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Mental Health Parity – Can a Plan Exclude Residential Treatment Facility Benefits? Federal District Court Says No

The Mental Health Parity and Addition Equity Act of 2008 (Parity Act) provides that group health plans must include the same lifetime and annual dollar limits for mental health benefits as are imposed on medical and surgical benefits.  In Joseph and Gail F. v. Sinclair Services Company, 2016 WL 309787 (D. Utah 2016), the court held that a group health plan which provides mental health and substance abuse benefits, but excludes all services received at a residential treatment facility, violates the Parity Act. 

The court determined that the residential treatment exclusion is a “nonquantitative treatment limitation,” because the limitation is not expressed numerically, but otherwise limits the scope or duration of benefits for treatment.  In this case, the plan covered skilled nursing services, which only provide services to treat medical/surgical conditions, but excluded all residential treatment facility services.  Prior to the complete exclusion, the plan defined a residential treatment facility as “a childcare institution that provides residential care and treatment for emotionally disturbed children and adolescents.”  The court held that the exclusion violates the plain language of the Parity Act since the only types of conditions which are treated at a residential treatment facility are mental health conditions.

The court noted that the administrator argued that the residential treatment facility exclusion applied equally to both mental health benefits and medical/surgical benefits.  However, the administrator did not offer any evidence to support this assertion.  It seems the court left open the possibility that a plan can include a residential treatment facility exclusion if the plan can demonstrate that a medical or surgical condition could require treatment at a residential treatment facility.  However, as defined in this plan, the court concluded that the exclusion applied only to mental health services in violation of the Parity Act.

In addition to the participant litigation risk posed by plan exclusions, a violation of the Parity Act can expose your company to an excise tax liability of up to $100 per day per violation.  With the heightened focus by the Department of Labor and in litigation on the treatment of mental health services under employer-sponsored plans, now would be a good time to review your company’s self-funded plan to ensure the exclusions and treatment limitations comply with the Parity Act. 

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About this Author

Sarah Sise practices exclusively in the heavily regulated and constantly evolving field of employee benefits and executive compensation.

Sarah Sise practices exclusively in the heavily regulated and constantly evolving field of employee benefits and executive compensation. She advises a wide range of clients, including closely-held companies, tax-exempt organizations and public companies.

Sarah brings over 17 years of experience to the firm and partners with clients to establish, design and implement qualified retirement plans, non-qualified arrangements, welfare and fringe benefit plans, and executive compensation programs. She also guides clients through plan audits and service provider changes.