DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
 
 
  SHO # 13-001 
            ACA #24 
 
January 16, 2013 
 
  RE: Application of the Mental Health Parity  
  and Addiction Equity Act to Medicaid    
  MCOs, CHIP, and Alternative Benefit    
  (Benchmark) Plans 
 
Dear State Health Official: 
Dear State Medicaid Director: 
 
This letter provides guidance on the applicability of the requirements under the Paul Wellstone 
and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA, Pub.L. 
110-343)1, 2 to Medicaid non-managed care benchmark and benchmark-equivalent plans 
(referred to in this letter as Medicaid Alternative Benefit plans) as described in section 1937 of 
the Social Security Act (the Act), the Childrens Health Insurance Programs (CHIP) under title 
XXI of the Act, and Medicaid managed care programs as described in section 1932 of the Act.  
The Centers for Medicare & Medicaid Services (CMS) previously issued a State Health Official 
(SHO) letter on November 4, 2009, concerning section 502 of the Childrens Health Insurance 
Program Reauthorization Act of 2009 (CHIPRA, Pub.L. 111-3)3.  This letter issues new 
guidance on the application of MHPAEA in Medicaid and expands upon the guidance for CHIP.   
  
Legislative History and Background 
 
Starting in 1996, Congress enacted several laws designed to improve access to mental health and 
substance use disorder services under health insurance or benefit plans that provide 
medical/surgical benefits.   
 
The Mental Health Parity Act of 1996 (MHPA, Pub.L. 104-204) addressed aggregate lifetime 
and annual dollar limits for mental health benefits and medical/surgical benefits offered by group 
health plans (or health insurance coverage offered in connection with such plans).  The Balanced 
Budget Act of 1997 (BBA, Pub.L. 105-33) added sections 1932(b)(8) and 2103(f)(2) of the Act 
to apply certain aspects of MHPA to Medicaid managed care organizations (MCOs) and CHIP 
benefits.    
 
                                                           
1  https://www.cms.gov/Regulations-and-Guidance/Health-Insurance-
Reform/HealthInsReformforConsume/downloads/MHPAEA.pdf. 
2 See 29 CFR 2590.712((c)(4).  See also FAQs about Affordable Care Act Implementation (Part VII) and Mental 
Health Parity Implementation, available at http://www.dol.gov/ebsa/pdf/faq-aca7.pdf. 
3 http://downloads.cms.gov/cmsgov/archived-downloads/SMDL/downloads/SHO110409.pdf  Page 2  State Health Official/State Medicaid Director 
 
MHPAEA extended the MHPA requirements to substance use disorder benefits in addition to 
mental health benefits.  MHPAEA also added new requirements regarding financial requirements 
and treatment limitations in addition to the limitations on aggregate annual and lifetime dollar 
limits.   
 
In 2009, section 502 of CHIPRA amended section 2103(c) of the Act by adding paragraph (6), 
which incorporates, by reference, provisions added to section 2705 of the Public Health Service 
Act (PHSA) by MHPAEA.4  Consequently, the mental health and substance use disorder parity 
requirements of MHPAEA apply to coverage under a CHIP state plan in the same manner 
MHPAEA applies to group health plans. 
 
The Affordable Care Act (Pub.L. 111-148) expanded the application of MHPAEA to benefits in 
Medicaid non-managed care benchmark and benchmark-equivalent state plan benefits pursuant 
to section 1937 of the Act (referred to in this letter as Medicaid Alternative Benefit plans) (see 
section 2001(c)(3) of the Affordable Care Act, adding section 1937(b)(6)).  The application of 
MHPAEA to Medicaid non-managed care Alternative Benefit plan benefits was effective on 
March 23, 2010.  Also effective as of that date, Medicaid Alternative Benefit plans that are 
benchmark-equivalent plans must include mental health and substance abuse services as a basic 
service (see section 2001(c) of the Affordable Care Act).    
 
