manaitt

manatt | phelps | Phillips

Marilyn Richmond and Doug Walter
September 10, 2007
Page 4

is not our intention to preempt any State laws that regulate, limit or even prohibit
entirely the medical management of benefits. That is one of the reasons we are
using the preemption standard -- the existing HIPAA standard that so clearly does
not preempt such a law.

Congressional Record, Senate Page: S10883. Senators Specter and Casey asked these questions
with specific regard to Pennsylvania Act 106, a State law that mandates certain coverage based
on a treating provider’s certification. Senators Domenici and Kennedy went on to clarify that, in
accordance with this interpretation, state laws mandating coverage based on a treating provider's
certification would not be preempted by the Act. This evidence of Congressional intent will be
helpful in protecting the Pennsylvania law and similar statutes from preemption.

Cc. Definition of Mental Health Benefits

Section 712A and Section 2705A both include a subsection (f) that, for purposes of
applying the Act’s parity obligation, defines the term “mental health benefits” to include any
such benefits “as may be defined under State law when applicable to health insurance coverage
offered in connection with a group health plan.” Thus, to the extent a state has established its
own definition of mental health benefits as part of a parity or other insurance law, that definition
continues to be applicable when applying the Act’s parity standards to state-licensed insurers.

D. Small Group Market

As indicated above, although the Act does not apply to the small group market, the Act
expressly states that it does not preempt any state insurance law relating to group health plans
sponsored by small employers. As a result, state parity laws applicable to the small group
market should not be preempted by the Act.

80400528.4



Actual Total Costs of Coverage— Actual total costs of coverage could have several meanings,
but for purposes of MHPAEA it should mean incurred claim costs during the plan year for
medical and surgical benefits and for mental health/substance use benefits. Medical and
surgical references should be to all coverage provided under a medical/surgical plan
(including prescription drug costs and any carve out program costs for mental health and
substance abuse). Presumably, coverage costs including, but not limited to, employee
assistance programs, dental, vision, legal, short term disability or long term disability, and
separate specific disease coverage costs would be excluded from the calculation. All
comparisons are on actual claim costs—mental health/substance use to total plan costs. Other
administrative costs, profit, taxes, etc. would not be included.

The word “actual” should not be taken in “layman’s” language but rather with an actuarial
perspective of incurred claims. The determination of actual total claim costs should not
require a delay in any calculation awaiting runoff claims over an extended period of time.
Given the plan year (assuming 12 months), actual total costs of coverage would include a
determination of those Incurred But Not Reported (“IBNR”) at the beginning and end of the
12 month paid claims period. Actual total costs should mean an actuarial determination of the
conversion of paid claims during the period to incurred claim costs by making appropriate
adjustments for IBNR and (if applicable) other claim reserves. Any method of determining
IBNR to covert paid to incurred claims would be acceptable that meet the Actuarial Standard
of Practice No. 5 as published by the Actuarial Standards Board.

Both the total claim costs for the plan year and the mental health claim costs would need to be
developed on an incurred basis using similar methods. Both in-network and out-of-network
(and out-of-area) claim costs should be included in the calculation. A determination of
incurred per member per month (“PMPM”) costs is needed to make the final analysis of the
cost exemption. PMPM costs are determined by taking the incurred claims and dividing by
the number of covered member months during the period.

Considering this as a formula:

(Incurred PMPM MHSA CY) = (Incurred PMPM MHSA PY x MHSA Trend Factor)
(Incurred PMPM Total Plan Claim Costs PY)

PMPM = Per Member Per Month

CY = Current Plan Year

PY = Prior Plan Year

MHSA = mental health and substance use

The comparison of PMPM MHSA CY should be based on the same coverage provided in the
prior year. Ifa plan voluntarily expands coverage for new conditions/treatments from the PY
those costs should be excluded in the calculation in the CY, since they were not required by
the legislation. Any comparison of CY and PY MHSA PMPM costs should also account for
any differences in cost-sharing levels (e.g., deductibles, co-pays, coinsurance and out-of-
pocket limits).

14



surgical coverage. No longer will people with mental illness have their mental
health coverage treated differently than their coverage for other illnesses. That
means there will be parity between the coverage of mental illness and other
medical conditions such as cancer, heart disease, and diabetes . . . . Parity means
fairness. We have been unfair to the mentally ill since we started medical
insurance coverage for people with illnesses. Somehow we got off the track.
We said, of course, we will treat everything that has to do with the heart, but, for
instance, we won’t do anything having to do with illnesses that affect the brain . .
. . Today this bill says all of the group insurance policies in the United States of
America, no matter who wrote them, no matter where they were written, no
matter which company they were written by or for, will have to provide for the
mentally ill who are covered. If they are going to have any mental health
coverage, those insurance companies must cover them with the exact same
coverage they give to others who suffer from other diseases as I have described .
... 154 Cong. Rec. 89244 (daily ed. September 23, 2008) (statement of Sen.
Domenici)

For far too long, health insurance companies have used the stigma of mental
illness and substance abuse as an excuse to deny coverage for those biological
disorders. That ends today. The Paul Wellstone and Pete Domenici Mental
Health Parity and Addiction Equity Act of 2008 will finally outlaw the
discrimination that is embedded in our laws and our policies. 154 Cong. Rec.
H10776 (daily ed. October 3, 2008) (statement of Rep. Kennedy)

A major barrier for thousands of Americans is insurance discrimination, plain
and simple, against people in health plans who need treatment for mental illness
or chemical addiction. [The bill] before us today, would end this discrimination
by prohibiting health insurers from placing discriminatory restrictions on
treatment for people with mental illness or addiction. No more inflated
deductibles or copayments that don’t exist for physical diseases. No more
limited treatment stays that don’t apply to physical ailments, no more
discrimination against people with mental illness or chemical addiction .. . . It’s
time to end the discrimination against people who need treatment for mental
illness and addiction. It’s time to prohibit health insurers from placing
discriminatory barriers on treatment. 154 Cong. Rec. H8619 (daily ed. September
23, 2008) (statement of Rep. Ramstad)

As stated above, “separate but equal” is not an end to discrimination, but a separation out of
mental health/substance use benefits for discriminatory treatment through the imposition of
additional cost requirements or treatment limitations. As such, if the departments permitted
health plans to apply “separate but equal” financial requirements or treatment limitations, the
clear purpose of Congress to end benefits discrimination against enrollees with mental health
or substance use disorders would be defeated.



Attachment B

August 3, 2007 CONGRESSIONAL RECORD — SENATE $10883

ved the principle way of children’s ay
er be forced to needed health care.
B they need and

. In the years
‘than 50 million BRITISH PETROLZM REFINERY

bdvantage of its Mr. DURBIN. Mr.
la sick love one, Tise to speak about tf
| themselves, or sion of a British Pet
io the family, | Whiting, IN. BP A
inary Americans and received, a peri
(ow much more pollution it dumps iy
lp who risk their Under this new
bur country? Sol- panded facility will
wounded in our More ammonia and
lything America Suspended solids whi) contain heavy ischarges, invasive
recoveries—but metals, including cury, into Lake qiversion. ‘These eff
brve the care of Michigan. Expandingiefinery capacity that future generatil
bs. Given the se- is an important goalfffad a project with beauty of our magnii
and our debt of Many benefits, but vgmshouldn’t do this “Dumping more po!
‘members need at the expense of onfof our most pre- our most importan
‘nat is offered in cious natural resourdTMy. water is a bad idea.
ea Bervicemen. Congress passed thgClean Water Act’ state recognize that
to restore and mairfiin the integrity {5 "forgo the modest]
of our Nation's wallrs. The express ory expansion to Di
‘man Services 80al of the law is to flfduce the amount
en instrumental Of pollutants enterinjjthe Nation’s wa-
SN chrongh their tetways. The Clean Jipter Act went so
Ik on the Presi- pecific target of
s going into the

