations and 
therefore are not predictive of the possible cost impacts of the 
interim final regulations, especially regarding NQTLs. In response, the 
Departments note that, like MHPAEA, the parity requirements for FEHBP 
apply to financial requirements and treatment limitations for both 
mental health conditions and substance use disorders. Furthermore, the 
FEHBP requirements are more expansive in that ``plans must cover all 
categories of mental health or substance use disorders to the extent 
that the services are included in authorized treatment plans . . . 
developed in accordance with evidence-based clinical guidelines, and 
meet[ing] medical necessity criteria.'' \65\ Under the MHPAEA statute, 
plans and issuers have discretion as to which diagnoses and conditions 
are covered under the plan.
---------------------------------------------------------------------------

    \65\ FEHB Program Carrier Letter, No. 2009-08, April 20, 2009.
---------------------------------------------------------------------------

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

    \66\ Vt. Stat. Ann tit. 8, Sec.  4089b (1998).
    \67\ Ibid.
    \68\ Rosenbach M, Lake T, Young C, et al. Effects of the Vermont 
Mental Health and Substance Abuse Parity Law. DHHS Pub. No. SMA 03-
3822, Rockville, MD: Substance Abuse and Mental Health Services 
Administration, 2003.
---------------------------------------------------------------------------

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

    \69\ Q&A Oregon Mental Health Parity Law for Providers. Oregon 
Insurance Division Web site. http://www.cbs.state.or.us/ins/FAQs/mental-health-parity_provider-faqs.pdf.
    \70\ McConnell JK, Gast SH, Ridgely SM. Behavioral health 
insurance parity: Does Oregon's experience presage the national 
experience with the Mental Health Parity and Addiction Equity Act? 
American Journal of Psychiatry 2012; 169(1): 31-38.
---------------------------------------------------------------------------

    Several commenters argued that the requirement in the interim final 
regulations to use a single or shared deductible in a classification is 
overly burdensome and would require significant resources to implement, 
particularly by MBHOs since they often work with multiple plans. One 
commenter asserted that this requirement could impact the willingness 
of sponsors to offer mental health or substance use disorder benefits. 
In response, the Departments note that a study sponsored by HHS found 
that nearly all plans had eliminated the use of separate deductibles 
for mental health and substance use disorder benefits by

[[Page 68256]]

2011.\71\ According to this study, even in 2010, only a very small 
percentage of plans were using separate deductibles. This study and 
other research have shown that only a very small percent of plans have 
dropped mental health or substance use disorder benefits after 
implementation of MHPAEA and there is no clear evidence they did so 
because of MHPAEA.
---------------------------------------------------------------------------

    \71\ Final Report: Consistency of Large Employer and Group 
Health Plan Benefits with Requirements of the Paul Wellstone and 
Pete Domenici Mental Health Parity and Addiction Equity Act of 2008. 
NORC at the University of Chicago for the Office of the Assistant 
Secretary for Planning and Evaluation.
---------------------------------------------------------------------------

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

    \72\ Application of the Mental Health Parity and Addiction 
Equity Act to Medicaid MCOs, CHIP, and Alternative Benefit 
(Benchmark) Plans, available at: http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SHO-13-001.pdf.
---------------------------------------------------------------------------

    Two commenters raised concerns about the burden imposed on plans by 
the requirement that provider reimbursement rates be based on 
comparable criteria particularly for MBHOs that may as a result have to 
use multiple rate schedules. The Departments believe that the process 
of establishing rate schedules is already complex, that MBHOs that 
contract with other multiple plans are likely to already have multiple 
rate schedules, and that adding a parity requirement to ensure that 
rates for behavioral health providers are based on comparable criteria 
to those used for medical/surgical providers does not add much to this 
complexity.
    One commenter argued that the costs for outpatient mental health 
and substance use disorder benefits will be higher than estimated 
because the NQTL parity standard would hamper plans' ability to manage 
care and control costs. In response, the Departments note that, as 
discussed above, the Oregon State parity law also applies to NQTLs and 
a study of this law found that plans in that State removed coverage 
limits as required and used management techniques to the same degree or 
less under the Oregon law and the impact on mental health and substance 
use disorder spending was minimal.\73\
---------------------------------------------------------------------------

    \73\ McConnell JK, Gast SH, Ridgely SM. Behavioral health 
insurance parity: does Oregon's experience presage the national 
experience with the Mental Health Parity and Addiction Equity Act? 
American Journal of Psychiatry 2012; 169(1): 31-38.
---------------------------------------------------------------------------

D. Summary of the Regulatory Impact Analysis for the Interim Final 
Regulations--Department of Labor and Department of Health and Human 
Services

    In the regulatory impact analysis for the interim final 
regulations, the Departments quantified the costs associated with three 
aspects of that rulemaking: The cost of implementing a unified 
deductible, compliance review costs, and costs associated with 
information disclosure requirements in MHPAEA. The Departments 
estimated the cost of developing the interface necessary to implement a 
single deductible as $35,000 per affected interface between a managed 
behavioral health company and a group health plan with a total 
estimated cost at $39.2 million (amounting to $0.60 per health plan 
enrollee) in the first year. The interim final regulations' impact 
analysis estimated the cost to health plans and insurance issuers of 
reviewing coverage for compliance with MHPAEA and the interim final 
regulations at $27.8 million total. This estimate was based on findings 
that there were about 460 issuers and at least 120 MBHOs and assumed 
that per-plan compliance costs would be low because third party 
administrators for self-insured plans would spread the cost across 
multiple client plans.
    Regarding the requirement to disclose medical necessity criteria, 
the Departments assumed that each plan would receive one such request 
on average, that it would take a trained staff person about five 
minutes to respond, and with an average hourly rate of $27, the total 
annual cost would be about $1 million. The Departments assumed only 38 
percent of requests would be delivered electronically with de minimis 
cost and that the materials, printing and postage costs of responding 
to about 290,000 requests by paper would be an additional $192,000 for 
a total of about $1.2 million per year. These costs totaled $114.6 
million undiscounted over ten years (2010-2019). The Departments did 
not include a cost for the requirement in MHPAEA to disclose the 
reasons for any claims denials because the Department of Labor's claims 
procedure regulation (at 29 CFR 2560.503-1) already required such 
disclosures and the same third-party administrators and insurers are 
hired by ERISA and non-ERISA covered plans so both types of plans were 
likely to already be in compliance with these rules.
    In terms of transfers, in the interim final regulations impact 
analysis, the Departments estimated premiums would rise 0.4 percent due 
to MHPAEA, reflecting a transfer from individuals not using mental 
health and substance use disorder benefits to those that do. This 
estimated increase in premiums amounted to a transfer of $2.36 billion 
in 2010 gradually increasing each year over a ten year period to $2.81 
billion in 2019. This estimate was based on findings in the literature. 
For a more complete discussion, see section III.I later in this 
preamble.

E. Summary of the Impacts of the Final Rule--Department of Labor and 
Department of Health and Human Services

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

[[Page 68257]]



                                                        Table 1--Total Costs of Final Regulations
                                                              [In millions of 2012 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Incremental
                                                  change in                             Total           Total 3%          Total 7%
                    Year                         individual        Disclosure       undiscounted       discounted        discounted         Transfers
                                                 market plan      requirements          costs             costs             costs        (undiscounted)
                                                  spending
                                                           (A)               (B)               A+B               (D)               (E)               (F)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014........................................            $189.9              $4.3            $194.2            $194.2            $194.2            $699.2
2015........................................             208.4               4.3             212.7             206.5             198.8             732.0
2016........................................             226.8               4.3             231.1             217.9             201.9             764.8
2017........................................             245.3               4.3             249.6             228.4             203.7             797.6
2018........................................             263.8               4.3             268.1             238.2             204.5             830.4
                                             -----------------------------------------------------------------------------------------------------------
    Total...................................           1,134.2              21.5           1,155.6            1085.1           1,003.1           3,824.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

    \74\ The Departments' estimates of the numbers of affected 
participants are based on DOL estimates using the 2012 CPS. ERISA 
plan counts are based on DOL estimates using the 2011 MEP-IC and 
Census Bureau statistics. The number of State and local government 
employer-sponsored plans was estimated using 2012 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.
    \75\ The Departments' estimate of the number of insurers is 
based on medical loss ratio reports submitted by issuers for 2012 
reporting year and industry trade association membership. Please 
note that these estimates could undercount small State-regulated 
insurers.
---------------------------------------------------------------------------

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

    \76\ ``Effects on Health Insurance and the Federal Budget for 
the Insurance Coverage Provisions in the Affordable Care Act--May 
2013 Baseline,'' Congressional Budget Office, May 14, 2013.
---------------------------------------------------------------------------

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

    \77\ ASPE Issue Brief, ``Essential Health Benefits: Individual 
Market Coverage,'' ed. U.S. Department of Health & Human Services 
(2011).
---------------------------------------------------------------------------

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

    \78\ ASPE Issue Brief, ``Essential Health Benefits: Comparing 
Benefits in Small Group Products and State and Federal Employee 
Plans,'' ed. U.S. Department of Health & Human Services (2011).
---------------------------------------------------------------------------

2. Anticipated Benefits
a. Benefits Attributable to the Statute or Interim Final Regulations
    In enacting MHPAEA, one of Congress' primary objectives was to 
improve access to mental health and substance use disorder benefits by 
eliminating more restrictive visit limits and inpatient days covered as 
well as higher cost-sharing for mental health and substance use 
disorder benefits that were prevalent in private insurance plans after 
implementation of MHPA 1996.\79\
---------------------------------------------------------------------------

    \79\ See the interim final regulations for a fuller discussion 
of the legislative history.
---------------------------------------------------------------------------

    A recent study funded by HHS found that large group health plans 
and insurance issuers have made significant changes to financial 
requirements and treatment limitations for mental health and substance 
use disorder benefits in the first few years following enactment of 
MHPAEA.\80\ The statute went into effect for plan years beginning after 
October 3, 2009 (calendar year 2010 for

[[Page 68258]]

many plans) and the interim final regulations went into effect for 
plans years beginning on or after July 10, 2010 (calendar year 2011 for 
many plans). This HHS study found that by 2011, most plans had removed 
most financial requirements and treatment limitations that did not meet 
the requirements of MHPAEA and its implementing interim final 
regulations.
---------------------------------------------------------------------------

    \80\ Final Report: Consistency of Large Employer and Group 
Health Plan Benefits with Requirements of the Paul Wellstone and 
Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 
at pages vii-ix. NORC at the University of Chicago for the Office of 
the Assistant Secretary for Planning and Evaluation. This study 
analyzed information on large group health plan benefit designs from 
2009 through 2011 in several databases maintained by benefits 
consulting firms that advise plans on compliance with MHPAEA as well 
as other requirements.
---------------------------------------------------------------------------

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

    \81\ Ibid at page xii.
---------------------------------------------------------------------------

    Among the representative sample of plans for 2010 included in this 
study, more than 30 percent had copayments or coinsurance rates for 
outpatient mental health and substance use disorder benefits that were 
inconsistent with MHPAEA. In a separate sample of large employer-based 
plans for 2011, the use of higher coinsurance for mental health and 
substance use disorder benefits dropped dramatically. However, the 
study found that about 20 percent of the 140 plans tested continued to 
utilize outpatient in-network co-pays that failed to meet MHPAEA 
standards. A third database of plan designs for 2009 through 2011 
confirmed a dramatic decline in the use of more restrictive cost-
sharing for outpatient mental health and substance use disorder 
benefits although a minority continued to use high copays.
    Nearly all plans had eliminated the use of separate deductibles for 
mental health or substance use disorder out-of-pocket costs by 2011. 
(Even by 2010, only 3.2 percent of plans had used separate 
deductibles.) \82\
---------------------------------------------------------------------------

    \82\ Ibid at page xi.
---------------------------------------------------------------------------

    The HHS study also found that the number of plans that applied 
unequal inpatient day limits, outpatient visit limits or other 
quantitative treatment limitations for mental health or substance use 
disorder benefits had dropped significantly by 2011. In 2010, it found 
that most large employer-based plans used day limits on mental health 
inpatient benefits that generally conformed to MHPAEA standards. While 
almost 20 percent of these plans imposed more restrictive day limits on 
in-network, inpatient benefits for substance use disorders than applied 
to medical/surgical benefits, the separate sample of 2011 large 
employer-based plans indicated a significant decline with only eight 
percent of plans using stricter day limits for inpatient benefits for 
substance use disorders. These findings were corroborated by analysis 
of an additional database of plan designs from 2009 through 2011, which 
also indicated a dramatic decline in the proportion of plans using more 
restrictive inpatient day limits on mental health and substance use 
disorder benefits (from 50 percent in 2009 to ten percent in 2010).
    In 2010, more than 50 percent of large employer-based plans in the 
study's representative sample used more restrictive visit limits for 
outpatient mental health and substance use disorder services that did 
not conform to MHPAEA standards. But, in the 2011 sample of large 
employer-based health plans, less than seven percent were using unequal 
visit limits. This trend was also evident in the plan design database 
comparing plans across 2009, 2010, and 2011. There too, substantial 
reductions in quantitative treatment limitations for mental health and 
substance use disorder benefits in large employer-based plans were seen 
after enactment of MHPAEA.
b. Potential Benefits of the Final Regulations
    The Departments expect that MHPAEA and these final regulations will 
have their greatest impact on people needing the most intensive 
treatment and financial protection. The Departments cannot estimate how 
large this impact will be, but the numbers of beneficiaries who have a 
medical necessity for substantial amount of care are likely to be 
relatively small.
    Improving coverage in the small group and individual markets will 
also expand financial protection for a significant segment of those 
covered and soon to be covered by private health insurance. One 
indicator of the consequences of unprotected financial risk is 
bankruptcies. The literature on bankruptcies identifies mental health 
care as a source of high spending that is less protected than other 
areas of health care.\83\ One estimate is that about 17 percent of 
bankruptcies are due to health care bills.\84\ Another estimate using 
the same data is that about ten percent of medical bankruptcies are 
attributable to high mental health care costs, and an additional two to 
three percent of bankruptcies are attributable to drug and alcohol 
abuse.\85\ Improvements in coverage of mental health and substance use 
disorder services expected to result from implementation of MHPAEA can 
be expected to reduce some of the financial risk and also yield 
successful treatment for people with mental health or substance use 
disorder problems.
---------------------------------------------------------------------------

    \83\ Robertson CT, R Egelhof, M Hoke, Get Sick, Get Out: The 
Medical Causes of Home Mortgage Foreclosures, Health Matrix 18:65-
105, 2008.
    \84\ Dranove D and ML Millenson, Medical Bankruptcy: Myth Versus 
Fact, Health Affairs 25, w74-w83 February 28, 2006.
    \85\ Dranove D and ML Millenson, Medical Bankruptcy: Myth Versus 
Fact, Health Affairs 25, w74-w83 February 28, 2006.
---------------------------------------------------------------------------

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

    \86\ Social Security Administration (SSA). (2012). Annual 
Statistical Report on the Social Security Disability Insurance 
Program, 2011. SSA Publication No. 13-11826.
---------------------------------------------------------------------------

    Improving coverage of mental health and substance use disorder 
treatment could also more generally improve productivity and improve 
earnings among those with these conditions. Studies have shown that the 
high prevalence of depression causes $31 billion to $51 billion 
annually in lost productivity in the United States.\87\ More days of 
work loss and work impairment are caused by mental illness than by 
various other chronic conditions, including diabetes and lower back 
pain.\88\ A recent meta-analysis of randomized studies that

[[Page 68259]]

examined the impact of treating depression on labor market outcomes 
showed that while the labor supply effects were smaller than the impact 
on clinical symptoms, there were consistently significant and positive 
effects of treatment on labor supply.\89\ \90\ Although the expected 
impact of MHPAEA on labor supply is likely modest for large employers, 
it is probably considerably larger for small group and individual plans 
where pre-MHPAEA coverage was more limited than in the large group 
market.
---------------------------------------------------------------------------

    \87\ 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.
    \88\ 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.
    \89\ Timbie JW, M Horvitz-Lennon, RG Frank and SLT Normand, A 
Meta-Analysis of Labor Supply Interventions for Major Depressive 
Disorder, Psychiatric Services 57(2) 212-219, 2006.
    \90\ Wang PS, GE Simon, J Avorn et al, Telephone Screening, 
Outreach, and Care Management for Depressed Workers and Impact on 
Clinical and Work Productivity Outcomes, JAMA 298(12) 1401-1411, 
2007.
---------------------------------------------------------------------------

