Mental health and substance use disorder benefits have historically been treated differently — and less generously — than medical and surgical benefits by employer-sponsored health plans. Congress addressed this disparity through the Mental Health Parity and Addiction Equity Act of 2008, known as MHPAEA, which requires that the financial requirements and treatment limitations applicable to mental health and substance use disorder benefits be no more restrictive than those applied to comparable medical and surgical benefits. Despite being in effect for well over a decade, MHPAEA compliance remains one of the most challenging areas of health plan administration, and enforcement by the Departments of Labor, Health and Human Services, and the Treasury has intensified significantly in recent years.
The Parity Requirement: What It Means and What It Covers
MHPAEA applies to group health plans and group health insurance coverage offered in connection with a group health plan. It covers both large and small employer plans, including insured and self-insured arrangements (though the specific enforcement mechanisms differ). The law requires parity across three categories of comparisons: financial requirements, quantitative treatment limitations, and non-quantitative treatment limitations.
Financial requirements include deductibles, copayments, coinsurance, and out-of-pocket maximums. Quantitative treatment limitations include limits on the number of covered treatment visits or days of coverage. Non-quantitative treatment limitations, commonly called NQTLs, are more varied and include things like prior authorization requirements, step therapy protocols, medical necessity criteria, standards for network composition and provider reimbursement rates, and fail-first policies. The NQTL category is where most of the current enforcement action is concentrated, because it is where plan designs most frequently produce disparate treatment of mental health and substance use disorder benefits without any obvious numerical limitation.
The Classification Framework
MHPAEA’s parity analysis is organized around benefit classifications. The rules require that parity be maintained within each classification, not across the plan as a whole. The classifications are inpatient in-network benefits, inpatient out-of-network benefits, outpatient in-network benefits, outpatient out-of-network benefits, emergency care benefits, and prescription drug benefits. Parity analysis must be performed separately within each classification.
This framework prevents plans from satisfying parity by comparing apples to oranges. A plan cannot claim that it offers generous outpatient mental health coverage to justify imposing restrictive inpatient mental health limitations. Within each classification, the financial requirements and treatment limitations applied to mental health and substance use disorder benefits must be comparable to and no more restrictive than those applied to “substantially all” medical and surgical benefits in that classification.
The “substantially all” standard means that if a financial requirement or quantitative treatment limitation applies to at least two-thirds of the medical and surgical benefits in a classification (measured by dollar value), it applies to substantially all medical and surgical benefits in that classification and therefore can be applied to mental health and substance use disorder benefits in the same classification, provided the limitation is at least as generous as the “predominant level” applicable to medical and surgical benefits. The predominant level is the level that applies to more than half of the medical and surgical benefits subject to the limitation.
Non-Quantitative Treatment Limitations: The Most Contested Area
Non-quantitative treatment limitations are the category of parity requirements that generates the most litigation, DOL investigations, and compliance challenges. An NQTL is any limitation that is not expressed numerically but that restricts the scope or duration of benefits. Prior authorization requirements are a paradigmatic example: if a plan requires prior authorization for inpatient mental health admissions but not for inpatient medical or surgical admissions, that disparity violates MHPAEA unless the plan can demonstrate that the prior authorization requirement is no more restrictive in terms of the processes, strategies, evidentiary standards, and other factors used in applying it.
The Consolidated Appropriations Act of 2021 strengthened MHPAEA’s NQTL requirements by requiring plans to perform and document a “comparative analysis” of the design and application of NQTLs for mental health and substance use disorder benefits versus medical and surgical benefits. This comparative analysis must be made available to the Departments of Labor, HHS, and Treasury upon request, and must be provided to participants upon request as well. Plans that cannot produce an adequate comparative analysis are subject to enforcement action, and the DOL has publicly reported that many plans’ initial analyses have been deficient.
The comparative analysis must address the specific NQTL at issue, the factors and evidentiary standards used to apply it, the processes for designing and applying it, and the findings of the analysis. The requirement is not merely that the plan document show that the NQTL applies on equal terms to mental health and medical benefits — it is that the plan demonstrate through actual evidence that the NQTL is applied in a nondiscriminatory manner in practice.
Network Adequacy as a Parity Issue
One of the most important and most frequently litigated MHPAEA issues is network adequacy for mental health and substance use disorder services. Many health plans have substantially narrower provider networks for mental health and substance use disorder services than for medical and surgical care. The result is that participants who need mental health or substance use disorder services are more likely to be pushed to out-of-network providers, where they face higher cost sharing, than those who need medical or surgical care.