Care for Amer- charges. We cer-

led Warriors. It’s i
tainly have not met target. ing “
he Commission “put we have been flying to move to- in “beyond petrol

pers play acrit- 04st, Now, BP was to increase its Stfuagling small bu:

of our wound” Soiration into Lake Michigan. BP has three years, BP Oo:
spent millions and Millions of dollars 2¢t Profits of over $
to “green” its imal. This company @8 the resources
has effectively changlfd its name from tis BP Amoco.
“British Petroleum’fTMto “Beyond Pe-
troleum.”’
or close friend “Soe "with this “g
periods of time turns around and as|
ps. It also points gramatically increa
of active duty pollutants it dumps
at their friends gan. BP has worked
e up jobs to find the American publ
_. company is an envir|
nator CLINTON i8 that it is a responsi}
my amendment. company. And it do
first bill that good initiatives, but|
ed into law, and this image by insif
is wife, Senator ore pollution into J
upport the prin- “4 Chicago Sun
fighting for over week referred to
d that Senators jyters.” I don’t thin!
DY, CHAMBLISS, company wants.
RRAY, SALAZAR, The CEO of BP
, BROWN, NELSON week. Tasked him to|
DIN are co-spon- at the technology
pt. I thank Sen- available to decreaq
or GRASSLEY for ammonia and total
ant amendment that will be intro]
pport ofallofmy Michigan. I encoura
better solution.
scoubtea by the JT am calling on
Bush administra- standard it has set
is a bill to help porate steward of th
elming majority to stop any additioy
‘ides of the aisle being discharged intd
that goal. The The Great Lakes
Inodel of success and valuable resourd
sustainable and largely closed ecos;
e coverage for very long water
peardless of their takes 106 years for
soon, the Presi- pletely flushed throu|
sion on whether Pollutants that are i
‘ization into law. lake are likely to stqTM there fora long Mr. KENNEDY. I thank my col-
Americans will time. leagues from Pennsylvania and appre-
sident stands for The Great Lakes q@htain more than ciate their dedication to and support
ner stand in the 20 percent of the Eah’s surface fresh for the cause of mental health parity. I

ess to critically water and are a ny
water source for
Americans. Increas!
into the Lakes shoi
Twenty-five percent
esident, today I nadian populations
proposed expan- tershed of the Great
leum refinery in Congress apprecia,
jo has requested, this resource. Morel
to increase the laws have been ens
Lake Michigan. cally focused on re:
mit, BP's eX- Lakes basin.
lease 54 percent “Government at all
percent more to prevent industrial

years ago, FMLA ded
that workers should
choose between the
the families they ]
since its passage, mq
Americans have tak
provisions to care fq
or recover from illn
welcome a new baby

Mr. President, if of

pollution going
ld worry us all.
the U.S. and Ca-
within the wa-
kes.

is the value of

ring the Great

levels is working
ollution, sewage

are to ensure
Ss will enjoy the
lent Great Lakes.
ition into one of

can give to speed th|
most of all, they df
their closest loved q
verity of their injurij
gratitude, our ser]
more. That is exactl;
the Support for In;
bers Act.

Senator Bob Dold
retary of Health an|
Donna Shalala have
in this effort as
thoughtfulness and
dent’s Commission
ica’s Returning Wou|
not surprising that
found that family mj
ical role in the reco}
ed servicemembers.
shown by the fami.
our troops is truly iq
to the Commission’g

.d former Sec-

an.

At a time when
are threatened herdMand around the
globe, we should d
cially from corporat
Waters by 1985. Zero public relations cai
BP is not a
ess. In the past
ation has eared
illion. If anyone
ind alternatives,

BP to live up to

en” image, BP ate and use some of fhe resources they
for a permit to have to prevent adiltional pollution
the amount of from entering ourpmdri

to Lake Michi- Please protect our|
ry hard to make don’t degrade it.
think that the

mental steward, = MENTAL HEALTH PARITY ACT

feemeneannneed Mr. CASEY. Mr. President, I rise
P stands to lose today to clarify my support for S. 558,
ing on dumping the Mental Health Parity Act of 2007.
hce Michigan. This bipartisan legislation introduced
mes article this by Senators DOMENICI and KENNEDY,
‘as “Big Pol. Seeks to provide parity between health
that is what the insurance coverage of mental health
benefits and benefits for medical and
t with me last surgical services. I join my colleague,
hike another look the senior Senator from Pennsylvania,
‘at is currently Mr. SPECTER, in establishing for the
the amount of record today the reasons for our joint |
Luspended solids support for this bill. I also thank |
hced into Lake Chairman KENNEDY and Senator
d BP to find a DOMENICI for joining us in this discus-

relocated for extend
to help their recove|
out that 21 perce!
servicemembers say]
or family members
the time.

Tam pleased that
the lead co-sponsor
FMLA was the ve
President Clinton si
I am grateful that
CLINTON, continues 4
ciples that I have be
20 years. I am pleq
DOLE, GRAHAM, KE
REED, MIKULSKI,
LIEBERMAN, MENEND|
of Nebraska, and C|
soring this amendn
ator BAUCUS and Sel
accepting this imp
and appreciate the
colleagues in this eff

Mr. President, I a
comments from thd
tion about this bill,
children and an ove!
of members on bo
have voted to supp}
CHIP Program is 4
and this bill provid
predictable health
low income childre:
health status. One d
dent will make a d|
to sign CHIP reauth
At that moment,
know whether the
children or would

jatural resource,

sion.

to live up the Mr. SPECTER, I thank my colleague
itself as a cor- Senator CASEY. Mr. President, as a co-
Pnvironment and sponsor of S. 558, I am pleased that the
h pollution from Senate is taking up this important leg-
sake Michigan. islation. I thank Health, Education,
‘ea tremendous Labor, and Pensions, HELP, Com-
The lakes are a mittee Chairman KENNEDY, Senator
em that has a DOMENICI, who along with HELP Com-
q@pntion time. It mittee Ranking Member ENzI and oth-
ter to be com- ers, have worked to establish mental
Lake Michigan. health parity for millions of American
‘oduced into the citizens.



August 3, 2007 CONGRESSIONAL RECORD — SENATE S10885

That State law and the recent decision United States is los:
in The Insurance Federation of Penn- battle with Germ
sylvania, Inc. v. Commonwealth of Japan. In the Unit
Pennsylvania Insurance Department, percent of graduate}
removes managed care barriers to ad- science and enging
diction treatment. What effect will S. many boasts 36 peq
558 have on that State law, or on State with degrees in sciq
efforts to enforce that law or to find ing. Outpacing both)
remedies for violations of that law? and Germany is Chi

Mr, KENNEDY This bill would have of graduates with dq

} the educational ation of a mentoring
, China, and to recruit and trd
States, only 32 nology, and engine
Inold a degree in to mentor women, a
ing, while Ger- resented minorities,
bnt of graduates need to ensure that
e and engineer- segment of the U.g
© United States rather maximize al!
, with 59 percent great human resourg

ees in math and A strong _natio
science, educati

ogram designed
science, tech-
g professionals |
other underrep- |
these fields. We
do not neglect a
population, but
ff this country’s

investment in
technology pro-

no effect upon that law. science, and Japan wih 66 percent. ¢ ‘on, @
Mr. CASEY Would any State laws be ‘The America COMPETES Act em- Vides opportunities [jr Americans to
preempted? bodies bipartisan, [Jicameral multi- succeed in a whole qMMay of disciplines

Mr. DOMENICI Yes, State law re- committee efforts responding to the and professions. Teq
quirements that would prevent the ap- Nation’s defining et
plication of a requirement of S. 558 by, of how to remain st
for example, endorsing a less con- tive in the face of e
sumer-friendly level of coverage or from India, China, aM the rest of the TMments to our transpq
benefits. For example, a State law that world. ture, and the need
prohibited an insurance company from The America COJMPETES Act ad- nologies to increasq
selling policies providing for full parity dresses programs webhin several sci- pendence. The Al
in coverage for mental health services entific agencies of JMhich the Senate Act directs the Nat:
and medicaVsurgical services would be Committee on ComnTMrce, Science, and Preserve and imprq
preempted. ‘Transportation has [Mrisdiction. With- This bill demonstrat
Mr. CASEY Would the current legis- in the Department fF Commerce, the ¢ not taking thei
lation, S. 558, have any effect on any National Institutes (Mf Standards and 20logical and econo}
provisions of Pennsylvania Act 106, or ‘Technology, NIST, pjpmotes U.S. inno- 8ranted but are con
on any State efforts to enforce provi- vation and industri#TM competitiveness Improve and lead Mt
sions of that law or to find remedies for by advancing meafffrement science, .toceq that last
violations of any provisions of that standards, and techrMMogy. The legisla~ Pleased that last
law? tion before us woulffidouble the agen- Passed the confanen
Mr. KENNEDY It would have no ef- cy’s funding over th PELBS Act of 90077
fect. Pennsylvania’s Act 106 is an ex- also create a new p ing from Ataerioane’
ample of the kind of consumer protec- nology Innovation P innovation has revel
tion law that is not preempted by the support high-risk, a coonouny and we
federal floor created in S. 558. search. This was ond aT nae ceed Le
Mr. SPECTER I appreciate this dis- ommendations of ty “unfortunately, ou
cussion with my colleague from Penn- emies report, “Ris! has failed to keep pl
sylvania, Chairman KENNEDY and Sen- ering Storm.” our Nation’s schools|
ator DOMENICI. I thank Chairman KEN- Also within the D vide their students ¥
NEDY, Ranking Member ENzI, Senator merce, the Nationa| technological, engin|
Domenici and others on the HELP mospheric Administ matical knowledge
Committee who have worked so hard to ducts significant bas century economy
establish these critical benefits for oceanographic resea well-trained people
citizens across our great country. And mate change researy and. teohnival
I thank them for this discussion to gued that the ocea produce, this Natio
clarify our support for S. 558. frontier on Earth, 4 place as the epicen|
Mr. CASEY T also want to express my and technology maf have broad im- Gnterprise that has
deepest thanks to HELP Committee pacts on improving [Mealth and under- pyondest traditions
Chairman KENNEDY, Senator DomENIcI, standing our envirorghent. Toward this ~ | applaud Senators
HELP Committee Ranking Member end, Congress incluffed provisions on pxanpsr and the o
Enzi, and all members and staff who NOAA research and [Hucation, as well sors of the bill for
have worked so hard to make this long as, NOAA's continugM participation in sure that this Natid
time dream a reality. I greatly appre- interagency innovai[n and competi- nological leader. I
ciate this discussion and our establish- tiveness efforts.