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

    \91\ Bateman A, Fonagy P: Treatment of borderline personality 
disorder with psychoanalytically oriented partial hospitalization: 
an 18-month follow-up. Am J Psychiatry 2001; 158:36-42.
    \92\ Horvitz-Lennon M, Normand SL, Gaccione P and Frank RG. 
``Partial vs. Full Hospitalization for Adults in Psychiatric 
Distress: A Systematic Review of the Published Literature.'' 
American Journal of Psychiatry, 158(5), 2001.
    \93\ Drake, Robert E., Erica L. O'Neal, and Michael A. Wallach. 
``A systematic review of psychosocial research on psychosocial 
interventions for people with co-occurring severe mental and 
substance use disorders.'' Journal of substance abuse treatment 34.1 
(2008): 123-138.
---------------------------------------------------------------------------

    This final rule allows for policies such as multi-tiered provider 
networks. Multi-tiered networks are spreading rapidly among large group 
policies. There is some early evidence that such approaches can 
successfully attenuate costs and improve quality of care.
3. Anticipated Costs
a. Illustrative Results From Past Policy Interventions
    Existing evidence on implementation of parity in States and FEHBP 
suggests there will not be significant increases in plan expenditures 
and premiums as a result of the increased access to mental health and 
substance use disorder services that are expected to result from these 
final regulations. Since the effective date of the interim final 
regulations, no employer has applied for a cost exemption. A recent 
research study funded by HHS shows that in general, large employer-
sponsored plans eliminated higher financial requirements and more 
limited inpatient day limits, outpatient visit limits and other 
quantitative treatment limitations for mental health or substance use 
disorder benefits fairly quickly in the first few years following the 
enactment of MHPAEA. Differences in cost sharing for prescription 
medications and emergency care also declined, and by 2011 almost all 
large employer-based plans studied appeared to comply with MHPAEA for 
those benefits.\94\ Over that same period, a very small percent of 
employers dropped mental health or substance use disorder coverage. 
Moreover, there is no clear evidence that the small number of plans 
that did drop mental health and substance use disorder coverage did so 
because of MHPAEA.
---------------------------------------------------------------------------

    \94\ Final Report for ASPE: Consistency of Large Employer and 
Group Health Plan Benefits with Requirements of the Paul Wellstone 
and Pete Domenici Mental Health Parity and Addiction Equity Act of 
2008 at page x. NORC at the University of Chicago for the Office of 
the Assistant Secretary for Planning and Evaluation.
---------------------------------------------------------------------------

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

    \95\ Ibid at page xi.
---------------------------------------------------------------------------

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

    \96\ Mark, TL, Vandivort-Warren, R, Miller, K, Mental health 
spending by private insurance: Implications for the Mental Health 
Parity and Addiction Equity Act, Psych Services, 2012; 63(4): 313-
318.
    \97\ Ibid.
    \98\ Ibid.
---------------------------------------------------------------------------

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

    \99\ Ibid.
    \100\ Mark, TL, Vandivort-Warren, R, Spending trends on 
substance abuse treatment under private employer-sponsored 
insurance, 2001-2009, Drug and Alcohol Dependence, 2012; 125:203-
207.
---------------------------------------------------------------------------

b. Costs (and Transfers) Attributable to the Final Regulations
    The Departments do not expect the clarification that plans should 
classify intermediate services consistently for mental health and 
substance use disorders and medical/surgical benefits will result in a 
significant increase in costs. Nor do the Departments expect the 
clarification that the NQTL rules apply to these types of services to 
cause a substantial increase in plan spending. Analyses of claims data 
for large group health plans conducted by two different contractors for 
HHS indicate that most plans cover intermediate behavioral health 
services, particularly partial hospitalization and intensive outpatient 
services, but intermediate services account for less than one percent 
of total health plan spending.\101\ Internal

[[Page 68260]]

research and analysis by HHS indicates that the number of enrollees who 
use intermediate services for mental health and substance use disorders 
is very small. Furthermore, those who used intermediate services did so 
at modest rates. In addition, the number of enrollees who used 
intermediate services for medical/surgical benefits was similarly 
small. Available data suggest that intermediate behavioral health 
services account for between eight percent and eleven percent of total 
behavioral health spending in private insurance. This means that since 
behavioral health care accounts for about 5.5 percent of health plan 
spending, intermediate behavioral health spending amounts to between 
0.4 and 0.6 percent of total health plan spending. In light of the 
small number of enrollees that utilize this intermediate level of care 
and the small percentage of total costs that intermediate mental health 
and substance use disorder services comprise, the Departments expect 
that any increase in coverage would be very unlikely to have any 
significant effect on total health plan spending.
---------------------------------------------------------------------------

    \101\ Short-Term Analysis to Support Mental Health and Substance 
Use Disorder Parity Implementation. RAND Corporation for the Office 
of the Assistant Secretary for Planning and Evaluation. February 8, 
2012 (http://aspe.hhs.gov/daltcp/reports/2012/mhsud.shtml); internal 
analysis of claims data for large self-insured employers and health 
plans.
---------------------------------------------------------------------------

    Moreover, the Departments investigated the patterns of 
classification of intermediate services and found that they are 
generally covered in the six classifications set out in the interim 
final regulations. Behavioral health intermediate services are 
generally categorized in a similar fashion as analogous medical 
services; for example, residential treatment tends to be categorized in 
the same way as skilled nursing facility care in the inpatient 
classification. Thus, the Departments do not expect much change in how 
most plans consider intermediate behavioral health care in terms of the 
six existing benefit classifications.
    Tiered provider networks are expanding in private health insurance. 
The interim final regulations made no allowance for such insurance 
innovations. The final regulations clarify how the parity requirements 
apply to multi-tiered provider networks. The evidence on the impact of 
these networks is beginning to emerge.\102\ There is some evidence that 
points to small reductions in health spending associated with tiered 
provider networks. There are also studies showing little to no savings 
associated with these network designs. Some modest impact on quality 
has been observed in some cases and none in others.\103\ The 
Departments are therefore assuming no cost impact of this provision.
---------------------------------------------------------------------------

    \102\ Thomas JM, G Nalli AF Cockburn. What we know and don't 
know about tiered provider networks, Journal of Health Care Finance 
33(4), 53-67, 2007; Sinaiko AD, Tiered provider Networks as a 
Strategy to Improve Health Care Quality and Efficiency, NICHM 
Foundation February 2012.
    \103\ Ibid.
---------------------------------------------------------------------------

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

    \104\ Whitmore H, JR Gabel, J Pickreign R McDevitt, The 
Individual Insurance Market Before Reform: Low Premiums and Low 
Benefits, Medical Care Research and Review 68(5): 594-606, 2011.
    \105\ Technical Appendix to the Regulatory Impact Analysis for 
the Interim Final Rule for Health Insurance Issuers Implementing the 
Medical Loss Ratio Requirements under the Patient Protection and 
Affordable Care Act, Office of Consumer Information and Insurance 
Oversight, Department of Health and Human Services, November 22, 
2010, available at http://www.cms.gov/CCIIO/Resources/Files/Downloads/mlr_20101122_technical_appendix.pdf.
    \106\ Substance Abuse and Mental Health Services Administration. 
National Expenditures for Mental Health Services and Substance Abuse 
Treatment, 1986-2009. HHS Publication No. SMA-13-4740. Rockville, 
MD: Substance Abuse and Mental Health Services Administration, 2013.
---------------------------------------------------------------------------

    To obtain the impact of extending MHPAEA to the individual market, 
the Departments assume that a primary impact of MHPAEA is to equalize 
cost sharing arrangements between mental health and substance use 
disorder benefits and medical/surgical benefits. The Departments 
therefore assume that the out-of-pocket share for mental health and 
substance use disorder services covered in the individual insurance 
market will decline from 47 percent to 26 percent. The Departments 
apply an estimate of the price elasticity of demand to the total 
spending level for mental health and substance use disorder for people 
covered in the individual market. Two recent studies have shown that 
the price elasticity of demand for mental health and substance use 
disorder care has declined significantly in the era of managed 
care.\107\ They show that the elasticity of

[[Page 68261]]

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

    \107\ Meyerhoefer CD and Zuvekas, S, ``New Estimates of the 
Demand for Physical and Mental Health Treatment'', Health Economics 
19(3): 297-315 2010;. Lu C, Frank, RG and McGuire TG. ``Demand 
Response of Mental Health Services to Cost Sharing Under Managed 
Care.'' Journal of Mental Health Policy and Economics 11(3):113-126 
2008.
    \108\ ``Effects on Health Insurance and the Federal Budget for 
the Insurance Coverage Provisions in the Affordable Care Act--May 
2013 Baseline,'' Congressional Budget Office, May 14, 2013.
    \109\ The figure of 11 million enrollees based on the 2012 MLR 
filings data discussed earlier in this preamble is added to the CBO 
estimate of enrollees in the individual market in 2014.
---------------------------------------------------------------------------

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

    \110\ Congressional Budget Office, Letter to the Honorable Paul 
Ryan: Analysis of the Administration's Announced delay of certain 
Requirements Under the Affordable Care Act, July 30, 2013; and CBO's 
May 2013 Estimates of the Effects of the Affordable Care Act on 
Health Insurance Coverage, May 14, 2013.
    \111\ Kaiser Family Foundation and Health Research and 
Educational Trust, Employer Health Benefits--2012 Annual Survey.
    \112\ McDevitt R, J Gabel, R Lore et al, Group Insurance: A 
Better Deal for Most People than Individual Plans, Health Affairs 
29(1): 156-164, 2010.
    \113\ McConnell KJ, SHN Gast, MS Ridgely et al. Behavioral 
Health Insurance Parity: Does Oregon's Experience Presage the 
National Experience with the Mental Health Parity and Addiction 
Equity Act?, American Journal of Psychiatry 2012; 169(1): 31-38.
---------------------------------------------------------------------------

    The final regulations retain the disclosure provisions for group 
health plans and health insurance coverage offered in connection with a 
group health plan. In addition, these disclosure provisions are 
extended to non-grandfathered insurance coverage in the small group 
market through the EHB requirements and to the individual market as a 
result of the amendments to the PHS Act under the Affordable Care Act 
as discussed in section II.F and II.H.1 of this preamble. The burden 
and cost related to these disclosure requirements are discussed in 
detail in the Paperwork Reduction Act section below and are estimated 
to be approximately $4.3 million per year.
4. Transfers
    The application of MHPAEA to the individual market will also shift 
responsibility for some existing payments from individuals to health 
plans by reducing cost sharing from 47 percent to 26 percent, or $336 
million in the first year increasing to $467 million by 2018 reflecting 
increases in the number of individual enrollees. The Departments 
estimate that this shift in cost-sharing to plans combined with the 
increase in spending due to increased utilization discussed above could 
be expected to lead to an increase of 0.8% in premiums in the 
individual market. The small group plan average premium in 2012 was 
$5588. Applying the 0.5 percent estimated shift in spending derived 
above in section III.E.3 to the average premium as a proxy for plan 
spending, the Departments obtain a figure of $27.94. Multiplying that 
figure by 13 million enrollees in small group plans yields an estimated 
transfer amount of $363 million per year. Likewise, premiums in the 
small group market may be expected to increase by 0.5%.

F. Regulatory Alternatives

    In addition to the regulatory approach outlined in these final 
regulations, the Departments considered several alternatives when 
developing policy regarding NQTLs, disclosure requirements, multi-tier 
provider networks, and how parity applies to intermediate services.
    Multiple stakeholders requested clarification regarding the 
application of the parity requirements to NQTLs. The Departments 
considered narrowing the clinically appropriate standard of care 
exception instead of eliminating it.

[[Page 68262]]

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

    \114\ Short-Term Analysis to Support Mental Health and Substance 
Use Disorder Parity Implementation. RAND Corporation for the Office 
of the Assistant Secretary for Planning and Evaluation. February 8, 
2012 (http://aspe.hhs.gov/daltcp/reports/2012/mhsud.shtml).
---------------------------------------------------------------------------

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

    \115\ Available at: http://www.dol.gov/ebsa/healthreform/and 
http://www.cms.gov/cciio/Resources/Fact-Sheets-and-FAQs/index.html.
---------------------------------------------------------------------------

    The Departments are aware of the increasing use of multi-tier 
provider networks and commenters have asked how parity requirements 
should apply to those arrangements. The Departments considered as an 
alternative requiring plans to collapse their provider tiers in 
conducting an assessment of compliance with parity. However, this would 
have negated a primary reason to have provider tiers which is to offer 
incentives for providers to accept lower reimbursement in exchange for 
lower copays for their services and presumably greater patient volume. 
The Departments considered this alternative to be interfering 
unreasonably with legitimate plan cost-management techniques. The 
approach in the final regulations strikes a reasonable balance between 
allowing plans to use provider tiers to effectively manage costs and 
the policy principles of MHPAEA.
    As described earlier in this preamble, many commenters to the 
interim final regulations requested that the Departments clarify how 
MHPAEA affects the scope of coverage for intermediate services (such as 
residential treatment for substance use disorders or mental health 
conditions, partial hospitalization, and intensive outpatient 
treatment) and how these services fit within the six classifications 
set forth by the interim final regulations. Some stakeholders 
recommended establishing a separate classification for this 
intermediate level of care. The Departments considered this approach 
but determined that whereas the existing classifications--inpatient, 
in-network; inpatient, out-of-network; outpatient, in-network; 
outpatient, out-of-network; emergency care, and prescription 
medications--are classifications commonly used by health plans and 
issuers, a separate classification for intermediate care is not 
commonly used by plans and issuers. The Departments believe that a 
clearer, more reasonable approach is to incorporate the principles of 
parity into existing benefit designs and care management strategies. 
Thus, the final regulations provide examples of intermediate services 
and clarify that plans and issuers must assign covered intermediate 
level mental health and substance use disorder benefits to the existing 
six benefit classifications in the same way that they assign comparable 
intermediate medical/surgical benefits to these classifications.

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

    The Regulatory Flexibility Act (RFA) requires agencies that issue a 
rule to analyze options for regulatory relief of small businesses if a 
rule has a significant impact on a substantial number of small 
entities. The RFA generally defines a ``small entity'' as--(1) a 
proprietary firm meeting the size standards of the Small Business 
Administration (SBA), (2) a nonprofit organization that is not dominant 
in its field, or (3) a small government jurisdiction with a population 
of less than 50,000 (States and individuals are not included in the 
definition of ``small entity''). A change in revenues of more than 3 
percent to 5 percent is often used by the Departments of Labor and HHS 
as the measure of significant economic impact on a substantial number 
of small entities.
    As discussed in the Web Portal interim final rule with comment 
period published on May 5, 2010 (75 FR 24481), HHS examined the health 
insurance industry in depth in the Regulatory Impact Analysis for the 
proposed rule on establishment of the Medicare Advantage program (69 FR 
46866, August 3, 2004). In that analysis it was determined that there 
were few, if any, insurance firms underwriting comprehensive health 
insurance policies (in contrast, for example, to travel insurance 
policies or dental discount policies) that fell below the size 
thresholds for ``small'' business (currently $35.5 million in annual 
receipts for health insurance issuers).\116\ HHS also used the data 
from Medical Loss Ratio annual report submissions for the 2012 
reporting year to develop an estimate of the number of small entities 
that offer comprehensive major medical coverage. These estimates may 
overstate the actual number of small health insurance issuers that 
would be affected by these regulations, since they do not include 
receipts from these companies' other lines of business. It is estimated 
that there are 58 small entities with less than $35.5 million each in 
earned premiums that offer individual or group health insurance 
coverage and would therefore be subject to the requirements of these 
regulations. Forty-three percent of these small issuers belong to 
larger holding groups, and many, if not all, of these small issuers are 
likely to have other lines of business that would result in their 
revenues exceeding $35.5 million. For these reasons, the Departments 
expect that these final regulations will not significantly affect a 
substantial number of small issuers.
---------------------------------------------------------------------------

    \116\ ``Table of Small Business Size Standards Matched To North 
American Industry Classification System Codes,'' effective July 23, 
2013, U.S. Small Business Administration, available at http://www.sba.gov.
---------------------------------------------------------------------------

    As noted previously, MHPAEA provisions are extended to non-
grandfathered insurance coverage in the small group market through the 
EHB requirements. Group health plans and health insurance coverage 
offered by small employers will incur costs to comply with the 
provisions of these final regulations. There are an estimated 837,000 
ERISA-covered non-grandfathered employer group health plans with 50 or 
fewer participants, and an estimated 59,000 non-grandfathered public, 
non-Federal employer group health plans with 50 or fewer participants 
sponsored by State and local governments which were

[[Page 68263]]

previously exempt from MHPAEA. Approximately 13 million participants of 
these plans will benefit from the provisions of these regulations. As 
explained earlier in this impact analysis, virtually all the impact of 
MHPAEA on the small group market will involve a shift of final 
responsibility for payment from households to insurers, resulting in an 
estimated increase of 0.5 percent in spending. The cost related to the 
disclosure requirements is estimated to be approximately $2.4 million 
for non-grandfathered small group plans that were previously exempt 
from MHPAEA. The Departments expect the rules to reduce the compliance 
burden imposed on plans and insurers by the statute and the 
implementing interim final regulations by clarifying definitions and 
terms contained in the statute and providing examples of acceptable 
methods to comply with specific provisions.

