T h i s d o c u m e n t i s s c h e d u l e d t o b e p u b l i s h e d i n t h e F e d e r a l R e g i s t e r o n 1 1 / 1 3 / 2 0 1 3 a n d a v a i l a b l e o n l i n e a t h t t p : / / f e d e r a l r e g i s t e r . g o v / a / 2 0 1 3 - 2 7 0 8 6 , a n d o n F D s y s . g o v2 SUMMARY : This document contains final rules im plementing the Paul Wellstone and Pete

Domenici Mental Health Par ity and Addiction Equity Act of 2008, which requires parity

between mental health or substa nce use disorder benefits and medical/surgical benefits with respect to financial requiremen ts and treatment limitations u nder group health plans and group and individual health insurance coverage. Th is document also contains a technical amendment relating to external review with respect to th e multi-state plan program administered by the Office of Personnel Management. DATES : Effective date . These final regulati ons are effective on [ins ert date 60 days after publication in the Federal Register ], except that the technical amendments to 29 CFR 2590.715- 2719 and 45 CFR 147.136 are effective on [insert date 30 days after publication in the Federal Register ]. Applicability date . The mental health parity provisions of these final regulations apply to group health plans and health in surance 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 ment al health parity provisi ons 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 th e 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 mental3 health parity provisions, ma y call the EBSA Toll-Free Hotline at 1-866-444-EBSA (3272) or visit the Department of Labor’s website ( http://www.dol.gov/ebsa ). In addition, information from HHS on private health insurance for consum ers (such as mental health and substance use disorder parity) can be found on the Centers for Medicare & Medicaid Se rvices (CMS) website ( www.cms.gov/cciio ) and information on health reform can be found at www.HealthCare.gov

. In addition, information about me ntal health is available at www.mentalhealth.gov

. SUPPLEMENTARY INFORMATION: I. Background

The Paul Wellstone and Pete Domenici Mental Health Pari ty 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 Public Law 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 Hea lth 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 offe red 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 fo r substance use disorder benefits , as well as amendments to the

1 A technical correction to the effective date for collectively bargained plans was made by Public Law 110-460, enacted on December 23, 2008.4 existing mental health parity provisions. The changes made by MHPAEA are generally effective for plan years beginning after October 3, 2009.

The Patient Protection and Affordable Care Act, Pub. L. 111-148, was enacted on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010, Pub. L. 111-152, was enacted on March 30, 2010 (collectively, the “Affordab le 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 issu ers in the group and indi vidual markets. The

Affordable Care Act adds sect ion 715(a)(1) to ERISA and sect ion 9815(a)(1) to the Code to incorporate the provisions of pa rt A of title XXVII of the PHS Act into ERISA and the Code, and to make them applicable to group health pl ans and health insurance issuers providing health insurance coverage in connection with group health plans. The PHS Act sections incorporated by these references are se ctions 2701 through 2728.

The Affordable Care Act extended MHPAEA to apply to the indivi dual 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 PH S Act to qualified health plans (QHPs) in the same manner and to the same exte nt as such section app lies to health insurance issuers and group health plans. Furthermore, the Department of Health and Human Services (HHS) final regulation regarding essential health benefits (E HB) requires health insurance issuers offering non-grandfathered health insura nce coverage in the individual and small group

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 Subtitle s 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.5 markets, through an Affordable In surance Exchange (Exchange, al so called a Health Insurance Marketplace or Marketplace) or outside of an Exchange, to comply with the requirements of the MHPAEA regulations in order to sa tisfy the requirement to cover EHB. 3 On April 28, 2009, the Departments of the Tr easury, Labor, and HHS published in the Federal Register (74 FR 19155) a request for informa tion (RFI) soliciting comments on the requirements of MHPAEA. (Subsequent referen ces to the “Departments” include all three Departments, unless the headings or context i ndicate otherwise.) On February 2, 2010, after consideration of the comments received in respon se to the RFI, the Departments published in the Federal Register (75 FR 5410) comprehensive interi m final regulations implementing MHPAEA (interim final regulations ). The interim final regulations generally became applicable to group health plans and group health insurance i ssuers for plan years beginning on or after July 1, 2010. The interim final regulations establis hed six classifications of benefits 4 and provided that the parity requirements be applie d on a classification-by-classifica tion basis. The general parity requirement set forth in paragraph (c)(2) of th e 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 mo re 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-thir ds “substantially all” numerical standard from the regulations implementing MHPA 1996, and quantified “predominant” to mean that more

3 See 45 CFR 147.150 and 156.115 (78 FR 12834, February 25, 2013). 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.6 than one-half of medical/surgica l benefits in the classificati on are subject to the financial requirement or quantitative treatment limitation in the relevant classification. Using these numerical standards, the Departme nts established a mathematical test by which plans and issuers could determine what level of a financial requir ement or quantitative treatment limitation, if any, is the most restrictive level that could be impos ed on mental health or substance use disorder benefits within a classification. (This mathemati cal test is referred to in this preamble as the quantitative parity analysis.) The interim final regulations also prohibited plans and issuers from applying cumulative financial requirements (such as deductibles or out-of-poc ket maximums) or cumulative quantitative treatment limitations (s uch as annual or lifetime day or visit limits) to mental health

or substance use disorder benefits in a classification that accumu late 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), wh ich are limits on the scope or duration of treatment that are not expresse d numerically (such as medical management techniques like prior authorization). The interim fina l regulations stated that a plan or issuer may not impose an NQTL with respect to mental heal th or substance use disorder benefits in any classification unless, under the terms of the pl an as written and in operati on, 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 co mparable to, and are applied no more stringently than, the processes, strategies, evidentiary stan dards, or other factors used in applying the limitation with respect to medical/surgical benefits in the same classification, except to the extent7 that recognized clinically appropriate sta ndards of care may permit a difference. The Departments also set forth a special rule for ev aluating parity of multi-tiered prescription drug benefits. The interim final regulations included several examples to il lustrate each of these parity standards. The interim final regulations also impl emented 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 bene fits be made available upon request in certain

circumstances. The interim final regulations also specifi cally requested comments in several areas, including whether additional exampl es would be helpful to illustra te the application of the NQTL

rule to other features of medical management or general plan desi gn; 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 additiona l clarifications might be helpful to facilitate compliance with the disclosure requirement for me dical necessity criteria or denials of mental health or substance use disorder benefits; and implementing the new statutory requirements for the increased cost exemption unde r MHPAEA, as well as informa tion 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 clarificat ions 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 fu rnished on an outpatient basis into two sub-classifications – (1)8 office visits, and (2) all other outpatient item s and services – for purposes of applying the financial requirement and treatm ent limitation rules under MHPAEA. 5 The Departments issued additional F AQs 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, ma de clear how th e disclosure requirements under

MHPAEA interact with other ERIS A disclosure requirements (and th at 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 a nd concurrent review. 8 The Departments also clarified that plans and is suers 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

5 See FAQ About Mental Health Parity and Addiction Equity Act, available at http://www.dol.gov/ebsa/faqs/faqmhpaea.html

. 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-andFAQs/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/Res ources/Fact-Sheets-and-FAQs/aca_implem entation_faqs7.html#Mental Health Parity and Addiction Equity Act of 2008

. 7 See FAQs about Affordable Care Act Implementation (P art 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/Resou rces/Fact-Sheets-and-FAQs/ aca_implementation_faqs5.html

. 8 See FAQs about Affordable Care Act Implementation (Par t 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/Res ources/Fact-Sheets-and-FAQs/aca_implem entation_faqs7.html#Mental Health Parity and Addiction Equity Act of 2008

. 9 See FAQs about Affordable Care Act Implementation (Par t 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/Res ources/Fact-Sheets-and-FAQs/aca_implem entation_faqs7.html#Mental Health Parity and Addiction Equity Act of 2008

.9 After consideration of the co mments and other feedback received from stakeholders, the Departments are publishing th ese final regulations. II. Overview of the Regulations In general, these final regulations incorpor ate clarifications issued by the Departments through FAQs since the issuance of the interim fi nal regulations, and prov ide new clarifications on issues such as NQTLs and the increased cost exemption. The HHS final regulation also implements the provisions of MHPAEA fo r the individual health insurance market. A. Meaning of Terms Under MHPAEA and the interim final regulati ons, 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 ment al health or substance use disorder benefits.

The terms “mental health benefits” and “substan ce 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 accord ance with applicable Federal and State law. The interim final regulations furt her provided that the plan term s defining whether the benefits are medical/surgical benefits or mental health or substance use disorder benefits must be consistent with generally recogni zed standards of current medical practice (for example, the most current version of the Diagnostic and Statistical Manual of Mental Diso rders (DSM), the most

current version of the International Classificat ion 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 be nefits,” and “substance use disorder benefits”

include benefits for items as well as services. The final regulations also clarify that medical10 conditions and surgical procedures , and mental health conditions a nd 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 sugges tion. The statutory definitions provided in MHPAEA specifically refer to applicable Federal la w. Moreover, the refere nce 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 inte rim final regulations set forth that the parity analysis be conducted on a classi fication-by-classification basis in six specific classifications of benefits. Subsequent to the issuance of the in terim final regulations, several plans and issuers brought to the Departments’ attent ion that, with respect to outpat ient benefits, many plans and issuers require a copayment for office visits (s uch as physician or psyc hologist visits) and coinsurance for all other outpatien t services (such as outpatient su rgery). In response to this information, the Departments published an FAQ establishing an enforcement safe harbor under which the Departments would not take enforcemen t action against plans a nd issuers that divide benefits furnished on an outpatient basis into two sub-classifications ((1) o ffice visits and (2) all11 other outpatient items and services) for purpos es of applying the fina ncial requirement and

treatment limitation rules under MHPAEA. 10 The Departments have incorporated the terms of the FAQ in paragr aph (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 generali sts and specialists, must not be used for purposes of determining parity. After the sub-classificat ions are established, a plan or issuer may not impose any financial requirement or quantitativ e 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/s urgical 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 fina l regulations illustrates the appr oach that plans and issuers may employ when dividing outpatient benefits into s ub-classifications in acco rdance with these final regulations. Additionally, commenters requested that the fi nal regulations permit plans and issuers to

create sub-classifications to a ddress 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.

10 See FAQ About Mental Health Parity and Addiction Equity Act, available at http://www.dol.gov/ebsa/faqs/faqmhpaea.html

.12 The Departments have considered these co mments and recognize th at tiered networks have become an important tool for health plan efforts to manage care and control costs. Therefore, for purposes of applying the financ ial 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 ti ers of in-network providers (such as an innetwork tier of preferred provide rs with more generous cost sh aring to participants than a separate in-network tier of par ticipating providers), the plan may divide its benefits furnished on

an in-network basis into sub-classi fications that reflect those networ k tiers, if the tiering is based on reasonable factors and without regard to whethe r a provider is a mental health or substance use disorder provider or a medical/surgical provider. 11 After the sub-classifications are established, the plan or issuer may not impos e 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/s urgical benefits in the sub-classification using the methodology set forth in paragraph (c)(3 )(i) of these fina l regulations. The Departments are aware that some plans ma y 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

11 Under PHS Act section 2719A (incorporated into ERISA and the Code) and its implementing regulations, nongrandfathered 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 benefici ary for out-of-netwo rk emergency services that exceeds the cost-sharing requirement imposed with respect to a participant or benefi ciary if the services were provided in-network. 26 CFR 54.9815-2719AT(b); 29 CFR 2590.715-2719A(b); 45 CFR 147.138(b).13 an uneven number of tiers or if the Department s become aware of tier st ructures that may be inconsistent with the parity analysis required und er 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 requi rement or quantitative treatment limitation that applies to at least two-thirds of medical/sur gical 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 clar ification that all medical/sur gical 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 coul d not classify certain benefits

outside of the six classifications in order to av oid 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 pur poses of the parity analysis. The final regulations retain the six classi fications enumerated in the interim final regulations, specify the permissibl e sub-classifications, and provide that the parity analysis be performed within each classi fication and sub-classification. The classifications and subclassifications are intended to be compre hensive and cover the complete range of medical/surgical benefits and mental health or su bstance use disorder benefits offered by health plans and issuers. Medical/surgica l benefits and mental health or substance use disorder benefits cannot be categorized as being o ffered outside of these classificat ions and therefore not subject to the parity analysis.14 Cross-walking or pairing specific mental heal th or substance use disorder benefits with specific medical/surgical benefits is a static ap proach that the Departments do not believe is feasible, given the difficulty in determining “e quivalency” between spec ific medical/surgical benefits and specific mental he alth 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 th e “substantially all” and “predominant” tests as formulated in the interim final regulations, wh ile other commenters were concerned that they were too restrictive and may create an admini strative 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 MH PA 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 fa miliarity 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 de sign, cost-sharing structure, or utilization that would affect a financial requirement or trea tment limitation within a classification (or subclassification). These final regulations, like the interim fina l regulations, provide that the determination of the portion of medical/s urgical benefits in a cl assification of benefits subject to a financial15 requirement or quantitative treatment limitati on (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 clas sification expected to be paid under the plan for the plan year. Any reasonable method may be us ed to determine the dollar amount expected to be paid under the plan for medical/surgical bene fits subject to a fina ncial requirement or quantitative treatment limitation. One commente r asked whether plan benefits are measured based on allowed plan costs, for purposes of the “s ubstantially 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 (a fter enrollee cost sharing) because payment based on the allowed amount covers the full scope of the benefits being provided. 3. Cumulative Financial Requirements a nd 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-poc ket maximums) or cumulative quantitative treatment limitations (s uch as annual or lifetime day or visit limits) for mental health

or substance use disorder benefits in a classi fication that accumulate separately from any cumulative requirement or limitation establishe d for medical/surgical benefits in the same classification. These final regulations retain this standard and con tinue to provide that cumulative requirements and limitations must also satisfy the quantitativ e parity analysis. Accordingly, these final regulati ons continue to prohibit plans a nd issuers from applying separate cumulative financial requirements and cumulative quantitative treatment limitations to medical/surgical and mental health and substance use di sorder benefits in a classification, and continue to provide that such cumulative requi rements or limitations ar e only permitted to be16 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 burdensom e and would require significant resources to implement, especially for Managed Behavioral Health Orga nizations (MBHOs) that often work with multiple plans. One commenter asserted that this requirement could impact the willingness of plan sponsors to offer mental heal th or substance use disorder benefits. A study sponsored by HHS, however, found that nearly al l plans had eliminated the use of separate

deductibles for mental hea lth and substance use di sorder 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 in terim final regulations and, for the very small percent of plans that have dropped mental hea lth or substance use disorder coverage, there is no clear evidence th ey did so because of MHPAEA. Accordingly, these final regulations retain the requirement that plans and issuers use a single, combined

deductible in a classification.

4. Interaction with PHS Act Secti on 2711 (No Lifetime or Annual Limits)

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 Ad diction Equity Act of 2008. NORC at the University of Chicago for the Office of the Assistant Secretary for Planni ng and Evaluation. This stud y 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 E quity Act of 2008. NORC at the Univers ity of Chicago for the Office of the Assistant Secretary for Planni ng and Evaluation, pp. 43-44.17 MHPA 1996 and paragraph (b) of the interim final regulations set forth the parity requirements with respect to aggregate lifetime a nd annual dollar limits on mental health benefits or substance use disorder benefits where a gr oup health plan or health insurance coverage provides both medical/surgical bene fits and mental health benef its or substance use disorder

benefits. PHS Act section 2711, as added by the Afford able Care Act, prohibits lifetime and annual limits on the dollar amount of EHB, as defi ned 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 respec t to mental health or substance use disorder

benefits that are covered as EHB. While these fi nal regulations generally retain the provisions of the interim final regulations rega rding 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 regu lations do not address th e requirements of PHS Act section 2711. That is, the parity requirement s regarding annual and lifetime limits described in these final regulations only appl y to the provision of mental h ealth and substance use disorder benefits that are not EHB. Because this greatly reduces the instances in which annual or lifetime

14 See section 1302(b)(1)(E) of the Affordable Care Act.18 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

5. Interaction with PHS Ac t Section 2713 (Coverage of Pr eventive Health Services) The interim final regulations pr ovide that if a plan or issu er provides mental health or

substance use disorder benefits in any classification, mental hea lth or substance use disorder benefits must be provided in ev ery classification in which medical /surgical benefits are provided. Under PHS Act section 2713, as added by the A ffordable Care Act, non-grandfathered group health plans and health insurance issuers o ffering non-grandfathere d group and individual coverage are required to provide coverage for certain preven tive services without cost sharing. 16 These preventive services presently include, am ong 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. The Departments received several comments asking whether or to what extent a nongrandfathered plan that provides mental health or substance use disorder benefits pursuant to PHS Act section 2713 is subject to the require ments of MHPAEA. Many commenters urged the Departments to clarify that the pr ovision of mental health and subs tance use disorder benefits in this circumstance does not trigger a broader requirement to comply with MHPAEA for nongrandfathered plans that do not othe rwise offer mental health or s ubstance use disorder benefits.

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/R esources/Files/Downloads/ehb-faq-508.pdf

. 16 See 26 CFR 54.9815-2713T; 29 CFR 2590.715-2713; 45 CFR 147.130.19 The Departments agree that compliance with PHS Act section 2713 should not, for that reason alone, require that the full range of benef its for a mental health condition or substance user disorder be provided unde r MHPAEA. Accordingly, paragr aph (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 onl y to the extent required under PHS Act section 2713 to provide additional mental health or substan ce use disorder benefits in any classification. C. Nonquantitative Treatment Limitations 1. Exceptions for Clinically Appropriate Standards of Care The final regulations generally retain the prov ision in the interim fi nal 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, unde r the terms of the plan as written and in operation, any proc esses, strategies, evidentiary st andards, or other factors used in applying the NQTL to mental heal th or substance use disorder be nefits in the classification are comparable to, and are applied no more stringently than, the processes, strategies, evidentiary standards, or other factors us ed in applying the limitation wi th respect to medical/surgical

benefits in the same classification. The interim final regulations also contained an excepti on to the NQTL requirements allowing for variation “to the exte nt that recognized clinically a ppropriate standards of care may permit a difference.” A few commenters ex pressed support for the exception, emphasizing

inherent differences in treatment for medical/s urgical conditions and mental health conditions and substance use disorders. Many other commenter s raised concerns that this exception could20 be subject to abuse and recommended the Departments set clear standards for what constitutes a “recognized clinically appropriate standard of care.” Fo r example, commenters suggested a recognized clinically appropriate standard of care must reflect i nput from multiple stakeholders and experts; be accepted by multiple nationally re cognized provider, consumer, or accrediting organizations; be based on indepe ndent 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 except ion to justify applying an NQTL to all mental

health or substance use disorder benefits in a classification, while onl y applying the NQTL to a limited number of medical/surgical benefits in th e same classification. These plans and issuers generally argue that fundamental differences in treatment of mental health and substance use disorders and medical/surgical c onditions, justify applying stricter NQTLs to mental health or

substance use disorder benefits than to medi cal/surgical benefits unde r the exception in the interim final regulations. In consideration of these comments, the De partments 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 re quirements to take into account clinically appropriate standards of care when determining whether and to wh at extent medical management techniques and other NQTLs apply to medical/surgical benefits a nd mental health and substance use disorder benefits, as long as the processes, strategies, evidentia ry standards, and other factors used in applying an NQTL to mental health and substance use disorder benefits are comparable

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 a ppropriate standard of care exception wa s warranted – in part because of the flexibility inherent in the NQTL standard itself.21 to and applied no more stringently than those wi th respect to medical/surgical benefits. In particular, the regulations do not require plan s and issuers to use the same NQTLs for both

mental health and substance use disorder benefits and medical/surgical bene fits, but rather that the processes, strategies, evidenti ary 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 disord er benefits than for medical/surgical benefits. Disp arate results alone do not mean that the NQTLs in use do not comply with these requirements. The final regu lations provide examples of how health plans and issuers can comply with the NQTL requireme nts absent the exception for a recognized clinically appropriate standard of care. 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 unlik ely that a reasonab le 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. 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 fina ncial requirement or quantitative treatment

limitation on mental health and substance use disord er benefits that is more restrictive than the predominant financial requirement or quantitative treatment limitation that applies to

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/Resou rces/Fact-Sheets-and-FAQs/ aca_implementation_faqs7.html

..22 substantially all medical/surgica l benefits in the same cla ssification. The interim final regulations incorporated the two- thirds “substantially all” nume rical standard from the rules implementing the requirements of MHPA 1996, a nd 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 le vel of a financial requir ement or quantitative treatment limitation, if any, is th e most restrictive level that c ould be imposed on mental health

or substance use disorder benefits within a classification. The Departments recognized that plans and i ssuers impose a variety of NQTLs affecting the scope or duration of bene fits that are not expressed numerically. Some commenters recommended that the Departments adopt the sa me quantitative parity analysis for NQTLs. While NQTLs are subject to the parity requir ements, the Departments understood that such limitations cannot be evaluated mathematically. These final regulations continue to provide different parity standards with respect to qua ntitative treatment limitations and NQTLs, because although both kinds of limitations operate to lim it the scope or duration of mental health and substance use disorder benefits, they apply to such benefits differently. 19 3. Clarification Regarding the Application of Certain NQTLs Under the interim final regulations, the Depart ments set forth the parity requirement with respect to NQTLs and provided an illustrative list of NQTLs that plan s and issuers commonly use. These NQTLs included: medical manage ment standards limiting or excluding benefits based on medical necessity or medical appropria teness, or based on whether the treatment is

19 The Departments reiterated the differe nt 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/faqmhpaeaimplementation.html

