The whittling down of the original comprehensive federal health-insurance parity legislation seems to be not enough for certain members of the business and insurance communities. They are determined to fight the implementation of this law, which was enacted in 1996. The exemption that employers can take if their health-care costs increase by 1 percent or more has become the latest battleground in a series of attempts to negate the parity

law?s impact. To recap, U.S. Sens. Pete Domenici (R-N.M.) and Paul Wellstone (D-Minn.) initially proposed comprehensive parity in early 1996 as an amendment to the Health Insurance Reform Act. Their proposal included complete parity of insurance coverage between medical and both mental health and substance-abuse services. The substance-abuse provision was dropped because employers raised immediate concerns about the increased health-care costs bound to result. The proposal was then narrowed further in response to employers? cost-related objections, despite actuarial predictions that mental health-care parity would actually decrease total public health-care costs in both the public and private sectors by more than 4 percent.

The parity law, which took effect on Jan. 1, pertains only to annual and lifetime benefit dollar limits for physical and mental health services. Though applicable to ERISA self-insured plans and non-ERISA plans, the law covers only those employers with more than 50 employees.

The expected cost impact of even the modest parity proposal that became law was a hotly contested issue. Projected cost increases ranged from a low of no more than 0.4 percent calculated by the Congressional Budget Office and other independent actuarial firms to estimates of 10 percent or more by parity opponents in the business and insurance communities. In the end, the law was passed only because it included an exemption for benefit plans whose compliance resulted in a 1-percent-or-greater cost increase.

As the implementation date approached and regulations from the U.S. Department of Health and Human Services were anticipated, opposing interpretations of the 1-percent exemption sparked another fight over the law.

Proponents of the parity law believe that the law requires retrospective data in order for a plan to apply for an exemption. In other words, only after employers have served actual claims data in compliance with the parity law can they request a waiver based on an actual increase in costs of 1 percent or more.

The law?s opponents, such as the Association of Private Pension and Welfare Plans (representing many Fortune 500 companies) and the American Association of Health Plans, argue that the exemption should be available prospectively based on an actuarial projection of increased costs.

Although the Clinton administration first vacillated about which approach to the exemption was appropriate, the expected regulations (not publicly released as of December 1997) will take the retrospective position. They will mandate that applications for the exemption may be filed no earlier than after six months? compliance with the law and only if the plan already has reached the 1 percent cost threshold.

It is also anticipated that employers simply will be required to notify the government to claim the exemption and will not need to wait for formal approval. However, the government can investigate and challenge any specific employer exemption.

Importantly, the regulations are expected to require employers to notify their employees of the claimed exemption. At this point, though, it is not clear how employees can challenge the exemption. It is also uncertain whether mental health advocates or the general public will be able to obtain a list of companies exempt from the parity law.

While there are many unresolved issues related to the law?s implementation, it is definitely a positive development that implementing regulations will require a retrospective rather than a prospective exemption process. Given the wide range of actuarial projections offered in light of the legislative proposal, it is a virtual certainty that exemptions based on an estimate of future benefit plan costs would undermine the limited effect the parity law is expected to have.

It is also clear that for this or any other parity law to be effective, it is critical to place controls on the use of cost-containment and managed-care strategies. Laws and regulations that prevent managed-care strategies from denying necessary care are required to be certain that plans opposed to parity cannot find alternative ways to inappropriately deny mental health services in the face of mandated parity.