; them as a cosponsor’
ment of intent regarding S. 558. The bill also inclifies the National proud to join them q
Aeronautics and Spaj

———_— Administration, passage.

NASA, in the compdlitiveness agenda. “| am grateful to

AMERICA COMMETES ACT Like the oceans, spafif serves to inspire business” leaders,

Mr. INOUYE. Mr.fMresident, Amer- young students andMattract them to Grasmick, the Mary

ica’s strength has afMays been in the studies in science, Mechnology, engi- intendent of schod

innovation, technicqiM{skill, and edu- neering, and mathenffftics. Mote, Jr., president]

cation of its workfoTM. The economic The need for aqTMlitional research of Maryland, who ¥

growth and well-bein[lbf the nation re- through the Nationd Science Founda- National Academies’

lies on the tech#Mal innovations tion, NSF, also is adjlressed in this bill Gathering Storm” a

achieved by our worflMorce. To realize with authorization hr appropriations Competitiveness’s ‘

growth and success, Me United States through. fiscal yea 2010. This bill joa” reports and recd

must continue to suimprt the two crit- places NSF on trad to double in 7 serve as the foundat:
ical components vit to the innova- years. While this is—hot as aggressive legislation.

tion process: educat{TM and basic re- an approach as the @TMnate sought, itis This legislation is

search. Today, CongrTMs takes a signifi- clear that Congress united in our be- dresses the growing

cant step toward thislbmmitment. lief that the NSF is ifeed the Nation’s between what is tat

The National AcaiTMmy of Sciences premier scientific rearch enterprise. and secondary scho

i ompetitiveness We need to support Mbis enterprise to necessary to succee|

and innovation the best of our abiliffs, so that it can uate school, and

ic growth. The enable our scientist@TMbo continue their This gap threatens

sharp palpable discovery. Within tl

SF, 1am proud ise we have each maj
ic prowess. The that the conferees pported the cre- dren and those who.

policy problems
telecommuni-
ential improve-
ation infrastruc-
advanced tech-

prging challenges Cations landscape,

f on the path to
its workforce. i
that Americans
raditional tech-
ic dominance for
fially working to

resident, I am
Eht the Senate
report that ac-

gram, which will
fhigh-reward re-
pf the major rec-

National Acad-
Above the Gath-

place as well as

lducation system
le; now, many of |
¢ unable to pro-
ch the scientific,
ing, and mathe-
d skills the 2ist
ands. Without \
hd the scientific
ovations they
risks losing its
for innovative i
been one of our |

tion, NOAA, con-
atmospheric and
th, including cli-
. Some have ar-
truly is the last
Kl ocean research

pr leading spon-
Pir action to en-
remains a tech-
$s proud to join
the bill and was
ote for its final

nd State super-
and Dr. C.
the University
bduced both the
ising Above the i
the Council on
inovative Amer-
mendations that
p for this critical

ritical for it ad-
fp in this country
ht in elementary
f and the skills

p implicit prom-
to our own chil-

decline in its scien’ e represent: get



manatt

manatt | phelps | Phillips

Marilyn Richmond and Doug Walter
September 10, 2007
Page 2

I. The "prevents the application" preemption standard provides for the continued
applicability of state laws that afford a higher level of protection than the Act.

In enacting Sections 1191 and 300gg-23, Congress made clear that it intended "the
narrowest preemption." H.R. Rep. 104-736, 1996 U.S.C.A.N.N. 1990, 1996 WL 579893. "State
laws which are broader than federal requirements would not prevent the application of federal
requirements." Jd. Courts have honored this congressional intent in their interpretation of these
sections. See Plumb v. Fluid Pump Svc., Inc., 124 F.3d 849, 862, n. 10 (7th Cir. 1997)
(interpreting 29 U.S.C. 1191 as having no preemptive effect on "state laws that are, generally
speaking, more favorable to the insured"); O'Donnell v. Blue Cross Blue Shield of Wyoming, 173
F. Supp.2d 1176, 1184 (D. Wyoming 2001) (interpreting virtually identical preemption language
of 42 U.S.C. 300gg-62 as meaning that "[cJongress has made it clear that provisions of HIPAA
regarding individual market reforms were not intended to completely preempt state authority in
the field").

The Act's sponsors, Pete V. Domenici and Edward M. Kennedy, recently confirmed this
interpretation of Sections 1191 and 300gg-23 as it applies to the Act. In response to questions
from Senators Arlen Specter and Robert P. Casey, of Pennsylvania, Senator Kennedy stated:

It is our intention to establish a Federal floor and not a Federal standard or Federal
caps. Thus, we decided to use the already-existing language and standard found
within part 7 of ERISA, which is where the current mental health parity law |
already resides, and where S. 558 will be codified. The law contains the |
narrowest possible preemption language, and is meant to preempt only those state

laws that are less beneficial to consumers and insured, from the standpoint of the

consumer and insured, than this new Federal law.

Congressional Record, Senate Page: 510883. Accordingly, a state law that is more protective
than the Act should not be preempted.

Ill. State laws mandating coverage of mental health benefits, regulating the manner in
which benefits are delivered or establishing parity standards for the small group
market should not be preempted by the Act.

A. “Mandated Parity” Laws

Certain state parity laws mandate the coverage of a defined set of mental health benefits
in connection with imposing a parity requirement. These laws are referred to as "mandated
parity" laws. The Act does not impose such a mandate. Instead, in subsection (a) of Section
712A and Section 2705A, the Act states only that, if a health plan covers both medical and
mental health benefits, it must do so at parity.



considered. If there is no limit on substantially all outpatient medical/surgical visits, for
example, then there shall be no limit on outpatient psychotherapy visits. However, if a plan
has several types of outpatient medical/surgical visit limits (i.e. for primary physician,
specialty, chiropractic, physical therapy, and various other services) so that no one (or a lack
of a) limit represents substantially all of the limit on outpatient medical/surgical visits, then
the predominant qualifier applies. This means that outpatient psychotherapy visits should be
compared to the prevailing or most common outpatient medical/surgical visit limit. For most
plans we assume that this would be the primary physician office visit. Therefore, if the plan
does not impose a limit on primary physician office visits, then the plan shall not impose a
limit on outpatient psychotherapy visits.

For example, consider parity with regard to a copayment requirement for outpatient
psychotherapy visits. To apply the MHPAEA standard, all outpatient medical/surgical visits
of a plan should be considered. If the copayment requirement for substantially all outpatient
medical/surgical visits is $10, for example, then the copayment requirement for outpatient
psychotherapy visits shall be $10. However, if a plan has several types of outpatient
medical/surgical visit copayment requirements, so that no one copayment represents
substantially all of the limit on outpatient medical/surgical visits, then the predominant
qualifier applies. This means that outpatient psychotherapy visits should be compared to the
prevailing or most common outpatient medical/surgical visit limit. For most plans, we
assume that this would be the primary physician office visit. Therefore, if the plan imposes a
$10 copayment for a primary physician office visit, then the plan shall impose a $10
copayment requirement for an outpatient psychotherapy visit.

It seems acceptable to us to compare inpatient-to-inpatient and outpatient-to-outpatient
medical/surgical benefits with mental health/substance use benefits for purposes of applying
the MHPAEA parity standard to financial requirements and treatment limitations in a plan or
coverage. Within the inpatient and outpatient benefits provided by a plan, the MHPAEA
parity standard is meant to address the subtleties that may be involved in the various financial
requirements and treatment limitations applied to various categories of coverage. As
described above, the parity standard is designed in the new law to prevent a plan or coverage
from “gaming” the requirement by comparing mental health or substance use benefits to
outliers in the medical/surgical benefits that it provides.