.23 experimental or investigative; formulary desi gn for prescription drugs; standards for provider admission to participate in a network, includ ing reimbursement rates; plan methods for determining usual, customary, and reasonable char ges; refusal to pay fo r 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 exclus ions 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 regulat ions were issued, some stakeholders asked questions regarding the appli cation of the NQTL rule to other featur es of medical management or general plan design not specifically ad dressed in the interim final regulations. Many commenters requested that the Departments address additio nal NQTLs, such as pr ior authorization and concurrent review, service coding, provider netw ork 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 require d to be applied in accordance with these requirements. To the extent that a plan standa rd operates to limit th e scope or duration of treatment with respect to mental health or s ubstance use disorder benefits, the processes, strategies, evidentiary standards, or other factors used to apply th e standard must be comparable to, and applied no more stringently than, those imposed with respect to medical/surgical benefits. By being comparable, the processe s, strategies, evidentiary standa rds and other factors cannot be specifically designed to restrict access to mental health or subs tance use disorder benefits. Specifically, plan standards, such as in- and out-of-network geographic limitations, limitations24 on inpatient services for situations where the partic ipant is a threat to self or others, exclusions

for court-ordered and involuntar y holds, experimental treatm ent limitations, service coding, exclusions for services provided by clinical so cial 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 re sponse to the comments received, in paragraph (c)(4)(ii) of these final regulati ons, the Departments added two a dditional 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 cove rage. Furthermore, the Depart ments included additional and revised examples on how NQTLs, enumerated in th ese final regulations or otherwise, may be applied in accordance with the require ments of these final regulations. The Departments are aware that some commenters have asked how the NQTL requirements apply to provider reimbursement rate s. Plans and issuers may consider a wide array of factors in determining provider reimbur sement rates for both medical/surgical services

and mental health and substance use disorder se rvices, such as service type; geographic market; demand for services; supply of pr oviders; provider prac tice size; Medicare reimbursement rates; and training, experience and licen sure 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 De partments may provide additional guidance if questions persist with respect to provider reimbursement rates. Some commenters requested that the Departments require pl ans and issuers to comply with certain guidelines, indepe ndent national or international standards, or State government25 guidelines. While plans and issu ers are not required under these final regulations to comply with any such guidelines or standards with respec t to the development of their NQTLs, these standards, such as the behavioral health a ccreditation standards se t forth by the National Committee for Quality Assurance or the standard s for implementing parity in managed care set forth by URAC, may be used as references and best practices in impl ementing NQTLs, if they are applied in a manner that complie s 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 char acterized as “scope of servi ces” 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 insuran ce coverage. Some comm enters requested that, with respect to a mental health condition or subs tance use disorder that is otherwise covered, the regulations clarify that a plan or issuer is not required to prov ide benefits for any particular treatment or treatment setting (such as counsel ing or non-hospital residential treatment) if

benefits for the treatment or treatment setti ng are not provided for me dical/surgical conditions. Other commenters requested that th e regulations require plans and i ssuers to provide benefits for the full scope of medically appropr iate services to treat a mental health condition or substance use disorder if the plan or issuer covers the full scope of medically approp riate services to treat medical/surgical conditions, even if some treat ments or treatment settings are not otherwise covered by the plan or coverage. Other commenters requested th at MHPAEA be interpreted to require that group health plans a nd issuers provide bene fits for any evidence- based treatment. The interim final regulations es tablished six broad classificati ons that in part define the scope of services under MHPAEA. The interim final regulations requ ire that, if a plan or issuer26 provides coverage for mental heal th 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 regulati ons should address the scope of services or continuum of care provided by a grou p health plan or health insurance coverage. Many commenters requested th at the Departments clarif y how MHPAEA affects the scope of coverage for intermediate services (suc h 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 co mmenters suggested that the final regulations

establish what intermediate mental health a nd substance use disorder services would be analogous to various intermediate medical/surgica l services for purposes of the MHPAEA parity analysis. Other commenters suggested that the De partments 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 fr om MHPAEA’s parity requiremen ts. At the same time, the Departments did not intend to impose a benefit mandate through the parity requirement that could require greater benefits fo r mental health conditions and s ubstance use disorders than for medical/surgical conditions. In addition, the Depart ments’ approach defers to States to define the package of insurance be nefits that must be provi ded in a State through EHB. 20 Although the interim final regulati ons did not define the scope of the six classifications of benefits, they directed that pl ans and issuers assign mental he alth and substance use disorder

20 See 45 CFR 147.150 and 156.115 (78 FR 12834, February 25, 2013).27 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 h ealth and substance use di sorder benefits to the existing six benefit classifications in the same way that they assign comparable intermediate medical/surgical benefits to these classifications. Fo r example, if a plan or issuer classifies care in skilled nursing faciliti es or rehabilitation hospitals as inpati ent benefits, then the plan or issuer must likewise treat any covered ca re in residential treatment faci lities for mental health or substance user disorders as an inpa tient benefit. In addition, if a pl an 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 mu st 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 scop e of services provided under the plan. The new examples clarify that plan or coverage restri ctions 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 stan dard under these final regulations. E. Disclosure of Underlying Processes and Standards MHPAEA requires that the cr iteria for plan medical nece ssity determinations with respect to mental health or subs tance use disorder benefits (or h ealth insurance coverage offered in connection with the plan w ith respect to such benefits) be made available by the plan administrator (or the health insurance issuer o ffering such coverage) to any current or potential participant, beneficiary, or contracting provide r 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 disorder28 benefits in the case of any participant or benefi ciary must be made available on request or as otherwise required by the plan admi nistrator (or health insurance issuer) to the participant or beneficiary in accordance with regulations. Several commenters expressed concern about th e 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 addi tion, since the issuance of the interim final regulations, stakeholders have e xpressed concern that it is difficult to understand whether a plan complies with the NQTL provisions without informa tion showing that the processes, strategies, evidentiary standards, and other factors used in applying an NQTL to mental health or substance

use disorder benefits and medica l/surgical benefits are comparable, impairing plan participants’ means of ensuring complia nce with MHPAEA. In response to these concerns, the Depart ments published several FAQs clarifying the breadth of disclosure requirements applicable to group health plans and h ealth insurance issuers under both MHPAEA and other app licable 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 th at 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

21 See FAQs for Employees about the Mental Health Pa rity and Addiction Equity Act, available at http://www.dol.gov/ebsa/f aqs/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/Resou rces/Fact-Sheets-and-FAQs/ aca_implementation_faqs5.html

.29 other applicable law require disclosure of info rmation 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, evid entiary 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. In addition, the Department of Labor’s clai ms procedure regulations (applicable to ERISA plans), as well as the Departments’ clai ms and appeals regulations under the Affordable Care Act (applicable to all non-gr andfathered group health plans a nd health insurance issuers in the group and individual markets), 24 set forth rules regarding clai ms and appeals, including the right of claimants (or their au thorized representative) upon a ppeal 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, reason able access to and copies of all documents,

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 pl an or whose beneficiaries may become eligible to receive any such benefit. Accordingly, employ ees 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 particip ants for this purpose. 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 is suers to incorporate the in ternal claims and appeals processes set forth in 29 CFR 2560.503-1.30 records, and other information relevant to the claimant’s claim for benefits. 25 In addition, the plan or issuer must provide th e claimant with any new or additional evidence considered, relied upon, or generated by the plan or is suer (or at the direction of th e plan or issuer) in connection with a claim. If the plan or issuer is issuing an adverse bene fit 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 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 cr iteria for both medical/s urgical 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. Even with these important disclo sure requirements under existing law, 27 the Departments remain focused on transparency and whether in dividuals have the necessary information to

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 administ rator must notify a claimant of the plan’s benefit determination with respect to a pre-se rvice claim within a reasonable time period appropriate to the medical circumstances, but not later than 15 days afte r 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 cl aim, 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). 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 pream ble 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).31 compare NQTLs of medical/surgica l benefits and mental health or substance use disorder benefits under the plan to effectively en sure compliance with MHPAEA. Accordingly, contemporaneous with the publication of these fi nal regulations, the Departments of Labor and HHS are also publishing another set of MH PAEA FAQs, which, among other things, solicit

comments on whether and how to ensure greater transparency and compliance. 28 F. Small Employer Exemption Paragraph (f) of these final regulations implements the exem ption for a group health plan (or health insurance issuer offe ring coverage in connection with a group health plan) for a plan year of a small employer. Prior to the A ffordable 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 th e 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 in corporated by reference in the MHPAEA provisions contained in secti on 2726 of the PHS Act. However, the MHPAEA provisions codified in ERISA section 712 and Code section 9812, together w ith 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

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

. 29 See section 1304(b)(3) of the Affordable Care Act. 30 See FAQs about Affordable Care Act Implementation (P art 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/Resou rces/Fact-Sheets-and-FAQs/ aca_implementation_faqs5.html

.32 that, “for group health plans and health insura nce 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 em ployer.” The FAQ also acknowledged that, for non-Federal governmental plans, wh ich 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 re gulations continue to exempt group health plans and group health insura nce coverage of employers with 50 or fewer employees from MHPAEA. The HHS final regulat ions, which generally apply to non-Federal governmental plans, exempt group health plan s and group health insu rance 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 appli cability 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 complian ce with all of the provisions applicable to that entity is impossible. At the same time, plans and issuers providi ng 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-grandf athered 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

31 78 FR 12834.33 disorder benefits in compliance with the requir ements of the MHPAEA regulations, even where those requirements would not otherwise apply directly. Thus, all in sured, 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 individu al health insurance coverage. Accordingly, both grandfathered and non-grandfathered coverage in the individual market must comply with MHPAEA.) G. Increased Cost Exemption MHPAEA contains an increased cost exempti on that is available for plans and health insurance issuers that make changes to comply w ith 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, pl ans 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 The interim final regulations reserved pa ragraph (g) regarding the increased cost exemption and solicited comments. The Departme nts issued guidance establishing an interim enforcement safe harbor under which a plan that has incurred an increase d 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 De partments’ 1997 regulations implementing MHPA

32 An employer or issuer may elect to continue to provide mental health an d substance use disorder benefits in compliance with this section with respect to the plan or c overage involved regardless of any increase in total costs. That is, mere eligibility for the exempti on 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.34 1996, 33 except that, as required unde r MHPAEA, for the fi rst year of compli ance the applicable percentage of increased cost is two per cent and the exemption lasts only one year. 34 The Departments received several comments on the interim final regulations that requested guidance on attribution of cost incr eases to MHPAEA. Some commenters emphasized that the cost exemption must be based on actual total plan costs m easured 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 calculati ng incurred expenditures. Additionally, some commenters stated that a plan’s costs for pur poses of the increased cost exemption should include not only claims costs, but also administrative expenses a ssociated with complying with the parity requirements. Paragraph (g) of these final regulations gene rally applies standards and procedures for claiming an increased cost exemption under MH PAEA consistent with MHPAEA’s statutory standards and procedures as well as prior proced ures 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 th at is unlikely to persis t, 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 [(E 1 – E 0 )/T 0 ]-D> k , where E represents the level of health plan

33 62 FR 66932, D ecember 22, 1997. 34 See FAQs about Affordable Care Act Implementation (P art 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/Resou rces/Fact-Sheets-and-FAQs/ aca_implementation_faqs5.html

.35 spending with respect to mental health and subs tance use disorder benefits over the measurement period, T is a measure of total actual costs incurr ed by a plan or coverage on all benefits (medical/surgical benefits and mental health and substance use disorder be nefits 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 pe rcent 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 th e 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 diso rders, and administrative costs associated with providing mental he alth or substance use disorder be nefits (amortized over time). In estimating the costs attributable to MHPA EA, a plan or issuer must rely on actual

claims or encounter data incurred in the benefit period reported with in 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 requir e that the benefit period used to make this calculation be limited to six months. Data from a six month pe riod will not typically refl ect seasonal variation in claims experience. To estimate E 1 – E 0 , a plan or coverage must fi rst calculate secular trends over five years in the volume of services a nd the prices paid for services for the major classifications of services by applying the formula (E 1 – E 0 )/T 0 to mental health and substance use disorder spending to each of the five prior ye ars 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 spendi ng across the five years is calculated for each service type, the change in mental health and substance use disorder benefits spending36 attributable to MHPAEA is calcul ated net of the average annual sp ending growth that is due to a secular trend. This change in calculation is the main differ ence 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 uns table. 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 wh ich the impact of MHPAEA is assessed moves up each year to the year prior to the current benefit year.

Administrative costs attributable to the im plementation of MHPAEA must be reasonable and supported with detailed documentation from accounting records. Software and computing expenses associated with implementation of th e prohibition on separate cumulative financial requirements or other provisions of the regulation should be based on a stra ight-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 administra tive costs should also be amortized. Some commenters suggested additional clarific ations 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 standi ng 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 commenter s 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 statutor y language is sufficient to ensure reliable cost increase determinations. Moreover, this a pproach is consistent with the approach applicable to EHB in37 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 Departme nts decline to adopt these suggestions. Determinations as to increases in actual costs attributable to implementation of the requirements of MHPAEA must be made and cer tified by a qualified and li censed actuary who is a member in good standing of the American Academ y of Actuaries. All such determinations must be based on the formula specified in these fi nal regulations in a written report prepared by the actuary. Additionally, the wr itten report, along with all supporting documentation relied upon by the actuary, must be maintained by the group h ealth plan or health insurance issuer for a period of six years. Several commenters expressed concern regard ing the administrative burden that would result from qualifying for the increased cost exem ption for one year and then having to comply with the law the following year. MHPAEA’s stat utory 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 provisions of this section shall not apply to such plan (or co verage) during the following plan year, and such exemption shall apply to the plan (or coverage) for 1 plan year.” 36 Before a group health plan or health insu rance 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 Depart ments (as described below), and appropriate State agencies. The notification requirements for th e increased cost exemption under

35 See 45 CFR 156.135(b). 36 Code section 9812(c)(2), ERISA 712(c)(2), PHS Act section 2726(c)(2).38 these final regulations are consistent with the requirements under the Departments’ 1997 regulations implementing MHPA 1996. With respect to participants and beneficiarie s, 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 inform ation 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 th e 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 a nd beneficiaries and to the appr opriate 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 paragra ph (g), an individual w ho 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 re quest the summary of information by providing the plan a copy of the no tice provided to the participant or beneficiary with any personally identifiable information re dacted. The summary of information must include the incurred expenditures, the base period, th e dollar amount of claims incurred during the base period that would have been denied under the terms of the pl an absent amendments39 required to comply with parity, and the administ rative 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 pa ragraph (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 pl ans means the provisions apply on January 1, 2015. Accordingly, plans and issuers must use the form ula 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 clai ming the increased cost exemption in plan or policy years beginning before July 1, 2014, pl ans and issuers should follow the interim enforcement safe harbor outlined in previously issued FAQs. 37 H. General Applicability Provisions and Applic ation to Certain Types of Plans and Coverage The interim final regulations combined in para graph (e)(1) what had been separate rules under MHPA 1996 for (1) determining if a plan provides both medical/s urgical and mental

health or substance use disord er benefits; (2) applying the pa rity requirements on a benefitpackage-by-benefit-package basis; and (3) coun ting the number of plans that an employer or employee organization maintains. The combined ru le provides that (1) the parity requirements apply to a group health plan offering both medi cal/surgical benefits and mental health or substance use disorder benefits, (2) the parity requ irements apply separately with respect to each combination of medical/surgical coverage and ment al health or substance use disorder coverage

37 See FAQs about Affordable Care Act Implementation (P art 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/Resou rces/Fact-Sheets-and-FAQs/ aca_implementation_faqs5.html

.40 that any participant (or beneficiary) can simulta neously receive from an employer’s or employee organization’s arrangement or arrangements to pr ovide 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 requi rements and that the rule should be rescinded or issued only in proposed form. Other comments welcomed the ru le as an important protection to prevent evasion of the parity requirements. The final re gulations do not change the combined rule from the interim final regulations. In the Department s’ view, the combined rule is necessary to prevent potential evasion of the parity requireme nts by allocating mental h ealth or substance use disorder benefits to a plan or benefit p ackage without medical/surgical benefits (when medical/surgical benefits are also otherwise available). The preamble to the interim final regulati ons illustrated how th e parity requirements would apply to various benefit package configurations, including multiple medical/surgical benefit packages combined with a single ment al health and substan ce use disorder benefit package. One commenter asked fo r clarification in the case of a plan with an HMO option and a PPO option in which mental health and substance us e disorder benefits are an integral part of each option. In such a case, the parity require ments 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 en tities 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 or41 substance use disorder benefits does not, however, relieve the employer, issuer, or both of their obligations under MHPAEA. The coverage as a w hole must still comply with the applicable provisions of MHPAEA, and the responsibility for compliance re sts 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 MB HO to ensure that the mental h ealth and substance use disorder

benefits are coordinated with th e medical/surgical benefits for purposes of compliance with the requirements of MHPAEA. Liability for any viol ation of MHPAEA rests with the group health plan and/or health insurance issuer. Several commenters requested clarification a bout whether a plan or issuer may exclude coverage for specific diagnoses or conditions under MHPAEA. These final regulations continue to provide that nothing in these re gulations requires a plan or issuer to provide any mental health

benefits or substance use disorder benefits. Mo reover, the provision of benefits for one or more

mental health conditions or substance use disord ers 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 applic able, 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 require ments under section 2707 of the PHS Act and section 1302(a) of the Affordable Care Act.

1. Individual Health Insurance Market42 Section 1563(c)(4) of th e 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, unle ss 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 co verage offered by a health insurance issuer in connection with a group health pl an in the large group market. These provisions apply to both grandfathered and non-grandfathe red individual health insura nce coverage for policy years beginning on or after the applicabil ity dates set forth in paragraph (i ) of these final regulations. 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 ex empt 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-Federa l governmental plans may continue to opt out of the requirements of MHPAEA. 39 If the sponsor of a self-funded, non-

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.” 39 See Memo on Amendments to the HIPAA Opt-Out Provisi on Made by the Affordable Care Act (September 21, 2010). Available at: http://www.cms.gov/CCIIO/Resources/Files/Downloads/opt_out_memo.pdf.43 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 3. Retiree-only plans Some commenters requested cl arification regarding the applicability of these final regulations to retiree-only plans. ERISA sec tion 732(a) generally provi des that part 7 of ERISA—and Code section 9831(a) generally prov ides that chapter 100 of the Code—does not apply to group health plans with less than two participants who are curre nt employees (including retiree-only plans that, by de finition, 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, in cluding the exception for retiree-only health plans, remain

in effect. 42 Since the provisions of MHPAEA contai ned in ERISA section 712 and Code section 9812 are contained in part 7 of ERISA and chap ter 100 of the Code, resp ectively, group health plans that do not cover at l east two employees who are current employees (such as plans in

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 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, reorga nized, and renumbered title XXV II 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/R esources/Fact-Sheets-andFAQs/aca_implementation_faqs3.html , which states that “statutory provisions in effect since 1 997 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.”44 which only retirees participate) are exempt from the requirements of MHPAEA and these final regulations. 43 4. Employee Assistance Programs Several comments also requested clarificati on regarding the applicab ility 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 unde r 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 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 ame nd the excepted benefits regulations 46 to provide that benefits under an EAP are considered to be excepted bene fits, 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 subjec t to MHPAEA or these final regulations.

43 Additionally, as provided in the interim final regulatio ns 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 retir ee-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). 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. 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/R esources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf ).45 The guidance provides that until rulemaking regarding EAPs is finalized, through at least 2014, the Departments will consider an EAP to cons titute excepted benefits only if the EAP does not provide significant benefits in the nature of medical care or treatment. For 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 organi zations (MCOs), alternative benefit plans (ABPs), or the Ch ildren’s Health Insurance Program (CHIP). However, MHPAEA requirements are incorporated by reference into statutory provisions th at do apply to those entities. On January 16, 2013, CMS released a St ate Health Official Letter regarding the application of the MHPAEA requirement s to Medicaid MCOs, ABPs, and CHIP. 48 In this guidance, CMS adopted the basic framework of MH PAEA and applied the st atutory principles as appropriate across these Medicaid an d CHIP authorities. The letter also stated that CMS intends to issue additional guidance that will assist States in their e fforts to implement the MHPAEA requirements in their Medicaid programs.

I. Interaction with State Insurance Laws Several commenters requested that the fina l regulations clearly describe how MHPAEA

interacts with State insurance laws. Commenters sought clarif ication 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

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-Po licy-Guidance/downloads/SHO-13- 001.pdf

.46 minimum level of coverage (such as a minimum do llar, day, or visit level) for mental health

conditions or substance use disorders. These commenters expressed a de sire that the final regulations articulate that existi ng State laws on mental health or substance use disorder benefits would remain in effect to the extent they did not prevent the a pplication 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 “constr ued to supersede any provision of State law which establishes, implements, or continues in effect any standard or requirement solely rela ting to health insurance issuers in connection with group health insuran ce coverage except to the extent that such standard or requirement prevents the applic ation of a requirement” of MHPAEA and other applicable provisions. 49 The HIPAA conference report indicate s that this is intended to be the “narrowest” preemption of State laws. 50 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. (Wh ile MHPAEA does not require plans or issuers to offer any mental health benefits, once benefits are offered, for wh atever 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 th at condition or disorder must be provided in

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 2008.47 parity with medical/surgical benefits under MHPA EA. This means that an issuer subject to MHPAEA may be required to provide mental hea lth 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 Depart ments’ authority to impose pe nalties and ensure compliance with the requirements under MHPAEA. The en forcement responsibilities of the Federal government and the States with resp ect to health insuranc e issuers are set forth in the PHS Act. Pursuant to PHS Act section 2723(a), States ha ve 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 au thority over the issuer s 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 substantia lly 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 responsibilit y. In States that lack the authority to enforce MHPAEA, CMS is either di rectly enforcing MHPAEA or collaborating with State departments of insurance to ensure enforcement. The Departments of Labor and the Treasur y generally have primary enforcement authority over private sector employment-based group health plans, while HHS has primary enforcement authority over non-Federal government al plans, such as t hose sponsored by State and local government employers. Some commenters suggested th at States need a stronger understanding of MHPAEA and its implementing regulations to better inform the public about the protections of the law and to48 ensure proper compliance by issuers. These commen ters believed that States would benefit from additional and continued guidance from CMS re garding the requirements of MHPAEA and its impact upon State law. The Departments encourag e 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 ca n instruct issuers in their jurisdictions on the correct implementation of the statute and regula tions, and appropriately enforce the provisions. The Departments will continue to provide tec hnical assistance to State regulators either individually or through the Nationa l Association of Insurance Comm issioners to ensure that the States have the tools they need to implement and enforce MHPAEA. K. Applicability Dates MHPAEA’s statutory provisions were self-i mplementing and generally became effective for plan years beginning after October 3, 2009. 51 The requirements of the interim final regulations generally became effect ive on the first day of the first plan year beginning on or after July 1, 2010. These final regulations apply to gr oup health plans and health insurance issuers offering group health insurance coverage on the firs t 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 comm on questions, much of which has already been published by the Departments. 52 Each plan or issuer subject to the interim final regulations must

51 There is a special effective date for group health plans maintained pursuant to one or more collective bargaining agreements ratified before October 3, 200 8, 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 coll ective 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 co llective bargaining agreement solely to conform to the requirements of MHPAEA will not be treat ed 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 Act49 continue to comply with the applicable provis ions of the interim final regulations until the corresponding provisions of these fi nal regulations become applicable to that plan or issuer. L. Technical Amendment Relating to OPM Mu lti-State Plan Program and External Review

This document also contains a technical am endment relating to external review with respect to the Multi- State Plan Program (MSPP) administ ered 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 issu ers must comply with either a State external review process or the Federal ex ternal review process. Generall y, if a State has an external review process that meets, at a minimum, the c onsumer protections set forth in the interim final regulations on internal claims a nd 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 pr ocess (including self-insured plans), a Federal external review process applies. 55 The statute requires the Departments to establish standards, “through guidance,” governing a Fede ral external review process. Through guidance issued by

Implementation (Part V) and Mental Health Parity Implementation, available at http://www.dol.gov/ebsa/faqs/faqaca5.html and http://www.cms.gov/CCIIO/Resou rces/Fact-Sheets-and-FAQs/ aca_implementation_faqs5.html ; FAQs about Affordable Care Act Implem entation (Part VII) and Mental Health Parity Implementation, available at http://www.dol.gov/ebsa/faqs/faq-aca7.html and http://www.cms.gov/CCIIO/R esources/Fact-Sheets-andFAQs/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/fa q-mhpaeaimplementation.html ; and FAQs for Employees about the Mental Health Pa rity and Addiction Equity Act, available at http://www.dol.gov/ebsa/f aqs/faq-mhpaea2.html