H. Special Analyses--Department of the Treasury

    For purposes of the Department of the Treasury, it has been 
determined that this Treasury decision is not a significant regulatory 
action for purposes of Executive Order 12866, as supplemented by 
Executive Order 13563. Therefore, a regulatory assessment is not 
required. It has also been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to 
these regulations. It is hereby certified that the collections of 
information contained in these final regulations will not have a 
significant impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not required.
    The final regulations generally apply to employers who provide 
health coverage through group health plans to employees that include 
benefits for mental health or substance use disorder conditions. The 
IRS expects the final regulations to reduce the compliance burden 
imposed on plans and issuers by clarifying definitions and terms 
contained in the statute and providing examples of acceptable methods 
to comply with specific provisions. MHPAEA and the regulations under it 
do not apply to employers with 50 or fewer employees (although, 
separately, the EHB regulations adopt MHPAEA). Moreover, small 
employers subject to the rule that have more than 50 employees will 
generally provide any health coverage through insurance or a third-
party administrator. The issuers of insurance or other third-party 
administrators of the health plans, rather than the small employers, 
will as a practical matter, satisfy the requirements of the regulations 
in order to provide a marketable product. For this reason, the burden 
imposed by the reporting requirement of the statute and these final 
regulations on small entities is expected to be near zero. Pursuant to 
section 7805(f) of the Code, the notice of proposed rulemaking 
preceding these final regulations was submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small businesses.

I. Paperwork Reduction Act

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

----------------------------------------------------------------------------------------------------------------
                                                                     Number of
                            Plan type                               respondents     Labor hours     Cost burden
----------------------------------------------------------------------------------------------------------------
ERISA-Covered Employer Group Health Plans.......................       1,258,000          11,976      $2,989,000
Public, Non-Federal Employer Group Health Plans.................          82,324           2,517       1,375,312
Individual Market Health Plans..................................             418          25,465          51,066
----------------------------------------------------------------------------------------------------------------

1. Departments of Labor and the Treasury
    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA) (44 U.S.C. 3506(c)(2)), the interim final regulations 
solicited comments on the information collections included therein. The 
Departments submitted an information collection request (ICR) to OMB in 
accordance with 44 U.S.C. 3507(d), contemporaneously with the 
publication of the interim final regulations for OMB's review. OMB 
approved the ICR on April 27, 2010, under OMB Control Numbers 1210-0138 
(Department of Labor) and 1545-2165 (Department of the Treasury/IRS). 
The Departments also submitted an ICR to OMB in accordance with 44 
U.S.C. 3507(d) for the ICR as revised by the final regulations. OMB 
approved the ICR under OMB control numbers 1210-0138 and 1545-2165, 
which will expire on November 30, 2016.
    As discussed earlier in this preamble, the final regulations retain 
the disclosure provisions for group health plans and health insurance 
coverage offered in connection with a group health plan. (In addition, 
these disclosure provisions are extended to non-grandfathered insurance 
coverage in the small group market through the EHB requirements and to 
the individual market as a result of the amendments to the PHS Act 
under the Affordable Care Act, as discussed in section II.F and II.H.1 
of this preamble.)
    The MHPAEA disclosures are information collection requests (ICRs) 
subject to the PRA. The final regulations (29 CFR 2590.712(d)(2)) 
require a Claims Denial Disclosure to be made available upon request or 
as otherwise required by the plan administrator (or the health 
insurance issuer offering such coverage) to a participant or 
beneficiary that provides the reason for any denial under a group 
health plan (or health insurance coverage) of reimbursement or payment 
for services with respect to mental health or substance use disorder 
benefits.
    The Departments did not submit an IRC to OMB for the Claims Denial 
Disclosure, because the Department of Labor's ERISA claims procedure 
regulation (29 CFR 2560.503-1) and disclosure regulation (29 CFR 
2520.104b-1) already require such disclosure. The same third-party 
administrators and insurers are hired by ERISA and non-ERISA covered 
plans, so both types of plans were likely to already be in compliance 
with the Department of Labor rules. Therefore, the hour and cost burden 
associated with the claims denial notice already is accounted in the 
ICR for the ERISA claims procedure regulation that was approved under 
OMB Control Number 1210-0053.
    The final regulations (29 CFR 2590.712(d)(1)) also require plan 
administrators to make the plan's medical necessity determination 
criteria available upon request to potential participants, 
beneficiaries, or contracting providers. The Departments are unable to 
estimate with certainty the number of requests for medical necessity 
criteria disclosures that will be received by plan administrators; 
however, the Departments have assumed that, on average, each plan 
affected by the rule will receive one

[[Page 68264]]

request. The Departments estimate that there are about 1,258,000 ERISA 
covered health plans affected by the regulations. The Departments 
estimate that approximately seven percent of large plans and all small 
plans administer claims using service providers; therefore, about 11 
percent of the medical necessity criteria disclosures will be done in-
house. For PRA purposes, plans using service providers will report the 
costs as a cost burden, while plans administering claims in-house will 
report the burden as an hour burden.
    The Departments assume that it will take a medically trained 
clerical staff member five minutes to respond to each request at a wage 
rate of $26.85 \117\ per hour. This results in an annual hour burden of 
nearly 12,000 hours and an associated equivalent cost of nearly 
$322,000 for the approximately 144,000 requests done in-house by plans. 
The remaining 1,114,000 medical necessity criteria disclosures will be 
provided through service providers resulting in a cost burden of 
approximately $2,493,000.
---------------------------------------------------------------------------

    \117\ EBSA estimates based on the National Occupational 
Employment Survey (June 2012, Bureau of Labor Statistics) and the 
Employment Cost Index (September 2012, Bureau of Labor Statistics).
---------------------------------------------------------------------------

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

    \118\ This estimate is based on an average document size of four 
pages, $.05 cents per page material and printing costs, $.44 cent 
postage costs.
    \119\ 5 CFR 1320.1 through 1320.18.
---------------------------------------------------------------------------

    These paperwork burden estimates are summarized as follows:
    Type of Review: Ongoing.
    Agencies: Employee Benefits Security Administration, Department of 
Labor; Internal Revenue Service, U.S. Department of the Treasury,
    Title: Notice of Medical Necessity Criteria under the Mental Health 
Parity and Addition Equity Act of 2008.
    OMB Number: 1210-0138; 1545-2165.
    Affected Public: Business or other for-profit; not-for-profit 
institutions.
    Total Respondents: 1,258,000.
    Total Responses: 1,258,000.
    Frequency of Response: Occasionally.
    Estimated Total Annual Burden Hours: 5,988 hours (Employee Benefits 
Security Administration); 5,988 hours (Internal Revenue Service).
    Estimated Total Annual Burden Cost: $1,494,000 (Employee Benefits 
Security Administration); $1,494,000 (Internal Revenue Service).
2. Department of Health and Human Services
    As discussed earlier in this preamble, the final regulations retain 
the disclosure provisions for group health plans and health insurance 
coverage offered in connection with a group health plan. (In addition, 
these disclosure provisions are extended to non-grandfathered insurance 
coverage in the small group market through the EHB requirements and to 
the individual market as a result of the amendments to the PHS Act 
under the Affordable Care Act, as discussed in section II.F and II.H.1 
of this preamble.) The burden estimates below have been updated to 
reflect these changes.
    In addition, as described earlier in this preamble, the final 
regulations reiterate that, in addition to MHPAEA's disclosure 
requirements, provisions of other applicable law require disclosure of 
information relevant to medical/surgical, mental health, and substance 
use disorder benefits. For example, the Departments' claims and appeals 
regulations under the Affordable Care Act (applicable to non-
grandfathered group health plans (including non-ERISA plans) and non-
grandfathered health insurance issuers in the group and individual 
markets),\120\ set forth rules regarding claims and appeals, including 
the right of claimants (or their authorized representative) upon appeal 
of an adverse benefit determination (or a final internal adverse 
benefit determination) to be provided, upon request and free of charge, 
reasonable access to and copies of all documents, records, and other 
information relevant to the claimant's claim for benefits.\121\ The 
burden associated with this disclosure is accounted for in the ICR 
approved under OMB control number 0938-1099.
---------------------------------------------------------------------------

    \120\ 29 CFR 2560.503-1. See also 26 CFR 54.9815-2719T(b)(2)(i), 
29 CFR 2590.715-2719(b)(2)(i), and 45 CFR 147.136(b)(2)(i), 
requiring non-grandfathered plans and issuers to incorporate the 
internal claims and appeals processes set forth in 29 CFR 2560.503-
1.
    \121\ As described earlier in this preamble, this includes 
documents with information on medical necessity criteria for both 
medical/surgical benefits and mental health and substance use 
disorder benefits, as well as the processes, strategies, evidentiary 
standards, and other factors used to apply a nonquantitative 
treatment limitation with respect to medical/surgical benefits and 
mental health or substance use disorder benefits under the plan.
---------------------------------------------------------------------------

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

    \122\ 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.
    \123\ EBSA estimates based on the National Occupational 
Employment Survey (June 2012, Bureau of Labor Statistics) and the 
Employment Cost Index (September 2012, Bureau of Labor Statistics).
---------------------------------------------------------------------------

    In the individual market there will be an estimated 18 million 
enrollees \124\ enrolled in plans offered by 418 issuers

[[Page 68265]]

offering coverage in multiple states. Assuming that, on average, each 
issuer will receive one request in each State that it offers coverage 
in, there will be a total of about 2,600 requests in each year. The 
annual burden to issuers for sending the medical necessity disclosures 
is estimated to be 220 hours with an associated equivalent cost of 
approximately $6,000.
---------------------------------------------------------------------------

    \124\ Estimate based on medical loss ratio reports submitted by 
issuers for 2012 reporting year and from the study ``Effects on 
Health Insurance and the Federal Budget for the Insurance Coverage 
Provisions in the Affordable Care Act--May 2013 Baseline,'' by 
Congressional Budget Office, May 14, 2013.
---------------------------------------------------------------------------

Claims Denial Disclosure
    As described earlier in this preamble, the Department of Labor's 
ERISA claims procedure regulation (29 CFR 2560.503-1) already requires 
such disclosures. Although non-ERISA covered plans, such as plans 
sponsored by State and local governments and individual plans that are 
subject to the PHS Act, are not required to comply with the ERISA 
claims procedure regulation, the final regulations provide that these 
plans (and health insurance coverage offered in connection with such 
plans) will be deemed to satisfy the MHPAEA claims denial disclosure 
requirement if they comply with the ERISA claims procedure regulation.
    Using assumptions similar to those used for the ERISA claims 
procedure regulation, HHS estimates that for State and local public 
plans, there will be approximately 30.9 million claims for mental 
health or substance use disorder benefits with approximately 4.6 
million denials that could result in a request for the reason for 
denial. HHS has no data on the percent of denials that will result in a 
request for an explanation, but assumed that ten percent of denials 
will result in a request for an explanation (464,000 requests). HHS 
estimates that a medically trained clerical staff member may require 
five minutes to respond to each request at a labor rate of $26.85 per 
hour. This results in an annual burden of nearly 2,000 hours and an 
associated equivalent cost of nearly $53,000 for the approximately 
24,000 requests completed by plans. The remaining 440,000 are provided 
through an issuer or a third-party administrator, which results in a 
cost burden of approximately $984,000. In the individual market, under 
similar assumptions, HHS estimates that there will be approximately 
18.4 million claims for mental health or substance use disorder 
benefits with approximately 2.75 million denials that could result in a 
request for explanation of denial. Assuming ten percent of denials 
result in such a request, it is estimated that there will be about 
275,000 requests for an explanation of reason for denial, which will be 
completed with a burden of 23,000 hours and equivalent cost of 
approximately $616,000.
    In association with the explanation of denial, participants may 
request a copy of the medical necessity criteria. While HHS does not 
know how many notices of denial will result in a request for the 
criteria of medical necessity, HHS assumes that ten percent of those 
requesting an explanation of the reason for denial will also request 
the criteria of medical necessity, resulting in about 46,000 requests, 
2,400 of which will be completed in-house with a burden of 200 hours 
and equivalent cost of approximately $5,000 and about 44,000 requests 
handled by issuers or third-party providers with a cost burden of 
approximately $98,000. In the individual market, under similar 
assumptions, HHS estimates that there will be about 27,500 requests for 
medical necessity criteria, which will be completed with a burden of 
2,295 hours and equivalent cost of approximately $62,000.
    HHS also calculated the cost to deliver the requested information. 
Many insurers or plans may already have the information prepared in 
electronic format, and HHS assumes that requests will be delivered 
electronically resulting in a de minimis cost.\125\ HHS estimates that 
the cost burden associated with distributing the approximately 256,000 
disclosures sent by paper will be approximately $169,000.\126\
---------------------------------------------------------------------------

    \125\ 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.
    \126\ This estimate is based on an average document size of four 
pages, $.05 cents per page material and printing costs, $0.46 cent 
postage costs.
---------------------------------------------------------------------------

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

J. Unfunded Mandates Reform Act

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

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

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has Federalism implications.
    In the Departments' view, these regulations have Federalism 
implications, because they have direct effects on the States, the 
relationship between the Federal government and States, or on the 
distribution of power and responsibilities among various levels of 
government. However, in the Departments' view, the Federalism 
implications of these regulations are substantially mitigated because, 
with respect to health insurance issuers, the Departments expect that 
the majority of States have enacted or will enact laws or take other 
appropriate action resulting in their meeting or exceeding the Federal 
MHPAEA standards.
    In general, through section 514, ERISA supersedes State laws to the 
extent that they relate to any covered employee benefit plan, and 
preserves State laws that regulate insurance, banking, or securities. 
While ERISA prohibits States from regulating a plan as an insurance or 
investment company or bank, the preemption provisions of section 731 of 
ERISA and section 2724 of the PHS Act (implemented in 29 CFR 
2590.731(a) and 45 CFR 146.143(a)) apply so that the MHPAEA 
requirements are not to be ``construed to supersede any provision of 
State law which establishes, implements, or continues in effect any 
standard or requirement solely relating to health insurance issuers in 
connection with group health insurance coverage except to the extent 
that such standard or requirement prevents the application of a 
requirement'' of MHPAEA. The conference report accompanying HIPAA 
indicates that this is intended to be the ``narrowest'' preemption of 
State laws. (See House Conf. Rep. No. 104-736, at

[[Page 68266]]

205, reprinted in 1996 U.S. Code Cong. & Admin. News 2018.)
    States may continue to apply State law requirements except to the 
extent that such requirements prevent the application of the MHPAEA 
requirements that are the subject of this rulemaking. State insurance 
laws that are more stringent than the Federal requirements are unlikely 
to ``prevent the application of'' MHPAEA, and be preempted. 
Accordingly, States have significant latitude to impose requirements on 
health insurance issuers that are more restrictive than the Federal 
law.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have Federalism 
implications or limit the policy making discretion of the States, the 
Departments have engaged in numerous efforts to consult with and work 
cooperatively with affected State and local officials. For example, HHS 
has provided training on MHPAEA for state regulators though the 
National Association Insurance Commissioners (NAIC) and has been 
available to State regulators to address any issues that arise. HHS has 
also collaborated with regulators in a number of States on MHPAEA 
enforcement strategies with the goal of maintaining state regulator 
involvement in the implementation and enforcement of MHPAEA in their 
States. It is expected that the Departments will continue to act in a 
similar fashion in enforcing the MHPAEA requirements.
    Throughout the process of developing these regulations, to the 
extent feasible within the specific preemption provisions of HIPAA as 
it applies to MHPAEA, the Departments have attempted to balance the 
States' interests in regulating health insurance issuers, and Congress' 
intent to provide uniform minimum protections to consumers in every 
State. By doing so, it is the Departments' view that they have complied 
with the requirements of Executive Order 13132.
    Pursuant to the requirements set forth in section 8(a) of Executive 
Order 13132, and by the signatures affixed to these regulations, the 
Departments certify that the Employee Benefits
    Security Administration and the Centers for Medicare & Medicaid 
Services have complied with the requirements of Executive Order 13132 
for the attached regulations in a meaningful and timely manner.