Mental health or substance use. MHPAEA uses the term “mental health or substance use
benefits” for the purposes of applying parity and comparing those benefits with medical and
surgical benefits. It is our understanding the word “or” in this term is causing some
confusion. Of course, the word “or” is meant to capture all plans which provide mental health
benefits or substance use benefits or both. In other words, if a plan or coverage provides any
of these benefits, then MHPAEA would apply to its coverage (provided that the plan or
coverage was not otherwise exempt). It may be helpful for the departments to clarify this
meaning in rulemaking.

Qualified and licensed actuary. Actuaries are not licensed by state or federal agencies.

Actuaries are certified through education and experience requirements for membership in the
American Academy of Actuaries. We request that the departments clarify that the term

10



determinations drive a plan’s and the patient’s level of financial responsibility.
If a plan is allowed to use an unequal formula and process between
medical/surgical and mental health/substance use benefits when establishing UR
charges it can then create an unequal and greater financial requirement on the
use of OON mental health/substance use benefits. Medical/surgical OON UR is
based usually on a percentile of an industry database developed from billed
charges for the same services in the geographic area. Mental health OON UR is,
under some plans, determined using a different methodology that typically
lowers the mental health OON UR. This generates an unequal and greater cost
sharing burden on the mental health patient’s use of OON providers, and as such,
would violate MHPAEA.

Regarding treatment limitations, in MHPAEA these include limits on the frequency of
treatment, number of visits, days of coverage, or other similar limits on the scope or duration
of treatment, which are group health plan benefit design limits on coverage for provider
services. Treatment limitations in MHPAEA are defined as numeric time limitations and are
not all inclusive or comprehensive. However, MHPAEA includes language in the definition
of “treatment limitations” that applies to “other similar limits on the scope or duration of
treatment” thus capturing other limitations. Examples of these include:

Episodic Limits - An episode of care can be defined as a period of time for which
treatment of an illness is covered and ends after a period of time during which no
active medical/clinical care is provided (e.g. 180 days without care). Rather than
using a typical treatment of days or visits, a group health plan might implement a
time limit for the episodic treatment of the condition or illness. An episode of
care could be limited to a period of time not related to the treatment needs of the
patient. If applied to mental health and substance use benefits solely, this would
violate MHPAEA.

Hourly/Minutes Limits, Periodic or Other Limits — A group health plan might
restrict covered benefits to a limited number of office hours, minutes or some
time restriction other than by days or visits. A group health plan might also
impose periodic limits, such as treatments no more frequently than a specified
number per week, per month or per year. A group health plan that places any
limit on diagnosis-specific, generally accepted medically necessary services
would violate the MHPAEA, if such a limit is not also applied to medical and
surgical benefits.

How do plans currently apply financial requirements or treatment limitations to (1) medical
and surgical benefits and (2) mental health and substance use disorder benefits? Are these
requirements or limitations applied differently to both classes of benefits?

Currently, group health plans commonly apply different financial requirements and treatment
limitations to medical/surgical benefits and to mental health/substance use benefits, with
greater financial requirements and treatment limitations generally being applied to mental
health/substance use benefits. As discussed, MHPAEA identifies specific financial

|
/

i



The APA turns now to offering responses to the specific questions raised by the departments
in the RFI. Due to the breadth of the first question, we separated it into parts for purposes of
our response.

Do plans currently impose other types of financial requirements or treatment limitations on
benefits beyond those provided in the new law?

Regarding financial requirements, in MHPAEA financial requirements include deductibles, |
copayments, coinsurance, and out-of-pocket expenses, in addition to the aggregate lifetime
and annual dollar limits already covered under MHPA. These requirements, of course, are i
those that are applied to covered plan members. As such, any other plan requirement that is a
financial burden placed on plan members using mental health/substance use benefits cannot
be more restrictive than the predominant financial requirements applied to substantially all
medical and surgical benefits covered by the plan. Examples of some types of plan member
financial requirements that are of the same nature and that if applied on a more restrictive
basis would violate the MHPAEA are:

Episodic Cost-Sharing — An episode of care can be defined as a period of time
for which treatment of an illness is covered and ends after a period of time
during which no active medical/clinical care is provided (e.g. 180 days without
care). Rather than using a typical calendar year limit, a group health plan might
implement cost sharing for the episodic limit of the condition or illness. The
episodic limit could include a separate benefit deductible, coinsurance, daily co-
payment, and aggregate episodic annual or lifetime limits. Again, this would be
a violation of MHPAEA, if applied only to mental health and substance use
benefits.

Premium Differentials — A group health plan may have different options (e.g.
one with mental health parity and one without) whereby the premium
contributions required from the covered employee vary depending upon which
option is chosen. If mental health parity is a factor in the differential premium |
contribution levels, this would be a violation of MHPAEA.

Separate But Equal Cost-Sharing — An important aspect of financial parity is the
requirement that “...there are no separate cost-sharing requirements that are
applicable only with respect to mental health or substance use disorder benefits.
For mental health and substance use benefits to be at financial parity, claim
submittals should not be “sorted into two piles” for different plan benefit
considerations and payment practices. This means that plan benefits for parity
are covered with common cost-sharing features. While some group health plans
engage in this practice, “separate but equal” cost sharing would violate
MHPAEA, as our discussion above explains.

Out-of-Network (“OON”) Usual & Reasonable (“UR”) Charges — Another type
of financial requirement imposed on mental health and substance use is
generated by a plan’s determination of OON provider UR charges. UR



manatt

manatt | phelps | Phillips

Marilyn Richmond and Doug Walter
September 10, 2007
Page 3

A state mandated parity law does not prevent the application of subsection (a). Such a
law imposes a mandate that goes beyond the parity obligation set forth in the Act and is more
favorable to the insured. As a result, state mandated parity laws should not be preempted by the
Act.

B. Benefit Management and Quality Assurance Laws

Certain states have adopted laws that regulate the manner in which medical and/or mental
health benefits are delivered by health insurers. These laws address, among other things, the
time periods for making utilization review decisions, the qualifications of the personnel
determining medical necessity, the information that must be disclosed to enrollees, the type of
quality oversight that must be carried out by the plan and plan reporting obligations to
government agencies. In some cases, these laws have been enacted in connection with a mental
health parity statute; in other cases, they have been adopted separately.

The Act’s parity provisions, which are set forth in subsection (a) of Section 712A and
2705A, make no reference to the benefit management and quality assurance rules governing the
delivery of mental health services. Accordingly, state laws establishing benefit management or
quality assurance standards do not prevent the application of these federal parity provisions.

The only provisions in the Act that address benefit management or quality assurance at
all are the "clarifications" contained in subsection (b) of Section 712A and 2705A. These
clarifications state only that a plan "shall not be prohibited from ... managing the provision of
mental health benefits in order to provide medically necessary services for covered benefits,
including through the use of any utilization review, authorization or management practices, the
application of medical necessity and appropriateness criteria applicable to behavioral health, and
the contracting with and user of a network of providers."

The clarifying provisions of the Act should not preempt state benefit management and
quality assurance laws applicable to the delivery of mental health benefits. These are mere
"clarifications" that are most reasonably interpreted as intended to make clear that the Act's
parity provisions do not bar health plans from applying benefit management techniques
otherwise permitted under applicable law. It seems unlikely that Congress would establish a new
federal benefit management standard through a "clarification," especially given the absence of
any substantive benefit management provisions in the Act that would govern a health plan's
activities.

This view was confirmed recently by Senator Domenici, who, in a Senate colloquy in

response to questions from Senator Specter and Senator Casey, stated:

Section 712A(b) says that managed care plans "shall not be prohibited from"
carrying out certain activities. It does not require them to do so, and this is not a
"requirement of this part." This section recognizes that plans have flexibility. It



complexity associated with a range of financial requirements and treatment limitations
associated with the benefit.

Therefore, the parity standard “no more restrictive than” means that the financial requirements
or treatment limitations imposed on mental health or substance use benefits can be no greater
than those applied to medical and surgical benefits. In other words, any financial requirement
or treatment limitation imposed on the enrollee or participant for mental health or substance i
use benefits must be equal to or less than that applied to medical/surgical benefits. Some
states, Colorado, Oregon, and Virginia, for example, have used the term “no more restrictive
than” to ensure parity coverage for health plan enrollees and participants.

