[Senate Report 107-61]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 153
107th Congress                                                   Report
                                 SENATE
 1st Session                                                     107-61

======================================================================



 
             MENTAL HEALTH EQUITABLE TREATMENT ACT OF 2001

                                _______
                                

               September 6, 2001.--Ordered to be printed

                                _______
                                

   Mr. Kennedy, from the Committee on Health, Education, Labor, and 
                   Pensions, submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                         [To accompany S. 543]

    The Committee on Health, Education, Labor, and Pensions, to 
which was referred the bill (S. 543) to provide for equal 
coverage of mental health benefits with respect to health 
insurance coverage unless comparable limitations are imposed on 
medical and surgical benefits, having considered the same, 
reports favorably thereon with an amendment in the nature of a 
substitute and recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Purpose and summary..............................................1
 II. History of legislation...........................................2
III. Background and description.......................................6
 IV. Cost estimate....................................................8
  V. Application of law to legislative branch........................13
 VI. Regulatory impact statement.....................................13
VII. Section-by-section analysis.....................................13
VIII.Votes in committee..............................................14

 IX. Committee views.................................................15
  X. Additional views................................................18
 XI. Changes in existing law.........................................20

                         I. Purpose and Summary

    The purpose of S. 543 ``The Mental Health Equitable 
Treatment Act of 2001'' is to expand the Mental Health Parity 
Act (MHPA) of 1996 to ensure full parity in the coverage of 
mental health benefits by prohibiting certain group health plan 
(or health insurance coverage offered in connection with a 
group plan) from imposing treatment limitations or financial 
requirements on benefits for mental illnesses unless comparable 
limitations are imposed on medical and surgical benefits.
    Mental illnesses are defined as all categories of mental 
health conditions listed in the Diagnostic and Statistical 
Manual of Mental Disorders, Fourth Edition (DSM IV-TR). 
Benefits are defined under the terms and conditions of the plan 
and coverage is contingent on the mental health treatment being 
included in an authorized treatment plan that is in accordance 
with standard protocols and the treatment must meet the plan's 
medical necessity criteria. However, the bill does not mandate 
that health plans offer mental health benefits, nor does it 
require a plan to cover a specific service, so long as the 
exclusion does not create disparity. Like the MHPA, S. 543 does 
not require plans to provide coverage for benefits relating to 
substance abuse and chemical dependency and there is a small 
business exemption for companies with 50 or fewer employees. S. 
543 is modeled after the mental health benefits provided 
through the Federal Employees Health Benefits Program.

                       II. History of Legislation


                      The Mental Health Parity Act

    Congressional lawmakers first addressed mental health 
parity during the debate on the Clinton administration's health 
care reform proposal in the 103rd Congress. The Clinton plan 
(introduced as S. 1757 and H.R. 3600) initially provided for 
limited coverage of mental illness, but included a phase-in of 
full parity by 2001. Both committee reported Senate bills (S. 
2296, S. 2351) included provisions for establishing full mental 
health parity in the context of overall health care reform, as 
did legislation reported by the House Committee on Education 
and Labor (H.R. 3600). Attempts to enact comprehensive health 
care reform ended on the Senate floor in August 1994. The full 
House did not debate health care reform legislation.
    At the beginning of the 104th Congress, Senators Domenici 
and Wellstone introduced legislation to eliminate the 
inequities in mental health coverage under private insurance 
(S. 298). Similar language was approved by the Senate on April 
18, 1996, as an amendment to S. 1028, the Health Insurance 
Reform Act.\1\ The amendment was later dropped in conference. A 
compromise amendment that the sponsors had proposed to the 
conferees was eventually incorporated as the Mental Health 
Parity Act in the FY1997 appropriations bill for the 
Departments of Veterans' Affairs and Housing and Urban 
Development.\2\
---------------------------------------------------------------------------
    \1\ This legislation was eventually signed into law as the Health 
Insurance Portability and Accountability Act (HIPAA), P.L. 104-191.
    \2\ P.L. 104-204, Title VII, codified at 29 U.S.C. 1185a and 42 
U.S.C. 300gg-5.
---------------------------------------------------------------------------
    The MHPA of 1996 amended the Employee Retirement Income 
Security Act (ERISA) and the Public Health Service Act to 
establish new federal standards for mental health coverage 
offered by employer-sponsored group health plans (or health 
insurance coverage offered in connection with such a plan). The 
law prohibits plans and issuers from imposing annual and 
lifetime dollar limits on mental health coverage that are more 
restrictive than those imposed on medical and surgical 
coverage. However, the MHPA includes several important 
limitations. The law only applies to plans that offer mental 
health benefits, but does not require a plan to include any 
mental health benefits. Also employers with 50 or fewer 
employees are exempt from the law. In addition, plan sponsors 
that can demonstrate that MHPA compliance increased their 
group-health plan costs by at least 1 percent can apply for an 
exemption.\3\ Finally, the law does not require full parity. 
Group plans that provide mental health coverage may impose more 
restrictive treatment limitations (e.g., hospital days or 
inpatient visits) or cost-sharing provisions (e.g., co-
payments, deductibles) on their mental health coverage compared 
to their medical and surgical coverage.
---------------------------------------------------------------------------
    \3\ Insurers are required to claim exemption only on the basis of 
actual cost increases. Less than 12 private firms and roughly 5 non-
federal public plans have applied for the 1 percent cost exemption in 
the 1996 law.
---------------------------------------------------------------------------
    The MHPA applies to most employer-sponsored group health 
plans, including fully insured and self-insured plans,\4\ but 
not to the individual (nongroup) health insurance market. Under 
provisions included in the 1997 Balanced Budget Act (P.L. 105-
33), Medicaid managed care plans and State Children's Health 
Insurance Programs must comply with the requirements of the 
MHPA.\5\ The law does not apply to Medicare. The MHPA became 
effective for group health plans for plan years beginning on or 
after January 1, 1998. The law will sunset on September 30, 
2001.
---------------------------------------------------------------------------
    \4\ Employers provide group coverage to their employees either by 
purchasing a group policy from an insurance company (fully insured 
coverage) or by funding their own health plan and assuming the 
financial risk (self-insured coverage).
    \5\ 42 U.S.C. 1396u-2(b)(8); 42 U.S.C. 1397cc(f)(2).
---------------------------------------------------------------------------
    In preparation for the MHPA's sunset and possible 
reauthorization, the Senate HELP Committee requested the 
General Accounting Office (GAO) to report on the law's 
implementation and effects. The GAO presented its findings in 
testimony before the committee on May 18, 2000 (S. Rept. 106-
582). The agency surveyed 863 employers in 26 states without 
parity laws and concluded that while most employers are in 
compliance with the MHPA, many of them have adopted other plan 
design features that are more restrictive for mental health 
coverage than for medical and surgical coverage.\6\ The GAO 
found that although 86 percent of the employers reported 
compliance with the MHPA, a majority of these plans (87 
percent) restricted their mental health coverage in other ways. 
For example, about two-thirds of MHPA-compliant plans covered 
fewer outpatient visits and hospital days for mental health 
treatment than for other medical treatment. Despite concerns 
about the MHPA's effect on claims costs, only 3 percent of 
employers surveyed by GAO reported that their costs had 
increased, and less than 1 percent of employers dropped their 
mental health coverage altogether following the law's 
enactment.
---------------------------------------------------------------------------
    \6\ U.S. General Accounting Office, Mental Health Parity Act: 
Despite New Federal Standards, Mental Health Benefits Remain Limited, 
GAO/HEHS-00-95, May 10, 2000.
---------------------------------------------------------------------------
    Notwithstanding its limited provisions, the MHPA was a 
groundbreaking step forward in the evolution of state mental 
health policy.

