When President Bush signed into law the $700 billion economic bailout bill Oct. 3, print, broadcast and online news outlets trumpeted the story across the country. But buried in the avalanche of coverage was news of an unrelated law contained within the bailout package that has important implications for most employers.
The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act requires companies that employ more than 50 people and provide mental illness or substance abuse treatment coverage to do so on the same terms as their physical illness coverage.
Legislation providing such parity languished in Congress for 12 years before Congressional leaders forged a compromise between Senate and House versions and swept the resulting bill up into the massive bailout package.
The legislation is named after the late Minnesota Sen. Paul Wellstone, who had a brother with severe mental illness, and Sen. Pete Domenici, who has a daughter with schizophrenia. Congressional staffers estimate it will improve coverage for 113 million people by ending the common practice of providing less coverage for mental health care than for the treatment of physical illnesses or injuries. However, the law contains a huge loophole: Employers have the option of dropping mental health coverage altogether in lieu of making it equal to physical/surgical coverage.
"That presents employers with a Hobson's Choice," says Russell Chapman, of counsel at Littler Mendelson. "I think most employers would like to provide mental health and substance use disorder treatment benefits, but not at full parity. But it's a matter of cost. It's regrettable that employers will be faced with that choice."
The new legislation replaces a 1996 law that required employers to offer the same annual and lifetime maximum benefits for physical and mental illness treatment but was so limited that it was almost meaningless. For example, the old law allowed plan providers to cover fewer outpatient visits and in-patient days and to set much higher co-pays and deductibles for those needing mental illness treatment. It did not require parity for substance abuse treatment coverage.
"The original law was so toothless that Congress renewed it every year and employers didn't lobby against it because they could get around it so easily," says Keith Dropkin, an employee benefits attorney at Jackson Lewis. "This has more teeth to it."
The new teeth include requiring parity both in financial requirements--such as deductibles, co-pays and out-of-pocket expenses--and in treatment limits, such as frequency of treatment, number of visits and days of coverage. It also requires plans to cover out-of-network mental health benefits if they cover out-of-network medical and surgical benefits. And while plans can refuse to pay for care that is deemed medically unnecessary, they must disclose their criteria for determining medical necessity and the reasons why any specific claim is denied.
One section of the bill is so confusing that benefits law experts are scratching their heads. That section provides an exemption from the requirements of the act for plans that can prove they experienced a 2-percent increase in health insurance costs in the first year. But the exemption is only good for one year, and then the plan would have to demonstrate a 1-percent exemption in the subsequent plan year to get another exemption for the year after that.
"It appears that you basically can get an exemption every other year," says Chapman. "That doesn't make a lot of sense to me. I hope it doesn't take [Congress] another 12 years to work that out."
Fortunately for employers, there are other ways to limit the impact of the new legislation.
"I've had some clients contact me concerned about the law and considering whether to still offer mental health and substance abuse coverage," says Dropkin. "I'm telling them, 'Before you get rid of mental health benefits, look at other ways to control costs.'"
For example, employers have discretion over what benefits to provide. The law does not define which mental health or substance abuse treatments must be covered. And it is silent on what disorders must be covered, except to say the coverage must conform with applicable state and federal law. An earlier House version had required employer plans to cover every diagnosis listed in the American Psychiatric Association's Diagnostic and Statistical Manual of Mental Disorders. That bill was opposed by insurers, employers and the White House.
One likely result of the new law is that employers will simply pass along any increase in rates that they experience. Mark Boxer, a partner at DLA Piper, points out that while medical benefit expenses once were divided 90 percent-to-10 percent between employers and employees, they're currently split at about an 80-20 ratio.
"As costs go up, it may have to be 75-to-25," he says. "I think rates will go up a little [because of mental health parity requirements], and employers will adjust the cost by passing it on."
Employers also apparently have the option of offering two different plans--one with equal physical, mental health and substance abuse coverage and one offering only physical coverage with no mental health coverage at all.
For most health plans, the law will take effect Jan. 1, 2010 (the exception is plans covered by a labor contract, for which the law takes effect when the current plan terminates). That means most employers have a year to consider their options.
Regulations that clarify some unclear provisions of the act and provide examples of how it should work must be developed by the Departments of Labor, Health and Human Services and Treasury by Oct. 3. But benefits experts recommend planning now for the required changes.
"Most people have a year to survey the situation and decide what to do," Dropkin says. He advises starting by reviewing current plans for compliance with the new regulations and contacting insurance providers to discuss options.
"If the cost of compliance is a concern, consider certain changes to the design of the plan to control costs," he adds. That could include implementing medical management techniques such as pre-certification. He advises against eliminating mental illness and substance abuse treatment coverage because such coverage has proven to increase productivity and reduce lost work days. As a result, while dropping coverage may seem like an easy way out, other options should be considered first.
"Employers will be looking at creative ways to work through this," Chapman says.