. 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 CF R 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, an d 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 av ailable at http://www.dol.gov/ebsa and http://cciio.cms.gov.50 the Departments, HHS has established a Federal external review process for self-insured nonFederal governmental health plans, as well as for plans and issuers in States that do not have an external review process that meets the minimu m consumer protections in the regulations. In proposed regulations published on Ma rch 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 Depart ments’ interpretation of section 2719(b)(2) as applicable to all plans not subject to a State’s ex ternal 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 admi nistration responsibilities. 56 This assures consistency in be nefit administration for those OP M plans that are offered on a nationwide basis. Accordingl y, under OPM’s interp retation, it would be inconsistent with section 1334(a)(4) of th e Affordable Care Act for MSPs and MSPP issuers to follow Statespecific external review processe s 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

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[.]”.51 review process to meet the requirements of PHS Act section 2719 and its implementing regulations. 57 The Departments also proposed to amend the interim final regulations implementing PHS Act section 2719 to specify that the scope of the Fe deral external review pr ocess, as described in paragraph (d)(1)(ii), is the minimum required scop e of claims eligible for external review for plans using a Federal external review process, and that Federal exte rnal review processes developed in accordance with paragraph (d) may have a scope that exceeds the minimum requirements. The Departments did not receive any comme nts relating to these proposed amendments

and therefore retain the amendmen ts 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 “i nternal” from the inter im final rule through the proposed amendment, and we are correcting the final amendment to include the word. III. Economic Impact and Paperwork Burden Executive Orders 12866 (Regulatory Planni ng and Review, September 30, 1993) and 13563 (Improving Regulation and Regulatory Review , February 2, 2011) direct agencies to

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.”). 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.52 propose or adopt a regulation only upon a reasoned determination that its benef its justify its costs, to assess the costs and benefits of re gulatory alternatives, and to select regulatory approaches that maximize net benefits (incl uding potential economic, environmental, public health and safety effects, distri butive 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 economy of $100 million or more, or adversel y 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 refe rred 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 budgetar y impacts of entitlement grants, user fees, or loan programs or the rights and obligations of re cipients 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 le ast one year. Accordingly, the Departments provide the following assessment of the potential co sts 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, thes e final regulations e xpand on the protections and parity requirements set forth in the interim final regulations, incorporate clarifications issued by the Departments through sub-regulatory guidan ce since the issuance of the interim final53 regulations, and provide clarifi cations related to NQTLs and di sclosure requirements. These final regulations also include additional clarificati ons 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 requirement s for individual health insurance coverage. A recent study on plan responses to MHPA EA indicates that by 2011, most plans had removed most financial requirements and tr eatment limitations that did not meet the requirements of MHPAEA and th e interim final regulations. 59 The use of higher copays and coinsurance for inpatient mental health and substa nce use disorder services declined rapidly in large employer plans followi ng implementation of MHPAEA. 60 In addition, nearly all plans had eliminated the use of separate deductibles for me ntal health or substa nce use disorder out-ofpocket 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 pl ans that applied unequal inpatient day limits, outpatient visit limits or other quantitative treatment limitations for mental health or substance

use disorder benefits had dr opped significantly by 2011. Since this study found that the implementati on 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 change s made to the provisions in the interim final

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 Ad diction Equity Act of 2008. NORC at the University of Chicago for the Office of the Assistant Secretary for Planni ng 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 complian ce with MHPAEA as well as other requirements. 60 Ibid. 61 Ibid.54 regulations by these final regula tions. As background, in section III.D of this preamble, the Departments summarize the cost estimates incl uded in the interim final regulations. B. Need for Regulatory Action Congress directed the Departments to i ssue regulations implementing the MHPAEA provisions. In response to this Congressional di rective, these final re gulations clarify and interpret the MHPAEA provisions under secti on 712 of ERISA, section 2726 of the PHS Act, and section 9812 of the Code. Historically, plan s have offered coverage for mental health

conditions and substance use disord ers at lower levels than covera ge for other conditions. Plans limited coverage through restric tive benefit designs that discou raged enrollment by individuals perceived to be high-cost due to their behavioral health conditi ons and by imposing special limits

on mental health and substance us e disorder benefits out of con cern that otherwise utilization and

costs would be unsustainable. Parity advocates argued that th ese approaches were unfair and

limited access to needed treatment for vulnera ble 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 rest rictive annual and lifetime dollar limits on mental health benefits. However, as illustra ted in a General Account ability Office report on implementation of MHPA 1996, the statute had an unintended consequence: most plans coming into compliance instead turned to more rest rictive 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 of55 These final regulations provi de the specificity and clarity needed to effectively implement the provisions of MHPAEA and prev ent the use of prohibited limits on coverage, including nonquantitative treatm ent limitations that dispropor tionately 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 re gulations is discussed in detail below. C. Response to Comments on the Economic Impact Analysis for the Interim Final Regulations – Department of Labor and Departme nt 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 asso ciated with "unique and discriminatory medical management controls" (or NQTLs). Although the De partments concur that the nature and rigor of utilization management affects 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 manageme nt of care is consistent with

compliant plans contained at least one mo re restrictive provision for mental health benefits with the most prevalent being limits on the number of outpatient office visits and hospital day limits.56 the principles of parity, care management conti nues. (See the discussion of Oregon state parity law later in this preamble).

Several commenters asserted that the De partments had underestimated the cost and burden of complying with the interim final re gulations. 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 th e interim final regulations. 64 In addition, the number of plans that applied unequal inpatient day limits, outpatien t 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 th at plans’ costs and burdens have been significantly impacted by the requirements of the statute and its implem enting interim final regu lations. Research has shown that only a very small percentage of pl ans have dropped mental health or substance use disorder benefits after implemen tation of MHPAEA and even for t hose 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 fo r the increased cost ex emption 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 si gnificant upturn in 2011, the first full year in which the interim final regulati ons generally were in effect. 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,

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 Ad diction Equity Act of 2008. NORC at the University of Chicago for the Office of the Assistant Secretary for Planni ng 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 complian ce with MHPAEA as well as other requirements.57 especially on employers that offer multiple plans. In response, the Departments note that the alternative to using the six cla ssifications would require conducti ng 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 in patient care being the standard for outpatient benefits. Moreover, there is no evidence that pl ans or issuers have found these requirements to be overly burdensome.

One commenter stated that the Federal Em ployees’ 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 regard ing NQTLs. In response, the Departments note that, like MHPAEA, the parity requirements for FEHBP ap ply 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 statut e, plans and issuers have discretion as to which diagnoses and c onditions are covered under the plan. Several State parity laws are very similar to MHPAEA. For example, Vermont’s parity law applies to both mental health an d substance use disorder benefits. 66 The Vermont parity law also requires that management of care for thes e conditions be in accordance with rules adopted by the State Department of Insurance to assure that timely and appropriate access to care is

65 FEHB Program Carrier Letter, No. 2009-08, April 20, 2009. 66 Vt. Stat. Ann tit. 8, § 4089b (1998).58 available; that the quantity, location and special ty 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 ma nagement 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 The Oregon State parity law is also very sim ilar to MHPAEA in that it applies to mental

health and substance use disorder financial re quirements and treatment limitations and also applies to NQTLs. According to the Oregon In surance Division, utiliza tion management tools such as “selectively contracted panels of provi ders, health policy bene fit differential designs, preadmission screening, prior au thorization, case management, u tilization 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 di sorder 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 remove d coverage limits as required and used management techniques to the same degree or less under this law and the impact on mental

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 Abus e and Mental Health Services Administration, 2003. 69 Q&A Oregon Mental Health Parity Law for Prov iders. Oregon Insurance Division Web site. http://www.cbs.state.or.us/ins/FAQs/men tal-health-parity_provider-faqs.pdf

.59 health and substance use disorder spending was minimal. 70 Together, the similarities between the FEHBP, Vermont, and Oregon parity requirement s lead the Departments to conclude that any differences in terms of the impacts on cost would be small. Several commenters argued that the requirement in the interim final regulations to use a single or shared deductible in a classification is overly burdens ome and would require significant resources to implement, particularly by MBHOs si nce they often work with multiple plans. One commenter asserted that this requirement coul d 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 near ly all plans had eliminated the use of separate deductibles for mental health and substance use disorder benefits by 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. One commenter urged that the re gulations be revised to be le ss burdensome for plans that are part of a more comprehensive network of be nefits 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

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. 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 Ad diction Equity Act of 2008. NORC at the University of Chicago for the Office of th e Assistant Secretary for Pl anning and Evaluation.60 health official letter on the application of MH PAEA to Medicaid managed care organizations, the Children’s Health Insurance Program, and A lternative Benefit (Benchmark) plans on January 16, 2013. 72

Two commenters raised concerns about the burden imposed on plan s by the requirement that provider reimbursement rates be based on comp arable 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 sc hedules, 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 out patient mental health and substance use disorder benefits will be highe r than estimated because the NQTL parity standard would hamper plans’ ability to manage care a nd 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 D. Summary of the Regulatory Im pact Analysis for the Interim Final Regulations-- Department of Labor and Department of Health and Human Services

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-Po licy-Guidance/downloads/SHO-13- 001.pdf

. 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): 31-38.61 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 estim ated 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 pl ans and insurance issuers of reviewing coverage for compliance with MHPAEA and the interim fi nal regulations at $27.8 million total. This estimate was based on findings that there were about 460 issuers and at least 120 MBHOs andassumed that per-plan compliance costs would be low because third party administrators for selfinsured plans would spread the cost across multiple client plans. Regarding the requirement to disclose me dical necessity criteria, the Departments assumed that each plan would receive one such re quest on average, that it would take a trained staff person about five minutes to respond, and with an averag e hourly rate of $27, the total annual cost would be about $1 million. The De partments assumed only 38 percent of requests would be delivered electronically with de mini mis cost and that the materials, printing and postage costs of responding to about 290,000 requ ests by paper would be an additional $192,000 for a total of about $1.2 million per year. Th ese costs totaled $114.6 million undiscounted over ten years (2010-2019). The Departments did not in clude a cost for the requirement in MHPAEA to disclose the reasons for any claims denial s because the Department of Labor’s claims procedure regulation (at 29 CFR 2560.503-1) already required such disclosures and the same62 third-party administrators and insurers are hired by ERISA and non-ERISA covered plans so both types of plans were likely to alrea dy 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 heal th and substance use disorder be nefits to those that do. This estimated increase in premiums amounted to a transfer of $2.36 b illion in 2010 gradually increasing each year over a te n year period to $2.81 billion in 2019. This estimate was based on findings in the literature. For a more complete disc ussion, see section III.I late r 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 regula tions above the costs estimated for the interim final regulations. Ov er 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 pe rcent, respectively. Column F shows a transfer of $3.5 billion over the five-year period. All ot her numbers included in the text are not discounted, except where noted. Table 1 – Total Costs of Final Regulations [in millions of 2012 dollars]

Year Incremental Change in

Individual

Market Disclosure Requirements Total

undiscounted

costs Total 3%

discounted

costs Total 7%

discounted

costs Transfer

s (undisco unted)63 Plan 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 covera ge changes for approximately 103 million participants in 420,700 ERISA-covered employment-ba sed group health plans with more than 50participants, and an estimated 29.5 million participants in the approximately 23,000 public, nonFederal employer group health plans with more th an 50 participants sponsored by State and local governments. Plans with 50 or fewer particip ants were previously exempt from MHPAEA. 74 In addition, approximately 510 health insurance issuer s providing mental hea lth or substance use disorder benefits in the group and individual h ealth insurance markets and at least 120 MBHOs

74 The Departments’ estimates of the numb ers of affected participants are ba sed 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.64 providing mental health or substanc e use disorder benefits to group health plans are also affected by these final regulations. 75 As discussed earlier, the Affo rdable Care Act extended MHPA EA 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 insu rance 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 requirem ents 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-grandf athered 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 wh ich were previously exempt from MHPAEA. 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 outpa tient therapy visits and inpa tient crisis intervention and

stabilization. 77 In addition, even when individual market plans provide these benefits, the federal

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 th at these estimates could undercount small State-regulated insurers. 76 “Effects on Health Insurance and th e Federal Budget for the Insurance Coverage Provisions in the Affordable Care Act—May 2013 Baseline,” Congressional Budget Office, May 14, 2013. 77 ASPE Issue Brief, "Essential Health Benefits: Individual Market Coverage," ed. U.S. Department of Health & Human Services (2011).65 parity law previously did not appl y to these plans to ensure that coverage for mental health and substance use disorder services is generally co mparable to coverage for medical and surgical

care. In the small group market, coverage of me ntal health and substance use disorder

treatment is more common than in the individual market. We es timate that about 95 percent of those with small group market coverage have substance abuse and ment al health benefits. 78 Again, the federal parity law previously did no t apply to small group plans. In many States, State parity laws offer those covered in this mark et some parity protection, but most State parity laws are narrower than the federal parity requirement. 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 hea lth and substance use disorder benefits that were pr evalent in private insurance plan s after implementation of MHPA

1996. 79 A recent study funded by HHS found that larg e group health plans and insurance issuers have made significant changes to financial re quirements and treatment limitations for mental

health and substance use disorder benefits in the first few years following enactment of

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). 79 See the interim final regulations for a fuller discussion of the legislative history.66 MHPAEA. 80 The statute went into effect for pl an years beginning after October 3, 2009 (calendar year 2010 for many plans) and the interim final regulations went into effect for plans years beginning on or after July 10, 2010 (calen dar year 2011 for many plans). This HHS study found that by 2011, most plans had removed mo st financial requirements and treatment limitations that did not meet the requirements of MHPAEA and its implementing interim final regulations. According to this HHS study, in 2010, ten perc ent of a nationally representative sample of large employers’ behavioral health benefits had inpatient financial requirements (e.g. , deductibles, co-pays, or co-insurance) that n eeded modification to comply with MHPAEA. Analysis of a separate set of large employer-b ased 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 plan s following implementation of MHPAEA. 81 Among the representative sample of plans fo r 2010 included in this study, more than 30 percent had copayments or co insurance rates for outpatient mental health and substance use

disorder benefits that were inc onsistent with MHPAEA. In a se parate sample of large employerbased 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

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 Addi ction 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. 81 Ibid at page xii.67 tested continued to utilize outpati ent in-network co-pays that faile d to meet MHPAEA standards. A third database of plan designs for 2009 throug h 2011 confirmed a dramatic decline in the use of more restrictive cost-sharing fo r outpatient mental health and substance use disorder benefits although a minority continued to use high copays. Nearly all plans had eliminat ed the use of separate deduc tibles 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 The HHS study also found that the number of plans that applied unequal inpatient day limits, outpatient visit limits or other quantitativ e treatment limitations for mental health or substance use disorder benefits had dropped si gnificantly by 2011. In 2010, it found that most large employer-based plans used da y limits on mental health inpatient benefits that generally

conformed to MHPAEA standards. While almo st 20 percent of thes e plans imposed more restrictive day limits on in-network, inpatient benef its for substance use diso rders than applied to medical/surgical benefits, the separate sample of 2011 large employer-bas ed plans indicated a significant decline with onl y eight percent of plans using strict er day limits for inpatient benefits for substance use disorders. These findings we re corroborated by analysis of an additional database of plan designs from 2009 through 2011, whic h also indicated a dramatic decline in the proportion of plans using more rest rictive inpatient day limits on me ntal health and substance use disorder benefits (from 50 percent in 2009 to ten percent in 2010). In 2010, more than 50 percent of large employe r-based plans in the study’s representative sample used more restrictive visit limits for outpa tient mental health and substance use disorder

services that did not conform to MHPAEA st andards. But, in the 2011 sample of large

82 Ibid at page xi.68 employer-based health plans, less than seven perc ent were using unequal vi sit limits. This trend was also evident in the plan design data base comparing plans across 2009, 2010, and 2011. There too, substantial reductions in quantitative treatment limita tions for mental health and substance use disorder benefits in large empl oyer-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 needi ng 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 i ndividual markets will also expand financial protection for a significant segmen t 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 ar eas 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 attributab le to drug and alcohol abuse. 85 Improvements in coverage of mental health and substance use disorder services expected to

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, 2006.69 result from implementation of MHPAEA can be e xpected to reduce some of the financial risk and also yield successful treatment for people w ith mental health or substance use disorder problems. Earlier entry into treatment may have a saluta ry impact on entry into disability programs. Of the 8.6 million disabled workers receiving Soci al Security Disability Insurance benefits, 28 percent are identified as having a disability related to mental di sorders, not including intellectual disability. Mental disorders ar e the second largest diagnostic cate gory 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 Improving coverage of mental health and s ubstance 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 chr onic conditions, including diabetes and lower back pain. 88 A recent meta-analysis of randomized studies that 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

86 Social Security Administration (SSA). (2012). Annual Statistical Report on the Social Security Disability Insurance Program, 2011. SSA Publication No. 13-11826. 87 Stewart, W.F., Ricci, J.A., Chee, E., Ha hn, 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., Birnba um, 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. & Morgenst ein, 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- 3144.70 and positive effects of treatment on labor supply. 89

. 90 Although the expected impact of MHPAEA on labor supply is like ly modest for large employers, it is probably considerably larger for small group and individual plans wher e pre-MHPAEA coverage was more limited than in the large group market. As stated earlier, these final regulations clarif y that the general rule regarding consistency in classification of benefits appl ies to intermediate services prov ided under the plan or coverage. These final regulations are expected to mainta in 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 This final rule allows for policies such as multi-tiered provider networks. Multi-tiered networks are spreading rapidly am ong large group policies. Ther e is some early evidence that such approaches can successfully attenua te 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 increas es in plan expenditures and premiums as a result of the increased access

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. 91 Bateman A, Fonagy P: Treatment of borderline persona lity disorder with psychoanalytically oriented partial hospitalization: an 18-month follow-up. Am J Psychiatry 2001; 158:36-42. 92 Horvitz-Lennon M, Normand SL, Gacci one 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. Wall ach. "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): 123-138.71 to mental health and substance use disorder servi ces that are expected to result from these final regulations. Since the effective date of the interim final regula tions, 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 financ ial 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 medica tions and emergency care also declined, and by 2011 almost all la rge 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, ther e is no clear evidence that the small number of plans that did drop ment al health and substance use disorder coverage

did so because of MHPAEA. Furthermore, evidence suggests that plans did not exclude more mental health or substance use disorder diagnoses from covera ge in response to MHPAEA and there is no evidence that plans or employers reduced medica l/surgical benefits to comply with parity requirements. 95 All of these findings indicate that any in creases in the costs of covering mental

health and substance use disorder benefits fo llowing implementation of MHPAEA did not have a substantial impact on overall plan spending. Other recent analyses of claims data from self-insured employer-sponsored group health plans have suggested that an overwhelming major ity of privately insure d individuals who used

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 an d Addiction Equity Act of 2008 at page x. NORC at the University of Chicago for the O ffice of the Assistant Secretary for Planning and Evaluation. 95 Ibid at page xi.72 mental health or substance use disorder services prior to MHPAEA did so at a rate far below preparity limits on benefits. 96 Using econometric models to es timate the effect of MHPAEA on high-utilization beneficiaries who are most likel y to use expanded coverage, researchers have estimated that MHPAEA may at most increase total heal th 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 s ubstance use disorder spending remained a relatively constant shar e of all health spending, comprisi ng about 0.4 percent of all health spending in 2009. This low share of overall sp ending means that even large increases in

utilization of substance use di sorder treatment are unlikely to have a significant impact on premiums. 98 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 indi cation 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) a nd 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 technique s more consistently but did not significantly increase spending on mental health and substance use disorder care. 99 Vermont’s parity law also

96 Mark, TL, Vandivort-War ren, 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.

99 Ibid.73 applies to both mental health a nd substance use disorder services. A study of this State parity law also did not find signif icant increases in spending. 100 b. Costs (and Transfers) Attrib utable to the Final Regulations The Departments do not expect the clarificati on that plans should cl assify intermediate services consistently for mental health and subs tance use disorders and medical/surgical benefits will result in a significant increase in costs. No r do the Departments expect the clarification that the NQTL rules apply to these type s of services to cause a substa ntial 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 be havioral health services , particularly partial hospitalization and intensive outpatient services, but intermediate servi ces account for less than one percent of total health plan spending. 101 Internal research and anal ysis by HHS indicates that

the number of enrollees who use intermediate se rvices for mental health and substance use disorders is very small. Furthermore, those w ho used intermediate services did so at modest rates. In addition, the number of enrollees who used intermedia te services for medical/surgical benefits was similarly small. Available data sugge st that intermediate beha vioral health services account for between eight percent and eleven percent of total be havioral health spending in private insurance. This means that since behavi oral 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 spe nding. In light of the small numbe r of enrollees that utilize this

100 Mark, TL, Vandivort-Warren, R, Spending trends on substance abuse treatment under private employersponsored insurance, 2001-2009, Drug and Alcohol Dependence, 2012; 125:203-207. 101 Short-Term Analysis to Support Mental Health and Substance Use Disorder Parity Implementation. RAND Corporation for the Office of the A ssistant 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.74 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 sign ificant effect on total he alth plan spending. 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 ca re in the inpatient cl assification. 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 pr ivate 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 m odest 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. There is limited data on spending for mental h ealth and substance use disorder treatment under individual health insurance plans. The Departments therefore rely on some recent

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.75 tabulations from the Medical Expenditure Pa nel 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 imp act of applying MHPAEA to the

individual market. 104 The Departments began by estimati ng baseline spending in the individual market. The Departments calculate the weighted average premium for the individual insurance market from the paper by Whitmore and colleague s 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 techni cal appendix to the Medical Loss Ratio interim

final rule. 105 The resulting estimate is $2437 in 2012 dolla rs. That figure repr esents total health spending by plans per member per year. The Depa rtments obtain an estimate of the behavioral health costs by assuming that abou t four percent of those expenditu res are for behavioral health. That figure is obtained by recogni zing that coverage for behavi oral health in the individual market is more limited than in the employer sp onsored 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 pl an 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 spendi ng paid out-of-pocket by using the MEPS data to

104 Whitmore H, JR Gabel, J Pickreign R McDevitt, Th e Individual Insurance Market Before Reform: Low Premiums and Low Benefits, Medical Care Re search and Review 68(5): 594-606, 2011. 105 Technical Appendix to the Regulatory Impact Analysis for the Interim Fina l 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/Resour ces/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 Serv ices Administration, 2013.76 obtain an estimate of outpatient mental health and substance use disorder out-of-pocket spending, because outpatient services generally ca rry 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 tota l spending. This contrasts with an estimate of 26 percent for medical/surgical care. The imp lication of this is a total (p lan and out-of-pocket) spending

estimate for mental health and substance use diso rder benefits of $185 per member per year in 2012. It is important to recognize that roughly 40 percent of tota l behavioral health spending in private insurance is accounted for by spending on psychotropic drugs and drug benefits will remain relatively unchanged, to the extent pres cription drug tiers are ba sed on neutral factors independent of whether a particular drug is pres cribed to treat a medica l/surgical condition, or a

mental health condition or substance use disord er. This is because psychotropic drugs are typically under the same benefit design and formul ary rules as all other dr ugs in private health insurance. Thus the baseline spending that woul d be affected by MHPAEA is estimated to be $111 per member per year. To obtain the impact of ex tending MHPAEA to the indivi dual market, the Departments assume that a primary impact of MHPAEA is to equalize cost sharing arrangements between

mental health and substance use disorder be nefits and medical/surgical benefits. The Departments therefore assume that the out-of-poc ket share for mental health and substance use

disorder services covered in the individual insu rance 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 us e disorder for people covered in the individual market. Two recent studies have shown that the pr ice elasticity of demand for mental health and77 substance use disorder care has declined significantly in the era of managed care. 107 They show that the elasticity of demand fo r 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 a pply 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 percen t increase in total sp ending for mental hea lth and substance use disorder care for people in the individual mark et. 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 tota l mental health and substance use disorder spending and a 0.04 percent change in total pl an spending. The Departments apply the per insured person cost of mental h ealth and substance use disorder care in the individual market estimate to an estimate of the population that w ould be covered under individual coverage after January of 2014. Based on the Congressional Bu dget 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-en rollee estimate shown in CBO’s report will capture all individual plan coverage. Assuming a c onstant rate of growth in enrollment, the five

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 Hea lth Policy and Economics 11(3):113-126 2008. 108 “Effects on Health Insurance and th e 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 2014.78 year cost will be $1.13 billion. This estimate refl ects increased spending on mental health and

substance use disorder services resulting from coverage expa nsion 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 he alth and substance use disorder coverage. MHPAEA can be expected to affect cove rage in the small group market through the provisions governing EHBs. The Departments estim ate that there are currently approximately 27 million people insured under small group benefits. The Congressional Budget Office (CBO) and HHS projections are in agreement th at there will be little change in the size of this market in the coming years. Thus for the purposes of this anal ysis the Departments assume that the market will remain stable at 27.3 million insured (i ncluding 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 leve ls of management to la rge group plans in that less than 1 percent of either small group or large group enrollees ar e covered by indemnity insurance arrangements. HMOs account for 15 pe rcent of small group an d 16 percent of large group enrollees. PPOs/POS plans account for 61 pe rcent of small group and 67 percent of large group enrollees. High deductible plans make up 17 percent of small gr oup and 24 percent of large group enrollees. 111 In addition, other recent analyses show that the actuaria l 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

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, Gr oup Insurance: A Better Deal for Most People than Individual Plans, Health Affairs 29(1): 156-164, 2010.79 shows that parity had the effect of reducing out-of-pocket spending. Yet because it was done in the context of managed care arra ngements (including regulations of management practices) there was no statistically significant impact on total spending on mental health and substance use

disorder services attr ibutable 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 Ore gon parity results (McConnell et al., 2012) are consistent with a shift of roughly 0.5 percent of spending. This shift in cost c onstitutes a transfer (see additional analysis in section III.D.4 below). The final regulations retain the disclosure pr ovisions 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 in surance coverage in the small group market through the EHB requirements and to the individual market as a resu lt of the amendments to the

PHS Act under the Affordable Care Act as discusse d in section II.F and II.H.1 of this preamble.