                            State Experience

    States began to address the inequities in mental health 
coverage in the 1970s. More than a dozen states enacted laws 
requiring health plans operating within the state to offer a 
specific set of mental health benefits. While these mandated-
benefit laws increased coverage, they had important 
limitations. They seldom provided catastrophic coverage against 
the financial risk of severe mental illness and they did not 
apply to certain employer-sponsored benefits which are 
regulated exclusively under federal ERISA law.\7\ Also, State 
mandated-benefit laws frequently exempted health maintenance 
organizations (HMOs).
---------------------------------------------------------------------------
    \7\ Last year, the Department of Labor estimated that almost 130 
million Americans were enrolled in private employer-sponsored group 
health plans. Forty-three percent of those enrollees were covered by 
self-insured plans.
---------------------------------------------------------------------------
    In 1991, Texas and North Carolina became the first states 
to enact mental health parity legislation. The laws required 
health insurers that covered State government employees to 
provide equal coverage for mental and physical conditions. 
Prior to enactment of the Mental Health Parity Act in 1996, 5 
more states passed laws that required state-regulated group 
plans to provide parity in mental health coverage.
    In total 35 states have enacted legislation to establish 
standards for coverage of mental illness.\8\ A total of 23 
states now have laws that mandate full parity [as defined by 
the Health Policy Tracking Service, i.e., equal benefits for 
mental illness and other medical conditions in terms of 
treatment limitations (inpatient stays, outpatient visits) and 
cost sharing (deductibles, copays, annual & lifetime dollar 
limits)] for some forms of mental illness.\9\ However, these 
laws vary both in the type of plan and the mental illnesses to 
which they apply. In 13 of those states, the full parity laws 
apply to group and individual insurance, whereas in 6 states 
the laws apply only to group insurance. In the remaining 4 
states, the parity laws apply only to State employee plans. The 
State parity laws also vary in the types of mental illnesses 
covered. Although some State laws apply to all the psychiatric 
conditions included in the DSM IV,\10\ a majority of the laws 
require parity coverage only for a limited set of illnesses 
that are narrowly designated as ``serious'' or ``biologically 
based'' mental illness.\11\ Finally, about half of the State 
laws include a small-employer exemption.
---------------------------------------------------------------------------
    \8\ Information on state mental health parity laws is based on data 
complied by the National Conference of State Legislatures' Health 
Policy Tracking Service [http://www.ncsl.org].
    \9\ The 23 states are: AR, CA, CO, CT, DE, HI, IN, ME, MD, MA, MN, 
MT, NH, NJ, NM, NC, OK, RI, SC, SD, TX, VT, VA.
    \10\ The DSM IV, produced by the American Psychiatric Association, 
is a comprehensive system of diagnosis for psychiatric conditions. The 
fourth and current edition was first published in 1994.
    \11\ The illnesses included under these definitions vary greatly by 
State.
---------------------------------------------------------------------------
    Most of the States that have not passed comprehensive 
parity laws have enacted more limited mental health legislation 
for a variety of reasons such as cost and stigma. Some States 
require that a minimal level of coverage be provided for mental 
health (i.e., mandated-benefit laws). Others have enacted laws 
that require an insurer to include certain mental health 
benefits if that insurer opts to provide mental health 
coverage. In 3 States, plans that choose to offer mental health 
coverage must achieve full parity with their medical and 
surgical coverage.

       The Mental Health Equitable Treatment Act of 2001 (S. 543)

    The Mental Health Equitable Treatment Act of 2001 (S. 543) 
was introduced by Senator Domenici for himself and Senators 
Wellstone, Specter, Kennedy, Chafee, Dodd, Cochran, Reed, Reid, 
Warner, Grassley, Roberts, Durbin, and Johnson on March 15, 
2001, and referred to the Committee on Health, Education, 
Labor, and Pensions.
    After introduction, a hearing was held on July 11, 2001. 
The following individuals presented testimony:

The Honorable Paul Wellstone (D-MN)
The Honorable Pete Domenici (R-NM)
Edward Flynn, Associate Director for Retirement and Insurance, 
        Office of Personnel Management, Washington, DC.
Lisa Cohen, Bordentown, New Jersey
Henry Harbin, M.D., Chairman of the Board and Chief Executive 
        Officer, Magellan Health Services, Columbia, Maryland
Dr. Darrel A. Regier, M.D. M.P.H., Executive Director, American 
        Psychiatric Institute for Research and Education, 
        Washington, DC.

    Senators Wellstone and Domenici both urged the committee to 
pass S. 543 and build on the limited parity requirements in the 
1996 law. They described the enormous impact of mental illness 
on the American population and reminded committee members that 
there is no scientific justification for the current inequities 
in health insurance coverage between mental health and other 
medical conditions. Many mental illnesses have been found to 
have a biological basis, and available treatments are just as 
effective as those for other medical conditions. The Senators 
also affirmed the intent of the law to cover all mental 
illnesses, and not to restrict the bill to specific diagnoses. 
The Senators also summarized recent studies showing that under 
managed behavioral health care, equitable mental health 
treatment can be provided without escalating costs.
    William Flynn reviewed the implementation of mental health 
parity in the Federal Employees Health Benefits Program 
(FEHBP), pursuant to President Clinton's June 1999 Executive 
Order. He reported that parity implementation has resulted in 
an average premium increase of 1.64 percent for fee-for-service 
plans and 0.3 percent for HMOs. The Office of Personnel 
Management and the Department of Health and Human Services are 
conducting a 3-year evaluation of the FEHBP parity initiative.
    Lisa Cohen, who suffers both from bipolar disorder (manic 
depression) and idiopathic thrombocythemia (a rare blood 
disorder) described the inequities in her health insurance 
coverage for her two medical conditions. While effective 
treatments exist for both illnesses, her employer-sponsored 
health plan provides complete coverage only for her blood 
disease. Coverage of her psychiatric care is subject to higher 
co-payments, and limits on doctor's visits and hospital stays.
    Dr. Harbin, who heads Magellan Health Services, the 
country's largest managed behavioral healthcare organization 
(MBHO), explained how MBHOs have minimized the impact of parity 
implementation on premium costs. Most health plans now 
subcontract with MBHOs to provide the mental health (and 
substance abuse) component of their health insurance benefit 
package. Magellan, which provides services to approximately 70 
million people, has yet to see implementation of State parity 
laws increase total health care premium costs by more than 1 
percent. These modest cost increases apply both to large and 
small employers, and in rural, urban and suburban areas.
    Dr. Regier, who served as the scientific director of the 
four recent Congressionally-mandated National Advisory Mental 
Health Council reports on mental health parity, focused on the 
impact managed behavioral health care has had on controlling 
the cost of implementing parity. He also emphasized that parity 
is an important step toward overcoming the stigma associated 
with mental illness.
    Mr. Flynn, Dr. Harbin, and Dr. Regier all stated that where 
benefits have been managed, they have been more cost effective.

