Summary Of The Law
President Clinton signed the Mental Health Parity Act of 1996 (P.L. 104-204) into law on September 26, 1997. With the leadership of Senators Pete Domenici (R-NM) and Paul Wellstone (D-MN), this landmark law, which received unprecedented bipartisan support, begins the process of ending the long-held practice of providing less insurance coverage for mental illnesses, or brain disorders, than is provided for equally serious physical disorders.
- The law takes effect on January 1, 1998, and expires on September 30, 2001.
- The law equates aggregate lifetime limits and annual limits for mental health benefits with aggregate lifetime limits and annual limits for medical and surgical benefits. (Typical caps for mental illness coverage are $50,000 for lifetime and $5,000 for annual, as compared with $1 million lifetime and no annual cap for other physical disorders.)
- The law covers mental illnesses (i.e., "mental health services," as defined under the terms of individual plans); it does not cover treatment of substance abuse or chemical dependency.
- Existing state parity laws are not preempted by the federal law (i.e., a state law requiring more comprehensive coverage would not be weakened by the federal law, nor does it preclude a state from enacting stronger parity legislation).
- The law applies only to employers that offer mental health benefits; it does not mandate such coverage.
- The law allows for many cost-shifting mechanisms, such as adjusting limits on mental illness inpatient days, prescription drugs, outpatient visits, raising co-insurance and deductibles, and modifying the definition of medical necessity. (Therefore, lower limits for inpatient and outpatient mental illness treatments are expected to continue, and in some cases, actually expand to help keep costs down.)
- The law applies to both fully insured state-regulated health plans and self-insured plans that are exempt from state laws under the Employee Retirement Income Security Act (ERISA), which are regulated by the Department of Labor.
- The law has a small business exemption which excludes businesses with 50 employees or less.
- The law allows an increased cost exemption; employers that can demonstrate a one percent or more rise in costs due to parity implementation will be allowed to exempt themselves from the law.
Whatís Not Covered
The Mental Health Parity Act of 1996 does not provide:
- A mandate for mental health benefits to be offered in health insurance plans;
- Coverage for treatment of substance abuse or chemical dependency;
- Rules for service charges, such as co-payments, deductibles, out-of-pocket payment limits, etc.;
- Designations for the number of inpatient hospital days or outpatient visits that must be covered;
- Coverage in connection with Medicare or Medicaid;
- Restrictions on a health insurance planís ability to manage care; or
- Provisions for business with 50 or fewer employees.
The Clinton Administration issued interim final regulations in the Federal Register (December 22, 1997) that set forth the guidelines for implementing the Mental Health Parity Act. The White House and the Office of Management and Budget (OMB) ruled that employers must first comply with the law in 1998 and develop a cost history of at least six months (retrospective data) before seeking an exemption. By contrast, some business groups had argued that firms be allowed to use the exemption based on estimates of higher costs (prospective data), thereby relieving them of the responsibility to ever comply. Those employers who had planned on using the prospective formula have been given a three-month grace period and must comply with the law by March 31, 1998, if they reasonably believed that the one percent cost increase would have been available to them on a prospective basis.
The regulations require employers using the exemption to notify all plan participants and the appropriate enforcement authority (e.g., state insurance commissioner, U.S. Department of Labor, U.S. Department of Health and Human Services, and the U.S. Department of Treasury). While neither the government, nor plan participants, will be able to see the "proprietary" data upon which the exemption is based, employers must provide a summary of the data upon which their one percent cost increase claim is based. This summary must include overall plan expenditures, the dollar value of claims that would have been denied if parity were not in place, and administrative costs attributable to compliance with the law. Plan sponsors will be specifically barred from including any individually identifiable information in a data summary. Once an employer submits a notice under the one percent exemption, they will have to wait 30 days before the exemption becomes effective. However, this notice is not a formal application and employers do not have to wait for approval from the government before proceeding.
The notices that employers provide to the government under the one percent exemption will be part of the public record and will allow third parties, including NAMI and its state and local affiliates, to access the names of these employers.
Benefits for American Families
The principle beneficiaries of the Mental Health Parity Act will be persons with the most severe, persistent and disabling of brain disorders because they are, on average, more likely to exceed annual and lifetime benefits.