The burden and cost related to these disclosure requirements ar e discussed in detail in the Paperwork Reduction Act section below and are es timated 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 De partments estimate that this

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 Pa rity and Addiction Equity Act?, American Journal of Psychiatry 2012; 169(1): 31-38.80 shift in cost-sharing to plans combined with th e increase in spending due to increased utilization discussed above could be expected to lead to an incr ease of 0.8% in premiums in the individual market. The small group plan average prem ium in 2012 was $5588. Applying the 0.5 percent estimated shift in spending derived above in se ction 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 $363million 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 de veloping 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 cons idered narrowing the c linically appropriate standard of care exception instead of eliminating it. However, this approach could result in even more confusion regarding how to apply the par ity standard for NQTLs. Moreover, a technical expert panel comprised of individuals with clini cal expertise in mental health and substance use disorder treatment as well as general medical treatment, and experience developing and using evidence-based practice guideline s, 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 pl ans 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 A ssistant Secretary for Planning and Evaluation. February 8, 2012 ( http://aspe.hhs.gov/daltcp/reports/2012/mhsud.shtml ).81 As stated earlier, concerns have also been ra ised regarding disclosure and transparency. The Departments considered whether participants and beneficiaries have adequate access to information regarding the processe s, strategies, evidentiary standa rds, or other factors used to apply the NQTL and also comparable information regarding medical/surgical benefits to ensure compliance with MHPAEA. These final regulati ons 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 Ac t, more generally. The Departments also are publishing contemporaneously with publication of these final regula tions, 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. The Departments are aware of the increasing use of multi-tier provider networks and commenters have asked how parity requirement s should apply to those arrangements. The Departments considered as an alternative requi ring plans to collapse their provider tiers in conducting an assessment of compliance with par ity. 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 alte rnative to be interfering unreasonably with legitimate plan cost-management techniques. Th e 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.

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

.82 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 treatme nt 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 determ ined that whereas the existing classifications – inpatient, in-network; inpatient, out-of-networ k; outpatient, in-network; outpatient, out-ofnetwork; emergency care, and prescription medi cations – are classificat ions commonly used by health plans and issuers, a separate classifica tion 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 existi ng benefit designs and care management strategies. Thus, the final regulations provide examples of in termediate services and clarify that plans and issuers must assign covered intermediate level ment al health and substance use disorder benefits to the existing six benefit classifications in the same way that they assign comparable intermediate medical/surgical benefi ts 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 significan t 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 Bu siness Administration (SBA), (2) a nonprofit organization that is not domina nt in its field, or (3) a small government jurisdiction with a83 population of less than 50,000 (States and individuals are not included in th e definition of “small entity”). A change in revenue s of more than 3 percent to 5 percent is often used by the Departments of Labor and HHS as the measure of significant economic im pact on a substantial

number of small entities.

As discussed in the Web Portal interim fina l rule with comment period published on May 5, 2010 (75 FR 24481), HHS examined the health in surance industry in depth in the Regulatory Impact Analysis for the proposed rule on estab lishment 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 po licies) that fell below th e size thresholds for “small” business (currently $35.5 million in annu al 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 num ber 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 th at there are 58 sm all 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 be long to larger holding groups, and many, if not all, of these small issuers are likely to have othe r lines of business that would re sult in their revenues exceeding $35.5 million. For these reasons, the Departments e xpect that these final regulations will not

116 “Table of Small Business Size Standards Matched To North American Industry Cla ssification System Codes,” effective July 23, 2013, U.S. Small Business Administration, available at http://www.sba.gov.84 significantly affect a substant ial number of small issuers. As noted previously, MHPAEA provisions ar e extended to non-gra ndfathered insurance coverage in the small group market through the EHB requirements. Group health plans and health insurance coverage offered by small em ployers will incur costs to comply with the provisions of these final re gulations. There are an es timated 837,000 ERISA-covered nongrandfathered employer group health plans with 50 or fewer participants, and an estimated 59,000 non-grandfathered public, non-Federal employe r group health plans with 50 or fewer participants sponsored by State and local gove rnments which were previously exempt from MHPAEA. Approximately 13 million participants of these plans will benefit from the provisions of these regulations. As explained earlier in th is impact analysis, virt ually all the impact of MHPAEA on the small group market will involve a sh ift of final responsib ility 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 es timated to be approximately $2.4- million for nongrandfathered small group plans th at were previously exempt fr om MHPAEA. The Departments expect the rules to reduce the compliance burde n imposed on plans and in surers by the statute and the implementing interim final regulations by clarifying definitions and terms contained in the statute and providing examples of acceptable me thods 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 significan t regulatory action for purpos es 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 Pr ocedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified th at the collections of85 information contained in these final regulations will not have a significant impact on a

substantial number of small enti ties. Accordingly, a regulator y flexibility analysis is not required. The final regulations generally apply to em ployers who provide health coverage through group health plans to employees that include benefits for mental he alth or substance use disorder conditions. The IRS expects th e final regulations to reduce the compliance burden imposed on plans and issuers by clarifying de finitions and terms contained in the statute and providing examples of acceptable methods to comply w ith specific provisions. MHPAEA and the regulations under it do not apply to employers with 50 or fewe r employees (although, separately, the EHB regulations adopt MHPAEA). Moreover, sm all employers subject to the rule that have more than 50 employees will generally provide a ny health coverage through insurance or a thirdparty 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 pr oduct. For this reason, the burden imposed by the reporting requirement of the statut e and these final regulations on small entities is expected to be

near zero. Pursuant to secti on 7805(f) of the Code, the notice of proposed rulemaking preceding these final regulations was submitted to the Ch ief 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.86 Plan Type Number of 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 regula tions 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), co ntemporaneously 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 fina l regulations retain the disclosure provisions for group health plans and health insurance covera ge offered in connection with a group health plan. (In addition, these disc losure provisions are extended to non-grandfathered insurance coverage in the small group market through the EH B requirements and to the individual market

as a result of the amendments to the PHS Act un der the Affordable Care Act, as discussed in section II.F and II.H.1 of this preamble.)

The MHPAEA disclosures are information colle ction requests (ICRs) su bject to the PRA. The final regulations (29 CFR 2590.712(d)(2)) require a Claims Denial Disc losure to be made available upon request or as otherwise required by the plan administrator (or the health insurance87 issuer offering such coverage) to a participant or beneficiary that prov ides 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 cl aims procedure regula tion (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 Depart ment of Labor rules. Therefore, the hour and cost burde n associated with the claims de nial 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 prov iders. The Departments are unable to estimate with certainty the number of requests for medical necessity criteria disclosures that will be received by plan administrators; however, the Departments have assumed that, on average, each plan affected by the rule will receive one request . The Departments estimate that there are about 1,258,000 ERISA covered health plans affected by the regulations. The Departments estimate that approximately seven percent of large plan s and all small plans administer claims using service providers; therefore, about 11 percent of the medical necessi ty criteria disclosures will be done in-house. For PRA purposes, plans using serv ice providers wi ll report the costs as a cost burden, while plans administering claims in-hous e will report the burden as an hour burden. The Departments assume that it will take a me dically trained clerical staff member five88 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 a nd 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 provide d through service providers resulting in a cost burden of approximately $2,493,000. The Departments also calculated the cost to deliver the requeste d 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 crit eria 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. These paperwork burden estimates are summarized as follows: Type of Review : Ongoing. Agencies : Employee Benefits Security Administ ration, Department of Labor; Internal Revenue Service, U.S. Department of the Treasury,

Title : Notice of Medical Necessity Criteria unde r the Mental Health Parity and Addition Equity Act of 2008.

117 EBSA estimates based on the National Occupational Empl oyment Survey (June 2012, Bureau of Labor Statistics) and the Employment Cost Index (September 2012, Bureau of Labor Statistics) 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 1320.18.89 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 (In ternal Revenue Service).

Estimated Total Annual Burden Cost : $1,494,000 (Employee Benefits Security Administration); $1,494,000 (Inte rnal Revenue Service). 2. Department of Health and Human Services As discussed earlier in this preamble, the fina l regulations retain the disclosure provisions for group health plans and health insurance covera ge offered in connection with a group health plan. (In addition, these disc losure provisions are extended to non-grandfathered insurance coverage in the small group market through the EH B requirements and to the individual market

as a result of the amendments to the PHS Act un der 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/sur gical, mental health, and substance use disorder benefits. For example, the Departments’ clai ms and appeals regulati ons under the Affordable Care Act (applicable to non-grandfathered group health plans (including non-ERISA plans) and90 non-grandfathered health insurance issuer s in the group and individual markets), 120 set forth rules regarding claims and appeals, incl uding the right of claimants (or their authorized representative) upon appeal of an adverse benefit determina tion (or a final internal adverse benefit determination) to be provided, upon request and free of charge, r easonable 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. Medical Necessity Disclosure

HHS estimates that there are about 30.2 m illion participants covered by approximately 82,0004 State and local public plans that are subj ect to the MHPAEA disclosure requirements. 122 HHS is unable to estimate with certainty the num ber of requests for medical necessity criteria disclosures that will be received by plan ad ministrators; however, HHS has assumed that, on average, each plan affected by the rule w ill receive one request. HHS estimates that approximately 93 percent of large plans administ er claims using third party administrators. Furthermore the vast majority of all smaller empl oyers 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 admini strators, the costs are reported as cost burden while for plans that administer claims in-hous e, the burden is reporte d as hour burden. For

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 is suers to incorporate the in ternal claims and appeals processes set forth in 29 CFR 2560.503-1. 121 As described earlier in this preamble, this includes do cuments 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. 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.91 purposes of this estimate, HHS assumes that it will take a medically trained clerical staff member five minutes to respond to each re quest at a wage rate of $26.85 123 per hour. This results in an

annual hour burden of 350 hours and an associat ed 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 admi nistrator or an issuer and results in a cost burden of approximately $175,000.

In the individual market there will be an estimated 18 million enrollees 124 enrolled in plans offered by 418 issuers 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 hour s with an associated equivalent cost of approximately $6,000.

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 nonERISA covered plans, such as plans sponsored by State and local gove rnments and individual plans that are subject to the PHS Act, are not required to comply with the ERISA claims procedure regulation, the final regulations provi de 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 ERIS A claims procedure regulation.

123 EBSA estimates based on the National Occupational Empl oyment Survey (June 2012, Bureau of Labor Statistics) and the Employment Cost Index (September 2012, Bureau of Labor Statistics). 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, 2013.92 Using assumptions similar to those used fo r the ERISA claims pr ocedure 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 re quest for the reason for denial. HHS has no data on the percent of denials that will result in a request for an expl anation, 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 ma y 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 appr oximately 24,000 requests completed by plans. The remaining 440,000 are provided through an issu er 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 approximately18.4 million claims for mental

health or substance use disorder benefits w ith approximately 2.75 million denials that could result in a request for explanat ion of denial. Assuming ten percen t of denials result in such a request, it is estimated that ther e will be about 275,000 requests fo r an explanation of reason for denial, which will be completed with a bur den of 23,000 hours and equivalent cost of approximately $616,000. In association with the explanation of deni al, 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 requ est 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 appr oximately $5,000 and about 44,000 re quests handled by issuers or93 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 el ectronic format, and HHS assumes that requests will be delivered electronically re sulting in a de minimis cost. 125 HHS estimates that the cost

burden associated with distribut ing the approximately 256,000 disclo sures sent by paper will be approximately $169,000. 126

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

J. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Re form Act (UMRA) of 1995 requires that agencies assess anticipated costs and benefits befo re issuing any final rule that includes a Federal mandate that could result in expenditure in any on e 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 appr oximately $141 million. These regulations are not

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 crite ria would be deliver ed 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.94 subject to the UMRA because they were not preceded by a notice of proposed rulemaking. However, consistent with policy embodied in th e 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 requirem ents that an agency must meet when it promulgates a final rule that imposes substant ial direct requirement costs on State and local governments, preempts State law, or ot herwise has Federalism implications. In the Departments’ view, these regulations have Federalism implications, because they

have direct effects on the States , the relationship between the Fe deral government and States, or on the distribution of power and responsibilities among various le vels of government. However, in the Departments’ view, the Federalism impli cations of these regulat ions are substantially mitigated because, with respect to health insura nce issuers, the Departments expect that the majority of States have enacted or will enact la ws or take other appropriate action resulting in their meeting or exceeding the Federal MHPAEA standards. In general, through section 514, ERISA supersed es 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 regulati ng a plan as an insurance or investment company or bank, the preemption pr ovisions of section 731 of ERISA and section 2724 of the PHS Act (implemented in 29 CFR 2590.731(a) and 45 CF R 146.143(a)) apply so that the MHPAEA requirements are not to be ‘‘c onstrued to supersede an y provision of State law which establishes, implements, or continues in e ffect any standard or re quirement solely relating

to health insurance issuers in connection with group health insurance coverage except to the95 extent that such standard or requirement prevents the appl ication of a requirement’’ of MHPAEA. The conference report a ccompanying HIPAA indicates that this is intended to be the ‘‘narrowest’’ preemption of St ate laws. (See House Conf. Rep. No. 104–736, at 205, reprinted in 1996 U.S. Code Cong. & Admin. News 2018.) States may continue to apply State law re quirements except to the extent that such requirements prevent the application of the MHPA EA requirements that are the subject of this rulemaking. State insurance laws that are more stringent than the Federal requirements are unlikely to ‘‘prevent the applica tion of’’ MHPAEA, and be preempte d. Accordingly, States have significant latitude to impose requi rements on health insurance issu ers that are more restrictive

than the Federal law. In compliance with the requirement of Ex ecutive Order 13132 that agencies examine closely any policies that may ha ve 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 offici als. For example, HHS has provided training on MHPAEA for state regu lators though the National Associ ation Insurance Commissioners (NAIC) and has been available to State regulators to addr ess any issues that arise. HHS has also collaborated with regulators in a number of Stat es on MHPAEA enforcement strategies with the goal of maintaining state regul ator 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 developi ng 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 in surance issuers, and Congress’96 intent to provide uniform minimum protections to consumers in every State. By doing so, it is the Departments’ view that they have complie d with the requirements of Executive Order 13132. Pursuant to the requirements set forth in section 8(a) of Exec utive Order 13132, and by the signatures affixed to these regulations, the Departments cer tify that the Employee Benefits Security Administration and the Centers for Me dicare & Medicaid Services have complied with the requirements of Executive Order 13132 for the attached regul ations 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, th e Federal agency promulgating the rule shall submit to each House of the Congress and to the Comptr oller 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 pursuan t to the authority

contained in sections 7805 and 9833 of the Code. The Department of Labor regul ations 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. 6 51 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).97 The Department of Health and Human Servic es regulations are adopted pursuant to the authority contained in se ctions 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 insura nce, Pensions, Reporting and recordkeeping requirements.

29 CFR Part 2590 Continuation coverage, Disclosure, Employee benefit plans, Group health plans, Health care, Health insurance, Medical child suppor t, Reporting and recordkeeping requirements.

45 CFR Parts 146 and 147 Health care, Health insurance, Reporting and recordkeeping requirements, and State regulation of health insurance.98 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)99 Signed this 6th day of November , 2013.

Phyllis C. Borzi Assistant Secretary Employee Benefits Security Administration Department of Labor100 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

.101 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 Paragraph 1. The authority citation for pa rt 54 is amended by removing the entry for §54.9812-1T and by adding an entry in numer ical order to read as follows: Authority: 26 U.S.C. 7805 * * *

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

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

Par. 3. Section 54.9812-1 is added to read as follows: §54.9812-1 Parity in mental health a nd substance use disorder benefits

. (a) Meaning of terms

. For purposes of this section, except where the context clearly indicates otherwise, the following te rms 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 pl an (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 am ount 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 amount s and include deductibles and102 out-of-pocket maximums. (However, cumula tive 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 provi ded 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 incl ude 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. A ny condition defined by the plan or coverage as being or as not being a medica l/surgical condition must be defi ned to be consistent with generally recognized independent standards of current medical practice (for example, the most

current version of the International Classificat ion 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 cove rage and in accordance with applicable Federal and Stat e law. Any condition defined by th e plan or coverage as being or as not being a mental health condition must be defined to be cons istent with generally recognized independent standards of current medi cal practice (for example, the most current version of the Diagnostic and Stat istical Manual of Mental Diso rders (DSM), the most current version of the ICD, or State guidelines).103 Substance use disorder benefits means benefits with respect to items or services for substance use disorders, as define d under the terms of the plan or health insurance coverage and in accordance with applicable Federal and State la w. Any disorder defined by the plan as being or as not being a substance use disorder must be defined to be cons istent with generally recognized independent standards of current medi cal practice (for example, the most current version of the DSM, the most current vers ion of the ICD, or State guidelines).

