The MHPAEA Proposed Rule: Scalability and the Plight of the Small(er) Self-Funded Plan

By on January 4, 2024

After a brief hiatus to discuss the pleading standards adopted by the US Court of Appeals for the Tenth Circuit in E.W. v. Health Net Life Insurance Company, we return to our examination of the comments submitted in response to the proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA). The US Departments of Labor, Health and Human Services and the Treasury (the Departments) issued the proposed regulations in 2023. Our previous MHPAEA content is available here.

In this post, we examine the impact of the proposed regulations on small and medium-sized self-funded plans through the lens of a National Association of Benefits and Insurance Professionals (NABIP) comment letter.

The MHPAEA governs the conduct of group health plans and health insurance issuers. This structure works fine in the case of fully insured group health plans, since compliance by the issuer or carrier generally results in compliance by the plan. The former acts on the latter’s behalf. The calculus is different, however, in the case of self-funded plans that typically rely on third-party administrators for their MHPAEA compliance. Often, the third-party administrator is also a licensed carrier that is providing services on an “administrative services only” basis. Here, the group health plan alone bears the responsibility for MHPAEA compliance even though, as a practical matter, the plan will rely heavily, if not entirely, on its administrative services only provider to comply.

One of the attractions of self-funding is that the plan has the ability (in theory) to customize plan design features and strategies, including mental health benefits. In practice, only large employers have the bargaining leverage to modify their group health plan’s design features, however. Other employers are essentially beholden to their service provider(s) for their mental health benefits and other plan designs. To date, that compliance has been less than robust. See, e.g., a comment letter submitted by the state attorneys general of New York, California, Colorado, Delaware, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, Oregon, Pennsylvania, Rhode Island, Vermont and Washington addressing their efforts to enforce their mental health and substance use parity laws against carriers. In this sense, then, it can be said that MHPAEA compliance does not “scale.” As a plan’s leverage over its service providers decreases, so does its design flexibility and options.

There is another, perhaps more basic, sense in which the MHPAEA rules do not scale. The cost of compliance can be substantial. That cost may be manageable when spread over hundreds of thousands of covered lives but not so much when spread over hundreds of lives. The net effect of this disparity is that small plans will likely be forced to adopt far simpler, prepackaged and potentially less effective nonquantitative treatment limitation (NQTL) design strategies.

The NABIP’s comment letter addressed the following issues, principally from the perspective of self-funded plans:

  • The need for a compliance safe harbor

The NABIP comment letter captures the problems described above succinctly, imploring the Departments to:

[A]cknowledge that individual group plan sponsors have little to no direct recourse against plan service providers that have operational issues with regard to the direct application of NQTLs to mental health/substance use disorder benefits as compared to medical/surgical benefits.

Particular attention is given to the issue of a group health plan’s need to obtain the data necessary for a complete NQTL analysis from plan service providers. Because plan sponsors must rely on their administrative services only provider for their substantive MHPAEA compliance, the NABIP asks for a compliance safe harbor for plans that are in the process of collecting relevant operational data related to NQTLs being administered by new issuers or service providers.

  • Focus on cooperation from service providers

Continuing with the theme of ensuring that employers and their self-funded group health plans have access to the data that they need to comply, the NABIP comment letter asks that rules be applied on a group-specific basis (e.g., prior authorization, step therapy, concurrent review). The NABIP comment letter addresses head-on the issue of access to and ownership of plan data, asking the regulators to explicitly recognize that service providers have a fiduciary responsibility to provide their clients with access to their own data as needed for NQTL and QTL testing. While such an approach would be welcome, it assumes that the service provider is also a fiduciary, which is not always the case.

  • MHPAEA Self-Compliance Tool

The NABIP comment letter complains that the “2020 MHPAEA Self-Compliance Tool” referred to in the preamble to the proposed rule is out of date. This complaint pervades the MHPAEA comments so much so that it would shocking to us if we did not see an updated compliance tool issued concurrently with or shortly after a final rule. Given that the Departments have examined hundreds of NQTL analyses without finding one that complies, it would be useful to see an example of an analysis that they think passed muster.

While the NABIP comment letter nowhere uses the term “scalability,” the concept is at the heart of their comment. The largest plans will have access to the data they need, when and in the form that they need it simply because they have the leverage to demand it. Smaller plans lack this leverage. For these latter plans, the above-described compliance safe harbor, and a regulatory mandate providing data access, would be welcome. And, for employers of all sizes, an up-to-date compliance tool would also be welcome.

Alden Bianchi
Alden J. Bianchi is an experienced Employee Benefits and Executive Compensation lawyer who advises corporate, not-for-profit, governmental and individual clients on a broad range of executive compensation and employee benefits matters, including qualified and non-qualified retirement plans, health and welfare plans. Read Alden Bianchi's full bio.




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