MHPAEAs requirements include: 
 
  Financial requirements that are applied to mental health or substance use disorder 
benefits are no more restrictive than the predominant financial requirements that are 
applied to substantially all medical/surgical benefits.  The statute defines predominant 
as the most common or frequent of such type of limitation or requirements.    
  There are no separate cost sharing requirements that apply only to mental health or 
substance use disorder benefits. 
  Treatment limitations that are applied to mental health or substance use disorder benefits 
are no more restrictive than the predominant treatment limitations that are applied to 
substantially all medical/surgical benefits.    
  There are no separate treatment limitations that apply only to mental health or substance 
use disorder benefits. 
  The criteria for medical necessity determinations with respect to mental health or 
substance use disorder benefits are made available to any current or potential participant, 
beneficiary, or contracting provider upon request.  The reason for any denial of  
reimbursement or payment for services with respect to mental health or substance use 
disorder benefits is made available within a reasonable timeframe to participants and 
beneficiaries upon request.  
  If a plan or coverage provides out-of-network coverage for medical/surgical benefits, it 
provides out-of-network coverage for mental health or substance use disorder benefits. 
 
On February 2, 2010, the Departments of Health and Human Services, Labor, and the Treasury 
(the Departments) published an Interim Final Rule (IFR) under MHPAEA.  The IFR is 
                                                           
4 The mental health parity provisions are currently found in PHSA section 2726, after Title XXVII of the PHSA was 
reorganized and amended by the Affordable Care Act.  Page 3  State Health Official/State Medicaid Director 
 
applicable to group health plans and group health insurance issuers for plan years beginning on 
or after July 1, 2010.  In the IFR, the Departments interpreted the statutory requirement 
precluding more restrictive treatment limitations for mental health or substance use disorder 
benefits to apply to both quantitative and non-quantitative treatment limitations.  Examples of 
quantitative treatment limits include a limit on the frequency of treatment, number of visits, days 
of coverage, or other similar limits on the scope or duration of treatment.  Examples of non-
quantitative treatment limits that were identified in the IFR include preauthorization 
requirements and medical management standards. 
 
Application of Mental Health/Substance Use Disorder Parity Requirements to Medicaid 
Alternative Benefit Plans  
 
All Medicaid Alternative Benefit plans (including benchmark equivalent and Secretary
approved benchmark plans) are required to meet the provisions within MHPAEA, regardless of 
whether services are delivered in managed care or non-managed care arrangements.  This 
includes Alternative Benefit plans for individuals in the new low-income Medicaid expansion 
group, effective January 1, 2014.  Specifically:    
 
  Section 1932(b)(8) of the Act applies parity requirements to MCOs (see below for more 
details regarding requirements for Medicaid MCOs).    
  Section 1937(b)(6) of the Act, as added by the Affordable Care Act, directs that approved 
section 1937 Medicaid non-managed care Alternative Benefit plans that provide both 
medical/surgical benefits and mental health or substance use disorder benefits comply 
with MHPAEA5.   
In order to comply with the MHPAEA provisions regarding financial requirements, states with 
Medicaid Alternative Benefit plans should review Attachment 4.18 of their Medicaid state plans 
to ensure that financial requirements (such as deductibles, co-payments, co-insurance, and out-
of-pocket expense limits) applicable to mental health or substance use disorder benefits provided 
through such plans are no more restrictive than the predominant financial requirements applied 
to substantially all medical/surgical benefits in the Medicaid Alternative Benefit plan. 
 
Likewise, to comply with the MHPAEA requirements on treatment limitations, states with 
approved Medicaid Alternative Benefit plans should review these plans to determine whether 
any types of treatment limitations imposed in these benefit plans on coverage of mental health or 
substance use disorder benefits are more restrictive than those imposed on medical/surgical 
benefits.  This should include a review of both quantitative and non-quantitative treatment 
limitations.   
 
Finally, states must assure that Medicaid Alternative Benefit plans apply the MHPAEA 
requirements regarding the availability of out-of-network coverage and the availability of 
information regarding criteria for medical necessity determinations and the reason for any denial 
of reimbursement or payment for services with respect to mental health or substance use disorder 
benefits.      
  
