On September 25, 2020, California Governor Gavin Newsom signed into law Senate Bill 855 (SB 855), which requires California insurers to cover more extensive mental health and substance use treatment than currently required under state and federal “mental health parity laws.” The new provisions under SB 855 must be included in health and disability contracts issued, amended, or renewed in California on or after January 1, 2021.
Impact on Employers
SB 855 applies to health plans and insurers that are subject to California insurance laws. The impact on employers will depend on whether an employer sponsors a fully insured or self-insured plan:
- Fully insured plans: Insurers should incorporate the new provisions under SB 855 into plan contracts written out of California that are issued or renewed after January 1, 2021. The most direct impact on employers is SB 855’s provision voiding “discretionary causes,” which commonly provide plan administrators with discretionary authority to interpret and apply plan terms. See below for a further discussion.
- Self-insured plans: SB 855 does not apply to self-insured plans since they are not subject to California state insurance laws (though self-insured plans that have 50 or more employees will still be subject to the federal Mental Health Parity and Addiction Equity Act, as discussed below).
Key Changes to the California Mental Health Parity Act
California insurers are already subject to the California Mental Health Parity Act of 1999 and the federal Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). The California Mental Health Parity Act applies to fully insured plans written out of California, whereas MHPAEA applies to fully insured and self-insured plans sponsored by employers with 50+ employees.
SB 855 expands the California Mental Health Parity Act of 1999 by expanding the application of the law and implementing provisions that encourage insurers to cover mental health or substance use (MU/SUD) benefits, as outlined below.
California Mental Health Parity Act Now Applies to All Mental Health Substance and Use Disorders
SB 855 requires insurers to cover medically necessary treatment of all mental health and substance use disorders, instead of the nine mental illnesses and serious child emotional disturbances required under the 1999 iteration of the law. Further, insurers are required to adopt a uniform definition of “mental use and substance disorder” outlined under SB 855.
Although the federal MHPAEA already applies similarly to MH/SUD benefits, MHPAEA does not require plans to actually “cover” MH/SUD benefits in the first place. Therefore, SB 855 will require plans that only cover treatment for the limited mental illnesses under current state law to cover treatment for a larger scope of conditions.
SB 855 Outlines Guidelines for Medical Necessity
SB 855 requires insurers to use specific criteria and guidelines when determining medical necessity and conducting utilization reviews (e.g. pre-authorizations for services). These new requirements will be key for insurers when determining what MH/SUD services, products, and benefits must be provided under the plan.
SB 855 Prohibits Plans to Retroactively Rescind Authorizations
SB 855 prohibits plans that have authorized a MU/SUD treatment from rescinding or modifying the authorization after a provider renders the service and relies on the authorization on good faith.
SB 855 Requires Insurers to Provide Out-of-Network MH/SUD Services
If services for MH/SUD are not available in-network “within geographic and timely access standards” (set by law or regulation), the plan must arrange coverage of medically necessary out-of-network services. When receiving out-of-network services, participants cannot be made to pay more than they would have paid for the same services received from an in-network provider.
SB 855 Prohibits “Discretionary Clauses” in Plan Documents
SB 855 prohibits discretionary clauses in plan documents, which confer discretion on a plan or claims administrator to determine eligibility under the plan, determine entitlement of benefits or coverage, interpret the contract language, or provide standards of interpretation that are inconsistent with state law. Generally, ERISA plans (which include most employer-sponsored plans) grant plan and claim administrators with discretionary authority to interpret and apply plan terms. Under SB 855’s new prohibition, courts will be allowed to review plan administrator discretionary decisions without deference to plan administrators. It is important to point out that this prohibition may be found to be invalidated by ERISA, dependent on the outcome of any future litigation.
Comparison of the California and Federal Parity Laws
Some of the important changes made to the California Mental Health Parity Act are further outlined below.
| Amended California Mental Health Parity Act (effective January 1, 2021) | California Mental Health Parity Act of 1999 | Federal Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) | |
| Who does the law apply to? | Insurers that are subject to California insurance laws (e.g. fully insured policies written out of California). | Insurers that are subject to California insurance laws (e.g. fully insured policies written out of California). | Self-insured and fully insured group health plans sponsored by employers with 50+ employees that offer MU/SUD benefits. |
| What conditions does the law apply to? | Plans that provide hospital, medical or surgical benefits must provide coverage for the medically necessary treatment of all mental health and substance use disorders. | Plans that provided hospital, medical or surgical benefits were required to provide coverage for the diagnosis and medically necessary treatment of nine severe mental illnesses and serious emotional disturbances of a child. | Plans that offer MU/SUD benefits cannot impose more restrictive treatment limitations or higher financial requirements on MH/SUD as compared to other medical or surgical benefits. |
| What MU/SUD financial provisions must be provided in parity with medical/surgical benefits? | These include, but are not limited to, maximum and annual lifetime benefits, copayments and coinsurance, individual and family deductible, and out-of-pocket maximums. | These included, but were not limited to, maximum lifetime benefits, copayments, individual and family deductibles. | All financial requirements (e.g. deductibles and co-pay). |
| What types of care must be provided? | Benefits include, but are not limited to, basic health care services, intermediate services (e.g. residential treatment, partial hospitalization, and intensive outpatient treatment), and prescription drugs (if the plan covers prescription drugs). | Outpatient services, inpatient hospital services, partial hospital services, and prescription drugs (if the plan covers prescription drugs). | MHPAEA does not require plans to provide MH/SUD benefits. |
| When must MU/SUD out-of-network care be provided? | If services for MU/SUD are not available in-network, the plan must arrange coverage for medically necessary out-of-network services. | Did not explicitly require out-of-network coverage. | Plans that provide out-of-network medical/surgical benefits, must provide for out-of-network MH/SUD benefits under similar terms. |
| What is the definition of mental health or substance use disorder? | Includes mental health or substance use disorders listed in the International Classification of Diseases (ICD) or the Diagnostic and Statistical Manual of Mental Disorders (DSM). | Only applied to 9 severe mental illnesses: schizophrenia, schizoaffective disorder, bipolar disorder, major depressive disorder, panic disorder, obsessive compulsive disorder, pervasive developmental disorder or autism, anorexia nervosa, and bulimia nervosa. | Mental health conditions are defined under the terms of the plan, which must define mental health conditions consistent with generally recognized independent standards of current medical practice, including the ICD and DSM. |
| Are “discretionary provisions” allowed? | No. | Yes. | Yes. |
| What are the standards for medically necessity determinations? | Must be based on current generally accepted standard of mental health and substance use disorder care. | These were not previously standardized under the law. | Standards for medical necessity determinations and reasons for any denial of benefits relating to MH/SUD benefits must be disclosed upon request. |
Next Steps
Fully insured employers should reach out to their insurance providers with any questions on how SB 855 may affect coverage for mental health and substance use treatment for their plans beginning in 2021.
Sequoia One Clients: No action required. Sequoia One will confirm the new requirements with the program carriers in anticipation of plan year beginning July 2021. Your Sequoia One team will be providing additional information and education on this new requirement at the next open enrollment.”
Additional Resources
Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2020 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved
