[Senate Report 110-53]
[From the U.S. Government Publishing Office]



                                                        Calendar No. 93
110th Congress                                                   Report
                                 SENATE
 1st Session                                                     110-53
======================================================================
 
                    MENTAL HEALTH PARITY ACT OF 2007

                                _______
                                

                 April 11, 2007.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                         [To accompany S. 558]

    The Committee on Health, Education, Labor, and Pensions, to 
which was referred the bill (S. 558) to provide parity between 
health insurance coverage of mental health benefits and 
benefits for medical and surgical services, 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 need for legislation.................................1
 II. Summary of legislation...........................................2
III. History of legislation and votes in committee....................4
 IV. Cost estimate....................................................4
  V. Regulatory impact statement.....................................10
 VI. Application of law to the legislative branch....................10
VII. Section-by-section analysis.....................................10
VIII.Changes in existing law.........................................13


                  I. Purpose and Need for Legislation

    The purpose of S. 558 ``The Mental Health Parity Act of 
2007'' is to expand the Mental Health Parity Act (MHPA) of 1996 
by ensuring parity for mental health benefits that goes beyond 
annual and lifetime limits. S. 558 does not mandate that group 
health plans provide any mental health coverage, but if a plan 
does offer mental health coverage, then S. 558 prohibits group 
health plans (or health insurance coverage offered in 
connection with a group health plan) from imposing financial 
requirements (including deductibles, copayments, coinsurance, 
out-of-pocket expenses, and annual and lifetime limits) or 
treatment limitations (including limits on the frequency of 
treatment, number of visits, days of coverage, or other similar 
limits on the scope and duration of treatment) on mental health 
benefits that are more restrictive than the financial 
requirements or treatment limitations applied to medical and 
surgical benefits. Thus, the group health plan or coverage must 
ensure that the financial requirements or treatment limitations 
applied to mental health benefits are no more restrictive than 
the financial requirements applied to substantially all medical 
and surgical benefits that the plan covers. It does not preempt 
State mandate laws that require coverage of mental health 
benefits.
    Providing parity in mental health coverage is an urgent 
matter because of the fact that mental disorders are a leading 
cause of disability in the United States. Success rates for 
treatment of mental disorders often equal or surpass those for 
physical conditions. An estimated 26.2 percent of Americans 
ages 18 and older--about one in four adults--suffer from a 
diagnosable mental disorder in a given year, which equates to 
57.7 million people in the United States. The Mental Health 
Parity Act of 2007 would guarantee mental health parity to 87.4 
million employees covered by self-insured plans and 31 million 
employees covered by insured plans.
    Parity in mental health benefits is necessary because of 
the huge impact that mental illness and substance abuse has on 
our society. Mental illness and substance abuse results in 
significant lost productivity and absenteeism and accounts for 
over 15 percent of the burden of disease in the United States. 
Furthermore, it has been determined that mental illness and 
substance abuse cause more days of work loss and work 
impairment than many other chronic conditions such as diabetes, 
asthma, and arthritis. The need for 
S. 558 is further substantiated by the fact that approximately 
217 million days of work are lost annually due to productivity 
decline related to mental illness and substance abuse 
disorders, which cost employers in the United States $17 
billion each year. Investing in mental health parity is 
beneficial for the Nation because the costs associated with 
lost worker productivity and the costs of providing extra 
physical health services outweigh the costs of implementing 
parity for mental health treatment.
    Additionally, it should be noted that a 2004 Department of 
Health and Human Services actuarial study of the impact of 
mental health and substance abuse parity on health plans under 
the Federal Employee Health Benefit Program (FEHBP) shows that 
utilization of services increased 15 percent from pre-parity 
levels, and yet the cost increase associated with parity was 
only 0.94 percent. S. 558 is, therefore, a fair solution to the 
injustices that people with mental illness experience while 
receiving treatment. It will save lives, increase the quality 
of life for group health plan participants suffering from 
mental illness, and save money.