L. Congressional Review Act

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

IV. Statutory Authority

    The Department of the Treasury regulations are adopted pursuant to 
the authority contained in sections 7805 and 9833 of the Code.
    The Department of Labor 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 1-2011, 77 FR 1088 (January 9, 2012).
    The Department of Health and Human Services regulations are adopted 
pursuant to the authority contained in sections 2701 through 2763, 
2791, and 2792 of the PHS Act (42 USC 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 Parts 146 and 147

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

John Dalrymple,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Approved: November 6, 2013.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
    Signed this 6th day of November, 2013.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: October 25, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: November 5, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Chapter I

    Accordingly, 26 CFR Part 54 is amended as follows:

PART 54--PENSION EXCISE TAXES

0
Paragraph 1. The authority citation for part 54 is amended by removing 
the entry for Sec.  54.9812-1T and by adding an entry in numerical 
order to read as follows:

    Authority:  26 U.S.C. 7805 * * *
    Section 54.9812-1 also issued under 26 U.S.C. 9833. * * *



0
Par. 2. Section 54.9812-1T is removed.

0
Par. 3. Section 54.9812-1 is added to read as follows:


Sec.  54.9812-1  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.

[[Page 68267]]

    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 with respect to items or 
services for medical conditions or surgical procedures, as defined 
under the terms of the plan or health insurance coverage and in 
accordance with applicable Federal and State law, but does not include 
mental health or substance use disorder benefits. Any condition defined 
by the plan or coverage 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 items or 
services for mental health conditions, as defined under the terms of 
the plan or health insurance coverage and in accordance with applicable 
Federal and State law. Any condition defined by the plan or coverage 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 
items or services for substance use disorders, as defined under the 
terms of the plan or health insurance coverage 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 or coverage. (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 for purposes of this 
definition.
    (b) Parity requirements with respect to aggregate lifetime and 
annual dollar limits. This paragraph (b) details the application of the 
parity requirements with respect to aggregate lifetime and annual 
dollar limits. This paragraph (b) does not address the provisions of 
PHS Act section 2711, as incorporated in ERISA section 715 and Code 
section 9815, which prohibit imposing lifetime and annual limits on the 
dollar value of essential health benefits.
    (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)(5) 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) 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.
    (5) 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

[[Page 68268]]

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)(5)(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)(5), the 
weighting applicable to any category of medical/surgical benefits is 
determined in the manner set forth in paragraph (b)(4) of this section 
for determining one-third or two-thirds of all medical/surgical 
benefits.
    (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 the classification, the rules of this paragraph (c) apply separately 
with respect to that classification for all financial requirements or 
treatment limitations (illustrated in examples in paragraph 
(c)(2)(ii)(C) of this section). 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. See special rules for plans with 
multiple network tiers in paragraph (c)(3)(iii) of this section.
    (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. See special rules for office 
visits and plans with multiple network tiers in paragraph (c)(3)(iii) 
of this section.
    (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. See special rules for office visits in 
paragraph (c)(3)(iii) of this section.
    (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

[[Page 68269]]

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 care, 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 care 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 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. (See also PHS Act 
section 2707(b) and Affordable Care Act section 1302(c), which 
establish limitations on annual deductibles for non-grandfathered 
health plans in the small group market and annual limitations on out-
of-pocket maximums for all non-grandfathered health plans.)
    (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 rules--(A) 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

[[Page 68270]]

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.
    (B) Multiple network tiers. If a plan (or health insurance 
coverage) provides benefits through multiple tiers of in-network 
providers (such as an in-network tier of preferred providers with more 
generous cost-sharing to participants than a separate in-network tier 
of participating providers), the plan may divide its benefits furnished 
on an in-network basis into sub-classifications that reflect network 
tiers, if the tiering is based on reasonable factors determined in 
accordance with the rules in paragraph (c)(4)(i) of this section (such 
as quality, performance, and market standards) and without regard to 
whether a provider provides services with respect to medical/surgical 
benefits or mental health or substance use disorder benefits. After the 
sub-classifications are established, the plan or issuer may not impose 
any financial requirement or treatment limitation on mental health or 
substance use disorder benefits in any sub-classification that is more 
restrictive than the predominant financial requirement or treatment 
limitation that applies to substantially all medical/surgical benefits 
in the sub-classification using the methodology set forth in paragraph 
(c)(3)(i) of this section.
    (C) Sub-classifications permitted for office visits, separate from 
other outpatient services. For purposes of applying the financial 
requirement and treatment limitation rules of this paragraph (c), a 
plan or issuer may divide its benefits furnished on an outpatient basis 
into the two sub-classifications described in this paragraph 
(c)(3)(iii)(C). After the sub-classifications are established, the plan 
or issuer may not impose any financial requirement or quantitative 
treatment limitation on mental health or substance use disorder 
benefits in any sub-classification that is more restrictive than the 
predominant financial requirement or quantitative treatment limitation 
that applies to substantially all medical/surgical benefits in the sub-
classification using the methodology set forth in paragraph (c)(3)(i) 
of this section. Sub-classifications other than these special rules, 
such as separate sub-classifications for generalists and specialists, 
are not permitted. The two sub-classifications permitted under this 
paragraph (c)(3)(iii)(C) are:
    (1) Office visits (such as physician visits), and
    (2) All other outpatient items and services (such as outpatient 
surgery, facility charges for day treatment centers, laboratory 
charges, or other medical items).
    (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 level.......             N/A           12.5%          56.25%           12.5%          18.75%  ...........................
                                                                (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)
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

[[Page 68271]]

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
                                                                                   brand name
                                                               Preferred brand    drugs (which
              Tier description                 Generic drugs      name drugs    may have Tier 1  Specialty drugs
                                                                                   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).
    Example 5. (i) Facts. A plan has two-tiers of network of 
providers: a preferred provider tier and a participating provider 
tier. Providers are placed in either the preferred tier or 
participating tier based on reasonable factors determined in 
accordance with the rules in paragraph (c)(4)(i) of this section, 
such as accreditation, quality and performance measures (including 
customer feedback), and relative reimbursement rates. Furthermore, 
provider tier placement is determined without regard to whether a 
provider specializes in the treatment of mental health conditions or 
substance use disorders, or medical/surgical conditions. The plan 
divides the in-network classifications into two sub-classifications 
(in-network/preferred and in-network/participating). The plan does 
not impose any financial requirement or treatment limitation on 
mental health or substance use disorder benefits in either of these 
sub-classifications that is more restrictive than the predominant 
financial requirement or treatment limitation that applies to 
substantially all medical/surgical benefits in each sub-
classification.
    (ii) Conclusion. In this Example 5, the division of in-network 
benefits into sub-classifications that reflect the preferred and 
participating provider tiers does not violate the parity 
requirements of this paragraph (c)(3).
    Example 6. (i) Facts. With respect to outpatient, in-network 
benefits, a plan imposes a $25 copayment for office visits and a 20 
percent coinsurance requirement for outpatient surgery. The plan 
divides the outpatient, in-network classification into two sub-
classifications (in-network office visits and all other outpatient, 
in-network items and services). The plan or issuer does not impose 
any financial requirement or quantitative treatment limitation on 
mental health or substance use disorder benefits in either of these 
sub-classifications that is more restrictive than the predominant 
financial requirement or quantitative treatment limitation that 
applies to substantially all medical/surgical benefits in each sub-
classification.
    (ii) Conclusion. In this Example 6, the division of outpatient, 
in-network benefits into sub-classifications for office visits and 
all other outpatient, in-network items and services does not violate 
the parity requirements of this paragraph (c)(3).
    Example 7. (i) Facts. Same facts as Example 6, but for purposes 
of determining parity, the plan divides the outpatient, in-network 
classification into outpatient, in-network generalists and 
outpatient, in-network specialists.
    (ii) Conclusion. In this Example 7, the division of outpatient, 
in-network benefits into any sub-classifications other than office 
visits and all other outpatient items and services violates the 
requirements of paragraph (c)(3)(iii)(C) of this section.

    (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:

[[Page 68272]]



----------------------------------------------------------------------------------------------------------------
                                                                     Benefits                         Percent
                         Classification                             subject to    Total benefits    subject to
                                                                    deductible                      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.
    (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) For plans with multiple network tiers (such as preferred 
providers and participating providers), network tier design;
    (D) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (E) Plan methods for determining usual, customary, and reasonable 
charges;
    (F) 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);
    (G) Exclusions based on failure to complete a course of treatment; 
and
    (H) Restrictions based on geographic location, facility type, 
provider specialty, and other criteria that limit the scope or duration 
of benefits for services provided under the plan or coverage.
    (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 plan requires prior authorization from 
the plan's utilization reviewer that a treatment is medically 
necessary for all inpatient medical/surgical benefits and for all 
inpatient mental health and substance use disorder benefits. In 
practice, inpatient benefits for medical/surgical conditions are 
routinely approved for seven days, after which a treatment plan must 
be submitted by the patient's attending provider and approved by the 
plan. On the other hand, for inpatient mental health and substance 
use disorder benefits, routine approval is given only for one day, 
after which a treatment plan must be submitted by the patient's 
attending provider and approved by the plan.
    (ii) Conclusion. In this Example 1, the plan violates the rules 
of this paragraph (c)(4) because it is applying a stricter 
nonquantitative treatment limitation in practice to mental health 
and substance use disorder benefits than is applied to medical/
surgical benefits.
    Example 2. (i) Facts. A plan applies concurrent review to 
inpatient care where there are high levels of variation in length of 
stay (as measured by a coefficient of variation exceeding 0.8). In 
practice, the application of this standard affects 60 percent of 
mental health conditions and substance use disorders, but only 30 
percent of medical/surgical conditions.
    (ii) Conclusion. In this Example 2, the plan complies with the 
rules of this paragraph (c)(4) because the evidentiary standard used 
by the plan is applied no more stringently for mental health and 
substance use disorder benefits than for medical/surgical benefits, 
even though it results in an overall difference in the application 
of concurrent review for mental health conditions or substance use 
disorders than for medical/surgical conditions.
    Example 3. (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 and uses comparable criteria in determining whether a 
course of treatment is medically necessary. 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 3, 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, it is not applied in a 
comparable way. 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 4. (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 is based on 
clinically appropriate standards of care for a condition.
    (ii) Conclusion. In this Example 4, the plan complies with the 
rules of this paragraph (c)(4) because the processes for developing 
the evidentiary standards used to determine medical appropriateness 
and the application of these standards 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 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 5. (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

[[Page 68273]]

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 5, the plan violates the rules 
of this paragraph (c)(4). Although the standard for applying a 
nonquantitative treatment limitation is the same for both mental 
health and substance use disorder benefits and medical/surgical 
benefits--whether a drug has a black box warning--it is not applied 
in a comparable manner. 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 6. (i) Facts. An employer maintains both a major medical 
plan 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 plan 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 plan.
    (ii) Conclusion. In this Example 6, 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.
    Example 7. (i) Facts. Training and State licensing requirements 
often vary among types of providers. A plan applies a general 
standard that any provider must meet the highest licensing 
requirement related to supervised clinical experience under 
applicable State law in order to participate in the plan's provider 
network. Therefore, the plan requires master's-level mental health 
therapists to have post-degree, supervised clinical experience but 
does not impose this requirement on master's-level general medical 
providers because the scope of their licensure under applicable 
State law does require clinical experience. In addition, the plan 
does not require post-degree, supervised clinical experience for 
psychiatrists or Ph.D. level psychologists since their licensing 
already requires supervised training.
    (ii) Conclusion. In this Example 7, the plan complies with the 
rules of this paragraph (c)(4). The requirement that master's-level 
mental health therapists must have supervised clinical experience to 
join the network is permissible, as long as the plan consistently 
applies the same standard to all providers even though it may have a 
disparate impact on certain mental health providers.
    Example 8. (i) Facts. A plan considers a wide array of factors 
in designing medical management techniques for both mental health 
and substance use disorder benefits and medical/surgical benefits, 
such as cost of treatment; high cost growth; variability in cost and 
quality; elasticity of demand; provider discretion in determining 
diagnosis, or type or length of treatment; clinical efficacy of any 
proposed treatment or service; licensing and accreditation of 
providers; and claim types with a high percentage of fraud. Based on 
application of these factors in a comparable fashion, prior 
authorization is required for some (but not all) mental health and 
substance use disorder benefits, as well as for some medical/
surgical benefits, but not for others. For example, the plan 
requires prior authorization for: outpatient surgery; speech, 
occupational, physical, cognitive and behavioral therapy extending 
for more than six months; durable medical equipment; diagnostic 
imaging; skilled nursing visits; home infusion therapy; coordinated 
home care; pain management; high-risk prenatal care; delivery by 
cesarean section; mastectomy; prostate cancer treatment; narcotics 
prescribed for more than seven days; and all inpatient services 
beyond 30 days. The evidence considered in developing its medical 
management techniques includes consideration of a wide array of 
recognized medical literature and professional standards and 
protocols (including comparative effectiveness studies and clinical 
trials). This evidence and how it was used to develop these medical 
management techniques is also well documented by the plan.
    (ii) Conclusion. In this Example 8, the plan complies with the 
rules of this paragraph (c)(4). Under the terms of the plan as 
written and in operation, the processes, strategies, evidentiary 
standards, and other factors considered by the plan in implementing 
its prior authorization requirement with respect to mental health 
and substance use disorder benefits are comparable to, and applied 
no more stringently than, those applied with respect to medical/
surgical benefits.
    Example 9. (i) Facts. A plan generally covers medically 
appropriate treatments. The plan automatically excludes coverage for 
inpatient substance use disorder treatment in any setting outside of 
a hospital (such as a freestanding or residential treatment center). 
For inpatient treatment outside of a hospital for other conditions 
(including freestanding or residential treatment centers prescribed 
for mental health conditions, as well as for medical/surgical 
conditions), the plan will provide coverage if the prescribing 
physician obtains authorization from the plan that the inpatient 
treatment is medically appropriate for the individual, based on 
clinically appropriate standards of care.
    (ii) Conclusion. In this Example 9, 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 substance 
use disorder treatment in any setting outside of a hospital is not 
comparable to the conditional exclusion of inpatient treatment 
outside of a hospital for other conditions.
    Example 10. (i) Facts. A plan generally provides coverage for 
medically appropriate medical/surgical benefits as well as mental 
health and substance use disorder benefits. The plan excludes 
coverage for inpatient, out-of-network treatment of chemical 
dependency when obtained outside of the State where the policy is 
written. There is no similar exclusion for medical/surgical benefits 
within the same classification.
    (ii) Conclusion. In this Example 10, the plan violates the rules 
of this paragraph (c)(4). The plan is imposing a nonquantitative 
treatment limitation that restricts benefits based on geographic 
location. Because there is no comparable exclusion that applies to 
medical/surgical benefits, this exclusion may not be applied to 
mental health or substance use disorder benefits.
    Example 11. (i) Facts. A plan requires prior authorization for 
all outpatient mental health and substance use disorder services 
after the ninth visit and will only approve up to five additional 
visits per authorization. With respect to outpatient medical/
surgical benefits, the plan allows an initial visit without prior 
authorization. After the initial visit, the plan pre-approves 
benefits based on the individual treatment plan recommended by the 
attending provider based on that individual's specific medical 
condition. There is no explicit, predetermined cap on the amount of 
additional visits approved per authorization.
    (ii) Conclusion. In this Example 11, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--prior authorization to determine medical 
appropriateness--is applied to both mental health and substance use 
disorder benefits and medical/surgical benefits for outpatient 
services, it is not applied in a comparable way. While the plan is 
more generous with respect to the number of visits initially 
provided without pre-authorization for mental health benefits, 
treating all mental health conditions and substance use disorders in 
the same manner, while providing for individualized treatment of 
medical conditions, is not a comparable application of this 
nonquantitative treatment limitation.