The DOL and the courts have increasingly recognized that network adequacy for mental health and substance use disorder providers is an NQTL subject to MHPAEA’s parity requirements. If a plan’s standards for including mental health providers in its network — credentialing requirements, reimbursement rates, geographic access standards — result in a narrower effective network for mental health care than for medical and surgical care, those standards must be analyzed for MHPAEA compliance. Plans that pay mental health providers lower rates than comparable medical providers, leading to lower provider participation in the network, may be engaging in a prohibited NQTL disparity even if no formal restriction on network participation is written into the plan document.
The Consolidated Appropriations Act’s Enhancements
The Consolidated Appropriations Act of 2021, enacted on December 27, 2020, significantly strengthened MHPAEA in several ways. In addition to the comparative analysis requirement described above, the CAA required plans to review and update their comparative analyses at least annually and whenever the plan changes an NQTL, and to proactively provide the analyses to participants and beneficiaries upon request. The CAA also directed the federal agencies to report to Congress annually on their MHPAEA enforcement activities and to identify categories of NQTLs that are most frequently the subject of violations.
The agencies have issued multiple rounds of guidance interpreting the CAA’s requirements and providing examples of NQTLs that violate parity. Their enforcement reports have been candid about the prevalence of noncompliance, noting that the majority of plans examined have failed to produce adequate comparative analyses and that many plans appear to apply NQTLs more restrictively to mental health and substance use disorder benefits in practice.
Proposed regulations issued by the agencies in 2023 would further strengthen MHPAEA enforcement by establishing more specific requirements for comparative analyses, prohibiting plans from using NQTLs that result in quantitatively greater limitations on mental health and substance use disorder benefits than on medical and surgical benefits, and requiring that plans ensure their NQTLs do not produce a meaningful disparity in access to mental health and substance use disorder services. While the precise form of the final rules remains subject to ongoing regulatory development, the direction of travel is clear: MHPAEA enforcement is becoming more rigorous, not less.
Enforcement and Litigation
MHPAEA is enforced by the Department of Labor for plans subject to ERISA, by the Department of Health and Human Services for non-federal governmental plans, and by state insurance regulators and the Departments of Labor and HHS for insured plans. The DOL’s enforcement authority includes the ability to conduct audits of plans, to require production of comparative analyses, and to require corrective action when violations are identified.
Private litigation under MHPAEA is also an active and growing area. Participants who believe their mental health or substance use disorder claims were improperly denied can bring claims under ERISA Section 502 alleging both failure to comply with plan terms and violation of MHPAEA. Courts have held that a plan’s failure to comply with MHPAEA’s parity requirements constitutes a violation that can be remedied under ERISA’s civil enforcement provisions. Significant verdicts and settlements have been entered in favor of participants who were denied coverage for behavioral health services, residential treatment for mental illness, and substance use disorder treatment on terms more restrictive than those applied to comparable medical and surgical care.
Practical Compliance Obligations for Employers
For business owners who sponsor group health plans, MHPAEA compliance requires attention at several levels. If the plan is insured, the insurer bears primary responsibility for designing the benefit structure in compliance with MHPAEA, but employers should not assume that their insurer has fully addressed all parity requirements. Employers who use fully insured plans should obtain written confirmation from their insurer that the plan has been designed and documented to comply with MHPAEA, including the comparative analysis requirements.
For self-insured plans, the employer as plan sponsor bears full responsibility for MHPAEA compliance. This means engaging a qualified ERISA attorney or benefits consultant to prepare the required comparative analysis, reviewing it annually and whenever the plan changes NQTLs, and maintaining it in a form that can be produced to the DOL upon request. A self-insured plan that cannot produce a compliant comparative analysis when the DOL asks for one is in a very difficult position.
Reviewing claims data to identify whether mental health and substance use disorder claims are being denied at higher rates or under more restrictive criteria than comparable medical and surgical claims is an important ongoing monitoring practice. A pattern of higher denial rates for mental health claims is a red flag suggesting either that NQTLs are being applied inconsistently or that the plan’s benefit design has a structural parity problem that needs to be addressed. Addressing these issues proactively, before they become the subject of a DOL investigation or participant lawsuit, is both legally prudent and ethically important.