                       II. Summary of Legislation

    The Mental Health Parity Act of 2007 (S. 558) is a 
comprehensive statute that incorporates several key provisions 
relating to mental health parity protections for group health 
plan participants that are consistent with the safe and sound 
operation of group health plans. It also includes, for the 
first time, a parity requirement for substance abuse.
    S. 558 does not prohibit group health plans from 
negotiating separate reimbursement or provider payment rates 
and service delivery systems, or managing the provision of 
mental benefits in order to provide medically necessary 
treatments under the plan. S. 558 does, however, require that 
if a group health plan provides both medical and surgical 
benefits and mental health benefits (including substance abuse 
treatment), and provides such benefits on both an in- and out-
of-network basis pursuant to the terms of the plan (or 
coverage), then the plan must ensure that the requirements of 
this section are applied to both in- and out-of-network 
services by comparing in-network medical and surgical benefits 
to in-network mental health benefits and out-of-network medical 
and surgical benefits to out-of-network mental health benefits.
    Individual plans and employers with 50 or fewer employees 
are exempt from the law.
    Additionally, group health plans that can demonstrate that 
compliance with S. 558 increased their actual total costs of 
coverage under the plan may elect to be exempt from parity 
under this act for the following plan year if it is projected 
that the health plan will experience increased actual total 
costs of coverage under the plan that exceed 2 percent of the 
actual total plan costs during the first plan year or exceed 1 
percent of the actual total plan costs each subsequent year. It 
should be noted that group health plans could not permanently 
opt out of complying with the parity requirement and that the 
exemption under this section only applies for one plan year. It 
should also be noted that an employer may still elect to 
continue to apply mental health parity even if it meets the 
threshold for cost exemption.
    ``Mental Health Benefits,'' means benefits with respect to 
mental health services (including substance abuse treatment) as 
defined under the terms of the plan or coverage, and when 
applicable, as may be defined under State law to health 
insurance coverage offered in connection with a group health 
plan. This definition comes from the 1996 definition of the 
Mental Health Parity Act, with the exception of the portion 
pertaining to substance abuse treatment.
    The provisions of this legislation relating to a group 
health plan or a health insurance issuer offering coverage in 
connection with a group health plan shall supersede any 
provision of State law that establishes, implements, or 
continues in effect any standard or requirement which differs 
from the specific standards or requirementscontained in 
subsections (a), (b), (c), or (e) of Section 712A.
    Enforcement of this act follows the enforcement structure 
contained in the Mental Health Parity Act of 1996, which 
requires the Department of Labor, Department of the Treasury, 
and the Department of Health and Human Services to share 
enforcement jurisdiction.
    In addition, this act requires DOL and DHHS to each ensure 
that random audits of health plans are conducted in order to 
determine compliance with this act. This act also requires both 
DOL and DHHS to designate an individual within each agency to 
serve as the ombudsman whose primary duties are to serve as an 
initial point of contact to permit individuals to obtain 
information and provide assistance concerning their coverage of 
mental health services under group health plans.