    (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 any denial. The reason for any denial under a group 
health plan

[[Page 68274]]

(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 by the plan administrator (or the 
health insurance issuer offering such coverage) 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).
    (3) Provisions of other law. Compliance with the disclosure 
requirements in paragraphs (d)(1) and (d)(2) of this section is not 
determinative of compliance with any other provision of applicable 
Federal or State law. In particular, in addition to those disclosure 
requirements, provisions of other applicable law require disclosure of 
information relevant to medical/surgical, mental health, and substance 
use disorder benefits. For example, ERISA section 104 and 29 CFR 
2520.104b-1 provide that, for plans subject to ERISA, instruments under 
which the plan is established or operated must generally be furnished 
to plan participants within 30 days of request. Instruments under which 
the plan is established or operated include documents with information 
on medical necessity criteria for both medical/surgical benefits and 
mental health and substance use disorder benefits, as well as the 
processes, strategies, evidentiary standards, and other factors used to 
apply a nonquantitative treatment limitation with respect to medical/
surgical benefits and mental health or substance use disorder benefits 
under the plan. In addition, 29 CFR 2560.503-1 and 29 CFR 2590.715-2719 
set forth rules regarding claims and appeals, including the right of 
claimants (or their authorized representative) upon appeal of an 
adverse benefit determination (or a final internal adverse benefit 
determination) to be provided upon request and free of charge, 
reasonable access to and copies of all documents, records, and other 
information relevant to the claimant's claim for benefits. This 
includes documents with information on medical necessity criteria for 
both medical/surgical benefits and mental health and substance use 
disorder benefits, as well as the processes, strategies, evidentiary 
standards, and other factors used to apply a nonquantitative treatment 
limitation with respect to medical/surgical benefits and mental health 
or substance use disorder benefits under the plan.
    (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;
    (ii) Require a group health plan (or health insurance issuer 
offering coverage in connection with a group health plan) that provides 
coverage for mental health or substance use disorder benefits only to 
the extent required under PHS Act section 2713 to provide additional 
mental health or substance use disorder benefits in any classification 
in accordance with this section; or
    (iii) 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.
    (4) Coordination with EHB requirements. Nothing in paragraph (f) or 
(g) of this section changes the requirements of 45 CFR 147.150 and 45 
CFR 156.115, providing that a health insurance issuer offering non-
grandfathered health insurance coverage in the individual or small 
group market providing mental health and substance use disorder 
services, including behavioral health treatment services, as part of 
essential health benefits required under 45 CFR 156.110(a)(5) and 
156.115(a), must comply with the provisions of 45 CFR 146.136 to 
satisfy the requirement to provide essential health benefits.
    (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 9831(a) 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

[[Page 68275]]

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--(1) In general. If the application of 
this section to a group health plan (or health insurance coverage 
offered in connection with such plans) results in an increase for the 
plan year involved of the actual total cost of coverage with respect to 
medical/surgical benefits and mental health and substance use disorder 
benefits as determined and certified under paragraph (g)(3) of this 
section by an amount that exceeds the applicable percentage described 
in paragraph (g)(2) of this section of the actual total plan costs, the 
provisions of this section shall not apply to such plan (or coverage) 
during the following plan year, and such exemption shall apply to the 
plan (or coverage) for one plan year. An employer or issuer may elect 
to continue to provide mental health and substance use disorder 
benefits in compliance with this section with respect to the plan or 
coverage involved regardless of any increase in total costs.
    (2) Applicable percentage. With respect to a plan or coverage, the 
applicable percentage described in this paragraph (g) is--
    (i) 2 percent in the case of the first plan year in which this 
section is applied to the plan or coverage; and
    (ii) 1 percent in the case of each subsequent plan year.
    (3) Determinations by actuaries--(i) Determinations as to increases 
in actual costs under a plan or coverage that are attributable to 
implementation of the requirements of this section shall be made and 
certified by a qualified and licensed actuary who is a member in good 
standing of the American Academy of Actuaries. All such determinations 
must be based on the formula specified in paragraph (g)(4) of this 
section and shall be in a written report prepared by the actuary.
    (ii) The written report described in paragraph (g)(3)(i) of this 
section shall be maintained by the group health plan or health 
insurance issuer, along with all supporting documentation relied upon 
by the actuary, for a period of six years following the notification 
made under paragraph (g)(6) of this section.
    (4) Formula. The formula to be used to make the determination under 
paragraph (g)(3)(i) of this section is expressed mathematically as 
follows:

[(E1-E0)/T0]-D  k

    (i) E1 is the actual total cost of coverage with respect 
to mental health and substance use disorder benefits for the base 
period, including claims paid by the plan or issuer with respect to 
mental health and substance use disorder benefits and administrative 
costs (amortized over time) attributable to providing these benefits 
consistent with the requirements of this section.
    (ii) E0 is the actual total cost of coverage with 
respect to mental health and substance use disorder benefits for the 
length of time immediately before the base period (and that is equal in 
length to the base period), including claims paid by the plan or issuer 
with respect to mental health and substance use disorder benefits and 
administrative costs (amortized over time) attributable to providing 
these benefits.
    (iii) T0 is the actual total cost of coverage with 
respect to all benefits during the base period.
    (iv) k is the applicable percentage of increased cost specified in 
paragraph (g)(2) of this section that will be expressed as a fraction 
for purposes of this formula.
    (v) D is the average change in spending that is calculated by 
applying the formula (E1-E0)/T0 to 
mental health and substance use disorder spending in each of the five 
prior years and then calculating the average change in spending.
    (5) Six month determination. If a group health plan or health 
insurance issuer seeks an exemption under this paragraph (g), 
determinations under paragraph (g)(3) of this section shall be made 
after such plan or coverage has complied with this section for at least 
the first 6 months of the plan year involved.
    (6) Notification. A group health plan or health insurance issuer 
that, based on the certification described under paragraph (g)(3) of 
this section, qualifies for an exemption under this paragraph (g), and 
elects to implement the exemption, must notify participants and 
beneficiaries covered under the plan, the Secretary, and the 
appropriate State agencies of such election.
    (i) Participants and beneficiaries--(A) Content of notice. The 
notice to participants and beneficiaries must include the following 
information:
    (1) A statement that the plan or issuer is exempt from the 
requirements of this section and a description of the basis for the 
exemption.
    (2) The name and telephone number of the individual to contact for 
further information.
    (3) The plan or issuer name and plan number (PN).
    (4) The plan administrator's name, address, and telephone number.
    (5) For single-employer plans, the plan sponsor's name, address, 
and telephone number (if different from paragraph (g)(6)(i)(A)(3) of 
this section) and the plan sponsor's employer identification number 
(EIN).
    (6) The effective date of such exemption.
    (7) A statement regarding the ability of participants and 
beneficiaries to contact the plan administrator or health insurance 
issuer to see how benefits may be affected as a result of the plan's or 
issuer's election of the exemption.
    (8) A statement regarding the availability, upon request and free 
of charge, of a summary of the information on which the exemption is 
based (as required under paragraph (g)(6)(i)(D) of this section).
    (B) Use of summary of material reductions in covered services or 
benefits. A plan or issuer may satisfy the requirements of paragraph 
(g)(6)(i)(A) of this section by providing participants and 
beneficiaries (in accordance with paragraph (g)(6)(i)(C) of this 
section) with a summary of material reductions in covered services or 
benefits consistent with 29 CFR 2520.104b-3(d) that also includes the 
information specified in paragraph (g)(6)(i)(A) of this section. 
However, in all cases, the exemption is not effective until 30 days 
after notice has been sent.
    (C) Delivery. The notice described in this paragraph (g)(6)(i) is 
required to be provided to all participants and beneficiaries. The 
notice may be furnished by any method of delivery that satisfies the 
requirements of section 104(b)(1) of ERISA (29 U.S.C. 1024(b)(1)) and 
its implementing regulations (for example, first-class mail). If the 
notice is provided to the participant and any beneficiaries at the 
participant's last known address, then the requirements of this 
paragraph (g)(6)(i) are satisfied with respect to the participant and 
all beneficiaries residing at that address. If a beneficiary's last 
known address is different from the participant's last known address, a 
separate notice is required to be provided to the beneficiary at the 
beneficiary's last known address.
    (D) Availability of documentation. The plan or issuer must make 
available to participants and beneficiaries (or their representatives), 
on request and at no charge, a summary of the information on which the 
exemption was based. (For purposes of this paragraph (g), an individual 
who is not a participant or beneficiary and who presents a notice 
described in paragraph (g)(6)(i) of this section is considered to be a 
representative. A representative may request the summary of information 
by

[[Page 68276]]

providing the plan a copy of the notice provided to the participant 
under paragraph (g)(6)(i) of this section with any personally 
identifiable information redacted.) The summary of information must 
include the incurred expenditures, the base period, the dollar amount 
of claims incurred during the base period that would have been denied 
under the terms of the plan or coverage absent amendments required to 
comply with paragraphs (b) and (c) of this section, the administrative 
costs related to those claims, and other administrative costs 
attributable to complying with the requirements of this section. In no 
event should the summary of information include any personally 
identifiable information.
    (ii) Federal agencies--(A) Content of notice. The notice to the 
Secretary must include the following information:
    (1) A description of the number of covered lives under the plan (or 
coverage) involved at the time of the notification, and as applicable, 
at the time of any prior election of the cost exemption under this 
paragraph (g) by such plan (or coverage);
    (2) For both the plan year upon which a cost exemption is sought 
and the year prior, a description of the actual total costs of coverage 
with respect to medical/surgical benefits and mental health and 
substance use disorder benefits; and
    (3) For both the plan year upon which a cost exemption is sought 
and the year prior, the actual total costs of coverage with respect to 
mental health and substance use disorder benefits under the plan.
    (B) Reporting with respect to church plans. A church plan (as 
defined in section 414(e)) claiming the exemption of this paragraph (g) 
for any benefit package, must provide notice to the Department of the 
Treasury. This requirement is satisfied if the plan sends a copy, to 
the address designated by the Secretary in generally applicable 
guidance, of the notice described in paragraph (g)(6)(ii)(A) of this 
section identifying the benefit package to which the exemption applies.
    (C) Reporting with respect to ERISA plans. See 29 CFR 
2590.712(g)(6)(ii) for delivery with respect to ERISA plans.
    (iii) Confidentiality. A notification to the Secretary under this 
paragraph (g)(6) shall be confidential. The Secretary shall make 
available, upon request and not more than on an annual basis, an 
anonymous itemization of each notification that includes--
    (A) A breakdown of States by the size and type of employers 
submitting such notification; and
    (B) A summary of the data received under paragraph (g)(6)(ii) of 
this section.
    (iv) Audits. The Secretary may audit the books and records of a 
group health plan or a health insurance issuer relating to an 
exemption, including any actuarial reports, during the 6 year period 
following notification of such exemption under paragraph (g)(6) of this 
section. A State agency receiving a notification under paragraph (g)(6) 
of this section may also conduct such an audit with respect to an 
exemption covered by such notification.
    (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, this section applies to group health 
plans and health insurance issuers offering group health insurance 
coverage on the first day of the first plan year beginning on or after 
July 1, 2014.
    (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 date on which the last of the collective 
bargaining agreements terminates (determined without regard to any 
extension agreed to after October 3, 2008).

Employee Benefits Security Administration

29 CFR Chapter XXV

    29 CFR Part 2590 is amended as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

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

    Authority: 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 1-2011, 77 FR 1088 (January 9, 2012).


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 with respect to items or 
services for medical conditions or surgical procedures, as defined 
under the terms of the plan or health insurance coverage and in 
accordance with applicable Federal and State law, but does not include 
mental health or substance use disorder benefits. Any condition defined 
by the plan or coverage 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).

[[Page 68277]]

    Mental health benefits means benefits with respect to items or 
services for mental health conditions, as defined under the terms of 
the plan or health insurance coverage and in accordance with applicable 
Federal and State law. Any condition defined by the plan or coverage 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 
items or services for substance use disorders, as defined under the 
terms of the plan or health insurance coverage 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 or coverage. (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 for purposes of this 
definition.
    (b) Parity requirements with respect to aggregate lifetime and 
annual dollar limits. This paragraph (b) details the application of the 
parity requirements with respect to aggregate lifetime and annual 
dollar limits. This paragraph (b) does not address the provisions of 
PHS Act section 2711, as incorporated in ERISA section 715 and Code 
section 9815, which prohibit imposing lifetime and annual limits on the 
dollar value of essential health benefits. For more information, see 29 
CFR 2590.715-2711.
    (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)(5) 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) 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.
    (5) 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)(5)(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)(5), the 
weighting applicable to any category of medical/surgical benefits is 
determined in the manner set forth in paragraph (b)(4) of this section 
for determining one-third or two-thirds of all medical/surgical 
benefits.
    (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

[[Page 68278]]

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 the classification, the rules of this paragraph (c) apply separately 
with respect to that classification for all financial requirements or 
treatment limitations (illustrated in examples in paragraph 
(c)(2)(ii)(C) of this section). 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. See special rules for plans with 
multiple network tiers in paragraph (c)(3)(iii) of this section.
    (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. See special rules for office 
visits and plans with multiple network tiers in paragraph (c)(3)(iii) 
of this section.
    (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. See special rules for office visits in 
paragraph (c)(3)(iii) of this section.
    (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 care, 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--

[[Page 68279]]

    (A) Benefits in the emergency care 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 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. (See also PHS Act 
section 2707(b) and Affordable Care Act section 1302(c), which 
establish limitations on annual deductibles for non-grandfathered 
health plans in the small group market and annual limitations on out-
of-pocket maximums for all non-grandfathered health plans.)
    (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 rules--(A) 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.
    (B) Multiple network tiers. If a plan (or health insurance 
coverage) provides benefits through multiple tiers of in-network 
providers (such as an in-network tier of preferred providers with more 
generous cost-sharing to participants than a separate in-network tier 
of participating providers), the plan may divide its benefits furnished 
on an in-network basis into sub-classifications that reflect network 
tiers, if the tiering is based on reasonable factors determined in 
accordance with the rules in paragraph (c)(4)(i) of this section (such 
as quality, performance, and market standards) and without regard to 
whether a provider provides services with respect to medical/surgical 
benefits or mental health or substance use disorder benefits. After the 
sub-classifications are established, the plan or issuer may not impose 
any financial requirement or treatment limitation on mental health or 
substance use disorder benefits in any sub-classification that is more 
restrictive than the predominant financial requirement or treatment 
limitation that applies to substantially all medical/surgical benefits 
in the sub-

[[Page 68280]]

classification using the methodology set forth in paragraph (c)(3)(i) 
of this section.
    (C) Sub-classifications permitted for office visits, separate from 
other outpatient services. For purposes of applying the financial 
requirement and treatment limitation rules of this paragraph (c), a 
plan or issuer may divide its benefits furnished on an outpatient basis 
into the two sub-classifications described in this paragraph 
(c)(3)(iii)(C). After the sub-classifications are established, the plan 
or issuer may not impose any financial requirement or quantitative 
treatment limitation on mental health or substance use disorder 
benefits in any sub-classification that is more restrictive than the 
predominant financial requirement or quantitative treatment limitation 
that applies to substantially all medical/surgical benefits in the sub-
classification using the methodology set forth in paragraph (c)(3)(i) 
of this section. Sub-classifications other than these special rules, 
such as separate sub-classifications for generalists and specialists, 
are not permitted. The two sub-classifications permitted under this 
paragraph (c)(3)(iii)(C) are:
    (1) Office visits (such as physician visits), and
    (2) All other outpatient items and services (such as outpatient 
surgery, facility charges for day treatment centers, laboratory 
charges, or other medical items).
    (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 level.......             N/A           12.5%          56.25%           12.5%          18.75%  ...........................
                                                                (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)
--------------------------------------------------------------------------------------------------------------------------------------------------------

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).

[[Page 68281]]



----------------------------------------------------------------------------------------------------------------
                                                   Tier 1           Tier 2           Tier 3           Tier 4
----------------------------------------------------------------------------------------------------------------
                                                                                 Non-preferred
                                                                                   brand name
                                                               Preferred brand    drugs (which
              Tier description                 Generic drugs      name drugs    may have Tier 1  Specialty drugs
                                                                                   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).
    Example 5. (i) Facts. A plan has two-tiers of network of 
providers: a preferred provider tier and a participating provider 
tier. Providers are placed in either the preferred tier or 
participating tier based on reasonable factors determined in 
accordance with the rules in paragraph (c)(4)(i) of this section, 
such as accreditation, quality and performance measures (including 
customer feedback), and relative reimbursement rates. Furthermore, 
provider tier placement is determined without regard to whether a 
provider specializes in the treatment of mental health conditions or 
substance use disorders, or medical/surgical conditions. The plan 
divides the in-network classifications into two sub-classifications 
(in-network/preferred and in-network/participating). The plan does 
not impose any financial requirement or treatment limitation on 
mental health or substance use disorder benefits in either of these 
sub-classifications that is more restrictive than the predominant 
financial requirement or treatment limitation that applies to 
substantially all medical/surgical benefits in each sub-
classification.
    (ii) Conclusion. In this Example 5, the division of in-network 
benefits into sub-classifications that reflect the preferred and 
participating provider tiers does not violate the parity 
requirements of this paragraph (c)(3).
    Example 6. (i) Facts. With respect to outpatient, in-network 
benefits, a plan imposes a $25 copayment for office visits and a 20 
percent coinsurance requirement for outpatient surgery. The plan 
divides the outpatient, in-network classification into two sub-
classifications (in-network office visits and all other outpatient, 
in-network items and services). The plan or issuer does not impose 
any financial requirement or quantitative treatment limitation on 
mental health or substance use disorder benefits in either of these 
sub-classifications that is more restrictive than the predominant 
financial requirement or quantitative treatment limitation that 
applies to substantially all medical/surgical benefits in each sub-
classification.
    (ii) Conclusion. In this Example 6, the division of outpatient, 
in-network benefits into sub-classifications for office visits and 
all other outpatient, in-network items and services does not violate 
the parity requirements of this paragraph (c)(3).
    Example 7. (i) Facts. Same facts as Example 6, but for purposes 
of determining parity, the plan divides the outpatient, in-network 
classification into outpatient, in-network generalists and 
outpatient, in-network specialists.
    (ii) Conclusion. In this Example 7, the division of outpatient, 
in-network benefits into any sub-classifications other than office 
visits and all other outpatient items and services violates the 
requirements of paragraph (c)(3)(iii)(C) of this section.