With regard to the term “substantially all,” MHPA required that if a plan or coverage includes
a lifetime or annual dollar limit on “substantially all” medical and surgical benefits, then it
may impose either the same or a lesser limit on mental health benefits. The departments’
implementing rule (62 Fed. Reg. 66932 et seq., December 22, 1997) essentially defined
“substantially all” to mean that if a plan or coverage includes a lifetime or annual dollar limit
on at least two-thirds of all medical/surgical benefits, it may either impose the same or a lesser
limit on mental health benefits. It is our understanding that the vast majority of plans that did
impose a lifetime or annual limit met this “two-thirds” test. However, if a plan or coverage
applies a different lifetime or annual dollar limit on different benefit categories of more than
one-third of all medical/surgical benefits, it may impose a limit on mental health benefits
equal to the weighted average of these different categories.

As mentioned, the term “substantially all” is relatively easily applied to plan or coverage
lifetime or annual dollar limits, where a plan or coverage generally has only one limit or a few
limits. The term “predominant” has been included in the MHPAEA to address those financial
requirements or treatment limitations for which there may be number of limits or categories of
coverage. The term “predominant” therefore has been included to indicate that the mental
health or substance use benefit should be compared to the prevailing or most common
financial requirement or treatment limitation imposed by the plan or coverage.

Therefore, under MHPAEA the financial requirement or treatment limitation that is applied to
“substantially all” the medical/surgical benefit shall be that requirement or limitation that is
applied to the mental health/substance use benefit. Of course, a plan or coverage may apply a
lesser requirement or limit, since the MHPAEA provides that such requirement or limit shall
be “no more restrictive than” the limit imposed on medical and surgical benefits.

The term “predominant” is an additional qualifier and meant to prevent mental health or
substance use benefits financial requirements or treatment limitations from being compared to
outliers in the medical/surgical benefit. This could occur if a plan provides for a number of
limits or categories of coverage with regard to a financial requirement or treatment limitation.
The mental health and substance use benefit should not be compared to outlier limits or
categories of medical and surgical benefit coverage.

For example, consider parity with regard to a limit on outpatient psychotherapy visits. To
apply the MHPAEA standard, all outpatient medical/surgical visits of a plan should be



PSYCHOLOGICAL
ASSOCIATION
PRACTICE ORGANIZATION

May 28, 2009

Internal Revenue Service
Department of the Treasury

Employee Benefits Security Administration
Department of Labor

Centers for Medicare & Medicaid Services
Department of Health and Human Services

Re: Request for Information Regarding the Paul Wellstone and Pete Domenici Mental Health
Parity and Addiction Equity Act of 2008 (published in 74 Fed. Reg. 19155 et seq.)

VIA EMAIL: E-OHPSCA.EBSA@dol.gov i

To The Departments:

The American Psychological Association (“APA” or “we”), the professional organization
representing more than 150,000 members and affiliates engaged in the practice, research and
teaching of psychology, appreciates the opportunity to respond to the departments’ request for
information (“RFI”) regarding the Paul Wellstone and Pete Domenici Mental Health Parity
and Addiction Equity Act of 2008 (“MHPAEA”). The APA was actively involved for several
months in assisting Congress in its consideration that led to passage of this milestone |
legislation. This involvement was built upon our extensive participation in the passage and |
regulatory implementation of the Mental Health Parity Act of 1996 (“MHPA”), and our i
experience with employer compliance efforts with that law. We hope that the departments |
find our knowledge of both mental health parity laws to be useful in implementing the
MHPAEA.

In our comments, we first address a coverage consideration that we understand has been
raised by the employer and insurer community regarding whether a group health plan may
have separate but equal financial requirements for mental health/substance use benefits. We
then respond to each of the six questions raised by the departments in the RFI. Ronald E.
Bachman, FSA, MAAA, President and CEO of Healthcare Visions, Inc., assisted in our
responses to all questions in the RFI, except for the second question and the preemption
analysis, and has joined in signing onto our comments. We conclude our response with a

750 First Street, NE Katherine C. Nordal, Ph.D

Washington, DC 20002-4242 Executive Director

(202) 336-5800

(202) 336-5997 fax E-mail: practice@apa.org
(202) 336-6123 TDD Web: www.APApractice.org

An affiliate of the American Psychological Association


9. Are not experimental or investigational.

Ultimately, of course, the importance of the medical necessity definition is the power it
affords an insurer or health plan to select from among professionally accepted treatments that
it elects to cover. The insurer or the plan is empowered to determine the quality of the
evidence pointing to some treatments as preferable to any others. The power to select on the
basis of subjective factors can result in the rejection of treatment approaches that are
beneficial.

Regarding to whom this information is made available, if published at all, a definition of
medical necessity may be found in the in a group plan member summary plan description.
Alternatively, the information on medical necessity may be written into the group policy or
administrative contract.

What information, if any, regarding the reasons for any denial under the plan (or coverage)
or reimbursement or payment for services with respect to mental health or substance use
disorder benefits is currently made available and how is it made available? Are there
industry standards or best practices with respect to this information and communication of
this information?

Below is a composite description of an appeals process. The information is drawn from
various employer summary plan descriptions and provides a potential template for best
practices. A plan should provide the following information on any denial to allow a patient
fair resolution of a disputed claim, denied service, or a declined request for coverage:

1. The reasons for denial;

2. The plan provisions on which the denial is based;

3. A contact point through which the plan member may review or receive copies of any
documents, records, or other information relevant to his/her claim for benefits;

4. An explanation of the procedure for second appeals and the applicable time limits,
along with a statement of his/her right to bring a civil action under ERISA 502(a) (if
applicable), following as adverse benefit determination upon criterion of his/her
second appeal;

5. A statement regarding any internal rule, guideline, protocol or other criterion that was
relied upon in making the adverse determination; and

6. Ifthe denial is based on a medical necessity or experimental or similar exclusion or
limit, an explanation of the scientific or clinical judgment that led to this
determination.

To gather more information on the scope of out-of-network coverage, the Departments are
interested in finding out whether plans currently provide out-of-network coverage for mental
health and substance use disorder benefits. If so, how is such coverage the same as or
different than out-of-network coverage provided for medical and surgical benefits?

Other than closed panel HMOs and limited PPO plans (sometimes referred to as “exclusive
provider organizations” or EPOs), group health plans generally allow for OON mental health
benefits. Based on an unpublished industry survey, approximately 15% of plan claims are for
mental health services with out-of-network (OON) providers. As with in-network benefits,

12



“qualified and licensed” actuary means a member in good standing of the American Academy
of Actuaries, and therefore is an individual qualified to provide the cost exemption
determinations required by the new law.

What information, if any, regarding the criteria for medical necessity determinations made
under the plan (or coverage) with respect to mental health or substance use disorder benefit
is currently made available by the plan? To whom is this information currently made
available and how is it made available? _Are there industry standards or best practices with
respect to this information and communication of this information?

Group health plans do not always disclose in writing the specifics for their interpretation and
use of medical necessity criteria, and there is no specific mental health/substance use
definition for medical necessity. Most coverage contracts and summary plan descriptions
state the general outline and process for claims submittals. In some respects, the application
of medical necessity and decisions on coverage is shrouded in health plan determinations that
are rarely transparent or fully disclosed to patients or providers.

Regarding industry standards or best practices, the definition of “medical necessity” varies by
group health plan (or coverage) and is set forth in each plan member's benefit plan. There is
no standard language or industry norm regarding this information or how it is communicated.
Sometimes only general principles may be found in various health plan descriptions. Below
is a composite definition of “medical necessity.” The information is drawn from various
employer summary plan descriptions and provides a potential template for best practices and
greater industry transparency on medical necessity:

“Medical necessity” means appropriate and clinically necessary services, as determined by
a health plan’s medical director (or designee), according to generally accepted principles
of good medical practice. To be “medically necessary,” services and supplies must meet
the following requirements—that they—

1. Are not solely for the convenience of the participant, his/her family or the provider of
services or supplies;

2. Are the most appropriate level of service or supply which can be safely provided to the
plan member;

3. Are for the diagnosis or treatment of an actual or existing medical condition unless
being provided for plan scheduled preventive services;

4. Are not for recreational, life-enhancing, relaxation or palliative therapy, except for
treatment of terminal conditions;

5. Are appropriate and consistent with the diagnosis and are in accordance with accepted
medical standards;

6. Could not have been omitted without adversely affecting the patient’s condition or the
quality of health services rendered;

7. As to inpatient care, could not have been provided in a provider’s office, the outpatient
department of a hospital or a non-residential facility without affecting the patient’s
condition or quality of health services rendered;

8. Are not primarily for research and data collection; and

11



requirements and treatment limitations for which parity treatment is required, but any of the
additional above requirements or limitations could be used by plans in an attempt to evade
MHPAEA. Some of the above may never have been used by plans, but the restrictions in '
MHPAEA may cause plan designers to think anew for perceived loopholes to “back-door” |
financial restrictions and treatment limits. Regulations that include clarifications on these |
additional items and others will prevent plan benefit design gambits intended to subvert the
parity purposes of MHPAEA.

