What do employers need to know about parity?

Employers have a key role to play in fulfilling the promise of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act¹. They are responsible for ensuring that financial requirements and treatment limitations on the mental health and substance use disorder benefits they provide² are equivalent to and no more restrictive than those on medical and surgical benefits.

Parity means that health plans cover services for mental health and substance use and services for medical and surgical problems comparably:

• Benefits. If a plan offers mental health and substance use benefits, they must be provided in every classification in which medical and surgical benefits are offered. For example, a plan can’t cover in-network inpatient stays for patients recovering from surgery but exclude in-network inpatient treatment for mental health.
• Limits on treatment. Treatment limitations applied to mental health and substance use benefits generally can’t be more restrictive than those applied to “substantially all” physical health benefits. For example, mental health and substance use benefits generally can’t have lower limits on treatment frequency. Requirements related to prior authorization of treatment and medical necessity determinations must also be comparable and no more stringently applied to mental health and substance use coverage than physical health coverage.
• Cost-sharing. Copayments, coinsurance, deductibles, and out-of-pocket costs for mental health and substance use benefits are subject to a formula that—in simplified terms—means that copayments, for example, cannot be higher for mental health and substance use services than the copayments for two-thirds of all physical health benefits in the same classification.

Employers need to look at both quantitative and nonquantitative factors.

Quantitative treatment limitations are things that can be counted, such as dollar amounts of financial limits and copayments.

Nonquantitative treatment limitations are often harder to evaluate. Nonquantitative treatment limitations (PDF, 289KB)opens in new window include any nonnumerical limit on treatment’s scope or duration. Examples include the standards for limiting benefits based on medical necessity or appropriateness, provider reimbursement rates and standards for admitting providers into networks, and restrictions based on location, facility type, provider specialty, and other criteria that could limit treatment. Plans must ensure that these and other nonquantitative treatment limitations imposed on mental health and substance use benefits are comparable and no more stringently applied than the same limitations imposed on physical health benefits in the same kind of care, such as in-network outpatient services.

In a word, yes.

In the past, employers often offered employees health coverage that skimped on mental health and substance use benefits—if such benefits were offered at all. And when the federal parity law was enacted in 2008, many employers worried that putting the law into practice would prove costly.

However, the data show that it’s actually more costly for businesses not to address employees’ mental health and substance use issues. Depression, for example, costs employers $17 per employee per year in disability leave payments, according to the Integrated Benefits Instituteopens in new window. For the next highest chronic condition—diabetes—the figure is less than $2.

Lack of access to mental health and substance use services can also increase physical health care costs. In one study, researchers found that health care utilization and costs were substantially higheropens in new window for patients who had mental health or substance use problems on top of chronic physical problems like diabetes and heart disease.

In addition, employees struggling with mental health and substance use conditions may also have lower productivity and higher turnover rates. In fact, the World Health Organization estimates that depression and anxiety alone cost the global economy $1 trillion a year in lost productivity.

The COVID-19 pandemic could also affect the mental health and substance use of employees and their families for years to come. The consulting firm McKinsey & Company, for example, predicts that the pandemic could prompt as many as 35 million people to develop new mental health and substance use problemsopens in new window.

Because of mandates included in the Affordable Care Act and other changes, parity applies to most employer-sponsored plans, whether employers purchase commercial insurance or self-fund, meaning they pay for health benefits directly.

Employer-sponsored plans that must ensure parity include:

• Most commercial plans—regular health insurance where an insurance company bears the risk—or self-insured plans, no matter the size
• Union-negotiated plans
• Federal Employees Health Benefits program

For some employer-sponsored plans, parity may not apply:

• Self-funded state or local government employee plans. State and local governments with more than 50 employees can decide to opt out of federal parity requirements if they are self-funded. In some states, however, state laws requireopens in new window that the government employee plans comply with parity. Self-funded state and local government employee plans with fewer than 50 employees are also exempt.
• Church plans. Church plans aren’t covered by the federal parity law unless a church purchases a state-regulated group insurance product or a product from a state health insurance exchange.

There are still a few types of employer-sponsored plans that aren’t included under parity regulations. The Affordable Care Act “grandfathered” some plans and thus exempted them from having to comply with the parity law, for example.

In the past, employers have often assumed that the insurance companies or third-party administrators they use for their health plans are complying with parity regulations. But that’s not enough.

With the enactment of the 2021 Consolidated Appropriations Actopens in new window, employer-sponsored group health plans—whether fully insured or self-insured—must now analyze nonquantitative treatment limitations and document those analyses. Recent guidance from the U.S. Department of Labor (PDF, 230KB)opens in new window lays out the details of employers’ legal responsibilities. Upon request, for example, employers must provide federal or applicable state regulators with those analyses and show that the processes, evidentiary standards, and other factors aren’t more stringent for mental health and substance use services than those that generally apply for medical and surgical services. The Department of Labor will also review compliance in a sample of group health plans each year and must request an employer’s analysis whenever it receives a consumer complaint. Employers must also share their analyses with plan enrollees or their authorized representatives upon request.