    (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                         Percent
                         Classification                             subject to    Total benefits    subject to
                                                                    deductible                      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

[[Page 68282]]

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.
    (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) For plans with multiple network tiers (such as preferred 
providers and participating providers), network tier design;
    (D) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (E) Plan methods for determining usual, customary, and reasonable 
charges;
    (F) 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);
    (G) Exclusions based on failure to complete a course of treatment; 
and
    (H) Restrictions based on geographic location, facility type, 
provider specialty, and other criteria that limit the scope or duration 
of benefits for services provided under the plan or coverage.
    (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 plan requires prior authorization from 
the plan's utilization reviewer that a treatment is medically 
necessary for all inpatient medical/surgical benefits and for all 
inpatient mental health and substance use disorder benefits. In 
practice, inpatient benefits for medical/surgical conditions are 
routinely approved for seven days, after which a treatment plan must 
be submitted by the patient's attending provider and approved by the 
plan. On the other hand, for inpatient mental health and substance 
use disorder benefits, routine approval is given only for one day, 
after which a treatment plan must be submitted by the patient's 
attending provider and approved by the plan.
    (ii) Conclusion. In this Example 1, the plan violates the rules 
of this paragraph (c)(4) because it is applying a stricter 
nonquantitative treatment limitation in practice to mental health 
and substance use disorder benefits than is applied to medical/
surgical benefits.
    Example 2. (i) Facts. A plan applies concurrent review to 
inpatient care where there are high levels of variation in length of 
stay (as measured by a coefficient of variation exceeding 0.8). In 
practice, the application of this standard affects 60 percent of 
mental health conditions and substance use disorders, but only 30 
percent of medical/surgical conditions.
    (ii) Conclusion. In this Example 2, the plan complies with the 
rules of this paragraph (c)(4) because the evidentiary standard used 
by the plan is applied no more stringently for mental health and 
substance use disorder benefits than for medical/surgical benefits, 
even though it results in an overall difference in the application 
of concurrent review for mental health conditions or substance use 
disorders than for medical/surgical conditions.
    Example 3. (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 and uses comparable criteria in determining whether a 
course of treatment is medically necessary. 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 3, 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, it is not applied in a 
comparable way. 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 4. (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 is based on 
clinically appropriate standards of care for a condition.
    (ii) Conclusion. In this Example 4, the plan complies with the 
rules of this paragraph (c)(4) because the processes for developing 
the evidentiary standards used to determine medical appropriateness 
and the application of these standards 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 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 5. (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 5, the plan violates the rules 
of this paragraph (c)(4). Although the standard for applying a 
nonquantitative treatment limitation is the same for both mental 
health and substance use disorder benefits and medical/surgical 
benefits--whether a drug has a black box warning--it is not applied 
in a comparable manner. 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 6. (i) Facts. An employer maintains both a major medical 
plan 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 plan 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 plan.
    (ii) Conclusion. In this Example 6, 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.

[[Page 68283]]

    Example 7. (i) Facts. Training and State licensing requirements 
often vary among types of providers. A plan applies a general 
standard that any provider must meet the highest licensing 
requirement related to supervised clinical experience under 
applicable State law in order to participate in the plan's provider 
network. Therefore, the plan requires master's-level mental health 
therapists to have post-degree, supervised clinical experience but 
does not impose this requirement on master's-level general medical 
providers because the scope of their licensure under applicable 
State law does require clinical experience. In addition, the plan 
does not require post-degree, supervised clinical experience for 
psychiatrists or Ph.D. level psychologists since their licensing 
already requires supervised training.
    (ii) Conclusion. In this Example 7, the plan complies with the 
rules of this paragraph (c)(4). The requirement that master's-level 
mental health therapists must have supervised clinical experience to 
join the network is permissible, as long as the plan consistently 
applies the same standard to all providers even though it may have a 
disparate impact on certain mental health providers.
    Example 8. (i) Facts. A plan considers a wide array of factors 
in designing medical management techniques for both mental health 
and substance use disorder benefits and medical/surgical benefits, 
such as cost of treatment; high cost growth; variability in cost and 
quality; elasticity of demand; provider discretion in determining 
diagnosis, or type or length of treatment; clinical efficacy of any 
proposed treatment or service; licensing and accreditation of 
providers; and claim types with a high percentage of fraud. Based on 
application of these factors in a comparable fashion, prior 
authorization is required for some (but not all) mental health and 
substance use disorder benefits, as well as for some medical/
surgical benefits, but not for others. For example, the plan 
requires prior authorization for: outpatient surgery; speech, 
occupational, physical, cognitive and behavioral therapy extending 
for more than six months; durable medical equipment; diagnostic 
imaging; skilled nursing visits; home infusion therapy; coordinated 
home care; pain management; high-risk prenatal care; delivery by 
cesarean section; mastectomy; prostate cancer treatment; narcotics 
prescribed for more than seven days; and all inpatient services 
beyond 30 days. The evidence considered in developing its medical 
management techniques includes consideration of a wide array of 
recognized medical literature and professional standards and 
protocols (including comparative effectiveness studies and clinical 
trials). This evidence and how it was used to develop these medical 
management techniques is also well documented by the plan.
    (ii) Conclusion. In this Example 8, the plan complies with the 
rules of this paragraph (c)(4). Under the terms of the plan as 
written and in operation, the processes, strategies, evidentiary 
standards, and other factors considered by the plan in implementing 
its prior authorization requirement with respect to mental health 
and substance use disorder benefits are comparable to, and applied 
no more stringently than, those applied with respect to medical/
surgical benefits.
    Example 9. (i) Facts. A plan generally covers medically 
appropriate treatments. The plan automatically excludes coverage for 
inpatient substance use disorder treatment in any setting outside of 
a hospital (such as a freestanding or residential treatment center). 
For inpatient treatment outside of a hospital for other conditions 
(including freestanding or residential treatment centers prescribed 
for mental health conditions, as well as for medical/surgical 
conditions), the plan will provide coverage if the prescribing 
physician obtains authorization from the plan that the inpatient 
treatment is medically appropriate for the individual, based on 
clinically appropriate standards of care.
    (ii) Conclusion. In this Example 9, 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 substance 
use disorder treatment in any setting outside of a hospital is not 
comparable to the conditional exclusion of inpatient treatment 
outside of a hospital for other conditions.
    Example 10. (i) Facts. A plan generally provides coverage for 
medically appropriate medical/surgical benefits as well as mental 
health and substance use disorder benefits. The plan excludes 
coverage for inpatient, out-of-network treatment of chemical 
dependency when obtained outside of the State where the policy is 
written. There is no similar exclusion for medical/surgical benefits 
within the same classification.
    (ii) Conclusion. In this Example 10, the plan violates the rules 
of this paragraph (c)(4). The plan is imposing a nonquantitative 
treatment limitation that restricts benefits based on geographic 
location. Because there is no comparable exclusion that applies to 
medical/surgical benefits, this exclusion may not be applied to 
mental health or substance use disorder benefits.
    Example 11. (i) Facts. A plan requires prior authorization for 
all outpatient mental health and substance use disorder services 
after the ninth visit and will only approve up to five additional 
visits per authorization. With respect to outpatient medical/
surgical benefits, the plan allows an initial visit without prior 
authorization. After the initial visit, the plan pre-approves 
benefits based on the individual treatment plan recommended by the 
attending provider based on that individual's specific medical 
condition. There is no explicit, predetermined cap on the amount of 
additional visits approved per authorization.
    (ii) Conclusion. In this Example 11, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--prior authorization to determine medical 
appropriateness--is applied to both mental health and substance use 
disorder benefits and medical/surgical benefits for outpatient 
services, it is not applied in a comparable way. While the plan is 
more generous with respect to the number of visits initially 
provided without pre-authorization for mental health benefits, 
treating all mental health conditions and substance use disorders in 
the same manner, while providing for individualized treatment of 
medical conditions, is not a comparable application of this 
nonquantitative treatment limitation.

    (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 any denial. The reason for any denial under a group 
health 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 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 requirements of Sec.  2560.503-1 of this chapter for group health 
plans.
    (3) Provisions of other law. Compliance with the disclosure 
requirements in paragraphs (d)(1) and (d)(2) of this section is not 
determinative of compliance with any other provision of applicable 
Federal or State law. In particular, in addition to those disclosure 
requirements, provisions of other applicable law require disclosure of 
information relevant to medical/surgical, mental health, and substance 
use disorder benefits. For example, ERISA section 104 and Sec.  
2520.104b-1 of this chapter provide that, for plans subject to ERISA, 
instruments under which the plan is established or operated must 
generally be furnished to plan participants within 30 days of request. 
Instruments under which the plan is established or operated include 
documents with information on medical necessity criteria for both 
medical/surgical benefits and mental health and substance use disorder 
benefits, as well as the processes, strategies, evidentiary standards, 
and other factors used to

[[Page 68284]]

apply a nonquantitative treatment limitation with respect to medical/
surgical benefits and mental health or substance use disorder benefits 
under the plan. In addition, Sec. Sec.  2560.503-1 and 2590.715-2719 of 
this chapter set forth rules regarding claims and appeals, including 
the right of claimants (or their authorized representative) upon appeal 
of an adverse benefit determination (or a final internal adverse 
benefit determination) to be provided upon request and free of charge, 
reasonable access to and copies of all documents, records, and other 
information relevant to the claimant's claim for benefits. This 
includes documents with information on medical necessity criteria for 
both medical/surgical benefits and mental health and substance use 
disorder benefits, as well as the processes, strategies, evidentiary 
standards, and other factors used to apply a nonquantitative treatment 
limitation with respect to medical/surgical benefits and mental health 
or substance use disorder benefits under the plan.
    (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;
    (ii) Require a group health plan (or health insurance issuer 
offering coverage in connection with a group health plan) that provides 
coverage for mental health or substance use disorder benefits only to 
the extent required under PHS Act section 2713 to provide additional 
mental health or substance use disorder benefits in any classification 
in accordance with this section; or
    (iii) 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.
    (4) Coordination with EHB requirements. Nothing in paragraph (f) or 
(g) of this section changes the requirements of 45 CFR 147.150 and 45 
CFR 156.115, providing that a health insurance issuer offering non-
grandfathered health insurance coverage in the individual or small 
group market providing mental health and substance use disorder 
services, including behavioral health treatment services, as part of 
essential health benefits required under 45 CFR 156.110(a)(5) and 
156.115(a), must comply with the provisions of 45 CFR 146.136 to 
satisfy the requirement to provide essential health benefits.
    (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), 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--(1) In general. If the application of 
this section to a group health plan (or health insurance coverage 
offered in connection with such plans) results in an increase for the 
plan year involved of the actual total cost of coverage with respect to 
medical/surgical benefits and mental health and substance use disorder 
benefits as determined and certified under paragraph (g)(3) of this 
section by an amount that exceeds the applicable percentage described 
in paragraph (g)(2) of this section of the actual total plan costs, the 
provisions of this section shall not apply to such plan (or coverage) 
during the following plan year, and such exemption shall apply to the 
plan (or coverage) for one plan year. An employer or issuer may elect 
to continue to provide mental health and substance use disorder 
benefits in compliance with this section with respect to the plan or 
coverage involved regardless of any increase in total costs.
    (2) Applicable percentage. With respect to a plan or coverage, the 
applicable percentage described in this paragraph (g) is--
    (i) 2 percent in the case of the first plan year in which this 
section is applied to the plan or coverage; and
    (ii) 1 percent in the case of each subsequent plan year.
    (3) Determinations by actuaries--(i) Determinations as to increases 
in actual costs under a plan or coverage that are attributable to 
implementation of the requirements of this section shall be made and 
certified by a qualified and licensed actuary who is a member in good 
standing of the American Academy of Actuaries. All such determinations 
must be based on the formula specified in paragraph (g)(4) of

[[Page 68285]]

this section and shall be in a written report prepared by the actuary.
    (ii) The written report described in paragraph (g)(3)(i) of this 
section shall be maintained by the group health plan or health 
insurance issuer, along with all supporting documentation relied upon 
by the actuary, for a period of six years following the notification 
made under paragraph (g)(6) of this section.
    (4) Formula. The formula to be used to make the determination under 
paragraph (g)(3)(i) of this section is expressed mathematically as 
follows:

[(E1 - E0)/T0] -D   k

    (i) E1 is the actual total cost of coverage with respect 
to mental health and substance use disorder benefits for the base 
period, including claims paid by the plan or issuer with respect to 
mental health and substance use disorder benefits and administrative 
costs (amortized over time) attributable to providing these benefits 
consistent with the requirements of this section.
    (ii) E0 is the actual total cost of coverage with 
respect to mental health and substance use disorder benefits for the 
length of time immediately before the base period (and that is equal in 
length to the base period), including claims paid by the plan or issuer 
with respect to mental health and substance use disorder benefits and 
administrative costs (amortized over time) attributable to providing 
these benefits.
    (iii) T0 is the actual total cost of coverage with 
respect to all benefits during the base period.
    (iv) k is the applicable percentage of increased cost specified in 
paragraph (g)(2) of this section that will be expressed as a fraction 
for purposes of this formula.
    (v) D is the average change in spending that is calculated by 
applying the formula (E1 - E0)/T0 to 
mental health and substance use disorder spending in each of the five 
prior years and then calculating the average change in spending.
    (5) Six month determination. If a group health plan or health 
insurance issuer seeks an exemption under this paragraph (g), 
determinations under paragraph (g)(3) of this section shall be made 
after such plan or coverage has complied with this section for at least 
the first 6 months of the plan year involved.
    (6) Notification. A group health plan or health insurance issuer 
that, based on the certification described under paragraph (g)(3) of 
this section, qualifies for an exemption under this paragraph (g), and 
elects to implement the exemption, must notify participants and 
beneficiaries covered under the plan, the Secretary, and the 
appropriate State agencies of such election.
    (i) Participants and beneficiaries--(A) Content of notice. The 
notice to participants and beneficiaries must include the following 
information:
    (1) A statement that the plan or issuer is exempt from the 
requirements of this section and a description of the basis for the 
exemption.
    (2) The name and telephone number of the individual to contact for 
further information.
    (3) The plan or issuer name and plan number (PN).
    (4) The plan administrator's name, address, and telephone number.
    (5) For single-employer plans, the plan sponsor's name, address, 
and telephone number (if different from paragraph (g)(6)(i)(A)(3) of 
this section) and the plan sponsor's employer identification number 
(EIN).
    (6) The effective date of such exemption.
    (7) A statement regarding the ability of participants and 
beneficiaries to contact the plan administrator or health insurance 
issuer to see how benefits may be affected as a result of the plan's or 
issuer's election of the exemption.
    (8) A statement regarding the availability, upon request and free 
of charge, of a summary of the information on which the exemption is 
based (as required under paragraph (g)(6)(i)(D) of this section).
    (B) Use of summary of material reductions in covered services or 
benefits. A plan or issuer may satisfy the requirements of paragraph 
(g)(6)(i)(A) of this section by providing participants and 
beneficiaries (in accordance with paragraph (g)(6)(i)(C) of this 
section) with a summary of material reductions in covered services or 
benefits consistent with Sec.  2520.104b-3(d) of this chapter that also 
includes the information specified in paragraph (g)(6)(i)(A) of this 
section. However, in all cases, the exemption is not effective until 30 
days after notice has been sent.
    (C) Delivery. The notice described in this paragraph (g)(6)(i) is 
required to be provided to all participants and beneficiaries. The 
notice may be furnished by any method of delivery that satisfies the 
requirements of section 104(b)(1) of ERISA (29 U.S.C. 1024(b)(1)) and 
its implementing regulations (for example, first-class mail). If the 
notice is provided to the participant and any beneficiaries at the 
participant's last known address, then the requirements of this 
paragraph (g)(6)(i) are satisfied with respect to the participant and 
all beneficiaries residing at that address. If a beneficiary's last 
known address is different from the participant's last known address, a 
separate notice is required to be provided to the beneficiary at the 
beneficiary's last known address.
    (D) Availability of documentation. The plan or issuer must make 
available to participants and beneficiaries (or their representatives), 
on request and at no charge, a summary of the information on which the 
exemption was based. (For purposes of this paragraph (g), an individual 
who is not a participant or beneficiary and who presents a notice 
described in paragraph (g)(6)(i) of this section is considered to be a 
representative. A representative may request the summary of information 
by providing the plan a copy of the notice provided to the participant 
under paragraph (g)(6)(i) of this section with any personally 
identifiable information redacted.) The summary of information must 
include the incurred expenditures, the base period, the dollar amount 
of claims incurred during the base period that would have been denied 
under the terms of the plan or coverage absent amendments required to 
comply with paragraphs (b) and (c) of this section, the administrative 
costs related to those claims, and other administrative costs 
attributable to complying with the requirements of this section. In no 
event should the summary of information include any personally 
identifiable information.
    (ii) Federal agencies--(A) Content of notice. The notice to the 
Secretary must include the following information:
    (1) A description of the number of covered lives under the plan (or 
coverage) involved at the time of the notification, and as applicable, 
at the time of any prior election of the cost exemption under this 
paragraph (g) by such plan (or coverage);
    (2) For both the plan year upon which a cost exemption is sought 
and the year prior, a description of the actual total costs of coverage 
with respect to medical/surgical benefits and mental health and 
substance use disorder benefits; and
    (3) For both the plan year upon which a cost exemption is sought 
and the year prior, the actual total costs of coverage with respect to 
mental health and substance use disorder benefits under the plan.
    (B) Reporting. A group health plan, and any health insurance 
coverage offered in connection with a group health plan, must provide 
notice to the Department of Labor. This requirement is satisfied if the 
plan sends a copy, to the address designated by the Secretary in 
generally applicable guidance, of the notice described in paragraph 
(g)(6)(ii)(A) of this section identifying

