ERISA Newsletter - Fourth Quarter 2017

Editor's Overview

For over two decades, federal law has required covered health plans and insurers to ensure that certain mental health benefits are in parity with offered medical/surgical benefits. The meaning of "parity," however, has expanded over time, most significantly with the passage of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act ("the MHPAEA") and the regulations that followed. With the final regulations having gone into effect for plan years starting on July 1, 2014, we are observing a noticeable uptick in enforcement activity and decisions from the courts. Our featured article this quarter reviews the statutory and regulatory scheme and case law developments under the MHPAEA, and offers some practical considerations for plan sponsors and fiduciaries moving forward.

We also cover developments concerning tax reform, the DOL fiduciary rule, health care reform, disability benefits, standing, statute of limitations and attorney fees.

Recent Developments in Federal Mental Health Parity Act Enforcement and Litigation*

By Russell Hirschhorn, Seth Safra and Steven Sutro

For over two decades, federal law has required covered health plans and insurers to ensure that certain mental health benefits are in parity with offered medical/surgical benefits. The meaning of "parity," however, has expanded over time, most significantly with the passage of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act ("the MHPAEA") and the regulations that followed. With the final regulations having gone into effect for plan years starting on July 1, 2014, we are observing a noticeable uptick in enforcement activity and decisions from the courts. This article reviews the statutory and regulatory scheme and case law developments under the MHPAEA, and offers some practical considerations for plan sponsors and fiduciaries moving forward.

The Mental Health Parity Act of 1996

The Mental Health Parity Act of 1996 ("MHPA '96") for the first time prohibited imposing annual or lifetime limits on mental health benefits that were more restrictive than the limits on medical/surgical benefits. MHPA '96 had its limitations, however. For example, it did not restrict common cost management techniques, such as step therapy, requiring pre-certification, limiting the number of visits to specialists, or limiting the types of services that would be covered. MHPA '96 also contained three exemptions: (i) businesses that chose not to provide mental health coverage; (ii) businesses with less than fifty employees; and (iii) businesses that documented at least a one percent increase in premiums due to implementation of parity requirements. Given those limitations and exclusions, MHPA '96 had a limited impact on plan sponsors and insurers.

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act

MHPA '96 was superseded by the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act (MHPAEA), which Congress passed as rider legislation on the Troubled Asset Relief Program, signed into law by President Bush in October 2008. The MHPAEA is codified in ERISA § 712, Internal Revenue Code § 9812, and Public Health Services Act § 2705.

The MHPAEA broadened the meaning of parity. It requires parity with respect to "financial requirements" and "treatment limitations" in covered plans—generally, group health plans maintained by employers with more than fifty employees. Specifically, the statute prohibits:

Imposing financial requirements for mental health or substance use disorder benefits that are more restrictive than the predominant financial requirements applied to substantially all medical/surgical benefits covered by the plan, or imposing separate cost sharing requirements for mental health or substance use disorder benefits; and Imposing treatment limitations for mental health or substance use disorder benefits that are more restrictive than the predominant treatment limitations applied to substantially all medical/surgical benefits, or imposing separate treatment limitations for mental health or substance use disorder benefits. The MHPAEA does not mandate that plans provide coverage for any particular type of condition. But if a plan provides coverage for a mental health or substance use condition, the MHPAEA requires that cost sharing arrangements and treatment limits be in line with such limits for analogous medical/surgical conditions. For example, the MHPAEA generally prohibits imposing a higher co-pay for a covered mental health benefit or capping the number of visits or covered days in a hospital for substance abuse, unless comparable caps apply for analogous medical/surgical conditions.

MHPAEA Regulations

The U.S. Departments of Labor, Health and Human Services, and Treasury issued regulations interpreting the requirements of the MHPAEA. The regulations apply for plan years starting on and after July 1, 2014, and provide guidance on how to evaluate parity. See 29 C.F.R. § 2590.712 (DOL); 26 C.F.R. § 54.9812-1 (IRS); 45 C.F.R. § 146.136 (HHS). Highlights from the regulations include the following:

The regulations state that a type of financial requirement or treatment limitation is considered to apply to "substantially all" medical/surgical benefits in a classification of benefits only if it applies to at least two-thirds of all medical/surgical benefits in that classification. This means that a financial requirement or treatment limitation for a mental health/substance use disorder benefit (e.g., imposing a co-pay or requiring precertification) must also apply for at least two-thirds of medical/surgical benefits in the applicable classification. The regulations define the "predominant" level of each permissible financial requirement or treatment limitation within a classification as the level that applies to more than half of the medical/surgical benefits in the classification that are subject to the financial requirement or treatment limitation. For example, a $40 co-pay for visiting an in-network mental health professional is permitted only if: (i) a co-pay is required for at least two-thirds ("substantially all") of outpatient visits with in-network medical/surgical professionals, and (ii) the level of co-pay required for at least half of outpatient visits with in-network medical/surgical professionals (excluding any types of visits for which a co-pay is not required) is at least $40 (the "predominant" level). The regulations explain that mental health and substance use disorder benefits must be combined with medical/surgical benefits for purposes of tracking financial requirements (deductibles, co-insurance, etc.) and treatment limits. Separate requirements and limits for particular types of treatment are prohibited. The final regulations provide numerous examples to illustrate the applicability of these rules.

Enforcement Activity

Since the final regulations became effective, it appears that the Department of Labor (DOL) has stepped up its enforcement activity with respect to the MHPAEA. The DOL issued a Fact Sheet in January 2016 that summarized enforcement activity in the aggregate for 2010 through 2015. It reported 170 violations of the MHPAEA for those years combined. A DOL Enforcement Fact Sheet for 2016 reported 191 reviews for MHPAEA compliance (out of 330 closed health plan investigations) with violations found in 44 cases. The violations in the most recent Fact Sheet included:

Unlawful non-quantitative limitations, such as imposing pre-certification requirements or step therapy that are not required for at least two-thirds of medical/surgical conditions in the applicable category; Unlawful financial limits and quantitative limitations; and Other violations, such as unlawful dollar and treatment limits. Litigation Activity

Among the more significant litigations asserting claims for violation of the MHPAEA are claims for coverage of certain Autism Spectrum Disorder treatments, wilderness therapy, and residential treatment for mental health and substance abuse. In each case, plaintiffs allege impermissible treatment limitations (usually non-quantitative, such as a refusal to cover the particular treatment for an otherwise-covered condition). Below we take a look at a few of these cases.

Autism Treatment

To date, we are aware of only one decision, among the many cases filed, that has reached the merits of a complaint alleging violations of the MHPAEA for failure to provide coverage for Applied Behavior Analysis ("ABA") treatment for Autism Spectrum Disorder ("ASD"). In A.F. ex rel. Legaard v. Providence Health Plan, 35 F. Supp. 3d 1298 (D. Or. 2014), the plaintiffs challenged the denial of ABA treatment based on a "Developmental Disability Exclusion" that excluded coverage for services "related to developmental disabilities, developmental delays, or learning disabilities." The plan argued that there was no violation of the MHPAEA because the Act does not require a plan to cover any particular benefit or condition. The plaintiffs argued that, because the plan covered certain treatments for autism, the plan could not exclude expensive treatments for the condition unless a comparable exclusion also applied for substantially all of the medical/surgical benefits in the particular classification. The court agreed with the plaintiffs, concluding that the exclusion violated the MHPAEA because it applied specifically and exclusively to developmental disabilities (a mental health condition), and there was no similar exclusion for medical/surgical conditions.

Another court denied a motion to dismiss where the plaintiff challenged the denial of ABA treatment based on a "Developmental Delay Exclusion," by which a plan excluded coverage for "therapy for learning disability, communication delay, perceptual disorders, sensory deficit, developmental disability and related conditions." The court ruled that it could not determine on...