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While America’s attention was focused on the 700 billion dollar bailout of the financial industry, a law affecting the manner in which employers must provide healthcare to their employees was quietly passed. Buried within the Emergency Economic Stabilization Act, which was signed by President Bush on October 3, 2008, was the Pall Wellstone and Peter Domenici Mental Health Parity and Addiction Equity Act of 2008 (the “Act”). Although the Act did not receive nearly as much fanfare as the bailout, its direct impact on covered group health plans may be more significant.
The Act seeks to correct the imbalance between the benefits afforded mental health and substance use disorders under group health plans and general medical and surgical benefits typically afforded under such plans. According to a report issued by the U.S. Government Accountability Office, the imbalance between the two is not insignificant.
The report shows that 87 percent of the surveyed employers had a limit on mental health benefits lower than what is offered for other medical/surgical benefits. Another study shows that cost-sharing for addiction benefits was 46 percent higher than for medical/surgical benefits, and that 44 percent of the plans that were studied contained no out-of-pocket spending caps for addiction spending. 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.
The Act does not state that qualifying health plans must offer mental health or substance use disorder benefits. No such coverage is mandated by the Act. Rather, the Act provides that group health plans that do offer such benefits must do so in parity with medical/surgical benefits.
Specifically, the Act provides that financial requirements applicable to mental health or substance use disorder benefits, such as deductibles, copayments, coinsurance, and out-of-pocket expenses, can be no more restrictive than the predominant financial requirements applied to substantially all medical/surgical benefits covered by the plan. Moreover, the Act precludes separate cost sharing requirements that are applicable only with respect to mental health or substance use disorder benefits.
The Act also requires parity in treatment limitations applicable to mental health or substance use disorder benefits. Treatment limitations include limits on the frequency of treatment, number of visits, days of coverage, or other similar limits on the scope or duration of treatment. Under the Act, treatment limitations pertaining to mental health or substance use disorder benefits can be no more restrictive than the predominant treatment limitations applied to substantially all medical/surgical benefits. The Act also precludes separate treatment limitations that are applicable only with respect to mental health or substance use disorder benefits.
In the context of out-of-network providers, the Act states that if a plan makes medical/surgical benefits available through out-of-network providers, the plan must also authorize coverage for mental health or substance use disorder benefits by out-of-network providers. Although the Act creates a federal parity requirement, it does not serve to displace state laws containing stronger parity protections. Thus, plans must comply with their state’s parity and protection measures if they provide greater protection than the Act.
In addition to the parity requirements, the Act also contains exemptions that group health plans can use to avoid the Act’s requirements. The small employer exemption provides that the Act’s requirements shall not apply to any group health plan of a small employer. The Act generally defines a small employer as an employer averaging at least two but not more than 50 employees during the preceding calendar year. Thus, employers with 50 or fewer employees may be considered exempt from the Act under the small employer exemption.
The Act also contains a cost exemption which operates to exempt a group health plan from the Act’s requirements if compliance with the Act becomes too costly. Specifically, a group health plan is not required to comply with the Act if such compliance results in an increase of the actual total costs of coverage by two percent during the first year of the Act’s applicability, or one percent during each subsequent year.
Before a group health plan can claim the cost exemption, a qualified and licensed actuary who is a member in good standing of the American Academy of Actuaries, must certify the increase in actual costs under a plan. Moreover, a plan cannot claim this exemption until the plan has complied with the Act’s requirements for at least the first six months of the plan year.
The Act’s provisions will become effective, and thus shall apply to group health plans with plan years beginning after October 3, 2009. For group health plans with plan years beginning on January 1st of each year, the plan will need to comply with the Act as of January 1, 2010. Before that time, the precise scope of the Act will be difficult to completely define until the Secretaries of Labor, Health and Human Services, and Treasury issue their interpretive regulations. These regulations must be issued not later than one year after enactment.
Mental health and addiction disorders are serious matters that affect a significant portion of the U.S. population. Under the Act, disorders such as alcoholism, drug addiction, autism, bipolar disorder, ADHD, depression, anxiety disorders, and other commonly-diagnosed mental disorders are to be treated equitably by health insurers. The value of treating these disorders is echoed by the more than 250 national organizations that have urged passage of the Act in a letter to Speaker of the House Nancy Pelosi. Now, with the passage of the Act, such treatment should be more readily available.