[[Page 68286]]

the benefit package to which the exemption applies.
    (iii) Confidentiality. A notification to the Secretary under this 
paragraph (g)(6) shall be confidential. The Secretary shall make 
available, upon request and not more than on an annual basis, an 
anonymous itemization of each notification that includes--
    (A) A breakdown of States by the size and type of employers 
submitting such notification; and
    (B) A summary of the data received under paragraph (g)(6)(ii) of 
this section.
    (iv) Audits. The Secretary may audit the books and records of a 
group health plan or a health insurance issuer relating to an 
exemption, including any actuarial reports, during the 6 year period 
following notification of such exemption under paragraph (g)(6) of this 
section. A State agency receiving a notification under paragraph (g)(6) 
of this section may also conduct such an audit with respect to an 
exemption covered by such notification.
    (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, this section applies to group health 
plans and health insurance issuers offering group health insurance 
coverage on the first day of the first plan year beginning on or after 
July 1, 2014. Until the applicability date, plans and issuers are 
required to continue to comply with the corresponding sections of 29 
CFR 2590.712 contained in the 29 CFR, parts 1927 to end, edition 
revised as of July 1, 2013.
    (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 date on which the last of the collective 
bargaining agreements terminates (determined without regard to any 
extension agreed to after October 3, 2008).

0
3. Section 2590.715-2719 is amended by adding a sentence to the end of 
the introductory text of paragraph (d) and revising paragraph (d)(1)(i) 
to read as follows:


Sec.  2590.712  Internal claims and appeals and external review 
processes.

* * * * *
    (d) * * * A Multi State Plan or MSP, as defined by 45 CFR 800.20, 
must provide an effective Federal external review process in accordance 
with this paragraph (d).
    (1) * * *
    (i) In general. Subject to the suspension provision in paragraph 
(d)(1)(ii) of this section and except to the extent provided otherwise 
by the Secretary in guidance, the Federal external review process 
established pursuant to this paragraph (d) applies, at a minimum, to 
any adverse benefit determination or final internal adverse benefit 
determination (as defined in paragraphs (a)(2)(i) and (a)(2)(v) of this 
section), except that a denial, reduction, termination, or a failure to 
provide payment for a benefit based on a determination that a 
participant or beneficiary fails to meet the requirements for 
eligibility under the terms of a group health plan is not eligible for 
the Federal external review process under this paragraph (d).
* * * * *

Department of Health and Human Services

45 CFR Subtitle A

    For the reasons set forth in the preamble, the Department of Health 
and Human Services adopts as final the interim final rule with comment 
period amending 45 CFR part 146, which was published on February 2, 
2010, in the Federal Register at 75 FR 5410, with the following 
changes, and further amends part 147 as set forth below:

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 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 with respect to items or 
services for medical conditions or surgical procedures, as defined 
under the terms of the plan or health insurance coverage and in 
accordance with applicable Federal and State law, but does not include 
mental health or substance use disorder benefits. Any condition defined 
by the plan or coverage 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 items or 
services for mental health conditions, as defined under the terms of 
the plan or health insurance coverage and in accordance with applicable 
Federal and State law. Any condition defined by the plan or coverage 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

[[Page 68287]]

current version of the ICD, or State guidelines).
    Substance use disorder benefits means benefits with respect to 
items or services for substance use disorders, as defined under the 
terms of the plan or health insurance coverage 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 or coverage. (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 for purposes of this 
definition.
    (b) Parity requirements with respect to aggregate lifetime and 
annual dollar limits. This paragraph (b) details the application of the 
parity requirements with respect to aggregate lifetime and annual 
dollar limits. This paragraph (b) does not address the provisions of 
PHS Act section 2711, which prohibit imposing lifetime and annual 
limits on the dollar value of essential health benefits. For more 
information, see Sec.  147.126 of this subchapter.
    (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)(5) 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) 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.
    (5) 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)(5)(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)(5), the 
weighting applicable to any category of medical/surgical benefits is 
determined in the manner set forth in paragraph (b)(4) of this section 
for determining one-third or two-thirds of all medical/surgical 
benefits.
    (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

[[Page 68288]]

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 the classification, the rules of this paragraph (c) apply separately 
with respect to that classification for all financial requirements or 
treatment limitations (illustrated in examples in paragraph 
(c)(2)(ii)(C) of this section). 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. See special rules for plans with 
multiple network tiers in paragraph (c)(3)(iii) of this section.
    (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. See special rules for office 
visits and plans with multiple network tiers in paragraph (c)(3)(iii) 
of this section.
    (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. See special rules for office visits in 
paragraph (c)(3)(iii) of this section.
    (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 care, 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 care 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--

[[Page 68289]]

    (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 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. (See also PHS Act 
section 2707(b) and Affordable Care Act section 1302(c), which 
establish limitations on annual deductibles for non-grandfathered 
health plans in the small group market and annual limitations on out-
of-pocket maximums for all non-grandfathered health plans.)
    (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 rules--(A) 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.
    (B) Multiple network tiers. If a plan (or health insurance 
coverage) provides benefits through multiple tiers of in-network 
providers (such as an in-network tier of preferred providers with more 
generous cost-sharing to participants than a separate in-network tier 
of participating providers), the plan may divide its benefits furnished 
on an in-network basis into sub-classifications that reflect network 
tiers, if the tiering is based on reasonable factors determined in 
accordance with the rules in paragraph (c)(4)(i) of this section (such 
as quality, performance, and market standards) and without regard to 
whether a provider provides services with respect to medical/surgical 
benefits or mental health or substance use disorder benefits. After the 
sub-classifications are established, the plan or issuer may not impose 
any financial requirement or treatment limitation on mental health or 
substance use disorder benefits in any sub-classification that is more 
restrictive than the predominant financial requirement or treatment 
limitation that applies to substantially all medical/surgical benefits 
in the sub-classification using the methodology set forth in paragraph 
(c)(3)(i) of this section.
    (C) Sub-classifications permitted for office visits, separate from 
other outpatient services. For purposes of applying the financial 
requirement and treatment limitation rules of this paragraph (c), a 
plan or issuer may divide its benefits furnished on an outpatient basis 
into the two sub-classifications described in this paragraph 
(c)(3)(iii)(C). After the sub-classifications are established, the plan 
or issuer may not impose any financial

[[Page 68290]]

requirement or quantitative treatment limitation on mental health or 
substance use disorder benefits in any sub-classification that is more 
restrictive than the predominant financial requirement or quantitative 
treatment limitation that applies to substantially all medical/surgical 
benefits in the sub-classification using the methodology set forth in 
paragraph (c)(3)(i) of this section. Sub-classifications other than 
these special rules, such as separate sub-classifications for 
generalists and specialists, are not permitted. The two sub-
classifications permitted under this paragraph (c)(3)(iii)(C) are:
    (1) Office visits (such as physician visits), and
    (2) All other outpatient items and services (such as outpatient 
surgery, facility charges for day treatment centers, laboratory 
charges, or other medical items).
    (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 level.......             N/A           12.5%          56.25%           12.5%          18.75%
                                                                (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)
--------------------------------------------------------------------------------------------------------------------------------------------------------

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).

[[Page 68291]]



----------------------------------------------------------------------------------------------------------------
                                                   Tier 1           Tier 2           Tier 3           Tier 4
----------------------------------------------------------------------------------------------------------------
                                                                                 Non-preferred
                                                                                   brand name
                                                               Preferred brand    drugs (which
              Tier description                 Generic drugs      name drugs    may have Tier 1  Specialty drugs
                                                                                   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).
    Example 5.  (i) Facts. A plan has two-tiers of network of 
providers: A preferred provider tier and a participating provider 
tier. Providers are placed in either the preferred tier or 
participating tier based on reasonable factors determined in 
accordance with the rules in paragraph (c)(4)(i) of this section, 
such as accreditation, quality and performance measures (including 
customer feedback), and relative reimbursement rates. Furthermore, 
provider tier placement is determined without regard to whether a 
provider specializes in the treatment of mental health conditions or 
substance use disorders, or medical/surgical conditions. The plan 
divides the in-network classifications into two sub-classifications 
(in-network/preferred and in-network/participating). The plan does 
not impose any financial requirement or treatment limitation on 
mental health or substance use disorder benefits in either of these 
sub-classifications that is more restrictive than the predominant 
financial requirement or treatment limitation that applies to 
substantially all medical/surgical benefits in each sub-
classification.
    (ii) Conclusion. In this Example 5, the division of in-network 
benefits into sub-classifications that reflect the preferred and 
participating provider tiers does not violate the parity 
requirements of this paragraph (c)(3).
    Example 6.  (i) Facts. With respect to outpatient, in-network 
benefits, a plan imposes a $25 copayment for office visits and a 20 
percent coinsurance requirement for outpatient surgery. The plan 
divides the outpatient, in-network classification into two sub-
classifications (in-network office visits and all other outpatient, 
in-network items and services). The plan or issuer does not impose 
any financial requirement or quantitative treatment limitation on 
mental health or substance use disorder benefits in either of these 
sub-classifications that is more restrictive than the predominant 
financial requirement or quantitative treatment limitation that 
applies to substantially all medical/surgical benefits in each sub-
classification.
    (ii) Conclusion. In this Example 6, the division of outpatient, 
in-network benefits into sub-classifications for office visits and 
all other outpatient, in-network items and services does not violate 
the parity requirements of this paragraph (c)(3).
    Example 7.  (i) Facts. Same facts as Example 6, but for purposes 
of determining parity, the plan divides the outpatient, in-network 
classification into outpatient, in-network generalists and 
outpatient, in-network specialists.
    (ii) Conclusion. In this Example 7, the division of outpatient, 
in-network benefits into any sub-classifications other than office 
visits and all other outpatient items and services violates the 
requirements of paragraph (c)(3)(iii)(C) of this section.

    (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                         Percent
                         Classification                             subject to    Total benefits    subject to
                                                                    deductible                      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

[[Page 68292]]

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.
    (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) For plans with multiple network tiers (such as preferred 
providers and participating providers), network tier design;
    (D) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (E) Plan methods for determining usual, customary, and reasonable 
charges;
    (F) 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);
    (G) Exclusions based on failure to complete a course of treatment; 
and
    (H) Restrictions based on geographic location, facility type, 
provider specialty, and other criteria that limit the scope or duration 
of benefits for services provided under the plan or coverage.
    (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 plan requires prior authorization from 
the plan's utilization reviewer that a treatment is medically 
necessary for all inpatient medical/surgical benefits and for all 
inpatient mental health and substance use disorder benefits. In 
practice, inpatient benefits for medical/surgical conditions are 
routinely approved for seven days, after which a treatment plan must 
be submitted by the patient's attending provider and approved by the 
plan. On the other hand, for inpatient mental health and substance 
use disorder benefits, routine approval is given only for one day, 
after which a treatment plan must be submitted by the patient's 
attending provider and approved by the plan.
    (ii) Conclusion. In this Example 1, the plan violates the rules 
of this paragraph (c)(4) because it is applying a stricter 
nonquantitative treatment limitation in practice to mental health 
and substance use disorder benefits than is applied to medical/
surgical benefits.
    Example 2.  (i) Facts. A plan applies concurrent review to 
inpatient care where there are high levels of variation in length of 
stay (as measured by a coefficient of variation exceeding 0.8). In 
practice, the application of this standard affects 60 percent of 
mental health conditions and substance use disorders, but only 30 
percent of medical/surgical conditions.
    (ii) Conclusion. In this Example 2, the plan complies with the 
rules of this paragraph (c)(4) because the evidentiary standard used 
by the plan is applied no more stringently for mental health and 
substance use disorder benefits than for medical/surgical benefits, 
even though it results in an overall difference in the application 
of concurrent review for mental health conditions or substance use 
disorders than for medical/surgical conditions.
    Example 3.  (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 and uses comparable criteria in determining whether a 
course of treatment is medically necessary. 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 3, 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, it is not applied in a 
comparable way. 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 4.  (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 is based on 
clinically appropriate standards of care for a condition.
    (ii) Conclusion. In this Example 4, the plan complies with the 
rules of this paragraph (c)(4) because the processes for developing 
the evidentiary standards used to determine medical appropriateness 
and the application of these standards 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 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 5.  (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 5, the plan violates the rules 
of this paragraph (c)(4). Although the standard for applying a 
nonquantitative treatment limitation is the same for both mental 
health and substance use disorder benefits and medical/surgical 
benefits--whether a drug has a black box warning--it is not applied 
in a comparable manner. 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 6.  (i) Facts. An employer maintains both a major 
medical plan 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 plan 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 plan.
    (ii) Conclusion. In this Example 6, 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.