Treatment limitations include limits on benefits base d 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 sc ope or duration of benefits for treatment under a plan or coverage. (See pa ragraph (c)(4)(ii) of this sec tion 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 provision s of PHS Act section 2711, as incorporated in ERISA section 715 a nd 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 su bstance use disorder benefits must comply with paragraph (b)(2), (b)(3), or (b)(5) of this section.104 (ii) Exception . The rule in paragraph (b)(1)(i) of th is section does not apply if a plan (or health insurance coverage) satisfies the requirem ents of paragraph (f) or (g) of this section (relating to exemptions for small em ployers 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 in clude an aggregate lifetime or annual dollar limit on any medical/surgical benefits or includes an aggregate life time 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, resp ectively, on mental health or s ubstance use disorder benefits. (3) Plan with a limit on at least two-th irds of all medical/surgical benefits

. If a plan (or health insurance coverage) includes an aggregat e lifetime or annual dollar limit on at least twothirds 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 a nd to mental health or substance use disorder benefits in a manner that does not distinguish be tween the medical/surgica l benefits and mental health or substance use disorder benefits; or (ii) Not include an aggregate lifetime or annua l dollar limit on mental health or substance

use disorder benefits th at is less than the a ggregate lifetime or annual dollar limit, respectively, on medical/surgical benefits. (F or cumulative limits other than aggregate lifetime or annual dollar limits, see paragraph (c)(3)(v) of this section prohibiting sepa rately accumulating cumulative financial requirements or cumulative quantitative treatment limitations.) (4) Determining one-third and two-th irds of all medical/surgical benefits . For purposes of this paragraph (b), the determination of wh ether the portio n of medical/surgical benefits subject to an aggregate lifetime or annual dollar limit represents one-third or two-thirds of all105 medical/surgical benefits is based on the dollar am ount of all plan payments for medical/surgical benefits expected to be paid unde r the plan for the plan year (or for the portion of the plan year after a change in plan benefits that affects the appli cability of the aggregate lifetime or annual dollar limits). Any reasonable method may be used to determ ine whether the dollar amount expected to be paid under the plan will constitute one-third or tw o-thirds of the dollar amount of all plan payments for me dical/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 insu rance coverage) that is not desc ribed in paragraph (b)(2) or (b)(3) of this section with respect to aggregate life time 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 dol lar limit on mental health or substance use disorder benefits that is no less than an averag e 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 lim its, as appropriate, that are applicable to the categories of medical/surgical benefits. Li mits based on delivery systems, such as inpatient/outpatient treatment or normal treatme nt 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 se parately-designated dolla r limit under the plan are taken into account as a single separate categor y by using an estimate of the upper limit on the106 dollar amount that a plan may reasonably be exp ected to incur with respect to such benefits, taking into account any other appli cable 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 tw o-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, th e 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 financia l requirements include deductibles, copayments, coinsurance, and out-of-pocket maximums. Differ ent 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 financia l requirement or treatment limitation . When reference is made in this paragraph (c) to a level of a type of financial re quirement or treatment limitation, level refers to the magnitude of the type of fi nancial 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 leve ls of a deductible include $250 and $500; and different levels of an episode limit include 21 in patient days per episode and 30 inpatient days per episode.107 (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 premiu ms 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 c onnection with a group heal th plan) that provides both medical/surgical benefits a nd 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 classi fication that is more restrictiv e than the predominant financial requirement or treatment limitation of that type applied to substantia lly all medical/surgical

benefits in the same classificat ion. Whether a financial requirem ent or treatment limitation is a predominant financial requirement or treatment limitation that applies to substantially all medical/surgical benefits in a clas sification is determined separate ly for each type of financial requirement or treatment limitation. The applicat ion of the rules of th is 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 nonquantit ative treatment limitations is addressed in para graph (c)(4) of this section. (ii) Classifications of bene fits 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 describe d in this paragraph (c )(2)(ii), mental heal th or substance use disorder benefits must be provi ded in every classification in wh ich medical/surgical benefits are provided. In determining the classification in which a particular benefit bel ongs, a plan (or health insurance issuer) must apply the same standards to medical/surgical benefits and to mental health108 or substance use disorder benefits. To the exte nt that a plan (or health insurance coverage) provides benefits in a classifica tion and imposes any separate fina ncial requirement or treatment limitation (or separate level of a financial requireme nt or treatment limitation) for benefits in the classification, the rules of this pa ragraph (c) apply separately with respect to that classification for all financial requirements or treatment limita tions (illustrated in examples in paragraph (c)(2)(ii)(C) of this section). Th e following classifications of bene fits are the only classifications used in applying the rules of this paragraph (c): (1 ) Inpatient, in-network . Benefits furnished on an inpa tient basis and within a network of providers established or rec ognized under a plan or health in surance 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 i npatient basis and outside any network of providers established or recognized unde r a plan or health insurance coverage. This classification includes inpatient be nefits under a plan (o r health insurance c overage) 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 un der a plan or health in surance 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 out patient basis a nd outside any network of providers established or recognized unde r 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.109 (6 ) Prescription drugs . Benefits for prescription drugs. See special rules for multi-tiered prescription drug benefits in paragr aph (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 classifi cation of benefits must provide mental health or substance use disorder benefits in every classification in which medical/surgical be nefits are provided, including out-of-netwo rk 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 inpa tient and outpatient benefits and does not contract with a network of providers . The plan imposes a $500 deductible on all benefits. For inpatient medical/s urgical benefits, the plan impos es a coinsurance requirement. For outpatient medical/surgical benefits, the pl an 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. Becau se 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 para graph (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 impos es 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 requir ements or treatment limitations. (ii) Conclusion . In this Example 2 , because the plan does not impose separate financial requirements (or treatment limitations) based on cl assification, the rules of this paragraph (c) apply with respect to the deductible and the coinsurance across all benefits.110 Example 3 . (i) Facts . Same facts as Example 2 , except the plan exempts emergency care benefits from the 20 percent co insurance requirement. The plan imposes no other financial requirements or treatment limitations. (ii) Conclusion . In this Example 3 , because the plan impos es 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 emergenc y 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 treatmen t 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, th e 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 requireme nt or quantitative treatment limita tion is considered to apply to substantially all medical/surgical benefits in a cla ssification of benefits if it applies to at least two-thirds of all medical/surgical benefits in that classificatio n. (For this purpose, benefits expressed as subject to a zero leve l of a type of financial requirem ent are treated as benefits not subject to that type of financia l requirement, and benefits expre ssed 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 bene fits in a classification, then that type cannot be applied to mental health or substance use disorder benefits in that

classification.111 (B) Predominant – (1 ) If a type of financial requir ement 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 s ection, the level of the fi nancial requirement or quantitative treatment limitation that is consider ed the predominant level of that type in a

classification of benefits is th e level that applies to more th an 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 bene fits in a classification, there is no single level that applies to more than one-half of medical/surgica l benefits in the classification subject to the financial requirement or quantita tive treatment limitation, the plan (or healthinsurance issuer) may combine levels until the combination of levels applies to more than onehalf of medical/surgical benefits subject to the financial requirement or quantitative treatment

limitation in the classification. Th e least restrictive level within the combination is considered the predominant level of that type in the classi fication. (For this purpos e, 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 bene fits 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 clas sification expected to be paid under the plan for112 the plan year (or for the portion of the plan year after a change in plan benefits that affects the applicability of the financ ial 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 a ssociated with out-of-pocket payments that are taken into account towards the out-of-pocket maxi mum as well as all plan payments associated with out-of-pocket payments that would have be en made towards the out-of-pocket maximum if

it had not been satisfied. Similar rules apply for any other threshol ds at which the rate of plan payment changes. (See also PHS Act section 270 7(b) and Affordable Care Act section 1302(c),

which establish limitations on annual deductibles fo r non-grandfathered health plans in the small group market and annual limitations on out-of-po cket 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 us ed to determine the dollar amount expected to be paid under a plan for medical/surgical bene fits 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 hea lth insurance coverage) applies different levels of a fi nancial requirement or quantitative treatment limitation to different coverage units in a classificati on 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.113 (iii) Special rules -- (A) Multi-tiered prescription drug benefits . If a plan (or health insurance coverage) applies differe nt levels of financial requir ements to different tiers of prescription drug benefits based on reasonable factors dete rmined in accordance with the rules in paragraph (c)(4)(i) of this s ection (relating to requiremen ts for nonquantitative treatment limitations) and without regard to whether a dr ug is generally prescribed with respect to medical/surgical benefits or with respect to mental health or substance us e disorder benefits, the plan (or health insurance covera ge) satisfies the parity requireme nts of this paragraph (c) with respect to prescription drug bene fits. Reasonable factors includ e cost, efficacy, generic versus brand name, and mail order versus pharmacy pick-up. (B) Multiple network tiers . If a plan (or health insura nce coverage) prov ides 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 subclassifications that reflect network tiers, if th e 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 whet her a provider provides se rvices with respect to medical/surgical benefits or mental health or substance use disorder be nefits. After the subclassifications are established, the plan or issu er 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 fi nancial requirement or treatment limitation that applies to substantially all medical/surgical benefits in the sub-cl assification using the methodology set forth in paragra ph (c)(3)(i) of this section.114 (C) Sub-classifications permitted for office visits, separate from other outpatient

services . For purposes of applying the financial re quirement and treatment limitation rules of this paragraph (c), a plan or i ssuer may divide its benefits furn ished on an outpatient basis into the two sub-classifications described in this paragr aph (c)(3)(iii)(C). After the sub-classifications are established, the plan or issuer may not im pose any financial require ment 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/s urgical benefits in the sub-classification using the methodology set forth in paragra ph (c)(3)(i) of this section. Sub-classifications other than these special rules, such as separate sub-classi fications for generalists and specialists, are not permitted. The two sub-classifications permitte d under this paragraph (c)(3)(iii)(C) are: (1 ) Office visits (such as physician visits), and (2 ) All other outpatient items and services (suc h as outpatient surgery, facility charges for day treatment centers, laboratory char ges, or other medical items). (iv) Examples . The rules of paragraphs (c)(3)(i), (c )(3)(ii), and (c)(3)(ii i) 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 bo th 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 $1,000x115 Percent of total plan costs 20% 10% 45% 10% 15%

Percent subject to coinsurance level N /A 12.5% (100x/800x) 56.25% (450x/800x) 12.5% (100x/800x) 18.75% (150x/800x) The plan projects plan costs of $800x to be subject to coinsu rance ($100x + $450x + $100x + $150x = $800x). Thus, 80 percent ($800x/$1,000x) of the be nefits are projected to be subject to coinsurance, and 56.25 percent of th e benefits subject to coinsuran ce 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 inpa tient, out-of-network medical/surgical benefits are subject to coinsuran ce. 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 coinsura nce 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 restrictiv e than the 15 percent level of coinsurance. Example 2 . (i) Facts . For outpatient, in-network me dical/surgical benefits, a plan imposes five different copayment levels. Usi ng 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% (200x/800x) 25% (200x/800x) 37.5% (300x/800x) 12.5% (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 be nefits 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 percen t of all outpatient, in-n etwork medical/surgical benefits are subject to a copayment. Moreover, th ere is no single level that applies to more than one-half of medical/surgical benefits in the cl assification 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 use116 disorder benefits. If the plan combines the highe st 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-net work 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, innetwork medical/surgical bene fits subject to the copaym ents ($100x + $300x + $200x = $600x; $600x/$800x = 75%). Thus, the plan may not impos e any copayment on outpatient, in-network mental health or substance use diso rder benefits that is more rest rictive 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 substantiall y all medical/surgical benefits is determined separately for self-only medical /surgical benefits and family medical/surgical benefits. Because the coinsuranc e 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 followi ng 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 w ith respect to mental health or substance use disorder benefits. Moreover, th e process for certifying a particular drug as “generic”, “preferred brand name”, “non-preferre d brand name”, or “specialty” complies with the rules of paragraph (c)(4)(i) of this section (r elating to requirements for nonquantitative treatment limitations).

Tier 1 Tier 2 Tier 3 Tier 4

Tier description Generic drugs Preferred brand name drugs N on-preferred brand name drugs (which may have Tier 1 or Tier 2 alternatives) Specialty drugs

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 re gard to whether a drug is genera lly prescribed with respect to117 medical/surgical benefits or with respect to mental health or substance us e disorder benefits; the process for certifying drugs in different tiers comp lies 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 accordan ce with the rules in paragraph (c)(4)(i) of this s ection, such as accred itation, quality and performance measures (including customer feedback), and relative reimbursement rates. Furthermore, provider tier placement is determined without regard to whet her a provider specializes in the treatment of mental health conditions or substance use disord ers, or medical/surgica l conditions. The plan divides the in-network classifica tions into two sub-cl assifications (in-netw ork/preferred and innetwork/participating). The pl an does not impose any financ ial requirement or treatment limitation on mental health or substance use disorder benefits in either of these subclassifications that is more restrictive than th e predominant financial requirement or treatment limitation that applies to substant ially all medical/surgical benef its in each sub-classification. (ii) Conclusion . In this Example 5 , the division of in-network benefits into subclassifications that reflect the preferred and partic ipating 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 co insurance requirement for outpatient surgery. The plan divides the outpatient, in-network classi fication into two sub-clas sifications (in-network office visits and all other outpatien t, in-network items and services ). The plan or issuer does not impose any financial requirement or quantitativ e 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 bene fits 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 othe r outpatient, in-network items and services does not violate the parity requiremen ts 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 classi fication 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 outpatie nt items and services violates the requirements of paragraph (c)(3)(iii)(C) of this section.118 (v) No separate cumulative financial requi rements or cumulative quantitative treatment

limitations – (A) A group health plan (or health insura nce coverage offered in connection with a group health plan) may not apply any cumula tive financial requirement or cumulative quantitative treatment limitation for mental heal th 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, a nd 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 hea lth and substance use disorder benefits. (ii) Conclusion . In this Example 2 , the separate annual deduc tible 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 hea lth or substance use disorder benefits. (ii) Conclusion . In this Example 3 , the separate annual deduc tible on mental health and substance use disorder benefits violates th e 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 a nd mental health and s ubstance 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 reasona ble methods, the plan projects its payments for medical/surgical benefits in each classification for the upcoming year as follows:

Classification Benefits Subject to Deductible Total Benefits Percent Subject to Deductible119 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 classifi cation except emergency ca re because in each of those other classifications at l east 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 s ubject to the $500 deductible because it does not apply to substantially all emerge ncy care medical/surgical benefits. (4) Nonquantitative treatment limitations – (i) General rule . A group health plan (or health insurance coverage) may not impose a nonquant itative treatment limita tion with respect to

mental health or substance use disorder benefits in any classification un less, under the terms of the plan (or health insurance coverage) as writ ten and in operation, any processes, strategies, evidentiary standards, or othe r 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 th an, the processes, strategies, ev identiary 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 appropriate ness, or based on whet her the treatment is experimental or investigative;120 (B) Formulary design for prescription drugs; (C) For plans with multiple network tiers (s uch 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 therapie s until it can be shown that a lower-cost therapy is not effective (also known as fail-fi rst policies or step therapy protocols); (G) Exclusions based on failure to complete a course of treatment; and (H) Restrictions based on geographic locati on, facility type, provide r specialty, and other criteria that limit the scope or duration of be nefits for services provi ded 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 authoriz ation from the plan’s utilization reviewer that a treatment is medically necessary for all inpatient medica l/surgical benefits and for all inpatient mental health and substance use di sorder benefits. In prac tice, inpatient benefits for medical/surgical conditions are routinely ap proved for seven days, after which a treatment plan must be submitted by the patient’s attendi ng provider and approved by the plan. On the other hand, for inpatient mental health and substa nce use disorder benef its, routine approval is given only for one day, after which a treatment pl an must be submitted by the patient’s attending provider and approved by the plan. (ii) Conclusion . In this Example 1, the plan violat es the rules of th is 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.121 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 standa rd 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 th e 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 th an for medical/surgical benefits, even though it results in an overall difference in the applica tion of concurrent review for mental health conditions or substance use disorders th an 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 criter ia in determining whether a course of treatment is medically necessary. For mental health and su bstance use disorder trea tments 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 limitati on – 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 compar able way. The penalty for failure to obtain prior approval for mental health and s ubstance 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 medica lly appropriate treatments. For both medical/surgical benefits and mental health and substance use disorder benefits, evidentiary standards used in determining whether a treatmen t 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 invol ved. The evidentiary standards are applied in a manner that is based on clinically appropriate st andards of care for a condition. (ii) Conclusion . In this Example 4 , the plan complies with th e rules of this paragraph (c)(4) because the processes for developing the ev identiary standards used to determine medical appropriateness and the application of these st andards to mental health and substance use disorder benefits are comparable to and are appl ied no more stringently than for medical/surgical benefits. This is the result even if the applica tion of the evidentiary standards does not result in similar numbers of visits, days of coverage, or ot her benefits utilized for mental health conditions or substance use disorders as it does fo r any particular medi cal/surgical condition. Example 5 . (i) Facts . A plan generally covers medica lly appropriate treatments. In determining whether prescription drugs are medically appropriate, the plan automatically excludes coverage for antidepressa nt drugs that are given a bl ack box warning label by the Food and Drug Administration (indicating th e drug carries a significant risk of serious adverse effects). For other drugs with a black box warning (includi ng those prescribed for other mental health122 conditions and substance use disorders, as well as for medical/surgical conditions), the plan will provide coverage if the prescrib ing 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 benef its 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 pr ovides, among other benefits, a limited number of mental health or substance use disorder couns eling sessions. Participants are eligible for mental health or substance use disorder bene fits under the major medical plan only after exhausting the counseling sessions provided by th e EAP. No similar exhaustion requirement applies with respect to medical/surgical bene fits provided under the major medical plan. (ii) Conclusion . In this Example 6 , limiting eligibility for mental health and substance use disorder benefits only af ter EAP benefits are exhauste d 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 re quirements often vary among types of providers. A plan applies a general standard that any provider must meet the highest licensing requirement related to supervis ed clinical experience under app licable State law in order to participate in the plan’s provide r network. Therefore, the plan requires master’s-level mental health therapists to have post- degree, supervised clinical expe rience but does not impose this requirement on master’s-level general medical pr oviders because the scop e of their licensure under applicable State law does re quire clinical experience. In addition, the plan does not require post-degree, supervised c linical experience for psychiat rists or PhD level psychologists since their licensing already re quires supervised training. (ii) Conclusion . In this Example 7 , the plan complies with th e 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 consis tently 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 trea tment; high cost growth; va riability in cost and quality; elasticity of demand; prov ider discretion in determining di agnosis, or type or length of treatment; clinical efficacy of any proposed trea tment or service; licensi ng and accreditation of123 providers; and claim types with a high percentage of fraud. Based on appli cation of these factors in a comparable fashion, prior au thorization is required for some ( but not all) mental health and substance use disorder benefits, as well as for so me medical/surgical benef its, but not for others. For example, the plan requires pr ior authorization for: outpatient surgery; speech, occupational, physical, cognitive and behavioral therapy extendi ng for more than six months; durable medical equipment; diagnostic imaging; skilled nursing vi sits; home infusion therapy; coordinated home care; pain management; high-risk prenatal car e; delivery by cesarean section; mastectomy; prostate cancer treatment; narcot ics prescribed for more than seven days; and all inpatient services beyond 30 days. The evidence consid ered in developing its medical management techniques includes consideration of a wide array of recognized medical literature and professional standards and protoc ols (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 th e rules of this paragraph (c)(4). Under the terms of the plan as writt en and in operation, the processes, strategies, evidentiary standards, and othe r factors considered by the pl an in implementing its prior authorization requirement with respect to mental health and substance use disorder benefits are comparable to, and applied no more stringen tly than, those applied with respect to medical/surgical benefits. Example 9 . (i) Facts . A plan generally covers medica lly appropriate treatments. The plan automatically excludes coverage for inpa tient 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 condi tions (including freesta nding or residential treatment centers prescribed for mental hea lth conditions, as well as for medical/surgical conditions), the plan will provi de coverage if the prescribi ng 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 limitati on – medical appropriateness – is applied to both mental health and substance use disorder be nefits and medical/surgical benefits, the plan’s unconditional exclusion of substanc e 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 c overage for medically appropriate medical/surgical benefits as well as mental health and substance us e disorder benefits. The plan excludes coverage for inpatient, out-of-networ k treatment of chemical dependency when obtained outside of the State where the policy is written. There is no similar exclusion for medical/surgical benefits with in the same classification. (ii) Conclusion . In this Example 10, the plan violat es the rules of this paragraph (c)(4). The plan is imposing a nonquantitative treatmen t limitation that restricts benefits based on124 geographic location. Because there is no comparab le 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 authorizati on for all outpatient mental health and substance use disorder services after th e ninth visit and will only approve up to five additional visits per auth orization. With respect to outpatient medical/surgical benefits, the plan allows an initial visit without pr ior authorization. Af ter 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 medi cal 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 lim itation – prior authorization to determine medical appropriateness – is applied to both mental health and substance use disorder benefits and medical/surgical benefits for outpatient serv ices, 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, tr eating all mental health conditions and substance use disorders in the same manner, while provi ding for individualized treatment of medical conditions, is not a comparable applicati on 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 requirem ents of paragraph (f) or (g) of this section (relating to exemptions for small em ployers 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 benefi ts (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 o ffering such coverage) to any current or potential participant, beneficiary, or cont racting 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 subs tance use disorder benefi ts in the case of any participant or beneficiary must be made avai lable by the plan admini strator (or the health125 insurance issuer offering such coverage) to the pa rticipant or beneficiary in accordance with this paragraph (d)(2). (i) Plans subject to ERISA . If a plan is subject to ERIS A, it must provide the reason for

the claim denial in a form a nd 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 clai m 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 disclosu re requirements in paragraphs (d)(1) and (d)(2) of this section is not determinative of complian ce 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 informati on relevant to medical/surgical, mental health, and substance use disorder be nefits. 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 es tablished or operated include documents with information on medical necessity criteria for bot h medical/surgical benefits and mental health

and substance use disorder benefi ts, as well as the processes, st rategies, evidentiary standards, and other factors used to apply a nonquantit ative treatment limitation with respect to medical/surgical benefits and mental health or su bstance use disorder benefits under the plan. In addition, 29 CFR 2560.503-1 and 29 CFR 2590.715-2719 set forth rule s regarding claims and126 appeals, including the right of claimants (or thei r authorized representa tive) upon appeal of an adverse benefit determination (or a final internal adverse benefit determin ation) to be provided upon request and free of charge, r easonable access to and copies of all documents, records, and

other information relevant to th e claimant’s claim for benefits. This includes documents with information on medical necessity criteria for bot h medical/surgical benefits and mental health

and substance use disorder benefi ts, as well as the processes, st rategies, evidentiary standards, and other factors used to apply a nonquantit ative 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 h ealth or substance use disorder benefits. If, under an arrangement or arrangemen ts to provide medical care benefits by an employer or employee organization (including for th is purpose a joint board of trustees of a multiemployer trust affiliated with one or mo re multiemployer plans), any participant (or beneficiary) can simultaneously re ceive coverage for medical/surgi cal benefits and coverage for

mental health or substance use di sorder benefits, then the requirem ents 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 me ntal health or substance use disorder benefits that any participant (or beneficiary) can si multaneously receive from that employer’s or employee organization’s arrangemen t or arrangements to provide medical care benefits, and all such combinations are considered for purposes of th is section to be a single group health plan. (2) Health insurance issuers . The requirements of this sec tion 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 subj ect to paragraph (e)(1 ) of this section.127 (3) Scope . This section does not – (i) Require a group health pl an (or health insurance issuer offering coverage in connection with a group health plan) to provide any mental health bene fits or substance use disorder benefits, and the provision of benefits by a plan (or health insu rance coverage) for one

or more mental health conditions or substance use disorders does not require the plan or health insurance coverage under this sec tion to provide benefits for any other mental health condition or substance use disorder; (ii) Require a group health pl an (or health insurance issuer offering coverage in connection with a group health plan) that provide s coverage for mental health or substance use disorder benefits only to the extent require d 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 relati ng to the amount, duration, or scope of mental

health or substance use disorder benefits under the plan (or hea lth 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 a nd 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 substan ce use disorder services , including behavioral health treatment services, as part of esse ntial health benefits required under 45 CFR 156.110(a)(5) and 156.115(a), must comply with th e provisions of 45 CFR 146.136 to satisfy the requirement to provide essential health benefits.128 (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 empl oyer. For purposes of this paragraph (f), the term small employer means, in connection with a group heal th plan with resp ect 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 sma ll groups to include a single individual) but not more than 50 employees on business days durin g the preceding calendar year. See section 9831(a) and §54.9831-1(b), which provide that this section (and certain ot her 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 paragr aph (f)(1) of this

section— (i) All persons treated as a single employer unde r subsections (b), (c), (m), and (o) of section 414 are treated as one employer; (ii) If an employer was not in existence th roughout 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 da ys 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 offere d in connection with such plans) results in an increase for the plan year involved of the act ual total cost of cove rage with respect to medical/surgical benefits and ment al health and substance use diso rder benefits as determined129 and certified under paragraph (g)(3) of this sec tion by an amount that exceeds the applicable percentage described in paragraph (g)(2) of th is section of the actual total plan costs, the provisions of this section shall not apply to such plan (or co verage) 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 cove rage involved regardless of any

increase in total costs. (2) Applicable percentage . With respect to a plan or c overage, 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 attr ibutable to implementation of the requirements of this section shall be made and certified by a qualif ied and licensed actua ry 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 insuran ce 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.130 (4) Formula . The formula to be used to make th e determination under paragraph (g)(3)(i) of this section is expressed mathematically as follows: [(E 1 – E 0 )/T 0 ] –D > k (i) E 1 is the actual total cost of coverage with respect to mental health and substance use disorder benefits for the base pe riod, including claims paid by the pl an or issuer with respect to

mental health and substance use disorder benefits and administrative costs (amortized over time) attributable to providing these be nefits consistent with the requirements of this section. (ii) E 0 is the actual total cost of coverage with respect to mental health and substance use disorder benefits for the length of time immediat ely before the base period (and that is equal in length to the base period), incl uding 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 provi ding these benefits. (iii) T 0 is the actual total cost of coverage with respect to all benefits during the base period. (iv) k is the applicable per centage of increased cost specif ied 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 th at is calculated by applying the formula (E 1 – E 0 )/T 0 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 he alth insurance issuer seeks an exemption under this paragraph (g), determinatio ns 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.131 (6) Notification . A group health plan or health insurance issuer that, based on the certification described under para graph (g)(3) of this section, qualifies for an exemption under this paragraph (g), and elects to implement the exemption, must no tify participants and beneficiaries covered under the plan, the Secretar y, 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 exem pt from the requirements of this section and a description of the basis for the exemption. (2 ) The name and telephone number of the indi vidual 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 spons or’s name, address, and telephone number (if different from paragraph (g)(6)(i)(A)(3 ) of this section) and th e plan sponsor’s employer identification number (EIN). (6 ) The effective date of such exemption. (7 ) A statement regarding the ability of particip ants and beneficiaries to contact the plan

administrator or health insuran ce 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 av ailability, upon request and free of charge, of a summary of the information on which the exemption is ba sed (as required under para graph (g)(6)(i)(D) of this section).132 (B) Use of summary of material reduc tions in covered services or benefits