                    III. Background and Description

    More than 50 million American adults experience a diagnosed 
mental illness each year, and 5.5 million have a severely 
debilitating mental illness, such as schizophrenia or bipolar 
disorder. Approximately 20 percent of those under age 18 have 
mental disorders that result in functional impairment, with 5 
to 9 percent of these children experiencing severe handicaps in 
their ability to live normal lives.
    Advocates for the mentally ill have long fought for 
legislation mandating parity (i.e., equality) in health 
insurance coverage of mental and physical illnesses. Mental 
health advocates argue that there is no scientific 
justification for discrimination in mental health coverage, 
which they believe only reinforces the stigma that many in 
society attach to mental illness. Their efforts to combat 
discrimination received an important boost with the release of 
the 1999 Surgeon General's Report on Mental Health. The report 
reviewed the extensive scientific literature on mental health 
and concluded that mental health is fundamental to overall 
health, and that mental disorders are real health conditions 
that have an immense impact on individuals, families, and 
communities. The report found that the efficacy of mental 
health treatments is well documented and a range of effective 
treatments exists for most mental disorders.\12\
---------------------------------------------------------------------------
    \12\ The Surgeon General's Report on Mental Health is available at 
[http://www.surgeongeneral.gov].
---------------------------------------------------------------------------
    Today private health insurance plans typically provide 
lower levels of coverage for treating mental illness than for 
treating other illnesses due to concerns about cost and adverse 
selection. But the basis for concern has been reduced over time 
as biomedical research has offered many new advances in the 
scientific understanding of the causes of mental illnesses and 
in the development of new treatments that are both efficacious 
and cost-effective. At the same time, parity legislation has 
gained support among federal and state lawmakers in light of 
recent evidence that full parity can be implemented without 
significant cost increases within the context of managed care. 
Moreover, as managed behavioral health tools have been refined 
over time, employers and other purchasers are increasingly 
moving away from a fee-for-service model towards a managed 
behavioral health model. Some large employers have been able to 
offer more generous mental health benefits through the use of 
managed care without experiencing the added cost associated 
with expanded benefits. One employer, Delta Airlines, testified 
before the Committee in 2000 that expanded access to mental 
health benefits has resulted in lower overall costs, for 
instance by reducing medical/surgical claims and absenteeism 
rates. Indeed, this experience is consistent with findings that 
show that expanded mental health access can be achieved at 
minimal cost if provided in a managed care setting.
    Health benefit plans typically have more restrictive 
coverage of mental illnesses than physical illnesses. Common 
ways health plans have restricted coverage of mental illness 
include: (1) lower annual or lifetime dollar limits; \13\ (2) 
lower service limits such as the number of covered hospital 
days or outpatient visits; and (3) higher cost-sharing 
requirements such as deductibles, co-payments, or coinsurances. 
As a result of restrictions on coverage, individuals with 
mental illness often do not obtain adequate treatment, and 
those receiving treatment can quickly exhaust their benefits.
---------------------------------------------------------------------------
    \13\ The MHPA of 1996 prohibited such restrictions.
---------------------------------------------------------------------------
    The MHPA focused on eliminating inequities in annual and 
lifetime mental health benefits only. The law applies only to 
group health plans offering mental health benefits, and 
requires that annual and lifetime dollar limits for mental 
health coverage be no more restrictive than for other medical 
and surgical coverage. Exempted from the law's requirements are 
plans sponsored by an employer with 50 or fewer employees. 
Group plans that experience a 1 percent or more increase in 
plan costs as a result of the new law may apply for an 
exemption. The 1996 law does not require that employers provide 
mental health benefits or cover treatment for substance abuse 
and chemical dependency. Further, the law did not address other 
coverage restrictions, such as cost-sharing or treatment 
limits. The Act became effective on January 1, 1998 and has a 
sunset deadline of September 30, 2001.
    As of January 2001, all 8.5 million Federal employees have 
mental health treatment parity in their health benefits. At the 
White House Conference on mental health in June 1999, President 
Clinton directed the Federal Office of Personnel Management 
(OPM) to implement full parity for both mental health and 
substance abuse benefits in health plans offered under the 
Federal Employees Health Benefits Program (FEHBP) beginning in 
2001. As implemented, parity in the FEHBP means that in-network 
benefits coverage for mental health, substance abuse, medical, 
surgical, and hospital services will have the same limitations 
and cost-sharing requirements (such as deductibles, 
coinsurance, and copayments). Coverage is provided for all 
categories of mental health and substance abuse listed in the 
DSM IV. Treatment plans must be in accordance with standard 
protocols and meet medically necessity determination criteria.
    According to the OPM, parity implementation is expected to 
result in an average premium increase of 1.64 percent for fee-
for-service plans and 0.3 percent for HMOs. Health plans are 
implementing the parity benefit in a variety of ways. Some 
plans are using the services of managed behavioral health care 
organizations, while others are managing their own provider 
networks. OPM and the Department of Health and Human Services 
are conducting a 3-year evaluation of the FEHBP parity 
initiative.\14\ The 2001 Act is modeled after the mental health 
benefits provided through the FEHBP.
---------------------------------------------------------------------------
    \14\ Additional information on FEHBP's implementation of mental 
health parity may be found on the OPM's Web site at [http://
www.opm.gov/insure/health/index.htm].
---------------------------------------------------------------------------
    The ``Mental Health Equitable Treatment Act of 2001'' (S. 
543), takes another step toward achieving mental health 
treatment parity through Federal legislation. While it does not 
mandate that health plans offer any mental health benefits or 
coverage for specific mental health services, it does prohibit 
health plans from placing treatment limits or financial 
requirements that are lower than those for medical and surgical 
benefits. The bill defines ``treatment limitations'' as limits 
on the frequency of treatment, the number of visits, the number 
of covered hospital days, or other limits on the scope and 
duration of treatment. ``Financial requirements'' are defined 
to include deductibles, coinsurance, co-payments, and 
catastrophic maximums. Coverage is contingent on the mental 
health treatment being included in an authorized treatment plan 
that is in accordance with standard protocols and the treatment 
must meet the plan's medical necessity criteria.
    Mental illnesses are defined as all categories of mental 
health conditions listed in the most recent edition of the 
Diagnostic and Statistical Manual of Mental Disorders, Fourth 
Edition, Text Revision (DSM IV-TR).\15\ Like the MHPA, S. 543 
does not require plans to provide coverage for benefits 
relating to substance abuse or chemical dependency and there is 
a small business exemption for companies with 50 or fewer 
employees. S. 543 is modeled after the mental health benefits 
provided through the Federal Employees Health Benefits Program. 
Parity requirements must be applied separately to each benefit 
package if more than one package is offered by a plan. Where a 
plan offers in-network and out-of-network mental health 
benefits, S. 543 only applies to in-network benefits so long as 
the plan provides reasonable access to in-network mental health 
providers and facilities.
---------------------------------------------------------------------------
    \15\ American Psychiatric Association. Diagnostic and Statistical 
Manual of Mental Disorders, Fourth Edition, Text Revision. Washington, 
DC: American Psychiatric Association, 2000.
---------------------------------------------------------------------------

                           IV. Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, August 22, 2001.
Hon. Edward M. Kennedy,
Chairman, Committee on Health, Education, Labor, and Pensions, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 543, the Mental 
Health Equitable Treatment Act of 2001.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts for federal 
costs are Jennifer Bowman and Alexis Ahlstrom. The staff 
contact for the state and local impact is Leo Lex. The staff 
contacts for the private-sector impact are Jennifer Bowman, 
Stuart Hagen, and James Baumgardner.
            Sincerely,
                                          Dan L. Crippen, Director.
    Enclosure.

S. 543--Mental Health Equitable Treatment Act of 2001

    Summary: The Mental Health Equitable Treatment Act of 2001 
would prohibit group health plans and group health insurance 
issuers that provide both medical and surgical benefits and 
mental health benefits from imposing treatment limitations or 
financial requirements for coverage of mental health benefits 
that are different from those used for medical and surgical 
benefits.
    The bill would affect the federal budget because it would 
result in higher premiums for employer-sponsored health 
benefits. Higher premiums, in turn, would result in more of an 
employee's compensation being received in the form of 
nontaxable employer-paid premiums, and less in the form of 
taxable wages. As a result of this shift, federal income and 
payroll tax revenues would decline. The Congressional Budget 
Office (CBO) estimates that the proposal would reduce federal 
tax revenues by $230 million in 2002 and by $5.4 billion over 
the 2002-2011 period. Because S. 543 would affect receipts, 
pay-as-you-go procedures would apply to the bill.
    S. 543 would preempt state laws that have less stringent 
requirements for mental health coverage than those in this 
bill. That preemption would be an intergovernmental mandate as 
defined in the Unfunded Mandates Reform Act (UMRA). However, 
because the preemption only would prohibit the application of 
state regulatory law, CBO estimates that the costs of the 
mandate would not be significant and thus would not exceed the 
threshold established by UMRA ($56 million in 2001, adjusted 
annually for inflation). As a result of this legislation, some 
state, local, and tribal governments would pay higher health 
insurance premiums for their employees. However, these costs 
would not result from intergovernmental mandates, but would be 
costs passed on to them by private insurers who would face a 
private-sector mandate to comply with the requirements of the 
bill.
    The bill would impose a private-sector mandate on group 
health plans and group health insurance issuers by prohibiting 
them from imposing treatment limitations or financial 
requirements for mental health benefits that differ from those 
placed on medical and surgical benefits. Under current law, the 
Mental Health Parity Act of 1996 requires a more limited form 
of parity between mental health and medical and surgical 
coverage. That mandate is set to expire at the end of fiscal 
year 2001. Thus, S. 543 would both extend and expand the 
existing mandate requiring mental health parity. CBO estimates 
that the direct costs of the private-sector mandate in the bill 
would equal about $3 billion in 2002, and would grow in later 
years. That amount would significantly exceed the annual 
threshold established by UMRA ($113 million in 2001, adjusted 
for inflation) in each of the years that the mandate would be 
effective.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the bill is shown in Table 1.

                                                     TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF S. 543
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     By fiscal year, in millions of dollars--
                                                        ------------------------------------------------------------------------------------------------
                                                          2001    2002     2003     2004     2005     2006     2007     2008     2009     2010     2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

On-budget..............................................      0     -150     -290     -330     -360     -370     -390     -410     -430     -450     -500
Off-budget\1\..........................................      0      -70     -140     -160     -170     -180     -190     -200     -210     -220     -230
                                                        ------------------------------------------------------------------------------------------------
      Total changes....................................      0     -230     -430     -490     -520     -550     -580     -600     -630     -660    -730
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Revenues from Social Security payroll taxes are designated as ``off-budget.''