           III. History of Legislation and Votes in Committee

    Congress enacted the Mental Health Parity Act in 1996 in 
response to the inequitable and unfair treatment afforded 
people with mental illness in their health care coverage. The 
original legislation established for the first time that group 
health plans could not treat mental illnesses differently from 
medical illnesses with regard to annual and lifetime limits on 
coverage. However, it soon became apparent that while this 
original legislation was a step in the right direction, the 
legislation failed to adequately address the continued 
inequities that persons with mental illness experience in their 
health care coverage. The Mental Health Parity Act of 2007 aims 
to address these inequities by prohibiting group health plans 
from imposing financial requirements or treatment limitations 
on the coverage of mental health conditions (including 
substance abuse) that are more restrictive than financial 
requirements and treatment limitations that are applied to 
medical and surgical benefits.
    Notwithstanding its limited provisions, the Mental Health 
Parity Act of 1996 was a significant step forward in the advent 
of State mental health policy. 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 the enactment of the Mental 
Health Parity Act in 1996, five more States passed laws that 
required State-regulated group health plans to provide parity 
in mental health coverage. By 2001, 45 States had enacted some 
parity law. Today, there are 49 States in total that have some 
parity law.
    A bipartisan bill, S. 558, was introduced on February 12, 
2007 by Senator Domenici, Senator Kennedy, and Senator Enzi. 
The bill was referred to the Committee on Health, Education, 
Labor, and Pensions. S. 558 was brought up for markup at the 
Health, Education, Labor, and Pensions Committee Executive 
Session on February 14, 2007. At that time, Senator Harkin 
offered an amendment by Senator Dodd, which included a 
technical change to clarify provisions relating to the GAO 
study. This amendment required GAO to examine and report on 
``the impact on out-of-network coverage for mental health 
benefits (including substance abuse treatment).'' The amendment 
was adopted by unanimous consent and the bill was favorably 
reported to the full Senate by a vote of 18-3.

                           IV. Cost Estimate


S. 558--Mental Health Parity Act of 2007

    Summary: The Mental Health Parity Act of 2007 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 both Federal revenues and direct 
spending for Medicaid, beginning in 2009. The bill 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 $1 
billion over the 2009-2012 period and by $3 billion over the 
2009-2017 period. Social Security payroll taxes, which are off-
budget, would account for about 35 percent of those totals.
    The bill's requirements for issuers of group health 
insurance would apply to managed care plans in the Medicaid 
program. CBO estimates that enacting S. 558 would increase 
Federal direct spending for Medicaid by $280 million over the 
2009-2012 period and by $790 million over the 2009-2017 period. 
In addition, assuming appropriation of the necessary amounts, 
CBO estimates that implementing S. 558 would have discretionary 
costs of $20 million in 2008, $143 million over the 2008-2012 
period, and $322 million over the 2008-2017 period.
    S. 558 would preempt State laws governing mental health 
coverage that are different than those in this bill and that 
apply to firms with 50 or more employees. 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 to State, local, or 
tribal governments would not be significant and thus would not 
exceed the threshold established by UMRA ($66 million in 2007, 
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 2007. 
Thus, S. 558 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 total about $1.5 billion 
in 2009, and would grow in later years. That amount would significantly 
exceed the annual threshold established by UMRA ($131 million in 2007, 
adjusted for inflation) in each of the years that the mandate would be 
in effect.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 558 is shown in the following table.

                                                                              ESTIMATED BUDGETARY EFFECTS OF S. 558
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         By fiscal year, in millions of dollars--
                                                         ---------------------------------------------------------------------------------------------------------------------------------------
                                                             2008       2009       2010       2011       2012       2013       2014       2015       2016       2017     2008-2012    2008-2017
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES

Income and HI Payroll Taxes (on-budget).................          0        -90       -160       -190       -210       -230       -250       -260       -280       -300         -650       -1,970
Social Security Payroll Taxes (off-budget)..............          0        -50        -90       -100       -110       -120       -130       -140       -150       -160         -350       -1,050
                                                         ---------------------------------------------------------------------------------------------------------------------------------------
    Total Changes.......................................          0       -140       -250       -290       -320       -350       -380       -400       -430       -460       -1,000       -3,020

                                                                                   CHANGES IN DIRECT SPENDING

Medicaid:
Estimated Budget Authority..............................          0         60         70         70         80         90         90        100        110        120          280          790
Estimated Outlays.......................................          0         60         70         70         80         90         90        100        110        120          280          790

                                                                          CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Implementation costs for DHHS and DOL:
Estimated Authorization Level...........................         25         30         30         30         35         35         35         35         35         40          150          330
Estimated Outlays.......................................         20         29         30         30         34         35         35         35         35         39          143         322
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: DHHS = Department of Health and Human Services, DOL = Department of Labor, HI = Hospital Insurance (Part A of Medicare).