                                                           
5 See State Health Official letter describing Alternative Benefit plans under section 1937 as modified by the 
Affordable Care Act, http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SMD-12-003.pdf.  Page 4  State Health Official/State Medicaid Director 
 
States with Alternative Benefit plans for children should already meet the requirements for 
MHPAEA for children.  States that enroll children in a Medicaid Alternative Benefit plan are 
directed by section 1937(a)(1)(A)(ii) of the Act to assure that eligible children under age 21 
receive the full Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefit 
offered through a Medicaid Alternative Benefit plan or through a combination of the Medicaid 
Alternative Benefit plan and wrap-around services.  Section 1937(b)(6)(B) of the Act provides 
that states extending Medicaid coverage for individuals under age 21 through Medicaid non-
managed care Alternative Benefit plans that include the EPSDT benefit shall be deemed to 
satisfy the mental health and substance use disorder parity requirements with respect to the 
individual.  CMS will also deem Medicaid Alternative Benefit managed care plans to be 
compliant with MHPAEA, to the extent they provide coverage for children, regardless of 
whether the MCO provides full EPSDT services or the state assures EPSDT through a wrap-
around arrangement.    
 
States with Medicaid Alternative Benefit plans that are not in compliance with the parity 
requirements described above should take steps to come into compliance with the those 
requirements. 
 
Application of Mental Health/Substance Use Disorder Parity Requirements to CHIP 
 
For CHIP programs, section 2103(c)(6) of the Act (amended by section 502 of CHIPRA) applies 
the MHPAEA provisions of the PHSA to the CHIP state plan.  Thus, for CHIP programs, mental 
health and substance use disorder parity requirements apply to all delivery systems, including 
fee-for-service and managed care.  To the extent that the state CHIP plan provides full coverage 
of the EPSDT benefit as defined in section 1905(r) of the Act, the MHPAEA requirements shall 
be deemed to be met under section 2103(c)(6)(B) of the Act.  Otherwise, MHPAEA applies to 
the CHIP state plan in the same manner as the law applies to health insurance issuers and group 
health plans. 
 
States not providing full EPSDT benefits under their CHIP state plan need to review CHIP state 
plans, contracts, and demonstrations/waiver projects in order to come into compliance with 
MHPAEA.  States may want to consider (and potentially modify) the services offered in  
section 6 of the CHIP state plan.  That section describes the coverage offered with respect to the 
amount, duration, and scope of services covered, as well as any exclusions or limitations.  For 
example, treatment limitations on mental health services in sections 6.2.10 and 6.2.11 or 
substance use disorder benefits in sections 6.2.18 and 6.2.19 must be no more restrictive than the 
predominant treatment limitations that are applied to substantially all medical/surgical benefits 
such as those in sections 6.2.1 and 6.2.2.  Medical management techniques used within CHIP, 
such as pre-authorization requirements or a step therapy approach described in section 3.2 of the 
state plan, applied to mental health or substance use disorder services must be comparable to and 
applied no more stringently than medical management techniques that are applied to 
medical/surgical benefits.  
 
Similarly, states need to review the financial requirements in section 8.2 of the CHIP state plan 
where states identify any deductibles, coinsurance, co-pays, or other out-of-pocket cost-sharing 
charges and the services to which those charges apply.  Finally, states need to assure that the 
MHPAEA requirements regarding the availability of out-of-network coverage and the  Page 5  State Health Official/State Medicaid Director 
 
availability of information regarding criteria for medical necessity determinations and the reason 
for any denial of reimbursement or payment for services with respect to mental health or 
substance use disorder benefits apply under the CHIP state plan.  
 
States with CHIP plans that are not in compliance with the parity requirements described above 
should take steps to come into compliance with those requirements. 
  
 
Application of Mental Health/Substance Use Disorder Parity Requirements to Managed 
Care Organizations 
 
The CMS noted in its November 2009 SHO letter that mental health and substance use disorder 
parity requirements apply to MCOs (defined in section 1903(m) of the Act) that contract with the 
state to provide both medical/ surgical and mental health or substance use disorder benefits.  In 
light of Medicaid regulations that direct states to reimburse MCOs based only on state plan 
services, CMS will not find MCOs out of compliance with MHPAEA to the extent that the 
benefits offered by the MCO reflect the financial limitations, quantitative treatment limitations, 
nonquantitative treatment limitations, and disclosure requirements set forth in the Medicaid state 
plan and as specified in CMS approved contracts.  However, this does not preclude state use of 
current Medicaid flexibilities to amend their Medicaid state plans or demonstrations/waiver 
projects to address financial limitations, quantitative treatment limitations, nonquantitative 
treatment limitations, and disclosure requirements in ways that promote parity. 
 
Any additional or alternative treatment limitations put in place by the MCO, however, must 
comply with mental health and substance use disorder parity requirements.  For example, MCOs 
must meet the following requirements: 
 
  Medical management techniques used by the MCO, such as pre-authorization 
requirements, which are applied to mental health or substance use disorder benefits must 
be comparable to and applied no more stringently than the medical management 
techniques that are applied to medical/surgical benefits.   
  Any benefits offered by an MCO beyond those specified in the Medicaid state plan also 
must be compliant with MHPAEA.   
  In accordance with MHPAEA and federal Medicaid managed care regulations at 42 CFR 
438 Subpart F, the criteria for medical necessity determinations made under the plan for 
mental health or substance use disorder benefits must be made available by the plan 
administrator to any current or potential participant, beneficiary, or contracting provider 
upon request.  The reasons for any denial of reimbursement or payment with respect to 
mental health or substance use disorder benefits must be provided to plan participants and 
beneficiaries upon request within a reasonable time.   
  When out-of-network coverage is available for medical/surgical benefits, it also must be 
available for mental health or substance use disorder benefits.  States are responsible for 
assessing their contracts with all MCOs that offer medical and surgical benefits and 
mental health or substance use disorder benefits, to ensure that plans comply with the 
provisions of MHPAEA as set forth above.   
  Page 6  State Health Official/State Medicaid Director 
 
In addition to MCOs, which are statutorily-defined, CMS has, by regulation, recognized entities 
known as Prepaid Inpatient Hospital Plans (PIHPs) and Prepaid Ambulatory Health Plans 
(PAHPs).  These entities provide a more limited set of state plan services (in some instances 
through a carve-out arrangement).  CMS urges states with these arrangements to apply the 
principles of parity across the whole Medicaid managed care delivery system when mental health 
and substance use disorders services are offered through a carve-out arrangement.  CMS intends 
to issue additional guidance that will address this issue and will continue to consider additional 
regulatory changes that may be necessary to properly implement MHPAEA. 
 
MCOs that are not in compliance with the parity requirements described above should take steps 
to come into compliance with those requirements.  States should assess their contracts with all 
MCOs which offer medical and surgical benefits and mental health or substance use disorder 
benefits to assure that plans comply with the provisions of MHPAEA.  CMS will offer technical 
assistance to states regarding strategies for PIHPs and PAHPs to implement MHPAEA. 
 
If you have any questions about the guidance provided in this letter, please contact Ms. Barbara 
Coulter Edwards, Director of the Disabled and Elderly Health Programs Group, at 410-786-
0325. 
 
            Sincerely, 
 
            /s/ 
 
            Cindy Mann 
            Director 
 
cc:  
 
CMS Regional Administrators  
 
CMS Associate Regional Administrators  
Division of Medicaid and Childrens Health Operations 
 
Matt Salo 
Executive Director 
National Association of Medicaid Directors  
 
Alan R. Weil, J.D., M.P.P. 
Executive Director 
National Academy for State Health Policy 
 
Ron Smith 
Director of Legislative Affairs  
American Public Human Services Association 
 
 
  Page 7  State Health Official/State Medicaid Director 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
Heather Hogsett 
Director, Committee on Health & Homeland Security 
National Governors Association 
 
Debra Miller 
Director for Health Policy 
Council of State Governments 
 
Christopher Gould 
Director, Government Relations  
Association of State and Territorial Health Officials 
 
Robert Glover, Ph.D 
Executive Director 
National Association of State Mental Health Program Directors 
 
Rob Morrison 
Executive Director 
National Association of State Alcohol and Drug Abuse Directors