Mental health parity laws and their impact on insurance benefits

Provision of mental health insurance benefits is a relatively recent development, beginning in the early 1990s. Advocates for mental health insurance benefits have long sought legislation that would require insurers to provide the same level of benefits for treatment of mental illness that they provide for diagnosis and treatment of medical diseases and conditions. This is known as mental health parity with medical health. Landmark lawsuits in the 1990s and 2000s helped the cause by influencing legislation in some states.

On October 3, 2008, a 10-year nationwide effort to make health insurance plan benefits for mental health disorders equal to benefits covered for medical conditions finally succeeded. With bipartisan support, the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA; the Act) was signed into law. The Act represented a significant improvement over the 1996 Federal Mental Health Parity Act. MHPAEA applies to group health plans providing medical and mental health benefits for group health plans with 51 or more employees.

In 2010, Congress passed the Patient Protection and Affordable Care Act of 2010 (ACA), signed into law on March 23, 2010. The ACA expanded the parity requirements of MHPAEA to include individual health plans, qualified health plans (QHPs), and Medicaid nonmanaged care benchmark and benchmark-equivalent plans. The ACA also required that certain mental health and substance abuse disorder services be covered, the specifics of which will later be determined through rulemaking. The ACA requirement to purchase health insurance was repealed in December 2017. The impact of that on mental health parity for those with insurance remains to be seen.

Fixing a problem

Hundreds of professional and medical societies supported the legislation, including the American Psychiatric Association, which had been working for more than a decade to improve on the Mental Health Parity Act of 1996. While this legislation prevented group health plans from setting lifetime dollar limits on mental health treatments greater than the limits for other healthcare services, loopholes in the legislation allowed plans to limit the type of treatment (inpatient versus outpatient), charge higher copays, and restrict out-of-network coverage. A 2002 Kaiser Family Foundation study found that although 98% of workers with employer-sponsored health insurance had coverage for mental healthcare, 74% of those workers were subject to annual outpatient visit limits, and 64% were subject to annual inpatient daily limits. The nonprofit organization Mental Health America estimates that about 67% of adults and 80% of children requiring mental health services do not receive help, in large part because of discriminatory insurance practices.

Effective dates and key terms of the Act

MHPAEA took effect April 5, 2010. The Act, in general, pertained to all group health plans with plan years beginning on or after July 1, 2010. MHPAEA does not require group health plans to provide mental health coverage. However, if a plan offers benefits for mental health conditions (as many do), employers and insurers cannot impose stricter limits on this coverage than for medically based health problems. Specifically, the act requires the following:

    • Equity in financial requirements. Deductibles, copayments, coinsurance, and out-of-pocket expenses must be the same for medical and mental health conditions covered by the plan.
    • Equity in treatment limits. Caps on the frequency or number of visits, limits on days of coverage, or other similar limits on the scope and duration of treatment must be the same for medical and mental health conditions covered by the plan.
    • Equality in out-of-network coverage. If a plan allows members to go outside the network for medical and surgical treatment, they can also now do so for mental health services.

The Act does not specify any particular mental health conditions to be covered, including bulimia. However, whichever mental health conditions a health insurance plan already covers must be covered at parity with medical and surgical coverage. Specifically, the Act prohibits group health plans that offer coverage for mental health and substance-use conditions from imposing treatment limitations and financial requirements on those benefits that are stricter than coverage for medical and surgical benefits. The Act also included a provision that employer health plans provide a compliance report every two years.

Exemptions to MHPAEA

Two exemptions to the Act are as follows:

    • Small employer exemption. The group health plan for a given plan year of an employer with an average of 50 or fewer employees during the preceding calendar year is exempt from the parity requirements of the Act.
    • Increased cost exemption A group health plan may have the parity requirements of the Act waived if it meets two conditions:
      • The plan must have followed the parity requirements for one full plan year.
      • The plan must be able to demonstrate with sufficient independent proof that its costs have increased by at least 2% over the previous plan year because of adherence to the Act.

A plan that meets the cost-exemption requirements may have its parity requirements under the Act waived for one full plan year. However, after that year of exemption, the plan must comply with all MHPAEA requirements the following year. In so doing, if the plan can again demonstrate cost increases of 2% because of adherence to the Act, it can be exempted again from MHPAEA for the following year and so on. This means that, theoretically, plans demonstrating 2% cost increases related to the Act for every year they adhere could be exempt from it every other year.

Key terms of the ACA

Under the ACA, the federal government imposed a coverage mandate for mental health and substance abuse services, a mandate not included in MHPAEA. This mandate extends to QHPs, Medicaid benchmark and benchmark-equivalent plans, and plans offered in the small and individual group market. The ACA defines essential health benefits (EHBs), which comprise 10 broad categories, including mental health and substance abuse services, and are required to be covered by QHPs. QHPs must provide coverage for services within all 10 categories, but the scope of the coverage still must be defined through rulemaking. However, unlike Medicaid managed care plans, Medicaid benchmark and benchmark-equivalent plans are not required to comply with federal parity laws for annual and lifetime limits for in- and out-of-network benefits.

Beginning January 1, 2014, Medicaid benchmark and benchmark-equivalent plans were required to offer at least EHBs, and new plans offered through individual or small group markets by health insurance issuers also were required to include EHB coverage.

The ACA also affects the small employer exemption, broadening the definition of a small employer to include those with an average of 1, up to and including, 100 employees.

State parity laws and mandates: How they interact with federal laws

Many U.S. states have crafted mental health parity legislation over the years, but the country remains a legislative patchwork of mental health coverage through parity and mandate laws. Mandates are more specific than parity laws in that they require coverage for specific conditions. MPHAEA does not override stronger state mental health parity laws or mandates. MHPAEA was designed to work with state laws. A state law that guarantees the minimum benefits specified in the Act is not superseded by the Act; however, a health plan may be required to provide benefits beyond what a state law requires to comply with MHPAEA. This means that state and federal laws together are intended to provide the maximum possible benefits.

Several states provide full parity (i.e., they require insurers to provide coverage for all mental illnesses the same way that they provide coverage for medical illnesses). Most states, however, provide only partial parity in that they define which mental health conditions are subject to parity with medical benefits and the limitations of coverage. Examples of typical limits of partial parity are inclusion of “severe mental conditions” only or certain mental conditions named and defined in the most recent DSM manual for diagnosing mental illnesses. The state that a patient lives in can greatly affect the level of mental health benefits available through an insurer in that state, so it is worth checking the provision in a patient’s state of residence.

See the map depicting state mental health parity laws and mandates.