    Basis of Estimate: This bill would prohibit group health 
plans and group health insurance issuers who offer mental 
health benefits (including benefits for substance abuse 
treatment) from imposing treatment limitations or financial 
requirements for those 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 be 
established by comparing in-network medical and surgical 
benefits with in-network mental health benefits, and comparing 
out-of-network medical and surgical benefits with out-of-
network mental health benefits. The provision would apply to 
benefits for any mental health condition that is covered under 
the group health plan. The bill would not require plans to 
offer mental health benefits, nor would it require that those 
plans cover all types of mental health services or ailments if 
the plan covered any mental health services or ailments. Laws 
in some States, however, require that plans cover those 
benefits, which would affect the potential impact of this bill 
on health plan premiums.
    Revenues: The provisions of the bill 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. The 
bill also would exempt group health plans for whom the cost of 
complying with the requirements would increase total plan costs 
(for medical and surgical benefits and mental health benefits) 
by more than 2 percent in the first plan year following 
enactment, and 1 percent in subsequent plan years. In general, 
S. 558 would preempt State laws regarding parity of mental 
health benefits. The bill would not affect the application of 
State law for firms with fewer than 50 employees. In addition, 
because State parity laws and the proposed Federal law are very 
similar, S. 558 would not have a significant impact on people 
already affected by State parity laws.
    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 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 Federal Employees Health Benefits Program 
in January 2001.)
    CBO estimates that S. 558, if enacted, would increase 
premiums for group health insurance by an average of about 0.4 
percent, before accounting for the responses of health plans, 
employers, and workers to the higher premiums that would likely 
be charged 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 (including eliminating coverage for 
mental health benefits and/or substance benefits), and 
reductions in the scope or generosity of health insurance 
benefits, such as increased deductibles or higher copayments. 
CBO expects that those 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--less than 0.2 percent of group health insurance 
premiums--would occur in the form of higher spending 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 $2 billion in 2009 
to $4.5 billion in 2017.
    Those reductions in workers' taxable compensation would 
lead to lower Federal tax revenues. CBO estimates that Federal 
tax revenues would fall by $140 million in 2009 and by $3 
billion over the 2009-2017 period if S. 558 were enacted. 
Social Security payroll taxes, which are off-budget, would 
account for about 35 percent of those totals.
    Direct Spending: The bill's requirements for issuers of 
group health insurance would apply to managed care plans in the 
Medicaid program. CBO estimates that enacting S. 558 would 
increase Medicaid payments to managed care plans by about 0.2 
percent. That is less than the 0.4 percent increase in the 
estimated increase in spending for employer-sponsored health 
insurance because Medicaid programs offer broader coverage of 
mental health benefits than the private sector. CBO estimates 
that enacting S. 558 would increase Federal spending for 
Medicaid by $280 million over the 2009-2012 period and $790 
million over the 2009-2017 period.
    Spending Subject to Appropriation: S. 558 would require the 
Secretary of Labor and the Secretary of Health and Human 
Services to each designate an individual to serve as ombudsman 
to group health plans, and would require the departments to 
conduct random audits of plans to ensure that they are in 
compliance with the requirements of the bill. Based on the 
costs of implementing the Health Insurance Portability and 
Accountability Act of 1996, and assuming appropriation of the 
necessary amounts, CBO estimates that implementing S. 558 would 
increase spending by $20 million in 2008 and by $30 million to 
$40 million annually in subsequent years.
    Estimated Impact on State, Local, and Tribal Governments: 
S. 558 would preempt State laws governing mental health 
coverage that are different than those in this bill and that 
apply to firms with 50 or more employees. The 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 
(PHSA) would allow State, local, and tribal governments, as 
employers that provide health benefits to their employees, to 
opt out of the requirements of this bill. Consequently, the 
bill's requirements for mental health parity 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. CBO 
estimates that State, local, and tribal governments would face 
additional costs of about $100 million in 2009, increasing to 
about $155 million in 2012. This estimate reflects the 
assumption that governments would shift roughly 25 percent of 
the additional costs to their employees.
    Because the bill's requirements would apply to managed care 
plans in the Medicaid program, CBO estimates that State 
spending for Medicaid also would increase by about $210 million 
over the 2008-2012 period.
    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 (including 
benefits for substance abuse treatment). S. 558 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. For plans that offer mental health benefits 
through a network of mental health providers, the requirement 
for parity of benefits would be established by comparing in-
network medical and surgical benefits with in-network mental 
health benefits, and comparing out-of-network medical and 
surgical benefits with out-of-network mental health benefits.
    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 calendar year 2007. Consequently, S. 558 
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. 558 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 0.4 percent of employer-sponsored health insurance 
premiums compared to having no mandate at all.
    CBO estimates that the direct costs of the mandate in S. 
558 would be $1.5 billion in 2009, rising to $3.4 billion in 
2013. Those costs would exceed the threshold specified in UMRA 
($131 million in 2007, adjusted annually for inflation) in each 
year the mandate would be in effect.
    Estimate Prepared By: Federal Costs: Jeanne De Sa and 
Shinobu Suzuki. Impact on State, Local, and Tribal Governments: 
Leo Lex. Impact on the Private Sector: Stuart Hagen.
    Estimate Approved By: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                     V. Regulatory Impact Statement