    Basis of estimate: This bill would prohibit group health 
plans and group health insurance issuers who offer mental 
health benefits from imposing treatment limitations or 
financial requirements for mental health benefits that are 
different from those used for medical and surgical benefits. 
For plans that offer mental health benefits through a network 
of mental health providers, the requirement for parity of 
benefits would apply to those benefits provided by members of 
the plan's network of health providers, not to benefits 
provided by health professionals outside of the plan's network. 
The provision would apply to benefits for any mental health 
condition listed in the most recent edition of the Diagnostic 
and Statistical Manual of Mental Disorders, but would not apply 
to benefits for substance abuse treatment. The bill would not 
require group health plans to offer mental health benefits, but 
laws in some states require that plans cover those benefits.
    The provision would apply to both self-insured and fully 
insured group health plans. Small employers (those employing 
between 2 and 50 employees in a year) would be exempt from the 
bill's requirements, as would individuals purchasing insurance 
in the individual market. In states with laws that are more 
stringent than the provisions of S. 543, fully insured group 
health plans would be required to comply with the state law, 
while self-insured plans would be required to comply with the 
provisions of S. 543.
    CBO's estimate of the cost of this bill is based in part on 
published results of a model developed by the Hay Group. That 
model relies on data from several sources, including the claims 
experience of private health insurers participating in the 
Federal Employees Health Benefits (FEHB) program and the 
Medical Expenditure Panel Survey. CBO adjusted those results to 
account for the current and future use of managed care 
arrangements for providing mental health benefits and the 
increased use of prescription drugs that mental health parity 
would be likely to induce. Also, CBO took account of the 
effects of existing state and federal rules that place 
requirements similar to those in the bill on certain entities. 
(For example, the Office of Personnel Management implemented 
mental health and substance abuse parity in the FEHB program in 
January 2001).
    CBO estimates that S. 543, if enacted, would increase 
premiums for group health insurance by an average of 0.9 
percent, before accounting for the responses of health plans, 
employers, and workers to the higher premiums under the bill. 
Those responses would include reductions in the number of 
employers offering insurance to their employees and in the 
number of employees enrolling in employer-sponsored insurance, 
changes in the types of health plans that are offered, and 
reductions in the scope or generosity of health insurance 
benefits, such as increased deductibles or higher copayments. 
CBO assumes that these behavioral responses would offset 60 
percent of the potential impact of the bill on total health 
plan costs.
    The remaining 40 percent of the potential increase in 
costs, or about 0.4 percent of group health insurance premiums, 
would occur in the form of increased outlays for health 
insurance. Those costs would be passed through to workers, 
reducing both their taxable compensation and other fringe 
benefits. For employees of private firms, CBO assumes that all 
of that increase would ultimately be passed through to workers. 
State, local, and tribal governments are assumed to absorb 75 
percent of the increase and to reduce their workers' taxable 
income and other fringe benefits to offset the remaining one-
quarter of the increase. CBO estimates that the resulting 
reduction in taxable income would grow from $1.0 billion in 
calendar year 2002 to $2.3 billion in 2011.
    Those reductions in workers' taxable compensation would 
lead to lower federal tax revenues. CBO estimates that federal 
tax revenues would fall by $230 million in 2002 and by $5.4 
billion over the 2002-2011 period if S. 543 were enacted. 
Social Security payroll taxes, which are off-budget, would 
account for about 30 percent of those totals.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
change in governmental receipts that are subject to pay-as-you-
go procedures are shown in the Table 2. (Only the changes in 
on-budget revenues are subject to pay-as-you-go procedures.) 
For the purposes of enforcing pay-as-you-go procedures, only 
the effects in the current year, the budget year, and the 
succeeding four years are counted.

                                          TABLE 2.--ESTIMATED EFFECTS OF S. 543 ON RECEIPTS AND DIRECT SPENDING
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     By fiscal year, in millions of dollars--
                                                        ------------------------------------------------------------------------------------------------
                                                          2001    2002     2003     2004     2005     2006     2007     2008     2009     2010     2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Change in Receipts.....................................      0     -150     -290     -330     -360     -370     -390     -410     -430     -450     -500
Change in Outlays......................................                                           Not applicable
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated impact on state, local, and tribal governments: 
S. 543 would preempt state laws that have less stringent 
requirements for mental health coverage than those in this 
bill. That preemption would be an intergovernmental mandate as 
defined in UMRA. However, because the preemption would simply 
prohibit the application of state regulatory law, CBO estimates 
that the mandate would impose no significant costs on state, 
local, or tribal governments.
    An existing provision in the Public Health Service Act 
would allow state, local, and tribal governments that operate 
group health plans for the benefit of their employees to opt 
out of the requirements of this bill. Consequently, those 
requirements would not be intergovernmental mandates as defined 
in UMRA, and the bill would affect the budgets of those 
governments only if they choose to comply with the requirements 
on group health plans. Roughly two-thirds of employees in 
state, local, and tribal governments are enrolled in self-
insured plans.
    The remaining governmental employees are enrolled in fully 
insured plans. Governments purchase health insurance for those 
employees through private insurers and would face increased 
premiums as a result of higher costs passed on to them by those 
insurers. The increased costs, however, would not result from 
intergovernmental mandates. Rather, they would be part of the 
mandate costs initially borne by the private sector and then 
passed on to the governments as purchasers of insurance. 
Assuming that in the absence of this legislation all mental 
health parity requirements would expire, CBO estimates that 
state, local, and tribal governments would face additional 
costs of $150 million in 2002, increasing to about $260 million 
in 2006. This estimate reflects the assumption that governments 
would shift roughly 25 percent of the additional costs to their 
employees.
    Estimated impact on the private sector: The bill would 
impose a private-sector mandate on group health plans and 
issuers of group health insurance that provide medical and 
surgical benefits as well as mental health benefits. S. 543 
would prohibit those entities from imposing treatment 
limitations or financial requirements for mental health 
benefits that differ from those placed on medical and surgical 
benefits. The requirements would not apply to coverage 
purchased by employer groups with fewer than 50 employees. 
Health plans that provided mental health benefits through a 
network of mental health providers would have to comply with 
the parity requirements for benefits provided by the network of 
providers but not for benefits provided by mental health 
professionals outside the network.
    Under current law, the Mental Health Parity Act of 1996 
prohibits group health plans and group health insurance issuers 
from imposing annual and lifetime dollar limits on mental 
health coverage that are more restrictive than limits imposed 
on medical and surgical coverage. The current mandate is set to 
expire at the end of fiscal year 2001. Consequently, S. 543 
would both extend and expand the current mandate requiring 
mental health parity.
    CBO's estimate of the direct costs of the mandate assumes 
that affected entities would comply with S. 543 by further 
increasing the generosity of their mental health benefits. Many 
plans currently offer mental health benefits that are less 
generous than their medical and surgical benefits. We estimate 
that the direct costs of the additional services that would be 
newly covered by insurance because of the mandate would equal 
about 0.9 percent of employer-sponsored health insurance 
premiums compared to having no mandate at all.
    The Unfunded Mandates Reform Act is unclear about how to 
measure the costs of extending an expiring mandate that has not 
yet expired. On the one hand, UMRA may be interpreted as 
requiring the direct costs to be measured relative to a case 
that assumes the current mandate will not exist beyond its 
expiration date. On the other hand, it also may be interpreted 
as requiring the direct costs to be measured relative to the 
cost of the existing mandate. CBO's estimate of the direct 
costs under each of those interpretations is displayed in Table 
3.
    Under the first interpretation, CBO estimates that the 
direct costs of the mandate in S.543 would be $3.1 billion in 
2002, rising to $5.5 billion in 2006. Under the second 
interpretation, the direct costs would be $2.8 billion in 2002, 
rising to $5.0 billion in 2006. In both cases, those costs 
would significantly exceed the threshold specified in UMRA 
($113 million in 2001, adjusted annually for inflation) in each 
year the mandate would be effective.

                    TABLE 3.--ESTIMATED DIRECT COSTS OF THE PRIVATE-SECTOR MANDATES IN S. 543
----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal year, in millions of dollars--
                                                                    --------------------------------------------
                                                                       2002     2003     2004     2005     2006
----------------------------------------------------------------------------------------------------------------
Direct costs compared with no mandate..............................    3,100    4,500    4,800    5,100    5,500
Direct costs compared with the mandate in the Mental Health Parity     2,800    4,000    4,400    4,700    5,000
 Act of 1996.......................................................
----------------------------------------------------------------------------------------------------------------

    Estimate prepared by: Federal Costs: Jennifer Bowman and 
Alexis Ahlstrom. Impact on State, Local, and Tribal 
Governments: Leo Lex. Impact on the Private Sector: Jennifer 
Bowman, Stuart Hagen, and James Baumgardner.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

              V. Application of Law to Legislative Branch

    The Committee finds that the legislation has no application 
to the legislative branch.

                    VI. Regulatory Impact Statement

    Where suitable, the Committee intends the current 
regulations developed by the Department of Treasury, Department 
of Labor, and Department of Health and Human Services for the 
1996 Mental Health Parity Act to apply to S. 543. The committee 
recognizes S. 543 is an expansion and change relative to the 
current law and calls upon the regulatory agencies to provide 
timely regulations. The committee has determined there will be 
only a minor increase in the regulatory burden of paperwork as 
the result of this legislation.

                    VII. Section-by-Section Analysis


Section 1--Short title

    Section 1 specifies the title of the legislation as the 
``Mental Health Equitable Treatment Act of 2001''.

Section 2--Amendment to the Employee Retirement Income Security Act of 
        1974

    Section 2 amends the Employee Retirement Income Security 
Act of 1974 by inserting section 712 ``Mental Health Parity''.
    Any group health plan that provides both medical and 
surgical benefits and mental health benefits shall not impose 
any treatment limits or financial requirements for mental 
illnesses unless comparable treatment limits or financial 
requirements are imposed for medical and surgical benefits.
    Treatment limits include limitations on the frequency of 
treatment, number of visits or days of coverage, or other 
similar limits on the duration or scope of treatment.
    Financial requirements include deductibles, coinsurance, 
co-payments, other cost sharing, and limitations on the total 
amount that may be paid by a participant or beneficiary and 
include annual and lifetime limits.
    Mental health benefits means benefits for services for all 
categories of mental health conditions listed in the most 
recent edition of the Diagnostic and Statistical Manual of 
Mental Disorders. Services must be included as part of an 
authorized treatment plan that is in accordance with standard 
protocols and must meet the plan or issuer's medical necessity 
criteria. Benefits for treatment of substance abuse or chemical 
dependency are not included.
    The legislation does not require health plans to provide 
any mental health benefits. However, if a plan provides mental 
health benefits, the benefits must be offered consistent with 
the parity requirements of the act.
    Group health plans are not prevented from managing benefits 
as a means to contain costs and monitor and improve the quality 
of care.
    The bill does not mandate coverage of specific mental 
health services, however it does require parity between mental 
health and physical health benefits.
    Employers who had, on average, at least 2 and not more than 
50 employees in the last year are exempt from the provisions of 
this act. The legislation does not apply to health insurance 
coverage offered in the individual market.
    Companies that offer 2 or more benefit package options are 
required to offer parity for each plan. The company is not 
required to have parity between plans. Out-of-network benefits 
do not have to be provided at parity, as long as in-network 
benefits are provided at parity and a plan provides reasonable 
access to in-network providers and facilities.
    Section 2 will apply to plan years on or after January 1, 
2002.