To help plans comply, the Department of Labor has a Self-Compliance Tool for the Mental Health Parity and Addiction Equity Act (PDF, 492KB)opens in new window. Employers can request that their insurance carriers provide analyses or work with their third-party administrators to conduct such analyses if they’re self-insured. If changes need to happen to bring plans into compliance, they should be thoroughly documented.

Employers can also use the Department of Labor’s warning signs checklist (PDF, 761KB)opens in new window to help ensure their plans’ nonquantitative treatment limitations comply with the law. Examples of red flags include excluding residential treatment of substance use problems, imposing geographical limits only for treatment of mental health and substance use benefits, or requiring preauthorization for mental health and substance use services but not medical and surgical services.

Regulators are increasingly stepping up enforcement. With the new requirement that plans and issuers conduct detailed parity compliance analyses, enforcement is likely to intensify. Congress is also exploring ways to promote parity by strengthening regulators’ enforcement abilities and making more penalties available.

Numerous state regulators have already issued fines for fully insured plans, for example.

In 2020, a landmark federal class-action decisionopens in new window found that the nation’s largest insurer was wrongly denying mental health and substance use services to patients by relying on its own medical necessity criteria rather than generally accepted standards of care. Although this decision was not a parity case, it served as a mechanism to advance stronger parity and insurance laws. APA and other advocates used that decision to successfully push for a groundbreaking parity and insurance law in Californiaopens in new window in 2020.

The California law forms the basis of new model state parity legislation (PDF, 1.24MB)opens in new window that would extend such protections to patients in other states. Supported by APA and other groups, the model legislation would require insurers to follow generally accepted standards when making medical necessity decisions for mental health and substance use patients.

Ensuring that quantitative treatment limitations are equitable is fairly straightforward, although it does require some calculations to ensure compliance. An employer can easily make sure that employees aren’t paying higher copayments to see psychologists or other mental health providers than they are to see physicians, for example. Employers can also easily make sure that the limits on the number of visits employees can make to mental health and substance use providers are the same for visits to physical health care providers.

Ensuring parity for nonquantitative treatment limitations can be more challenging. And health plans haven’t been doing as well on that front.

A 2019 report from the consulting firm Milliman (PDF, 6.31MB)opens in new window, for example, found that some disparities between mental health and substance use services and physical health services are getting worse. The analysis found:

• Out-of-network use disparities. When a plan’s network of providers is unable to meet patients’ needs, those patients are forced to go outside the network for care and pay more for that care. The report found that patients were forced to go out of network for mental health and substance use providers much more often than they were for medical and surgical providers. And the problem is getting worse. Between 2013 and 2017, the disparity for outpatient services jumped from three times more likely to be out-of-network for mental health and substance use services than for medical or surgical services to 5.7 times more likely—a 90% increase.
• Reimbursement rate disparities. Often provider networks on the mental health and substance use side are inadequate because reimbursement rates are too low to attract providers and plans aren’t raising rates as they would if they faced a shortage of cardiologists or OB/GYNs. The report found that average reimbursement rates for in-network mental health and substance use office visits were lower than for medical and surgical office visits. This disparity is also growing: In 2017, for example, primary care reimbursements were almost 24% higher than mental health and substance use reimbursements—up from almost 21% higher in 2015.

Complying with the federal parity law and Affordable Care Act isn’t the only way employers can help ensure that their employees have access to mental health and substance use services when they need them. They can also:

• Collect data. Employers should ask their insurers or third-party administrators to collect data about employees’ access to the care they need. Key areas to track include in- and out-of-network service usage and how often “medical necessity” criteria are used to deny access to services. A model data request form (PDF, 571KB)opens in new window can guide employers as they request information about access to in-network services from their third-party plan administrators. Employers should also survey employees about their satisfaction with their coverage and the adequacy of the network’s roster of mental health and substance use providers. Because employees are often reluctant to reveal to their employers that they are seeking or receiving mental health and substance use services, these surveys should be anonymous and confidential.
• Encourage integrated care. Promote an integrated care model, such as primary care behavioral health or collaborative care, where mental health and substance use and physical health care providers work as teams to address the needs of patients with mental health or substance use conditions. Alternative payment models—which give multidisciplinary teams “bundled” payments to encourage holistic care—are another way to promote integrated care.
• Educate employees. Employers should make sure that employees understand parity and their rights under the law. A U.S. Substance Abuse and Mental Health Services Administration brochureopens in new window offers an overview for employees. The Kennedy Forum’s Parity Registryopens in new window also offers consumer-friendly information about parity, plus examples of parity violations and a mechanism for submitting complaints.

Check out these resources for additional information about how employers can help fulfill the promise of parity:

• American Psychological Association
• Mental Health Treatment and Research Institute (PDF, 571KB)opens in new window
• National Alliance of Healthcare Purchaser Coalitions (PDF, 455KB)opens in new window
• One Mind at Work (PDF, 513KB)opens in new window
• U.S. Department of Health and Human Servicesopens in new window
• U.S. Department of Laboropens in new window