Do plans currently vary coverage levels within each class of benefits?

Group health plans can and do vary coverage levels and benefit limits by class of benefits.
The term “class of benefits” is not a common term of art in the insurance industry. The more
usual benefit variation description is by “type of service.” Examples of type of service
categories include doctor office visits, preventive care, outpatient diagnostic laboratory and x-
ray services, maternity care, emergency room care, mental health, substance use, physical
therapy (including speech and occupational therapy), chiropractic care, prescription drugs, i
urgent care, infertility treatment, home health care, hospice care, durable medical equipment,

and dental care (accident-related only).

What terms or provisions require additional clarification to facilitate compliance? What i
specific clarifications would be helpful? |

The APA focuses on three areas regarding language or provisions in MHPAEA that may need
clarification: the first concerns the parity standard itself and the second and third concern
technical issues around the meaning of the term “mental health or substance use” and
“qualified and licensed actuary” (emphasis added).

New terms associated with the parity standard. MHPAEA requires that the financial
requirements and treatment limitations applied to mental health/substance use benefits are “no
more restrictive than the predominant” financial requirements and treatment limitations
“applied to substantially all” medical/surgical benefits covered by a health plan (or coverage).
This is a different standard than that presently in the law and applied to lifetime and annual
dollar limits. In this new standard the term “substantially all” is retained to apply to financial
requirements in addition to lifetime and annual dollar limits, and new terms—“no more
restrictive than” and “predominant”—are also applied to these additional financial
requirements, as well as the treatment limitations provided in the new law. i

Having actively participated in the consideration and drafting of MHPAEA, we believe that
the new parity standard “no more restrictive than” as well as the new qualifier “predominant”
and retention of the original qualifier “substantially all” will operate to ensure parity for all
financial requirements and treatment limitations. The Mental Health Parity Act of 1996 only
addressed parity for lifetime and annual dollar limits, which are relatively simple financial
requirements imposed by a plan or coverage; a plan or coverage either does not apply a |
lifetime or annual dollar limit or has a single limit for each for the entire benefit. This new i
parity standard and the additional qualifier “predominant” are necessary to address the greater |



S10884

welcome this opportunity to discuss
this critical legislation.

Mr. DOMENICI. I concur with Sen-
ator KENNEDY and look forward to Sen-
ate action on S. 558.

Mr. CASEY. Mr. President, the Men-
tal Health Parity Act of 2007 amends
the Employee Retirement Income Se-
curity Act, ERISA, and the Public
Health Service Act to require a group
health plan that provides both medical
and surgical benefits and mental
health benefits to ensure that: (1) the
financial requirements applicable to
such mental health benefits are no
more restrictive than those of substan-
tially all medical and surgical benefits
covered by the plan, including
deductibles and copayments; and (2)
the treatment limitations applicable to
such mental health benefits are no
more restrictive than those applied to
substantially all medical and surgical
benefits covered by the plan, including
limits on the frequency of treatments
or similar limits on the scope or dura-
tion of treatment.

Mr. SPECTER. In 1989, in the Com-
monwealth of Pennsylvania, the State
legislature passed a bill, Pennsylvania
Act 106, which requires all commercial
group health insurance plans and
health maintenance organization’s to
provide a full continuum of addiction
treatment including detoxification,
residential rehabilitation, and out-
patient/partial hospitalization. The
only lawful prerequisite to this treat-
ment and to coverage is certification
to need and referral from a licensed
physician or psychologist. Such certifi-
cations and referrals in all instances
control the nature and duration of
treatment. I support existing Pennsyl-
vania law and, before agreeing to sup-
port S. 558, assured myself that S. 558
will not serve to supplant greater
Pennsylvania protections for those
seeking treatment for substance abuse.

Mr. CASEY. I join my esteemed col-
league in having assured myself that S.
558 will not serve to preempt in any
way the services and benefits provided
to the citizens of Pennsylvania by
Pennsylvania Act 106. I know that our
offices have collaborated extensively in
this analysis and have consulted with
HELP Committee staff and Senator
DoMENIct's staff, and that our views are
borne out by extensive legal and schol-
arly analysis of the preemptive provi-
sions of S. 558.

Mr. KENNEDY..I can assure the Sen-
ators from Pennsylvania that we have
labored to ensure that S. 558 will serve
only to benefit States and the coverage
that citizens receive.

Mr. CASEY. I thank Chairman KEN-
NEDY and Senator DoMENICI, and I note
in particular that Professor Mila
Kofman, Associate Research Professor,
Health Policy Institute, Georgetown
University, wrote to Senator SPECTER
and myself on August 2, 2007, extolling
the benefits of S. 558. I ask unanimous
consent to print in the RECORD Pro-
fessor Kofman’s letter.

There being no objection, the mate-
rial was ordered to be printed in the
RECORD, as follows:

CONGRESSIONAL RECORD — SENATE

GEORGETOWN UNIVERSITY
‘HEALTH POLICY INSTITUTE,
August 3, 2007.
Hon. Ropert P. Cassy, Jr.,
U.S. Senate, Russell Senate Office Building,
Washington DC.
Hon. ARLEN SPECTER,
U.S. Senate, Hart Senate Office Building,
Washington, DC.

DEAR SENATOR CASEY AND SENATOR SPEC-
rer: This is a response to a request for an
analysis of the preemption provisions in the
Mental Health Parity Act of 2007 (S. 558 as
amended 8/3/07 Managers’ Amendment).

‘The changes made to the preemption sec-
tion in S. 558 mean that the current HIPAA
federal floor standard would apply to the
new Mental Health Parity law (just like it
applies to the current law passed in 1996).

‘This would mean that more protective (of
consumers) state insurance laws would apply
to insurers that sell coverage to employers.
‘This bill would also mean new federal pro-
tections for people in self-insured ERISA

plans.

‘This would be a tremendous victory for pa-
tients who need coverage for mental health
services. This approach continues the public
policy established in 1996 in HIPAA—an ap-
proach that allows states to be more protec-
tive of consumers while setting a federal
minimum set of protections for workers and
their families.

While not every word or phrase is perfect
(meaning not 100% litigation proof), using
the current HIPAA preemption standard
would certainly make it difficult to win a
case that seeks to challenge more protective
state insurance law.

If enacted, this bill would provide much
needed minimum protections for people in
self-insured ERISA plans who currently are
not protected by states because of ERISA
preemption. It also raises the bar for insured
products,

If you have additional questions, please
contact me at 202-784-4580.

Very truly yours,
Mita Korman, J.D.,
Associate Research Professor.

Mr. CASEY. In the letter, Professor
Kofman writes:

The changes made to the preemption sec-
tion in S. 568 mean that the current HIPAA
federal floor standard would apply to the
new Mental Health Parity law (just like it
applies to the current law passed in 1996).

‘This would mean that more protective (of
consumers) state insurance laws would apply
to insurers that sell coverage to employers.
This bill would also mean new federal pro-
tections for people in self-insured ERISA
plans.

‘This would be a tremendous victory for pa~
tients who need coverage for mental health
services. This approach continues the public
policy established in 1996 in HIPAA—an ap-
proach that allows states to be more protec-
tive of consumers while setting a federal
minimum set of protections for workers and
their families.

If enacted, this bill would provide much
needed minimum protections for people in
self-insured ERISA plans who currently are
not protected by states because of ERISA
preemption. It also raises the bar for insured
products.

Mr. SPECTER For the purpose of fur-
ther clarifying congressional intent of
S. 558 and its application to state law
and specifically Pennsylvania Act 106,
will the senior Senator from Massachu-
setts and the senior Senator from New
Mexico yield for questions from Sen-
ator CASEY and myself?

Mr. KENNEDY I will be happy to do

sO.
Mr. DOMENICI As will I.

August 3, 2007

Mr. SPECTER I thank Chairman
KENNEDY and Senator DomMENicI. Why
doesn’t the Mental Health Parity Act
have its own preemption provision?

Mr. KENNEDY It is our intention to
establish a Federal floor and not a Fed-
eral standard or Federal caps. Thus, we
decided to use the already-existing lan-
guage and standard found within part 7
of ERISA, which is where the current
mental health parity law already re-
sides, and where S, 558 will be codified.
This law contains the narrowest pos-
sible preemption language, and is
meant to preempt only those state
laws that are less beneficial to con-
sumers and insured, from the stand-
point of the consumer and insured,
than this new Federal law.

Mr. CASEY The Health Insurance
and Portability Accountability Act,
HIPAA, preemption standard that will
apply prevents State laws that “pre-
vent the application of requirements of
this part,’ which refers to part 7 of
ERISA. Do the medical management
provisions of section 712A(b) constitute
“requirements of this part” that might
preempt State laws under this stand-
ard?