Section 3--Amendment to the Public Health Service Act relating to the 
        group market

    Section 3 amends section 2705 of the Public Health Service 
Act with the identical provisions of Section 2.

Section 4--Preemption

    The bill does not preempt State law if the law provides 
greater protections than those in the bill.

Section 5--General Accounting Office study

    Within two years of enactment, the Comptroller General will 
conduct a study and prepare a report which evaluates the effect 
of this bill on the cost of health insurance coverage, access 
to coverage, and quality of health care.

                        VIII. Votes in Committee

    S. 543 was brought up for markup at the Health, Education, 
Labor, and Pensions Executive Session on August 1, 2001. At 
that time, Senator Kennedy offered an amendment in the nature 
of a substitute which included several technical changes to 
clarify the language of the bill as well as several substantive 
changes. The substitute bill included a statement was added to 
reaffirm the ability of providers to manage their benefits. The 
substitute bill does not obligate insurers to cover specific 
services as long as parity is kept between mental illness and 
medical and surgical benefits. The small employer exemption was 
changed to employers with less than 50 employees. Out-of-
network benefits are not required to be covered consistent with 
the parity requirements of the act as long as beneficiaries are 
provided reasonable access to in-network providers and in-
network benefits are provided at parity. Clarification was 
offered to ensure that self-insured plans are not subject to 
state regulations.
    The manager's amendment was accepted by unanimous consent 
and the substitute bill was reported favorably from the 
Committee by a rollcall vote of 21 yeas to 0 nays.
    Yeas: Kennedy; Dodd; Harkin; Mikulski; Jeffords; Bingaman; 
Wellstone; Murray; Reed; Edwards; Clinton; Gregg; Frist; Enzi; 
Hutchinson; Warner; Bond; Roberts; Collins; Sessions; and 
DeWine.

                          IX. Committee Views


Coverage for all illnesses in the Diagnostic and Statistical Manual of 
        Mental Disorders

    The reported bill reflects the agreement of the committee 
and the intent of the sponsors to require the coverage of 
services for all mental illnesses listed in the most recent 
edition of the Diagnostic and Statistical Manual of Mental 
Disorders, with the exception of substance abuse and chemical 
dependency. While the bill does not require a plan (or health 
insurance coverage offered in connection with such a plan) to 
provide any mental health benefits, it prohibits insurers to 
limit coverage on the basis of a mental health diagnosis. That 
is, the bill does not allow insurers to choose specific 
illnesses or categories of illnesses in the DSM to exclude from 
coverage. This principle is consistent with the FEHBP.

Coverage of ``specific services''

    In including language regarding coverage for specific 
mental health services, the bill reflects an understanding that 
there may be circumstances under which a health plan would not 
provide specific mental health services. The principle that 
guides the establishment of such exclusions must, however, be 
the principle which provides the underpinning for the reported 
bill, the principle of parity. As stated in the bill, 
exclusions must not result in a disparity between the coverage 
of mental health and medical and surgical benefits. While the 
requirement that there be no such disparity is unequivocal, its 
application must reflect the broad purposes this legislation is 
intended to achieve.
    The committee underscores the overriding principle of 
mental health parity in assuring access to efficacious 
treatment for mental illness. Accordingly, the language 
included in this bill regarding access to specific mental 
health services is not in any way intended to exclude the 
provision of any specific evidence-based services for covered 
mental health diagnoses when comparable health services are 
provided for medical or surgical benefits.
    The philosophy underlying mental health parity is aptly 
reflected in an FEHBP Carrier Letter of April 11, 2000. That 
letter advises carriers that ``[t]he overriding goal of parity 
is to expand the range of benefits offered while managing costs 
effectively.'' Specifically, regarding services, it states 
``[w]e also expect you to develop benefit packages that will 
make effective use of available treatment methods. Since much 
successful treatment for mental health and substance abuse 
conditions is now being delivered through alternative 
modalities such as partial hospitalization and intensive 
outpatient care, we encourage a flexible approach to covering a 
continuum of care from a comprehensive group of facilities and 
providers.'' The ``specific services'' language of the bill 
must be read in light of these statements and the FEHBP policy 
generally, which has guided the committee in developing the 
reported bill.
    In using the DSM to define mental health, the committee 
intends to improve access to mental health benefits across the 
full range of diagnoses and eliminate discrimination on the 
basis of a specific mental illness, disorder, or diagnoses. At 
the same time, the committee included language allowing for the 
exclusion of specific services so long as such an exclusion 
does not violate parity between mental health benefits and 
medical/surgical benefits. The purpose of this provision was 
enable employers to voluntarily provide and design their 
benefits packages to meet the needs of their employees. An 
additional purpose of this provision is to ensure that S. 543 
does not go beyond parity by de facto mandating the mental 
health benefits package. As with medical and surgical benefits, 
the committee expects that the selection of services will vary 
over time in response to clinical trials of effectiveness and 
improved standards of practice.
    Thus, while S. 543 allows a plan to exclude a specific 
mental health service (so long as there is still parity between 
mental health and medical and surgical benefits), it does not 
allow a plan to exclude a specific mental illness, disorder, or 
diagnosis if it is listed in the DSM IV.

``Reasonable access'' to in-network providers and facilities

    In the June 7, 1999 carrier letter the FEHBP addresses out-
of-network cost-sharing and day/visit limits with the following 
text: ``HMOs may continue to limit services to network 
providers only, unless your Plan has a point-of-service option. 
All other delivery systems must give members the option to use 
non-network providers. However, we do not expect parity for 
out-of-network coverage so long as you meet reasonable 
standards for access to network providers and facilities. You 
may keep cost sharing, day/visit limits, and catastrophic 
maximums for out-of-network services for mental health and 
substance abuse at or near year 2000 levels.''
    The bill allows insurers to have inequities in the 
provision of out-of-network benefits, however the committee 
clarifies that this provision can not be used to undermine the 
overall principle of the bill, parity. To address this point, 
the bill includes language that requires insurers to provide 
``reasonable access'' to in-network providers. The committee 
intends the term ``reasonable access'' to mean comparable 
access as provided for medical and surgical benefits. Health 
benefit plans which severely limit access to in-network 
providers or significantly change cost sharing, day/visit 
limits, and catastrophic maximums for out-of-network services 
for mental health would be viewed as violating the spirit of 
the law.

Importance of recognizing impact of managed care

    In addition to this modification regarding the status of 
benefits offered outside of a network, the inclusion in the 
reported legislation of explicit language recognizing the 
ability of group health plans to utilize preauthorization, 
networks of behavioral health providers, and other means of 
managing the mental health benefits required by the legislation 
is particularly important. As reflected in testimony provided 
to the Committee, numerous studies--as well as substantial 
evidence--regarding the cost impact of mental health benefits 
tend to show that mental health services can be covered in a 
cost-effective manner where they are managed through techniques 
such as those mentioned in section 712(b)(2) and section 
2705(b)(2) of the legislation.

Importance of small employer exemption

    As previously noted, the legislation exempts group health 
plans offered by employers with fewer than 50 employees. While 
recognizing that all individuals with mental illness deserve 
fair and equitable treatment in their health care coverage, the 
requirement for small business employers to provide parity 
raises particular issues. For the past three years, private 
health insurance premiums have risen significantly. While large 
and medium sized employers have, on average, experienced annual 
increases in the high single digits and low double digits in 
recent years, most small employers have faced increases double 
or triple that amount. Thus, the exemption recognizes the 
difficulty small employers in particular often have in 
balancing their desire to provide expanded health benefits to 
workers and concerns about affordability of those benefits.

