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Beware parity's "fine print"

January 14, 2010
by Stephen A. Odom, MS, MFT, Southern California Recovery Consulting
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History shows that insurers and businesses will test boundaries of new parity rules

As the effort to complete national healthcare financing reform has become more politicized, many in the behavioral health arena are relieved that the Mental Health Parity and Addiction Equity Act of 2008 is already in place and expected to be part of any reform package. However, as we await the interpretation of that law through regulations to be issued by the Secretaries of Labor, Treasury, and Health and Human Services, there are important lessons to be learned from the reactions of insurance companies and businesses to parity efforts over the past 30 years.

Mental health parity was first enacted on the federal level in 1996 as a result of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), but did not take effect until 1998. Although this 1996 law promised greater similarities between mental health and medical/surgical insurance coverage, there were significant differences in the fine print.1, 2 For example, while the legislation eliminated annual and lifetime dollar maximum benefits for mental health benefits, it retained limits on the number of hospital days and outpatient visits allowed. It also allowed differences in copayments, deductibles, and other mental-health coverage limits relative to those in medical/surgical coverage. And, it exempted small firms (less than 50 employees) and all plans that offered no mental health benefits.

According to a report issued by the U.S. Government Accountability Office, the impact of the fine print has been significant over the past decade. A survey of employers found that, compared to medical/surgical benefits:

• 87 percent offered insurance coverage with a lower limit on mental health benefits.
• The cost share paid by the insured for addiction treatment benefits averaged 46 percent higher.
• 44 percent of plans offered contained no caps on out-of-pocket costs to be paid by the insured for addiction treatment.

Since, according to the National Institute of Mental Health, an estimated 26.2 percent of Americans 18 and older, or about one in four adults, suffer from a diagnosable mental disorder in a given year, an imbalance in these benefits has wide-ranging impact.3, 4, 5

The results of the 1996 parity legislation were mixed: 33 states enacted “partial” parity laws, nine states enacted full parity for mental health (e.g., deductibles, coinsurance, and benefits equal to those for medical/surgical), but only five of the nine included full parity for substance abuse coverage. But even then, there was plenty of fine print:

• Many states required provided parity only for mental health disorders considered biologically based (i.e. schizophrenia, bipolar disorder).6
• Insurers were permitted to utilize “medical management” processes to ensure the medical necessity of treatment.
• Employers/payers of coverage costs who experienced premium increases greater than one percent due to parity were allowed to apply for exemptions.
• And, the law was to “sunset” on December 31, 2001, though Congress approved multiple one-year reauthorization provisions to keep it alive through December 31, 2009.

Over the past 25 years, insurers have responded to parity laws by imposing greater restrictions on mental health coverage (see Table 1). In recent years, these restrictions have created a significant gap between coverage for mental health and medical/surgical conditions.

Mental vs. physical illness
As noted above, scientific evidence has been used to make a case that mental illnesses are like physical illnesses and should be treated accordingly by insurance carriers. Proponents argue that the scientific research on mental illness has produced evidence-based treatments for most mental disorders and that medically appropriate care can improve functioning and lead to recovery.7, 2 The case for the physical nature of mental disorders has also been advanced through the courts. In Fitts v. Unum Life Insurance Co., a U.S. district court judge ruled in February 2006 that Fannie Mae and Unum Life Insurance Company of America improperly classified an employee’s bipolar disorder as a mental rather than a physical illness. The plaintiff successfully argued that, as a neurobiological disorder that affects the chemical structure of the brain, bipolar disorder fell within the definition of physical illness contained in employee benefits.8, 2

The not-so-current debate
How to establish full mental health and substance abuse parity has been an ongoing debate for at least the past 10 years.9, 6, 2 Although the 1996 legislation (and each successive reauthorization) appears to have had a negligible effect on claims costs, some continue to argue that parity imposes ‘unbearable’ expenses. As it turns out, full parity did not increase costs within the managed care environment. In five of the seven Federal Employee Health Benefit (FEHB) plans, full parity policies were associated with significant reductions in out-of pocket spending by consumers.7 Parity proponents continue to utilize the results of these full-parity experiments to argue that covering MH/SA conditions at parity with medical/surgical conditions reduces costs and improve outcomes.10