. A plan or issuer may satisfy the requirements of para graph (g)(6)(i)(A) of this section by providing participants and beneficiaries (i n accordance with para graph (g)(6)(i)(C) of th is section) with a summary of material reductions in covered se rvices or benefits consistent with 29 CFR 2520.104b–3(d) that also includes the information sp ecified 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 beneficiarie s. The notice may be furnishe d 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 addr ess, then the requirements of this paragraph (g)(6)(i) are satisfi ed with respect to the particip ant and all beneficiaries residing

at that address. If a benefici ary’s last known address is different from the participant’s last known address, a separate notice is required to be provided to the beneficiar y at the beneficiary’s

last known address. (D) Availability of documentation

. The plan or issuer must make available to participants and beneficiaries (o r their representatives), on reques t and at no charge, a summary of the information on which the exemption was base d. (For purposes of th is paragraph (g), an individual who is not a partic ipant or beneficiary and who pr esents a notice described in paragraph (g)(6)(i) of this secti on is considered to be a repres entative. A representative may request the summary of informa tion by providing the plan a copy of the notice provided to the participant under paragra ph (g)(6)(i) of this section with any personally identifiable information133 redacted.) The summary of information must in clude the incurred expendi tures, the base period, the dollar amount of claims incurred during the ba se 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 relate d to those claims, and ot her administrative costs attributable to complying with the requirements of this section. In no event should the summary of information include any pers onally 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 covere d lives under the plan (or coverage) involved at the time of the notification, a nd 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 respec t to medical/surgi cal benefits and mental health and substance use disorder benefits; and (3 ) For both the plan year upon which a cost ex emption is sought and the year prior, the actual total costs of coverage with respect to me ntal health and substance use disorder benefits under the plan. (B) Reporting with respect to church plans

. A church plan (as defi ned 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 app licable guidance, of the notice described in paragraph (g)(6)(ii)(A) of this section identify ing the benefit package to which the exemption applies.134 (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 sh all 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 unde r paragraph (g)(6)(ii) of this section. (iv) Audits . The Secretary may aud it the books and records of a group health plan or a health insurance issuer relating to an exempti on, including any actuarial reports, during the 6 year period following notification of such exemp tion under paragraph (g)(6) of this section. A State agency receiving a notification under paragr aph (g)(6) of this se ction may also conduct such an audit with respect to an ex emption covered by such notification. (h) Sale of nonparity he alth insurance coverage . A health insurance issuer may not sell a policy, certificate, or contract of insurance that fa ils to comply with paragraph (b) or (c) of this section, except to a plan for a year for which th e 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 pa ragraph (i)(2) of this section, this section applies to group health pl ans and health insurance issuers offering group health insurance coverage on the first day of th e first plan year beginning on or after July 1,

2014. (2) Special effective date for cer tain collectively-bargained plans . For a group health plan maintained pursuant to one or more coll ective bargaining agreements ratified before135 October 3, 2008, the requirements of this section do not apply to the plan (or health insurance coverage offered in connection with the plan) fo r plan years beginning be fore the date on which

the last of the collectiv e bargaining agreements terminates (determined without regard to any extension agreed to after October 3, 2008).136 Employee Benefits Security Administration 29 CFR Chapter XXV

29 CFR Part 2590 is amended as follows: PART 2590—RULES AND REGULATION S FOR GROUP HEALTH PLANS 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).

2. Section 2590.712 is revised to read as follows: § 2590.712 Parity in mental health a nd 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 pl an (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 am ount 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 amount s and include deductibles and137 out-of-pocket maximums. (However, cumula tive 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 provi ded 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 incl ude 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. A ny condition defined by the plan or coverage as being or as not being a medica l/surgical condition must be defi ned to be consistent with generally recognized independent standards of current medical practice (for example, the most

current version of the International Classificat ion 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 cove rage and in accordance with applicable Federal and Stat e law. Any condition defined by th e plan or coverage as being or as not being a mental health condition must be defined to be cons istent with generally recognized independent standards of current medi cal practice (for example, the most current version of the Diagnostic and Stat istical Manual of Mental Diso rders (DSM), the most current version of the ICD, or State guidelines).138 Substance use disorder benefits means benefits with respect to items or services for substance use disorders, as define d under the terms of the plan or health insurance coverage and in accordance with applicable Federal and State la w. Any disorder defined by the plan as being or as not being a substance use disorder must be defined to be cons istent with generally recognized independent standards of current medi cal practice (for example, the most current version of the DSM, the most current vers ion of the ICD, or State guidelines).

Treatment limitations include limits on benefits base d 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 sc ope or duration of benefits for treatment under a plan or coverage. (See pa ragraph (c)(4)(ii) of this sec tion 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 provision s of PHS Act section 2711, as incorporated in ERISA section 715 a nd Code section 9815, which prohibit imposing

lifetime and annual limits on the dollar value of e ssential health benefits. For more information,

see 29 CFR 2590.715-2711. (1) General

— (i) General parity requirement

. A group health plan (o r health insurance coverage offered by an issuer in connection with a group health plan ) that provides both139 medical/surgical benefits and mental health or su bstance 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 requirem ents of paragraph (f) or (g) of this section (relating to exemptions for small em ployers 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 in clude an aggregate lifetime or annual dollar limit on any medical/surgical benefits or includes an aggregate life time 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, resp ectively, on mental health or s ubstance use disorder benefits. (3) Plan with a limit on at least two-th irds of all medical/surgical benefits

. If a plan (or health insurance coverage) includes an aggregat e lifetime or annual dollar limit on at least twothirds 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 a nd to mental health or substance use disorder benefits in a manner that does not distinguish be tween the medical/surgica l benefits and mental health or substance use disorder benefits; or (ii) Not include an aggregate lifetime or annua l dollar limit on mental health or substance

use disorder benefits th at is less than the a ggregate lifetime or annual dollar limit, respectively, on medical/surgical benefits. (F or cumulative limits other than aggregate lifetime or annual dollar limits, see paragraph (c)(3)(v) of this section prohibiting sepa rately accumulating cumulative financial requirements or cumulative quantitative treatment limitations.)140 (4) Determining one-third and two-th irds of all medical/surgical benefits . For purposes of this paragraph (b), the determination of wh ether the portio n 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 am ount of all plan payments for medical/surgical benefits expected to be paid unde r the plan for the plan year (or for the portion of the plan year after a change in plan benefits that affects the appli cability of the aggregate lifetime or annual dollar limits). Any reasonable method may be used to determ ine whether the dollar amount expected to be paid under the plan will constitute one-third or tw o-thirds of the dollar amount of all plan payments for me dical/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 insu rance coverage) that is not desc ribed in paragraph (b)(2) or (b)(3) of this section with respect to aggregate life time 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 dol lar limit on mental health or substance use disorder benefits that is no less than an averag e 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 lim its, as appropriate, that are applicable to the categories of medical/surgical benefits. Li mits based on delivery systems, such as inpatient/outpatient treatment or normal treatme nt 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 are141 not within a category that is subject to a se parately-designated dolla r limit under the plan are taken into account as a single separate categor y by using an estimate of the upper limit on the dollar amount that a plan may reasonably be exp ected to incur with respect to such benefits, taking into account any other appli cable 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 tw o-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, th e 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 financia l requirements include deductibles, copayments, coinsurance, and out-of-pocket maximums. Differ ent 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 financia l requirement or treatment limitation . When reference is made in this paragraph (c) to a level of a type of financial re quirement or treatment limitation, level refers to the magnitude of the type of fi nancial 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 leve ls of a deductible include $250 and $500; and142 different levels of an episode limit include 21 in patient 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 premiu ms 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 c onnection with a group heal th plan) that provides both medical/surgical benefits a nd 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 classi fication that is more restrictiv e than the predominant financial requirement or treatment limitation of that type applied to substantia lly all medical/surgical

benefits in the same classificat ion. Whether a financial requirem ent or treatment limitation is a predominant financial requirement or treatment limitation that applies to substantially all medical/surgical benefits in a clas sification is determined separate ly for each type of financial requirement or treatment limitation. The applicat ion of the rules of th is 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 nonquantit ative treatment limitations is addressed in para graph (c)(4) of this section. (ii) Classifications of bene fits 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 describe d in this paragraph (c )(2)(ii), mental heal th or substance use disorder benefits must be provi ded in every classification in wh ich medical/surgical benefits are143 provided. In determining the classification in which a particular benefit belongs, a plan (or health insurance issuer) must apply the same sta ndards 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 an d imposes any separate financial requirement or treatment limitation (or separate level of a fina ncial 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 re quirements or treatment limitations (illustrated in examples in paragraph (c)(2)(ii)(C) of this section). The fo llowing classifications of benefits are the only classifications used in applying the rules of this paragraph (c): (1 ) Inpatient, in-network . Benefits furnished on an inpa tient basis and within a network of providers established or rec ognized under a plan or health in surance 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 i npatient basis and outside any network of providers established or recognized unde r a plan or health insurance coverage. This classification includes inpatient be nefits under a plan (o r health insurance c overage) 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 un der 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 out patient basis a nd outside any network of providers established or recognized unde r a plan or health insurance coverage. This144 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 paragr aph (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 classifi cation of benefits must provide mental health or substance use disorder benefits in every classification in which medical/surgical be nefits are provided, including out-of-netwo rk 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 inpa tient and outpatient benefits and does not contract with a network of providers . The plan imposes a $500 deductible on all benefits. For inpatient medical/s urgical benefits, the plan impos es a coinsurance requirement. For outpatient medical/surgical benefits, the pl an 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. Becau se 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 para graph (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 impos es 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 requir ements or treatment limitations.145 (ii) Conclusion . In this Example 2 , because the plan does not impose separate financial requirements (or treatment limitations) based on cl assification, 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 co insurance requirement. The plan imposes no other financial requirements or treatment limitations. (ii) Conclusion . In this Example 3 , because the plan impos es 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 emergenc y 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 treatmen t 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, th e 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 requireme nt or quantitative treatment limita tion is considered to apply to substantially all medical/surgical benefits in a cla ssification of benefits if it applies to at least two-thirds of all medical/surgical benefits in that classificatio n. (For this purpose, benefits expressed as subject to a zero leve l of a type of financial requirem ent are treated as benefits not subject to that type of financia l requirement, and benefits expre ssed 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 bene fits in a classification,146 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 requir ement 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 s ection, the level of the fi nancial requirement or quantitative treatment limitation that is consider ed the predominant level of that type in a

classification of benefits is th e level that applies to more th an 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 bene fits in a classification, there is no single level that applies to more than one-half of medical/surgica l benefits in the classification subject to the financial requirement or quantita tive treatment limitation, the plan (or healthinsurance issuer) may combine levels until the combination of levels applies to more than onehalf of medical/surgical benefits subject to the financial requirement or quantitative treatment

limitation in the classification. Th e least restrictive level within the combination is considered the predominant level of that type in the classi fication. (For this purpos e, 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 bene fits in a classification of benefits subject to a financial requirement or quantitative treatment limitation (or subject to any level of a financial147 requirement or quantitative treatment limitation) is based on the dollar amount of all plan payments for medical/surgical benefits in the clas sification 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 financ ial 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 a ssociated with out-of-pocket payments that are taken into account towards the out-of-pocket maxi mum as well as all plan payments associated with out-of-pocket payments that would have be en made towards the out-of-pocket maximum if

it had not been satisfied. Similar rules apply for any other threshol ds at which the rate of plan payment changes. (See also PHS Act section 270 7(b) and Affordable Care Act section 1302(c),

which establish limitations on annual deductibles fo r non-grandfathered health plans in the small group market and annual limitations on out-of-po cket 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 us ed to determine the dollar amount expected to be paid under a plan for medical/surgical bene fits 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 hea lth insurance coverage) applies different levels of a fi nancial requirement or quantitative treatment limitation to different coverage units in a classificati on of medical/surgical benefits, the predominant level that applies148 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 differe nt levels of financial requir ements to different tiers of prescription drug benefits based on reasonable factors dete rmined in accordance with the rules in paragraph (c)(4)(i) of this s ection (relating to requiremen ts for nonquantitative treatment limitations) and without regard to whether a dr ug is generally prescribed with respect to medical/surgical benefits or with respect to mental health or substance us e disorder benefits, the plan (or health insurance covera ge) satisfies the parity requireme nts of this paragraph (c) with respect to prescription drug bene fits. Reasonable factors includ e cost, efficacy, generic versus brand name, and mail order versus pharmacy pick-up. (B) Multiple network tiers . If a plan (or health insura nce coverage) prov ides 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 subclassifications that reflect network tiers, if th e 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 whet her a provider provides se rvices with respect to medical/surgical benefits or mental health or substance use disorder be nefits. After the subclassifications are established, the plan or issu er 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 fi nancial requirement or treatment limitation that149 applies to substantially all medical/surgical benefits in the sub-cl assification using the methodology set forth in paragra ph (c)(3)(i) of this section. (C) Sub-classifications permitted for office visits, separate from other outpatient

services . For purposes of applying the financial re quirement and treatment limitation rules of this paragraph (c), a plan or i ssuer may divide its benefits furn ished on an outpatient basis into the two sub-classifications described in this paragr aph (c)(3)(iii)(C). After the sub-classifications are established, the plan or issuer may not im pose 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/s urgical benefits in the sub-classification using the methodology set forth in paragra ph (c)(3)(i) of this section. Sub-classifications other than these special rules, such as separate sub-classi fications for generalists and specialists, are not permitted. The two sub-classifications permitte d under this paragraph (c)(3)(iii)(C) are: (1 ) Office visits (such as physician visits), and (2 ) All other outpatient items and services (suc h as outpatient surgery, facility charges for day treatment centers, laboratory char ges, or other medical items). (iv) Examples . The rules of paragraphs (c)(3)(i), (c )(3)(ii), and (c)(3)(ii i) 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 bo th 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% Total150 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% (100x/800x) 56.25% (450x/800x) 12.5% (100x/800x) 18.75% (150x/800x) The plan projects plan costs of $800x to be subject to coinsu rance ($100x + $450x + $100x + $150x = $800x). Thus, 80 percent ($800x/$1,000x) of the be nefits are projected to be subject to coinsurance, and 56.25 percent of th e benefits subject to coinsuran ce 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 inpa tient, out-of-network medical/surgical benefits are subject to coinsuran ce. 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 coinsura nce 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 restrictiv e than the 15 percent level of coinsurance. Example 2 . (i) Facts . For outpatient, in-network me dical/surgical benefits, a plan imposes five different copayment levels. Usi ng 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% (200x/800x) 25% (200x/800x) 37.5% (300x/800x) 12.5% (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 be nefits 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 percen t of all outpatient, in-n etwork medical/surgical benefits are subject to a copayment. Moreover, th ere is no single level that applies to more than one-half of medical/surgical benefits in the cl assification 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 use151 disorder benefits. If the plan combines the highe st 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-net work 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, innetwork medical/surgical bene fits subject to the copaym ents ($100x + $300x + $200x = $600x; $600x/$800x = 75%). Thus, the plan may not impos e any copayment on outpatient, in-network mental health or substance use diso rder benefits that is more rest rictive 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 substantiall y all medical/surgical benefits is determined separately for self-only medical/s urgical benefits and family medical/surgical benefits. Because the coinsuranc e 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 followi ng 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 w ith respect to mental health or substance use disorder benefits. Moreover, th e process for certifying a particular drug as “generic”, “preferred brand name”, “non-preferre d brand name”, or “specialty” complies with the rules of paragraph (c)(4)(i) of this section (r elating to requirements for nonquantitative treatment limitations).

Tier 1 Tier 2 Tier 3 Tier 4

Tier description Generic drugs Preferred brand name drugs N on-preferred brand name drugs (which may have Tier 1 or Tier 2 alternatives) Specialty drugs

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 re gard to whether a drug is genera lly prescribed with respect to medical/surgical benefits or with respect to mental health or substance us e disorder benefits; the152 process for certifying drugs in different tiers comp lies 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 accordan ce with the rules in paragraph (c)(4)(i) of this s ection, such as accred itation, quality and performance measures (including customer feedback), and relative reimbursement rates. Furthermore, provider tier placement is determined without regard to whet her a provider specializes in the treatment of mental health conditions or substance use disord ers, or medical/surgical conditions. The plan divides the in-network classifica tions into two sub-cl assifications (in-netw ork/preferred and innetwork/participating). The pl an does not impose any financ ial requirement or treatment limitation on mental health or substance use disorder benefits in either of these subclassifications that is more restrictive than th e predominant financial requirement or treatment limitation that applies to substant ially all medical/surgical benef its in each sub-classification. (ii) Conclusion . In this Example 5 , the division of in-network benefits into subclassifications that reflect the preferred and partic ipating 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 co insurance requirement for outpatient surgery. The plan divides the outpatient, in-network classi fication into two sub-clas sifications (in-network office visits and all other outpatien t, in-network items and services ). The plan or issuer does not impose any financial requirement or quantitativ e 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 bene fits 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 othe r outpatient, in-network items and services does not violate the parity requiremen ts 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 classi fication 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 outpatie nt items and services violates the requirements of paragraph (c)(3)(iii)(C) of this section.153 (v) No separate cumulative financial requi rements or cumulative quantitative treatment

limitations – (A) A group health plan (or health insura nce coverage offered in connection with a group health plan) may not apply any cumula tive financial requirement or cumulative quantitative treatment limitation for mental heal th 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, a nd 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 hea lth and substance use disorder benefits. (ii) Conclusion . In this Example 2 , the separate annual deduc tible 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 hea lth or substance use disorder benefits. (ii) Conclusion . In this Example 3 , the separate annual deduc tible on mental health and substance use disorder benefits violates th e 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 a nd mental health and s ubstance 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 reasona ble methods, the plan projects its payments for medical/surgical benefits in each classification for the upcoming year as follows:

Classification Benefits Subject to Deductible Total Benefits Percent Subject to Deductible154 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 classifi cation except emergency ca re because in each of those other classifications at l east 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 s ubject to the $500 deductible because it does not apply to substantially all emerge ncy care medical/surgical benefits. (4) Nonquantitative treatment limitations – (i) General rule . A group health plan (or health insurance coverage) may not impose a nonquant itative treatment limita tion with respect to