    The committee has determined that there will be minimal 
increases in the regulatory burden imposed by this bill.

              VI. Application of Law to Legislative Branch

    The committee has determined that there is no legislative 
impact.

                    VII. Section-by-Section Analysis


Section 1. Short title

    Section 1 specifies the title of the legislation as the 
``Mental Health Parity Act of 2007.''

Section 2. Mental health parity

    Section 2 amends ERISA.

Section 712A. Mental health parity

    This section stipulates that a group health plan (or health 
insurance coverage offered in connection with such a plan) must 
ensure that the financial requirements that are applied to 
mental health benefits are no more restrictive than the 
financial requirements applied to substantially all medical and 
surgical benefits that the plan covers, including:
          1. deductibles,
          2. copayments,
          3. coinsurance,
          4. out-of-pocket expenses,
          5. and annual and lifetime limits.
    Group health plans are not permitted under this section to 
establish separate cost sharing requirements that are only 
directed at mental health benefits.
    The group health plan (or health insurance coverage offered 
in connection with such a plan) must also ensure that the 
treatment limitations applied to mental health benefits are no 
more restrictive than the treatment limitations applied to 
substantially all medical and surgical benefits that the plan 
covers, including:
          1. limits on the frequency of treatment,
          2. number of visits,
          3. days of coverage,
          4. or other similar limits on the scope or duration 
        of treatment.
    This section does not prohibit health plans from:
          1. negotiating separate reimbursement or provider 
        payment rates and service delivery systems for 
        different benefits or
          2. managing the provision of mental benefits in order 
        to provide medically necessary treatments under the 
        plan (as a means to contain costs and monitor and 
        improve the quality of care) or
          3. taking into consideration similar treatment 
        settings or similar treatments when applying the 
        provisions of this section.
    This section requires that if a group health plan provides 
both medical and surgical benefits and mental health benefits 
(including substance abuse treatment), and provides such 
benefits on both an in- and out-of-network basis pursuant to 
the terms of the plan (or coverage), then the plan must ensure 
that the requirements of this section are applied to both in- 
and out-of-network services by comparing in-network medical and 
surgical benefits to in-network mental health benefits and out-
of-network medical and surgical benefits to out-of-network 
mental health benefits.
    This section does not require that a group health plan (or 
coverage) eliminate, reduce, or provide out-of-network 
coverage.
    This section does not apply to any group health plan for 
any plan year of any small employer. Small employers are those 
who employ 50 or less employees. Determination of employer size 
for purposes of this act shall follow rules consistent with 
those the rules under section 414 of the Internal Revenue Code 
of 1986.
    In order to determine whether an employer who did not exist 
throughout the preceding calendar year is a small employer, for 
the purpose of this section, it should be based on the average 
number of employees that the employer is reasonably expected 
will employ on business days in the current calendar year. It 
should also be noted that any reference to an employer in this 
section also includes a reference to any predecessor of the 
current employer.
    A group health plan may elect to be exempt from parity 
under this act for the following plan year if it is projected 
that the group health plan will experience increased actual 
total costs of coverage with respect to medical and surgical 
benefits and mental health benefits under the plan that exceed 
2 percent of the actual total plan costs during the first plan 
year or exceed 1 percent of the actual total plan costs each 
subsequent year. It should be noted that the exemption under 
this section only applies for one plan year and that an 
employer may still elect to continue to apply mental health 
parity even if it meets the threshold for cost exemption.
    This section requires that a qualified actuary who is a 
member in good standing in the American Academy of Actuaries 
will determine the increases in costs under a plan. Such 
determinations shall be certified by the actuary and be made 
available to the general public.
    This section stipulates that group health plans that desire 
an exemption for meeting the threshold for cost exemption can 
only do so after they have complied with this section for the 
first 6 months of the plan year involved.
    If the plan elects to modify its coverage of mental health 
benefits, then it will be treated as a significant modification 
in the terms of the plan and will have to give appropriate 
notice to plan members when required.
    This section should not be construed to require group 
health plans to provide any mental health benefits.
    This section defines ``Mental Health Benefits'' to mean 
benefits with respect to mental health services (including 
substance abuse treatment) as defined under the terms of the 
group health plan or coverage.

