MHPAEA opt-out ends for nonfederal government plans 

June 29, 2023

Self-funded state and local government employee group health plans that previously opted out of the Mental Health Parity and Addiction Equity Act (MHPAEA) will need to prepare to comply with parity requirements, just as private employers’ health plans already do. A provision (Section 1321) in the 2023 Consolidated Appropriations Act (CAA) (Pub. L. No. 117-328) eliminates the mental health parity opt-out, and affected plans may see a fairly significant cost increase. The Centers for Medicare & Medicaid Services (CMS) recently issued clarifying guidance on the end of the opt-out, including the special rule for plans subject to multiple collective bargaining agreements. This article provides an overview of the government plan opt-out, describes the impact of the 2023 CAA and suggests next steps for government plan sponsors.

Background on the opt-out. Prior to the 2023 CAA, self-funded group health plans covering state or local government employees could elect to opt out of four group health plan mandates:

• The MHPAEA requires that plans covering mental health and substance use disorder benefits provide those benefits in parity with medical and surgical benefits.
• The Newborns’ and Mothers’ Health Protection Act (NMHPA) requires that plans cover minimum hospital stays after childbirth.
• The Women’s Health and Cancer Rights Act (WHCRA) requires plans to cover post-mastectomy reconstructive surgery.
• Michelle’s Law requires plans to extend coverage to a dependent child when medical leave causes loss of postsecondary student eligibility.

In this GRIST, “government plans” eligible to opt out of these mandates refers exclusively to nonfederal self-funded plans; insured state or local government plans never could opt out of MHPAEA. As used here, the term “governmental plans” also does not include federal employee health plans, Medicare or Medicaid, which are subject to separate standards. Examples of government plans eligible for opt-outs include plans sponsored by:

• Municipal governments
• School districts
• Fire departments
• A fund created by pooling the funds of a number of smaller municipalities

Eligible plans opt out using CMS’s Health Insurance Oversight System (HIOS). Each election applies for one plan year (or for collectively bargained plans, for the term of the collective bargaining agreement). A CMS website describes the opt-out process and links to a model notice and other supporting materials.

2023 CAA change to MHPAEA opt-out. The 2023 CAA removes MHPAEA from the list of federal health plan mandates for which an opt-out is available to government plans. As a result, all self-funded state or local government plans must prepare to comply with MHPAEA, unless a separate exemption applies. For example, MHPAEA does not apply to retiree-only plans or small employers (generally those with 50 or fewer employees, although a few states have expanded the definition to include employers with 100 or fewer employees). Self-funded state and local government plans may continue to use the existing CMS process to opt out of NMHPA, WHCRA and Michelle’s Law.

The 2023 CAA sunsets the MHPAEA opt-out as follows:

• No opt-out elections are allowed after Dec. 29, 2022 (the date on which the 2023 CAA was enacted).
• Any opt-out election that expires on or after June 27, 2023 (180 days after enactment) cannot be renewed.

Example: The city of Clementine sponsors a self-funded, calendar-year plan for its employees. In 2022, the city elected to opt out of MHPAEA compliance for the 2023 plan year. When that opt-out expires on Dec. 31, 2023, it cannot be renewed. The plan must comply with MHPAEA beginning on Jan. 1, 2024.

Neither the 2023 CAA nor the related CMS guidance expressly address a plan with a MHPAEA opt-out that expires before June 27, 2023. Since the statute expressly forbids renewal of MHPAEA opt-outs expiring after June 27, 2023, plans with opt-outs expiring before that date presumably can elect one renewal, but this should be confirmed with legal counsel.

Example: The city of Citrone sponsors a self-funded plan for its employees with an April 1 plan year. The city opted out of MHPAEA for the plan year beginning April 1, 2022. Since this opt-out expired on March 31, 2023 — before June 27, 2023 — the city presumably could renew its MHPAEA opt-out for the plan year beginning April 1, 2023. However, when that renewal expires on March 31, 2024 — after June 27, 2023 — no further renewals will be allowed. The plan must comply with MHPAEA beginning on April 1, 2024.

A collectively bargained self-funded state or local government plan may elect to opt out of specified federal mandates for the term of the collective bargaining agreement (CBA). The 2023 CAA stipulates that a plan subject to multiple CBAs of varying lengths that has opted out of MHPAEA as of June 27, 2023, may extend the election until the last collective bargaining agreement expires.

The sponsor of a plan subject to multiple CBAs must send an email to the HIPAA opt-out email box (HIPAAOptOut@cms.hhs.gov) and provide documentation related to the CBAs and their termination dates. CMS will review the documents and notify the plan sponsor about its eligibility for an extension. A plan sponsor that receives CMS approval must renew its opt-out in HIOS and should review CMS guidance to determine the renewal deadline.

Comply with MHPAEA once the opt-out expires. Sponsors of self-funded state or local government health plans that relied on the MHPAEA opt-out should identify its expiration date and work to comply with MHPAEA by that date. A discussion of MHPAEA compliance is beyond the scope of this article, but a plan offering mental health and substance use disorder benefits must:

• Ensure that the plan’s coverage of mental health and substance use disorder benefits is in parity with the plan’s coverage of medical and surgical benefits, in accordance with MHPAEA and related guidance
• Confirm that the plan’s terms and operations don’t impose financial requirements or treatment limitations (quantitative and nonquantitative) on mental health or substance use disorder benefits that are more restrictive than those imposed on the same classification of medical/surgical benefits
• Prepare a written comparative analysis of each of the plan’s nonquantitative treatment limitations

Plan sponsors should consider and plan for the cost of MHPAEA compliance, including any potential expansion of behavioral health and substance use disorder benefits

Assess whether to elect or renew the opt-out for the remaining three group health plan mandates. Sponsors of self-funded state or local government plans should assess whether to opt out of any other mandates once MHPAEA compliance is required. The following chart summarizes the three group health plan mandates for which the opt-out remains available. 

The plan sponsor should review with counsel whether the plan fully complies with each of the three mandates. If a plan does not already comply with any of these mandates, it could continue to opt out of the mandate(s) or explore expanding coverage to satisfy the mandate(s).

• CMS insurance bulletin, Sunset of MHPAEA opt-out provision for self-funded, nonfederal governmental group health plans (June 7, 2023)
• Pub. L. No. 117-328, the 2023 Consolidated Appropriations Act (Congress, Dec. 29, 2022)
• Self-funded nonfederal governmental plans, procedures and requirements for HIPAA exemption Election (CMS)
• Mental Health Parity and Addiction Equity Act (CMS)

• Top 10 compliance issues for health and leave benefits in 2023 (Oct. 28, 2022)
• Mental health parity compliance gets a boost in 2021 spending act (April 13, 2021)