mental health or substance use disorder benefits in any classification un less, under the terms of the plan (or health insurance coverage) as writ ten and in operation, any processes, strategies, evidentiary standards, or othe r 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 th an, the processes, strategies, ev identiary 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 appropriate ness, or based on whet her the treatment is experimental or investigative;155 (B) Formulary design for prescription drugs; (C) For plans with multiple network tiers (s uch 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 therapie s until it can be shown that a lower-cost therapy is not effective (also known as fail-fi rst policies or step therapy protocols); (G) Exclusions based on failure to complete a course of treatment; and (H) Restrictions based on geographic locati on, facility type, provide r specialty, and other criteria that limit the scope or duration of be nefits for services provi ded 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 authoriz ation from the plan’s utilization reviewer that a treatment is medically necessary for all inpatient medica l/surgical benefits and for all inpatient mental health and substance use di sorder benefits. In prac tice, inpatient benefits for medical/surgical conditions are routinely ap proved for seven days, after which a treatment plan must be submitted by the patient’s attendi ng provider and approved by the plan. On the other hand, for inpatient mental health and substa nce use disorder benef its, routine approval is given only for one day, after which a treatment pl an must be submitted by the patient’s attending provider and approved by the plan. (ii) Conclusion . In this Example 1, the plan violat es the rules of th is 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.156 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 standa rd 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 th e 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 th an for medical/surgical benefits, even though it results in an overall difference in the applica tion of concurrent review for mental health conditions or substance use disorders th an 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 criter ia in determining whether a course of treatment is medically necessary. For mental health and su bstance use disorder trea tments 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 limitati on – 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 compar able way. The penalty for failure to obtain prior approval for mental health and s ubstance 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 medica lly appropriate treatments. For both medical/surgical benefits and mental health and substance use disorder benefits, evidentiary standards used in determining whether a treatmen t 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 invol ved. The evidentiary standards are applied in a manner that is based on clinically appropriate st andards of care for a condition. (ii) Conclusion . In this Example 4 , the plan complies with th e rules of this paragraph (c)(4) because the processes for developing the ev identiary standards used to determine medical appropriateness and the application of these st andards to mental health and substance use disorder benefits are comparable to and are appl ied no more stringently than for medical/surgical benefits. This is the result even if the applica tion of the evidentiary standards does not result in similar numbers of visits, days of coverage, or ot her benefits utilized for mental health conditions or substance use disorders as it does fo r any particular medi cal/surgical condition. Example 5 . (i) Facts . A plan generally covers medica lly appropriate treatments. In determining whether prescription drugs are medically appropriate, the plan automatically excludes coverage for antidepressa nt drugs that are given a bl ack box warning label by the Food and Drug Administration (indicating th e drug carries a significant risk of serious adverse effects). For other drugs with a black box warning (includi ng those prescribed for other mental health157 conditions and substance use disorders, as well as for medical/surgical conditions), the plan will provide coverage if the prescrib ing 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 benef its 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 pr ovides, among other benefits, a limited number of mental health or substance use disorder couns eling sessions. Participants are eligible for mental health or substance use disorder be nefits under the major medical plan only after exhausting the counseling sessions provided by th e EAP. No similar exhaustion requirement applies with respect to medical/surgical bene fits provided under the major medical plan. (ii) Conclusion . In this Example 6 , limiting eligibility for mental health and substance use disorder benefits only af ter EAP benefits are exhauste d 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 re quirements often vary among types of providers. A plan applies a general standard that any provider must meet the highest licensing requirement related to supervis ed clinical experience under app licable State law in order to participate in the plan’s provide r network. Therefore, the plan requires master's-level mental health therapists to have post- degree, supervised clinical expe rience but does not impose this requirement on master's-level general medical pr oviders because the scop e of their licensure under applicable State law does re quire clinical experience. In addition, the plan does not require post-degree, supervised c linical experience for psychiat rists or PhD level psychologists since their licensing already re quires supervised training. (ii) Conclusion . In this Example 7, the plan complies with th e 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 consis tently 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 trea tment; high cost growth; va riability in cost and quality; elasticity of demand; prov ider discretion in determining di agnosis, or type or length of treatment; clinical efficacy of any proposed trea tment or service; licensi ng and accreditation of158 providers; and claim types with a high percentage of fraud. Based on appli cation of these factors in a comparable fashion, prior au thorization is required for some ( but not all) mental health and substance use disorder benefits, as well as for so me medical/surgical benef its, but not for others. For example, the plan requires pr ior authorization for: outpatient surgery; speech, occupational, physical, cognitive and behavioral therapy extendi ng for more than six months; durable medical equipment; diagnostic imaging; skilled nursing vi sits; home infusion therapy; coordinated home care; pain management; high-risk prenatal car e; delivery by cesarean section; mastectomy; prostate cancer treatment; narcot ics prescribed for more than seven days; and all inpatient services beyond 30 days. The evidence consid ered in developing its medical management techniques includes consideration of a wide array of recognized medical literature and professional standards and protoc ols (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 th e rules of this paragraph (c)(4). Under the terms of the plan as writt en and in operation, the processes, strategies, evidentiary standards, and othe r factors considered by the pl an in implementing its prior authorization requirement with respect to mental health and substance use disorder benefits are comparable to, and applied no more stringen tly than, those applied with respect to medical/surgical benefits. Example 9 . (i) Facts . A plan generally covers medica lly appropriate treatments. The plan automatically excludes coverage for inpa tient 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 condi tions (including freesta nding or residential treatment centers prescribed for mental hea lth conditions, as well as for medical/surgical conditions), the plan will provi de coverage if the prescribi ng 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 limitati on – medical appropriateness – is applied to both mental health and substance use disorder be nefits and medical/surgical benefits, the plan’s unconditional exclusion of substanc e 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 c overage for medically appropriate medical/surgical benefits as well as mental health and substance us e disorder benefits. The plan excludes coverage for inpatient, out-of-networ k treatment of chemical dependency when obtained outside of the State where the policy is written. There is no similar exclusion for medical/surgical benefits with in the same classification. (ii) Conclusion . In this Example 10, the plan violat es the rules of this paragraph (c)(4). The plan is imposing a nonquantitative treatmen t limitation that restricts benefits based on159 geographic location. Because there is no comparab le 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 authorizati on for all outpatient mental health and substance use disorder services after th e ninth visit and will only approve up to five additional visits per auth orization. With respect to outpatient medical/surgical benefits, the plan allows an initial visit without pr ior authorization. Af ter 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 medi cal 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 lim itation – prior authorization to determine medical appropriateness – is applied to both mental health and substance use disorder benefits and medical/surgical benefits for outpatient serv ices, 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, tr eating all mental health conditions and substance use disorders in the same manner, while provi ding for individualized treatment of medical conditions, is not a comparable applicati on 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 requirem ents of paragraph (f) or (g) of this section (relating to exemptions for small em ployers 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 benefi ts (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 o ffering such coverage) to any current or potential participant, beneficiary, or cont racting 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 subs tance use disorder benefi ts in the case of any160 participant or beneficiary must be made avai lable by the plan admini strator (or the health insurance issuer offering such coverage) to the participant or beneficiary in a form and manner consistent with the requirements of § 2560.503-1 of this chapter for group health plans. (3) Provisions of other law . Compliance with the disclosu re requirements in paragraphs (d)(1) and (d)(2) of this section is not determinative of complian ce 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 informati on relevant to medical/surgical, mental health, and substance use disorder be nefits. For example, ERISA section 104 and § 2520.104b-1 of this chapter provide that, for plan s subject to ERISA, instruments under which the plan is established or opera ted 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 treat ment limitation with respect to medical/surgical benefits and mental health or su bstance use disorder benefits under the plan. In addition, §§ 2560.503-1 and 2590.715-2719 of this chapter set forth rules rega rding claims and appeals, including the right of claimants (or thei r authorized representa tive) upon appeal of an adverse benefit determination (or a final internal adverse benefit determin ation) to be provided upon request and free of charge, r easonable access to and copies of all documents, records, and

other information relevant to th e claimant’s claim for benefits. This includes documents with information on medical necessity criteria for bot h medical/surgical benefits and mental health

and substance use disorder benefi ts, as well as the processes, st rategies, evidentiary standards,161 and other factors used to apply a nonquantit ative 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 h ealth or substance use disorder benefits. If, under an arrangement or arrangemen ts to provide medical care benefits by an employer or employee organization (including for th is purpose a joint board of trustees of a multiemployer trust affiliated with one or mo re multiemployer plans), any participant (or beneficiary) can simultaneously re ceive coverage for medical/surgi cal benefits and coverage for

mental health or substance use di sorder benefits, then the requirem ents 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 me ntal health or substance use disorder benefits that any participant (or beneficiary) can si multaneously receive from that employer’s or employee organization’s arrangemen t or arrangements to provide medical care benefits, and all such combinations are considered for purposes of th is section to be a single group health plan. (2) Health insurance issuers . The requirements of this sec tion 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 subj ect to paragraph (e)(1 ) of this section. (3) Scope . This section does not – (i) Require a group health pl an (or health insurance issuer offering coverage in connection with a group health plan) to provide any mental health bene fits or substance use disorder benefits, and the provision of benefits by a plan (or health insu rance coverage) for one

or more mental health conditions or substance use disorders does not require the plan or health162 insurance coverage under this sec tion to provide benefits for any other mental health condition or substance use disorder; (ii) Require a group health pl an (or health insurance issuer offering coverage in connection with a group health plan) that provide s coverage for mental health or substance use disorder benefits only to the extent require d 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 relati ng to the amount, duration, or scope of mental

health or substance use disorder benefits under the plan (or hea lth 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 a nd 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 substan ce use disorder services , including behavioral health treatment services, as part of esse ntial health benefits required under 45 CFR 156.110(a)(5) and 156.115(a), must comply with th e 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 empl oyer. For purposes of this paragraph (f), the term small employer means, in connection with a group heal th plan with resp ect 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 sma ll groups to include a single individual) but not163 more than 50 employees on business days durin g the preceding calendar year. See section 732(a) of ERISA and § 2590.732(b), which provide that this section (and cer tain other sections) does not apply to any group health plan (and he alth insurance issuer offering coverage in connection with a group health pl an) for any plan year if, on the first day of the plan year, the plan has fewer than two particip ants who are current employees. (2) Rules in determining employer size

. For purposes of paragr aph (f)(1) of this

section— (i) All persons treated as a single employer unde r 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 th roughout 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 da ys 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 offere d in connection with such plans) results in an increase for the plan year involved of the act ual total cost of cove rage with respect to medical/surgical benefits and ment al health and substance use diso rder benefits as determined and certified under paragraph (g)(3) of this sec tion by an amount that exceeds the applicable percentage described in paragraph (g)(2) of th is section of the actual total plan costs, the provisions of this section shall not apply to such plan (or co verage) 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 in164 compliance with this section with respect to the plan or cove rage involved regardless of any

increase in total costs. (2) Applicable percentage . With respect to a plan or c overage, 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 attr ibutable to implementation of the requirements of this section shall be made and certified by a qualif ied and licensed actua ry 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 insuran ce 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 th e determination under paragraph (g)(3)(i) of this section is expressed mathematically as follows: [(E 1 – E 0 )/T 0 ] –D > k (i) E 1 is the actual total cost of coverage with respect to mental health and substance use disorder benefits for the base pe riod, including claims paid by the pl an or issuer with respect to165 mental health and substance use disorder benefits and administrative costs (amortized over time) attributable to providing these be nefits consistent with the requirements of this section. (ii) E 0 is the actual total cost of coverage with respect to mental health and substance use disorder benefits for the length of time immediat ely before the base period (and that is equal in length to the base period), incl uding 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 provi ding these benefits. (iii) T 0 is the actual total cost of coverage with respect to all benefits during the base period. (iv) k is the applicable per centage of increased cost specif ied 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 th at is calculated by applying the formula (E 1 – E 0 )/T 0 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 he alth insurance issuer seeks an exemption under this paragraph (g), determinatio ns 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 para graph (g)(3) of this section, qualifies for an exemption under this paragraph (g), and elects to implement the exemption, must no tify participants and beneficiaries covered under the plan, the Secretar y, and the appropriate St ate agencies of such

election.166 (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 exem pt from the requirements of this section and a description of the basis for the exemption. (2 ) The name and telephone number of the indi vidual 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 spons or’s name, address, and telephone number (if different from paragraph (g)(6)(i)(A)(3 ) of this section) and th e plan sponsor’s employer identification number (EIN). (6 ) The effective date of such exemption. (7 ) A statement regarding the ability of particip ants and beneficiaries to contact the plan

administrator or health insuran ce 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 av ailability, upon request and free of charge, of a summary of the information on which the exemption is ba sed (as required under para graph (g)(6)(i)(D) of this section). (B) Use of summary of material reduc tions in covered services or benefits

. A plan or issuer may satisfy the requirements of para graph (g)(6)(i)(A) of this section by providing participants and beneficiaries (i n accordance with para graph (g)(6)(i)(C) of th is section) with a summary of material reductions in covered se rvices or benefits consistent with § 2520.104b–3(d) of this chapter that also includes the informa tion specified in paragraph (g)(6)(i)(A) of this167 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 para graph (g)(6)(i) is required to be provided to all participants a nd beneficiaries. The notice ma y be furnished by any method of delivery that satisfies the requirements of sec tion 104(b)(1) of ERISA (29 U.S.C. 1024(b)(1)) and its implementing regulations (for example, firs t-class mail). If the notice is provided to the participant and any beneficiaries at the participant’s last known addr ess, then the requirements of this paragraph (g)(6)(i) are satisfi ed with respect to the particip ant and all beneficiaries residing

at that address. If a benefici ary’s last known address is differe nt from the participant’s last known address, a separate notice is required to be provided to the beneficiar y at the beneficiary’s

last known address. (D) Availability of documentation

. The plan or issuer must make available to participants and beneficiaries (o r their representatives), on reques t and at no charge, a summary of the information on which the exemption was base d. (For purposes of th is paragraph (g), an individual who is not a partic ipant or beneficiary and who pr esents a notice described in paragraph (g)(6)(i) of this secti on is considered to be a repres entative. A representative may request the summary of informa tion by providing the plan a copy of the notice provided to the participant under paragra ph (g)(6)(i) of this section with any personally identifiable information redacted.) The summary of information must in clude the incurred expendi tures, the base period, the dollar amount of claims incurred during the ba se 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 relate d to those claims, and ot her administrative costs168 attributable to complying with the requirements of this section. In no event should the summary of information include any pers onally 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 covere d lives under the plan (or coverage) involved at the time of the notification, a nd 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 respec t to medical/surgi cal benefits and mental health and substance use disorder benefits; and (3 ) For both the plan year upon which a cost ex emption is sought and the year prior, the actual total costs of coverage with respect to me ntal 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 provi de notice to the Department of Labor. This requirement is satisfied if the plan sends a c opy, to the address designate d by the Secretary in generally applicable guidance, of the notice described in paragra ph (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 sh all 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; and169 (B) A summary of the data received unde r paragraph (g)(6)(ii) of this section. (iv) Audits . The Secretary may aud it the books and records of a group health plan or a health insurance issuer relating to an exempti on, including any actuarial reports, during the 6 year period following notification of such exemp tion under paragraph (g)(6) of this section. A State agency receiving a notification under paragr aph (g)(6) of this se ction may also conduct such an audit with respect to an ex emption covered by such notification. (h) Sale of nonparity he alth insurance coverage . A health insurance issuer may not sell a policy, certificate, or contract of insurance that fa ils to comply with paragraph (b) or (c) of this section, except to a plan for a year for which th e 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 pa ragraph (i)(2) of this section, this section applies to group health pl ans and health insurance issuers offering group health insurance coverage on the first day of th e 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 CF R 2590.712 contained in the 29 CF R, parts 1927 to end, edition revised as of July 1, 2013. (2) Special effective date for cer tain collectively-bargained plans . For a group health plan maintained pursuant to one or more coll ective 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) fo r plan years beginning be fore the date on which

the last of the collectiv e bargaining agreements terminates (determined without regard to any extension agreed to after October 3, 2008).170 3. Section 2590.715-2719 is amended by adding a se ntence to the end of the introductory text of paragraph (d) and revising pa ragraph (d)(1)(i) to read as follows: § 2590.712 Internal claims and appeals a nd external review processes.

* * * * * (d) * * * A Multi State Plan or MSP, as de fined by 45 CFR 800.20, must provide an

effective Federal external re view 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 th e Secretary in guidance, the Federal external review process established pursuant to this paragr aph (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 determina tion that a participant or beneficiary fails to meet the requirements for eligibility under the term s of a group health plan is not eligible for the Federal external review proce ss under this paragraph (d).

* * * * *171 Department of Health and Human Services

45 CFR Subtitle A For the reasons set forth in the preamble, th e 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 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).

2. Section 146.136 is revise d to read as follows: § 146.136 Parity in mental health a nd substance use disorder benefits. (a) Meaning of terms

. For purposes of this section, ex cept where the context clearly indicates otherwise, the following te rms 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 pl an (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 am ount 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 amount s and include deductibles and172 out-of-pocket maximums. (However, cumula tive 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 provi ded 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 incl ude 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. A ny condition defined by the plan or coverage as being or as not being a medica l/surgical condition must be defi ned to be consistent with generally recognized independent standards of current medical practice (for example, the most

current version of the International Classificat ion 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 cove rage and in accordance with applicable Federal and Stat e law. Any condition defined by th e plan or coverage as being or as not being a mental health condition must be defined to be cons istent with generally recognized independent standards of current medi cal practice (for example, the most current version of the Diagnostic and Stat istical Manual of Mental Diso rders (DSM), the most current version of the ICD, or State guidelines).173 Substance use disorder benefits means benefits with respect to items or services for substance use disorders, as define d under the terms of the plan or health insurance coverage and in accordance with applicable Federal and State la w. Any disorder defined by the plan as being or as not being a substance use disorder must be defined to be cons istent with generally recognized independent standards of current medi cal practice (for example, the most current version of the DSM, the most current vers ion of the ICD, or State guidelines).

Treatment limitations include limits on benefits base d 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 sc ope or duration of benefits for treatment under a plan or coverage. (See para graph (c)(4)(ii) of this secti on 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 provision s of PHS Act section 2711, which prohibit imposing lifetime and annual li mits on the dollar value of essential health benefits. For more information, see § 147.126 of this subchapter. (1) General

— (i) General parity requirement

. A group health plan (o r health insurance coverage offered by an issuer in connection with a group health plan ) that provides both medical/surgical benefits and mental health or su bstance use disorder benefits must comply with paragraph (b)(2), (b)(3), or (b)(5) of this section.174 (ii) Exception

. The rule in paragraph (b)(1)(i) of this section does not apply if a plan (or health insurance coverage) satisfies the requirem ents of paragraph (f) or (g) of this section (relating to exemptions for small em ployers 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 in clude an aggregate lifetime or annual dollar limit on any medical/surgical benefits or includes an aggregate life time 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, resp ectively, on mental health or s ubstance use disorder benefits. (3) Plan with a limit on at least two-th irds of all medical/surgical benefits

. If a plan (or health insurance coverage) includes an aggregat e lifetime or annual dollar limit on at least twothirds 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 a nd to mental health or substance use disorder benefits in a manner that does not distinguish be tween the medical/surgica l benefits and mental health or substance use disorder benefits; or (ii) Not include an aggregate lifetime or annua l dollar limit on mental health or substance

use disorder benefits th at is less than the a ggregate lifetime or annual dollar limit, respectively, on medical/surgical benefits. (F or cumulative limits other than aggregate lifetime or annual dollar limits, see paragraph (c)(3)(v) of this section prohibiting sepa rately accumulating cumulative financial requirements or cumulative quantitative treatment limitations.) (4) Determining one-third and two-th irds of all medical/surgical benefits . For purposes of this paragraph (b), the determination of wh ether the portio n of medical/surgical benefits subject to an aggregate lifetime or annual dollar limit represents one-third or two-thirds of all175 medical/surgical benefits is based on the dollar am ount of all plan payments for medical/surgical benefits expected to be paid unde r the plan for the plan year (or for the portion of the plan year after a change in plan benefits that affects the appli cability of the aggregate lifetime or annual dollar limits). Any reasonable method may be used to determ ine whether the dollar amount expected to be paid under the plan will constitute one-third or tw o-thirds of the dollar amount of all plan payments for me dical/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 insu rance coverage) that is not desc ribed in paragraph (b)(2) or (b)(3) of this section with respect to aggregate life time 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 dol lar limit on mental health or substance use disorder benefits that is no less than an averag e 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 lim its, as appropriate, that are applicable to the categories of medical/surgical benefits. Li mits based on delivery systems, such as inpatient/outpatient treatment or normal treatme nt 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 se parately-designated dolla r limit under the plan are taken into account as a single separate categor y by using an estimate of the upper limit on the176 dollar amount that a plan may reasonably be exp ected to incur with respect to such benefits, taking into account any other appli cable 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 tw o-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, th e 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 financia l requirements include deductibles, copayments, coinsurance, and out-of-pocket maximums. Differ ent 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 financia l requirement or treatment limitation . When reference is made in this paragraph (c) to a level of a type of financial re quirement or treatment limitation, level refers to the magnitude of the type of fi nancial 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 leve ls of a deductible include $250 and $500; and different levels of an episode limit include 21 in patient days per episode and 30 inpatient days per episode.177 (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 premiu ms 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 c onnection with a group heal th plan) that provides both medical/surgical benefits a nd 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 classi fication that is more restrictiv e than the predominant financial requirement or treatment limitation of that type applied to substantia lly all medical/surgical

benefits in the same classificat ion. Whether a financial requirem ent or treatment limitation is a predominant financial requirement or treatment limitation that applies to substantially all medical/surgical benefits in a clas sification is determined separate ly for each type of financial requirement or treatment limitation. The applicat ion of the rules of th is 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 nonquantit ative treatment limitations is addressed in para graph (c)(4) of this section. (ii) Classifications of bene fits 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 describe d in this paragraph (c )(2)(ii), mental heal th or substance use disorder benefits must be provi ded in every classification in wh ich 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 sta ndards to medical/surgical benefits and to mental178 health or substance use disorder benefits. To the extent that a plan (or health insurance coverage) provides benefits in a classification an d imposes any separate financial requirement or treatment limitation (or separate level of a fina ncial 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 re quirements or treatment limitations (illustrated in examples in paragraph (c)(2)(ii)(C) of this section). The fo llowing classifications of benefits are the only classifications used in applying the rules of this paragraph (c): (1 ) Inpatient, in-network . Benefits furnished on an inpa tient basis and within a network of providers established or rec ognized under a plan or health in surance 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 i npatient basis and outside any network of providers established or recognized unde r a plan or health insurance coverage. This classification includes inpatient be nefits under a plan (o r health insurance c overage) 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 un der a plan or health in surance 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 out patient basis a nd outside any network of providers established or recognized unde r 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.179 (6 ) Prescription drugs . Benefits for prescription drugs. See special rules for multi-tiered prescription drug benefits in paragr aph (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 classifi cation of benefits must provide mental health or substance use disorder benefits in every classification in which medical/surgical be nefits are provided, including out-of-netwo rk 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 inpa tient and outpatient benefits and does not contract with a network of providers . The plan imposes a $500 deductible on all benefits. For inpatient medical/s urgical benefits, the plan impos es a coinsurance requirement. For outpatient medical/surgical benefits, the pl an 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. Becau se 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 para graph (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 impos es 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 requir ements or treatment limitations. (ii) Conclusion . In this Example 2 , because the plan does not impose separate financial requirements (or treatment limitations) based on cl assification, the rules of this paragraph (c) apply with respect to the deductible and the coinsurance across all benefits.180 Example 3 . (i) Facts . Same facts as Example 2 , except the plan exempts emergency care benefits from the 20 percent co insurance requirement. The plan imposes no other financial requirements or treatment limitations. (ii) Conclusion . In this Example 3 , because the plan impos es 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 emergenc y 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 treatmen t 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, th e 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 requireme nt or quantitative treatment limita tion is considered to apply to substantially all medical/surgical benefits in a cla ssification of benefits if it applies to at least two-thirds of all medical/surgical benefits in that classificatio n. (For this purpose, benefits expressed as subject to a zero leve l of a type of financial requirem ent are treated as benefits not subject to that type of financia l requirement, and benefits expre ssed 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 bene fits in a classification, then that type cannot be applied to mental health or substance use disorder benefits in that

classification.181 (B) Predominant – (1 ) If a type of financial requir ement 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 s ection, the level of the fi nancial requirement or quantitative treatment limitation that is consider ed the predominant level of that type in a

classification of benefits is th e level that applies to more th an 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 bene fits in a classification, there is no single level that applies to more than one-half of medical/surgica l benefits in the classification subject to the financial requirement or quantita tive treatment limitation, the plan (or healthinsurance issuer) may combine levels until the combination of levels applies to more than onehalf of medical/surgical benefits subject to the financial requirement or quantitative treatment

limitation in the classification. Th e least restrictive level within the combination is considered the predominant level of that type in the classi fication. (For this purpos e, 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 bene fits 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 clas sification expected to be paid under the plan for182 the plan year (or for the portion of the plan year after a change in plan benefits that affects the applicability of the financ ial 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 a ssociated with out-of-pocket payments that are taken into account towards the out-of-pocket maxi mum as well as all plan payments associated with out-of-pocket payments that would have be en made towards the out-of-pocket maximum if

it had not been satisfied. Similar rules apply for any other threshol ds at which the rate of plan payment changes. (See also PHS Act section 270 7(b) and Affordable Care Act section 1302(c),

which establish limitations on annual deductibles fo r non-grandfathered health plans in the small group market and annual limitations on out-of-po cket 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 us ed to determine the dollar amount expected to be paid under a plan for medical/surgical bene fits 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 hea lth insurance coverage) applies different levels of a fi nancial requirement or quantitative treatment limitation to different coverage units in a classificati on 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.183 (iii) Special rules -- (A) Multi-tiered prescription drug benefits . If a plan (or health insurance coverage) applies differe nt levels of financial requir ements to different tiers of prescription drug benefits based on reasonable factors dete rmined in accordance with the rules in paragraph (c)(4)(i) of this s ection (relating to requiremen ts for nonquantitative treatment limitations) and without regard to whether a dr ug is generally prescribed with respect to medical/surgical benefits or with respect to mental health or substance us e disorder benefits, the plan (or health insurance covera ge) satisfies the parity requireme nts of this paragraph (c) with respect to prescription drug bene fits. Reasonable factors includ e cost, efficacy, generic versus brand name, and mail order versus pharmacy pick-up. (B) Multiple network tiers . If a plan (or health insura nce coverage) prov ides 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 subclassifications that reflect network tiers, if th e 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 whet her a provider provides se rvices with respect to medical/surgical benefits or mental health or substance use disorder be nefits. After the subclassifications are established, the plan or issu er 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 fi nancial requirement or treatment limitation that applies to substantially all medical/surgical benefits in the sub-cl assification using the methodology set forth in paragra ph (c)(3)(i) of this section.184 (C) Sub-classifications permitted for office visits, separate from other outpatient

services . For purposes of applying the financial re quirement and treatment limitation rules of this paragraph (c), a plan or i ssuer may divide its benefits furn ished on an outpatient basis into the two sub-classifications described in this paragr aph (c)(3)(iii)(C). After the sub-classifications are established, the plan or issuer may not im pose 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/s urgical benefits in the sub-classification using the methodology set forth in paragra ph (c)(3)(i) of this section. Sub-classifications other than these special rules, such as separate sub-classi fications for generalists and specialists, are not permitted. The two sub-classifications permitte d under this paragraph (c)(3)(iii)(C) are: (1 ) Office visits (such as physician visits), and (2 ) All other outpatient items and services (suc h as outpatient surgery, facility charges for day treatment centers, laboratory char ges, or other medical items). (iv) Examples . The rules of paragraphs (c)(3)(i), (c )(3)(ii), and (c)(3)(ii i) 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 bo th 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%185 Percent subject to coinsurance level N /A 12.5% (100x/800x) 56.25% (450x/800x) 12.5% (100x/800x) 18.75% (150x/800x) The plan projects plan costs of $800x to be subject to coinsu rance ($100x + $450x + $100x + $150x = $800x). Thus, 80 percent ($800x/$1,000x) of the be nefits are projected to be subject to coinsurance, and 56.25 percent of th e benefits subject to coinsuran ce 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 inpa tient, out-of-network medical/surgical benefits are subject to coinsuran ce. 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 coinsura nce 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 restrictiv e than the 15 percent level of coinsurance. Example 2 . (i) Facts . For outpatient, in-network medi cal/surgical benefits, a plan imposes five different copayment levels. Usi ng 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% (200x/800x) 25% (200x/800x) 37.5% (300x/800x) 12.5% (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 be nefits 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 percen t of all outpatient, in-n etwork medical/surgical benefits are subject to a copayment. Moreover, th ere is no single level that applies to more than one-half of medical/surgical benefits in the cl assification 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 highe st 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-net work medical/surgical benefits subject to a copayment because they are exactly one-half ($300x + $100x = $400x; $400x/$800x = 50%).186 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, innetwork medical/surgical bene fits subject to the copaym ents ($100x + $300x + $200x = $600x; $600x/$800x = 75%). Thus, the plan may not impos e any copayment on outpatient, in-network mental health or substance use diso rder benefits that is more rest rictive 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 substantiall y all medical/surgical benefits is determined separately for self-only medical /surgical benefits and family medical/surgical benefits. Because the coinsuranc e 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 followi ng 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 w ith respect to mental health or substance use disorder benefits. Moreover, th e process for certifying a particular drug as “generic”, “preferred brand name”, “non-preferre d brand name”, or “specialty” complies with the rules of paragraph (c)(4)(i) of this section (r elating to requirements for nonquantitative treatment limitations).

