August 2001
Government Relations
Practice Organization
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Congress should pass the Domenici/Wellstone and Roukema bills to close the loopholes in the Mental Health Parity Act of 1996, to fully ban discrimination against all persons needing mental health and substance abuse services. The 1996 Act, originally sponsored by Senators Pete Domenici and Paul Wellstone and Representative Marge Roukema, prevents larger health plans from imposing lifetime and annual dollar limits on mental health benefits that are different from those imposed on medical/surgical benefits. The Act has had a minimal cost, but 87% of complying health plans have evaded the spirit of the law by replacing dollar limits with arbitrary limits on inpatient days and outpatient visits or another part of the benefit, found the U.S. General Accounting Office (May 2000).

The U.S. Surgeon General asserts there is no scientific justification for treating mental and physical health differently. The Surgeon’s General’s Report on Mental Health (Nov. ‘99) asserts that diagnoses of mental disorders made using specific criteria are as reliable as those for general medical disorders. And, a range of treatments of well-documented efficacy exists for most mental disorders.

Parity is an affordable and effective objective, says the Surgeon General. Case studies of five states that had a parity law for at least a year revealed a small effect on premiums – at most a change of a few percent, plus or minus. Further, employers did not attempt to avoid the laws by becoming self-insured or by passing on costs to employees.

Some businesses are already removing mental health benefit limits at cost savings. However, without passage of federal legislation that creates a level playing field, insurers are not likely to voluntarily remove arbitrary benefit limits. Insurers have placed limits on mental health benefits out of misplaced fear that benefits without these limits would attract poor risks, increase their costs, and place them at a competitive disadvantage. New legislation will create a level playing field where all insurers can offer low cost mental health parity coverage through use of private market efficiencies.

Senators should cosponsor the Domenici/Wellstone bill, S. 543, a full parity bill approved 21-0 by the Senate Health Committee. If mental health benefits are offered, a plan may not impede access by using discriminatory dollar limits, day and visit limits, coinsurance, deductibles or out-of-pocket maximums. Parity is required only for in-network services. The Congressional Budget Office projects that S. 543 would raise premiums just 0.9% (8-22-01). Actuarial analysis by PricewaterhouseCoopers agrees, and shows that this broad-based parity bill would cost the typical plan only four and one half cents per day per covered person per day ($1.32 per member per month). These costs are usually shared between the employer and employee.

Representatives should cosponsor the Roukema bill, H.R. 162, which also closes the loopholes in the 1996 Act. It differs from the Senate bill by also covering substance abuse services at parity. Actuarial analysis shows that the average premium would rise 2.2%; nine and one-half cents per covered person per day ($2.85 per member per month). A typical employer share of this increase would be four cents per day. Like the Senate bill, H.R. 162 does not interfere with efforts to deliver cost-effective mental health care, as health plans remain free to use preadmission review and other appropriate techniques.

Findings of the U.S. General Accounting Office: Access to Mental Health Services Remains Limited Despite Compliance, Says GAO

Findings indicate that 86% of employers comply with the federal parity requirements set forth in the Mental Health Parity Act of 1996, which prevents employer-sponsored health plans from imposing lifetime and annual dollar limits on mental health benefits that differ from those imposed on medical/surgical benefits. However, the scope of this Act is narrow. It does not apply to individuals outside of a group plan, plans with 50 or fewer employees, or plans whose claims costs have increased at least 1% due to compliance. Also, additional loopholes remain that enable employers to restrict employee mental health coverage. These restrictions arise out of an unsubstantiated fear of higher costs and the attraction of high-risk individuals.

Despite a high percentage of compliance, employers continue to limit their mental health benefits. More specifically, 87% of those who comply end up restricting other mental health services in their health plans. In other words, the majority of employers who alter their benefits to achieve parity in annual/lifetime dollar limits restrict another mental health benefit to counteract feared cost increases due to compliance. Most prevalent are restrictions on the number of hospital days and outpatient visits, as well as higher copayments and deductibles. Consequently, the net effect often generates little or no increase in parity between mental health and surgical/medical health benefits.

Initial concerns that the 1996 Act would increase claims costs by more than 1% seem to be unconfirmed. In fact, GAO findings support past estimates that implementing federal parity for dollar limits would have a negligible effect on claims costs (premium increases were estimated at 0.16% and 0.12% by CBO and Coopers & Lybrand, respectively). Of the employers aware of how compliance affects their claims costs, over 90% report no increases. Furthermore, less than 1% of responding employers actually dropped coverage of mental health benefits after federal parity was enacted, possibly indicating unsubstantiated concern for increased costs.

Several states have already enacted parity laws that exceed the federal parity requirements. In addition to requiring dollar limit parity, these more comprehensive laws may also require parity in service limits and cost-sharing provisions and mandate the inclusion of mental health benefits in group health plans. Premium cost increases for full parity are estimated to be between 2% and 4%, both nationally and for individual states.

Loopholes and limited scope of the Mental Health Parity Act of 1996 continue to impede overall access to mental health services. The Act affects only lifetime/annual dollar limits, placing no restrictions on any other plan benefits. This continues the trend of consistently lower levels of coverage for mental health benefits than for surgical/medical benefits. Furthermore, a significant minority (14%) of employers do not comply with federal parity law. The existing federal parity requirements most often produce only minor changes in mental health benefits.

“Compliance with the Mental Health Parity Act of 1996: Effects/Costs of Implementation,” U.S. General Accounting Office, May 2000.