California health insurers and health care service plans that provide hospital, medical, or surgical coverage and that are issued, amended, or renewed on or after January 1, 2021 will be required to cover all medically necessary services for mental health issues and substance use disorders, pursuant to the recently-passed SB 855. This new law does not apply to employer health plans that are ERISA self-funded health plans.

California's Mental Health Parity Act already required that nine specified severe mental illnesses be covered on the same terms and conditions as other medical services. The new law will expand California's parity law to all mental health issues that fall under any diagnostic category listed in the mental and behavioral disorders chapter of the International Classification of Diseases or listed in the Diagnostic and Statistical Manual of Mental Disorders. As most health insurance and health plans are already subject to the federal Mental Health Parity and Addiction Equity Act, these new state requirements will be in addition to such federal standards.

In addition to broadening the mental health issues that are subject to parity under California law, the law requires that all medically necessary services for mental health issues be covered. The law defines "medically necessary treatment of a mental health or substance use disorder" as a service or product addressing the specific needs of a patient for the purpose of preventing, diagnosing, or treating an illness, injury, condition, or its symptoms, including minimizing the progression of such, in a manner that meets all of the following criteria:

  1. Is in accordance with generally accepted standards of mental health and substance use disorder care;
  2. Is clinically appropriate in terms of type, frequency, extent, site, and duration; and
  3. Is not primarily for the economic benefit of the health care service plan and subscribers or for the convenience of the patient, treating physician, or other health care provider.

"Generally accepted standards" is defined in the law to mean standards of care and clinical practices that are generally recognized by providers in the relevant clinical specialty, and sources establishing generally accepted standards may include peer-reviewed scientific studies, medical literature, clinical practice guidelines, recommendations of government agencies, etc.

A health insurance policy or health care service plan may not deny a claim based on a different definition of, or using different criteria for, medical necessity. They may not limit benefits or coverage for mental health and substance use disorders to short-term or acute treatment. To the extent medically necessary services are not available in-network within state geographic and timely access standards, the insurer or health care service plan must arrange for out-of-network coverage that meets the geographic and timely access standards, including any medically necessary follow up services. The law mandates that the enrollee shall pay no more than the same cost sharing that would be paid for the same covered services received in-network.

Additionally, utilization review of mental health and substance abuse treatment must apply the criteria and guidelines set forth in the most recent version of treatment criteria developed by the nonprofit professional association for the relevant clinical specialty.

Under the new law, clauses in health care service plans that reserve discretionary authority to the plan to determine benefits coverage or eligibility, to interpret contract terms, or to provide standards of interpretation or review that are inconsistent with the laws of California are void and unenforceable. This means that should an interpretation of a provision of a plan be challenged in court, the court may review the plan de novo, without giving deference to the plan administrator.

Applicable health plan administrators and insurers should consider revising their definition of medical necessity to match California's new requirements. Any language that contradicts new requirements will need to be revised or removed, as will any internal policies that violate the new requirements.

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