Section 2705A. Mental health parity

    The provisions of this section are identical to section 
712A, but with the exception that Secretary under this section 
refers to the Secretary of Health and Human Services because 
this section pertains to the Public Health Service Act. Please 
see section 712A above for the analysis.
    This section defines ``Mental Health Benefits'' to mean 
benefits with respect to mental health services (including 
substance abuse treatment) as defined under the terms of the 
group health plan or coverage, and, when applicable, as may be 
defined under State law to health insurance coverage offered in 
connection with a group health plan.

Section 3. Effective date

    Section 3 stipulates that with respect to group health 
plans or health insurance coverage offered in connection with 
such plans--this law will take effect beginning in the first 
plan year that begins on or after January 1 of the first 
calendar year that begins more than 1 year after the date of 
the enactment of this Act.
    This section also states that the effective date noted 
above does not apply to benefits for services that are 
furnished after the effective date noted above.

Section 4. Special preemption rule

    Section 4 amends Section 731 of the Employee Retirement 
Income Security Act of 1974 to provide that the provisions of 
this act relating to a group health plan or a health insurance 
issuer offering coverage in connection with a group health plan 
shall supersede any provision of State law that establishes, 
implements, or continues in effect any standard or requirement 
which differs from the specific standards or requirements 
contained in subsections (a), (b), (c), or (e) of Section 712A.
    Nothing in this section should be construed to preempt 
State insurance laws relating to the individual insurance 
market or to small employers.
    With respect to a State, this law will be effective the 
same date as it is effective with respect to group health 
plans. [With respect to group health plans this law must take 
effect beginning in the first plan year that begins on or after 
January 1 of the first calendar year that begins more than 1 
year after the date of the enactment of this act.]

