Senate Report 107-61 - MENTAL HEALTH EQUITABLE TREATMENT ACT OF 2001

[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.

* * * * * * *