Mr. DOMENICI No. Section 712A(b)
says that managed care plans ‘“‘shall
not be prohibited from” carrying out
certain activities. It does not require
them to do so, and this is not a “re-
quirement of this part.” This section
recognizes that plans have flexibility.
It is not our intention to preempt any
State laws that regulate, limit, or even
prohibit entirely the medical manage-
ment of benefits. That is one of the
reasons we are using a preemption
standard—the existing HIPAA standard
that so clearly does not preempt such a
law.

Mr. SPECTER Would a State law
that establishes a physician or psy-
chologist’s certification, as the only
lawful prerequisite to managed care
coverage of a particular treatment, be
preempted?

Mr. KENNEDY Such a law is not pre-
empted, and it is not our intention to
preempt any such law.

Mr. CASEY What about a State law
requiring insurers or managed care
companies to cover an entire con-
tinuum of care?

Mr. DOMENICI Mr. President, it is
my understanding that such a law
would not be preempted. S. 558 is a
Federal floor, and nothing in such a
State law Senator Casey describes
would prevent the application of any
requirements of part 7 of ERISA.

Mr. SPECTER Would State laws that
place coverage decisions squarely in
the hands of treating clinicians be pre-
empted?

Mr. KENNEDY Absolutely not.

Mr. CASEY Focusing specifically on
Pennsylvania, as you may be aware,
the citizens of Pennsylvania just re-
ceived a significant court victory from
the Commonwealth Court, upholding a
Pennsylvania law that was previously
mentioned here, Pennsylvania Act 106.



would increase premiums for group health insurance by an average of about 0.4%, before
accounting for the responses of health plans, employers, and workers. (See, for example:
CBO Cost Estimate, H.R. 1424, Paul Wellstone Mental Health and Addiction Equity Act of
2007, November 21, 2007, p. 4) Considering that mental health/substance use benefits make
up a very small portion of the overall plan benefit and the extremely low average cost increase
associated with MHPAEA (which will generally be shared between employer and enrollee), it
is clear that, even if the new law were to allow them, group health plans which impose
separate financial requirements on plan enrollees to access mental health/substance use
benefits, would be greatly overreacting to the costs associated with the law. Rather, a more
appropriate group health plan response to the 0.4% average cost increase associated with
MHPABA, and one which does not thwart the intent of the law, would be to spread this very
low increase over the entire medical/surgical and mental health/substance use benefit, which
would have a very low impact on the overall financial requirements and treatment limitations
of the plan.

Congress clearly intended to end benefits discrimination against mental health and substance
use services with enactment of MHPAEA, and this is demonstrated by several floor
statements from the legislation’s sponsors, leaders of health committees and other members of
Congress. While no statements made on the House or Senate floor address the specific issue
of “separate but equal” financial requirements or treatment limitations, the record is clear that
the new law is intended to completely end benefits coverage discrimination against mental
health and substance use benefits. To this point the floor statements of the legislation’s
sponsors are most helpful:

Access to mental health services is one of the most important and most neglected
civil rights issues facing the Nation. For too long, persons living with mental
disorders have suffered discriminatory treatment at all levels of society. They
have been forced to pay more for the services they need and to worry about their
job security if their employer finds out about their condition . . . . [M]Jore steps
are clearly needed to guarantee that Americans suffering from mental illness are
not forced to pay more for the services they need, do not face harsher limitations
on treatment, and are not denied access to care. .. . [This bill] guarantees co-
payments, deductibles, coinsurance, out of pocket expenses and annual and
lifetime limits that apply to mental health benefits are no different than those
applied to medical and surgical benefits. It guarantees that the frequency of
treatment, number of visits, days of coverage and other limits on scope and
duration of treatment for mental health services are no different than those
applied to medical and surgical benefits. 153 Cong. Rec. S1864-5 (daily ed.
February 12, 2007) (statement of Sen. Kennedy)

[The bill] ensures that health plans do not place more restrictive conditions on
mental health coverage than on medical and surgical coverage; parity for
financial requirements, such as deductibles, copayments, and annual and lifetime
limits; parity for treatment limitations, and the number of covered hospital days
and visits . ... Simply put, our legislation will ensure that individuals with a
mental illness have parity between mental health coverage and medical and



The use of PMPM in the calculation is needed to avoid a determination of an increase that
might result for factors such as membership growth. Other factors such as demographic mix
(age, sex, dependents, geographic distribution, etc.) should be accounted for to properly
measure the impact of the parity benefit and not the impact of other factors that may have
affected the plan costs.

The prior year PMPM MHSA claim costs need to be increased by a reasonable trend
assumption to determine if the parity benefit design resulted in an increase for the plan year of
more than the percentage that would qualify the health plan to claim the cost exemption.

Six-Month Determinations—MHP AEA requires a group health plan seeking an exemption to
have complied with the law for the first six months of the year involved. To use the 6-month
determination in lieu of the plan year, the calculation rules and formulas would be the same as
provided above, with the exception that only six months (rather than 12 months) of paid
claims would be used and converted to incurred claims using the Actuarial Standard of
Practice No. 5. However, in this case a projection for the full plan year should also be
required since it is needed to provide trend assumptions made for both MHSA PMPM and the
total plan PMPM so as to reflect an increase for a full plan year.

Notification—An election to modify coverage based upon the cost exemption analysis
requires a notification to members of a material modification with applicable notice
requirements. We agree that model notices would be helpful to facilitate disclosure to federal
and state agencies and to health plan beneficiaries and participants regarding a plan or issuer
election to implement the cost exemption.

How will the MHPAEA impact state parity and other laws?

While the departments are not requesting comments regarding the relationship between
MHPAEA and state parity and other laws, during our efforts to bring about passage of the
law, the APA had considered this issue extensively. From our perspective this aspect of the
new law was and remains critically important, since at the time of passage, 43 states had
enacted parity laws, and additionally, many states had enacted a range of mandated benefits
and other consumer laws to protect individuals seeking and receiving mental health benefits
coverage. We view MHPAEA to be extremely protective of state law, since the Health
Insurance Portability and Accountability Act (“HIPAA”) preemption standard will apply to
the new law, just as it has applied to the Mental Health Parity Act of 1996.

Under this standard only a state law that “prevents the application” of the federal law is
preempted. This means that if a provision of a state parity law (for example) provides for less
protection than the federal law, it is preempted. Ifa state law provides for more protection
than the federal law, it is not preempted. In essence, the HIPAA preemption standard
provides a “floor” from which states may provide greater protection.

During Congressional consideration of this issue, the APA had requested an analysis of the

HIPAA preemption provision by the legal firm of Manatt, Phelps & Phillips, LLP. This
analysis both considered the HIPAA standard and the relationship between the standard and

15



manatt Attachment A

manatt | phelps | Phillips

To: Marilyn Richmond and Doug Walter

From: Robert Belfort and Lisa Horwitz

Date: September 10, 2007 File No.: 29767-030
Subject: Preemption of State Laws by Mental Health Parity Act

You have asked us to analyze the extent to which state laws establishing mental health
parity and related standards are likely to be preempted by the current version of S. 558, the
Federal Mental Health Parity Act of 2007 (the "Act"). Our analysis is set forth below.

I. The HIPAA portability preemption provisions provide the relevant preemption
standard for the Act.

The Act adds a new Section 712A of ERISA and Section 2705A of the Public Health
Service Act (PHSA). The Act does not contain its own preemption standard.' Instead, these
new sections of ERISA and the PHSA will become subject to the preemption standard enacted as
part of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which is set
forth in 29 U.S.C. § 1191 and 42 U.S.C. § 300gg-23.

29 U.S.C. § 1191 provides that, subject to certain exceptions not relevant here, the
federal standards:

[S]hall not be construed to supersede any provision of State law which establishes,
implements, or continues in effect any standard or requirement solely relating to health
insurance issuers in connection with group health insurance coverage except to the extent
that such standard or requirement prevents the application of a requirement of this part
(emphasis added).

Virtually identical language is contained in 42 U.S.C. § 300gg-23. Thus, the Act will not
preempt state laws unless such laws “prevent the application” of a provision of the Act.

! The one exception is that subsection (d)(2) of Section 712A and Section 2705A states that the Act's exemption of
group health plans sponsored by small employers shall not be construed as preempting state laws governing such
plans.



The APA believes that the statutory language of the MHPAEA does not allow an employer to
avoid the spirit of its parity requirement by restricting mental health/substance use benefits in
a manner that is isolated from its coverage for medical/surgical benefits, since the law
requires parity in all aspects of benefits coverage. We urge that a central consideration in
regulatory implementation is a straightforward assessment of Congressional intent to require
group health plans with more than 50 employees to provide benefits coverage for mental
health and substance use services that is no more restrictive than medical and surgical benefits
coverage. With this in mind, we first raise a concern regarding “separate but equal”
requirements before addressing the departments’ questions.