Section 5. Federal administrative responsibilities

    Section 5 requires both the Secretary of Labor and the 
Secretary of Health and Human Services to designate a person 
within their respective agencies to serve as the group health 
plan ombudsman. The primary duties of the ombudsman is to serve 
as an initial point of contact to permit individuals to obtain 
information and provide assistance concerning their coverage of 
mental health services under group health plans or under health 
insurance coverage issued in connection with group health 
plans.
    This section requires that the Secretaries of Labor and 
Health and Human Services each ensure that random audits of 
group health plans and health insurance coverage offered in 
connection with group health plans are conducted in order to 
determine whether group health plans are in compliance with 
this act.
    This section requires the Comptroller General to conduct a 
study and prepare and submit a report within 2 years of 
enactment of this act to the appropriate committees of 
Congress, which evaluates the effect that the implementation of 
this Act has on:
          1. The cost of health insurance coverage;
          2. Access to health insurance coverage (including the 
        availability of in-network providers);
          3. The quality of health care;
          4. Impact on benefits and coverage for mental health 
        and substance abuse;
          5. The impact of any additional costs or savings to 
        the plan;
          6. The impact on out-of-network coverage for mental 
        health benefits (including substance abuse treatment);
          7. The impact on State mental health benefit mandate 
        laws;
          8. Other impact on the business community and the 
        Federal Government and,
          9. Other issues as determined appropriate by the 
        Comptroller General.
    Except as otherwise provided in this act, enforcement of 
this act follows the enforcement structure contained in the 
Mental Health Parity Act of 1996, which requires the Department 
of Labor, Department of the Treasury, and the Department of 
Health and Human Services to share enforcement jurisdiction.
    This section also requires the Secretaries of Labor and 
Health and Human Services to promulgate regulations within 1 
year after the date that the act is enacted.

                     VIII. 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):

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

           *       *       *       *       *       *       *



             TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS


Subtitle A--General Provisions

           *       *       *       *       *       *       *



                 Part 7--Group Health Plan Requirements


     Subpart A--Requirements Relating to Portability, Access, and 
Renewability

           *       *       *       *       *       *       *



                     Subpart B--Other Requirements


SEC. 711. [1185] STANDARDS RELATING TO BENEFITS FOR MOTHERS AND 
                    NEWBORNS.

           *       *       *       *       *       *       *


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

    (a) In General.-- * * *

           *       *       *       *       *       *       *

    [(f) Sunset.--This section shall not apply to benefits for 
services furnished after December 31, 2006.]
    (f) Sunset.--This section shall not apply to benefits for 
services furnished after the effective date described in 
section 3(a) of the Mental Health Parity Act of 2007.

