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Chapter 1 - State Parity Laws

Since 1994, at least 40 states and the U.S. Congress have considered mental health and substance abuse (MH/SA) parity bills. Insurance regulation traditionally has been a state responsibility. The federal Mental Health Parity Act of 1996 imposed a national minimum benefit standard for mental health benefits on employer-sponsored health insurance for the first time.

Federal Parity Legislation

In 1996, Senators Pete V. Domenici (R-NM) and Paul D. Wellstone (D-MN) proposed an amendment to S.1028, the Health Insurance Reform Act. This amendment would have required insurers to provide the same coverage for mental health and medical/surgical benefits. Actuaries predicted this amendment would raise health insurance costs by 3.2 percent to 8.7 percent (Bachman, 1996b; Rodgers, 1996).

In part because of fears about increased health insurance costs, the Domenici-Wellstone amendment did not pass. Instead, the federal government enacted the Mental Health Parity Act of 1996. This act requires that, starting January 1, 1998, insurers provide the same annual and lifetime spending limits for mental health benefits as they do for other health care benefits.

While this provision is a step toward parity for mental health care, it neither requires employers to provide mental health benefits, nor does it affect the terms and conditions of mental health coverage such as visits, days, and cost sharing. Furthermore, the provision exempts companies with 50 or fewer employees and companies for which the legislation results in increased costs of at least 1 percent. The Mental Health Parity Act does not apply to substance abuse benefits.

State Parity Mandates

By the end of September 30, 1997, 12 states had enacted parity laws that require more generous MH/SA benefits than those provided for in the Mental Health Parity Act of 1996 (Heiser, et al., 1998). These 12 states are Arkansas, Colorado, Connecticut, Indiana, Maine, Maryland, Minnesota, New Hampshire, North Carolina, Rhode Island, Texas, and Vermont. Eleven states passed bills to comply with the Mental Health Parity Act of 1996. Other states passed laws that increase MH/SA benefits but do not require parity, but these are not discussed in this report.

The 12 state MH/SA parity laws differ significantly from each other in the (1) conditions covered, (2) specificity of parity, (3) minimum benefit requirements, (4) approved providers, (5) use of managed care, and (6) exemptions/populations covered (Table 1.1).

TABLE 1.1
CHARACTERISTICS OF MENTAL HEALTH AND SUBSTANCE ABUSE PARITY LEGISLATION BY STATE

Characteristics of Legislation

State

AR

CO

CT

IN

ME

MD

MN

NH

NC

RI

TX

VT

Conditions Covered

Definition of mental illness                        
Does not define mental illness (i.e., covers mental illness broadly)
     

ü

 

ü

ü

         
Defines mental illness

ü

ü

ü

 

ü

   

ü

ü

ü

ü

ü

Covers only serious mental illness or "biologically based" mental illness

 

ü

ü

 

ü

   

ü

 

ü

ü

 
Designates particular diagnoses  

ü

ü

 

ü

   

ü

 

ü

ü

 
Covers substance abuse

ü

       

ü

ü

 

ü

   

ü

Specificity of Parity

Provides specific language about how MH/SA benefits may not differ from those for physical health

ü

   

ü

ü

ü

ü

 

ü

ü

ü

ü

Minimum Benefits

Specifies minimum benefit requirements

       

ü

ü

   

ü

     

Approved Providers

Specifies providers who may offer services under the mandate

       

ü

     

ü

   

ü

Managed Care

Mentions managed care

ü

 

ü

 

ü

ü

ü

ü

ü

ü

 

ü

Contains medical necessity clauses

ü

     

ü

ü

üa

   

ü

   

Exemptions/Populations Covered

Only applies to government employees      

ü

       

ü

 

ü

 
Exempts small businesses

ü

     

ü

ü

üb

         
a Minnesota enacted a definition of medical necessity in 1997. This definition will become effective on January 1, 1998.
b Small employers may choose an alternative benefit design without parity.

