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When Is Coverage of Residential Care Required under MHPAEA? The Courts Reach Different Conclusions

For years, health plans and insurers have engaged in a tug-o-war with the courts over whether the Mental Health Parity and Addiction Equity Act (MHPAEA) requires them to cover residential care for mental illnesses and substance use disorders (MH/SUD). Recent court decisions indicate that the battle is not over. Not the least because residential care can mean many different things.

Residential care is a form of “intermediate” service – in-between acute hospital care and a physician office visit. There are many forms of intermediate care for medical/surgical (M/S) conditions, including congregate care, skilled nursing facilities (SNFs), and respite care. And there are many forms of residential care for MH/SUD conditions, including short-term crisis, long-term rehabilitation, and transitional or sober living facilities. The types of facilities provide differing levels of intensity of care. Facilities of the same type can also offer very different programs and may target different conditions.   

The purpose of MHPAEA is to expand coverage for mental health benefits. But MHPAEA operates in a convoluted fashion. It does not compel plans to cover any MH/SUD condition or treatment. Rather, MHPAEA requires parity between the limits that a plan places on the MH/SUD benefits it offers with its limits on medical/surgical (M/S) benefits.

In a January 2018 decision,[1] a Utah federal court ruled that a plan that covered care in a SNF, but excluded care in a residential treatment center, violated MHPAEA. As support, the court cited the final regulations for MHPAEA, which discussed the process for performing a parity analysis for intermediate services at length. To start the analysis, all plan benefits must be bucketed into one of six classifications – inpatient in-network, outpatient in-network, emergency services, etc. Then the non-quantitative limits such as exclusions applied to the MH/SUD benefits in each classification must be compared the limits applied to M/S conditions within that classification. To satisfy MHPAEA, the limits on MH/SUD benefits must be comparable to and applied no more stringently than the limits on M/S benefits. And the preamble to the regulations said that for purposes of parity analysis, residential care benefits should be bucketed into the same classification as SNF benefits. This means that limits on residential care benefits would need to be comparable to limits on SNF benefits.

For the Utah court, this was as far as the analysis needed to go. It stated, “a skilled nursing facility is analogous to a residential treatment facility.” So the practical effect of the exclusion in the case before it was that members received less coverage for MH/SUD services than they did for M/S services. This was “at odds with the Parity Act’s purpose to achieve parity coverage whenever a plan offers both mental health and surgical benefits.”

Other courts have found that even if residential care is placed in the same general parity classification as SNF care, this may not end the inquiry. In a 2016 decision,[2] an Illinois federal court stated that MHPAEA might permit a plan to exclude MH/SUD benefits, if the exclusion is based on comparable policies that it also applies to M/S benefits in the same classification. According to the court, if for example a health plan had a policy of only covering services in the inpatient classifications with a particular success rate, and found that residential care did not meet this success rate while SNF care did, then excluding residential treatment would not violate MHPAEA.

In a 2017 decision,[3] a California federal court indicated that level of care can also provide a neutral basis for excluding services at intermediate facilities, holding that a plan’s decision to cover neither inpatient, out-of-network benefits for M/S treatment at a SNF or for MH/SUD treatment at a residential care facility did not violate MHPAEA. The key issue for the court was whether the two types of services were being treated comparably. So employing a cutoff that applies across-the-board to all intermediate MH/SUD and M/S facilities based on intensity of service may also satisfy MHPAEA.  

Given the complexity of MHPAEA, determining whether coverage exists requires looking below the surface. For further information on the application of MHPAEA, contact David Johnson at david.johnson@mrllp.com

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations. 

[1] 2018 WL 671213 (D. Utah, Jan. 31, 2018). This decision is now on appeal.

[2] 2016 WL 4765709 (N.D.Ill., Sept. 13, 2016).

[3] 2017 WL 3602541 (N.D.Cal., Aug. 21, 2017).