                          X. ADDITIONAL VIEWS

    The problem exists. Today, access to mental health services 
is more limited than it is for non-mental health services. At 
the same time, recent scientific advances have shed light on 
the causes of mental illness and have led to the development of 
more successful and cost-effective treatments. These 
developments raise concerns about the impact of health 
insurance benefits that impose more restrictions on mental 
health benefits than for other health benefits.
    The impact is real. People living with untreated mental 
illness suffer, and the societal impact, while difficult to 
measure, takes a toll. Testimony before this Committee and 
information made available by those who suffer from mental 
illness, their families, and advocacy organizations 
representing them confirm the well-known impact on so many of 
our citizens. And research by the Washington Business Group on 
Health reveals that for some large employers, untreated mental 
illness has driven up other health care costs, increased 
absenteeism rates, and reduced overall corporate productivity.
    The solution is simple. Take action to improve access to 
mental health services. No matter what action Congress takes 
now or in the future, we must not lose sight of this goal. 
Current law, the Mental Health Parity Act of 1996, has had a 
limited impact on access and is set to expire at the end of 
September, 2001. The ``Mental Health Equitable Treatment Act'' 
approved by the Committee on August 1, 2001, is much broader 
than current law and is intended to have a greater impact on 
access.
    The modifications contained in the Chairman's substitute 
improve the original bill and should reduce the potential for 
unintended consequences that might have actually decreased 
access to mental health services. First, the Chairman's 
substitute recognizes the voluntary nature of our employer-
based health benefits system by creating a non-discrimination 
bill as opposed to a mandated mental health benefits package. 
Second, the Chairman's substitute creates a small business 
exemption for employers with 50 or fewer employees. This 
exemption alleviates the concern that small employers may drop 
coverage altogether if the requirements are too costly. Third, 
the substitute recognizes the importance of managing behavioral 
health by expressly permitting such activities and applying the 
requirements only to in-network benefits when a plan offers 
such a feature.
    There is one additional concern that I believe is not 
addressed by the original bill or the Chairman's substitute. 
That is the overall cost impact of this bill and its long term 
impact on access to mental health services as well as non-
mental health services. The CBO recently scored this bill as 
increasing costs by an average of 0.9 percent for group health 
plans. Alone, this score is significant and will adversely 
impact health premiums and access to health benefits. Combined 
with double-digit premium trends, the cost of the Patients' 
Bill of Rights (around 4%), medical privacy rules, and other 
potential mandates, there is no question that action Congress 
takes with this bill and others will impact access to health 
care. In addition, and significantly, CBO notes that the 
legislation will reduce federal tax revenues by $230 million in 
2002 and by $5.4 billion over the 2002-2011 period.
    The CBO cost impact estimate is an average across all types 
of plans, and the official score does not distinguish based on 
plan type. However, analysis conducted by the National 
Institute of Mental Health (NIMH), the Substance Abuse and 
Mental Health Services Administration (SAMHSA), the Washington 
Business Group on Health (WBGH), and Price Waterhouse Coopers 
(PWC) examined the impact of mental health parity based on plan 
type. Each of these studies draws the same conclusion. Mental 
health parity can be achieved at minimal cost if, and only if, 
the benefits are ``tightly'' or ``comprehensively'' managed. 
For instance, PWC estimates that S. 543 will increase costs by 
1.2% for an HMO plan with a gatekeeper and 4.2% for a fee-for-
service plan. This has been the guiding principle OPM has used 
in implementing mental health parity for federal employees and 
is the reason that parity is only applied to in-network 
benefits under FEHBP.
    The CBO score is based on current law and does not take 
into account passage of other bills Congress is considering. 
Both the House and Senate have recently passed patients' rights 
laws that are designed to curb a range of managed care 
practices. Since there is unanimous agreement that mental 
health parity is cost-effective when be provided in a managed 
care setting, I am deeply concerned about the interaction 
between S. 543 and patients' rights legislation, which is on 
the brink of passage. By curtailing the use of certain managed 
care tools through patients' rights legislation, the cost of 
mental health parity may be greater than anticipated. Moreover, 
consumer demand has already led to a migration away from more 
tightly managed plans, which may also impact the cost of mental 
health parity in the future.
    It is my hope that by the time the Senate takes action on 
legislation, we will have a better understanding of the 
interaction between these two bills and its potential impact on 
access to mental health benefits. As I stated at the Committee 
markup, I believe the cost concern is very real and hope it 
will addressed it on the Senate floor. If our goal is to 
improve access to mental services, then it is our 
responsibility to safeguard against any unanticipated cost 
consequences that undermine this goal.
    I look forward to working with the mental health community, 
my Senate colleagues, and other interested parties in advancing 
this legislation and improving access to mental health 
services.

                                                        Judd Gregg.

                      XI. Changes in Existing Law

    In compliance with rule XXVI paragraph 12 of the Standing 
Rules of the Senate, the following provides a print of the 
statute or the part or section thereof to be amended or 
replaced (existing law proposed to be omitted is enclosed in 
black brackets, new matter is printed in italic, existing law 
in which no change is proposed is shown in roman):

PUBLIC HEALTH SERVICE ACT

           *       *       *       *       *       *       *


[SEC. 2705. [300GG-5] PARITY IN THE APPLICATION OF CERTAIN LIMITS TO 
                    MENTAL HEALTH BENEFITS.

    [(a) In General.--
          [(1) Aggregate lifetime limits.--In the case of a 
        group health plan (or health insurance coverage offered 
        in connection with such a plan) that provides both 
        medical and surgical benefits and mental health 
        benefits--
                  [(A) No lifetime limit.--If the plan or 
                coverage does not include an aggregate lifetime 
                limit on substantially all medical and surgical 
                benefits, the plan or coverage may not impose 
                any aggregate lifetime limit on mental health 
                benefits.
                  [(B) Lifetime limit.--If the plan or coverage 
                includes an aggregate lifetime on substantially 
                all medical and surgical benefits (in this 
                paragraph referred to as the ``applicable 
                lifetime limit''), the plan or coverage shall 
                either--
                         [(i) apply the applicable lifetime 
                        limit both to the medical and surgical 
                        benefits to which it otherwise would 
                        apply and to mental health benefits and 
                        not distinguish in the application of 
                        such limit between such medical and 
                        surgical benefits and mental health 
                        benefits; or
                          [(ii) not include any aggregate 
                        lifetime limit on mental health 
                        benefits that is less than the 
                        applicable lifetime limit.
                  [(C) Rule in case of different limits.--In 
                the case of a plan or coverage that is not 
                described in subparagraph (A) or (B) and that 
                includes no or different aggregate-lifetime 
                limits on different categories of medical and 
                surgical benefits, the Secretary shall 
                establish rules under which subparagraph (B) is 
                applied to such plan or coverage with respect 
                to mental health benefits by substituting for 
                the applicable lifetime limit an average 
                aggregate lifetime limit that it computed 
                taking into account the weighted average of the 
                aggregate lifetime limits applicable to such 
                categories.
          [(2) Annual limits.--In the case of a group health 
        plan (or health insurance coverage offered in 
        connection with such a plan) that provides both medical 
        and surgical benefits and mental health benefits--
                  [(A) No annual limit.--If the plan or 
                coverage does not include an annual limit on 
                substantially all medical and surgical 
                benefits, the plan or coverage may not impose 
                any annual limit on mental health benefits.
                  [(B) Annual limit.--If the plan or coverage 
                includes an annual limit on substantially all 
                medical and surgical benefits (in this 
                paragraph referred to as the ``applicable 
                annual limit''), the plan or coverage shall 
                either--
                          [(i) apply the applicable annual 
                        limit both to medical and surgical 
                        benefits to which it otherwise would 
                        apply and to mental health benefits and 
                        not distinguish in the application of 
                        such limit between such medical and 
                        surgical benefits and mental health 
                        benefits; or
                          [(ii) not include any annual limit on 
                        mental health benefits that is less 
                        than the applicable annual limit.
                  [(C) Rule in case of different limits.--In 
                the case of a plan or coverage that is not 
                described in subparagraph (A) or (B) and that 
                includes no or different annual limits on 
                different categories of medical and surgical 
                benefits, the Secretary shall establish rules 
                under which subparagraph (B) is applied to such 
                plan or coverage with respect to mental health 
                benefits by substituting for the applicable 
                annual limit an average annual limit that is 
                computed taking into account the weighted 
                average of the annual limits applicable to such 
                categories.
    [(b) Construction.--Nothing in this section shall be 
construed--
          [(1) as requiring a group health plan (or health 
        insurance coverage offered in connection with such a 
        plan) to provide any mental health benefits; or
          [(2) in the case of a group health plan (or health 
        insurance coverage offered in connection with such a 
        plan) that provides mental health benefits, as 
        affecting the terms and conditions (including cost 
        sharing, limits on numbers of visits or days of 
        coverage, and requirements relating to medical 
        necessity) relating to the amount, duration, or scope 
        of mental health benefits under the plan or coverage, 
        except as specifically provided in subsection (a) (in 
        regard to parity in the imposition of aggregate 
        lifetime limits and annual limits for mental health 
        benefits).
    [(c) Exemptions.--
          [(1) Small employer exemption.--This section shall 
        not apply to any group health plan (and group health 
        insurance coverage offered in connection with a group 
        health plan) for any plan year of a small employer.
          [(2) Increased cost exemption.--This section shall 
        not apply with respect to a group health plan (or 
        health insurance coverage offered in connection with a 
        group health plan) if the application of this section 
        to such plan (or to such coverage) results in an 
        increase in the cost under the plan (or for such 
        coverage) of at least 1 percent.
    [(d) Separate Application to Each Option Offered.--In the 
case of a group health plan that offers a participant or 
beneficiary two or more benefit package options under the plan, 
the requirements of this section shall be applied separately 
with respect to each such option.
    [(e) Definitions.--For purposes of this section--
          [(1) Aggregate lifetime limit.--The term ``aggregate 
        lifetime limit'' means, with respect to benefits under 
        a group health plan or health insurance coverage, a 
        dollar limitation on the total amount that may be paid 
        with respect to such benefits under the plan or health 
        insurance coverage with respect to an individual or 
        other coverage unit.
          [(2) Annual limit.--The term ``annual limit'' means, 
        with respect to benefits under a group health plan or 
        health insurance coverage, a dollar limitation on the 
        total amount of benefits that may be paid with respect 
        to such benefits in a 12-month period under the plan or 
        health insurance coverage with respect to an individual 
        or other coverage unit.
          [(3) Medical or surgical benefits.--The term 
        ``medical or surgical benefits'' means benefits with 
        respect to medical or surgical services, as defined 
        under the terms of the plan or coverage (as the case 
        may be), but does not include mental health benefits.
          [(4) Mental health benefits.--The term ``mental 
        health benefits'' means benefits with respect to mental 
        health services, as defined under the terms of the plan 
        or coverage (as the case may be), but does not include 
        benefits with respect to treatment of substance abuse 
        or chemical dependency.
    [(f) Sunset.--This section shall not apply to benefits for 
services furnished on or after September 30, 2001.]

