Insurers face uphill battle to comply with mental health rules

Health insurance companies and employers will soon be directing more time, money and resources to comply with mental health parity mandates. But questions remain about what regulators expect of health plans and whether new federal rules effectively tackle the issue.

About one in five U.S. adults has at least one behavioral health condition and many struggle to find and afford treatment, according to the Substance Abuse and Mental Health Services Administration.

Related: Feds strengthen mental health parity rules for insurers

President Joe Biden, regulatory agencies, activists and many lawmakers have pointed fingers at the insurance industry, which they assert limits mental health benefits promised under law. In response, the federal government created new mental health parity standards. Following them could prove easier said than done.

“It is significantly complex what they're requiring the health plans to do in order to prove compliance with the requirements,” said Michael Lutz, senior consultant at healthcare consultancy Avalere. “There are a lot of factors that are influencing how difficult it is to get mental health services."

The regulation the Health and Human Services, Labor and Treasury departments finalized this month requires health plans to cover mental health services to the same degree they cover medical benefits and to develop comparative analyses to inform upgrades to coverage. Numerous statutes dating to the 1990s have made similar guarantees, which the Biden administration is attempting to fulfill.

Producing the reports alone will be challenging and costly. And if insurers uncover discrepancies compared to other care with respect to provider networks, clinical programs, or "nonquantitative treatment limitations" such as prior authorization and step therapy, then coming into compliance could mean paying for more care at higher reimbursement rates.

“A lot of insurers are trying to make efforts to expand networks and remove obstacles and that sort of thing. But within reason,” said Sarah Bassler Millar, a partner at law firm Faegre Drinker Biddle & Reath. “They don't want to just write a blank check and cover everything because then claims would become cost-prohibitive.”

On the other hand, insurers underpay mental health providers and that contributes to access problems, said Tim Clement, vice president of federal government affairs at Mental Health America.

"You have a mental health crisis in the country [and] an opioid epidemic. You have high demand for services for both mental health and substance use disorder. Then you have something like psychiatry, which is one of the lowest-paid medical specialties. Same with addiction medicine. That doesn't seem to make sense to us," Clement said.

Insurers, already facing financial pressures from escalating cost trends, limits on utilization management, rising prescription drug prices and costly emerging therapies, are pushing back on the mental health parity rule, which takes full effect as of the plan year that begins on or after Jan. 1, 2026.

Trade groups AHIP and the Blue Cross Blue Shield Association have criticized the regulation, and the ERISA Industry Committee, which represents employers with plans governed under the Employee Retirement Income Security Act of 1974, is considering litigation.

Advocates for mental health providers and patients see things differently. Stronger government oversight is needed to get insurers to adequately cover mental health, Clement said.

"We think that leads to a level of accountability that doesn't currently exist," Clement said. "That's going to force you to take it seriously."

Compliance challenges

Following the new rules may be a bigger lift for some health plans than others. Large employers, which are usually self-insured and have more complex plan designs than smaller and fully insured businesses, may be particularly challenged and face higher costs, said Sage Fattahian, partner at law firm Morgan & Lewis.

Plan sponsors will likely need to hire internally, rely on their third-party administrators or partner with consultants to produce the comparative analyses, Fattahian said. The latter two options could mean big fees.

“Costs can easily run definitely six figures in some instances," depending on how current mental health benefits compare to other coverage, Millar said. Upfront expenses are likely steepest, but there’s also an ongoing cost as new claims data are generated.

Health plans may need to add more mental health providers to their networks, raise reimbursements or curtail prior authorization requirements.

If not compliant, health plans will be named in regulators’ annual report to Congress with descriptions of the violation, and they must notify members. If plans do not correct their deficiencies, they may be forced to eliminate any utilization management tools for the particular benefit.

Member notification creates the risk of litigation, Fattahian said, especially as more workers allege their employers and insurers have mismanaged health benefits.

Yet the rules are ambiguous, which could lead insurers and employers to over-prepare, said Tej Shah, managing partner at HealthScape Advisors, which is part of consulting company Chartis Group.

Regulators could put more emphasis on how plans conduct prior authorization reviews, how they contract with providers or how they design clinical programs. That means insurers should broadly assess their behavioral health operations as they learn what auditors will prioritize, he said.

“If there's a concern here from an operations perspective, it's: I need to have a team ready potentially for things that ultimately won't get audited,” Shah said. “Some of that time, attention, and potentially resource dollars may have to get shifted from other things they would view as being more valuable — things like telehealth navigation.”

Member impact

Health plans cutting back on prior authorization and step therapy requirements, adding more behavioral health providers to networks and ending higher out-of-network cost-sharing requirements on mental health services could improve access for the more than 153 million workers and dependents enrolled in job-based coverage.

Although federal law doesn’t require insurers and employers to cover mental healthcare, businesses are unlikely to pull back on behavioral health offerings, which are seen as recruitment and retention tools.

But better access could mean higher premiums and larger deductibles to make up for new spending. Last year, the average cost of an employer-sponsored family health plan rose 7% to $23,968, according to a survey by the health policy research institution KFF.

Health insurance companies also have financial limitations, Lutz said. “The margins are already thin in the health insurance space, and they can only absorb so much,” he said. “On top of all of that, we're seeing an increase in the overall cost of care year-over-year. When you take all of this together, it just becomes a bit of a crushing burden.”

Part of a bigger issue

Healthcare attorneys and consultants expressed concerns that the new rule, which puts the onus on private health insurers and employers, fails to address the bigger issue around mental health, such as a shortage of providers and rising demand for care.

“This is one piece of a bigger process,” Lutz said. “By no means do any of these rules as they exist today solve the challenge in and of themselves.”