May a group health plan impose financial requirements (i.e. deductibles, out-of-pocket

maximums, copayments, etc.) on mental health/substance use benefits that are separate from
but not more restrictive than those imposed on medical/surgical benefits?

A group health plan may not impose financial requirements or treatment limitations on mental
health/substance use benefits that are separate from, even if no more restrictive than, those
imposed on medical/surgical benefits. Specifically, MHPAEA states that there shall be “no
separate cost sharing requirements that are applicable only with respect to mental health or
substance use disorder benefits.” This same condition is provided with respect to treatment
limitations. (Section 712(a)(3)(A)(i) and (ii) of the Employee Retirement Income Security
Act, section 2705(a)(3)(A)(i) and (ii) of the Public Health Service Act, and section
9812(a)(3)(A)(i) and (ii) of the Internal Revenue Code, as added by section 512(a), (b) and (c)
of the Emergency Economic Stabilization Act of 2008.)

Separate, even if equal, financial requirements, for example, would place a greater financial
burden on plan enrollees who require mental health or substance use services, by requiring
them to essentially pay twice to meet plan financial requirements when receiving these
services. As such, “separate but equal” would violate the parity law.

For example, consider a deductible requirement. If a group health plan were permitted to
charge a $500 deductible for medical/surgical benefits and a separate $500 deductible for
mental health/substance use benefits, an enrollee needing mental health/substance use services
has an additional financial burden when accessing those services. The enrollee must meet an
additional deductible requirement with regards to his or her mental health or substance use
benefits available in the plan, and therefore the intent of MHPAEA—to provide parity
benefits coverage for those needing mental health/substance use services—would be thwarted
if a group health plan could require a separate deductible to access those services. Health
plans do not require separate deductibles for cancer treatment, for example, and they should
not be permitted to isolate mental health and substance use benefits for such treatment.

Mental health/substance use benefits typically represent 3-6% of the total benefits covered by
a group health plan. (Finch R.A., Phillips K., Center for Prevention and Health Services. An
Employer's Guide to Behavioral Health Services: A Roadmap and Recommendations for
Evaluating, Designing, and Implementing Behavioral Health Services. Washington, DC:
National Business Group on Health, 2005.) In addition, as Congress was considering passage
of the MHPABA, the Congressional Budget Office consistently estimated that the new law



short discussion of our view regarding the relationship between federal and state law with
regard to the requirements of MHPAEA. This discussion is based on a legal preemption
analysis provided by Robert Belfort, Esq., and Lisa Horwitz, Esq., of Manatt, Phelps &
Phillips, LLP, during Congressional consideration of the new law.

MHPAEA represents the culmination of the efforts of the APA and many other mental health
and substance use consumer and provider organizations—not to mention many members of
Congress—to finally end inequity between mental health and substance use and medical and
surgical benefits for larger group health plans (with more than 50 employees). This inequity
had been historical and without financial basis, and benefits inequity has meant that health
plans could discriminate against persons with mental health and substance use disorders,
much to their detriment, by applying financial requirements and treatment limitations not
applied to physical health conditions. Congress intends that the MHPAEA will end this
benefits discrimination.

MHPAEA is an amendment to the MHPA. As such, it simply states that financial |
requirements and treatment limitations applied to mental health/substance use benefits shall |
be no more restrictive than those applied to medical/surgical benefits. This language requires

parity for all aspects of benefits coverage and adds on to the current MHPA requirement of

equity benefits coverage for annual and lifetime dollar limits.

MHPA was a critically important law, because it ensured that the most seriously mentally ill

persons, using a substantial amount of services over the course of a year or a lifetime, would i
not face arbitrary annual and lifetime dollar limits on their coverage. The law greatly helped

those persons with serious mental illness and their families. Yet, the law was limited. It

allowed employers to reduce other aspects of benefits coverage, and it excluded parity for

substance use benefits.

Indeed, most employers did comply with the MHPA but found ways to avoid the spirit of the
law by reducing other aspects of mental health benefits coverage. In 2000 the General
Accounting Office (“GAO”) reported to Congress that:

Although most employers’ plans now have parity in dollar limits for mental

health coverage, 87 percent of those that comply contain at least one other plan

design feature that is more restrictive for mental health benefits than for medical

and surgical benefits... . [MJany employers may have adopted newly restrictive

mental health benefit design features since 1996 specifically to offset the more

generous dollar limits they adopted as a result of the federal law. About two-

thirds of these newly compliant employers changed at least one other mental

health benefit design feature to a more restrictive one compared with only about i
one-forth of the employers that did not change their dollar limits. (GAO/HEHS- |
00-95, Implementation of the Mental Health Parity Act of 1996, p. 5) |

Ultimately, the GAO determined that the law had “little effect on employees’ access to mental |
health services.” (GAO/HEHS-00-95 at 5.)



OON mental health/substance use benefits generally include financial requirements and
treatment limitations greater than for OON medical/surgical benefits.

MHPABEA states that if a group health plan provides OON coverage for medical/surgical
benefits, it must provide coverage for mental health/substance use benefits through OON
providers “in a manner that is consistent with” the requirements of the parity law. This means
that if a group health plan provides out-of-network (“OON”) medical/surgical benefits, then it
must provide OON mental health/substance use benefits, at parity, with those medical/surgical
benefits.

Which aspects of the increased cost exemption, if any, require additional guidance? Would
model notices be helpful to facilitate disclosure to Federal agencies, State agencies, and
participants and beneficiaries regarding a plan's or issuer's election to implement the cost

exemption?

MHPAEA provides simple legislative language regarding the cost exemption, which may |
mask some complexity if a group health plan were to seek an exemption. The law is clear in

one aspect: an election of a cost exemption must be based on historical claims experience—

retrospective data—and not on an analysis using only projections—prospective data. Beyond |
the required use of retrospective data, the following may be helpful in understanding the |
complexity of the MHPAEA cost exemption and the key areas and definitions that might be

clarified in regulations.

The general cost exemption requirement states that (we paraphrase here), with respect to a
group health plan (or coverage), if the application of the parity law results in an increase for
the “plan year involved” of the “actual total costs of coverage” for medical/surgical and
mental health/substance use benefits under the plan by an amount that exceeds 2% in the first
plan year to which the law applies and 1% thereafter of the “actual” total plan costs, then the
law does not apply to such plan (or coverage) during the following plan year, and such
exemption will apply for one plan year.

Most importantly in this standard is that the election of a cost exemption by a group health
plan extends for only one year (a 12-month period). An election is therefore not permanent,
and at the end of the election year, a plan must again comply with MHPAEA. Beyond this |
central consideration, we focus on two key concepts of the general cost requirement—“plan
year” and “actual total costs of coverage”—

Plan Year—“Plan year” is presumably a 12 month period from a specifically designated

policy/contract determination that establishes the beginning of a plan year. A “plan year”

should not be less than or more than 12 months. The 12 month period need not be from

January 1 to December 31, but it would need to extend through a 12 month period of time, as i
determined and defined under a health plan policy or contract. Clarifications may be needed |
to establish any differences between a plan year, anniversary year, renewal year, contract |
year, or other language that may be used. |

13


specific types of state laws, including parity, benefit management and quality assurance, and
mental health benefits definitional laws. We attach this analysis for your information
(Attachment A).

From House and Senate floor statements and consideration, it is also apparent that members
of Congress also were carefully considering the relationship between MHPAEA and state
laws. One of these issues, a discussion of Pennsylvania Act 106, as a state law that mandates
certain coverage based on provider certification, garnered extensive floor discussion between
Senators Edward M. Kennedy and Pete Domenici, as parity legislation sponsors, and
Pennsylvania Senators Arlen Specter and Robert P. Casey. We also attach this colloquy for
purposes of your information (Attachment B).

Thank you for considering our comments. The APA would appreciate the opportunity to
assist the departments with these and any other aspects of implementation of MHPAEA. We
are hopeful that the departments will propose rulemaking in the near future and give our
organization, as well as other interested parties, the opportunity to provide comments and
input before final implementation of the law. If you have further questions or seek further
information, please contact Doug Walter, Legislative & Regulatory Counsel, Government
Relations, American Psychological Association Practice Organization at (202) 336-5889 or

dwalter@apa.org.

Sincerely,

Athoutur C. Noedal , Pv

Katherine C. Nordal, Ph.D.
Executive Director

ogo. & Cocke

Ronald E. Bachman FSA, MAAA
President & CEO
Healthcare Visions, Inc.

16 |