Conditions Covered

All state mandates require mental illness to be covered in the same way as other medical care. However, they differ in how this term is defined, and sometimes limit coverage to serious or biologically based illnesses. Coverage for substance abuse treatment may or may not be mandated.

In some states, mental illness is broadly defined, and substance abuse is also covered. In Maryland, Minnesota, and North Carolina, the mandates include all mental illnesses broadly defined, and they explicitly state that substance abuse is included. In Vermont, the mandate covers all mental illnesses listed in the International Classification of Diseases Manual, and the mandate explicitly includes substance abuse.

In Arkansas, the mandate includes all mental illnesses listed in either the International Classification of Diseases Manual or the Diagnostic and Statistical Manual of Disorders. The mandate does not include substance abuse (Health Policy Tracking Service, 1997). Arkansas did, however, pass legislation in the late 1980s requiring parity for substance abuse (Scott, Greenberg, and Pizarro, 1992). In Indiana, the mandate includes all mental illnesses, but explicitly excludes substance abuse.

In the remaining states, the mandates list particular mental illnesses that are covered. Specifically, in Colorado, Connecticut, Maine, New Hampshire, Rhode Island, and Texas, the mandates cover only serious or biologically based mental illnesses. The list of specific illnesses that must be covered includes bipolar mood disorder, major depressive disorder, schizophrenia, schizo-affective disorder, obsessive-compulsive disorder, panic disorder, autism, and paranoia/psychotic/delusional disorders (Table 1.2). Substance abuse is not covered by these state mandates (Health Policy Tracking Service, 1997).

Specificity of Parity

The parity mandates in all 12 states require health plans to provide coverage for mental illnesses that is comparable to coverage provided for other illnesses. Some laws provide little more direction than that, leaving what is meant by "coverage" (for example, service limits, cost-sharing requirements, annual/lifetime spending limits) and "comparable" open to interpretation by the carrier. Others are more specific about ways in which benefits for mental and physical illnesses may not differ.

In Colorado, Connecticut, and New Hampshire, the mandates do not specify the ways in which mental health benefits must be equal to those for physical illness. For example, in Colorado and New Hampshire, the laws simply state that health plans shall provide coverage for mental illness that is no less extensive than the coverage provided for any other physical illness.

TABLE 1.2
SERIOUS/BIOLOGICALLY BASED MENTAL ILLNESSES SPECIFIED IN PARITY LEGISLATION

Serious Mental Illnesses/
Biologically Based Disorders

States

CO

CT

ME

NH

RI

TX

Bipolar mood disorder

ü

ü

ü

ü

ü

ü

Major depressive disorder

ü

ü

ü

ü

ü

ü

Obsessive-compulsive disorder

ü

ü

ü

ü

ü

 
Panic disorder

ü

ü

ü

ü

   
Paranoia/psychotic/delusional disorder  

ü

ü

ü

ü

ü

Pervasive developmental disorder/autism  

ü

ü

ü

   
Schizo-affective disorder

ü

ü

 

ü

ü

ü

Schizophrenia

ü

ü

ü

ü

ü

ü

In the other nine states, the legislation contains more specific language about how the benefits for mental illness may not differ from those for physical illness. For example, the laws assert that benefit and service limits must be at least as generous for mental illnesses as for other illnesses. However, the mandates vary in the level of detail provided.

In Indiana, for example, a health insurance contract "may not permit treatment limitations or financial requirements on the coverage of services for mental illness if similar limitations or requirements are not imposed on coverage of services for other conditions." Whereas Indiana refers to "limitations and requirements," Arkansas elaborates on this area by defining financial requirements as including "co-payments, deductibles, out-of-network charges, out-of-pocket contributions or fees, annual limits, lifetime aggregate limits imposed on individual patients, and other patient cost-sharing amounts." Some states also require minimum mental health benefits, as described below.

Minimum Benefit Requirements

Mental health parity does not prevent insurers from providing a low level of benefits for mental illness by lowering the level of benefits provided for physical illness. To ensure that people with mental illness get a minimum acceptable level of care, three states (Maryland, North Carolina, and Maine) designate specific services that must be provided for mental illness, independent of the services provided for other illnesses. Though carriers may need to offer more services, if necessary, to achieve parity with other illnesses, they may not offer fewer services than specified by the laws.