SEC. 2705. MENTAL HEALTH PARITY.

    (a) In General.--In the case of a group health plan (or 
health insurance coverage offered in connection with such a 
plan) that provides both medical and surgical benefits and 
mental health benefits, such plan or coverage shall not impose 
any treatment limitations or financial requirements with 
respect to the coverage of benefits for mental illnesses unless 
comparable treatment limitations or financial requirements are 
imposed on medical and surgical benefits.
    (b) Construction.--
          (1) In general.--Nothing in this section shall be 
        construed as requiring a group health plan (or health 
        insurance coverage offered in connection with such a 
        plan) to provide any mental health benefits.
          (2) Medical management of mental health benefits.--
        Nothing in this section shall be construed to prevent 
        the medical management of mental health benefits, 
        including through concurrent and retrospective 
        utilization review and utilization management 
        practices, preauthorization, and the application of 
        medical necessity and appropriateness criteria 
        applicable to behavioral health and the contracting and 
        use of a network of participating providers.
          (3) No requirement of specific services.--Nothing in 
        this section shall be construed as requiring a group 
        health plan (or health insurance coverage offered in 
        connection with such a plan) to provide coverage for 
        specific mental health services, except to the extent 
        that the failure to cover such services would result in 
        a disparity between the coverage of mental health and 
        medical and surgical benefits.
    (c) Small Employer Exemption.--
          (1) In general.--This section shall not apply to any 
        group health plan (and group health insurance coverage 
        offered in connection with a group health plan) for any 
        plan year of any employer who employed an average of at 
        least 2 but not more than 50 employees on business days 
        during the preceding calendar year.
          (2) Application of certain rules in determination of 
        employer size.--For purposes of this subsection--
                  (A) Application of aggregation rule for 
                employers.--Rules similar to the rules under 
                subsections (b), (c), (m), and (o) of section 
                414 of the Internal Revenue Code of 1986 shall 
                apply for purposes of treating persons as a 
                single employer.
                  (B) Employers not in existence in preceding 
                year.--In the case of an employer which was not 
                in existence throughout the preceding calendar 
                year, the determination of whether such 
                employer is a small employer shall be based on 
                the average number of employees that it is 
                reasonably expected such employer will employ 
                on business days in the current calendar year.
                  (C) Predecessors.--Any reference in this 
                paragraph to an employer shall include a 
                reference to any predecessor of such employer.
    (d) Separate Application to Each Option Offered.--In the 
case of a group health plan that offers a participant or 
beneficiary two or more benefit package options under the plan, 
the requirements of this section shall be applied separately 
with respect to each such option. In the case of any plan or 
coverage option that provides in-network mental health 
benefits, out-of-network mental health benefits maybe provided 
using treatment limitations or financial requirements that are 
not comparable to the limitations and requirements applied to 
medical and surgical benefits if the plan or coverage provides 
such in-network mental health benefits in accordance with 
subsection (a) and provides reasonable access to in-network 
providers and facilities.
    (e) Definitions.--For purposes of this section--
          (1) Financial requirements.--The term ``financial 
        requirements'' includes deductibles, coinsurance, co-
        payments, other cost sharing, and limitations on the 
        total amount that may be paid by a participant, 
        beneficiary or enrollee with respect to benefits under 
        the plan or health insurance coverage and shall include 
        the application of annual and lifetime limits.
          (2) Medical or surgical benefits.--The term ``medical 
        or surgical benefits'' means benefits with respect to 
        medical or surgical services, as defined under the 
        terms of the plan or coverage (as the case may be) but 
        does not include mental health benefits.
          (3) Mental health benefits.--The term ``mental health 
        benefits'' means benefits with respect to services, as 
        defined under the terms and conditions of the plan or 
        coverage (as the case may be), for all categories of 
        mental health conditions listed in the Diagnostic and 
        Statistical Manual of Mental Disorders, Fourth Edition 
        (DSM IV-TR), or the most recent edition if different 
        than the Fourth Edition, if such services are included 
        as part of an authorized treatment plan that is in 
        accordance with standard protocols and such services 
        meet the plan or issuer's medical necessity criteria. 
        Such term does not include benefits with respect to the 
        treatment of substance abuse or chemical dependency.
          (4) Treatment limitations.--The term ``treatment 
        limitations'' means limitations on the frequency of 
        treatment, number of visits or days of coverage, or 
        other similar limits on the duration or scope of 
        treatment under the plan or coverage.

           *       *       *       *       *       *       *


EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

           *       *       *       *       *       *       *



[SEC. 712. [1185A] PARITY IN THE APPLICATION OF CERTAIN LIMITS TO 
                    MENTAL HEALTH BENEFITS.