Tier 1 Tier 2 Tier 3 Tier 4

Tier description Generic drugs Preferred brand name drugs N on-preferred brand name drugs (which may have Tier 1 or Tier 2 alternatives) Specialty drugs

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 re gard to whether a drug is genera lly prescribed with respect to medical/surgical benefits or with respect to mental health or substance us e disorder benefits; the process for certifying drugs in different tiers comp lies 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).187 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 accordan ce with the rules in paragraph (c)(4)(i) of this s ection, such as accred itation, quality and performance measures (including customer feedback), and relative reimbursement rates. Furthermore, provider tier placement is determined without regard to whet her a provider specializes in the treatment of mental health conditions or substance use disord ers, or medical/surgica l conditions. The plan divides the in-network classifica tions into two sub-cl assifications (in-netw ork/preferred and innetwork/participating). The pl an does not impose any financ ial requirement or treatment limitation on mental health or substance use disorder benefits in either of these subclassifications that is more restrictive than th e predominant financial requirement or treatment limitation that applies to substant ially all medical/surgical benef its in each sub-classification. (ii) Conclusion . In this Example 5 , the division of in-network benefits into subclassifications that reflect the preferred and partic ipating 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 co insurance requirement for outpatient surgery. The plan divides the outpatient, in-network classi fication into two sub-clas sifications (in-network office visits and all other outpatien t, in-network items and services). The plan or issuer does not impose any financial requirement or quantitativ e 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 bene fits 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 othe r outpatient, in-network items and services does not violate the parity requiremen ts 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 classi fication 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 outpatie nt items and services violates the requirements of paragraph (c)(3)(iii)(C) of this section. (v) No separate cumulative financial requi rements or cumulative quantitative treatment

limitations – (A) A group health plan (or health insura nce coverage offered in connection with a group health plan) may not apply any cumula tive financial requirement or cumulative188 quantitative treatment limitation for mental heal th 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, a nd 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 hea lth and substance use disorder benefits. (ii) Conclusion . In this Example 2 , the separate annual deduc tible 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 hea lth or substance use disorder benefits. (ii) Conclusion . In this Example 3 , the separate annual deduc tible on mental health and substance use disorder benefits violates th e 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 a nd mental health and s ubstance 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 reasona ble methods, the plan projects its payments for medical/surgical benefits in each classification for the upcoming year as follows:

Classification Benefits Subject to Deductible Total Benefits Percent Subject to Deductible Inpatient, in-network $1,800x $2,000x 90% Inpatient, out-of-network $1,000x $1,000x 100% Outpatient, in-network $1,400x $2,000x 70%189 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 classifi cation except emergency ca re because in each of those other classifications at l east 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 s ubject to the $500 deductible because it does not apply to substantially all emerge ncy care medical/surgical benefits. (4) Nonquantitative treatment limitations – (i) General rule . A group health plan (or health insurance coverage) may not impose a nonquant itative treatment limita tion with respect to

mental health or substance use disorder benefits in any classification un less, under the terms of the plan (or health insurance coverage) as writ ten and in operation, any processes, strategies, evidentiary standards, or othe r 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 th an, the processes, strategies, ev identiary 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 appropriate ness, or based on whet her the treatment is experimental or investigative; (B) Formulary design for prescription drugs; (C) For plans with multiple network tiers (s uch as preferred providers and participating providers), network tier design;190 (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 therapie s until it can be shown that a lower-cost therapy is not effective (also known as fail-fi rst policies or step therapy protocols); (G) Exclusions based on failure to complete a course of treatment; and (H) Restrictions based on geographic locati on, facility type, provide r specialty, and other criteria that limit the scope or duration of be nefits for services provi ded 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 authoriz ation from the plan’s utilization reviewer that a treatment is medically necessary for all inpatient medica l/surgical benefits and for all inpatient mental health and substance use di sorder benefits. In prac tice, inpatient benefits for medical/surgical conditions are routinely ap proved for seven days, after which a treatment plan must be submitted by the patient’s attendi ng provider and approved by the plan. On the other hand, for inpatient mental health and substa nce use disorder benef its, routine approval is given only for one day, after which a treatment pl an must be submitted by the patient’s attending provider and approved by the plan. (ii) Conclusion . In this Example 1, the plan violat es the rules of th is 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 standa rd affects 60 percent of mental health conditions and substance use disorders, but only 30 percent of medical/surgical conditions.191 (ii) Conclusion . In this Example 2 , the plan complies with th e 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 th an for medical/surgical benefits, even though it results in an overall difference in the applica tion of concurrent review for mental health conditions or substance use disorders th an 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 criter ia in determining whether a course of treatment is medically necessary. For mental health and su bstance use disorder trea tments 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 limitati on – 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 compar able way. The penalty for failure to obtain prior approval for mental health and s ubstance 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 medica lly appropriate treatments. For both medical/surgical benefits and mental health and substance use disorder benefits, evidentiary standards used in determining whether a treatmen t 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 invol ved. The evidentiary standards are applied in a manner that is based on clinically appropriate st andards of care for a condition. (ii) Conclusion . In this Example 4 , the plan complies with th e rules of this paragraph (c)(4) because the processes for developing the ev identiary standards used to determine medical appropriateness and the application of these st andards to mental health and substance use disorder benefits are comparable to and are appl ied no more stringently than for medical/surgical benefits. This is the result even if the applica tion of the evidentiary standards does not result in similar numbers of visits, days of coverage, or ot her benefits utilized for mental health conditions or substance use disorders as it does fo r any particular medi cal/surgical condition. Example 5 . (i) Facts . A plan generally covers medica lly appropriate treatments. In determining whether prescription drugs are medically appropriate, the plan automatically excludes coverage for antidepressa nt drugs that are given a bl ack box warning label by the Food and Drug Administration (indicating th e drug carries a significant risk of serious adverse effects). For other drugs with a black box warning (includi ng 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 prescrib ing physician obtains authorization from the plan that the drug is medically appropriate for the individual, based on clinically appropriate standards of care.192 (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 benef its 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 pr ovides, among other benefits, a limited number of mental health or substance use disorder couns eling sessions. Participants are eligible for mental health or substance use disorder be nefits under the major medical plan only after exhausting the counseling sessions provided by th e EAP. No similar exhaustion requirement applies with respect to medical/surgical bene fits provided under the major medical plan. (ii) Conclusion . In this Example 6 , limiting eligibility for mental health and substance use disorder benefits only af ter EAP benefits are exhauste d 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 re quirements often vary among types of providers. A plan applies a general standard that any provider must meet the highest licensing requirement related to supervis ed clinical experience under app licable State law in order to participate in the plan’s provide r network. Therefore, the plan requires master's-level mental health therapists to have post- degree, supervised clinical expe rience but does not impose this requirement on master's-level general medical pr oviders because the scop e of their licensure under applicable State law does re quire clinical experience. In addition, the plan does not require post-degree, supervised c linical experience for psychiat rists or PhD level psychologists since their licensing already re quires supervised training. (ii) Conclusion . In this Example 7, the plan complies with th e 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 consis tently 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 trea tment; high cost growth; va riability in cost and quality; elasticity of demand; prov ider discretion in determining di agnosis, or type or length of treatment; clinical efficacy of any proposed trea tment or service; licensi ng and accreditation of providers; and claim types with a high percentage of fraud. Based on appli cation of these factors in a comparable fashion, prior au thorization is required for some ( but not all) mental health and substance use disorder benefits, as well as for so me medical/surgical benef its, but not for others. For example, the plan requires pr ior authorization for: outpatient surgery; speech, occupational,193 physical, cognitive and behavioral therapy extendi ng for more than six months; durable medical equipment; diagnostic imaging; skilled nursing vi sits; home infusion therapy; coordinated home care; pain management; high-risk prenatal car e; delivery by cesarean section; mastectomy; prostate cancer treatment; narcot ics prescribed for more than seven days; and all inpatient services beyond 30 days. The evidence consid ered in developing its medical management techniques includes consideration of a wide array of recognized medical literature and professional standards and protoc ols (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 th e rules of this paragraph (c)(4). Under the terms of the plan as writt en and in operation, the processes, strategies, evidentiary standards, and othe r factors considered by the pl an in implementing its prior authorization requirement with respect to mental health and substance use disorder benefits are comparable to, and applied no more stringen tly than, those applied with respect to medical/surgical benefits. Example 9 . (i) Facts . A plan generally covers medica lly appropriate treatments. The plan automatically excludes coverage for inpa tient 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 condi tions (including freesta nding or residential treatment centers prescribed for mental hea lth conditions, as well as for medical/surgical conditions), the plan will provi de coverage if the prescribi ng 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 limitati on – medical appropriateness – is applied to both mental health and substance use disorder be nefits and medical/surgical benefits, the plan’s unconditional exclusion of substanc e 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 cove rage for medically appropriate medical/surgical benefits as well as mental health and substance us e disorder benefits. The plan excludes coverage for inpatient, out-of-networ k treatment of chemical dependency when obtained outside of the State where the policy is written. There is no similar exclusion for medical/surgical benefits with in the same classification. (ii) Conclusion . In this Example 10, the plan violat es the rules of this paragraph (c)(4). The plan is imposing a nonquantitative treatmen t limitation that restricts benefits based on geographic location. Because there is no comparab le exclusion that applies to medical/surgical benefits, this exclusion may not be applied to mental health or s ubstance use disorder benefits.194 Example 11 . (i) Facts . A plan requires prior authorizati on for all outpatient mental health and substance use disorder services after th e ninth visit and will only approve up to five additional visits per auth orization. With respect to outpatient medical/surgical benefits, the plan allows an initial visit without pr ior authorization. Af ter 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 medi cal 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 rule s of this paragraph (c)(4). Although the same nonquantitative treatment lim itation – prior authorization to determine medical appropriateness – is applied to both mental health and substance use disorder benefits and medical/surgical benefits for outpatient serv ices, 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, tr eating all mental health conditions and substance use disorders in the same manner, while provi ding for individualized treatment of medical conditions, is not a comparable applicati on 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 requirem ents of paragraph (f) or (g) of this section (relating to exemptions for small em ployers 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 benefi ts (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 o ffering such coverage) to any current or potential participant, beneficiary, or cont racting 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 subs tance use disorder benefi ts in the case of any participant or beneficiary must be made avai lable by the plan admini strator (or the health insurance issuer offering such coverage) to the participant or beneficiar y. For this purpose, a195 non-Federal governmental plan (or health insurance coverage offe red in connection with such plan) that provides the reason fo r the claim denial in a form and manner consistent with the requirements of 29 CFR 2560.503-1 for group health plans complies with th e requirements of this paragraph (d)(2). (3) Provisions of other law . Compliance with the disclosu re requirements in paragraphs (d)(1) and (d)(2) of this section is not determinative of complian ce 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 informati on relevant to medical/surgical, mental health, and substance use disorder bene fits. For example, § 147.136 of this subchapter sets forth rules regarding claims and appeals, in cluding the right of claima nts (or their authorized representative) upon appeal of an adverse benefit determinat ion (or a final internal adverse benefit determination) to be provided upon request and free of charge, r easonable access to and copies of all documents, records, and other information relevant to the claimant’s claim for

benefits. This includes documents with inform ation on medical necessity criteria for both medical/surgical benefits and ment al health and substance use diso rder benefits, as well as the processes, strategies, evidentia ry standards, and other factor s 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 h ealth or substance use disorder benefits. If, under an arrangement or arrangemen ts to provide medical care benefits by an employer or employee organization (including for th is purpose a joint board of trustees of a multiemployer trust affiliated with one or mo re multiemployer plans), any participant (or196 beneficiary) can simultaneously re ceive coverage for medical/surgi cal benefits and coverage for

mental health or substance use di sorder benefits, then the requirem ents 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 me ntal health or substance use disorder benefits that any participant (or beneficiary) can si multaneously receive from that employer’s or employee organization’s arrangemen t or arrangements to provide medical care benefits, and all such combinations are considered for purposes of th is section to be a single group health plan. (2) Health insurance issuers . The requirements of this sec tion 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 subj ect to paragraph (e)(1 ) of this section. (3) Scope . This section does not – (i) Require a group health pl an (or health insurance issuer offering coverage in connection with a group health plan) to provide any mental health bene fits or substance use disorder benefits, and the provision of benefits by a plan (or health insu rance coverage) for one

or more mental health conditions or substance use disorders does not require the plan or health insurance coverage under this sec tion to provide benefits for any other mental health condition or substance use disorder; (ii) Require a group health pl an (or health insurance issuer offering coverage in connection with a group health plan) that provide s coverage for mental health or substance use disorder benefits only to the extent require d under PHS Act section 2713 to provide additional

mental health or substance use disorder benefits in any classification in accordance with this section; or197 (iii) Affect the terms and conditions relati ng to the amount, duration, or scope of mental

health or substance use disorder benefits under the plan (or hea lth 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 §§ 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 substan ce use disorder services , including behavioral health treatment services, as part of essentia l health benefits require d under §§ 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 paragr aph (f)(1) of this

section— (i) All persons treated as a single employer unde r 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 th roughout 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 da ys 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.198 (g) Increased cost exemption —(1) In general . If the application of this section to a group health plan (or health insurance coverage offere d in connection with such plans) results in an increase for the plan year involved of the act ual total cost of cove rage with respect to medical/surgical benefits and ment al health and substance use diso rder benefits as determined and certified under paragraph (g)(3) of this sec tion by an amount that exceeds the applicable percentage described in paragraph (g)(2) of th is section of the actual total plan costs, the provisions of this section shall not apply to such plan (or co verage) 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 cove rage involved regardless of any

increase in total costs. (2) Applicable percentage . With respect to a plan or c overage, 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 attr ibutable to implementation of the requirements of this section shall be made and certified by a qualif ied and licensed actua ry 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.199 (ii) The written report described in paragraph (g)(3)(i) of this section shall be maintained by the group health plan or health insuran ce 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 th e determination under paragraph (g)(3)(i) of this section is expressed mathematically as follows: [(E 1 – E 0 )/T 0 ] –D > k (i) E 1 is the actual total cost of coverage with respect to mental health and substance use disorder benefits for the base pe riod, including claims paid by the pl an or issuer with respect to

mental health and substance use disorder benefits and administrative costs (amortized over time) attributable to providing these be nefits consistent with the requirements of this section. (ii) E 0 is the actual total cost of coverage with respect to mental health and substance use disorder benefits for the length of time immediat ely before the base period (and that is equal in length to the base period), incl uding 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 provi ding these benefits. (iii) T 0 is the actual total cost of coverage with respect to all benefits during the base period. (iv) k is the applicable percen tage of increased cost specifie d 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 th at is calculated by applying the formula (E 1 – E 0 )/T 0 to mental health and substance use disorder spending in each of the five prior years and then calculating the average change in spending.200 (5) Six month determination . If a group health plan or he alth insurance issuer seeks an exemption under this paragraph (g), determinatio ns 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 para graph (g)(3) of this section, qualifies for an exemption under this paragraph (g), and elects to implement the exemption, must no tify participants and beneficiaries covered under the plan, the Secretar y, and the appropriate St ate 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 exem pt from the requirements of this section and a description of the basis for the exemption. (2 ) The name and telephone number of the indi vidual 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 spons or’s name, address, and telephone number (if different from paragraph (g)(6)(i)(A)(3 ) of this section) and th e plan sponsor’s employer identification number (EIN). (6 ) The effective date of such exemption. (7 ) A statement regarding the ability of particip ants and beneficiaries to contact the plan

administrator or health insuran ce issuer to see how benefits may be affected as a result of the plan’s or issuer’s election of the exemption.201 (8 ) A statement regarding the av ailability, upon request and free of charge, of a summary of the information on which the exemption is ba sed (as required under para graph (g)(6)(i)(D) of this section). (B) Use of summary of material reduc tions in covered services or benefits . A plan or issuer may satisfy the requirements of para graph (g)(6)(i)(A) of this section by providing participants and beneficiaries (i n accordance with para graph (g)(6)(i)(C) of th is section) with a summary of material reductions in covered se rvices or benefits consistent with 29 CFR 2520.104b–3(d) that also includes the information sp ecified 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 para graph (g)(6)(i) is required to be provided to all participants a nd beneficiaries. The notice ma y be furnished by any method of delivery that satisfies the requirements of sec tion 104(b)(1) of ERISA (29 U.S.C. 1024(b)(1)) and its implementing regulations (for example, firs t-class mail). If the notice is provided to the participant and any beneficiaries at the participant’s last known addr ess, then the requirements of this paragraph (g)(6)(i) are satisfi ed with respect to the particip ant and all beneficiaries residing

at that address. If a benefici ary’s last known address is differe nt from the participant’s last known address, a separate notice is required to be provided to the beneficiar y at the beneficiary’s

last known address. (D) Availability of documentation

. The plan or issuer must make available to participants and beneficiaries (o r their representatives), on reques t and at no charge, a summary of the information on which the exemption was base d. (For purposes of th is paragraph (g), an individual who is not a partic ipant or beneficiary and who pr esents a notice described in202 paragraph (g)(6)(i) of this secti on is considered to be a repres entative. A representative may request the summary of informa tion by providing the plan a copy of the notice provided to the participant under paragra ph (g)(6)(i) of this section with any personally identifiable information redacted.) The summary of information must in clude the incurred expendi tures, the base period, the dollar amount of claims incurred during the ba se 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 relate d to those claims, and ot her administrative costs attributable to complying with the requirements of this section. In no event should the summary of information include any pers onally 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 covere d lives under the plan (or coverage) involved at the time of the notification, a nd 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 respec t to medical/surgi cal benefits and mental health and substance use disorder benefits; and (3 ) For both the plan year upon which a cost ex emption is sought and the year prior, the actual total costs of coverage with respect to me ntal 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.203 (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 h ealth 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 insura nce 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 Se rvices. This requirement is sa tisfied if the plan or issuer sends a copy, to the address desi gnated by the Secretary in generally applicable guidance, of the notice described in paragraph (g)(6)(ii)(A) of th is 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 sh all 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 unde r paragraph (g)(6)(ii) of this section. (iv) Audits . The Secretary may aud it the books and records of a group health plan or a health insurance issuer relating to an exempti on, including any actuarial reports, during the 6 year period following notification of such exemp tion under paragraph (g)(6) of this section. A State agency receiving a notification under paragr aph (g)(6) of this se ction may also conduct such an audit with respect to an ex emption covered by such notification.204 (h) Sale of nonparity he alth insurance coverage . A health insurance issuer may not sell a policy, certificate, or contract of insurance that fa ils to comply with paragraph (b) or (c) of this section, except to a plan for a year for which th e 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 pa ragraph (i)(2) of this section, this section applies to group health pl ans and health insurance issuers offering group health insurance coverage on the first day of th e 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 §146.136 cont ained in the 45 CFR, parts 1 to 199, edition revised as of October 1, 2013. (2) Special effective date for cer tain collectively-bargained plans . For a group health plan maintained pursuant to one or more coll ective 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) fo r plan years beginning be fore the date on which

the last of the collectiv e bargaining agreements terminates (determined without regard to any extension agreed to after October 3, 2008).205 PART 147—HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKETS 3. The authority citation for part 14 7 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. 4. Section 147.136 is amended by adding a sentence to the end of the in troductory text of paragraph (d) and revising paragr aph (d)(1)(i) to read as follows: §147.136 — Internal claims and appeals a nd external review processes.

* * * * * (d) * * * A Multi State Plan or MSP, as de fined by 45 CFR 800.20, must provide an

effective Federal external re view 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 th e Secretary in guidance, the Federal external review process established pursuant to this paragr aph (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 determina tion that a participant or beneficiary fails to meet the requirements for eligibility under the term s of a group health plan is not eligible for the Federal external review proce ss under this paragraph (d).

* * * * *

5. Section 147.160 is adde d to read as follows:206 § 147.160 Parity in mental health a nd substance use disorder benefits. (a) In general . The provisions of § 146.136 of this subchapter apply to health insurance coverage offered by health insurance issuer in th e 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 connecti on 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 applicab ility dates set forth in §146.136( i) of this subchapter. This section applies to non-grandfathered and gr andfathered health plans as defined in §147.140.

[FR Doc. 2013-27086 Filed 11/08/2013 at 11: 15 am; Publication Date: 11/13/2013]