Maryland mandates a minimum benefit package in which there can be no annual limit on outpatient visits. Outpatient visits must be covered at a level of at least 80 percent for the first 5 visits, 65 percent for the next 25 visits, and 50 percent for any other visits. The law further states that a minimum of 60 partial inpatient days must be covered.

North Carolina and Maine specify that certain care for mental illness is "necessary" and must be provided regardless of provisions for other illnesses. These two states do not specify the level at which such services must be provided, however. North Carolina's law states that "allowable institutional and professional charges for inpatient psychiatric care, outpatient psychotherapy, intensive outpatient crisis management, partial hospitalization, and residential care and treatment" are necessary and must therefore be covered. Maine's legislation says that "at a minimum, inpatient, day treatment, and outpatient services must be provided."

Approved Providers

In three states--North Carolina, Maine, and Vermont--only specific providers identified by the law can offer services covered under the mandate. In all likelihood, the states did this to protect patients by ensuring that their diagnosis and treatment would be provided, or at least supervised, by qualified mental health providers, and to protect insurers by lessening the chances that they would have to reimburse unnecessary or inappropriate care.

For example, the Maine legislation defines "provider" to include licensed physicians, accredited public hospitals or psychiatric hospitals, and community agencies licensed at the comprehensive service level by the Department of Mental Health and Mental Retardation. The mandate further states that services offered by these providers must be supervised by a psychiatrist or licensed psychologist. It also specifies that mental illnesses must be diagnosed by a licensed allopathic or osteopathic physician or psychologist1.

1The original parity legislation in Maine was amended in 1996 to include psychologists among those who can diagnose the mental illnesses covered. Prior to that amendment, only illnesses diagnosed by licensed allopathic or osteopathic physicians were covered.

Managed Care

Mandates in nine states mention managed care, primarily to state that managed care plans are included as health insurers covered by the mental health parity requirements, or that mental health benefits covered by the parity law may be delivered in a managed care system. Four states--Arkansas, Maine, Maryland, and Rhode Island--address the managed care concept of medical necessity by stating explicitly that medical necessity determinations are not prohibited. Arkansas, for example, defines medical necessity and does not prohibit plans from applying medical necessity determinations. Maine's mandate states that when determining medical necessity, providers must use the same criteria for medical treatment of mental illness as for medical treatment of physical illness.

North Carolina's mandate, which only covers the insurance plan for government employees, is relatively specific about managed care. It states that the benefits provided "shall be subject to a managed, individualized care component" that includes inpatient utilization reviews, readmission and length-of-stay reviews, and a network of qualified providers. Furthermore, care received outside the network is subject to an additional coinsurance rate of 20 percent above the general coinsurance rate in the package.

In Minnesota, the regulations specify criteria for exempting managed care plans and for determining which services are subject to parity. In some cases, the services covered differ for managed care and indemnity plans. For example, among large groups, only managed care plans are required to provide both inpatient and outpatient coverage (Blewett, 1997).

Exemptions/Populations Covered

Government employees are the only population affected by the legislation in Indiana, North Carolina, and Texas. Three other states--Arkansas, Maine, and Maryland--exempt small businesses from the parity provisions. The law in Arkansas does not apply to individual plans or to employers with 50 or fewer employees as long as they offer the parity provisions as an option. The law also does not cover state employees and health benefit plans if provisions would result in a cost increase of 1.5 percent or more. Maryland exempts small employers with 2 to 50 employees, and Maine exempts small employers with 20 or fewer employees.

In all states, Medicare and Medicaid, federal employee health insurance plans, and employer self-insured plans, which are not regulated by state health insurance laws, are automatically exempt. Private employers who are self-insured are exempt from state health insurance laws under the federal Employee Retirement Income Security Act of 1974 (ERISA). But unlike the state laws, the federal Mental Health Parity Act of 1996 does apply to self-insured plans.

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