    [(a) In General.--
          [(1) Aggregate lifetime limits.--In the case of a 
        group health plan (or health insurance coverage offered 
        in connection with such a plan) that provides both 
        medical and surgical benefits and mental health 
        benefits--
                  [(A) No lifetime limit.--If the plan or 
                coverage does not include an aggregate lifetime 
                limit on substantially all medical and surgical 
                benefits, the plan or coverage may not impose 
                any aggregate lifetime limit on mental health 
                benefits.
                  [(B) Lifetime limit.--If the plan or coverage 
                includes an aggregate lifetime limit on 
                substantially all medical and surgical benefits 
                (in this paragraph referred to as the 
                ``applicable lifetime limit''), the plan or 
                coverage shall either--
                          [(i) apply the applicable lifetime 
                        limit both to the medical and surgical 
                        benefits to which it otherwise would 
                        apply and to mental health benefits and 
                        not distinguish in the application of 
                        such limit between such medical and 
                        surgical benefits and mental health 
                        benefits; or
                          [(ii) not include any aggregate 
                        lifetime limit on mental health 
                        benefits that is less than the 
                        applicable lifetime limit.
                  [(C) Rule in case of different limits.--In 
                the case of a plan or coverage that is not 
                described in subparagraph (A) or (B) and that 
                includes no or different aggregate life-time 
                limits on different categories of medical and 
                surgical benefits, the Secretary shall 
                establish rules under which subparagraph (B) is 
                applied to such plan or coverage with respect 
                to mental health benefits by substituting for 
                the applicable lifetime limit an average 
                aggregate lifetime limit that is computed 
                taking into account the weighted average of the 
                aggregate lifetime limits applicable to such 
                categories.
          [(2) Annual limits.--In the case of a group health 
        plan (or health insurance coverage offered in 
        connection with such a plan) that provides both medical 
        and surgical benefits and mental health benefits--
                  [(A) No annual limit.--If the plan or 
                coverage does not include an annual limit on 
                substantially all medical and surgical 
                benefits, the plan or coverage may not impose 
                any annual limit on mental health benefits.
                  [(B) Annual limit.--If the plan or coverage 
                includes an annual limit on substantially all 
                medical and surgical benefits (in this 
                paragraph referred to as the ``applicable 
                annual limit''), the plan or coverage shall 
                either--
                          [(i) apply the applicable annual 
                        limit both to medical and surgical 
                        benefits to which it otherwise would 
                        apply and to mental health benefits and 
                        not distinguish in the application of 
                        such limit between such medical and 
                        surgical benefits and mental health 
                        benefits; or
                          [(ii) not include any annual limit on 
                        mental health benefits that is less 
                        than the applicable annual limit.
                  [(C) Rule in case of different limits.--In 
                the case of a plan or coverage that is not 
                described in subparagraph (A) or (B) and that 
                includes no different annual limits on 
                different categories of medical and surgical 
                benefits, the Secretary shall establish rules 
                under which subparagraph (B) is applied to such 
                plan or coverage with respect to mental health 
                benefits by substituting for the applicable 
                annual limit an average annual limit that is 
                computed taking into account the weighted 
                average of the annual limits applicable to such 
                categories.
    [(b) Construction.--Nothing in this section shall be 
construed--
          [(1) as requiring a group health plan (or health 
        insurance coverage offered in connection with such a 
        plan) to provide any mental health benefits; or
          [(2) in the case of a group health plan (or health 
        insurance coverage offered in connection with such a 
        plan) that provides mental health benefits, as 
        affecting the terms and conditions (including cost 
        sharing, limits on numbers of visits or days of 
        coverage, and requirements relating to medical 
        necessity) relating to the amount, duration, or scope 
        of mental health benefits under the plan or coverage, 
        except as specifically provided in subsection (a) (in 
        regard to parity in the imposition of aggregate 
        lifetime limits and annual limits for mental health 
        benefits).
    [(c) Exemptions.--
          [(1) Small employer exemption.--
                  [(A) In general.--This section shall not 
                apply to any group health plan (and group 
                health insurance coverage offered in connection 
                with a group health plan) for any plan year of 
                a small employer.
                  [(B) Small employer.--For purposes of 
                subparagraph (A), the term ``small employer'' 
                means, in connection with a group health plan 
                with respect to a calendar year and a plan 
                year, an employer who employed an average of at 
                least 2 but not more than 50 employees on 
                business days during the preceding calendar 
                year and who employs at least 2 employees on 
                the first day of the plan year.
                  [(C) Application of certain rules in 
                determination of employer size.--For purposes 
                of this paragraph--
                          [(i) Application of aggregation rule 
                        for employers.--Rules similar to the 
                        rules under subsections (b), (c), (m), 
                        and (o) of section 414 of the 
                        International Revenue Code of 1986 
                        shall apply for purposes of treating 
                        persons as a single employer.
                          [(ii) Employers not in existence in 
                        preceding year.--In the case of an 
                        employer which was not in existence 
                        throughout the preceding calendar year, 
                        the determination of whether such 
                        employer is a small employer shall be 
                        based on the average number of 
                        employees that it is reasonably 
                        expected such employer will employ on 
                        business days in the current calendar 
                        year.
                          [(iii) Predecessors.--Any reference 
                        in this paragraph to an employer shall 
                        include a reference to any predecessor 
                        of such employer.
          [(2) Increased cost exemption.--This section shall 
        not apply with respect to a group health plan (or 
        health insurance coverage offered in connection with a 
        group health plan) if the application of this section 
        to such plan (or to such coverage) results in an 
        increase in the cost under the plan (or for such 
        coverage) of at least 1 percent.
    [(d) Separate Application to Each Option Offered.--In the 
case of a group health plan that offers a participant or 
beneficiary two or more benefit package options under the plan, 
the requirements of this section shall be applied separately 
with respect to each such option.
    [(e) Definitions.--For purposes of this section--
          [(1) Aggregate lifetime limit.--The term ``aggregate 
        lifetime limit'' means, with respect to benefits under 
        a group health plan or health insurance coverage, a 
        dollar limitation on the total amount that may be paid 
        with respect to such benefits under the plan or health 
        insurance coverage with respect to an individual or 
        other coverage unit.
          [(2) Annual limit.--The term ``annual limit'' means, 
        with respect to benefits under a group health plan or 
        health insurance coverage, a dollar limitation on the 
        total amount of benefits that may be paid with respect 
        to such benefits in a 12-month period under the plan or 
        health insurance coverage with respect to an individual 
        or other coverage unit.
          [(3) Medical or surgical benefits.--The term 
        ``medical or surgical benefits'' means benefits with 
        respect to medical or surgical services, as defined 
        under the terms of the plan or coverage (as the case 
        may be), but does not include mental health benefits.
          [(4) Mental health benefits.--The term ``mental 
        health benefits'' means benefits with respect to mental 
        health services, as defined under the terms of the plan 
        or coverage (as the case may be), but does not include 
        benefits with respect to treatment of substance abuse 
        or chemical dependency.
    [(f) Sunset.--This section shall not apply to benefits for 
services furnished on or after September 30, 2001.]

SEC. 712. MENTAL HEALTH PARITY.

    (a) In General.--In the case of a group health plan (or 
health insurance coverage offered in connection with such a 
plan) that provides both medical and surgical benefits and 
mental health benefits, such plan or coverage shall not impose 
any treatment limitations or financial requirements with 
respect to the coverage of benefits for mental illnesses unless 
comparable treatment limitations or financial requirements are 
imposed on medical and surgical benefits.
    (b) Construction.--
          (1) In general.--Nothing in this section shall be 
        construed as requiring a group health plan (or health 
        insurance coverage offered in connection with such a 
        plan) to provide any mental health benefits.
          (2) Medical management of mental health benefits.--
        Consistent with subsection (a), nothing in this section 
        shall be construed to prevent the medical management of 
        mental health benefits, including through concurrent 
        and retrospective utilization review and utilization 
        management practices, preauthorization, and the 
        application of medical necessity and appropriateness 
        criteria applicable to behavioral health and the 
        contracting and use of a network of participating 
        providers.
          (3) No requirement of specific services.--Nothing in 
        this section shall be construed as requiring a group 
        health plan (or health insurance coverage offered in 
        connection with such a plan) to provide coverage for 
        specific mental health services, except to the extent 
        that the failure to cover such services would result in 
        a disparity between the coverage of mental health and 
        medical and surgical benefits.
    (c) Small Employers Exemption.--
          (1) In general.--This section shall not apply to any 
        group health plan (and group health insurance coverage 
        offered in connection with a group health plan) for any 
        plan year of any employer who employed an average of at 
        least 2 but not more than 50 employees on business days 
        during the preceding calendar year.
          (2) Application of certain rules in determination of 
        employer size.--For purposes of this subsection--
                  (A) Application of aggregation rule for 
                employers.--Rules similar to the rules under 
                subsections (b), (c), (m), and (o) of section 
                414 of the Internal Revenue Code of 1986 shall 
                apply for purposes of treating persons as a 
                single employer.
                  (B) Employers not in existence in preceding 
                year.--In the case of an employer which was not 
                in existence throughout the preceding calendar 
                year, the determination of whether such 
                employer is a small employer shall be based on 
                the average number of employees that it is 
                reasonably expected such employer will employ 
                on business days in the current calendar year.
                  (C) Predecessors.--Any reference in this 
                paragraph to an employer shall include a 
                reference to any predecessor of such employer.
    (d) Separate Application to Each Option Offered.--In the 
case of a group health plan that offers a participant or 
beneficiary two or more benefit package options under the plan, 
the requirements of this section shall be applied separately 
with respect to each such option.
    (e) In-Network and Out-of-Network Rules.--In the case of a 
plan or coverage option that provides in-net-work mental health 
benefits, out-of-network mental health benefits may be provided 
using treatment limitations or financial requirements that are 
not comparable to the limitations and requirements applied to 
medical and surgical benefits if the plan or coverage provides 
such in-network mental health benefits in accordance with 
subsection (a) and provides reasonable access to in-network 
providers and facilities.
    (f) Definitions.--For purposes of this section--
          (1) Financial requirements.--The term ``financial 
        requirements'' includes deductibles, coinsurance, co-
        payments, other cost sharing, and limitations on the 
        total amount that may be paid by a participant or 
        beneficiary with respect to benefits under the plan or 
        health insurance coverage and shall include the 
        application of annual and lifetime limits.
          (2) Medical or surgical benefits.--The term ``medical 
        or surgical benefits'' means benefits with respect to 
        medical or surgical services, as defined under the 
        terms of the plan or coverage (as the case may be), but 
        does not include mental health benefits.
          (3) Mental health benefits.--The term ``mental health 
        benefits'' means benefits with respect to services, as 
        defined under the terms and conditions of the plan or 
        coverage (as the case may be), for all categories of 
        mental health conditions listed in the Diagnostic and 
        Statistical Manual of Mental Disorders, Fourth Edition 
        (DSM IV-TR), or the most recent edition if different 
        than the Fourth Edition, if such services are included 
        as part of an authorized treatment plan that is in 
        accordance with standard protocols and such services 
        meet the plan or issuer's medical necessity criteria. 
        Such term does not include benefits with respect to the 
        treatment of substance abuse or chemical dependency.
          (4) Treatment limitations.--The term ``treatment 
        limitations'' means limitations on the frequency of 
        treatment, number of visits or days of coverage, or 
        other similar limits on the duration or scope of 
        treatment under the plan or coverage.

           *       *       *       *       *       *       *


                                
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