Details and Background on the Mental Health Parity Act of 2007
February 13, 2007
S 558 – The Culmination of a 15 Year Effort
Since Senator Domenici introduced the first federal parity bill back in 1992, the measure has been through numerous ups and downs – the historic 68-30 vote in April 1996, enactment of parity for annual and lifetime dollar limits in September 1996, parity for the federal employees health program in 1999, Senate passage in October 2001 (rejected by the House in December 2001) and the tragic death of Senator Paul Wellstone (D-MN) in October 2002.
2007 promises to be very different for federal parity legislation. This year begins with the promise of support from key leaders in the employer and health plan communities that have fought the legislation year after year. Why has opposition from business and insurance interests eroded? The past decade has seen the accumulation of numerous studies demonstrating that equitable coverage of mental illness can be cost effective, without a significant escalation in premiums.
Further, there is mounting evidence that removing limits on coverage and higher cost sharing can help employers intervene early in the course of an illness and avoid higher costs and lost productivity. Finally, and most importantly, the determined efforts of key leaders in Congress have been critical in convincing the opposition toward cooperation and conciliation. While there is still a long way to go before the bill reaches the President's desk, there are strong indications that 2007 could be the year that Congress finally finishes the job.
How is S. 558 structured?
The legislation amends two existing federal laws that establish standards for health insurance plans that cover the bulk of the estimated 113 million Americans enrolled in group health plans.
- The Employee Retirement Income Security Act (ERISA) – This is the 1974 law that allows employers to set up and finance their own health plans (i.e., self insure) and thereby avoid all state regulation. There are an estimated 82 million covered lives in these ERISA plans, many of whom will be able to access non-discriminatory coverage for the first time.
- The Public Health Service Act (PHSA) – This is the federal law that combines with state insurance codes to establish standards for the "fully insured" market for group health plans that cover an estimated 31 million covered lives (25 million of whom are enrolled in plans covered by state parity laws).
The key provisions of the bill that establish parity for treatment limits and financial limitations are repeated as amendments to both ERISA and the PHSA.
Does S. 558 require coverage of mental health benefits or specific diagnoses or services?
No. It is important from the outset to remember that parity articulates the basic principle of mental illness being "a disease like any other." As such, the objective is to require insurance coverage that equal to, but not superior to, other medical conditions such as cancer, diabetes or heart disease. Parity is therefore not a benefit or treatment service mandate, but rather a coverage condition; i.e. if you cover mental illness, you cannot impose limits or conditions that do not apply to everything else.
As a result, throughout the bill, there is deference to health plans to decide what to cover, how to define what is medically necessary and how to manage coverage. The federal government does not generally impose mandates for coverage of specific health conditions or services on the medical-surgical side, so this legislation cannot do so on the mental health side. Further, as noted below, to the extent that state law governs such activities, this bill does NOT preempt them.
How is S. 558 different from the existing 1996 federal parity law?
The 1996 Mental Health Parity Act established parity for annual and lifetime dollar limits (dollar-based caps coverage applied either annually or an enrollee's life). This left health plans free to continue imposing lower caps on covered inpatient days and outpatient visits, as well as higher cost sharing and deductibles that only apply to mental illness treatment. A 2000 Government Accountability Office (GAO) study on implementation of the 1996 law confirmed this finding. The real impact and critical provisions in S 558 are the expansions of the 1996 law to include prohibitions on unequal limitations on day/visits limits and financial limitations. Another key provision requires that this parity standard for mental illness treatment be measured against "substantially all" medical-surgical coverage, and not just a portion of medical-surgical benefits.
Will S. 558 impact existing state mental health parity laws?
Yes, but only on a limited basis. With the addition of New York and Ohio earlier this year, there are now 41 states with parity laws covering 26 million Americans. These laws vary substantially in terms of their scope and requirements. By establishing a uniform federal parity standard, the immediate question arises – should the federal law preempt or supersede these 41 state laws?
Rather than explicitly becoming a floor below, or a ceiling above, all state parity standards, S 558 contains language designed to selectively preempt only standards in state laws that establish parity for day/visit limits and financial limitations. As a result, this legislation does NOT preempt existing state requirements for plans to either cover or offer mental health benefits. In addition, the bill does NOT preempt provisions in state parity laws that require specific diagnoses (typically, a list of severe mental illnesses) or a broad listing (the entire DSM) to be covered equitably.