[[Page 68293]]

    Example 7.  (i) Facts. Training and State licensing requirements 
often vary among types of providers. A plan applies a general 
standard that any provider must meet the highest licensing 
requirement related to supervised clinical experience under 
applicable State law in order to participate in the plan's provider 
network. Therefore, the plan requires master's-level mental health 
therapists to have post-degree, supervised clinical experience but 
does not impose this requirement on master's-level general medical 
providers because the scope of their licensure under applicable 
State law does require clinical experience. In addition, the plan 
does not require post-degree, supervised clinical experience for 
psychiatrists or Ph.D. level psychologists since their licensing 
already requires supervised training.
    (ii) Conclusion. In this Example 7, the plan complies with the 
rules of this paragraph (c)(4). The requirement that master's-level 
mental health therapists must have supervised clinical experience to 
join the network is permissible, as long as the plan consistently 
applies the same standard to all providers even though it may have a 
disparate impact on certain mental health providers.
    Example 8.  (i) Facts. A plan considers a wide array of factors 
in designing medical management techniques for both mental health 
and substance use disorder benefits and medical/surgical benefits, 
such as cost of treatment; high cost growth; variability in cost and 
quality; elasticity of demand; provider discretion in determining 
diagnosis, or type or length of treatment; clinical efficacy of any 
proposed treatment or service; licensing and accreditation of 
providers; and claim types with a high percentage of fraud. Based on 
application of these factors in a comparable fashion, prior 
authorization is required for some (but not all) mental health and 
substance use disorder benefits, as well as for some medical/
surgical benefits, but not for others. For example, the plan 
requires prior authorization for: Outpatient surgery; speech, 
occupational, physical, cognitive and behavioral therapy extending 
for more than six months; durable medical equipment; diagnostic 
imaging; skilled nursing visits; home infusion therapy; coordinated 
home care; pain management; high-risk prenatal care; delivery by 
cesarean section; mastectomy; prostate cancer treatment; narcotics 
prescribed for more than seven days; and all inpatient services 
beyond 30 days. The evidence considered in developing its medical 
management techniques includes consideration of a wide array of 
recognized medical literature and professional standards and 
protocols (including comparative effectiveness studies and clinical 
trials). This evidence and how it was used to develop these medical 
management techniques is also well documented by the plan.
    (ii) Conclusion. In this Example 8, the plan complies with the 
rules of this paragraph (c)(4). Under the terms of the plan as 
written and in operation, the processes, strategies, evidentiary 
standards, and other factors considered by the plan in implementing 
its prior authorization requirement with respect to mental health 
and substance use disorder benefits are comparable to, and applied 
no more stringently than, those applied with respect to medical/
surgical benefits.
    Example 9.  (i) Facts. A plan generally covers medically 
appropriate treatments. The plan automatically excludes coverage for 
inpatient substance use disorder treatment in any setting outside of 
a hospital (such as a freestanding or residential treatment center). 
For inpatient treatment outside of a hospital for other conditions 
(including freestanding or residential treatment centers prescribed 
for mental health conditions, as well as for medical/surgical 
conditions), the plan will provide coverage if the prescribing 
physician obtains authorization from the plan that the inpatient 
treatment is medically appropriate for the individual, based on 
clinically appropriate standards of care.
    (ii) Conclusion. In this Example 9, 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 substance 
use disorder treatment in any setting outside of a hospital is not 
comparable to the conditional exclusion of inpatient treatment 
outside of a hospital for other conditions.
    Example 10.  (i) Facts. A plan generally provides coverage for 
medically appropriate medical/surgical benefits as well as mental 
health and substance use disorder benefits. The plan excludes 
coverage for inpatient, out-of-network treatment of chemical 
dependency when obtained outside of the State where the policy is 
written. There is no similar exclusion for medical/surgical benefits 
within the same classification.
    (ii) Conclusion. In this Example 10, the plan violates the rules 
of this paragraph (c)(4). The plan is imposing a nonquantitative 
treatment limitation that restricts benefits based on geographic 
location. Because there is no comparable exclusion that applies to 
medical/surgical benefits, this exclusion may not be applied to 
mental health or substance use disorder benefits.
    Example 11.  (i) Facts. A plan requires prior authorization for 
all outpatient mental health and substance use disorder services 
after the ninth visit and will only approve up to five additional 
visits per authorization. With respect to outpatient medical/
surgical benefits, the plan allows an initial visit without prior 
authorization. After the initial visit, the plan pre-approves 
benefits based on the individual treatment plan recommended by the 
attending provider based on that individual's specific medical 
condition. There is no explicit, predetermined cap on the amount of 
additional visits approved per authorization.
    (ii) Conclusion. In this Example 11, the plan violates the rules 
of this paragraph (c)(4). Although the same nonquantitative 
treatment limitation--prior authorization to determine medical 
appropriateness--is applied to both mental health and substance use 
disorder benefits and medical/surgical benefits for outpatient 
services, it is not applied in a comparable way. While the plan is 
more generous with respect to the number of visits initially 
provided without pre-authorization for mental health benefits, 
treating all mental health conditions and substance use disorders in 
the same manner, while providing for individualized treatment of 
medical conditions, is not a comparable application of this 
nonquantitative treatment limitation.

    (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 any denial. The reason for any denial under a group 
health 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 by the plan 
administrator (or the health insurance issuer offering such coverage) 
to the participant or beneficiary. 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).
    (3) Provisions of other law. Compliance with the disclosure 
requirements in paragraphs (d)(1) and (d)(2) of this section is not 
determinative of compliance with any other provision of applicable 
Federal or State law. In particular, in addition to those disclosure 
requirements, provisions of other applicable law require disclosure of 
information relevant to medical/surgical, mental health, and substance 
use disorder benefits. For example, Sec.  147.136 of this subchapter 
sets forth rules regarding claims and appeals, including the right of 
claimants (or their authorized representative) upon appeal of an 
adverse benefit determination (or a final internal adverse benefit 
determination) to be provided upon request and free of charge, 
reasonable access to and copies

[[Page 68294]]

of all documents, records, and other information relevant to the 
claimant's claim for benefits. This includes documents with information 
on medical necessity criteria for both medical/surgical benefits and 
mental health and substance use disorder benefits, as well as the 
processes, strategies, evidentiary standards, and other factors used to 
apply a nonquantitative treatment limitation with respect to medical/
surgical benefits and mental health or substance use disorder benefits 
under the plan.
    (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;
    (ii) Require a group health plan (or health insurance issuer 
offering coverage in connection with a group health plan) that provides 
coverage for mental health or substance use disorder benefits only to 
the extent required under PHS Act section 2713 to provide additional 
mental health or substance use disorder benefits in any classification 
in accordance with this section; or
    (iii) 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.
    (4) Coordination with EHB requirements. Nothing in paragraph (f) or 
(g) of this section changes the requirements of Sec. Sec.  147.150 and 
156.115 of this subchapter, providing that a health insurance issuer 
offering non-grandfathered health insurance coverage in the individual 
or small group market providing mental health and substance use 
disorder services, including behavioral health treatment services, as 
part of essential health benefits required under Sec. Sec.  
156.110(a)(5) and 156.115(a) of this subchapter, must comply with the 
provisions of this section to satisfy the requirement to provide 
essential health benefits.
    (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 (as defined in section 2791 of the PHS 
Act).
    (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 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--(1) In general. If the application of 
this section to a group health plan (or health insurance coverage 
offered in connection with such plans) results in an increase for the 
plan year involved of the actual total cost of coverage with respect to 
medical/surgical benefits and mental health and substance use disorder 
benefits as determined and certified under paragraph (g)(3) of this 
section by an amount that exceeds the applicable percentage described 
in paragraph (g)(2) of this section of the actual total plan costs, the 
provisions of this section shall not apply to such plan (or coverage) 
during the following plan year, and such exemption shall apply to the 
plan (or coverage) for one plan year. An employer or issuer may elect 
to continue to provide mental health and substance use disorder 
benefits in compliance with this section with respect to the plan or 
coverage involved regardless of any increase in total costs.
    (2) Applicable percentage. With respect to a plan or coverage, the 
applicable percentage described in this paragraph (g) is--
    (i) 2 percent in the case of the first plan year in which this 
section is applied to the plan or coverage; and
    (ii) 1 percent in the case of each subsequent plan year.
    (3) Determinations by actuaries--(i) Determinations as to increases 
in actual costs under a plan or coverage that are attributable to 
implementation of the requirements of this section shall be made and 
certified by a qualified and licensed actuary who is a member in good 
standing of the American Academy of Actuaries. All such determinations 
must be based on the formula specified in paragraph (g)(4) of this 
section and shall be in a written report prepared by the actuary.
    (ii) The written report described in paragraph (g)(3)(i) of this 
section shall be maintained by the group health plan or health 
insurance issuer, along with all supporting documentation relied upon 
by the actuary, for a period of six years following the notification 
made under paragraph (g)(6) of this section.
    (4) Formula. The formula to be used to make the determination under 
paragraph (g)(3)(i) of this section is expressed mathematically as 
follows:
[(E1-E0)/T0] -D  k
    (i) E1 is the actual total cost of coverage with respect 
to mental health and substance use disorder benefits for the base 
period, including claims paid by the plan or issuer with respect to 
mental health and substance use disorder benefits and administrative 
costs (amortized over time) attributable to providing these benefits 
consistent with the requirements of this section.
    (ii) E0 is the actual total cost of coverage with 
respect to mental health and substance use disorder benefits for the 
length of time immediately before the base period (and that is equal in

[[Page 68295]]

length to the base period), including claims paid by the plan or issuer 
with respect to mental health and substance use disorder benefits and 
administrative costs (amortized over time) attributable to providing 
these benefits.
    (iii) T0 is the actual total cost of coverage with 
respect to all benefits during the base period.
    (iv) k is the applicable percentage of increased cost specified in 
paragraph (g)(2) of this section that will be expressed as a fraction 
for purposes of this formula.
    (v) D is the average change in spending that is calculated by 
applying the formula (E1-E0)/T0 to mental health and substance use 
disorder spending in each of the five prior years and then calculating 
the average change in spending.
    (5) Six month determination. If a group health plan or health 
insurance issuer seeks an exemption under this paragraph (g), 
determinations under paragraph (g)(3) of this section shall be made 
after such plan or coverage has complied with this section for at least 
the first 6 months of the plan year involved.
    (6) Notification. A group health plan or health insurance issuer 
that, based on the certification described under paragraph (g)(3) of 
this section, qualifies for an exemption under this paragraph (g), and 
elects to implement the exemption, must notify participants and 
beneficiaries covered under the plan, the Secretary, and the 
appropriate State agencies of such election.
    (i) Participants and beneficiaries--(A) Content of notice. The 
notice to participants and beneficiaries must include the following 
information:
    (1) A statement that the plan or issuer is exempt from the 
requirements of this section and a description of the basis for the 
exemption.
    (2) The name and telephone number of the individual to contact for 
further information.
    (3) The plan or issuer name and plan number (PN).
    (4) The plan administrator's name, address, and telephone number.
    (5) For single-employer plans, the plan sponsor's name, address, 
and telephone number (if different from paragraph (g)(6)(i)(A)(3) of 
this section) and the plan sponsor's employer identification number 
(EIN).
    (6) The effective date of such exemption.
    (7) A statement regarding the ability of participants and 
beneficiaries to contact the plan administrator or health insurance 
issuer to see how benefits may be affected as a result of the plan's or 
issuer's election of the exemption.
    (8) A statement regarding the availability, upon request and free 
of charge, of a summary of the information on which the exemption is 
based (as required under paragraph (g)(6)(i)(D) of this section).
    (B) Use of summary of material reductions in covered services or 
benefits. A plan or issuer may satisfy the requirements of paragraph 
(g)(6)(i)(A) of this section by providing participants and 
beneficiaries (in accordance with paragraph (g)(6)(i)(C) of this 
section) with a summary of material reductions in covered services or 
benefits consistent with 29 CFR 2520.104b-3(d) that also includes the 
information specified in paragraph (g)(6)(i)(A) of this section. 
However, in all cases, the exemption is not effective until 30 days 
after notice has been sent.
    (C) Delivery. The notice described in this paragraph (g)(6)(i) is 
required to be provided to all participants and beneficiaries. The 
notice may be furnished by any method of delivery that satisfies the 
requirements of section 104(b)(1) of ERISA (29 U.S.C. 1024(b)(1)) and 
its implementing regulations (for example, first-class mail). If the 
notice is provided to the participant and any beneficiaries at the 
participant's last known address, then the requirements of this 
paragraph (g)(6)(i) are satisfied with respect to the participant and 
all beneficiaries residing at that address. If a beneficiary's last 
known address is different from the participant's last known address, a 
separate notice is required to be provided to the beneficiary at the 
beneficiary's last known address.
    (D) Availability of documentation. The plan or issuer must make 
available to participants and beneficiaries (or their representatives), 
on request and at no charge, a summary of the information on which the 
exemption was based. (For purposes of this paragraph (g), an individual 
who is not a participant or beneficiary and who presents a notice 
described in paragraph (g)(6)(i) of this section is considered to be a 
representative. A representative may request the summary of information 
by providing the plan a copy of the notice provided to the participant 
under paragraph (g)(6)(i) of this section with any personally 
identifiable information redacted.) The summary of information must 
include the incurred expenditures, the base period, the dollar amount 
of claims incurred during the base period that would have been denied 
under the terms of the plan or coverage absent amendments required to 
comply with paragraphs (b) and (c) of this section, the administrative 
costs related to those claims, and other administrative costs 
attributable to complying with the requirements of this section. In no 
event should the summary of information include any personally 
identifiable information.
    (ii) Federal agencies--(A) Content of notice. The notice to the 
Secretary must include the following information:
    (1) A description of the number of covered lives under the plan (or 
coverage) involved at the time of the notification, and as applicable, 
at the time of any prior election of the cost exemption under this 
paragraph (g) by such plan (or coverage);
    (2) For both the plan year upon which a cost exemption is sought 
and the year prior, a description of the actual total costs of coverage 
with respect to medical/surgical benefits and mental health and 
substance use disorder benefits; and
    (3) For both the plan year upon which a cost exemption is sought 
and the year prior, the actual total costs of coverage with respect to 
mental health and substance use disorder benefits under the plan.
    (B) Reporting by health insurance coverage offered in connection 
with a church plan. See 26 CFR 54.9812(g)(6)(ii)(B) for delivery with 
respect to church plans.
    (C) Reporting by health insurance coverage offered in connection 
with a group health plans subject to Part 7 of Subtitle B of Title I of 
ERISA. See 29 CFR 2590.712(g)(6)(ii) for delivery with respect to group 
health plans subject to ERISA.
    (D) Reporting with respect to non-Federal governmental plans and 
health insurance issuers in the individual market. A group health plan 
that is a non-Federal governmental plan, or a health insurance issuer 
offering health insurance coverage in the individual market, claiming 
the exemption of this paragraph (g) for any benefit package must 
provide notice to the Department of Health and Human Services. This 
requirement is satisfied if the plan or issuer sends a copy, to the 
address designated by the Secretary in generally applicable guidance, 
of the notice described in paragraph (g)(6)(ii)(A) of this section 
identifying the benefit package to which the exemption applies.
    (iii) Confidentiality. A notification to the Secretary under this 
paragraph (g)(6) shall be confidential. The Secretary shall make 
available, upon request and not more than on an annual basis, an 
anonymous itemization of each notification that includes--
    (A) A breakdown of States by the size and type of employers 
submitting such notification; and

[[Page 68296]]

    (B) A summary of the data received under paragraph (g)(6)(ii) of 
this section.
    (iv) Audits. The Secretary may audit the books and records of a 
group health plan or a health insurance issuer relating to an 
exemption, including any actuarial reports, during the 6 year period 
following notification of such exemption under paragraph (g)(6) of this 
section. A State agency receiving a notification under paragraph (g)(6) 
of this section may also conduct such an audit with respect to an 
exemption covered by such notification.
    (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, this section applies to group health 
plans and health insurance issuers offering group health insurance 
coverage on the first day of the first plan year beginning on or after 
July 1, 2014. Until the applicability date, plans and issuers are 
required to continue to comply with the corresponding sections of Sec.  
146.136 contained in the 45 CFR, parts 1 to 199, edition revised as of 
October 1, 2013.
    (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 date on which the last of the collective 
bargaining agreements terminates (determined without regard to any 
extension agreed to after October 3, 2008).

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP HEALTH 
INSURANCE MARKETS

0
3. The authority citation for part 147 continues to read as follows:

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92), as amended.


0
4. Section 147.136 is amended by adding a sentence to the end of the 
introductory text of paragraph (d) and revising paragraph (d)(1)(i) to 
read as follows:


Sec.  147.136  Internal claims and appeals and external review 
processes.

* * * * *
    (d) * * * A Multi State Plan or MSP, as defined by 45 CFR 800.20, 
must provide an effective Federal external review process in accordance 
with this paragraph (d).
    (1) * * *
    (i) In general. Subject to the suspension provision in paragraph 
(d)(1)(ii) of this section and except to the extent provided otherwise 
by the Secretary in guidance, the Federal external review process 
established pursuant to this paragraph (d) applies, at a minimum, to 
any adverse benefit determination or final internal adverse benefit 
determination (as defined in paragraphs (a)(2)(i) and (a)(2)(v) of this 
section), except that a denial, reduction, termination, or a failure to 
provide payment for a benefit based on a determination that a 
participant or beneficiary fails to meet the requirements for 
eligibility under the terms of a group health plan is not eligible for 
the Federal external review process under this paragraph (d).
* * * * *

0
5. Section 147.160 is added to read as follows:


Sec.  147.160  Parity in mental health and substance use disorder 
benefits.

    (a) In general. The provisions of Sec.  146.136 of this subchapter 
apply to health insurance coverage offered by health insurance issuer 
in the individual market in the same manner and to the same extent as 
such provisions apply to health insurance coverage offered by a health 
insurance issuer in connection with a group health plan in the large 
group market.
    (b) Applicability date. The provisions of this section apply for 
policy years beginning on or after the applicability dates set forth in 
Sec.  146.136(i) of this subchapter. This section applies to non-
grandfathered and grandfathered health plans as defined in Sec.  
147.140.

[FR Doc. 2013-27086 Filed 11-8-13; 11:15 am]
BILLING CODE 4830-01; 4510-29; 4120-01-P