From the July-August 2010 issue of Treasury & Risk magazine

The Mental Health Balance

A little-noticed federal law affecting mental health and substance abuse benefits kicked in on July 1, and its cost implications could dwarf those of the earliest corporate implementations of the high-profile healthcare reform legislation. The Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) requires companies with more than 50 employees that cover mental health and substance abuse to equalize financial requirements and treatment limitations for depression, schizophrenia, drug addiction and similar conditions with those set for physical illnesses.

The government's interim final rule specifies how companies are to comply. It establishes six care categories, such as inpatient in-network and inpatient out-of-network, and says medical and mental health or substance abuse coverage must be equalized in each category, with limitations on mental health benefits no more restrictive than those for medical or surgical benefits.

The government could modify provisions when it publishes a final rule, but no one knows when that will be. Meanwhile, companies must comply with the interim rule.

Steve Wojcik, vice president of public policy at the National Business Group on Health (NBGH), which represents large employers, says his members estimate that MHPAEA will increase health insurance costs by 1%. "With all the changes required by the new healthcare reform law, 1% for mental health comes at a bad time," he says.

Companies can avoid the new law's requirements by canceling mental health plans, but Wojcik says large companies are unlikely to do so. "Large employers recognize the value of mental health coverage in terms of illnesses such as depression," he explains. "Addressing those is important to employee productivity."

Mike Thompson, a principal at PricewaterhouseCoopers, says employers expected parity would mean equalizing the number of doctor's visits and days in the hospital covered. "Where things were different than expected was when the three agencies defined parity very narrowly, by establishing the six categories," he says. "It may be difficult, for example, to apply cost sharing on the medical/surgical side to the mental health side."

Another controversial measure requires companies to set a single deductible for all services, instead of one for medical and another for mental health, as has typically been the case. The Society of Actuaries says employers might respond by eliminating co-pays and making all office visits subject to deductibles and coinsurances, or by cutting medical benefits to match mental health benefits.

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