What clearly will be preempted by this bill are any numerical limits in state laws – whether part of a parity law or a mandated minimum mental health benefit – on coverage. These state laws typically define mental health benefits as (for example) 20 inpatient days and 30 outpatient visits. S 558 will preempt these numerical limits, so long as they do not also apply to "substantially all" medical-surgical benefits. At the same time, the bill will NOT override the obligation created in state law to either cover or offer mental health benefits (to the extent such requirements exist).
What is the scope of mental disorders covered in S. 558?
One of the difficult issues that parity proposals at the federal and state level have dealt with is how to define mental health benefits and whether to place boundaries on the scope of mental disorders that must be covered equally as measured against medical-surgical coverage. A majority of state parity laws define a list of disorders that will be subject to equitable coverage, while others define mental health benefits on the basis of the APA's DSM manual. By contrast, this federal legislation instead defers such determinations of scope to the health plans itself, using the term "mental health benefits as defined under the terms of the group health plan." The only qualification placed on this discretion is that substance abuse is included.
Concerns have been raised that this definition gives too much leeway to the health plan to exclude certain diagnoses from parity coverage. At the same time, it needs to be recognized that the 1996 used similar language and there is no evidence that any health plan has used that discretion to exclude any of the major serious diagnoses such as schizophrenia, bipolar disorder, major depression or severe anxiety disorders. Finally, as noted above, an underlying principle in the bill is to avoid imposing any mandate for coverage of either specific diagnoses or services (apart from a requirement to cover them on an equitable basis).
Are there exemptions and exceptions to the parity requirement in S. 558?
Yes. First, the bill exempts group health plans purchased by firms with 50 or fewer workers (as opposed to covered lives, which would include dependents). This has been a part of federal parity laws for more than a decade and is designed to shield small firms from high costs that might be associated with initial compliance. There is also a cost increase exemption that allows firms whose costs go up more than 2% as a result of initial compliance to set aside the parity requirement for 1 year. However, after 1 year of exemption, they must come back into compliance the following year. If costs go up more than 1% thereafter, they could seek another exemption for the following year.
This cost increase exemption has been in place since the 1996 federal law went into effect and few employers or plans have sought to use it. This bill includes a number of features that are likely to deter employers and plans from seeking a cost increase exemption. First, they must comply with the law for at least 6 months before seeking an exemption. Second they must compile data and seek a determination from a qualified actuary. Third, they must provide notice to all plan enrollees that they are seeking to waive the law.
Finally, the administrative cost of developing the cost assessment and preparing the waiver is likely to far exceed any savings that might result from avoiding compliance for only 1 year (especially in the context of multi-year collective bargaining agreements). Study after study has demonstrated that when done properly, parity increases premiums less than 1%, and in some cases actually lowers overall costs.
Does S. 558 allow health plans to manage benefits and utilization of treatment services?
Yes. As noted above, parity has never been about achieving special status for mental health benefits in group health plans, but rather coverage that is equal to all other medical conditions. As a result, any effort to use parity legislation as an opportunity to curb or challenge the ability of plans to engage in medical management of benefits through utilization review, exclusion of services deemed not medically necessary, etc. could not be included. In other words, a threshold decision was made that if Congress is to consider such protections as part of "Patient Bill of Rights" legislation, it will do so by focusing on all health conditions (both medical-surgical and mental health). Parity is not an opportunity to address such issues solely for mental health.
As a result the bill contains "clarifications" stating that nothing in the bill bars plans from managing mental health benefits through use of medical necessity, utilization review, prior authorization of high cost services, etc.
Does S. 558 allow for parity for "out of network" services?
Yes. Here the bill contains an extra protection to ensure that if a group health plan has out of network coverage for both medical-surgical and mental health, they must be at parity level, meaning that cost sharing and deductibles have to be the same between the two out of network benefits. Likewise, the bill contains language clarifying that there is no mandate to have an out of network option, for either medical-surgical or mental health benefits.
- The bill authorizes the GAO to examine implementation issues including the impact of the parity requirements on overall cost and quality as well as how the preemption provisions affect state mental health benefit mandates.
- The bill restates the existing regulatory and enforcement authorities at the federal level of the Secretaries of HHS and Labor. This includes authority to conduct random audits of health plans to ensure compliance.
Prepared by Andrew Sperling, Director of Legislative Advocacy, NAMI National