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Rebecca Farley

Director, Policy & Advocacy, National Council for Behavioral Health

Proposed Rule Lays Out Medicaid Parity Requirements

April 7, 2015 | Parity | Comments
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Monday, the Centers for Medicare and Medicaid Services released its long-awaited proposed rule outlining how the 2008 Mental Health Parity and Addiction Equity Act applies to state Medicaid programs. The rule will extend parity protections to an estimated 22.5 million Americans covered  by Medicaid and CHIP, according to CMS. It generally mirrors final regulations promulgated by CMS in 2013 that detail how parity applies to group insurance plans, with some key exceptions to account for differences in delivery system design between Medicaid and private insurance.

The National Council praised the proposed Medicaid parity regulation for preserving states’ flexibility in delivery system design while safeguarding beneficiaries’ access to mental health and addiction care regardless of how Medicaid services are delivered in their state. “This proposed rule represents a key piece of the parity puzzle,” said Linda Rosenberg, President and CEO of the National Council. “Now, states and Medicaid managed care plans will have the details they need to ensure that beneficiaries have access to the full protections promised them under the parity law. We applaud CMS for so thoroughly focusing on prohibiting discrimination and addressing many of the treatment limitations that have prevented enrollees from accessing the mental and addictions care they need.”


Proposal “Generally Mirrors” 2013 Final Rule

Much like the 2013 final rules for group insurance plans, the new proposal would preserve the general parity rule that prohibits health plans from applying financial requirements or treatment limitations to mental health and substance use disorder benefits that are more restrictive than those imposed on substantially all medical/surgical benefits of a similar kind.

CMS also carried over its definition of treatment limitations as both quantitative (such as annual visit limits) and non-quantitative (such as medical necessity determinations or prior authorization requirements). In both categories, plans must establish standards to ensure that any benefit restrictions are applied in a similar manner to both mental health/substance use and medical/surgical benefits.

Importantly, this does not mean that all behavioral health services will always be free from certain limitations. For example, plans may design formulary restrictions that disproportionately affect mental health drugs, as long as those restrictions are based on objective standards that are applied equally to mental health and medical/surgical medications. Plans are also required to use comparable methodologies to determine reimbursement rates; yet, this does not mean that specialty behavioral health providers will necessarily receive equivalent reimbursement to their medical/surgical counterparts. Plans are considered to be in compliance with parity as long as their processes for establishing treatment limitations are applied in a similar manner to mental health/substance use as they are to medical/surgical benefits.

The proposed rule is notable for its thorough examination of non-quantitative treatment limitations, with an extensive list of examples illustrating when these types of limitations comply with or violate parity. The rule also includes a non-exhaustive list of such limitations, which include formulary design, standards for empaneling providers in insurance networks, fail-first policies, and restrictions based on geographic location, provider specialty, and facility type.


Parity Applies in Both Carved-In and Carved-Out Arrangements

Also of note for behavioral health providers, the proposed rule clarifies that parity applies to Medicaid managed care beneficiaries even in states where behavioral health services have been carved out of managed care contracts. In such cases, states are responsible for ensuring that the entire package of Medicaid services for managed care enrollees complies with the parity law, regardless of whether the services are delivered in a managed care organization, fee-for-service Medicaid, or other delivery arrangement. While the proposed rule does not apply to beneficiaries who receive their care entirely through traditional Medicaid fee-for-service, CMS strongly encourages states to modify their state plans so that benefits are consistent across all categories of beneficiaries.


Rule Offers No Additional Requirements for Scope of Services

While many advocates had hoped that the new proposed rule would go beyond the terms of the 2013 final regulation in establishing a scope of services that plans must provide to comply with parity, CMS did not take this approach. Instead, it reiterated that – like group plans subject to the 2013 rule – Medicaid plans do not have to offer coverage for specific conditions, nor do they have to offer any particular array of mental health and substance use care. The rule does identify four classifications of services – inpatient, outpatient, prescription drug, and emergency care – and requires that if plans offer mental health and substance use in any of these categories, they must offer it in all four.

The proposed rule acknowledges that not all mental health and substance use care settings fall cleanly into the “inpatient” or “outpatient” categories. Like the 2013 final rule, the new proposal does not denote a classification for intermediate levels of care such as intensive outpatient treatment, residential treatment, or partial hospitalization. Rather, it requires plans to assign these intermediate care levels to either the inpatient or outpatient classification in a manner that is similar to how intermediate care levels are assigned on the medical/surgical side. This approach ensures that intermediate care settings commonly used by individuals with mental illness and addictions are fully subject to the protections of the parity law.


Plans Must Meet Disclosure Requirements

The proposed rule requires Medicaid managed care plans, alternative benefit plans, and CHIP plans to make their criteria for medical necessity determinations available to enrollees or contracting providers upon request. Plans must also make available to enrollees the reason for any denial of services. Additionally, states must publicly post documentation of their compliance with the parity requirements outlined in the rule.


States, Managed Care Entities Share Responsibility for Compliance

In states where all services are fully included within managed care contracts, managed care organizations are responsible for ensuring their compliance with parity, even if doing so means covering services beyond the scope of those outlined in the state Medicaid plan. Managed care organizations may include the cost of these services in their calculations of actuarial soundness when contracting with Medicaid, meaning that any additional cost of covering services needed to comply with parity falls squarely on the state.

In states where some or all mental health and substance use services are carved out of managed care arrangements, the state is responsible for ensuring that beneficiaries have access to services that comply with parity, across the entire delivery system. States may decide to make changes to their state plan to provide mental health and substance use services in the fee-for-service system in a manner that is on par with the medical/surgical services provided by the managed care organization(s), or they may decide to include these services in the scope of managed care contracts.


Effective Date is Dependent on Publication of Final Rule

The proposed rule would give states 18 months from the publication of the final rule to come fully into compliance with these requirements.


Next Steps: We Want to Hear From You

CMS is accepting public comments on the rule through June 9, 2015. The National Council will continue to review the text of the proposed rule and will keep readers updated with our latest analyses on Capitol Connector. We will also submit comments to CMS on what the agency should keep and what should be strengthened in the final version of the rule. We welcome hearing from our members about how the proposals outlined here would affect you or the individuals you serve. Please contact Rebecca Farley ( with your questions, comments, and concerns.