           *       *       *       *       *       *       *


SEC. 712A. 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 ensure 
that--
          (1) the financial requirements applicable to such 
        mental health benefits are no more restrictive than the 
        financial requirements applied to substantially all 
        medical and surgical benefits covered by theplan (or 
coverage), including deductibles, copayments, coinsurance, out-of-
pocket expenses, and annual and lifetime limits, except that the plan 
(or coverage) may not establish separate cost sharing requirements that 
are applicable only with respect to mental health benefits; and
          (2) the treatment limitations applicable to such 
        mental health benefits are no more restrictive than the 
        treatment limitations applied to substantially all 
        medical and surgical benefits covered by the plan (or 
        coverage), including limits on the frequency of 
        treatment, number of visits, days of coverage, or other 
        similar limits on the scope or duration of treatment.
  (b) Clarifications.--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 be 
prohibited from--
          (1) negotiating separate reimbursement or provider 
        payment rates and service delivery systems for 
        different benefits consistent with subsection (a);
          (2) managing the provision of mental health benefits 
        in order to provide medically necessary services for 
        covered benefits, including through the use of any 
        utilization review, authorization or management 
        practices, the application of medical necessity and 
        appropriateness criteria applicable to behavioral 
        health, and the contracting with and use of a network 
        of providers; or
          (3) applying the provisions of this section in a 
        manner that takes into consideration similar treatment 
        settings or similar treatments.
  (c) In- and Out-of-Network.--
          (1) 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, and that 
        provides such benefits on both an in- and out-of-
        network basis pursuant to the terms of the plan (or 
        coverage), such plan (or coverage) shall ensure that 
        the requirements of this section are applied to both 
        in- and out-of-network services by comparing in-network 
        medical and surgical benefits to in-network mental 
        health benefits and out-of-network medical and surgical 
        benefits to out-of-network mental health benefits.
          (2) Clarification.--Nothing in paragraph (1) shall be 
        construed as requiring that a group health plan (or 
        coverage in connection with such a plan) eliminate, 
        reduce, or provide out-of-network coverage with respect 
        to such plan (or coverage).
  (d) 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 (or 1 in the case of an employer residing in a 
        State that permits small groups to include a single 
        individual) 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.
  (e) Cost Exemption.--
          (1) In general.--With respect to a group health plan 
        (or health insurance coverage offered in connections 
        with such a plan), if the application of this section 
        to such plan (or coverage) results in an increase for 
        the plan year involved of the actual total costs of 
        coverage with respect to medical and surgical benefits 
        and mental health benefits under the plan (as 
        determined and certified under paragraph (3)) by an 
        amount that exceeds the applicable percentage described 
        in paragraph (2) of the actual total plan costs, the 
        provisions of this section shall not apply to such plan 
        (or coverage) during the following plan year, and such 
        exemption shall apply to the plan (or coverage) for 1 
        plan year. An employer may elect to continue to apply 
        mental health parity pursuant to this section with 
        respect to the group health plan (or coverage) involved 
        regardless of any increase in total costs.
          (2) Applicable percentage.--With respect to a plan 
        (or coverage), the applicable percentage described in 
        this paragraph shall be--
                  (A) 2 percent in the case of the first plan 
                year in which this section is applied; and
                  (B) 1 percent in the case of each subsequent 
                plan year.
          (3) Determinations by actuaries.--Determinations as 
        to increases in actual costs under a plan (or coverage) 
        for purposes of this section shall be made by a 
        qualified actuary who is a member in good standing of 
        the American Academy of Actuaries. Such determinations 
        shall be certified by the actuary and be made available 
        to the general public.
          (4) 6-month determinations.--If a group health plan 
        (or a health insurance issuer offering coverage in 
        connections with a group health plan) seeks an 
        exemption under this subsection, determinations under 
        paragraph (1) shall be made after such plan (or 
        coverage) has complied with this section for the first 
        6 months of the plan year involved.
          (5) Notification.--An election to modify coverage of 
        mental health benefits as permitted under this 
        subsection shall be treated as a material modification 
        in the terms of the plan as described in section 
        102(a)(1) and shall be subject to the applicable notice 
        requirements under section 104(b)(1).
    (f) Rule of Construction.--Nothing in this section shall be 
construed to require a group health plan (or health insurance 
coverage offered in connection with such a plan) to provide any 
mental health benefits.
    (g) Mental Health Benefits.--In this section, the term 
``mental health benefits'' means benefits with respect to 
mental health services (including substance abuse treatment) as 
defined under the terms of the group health plan or coverage.

SEC. 731. [1191] PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION.

    (a) Continued Applicability of State Law With Respect to 
Health Insurance Issuers.--
          (1) In general.--* * *

           *       *       *       *       *       *       *

    (b) Special Rules in Case of Portability Requirements.--
          (1) In general.--* * *

           *       *       *       *       *       *       *

  (c) Special Rule in Case of Mental Health Parity 
Requirements.--
          (1) In general.--Notwithstanding any provision of 
        section 514 to the contrary, the provisions of this 
        part relating to a group health plan or a health 
        insurance issuer offering coverage in connection with a 
        group health plan shall supercede any provision of 
        State law that establishes, implements, or continues in 
        effect any standard or requirement which differs from 
        the specific standards or requirements contained in 
        subsections (a), (b), (c), or (e) of section 712A.
          (2) Clarifications.--Nothing in this subsection shall 
        be construed to preempt State insurance laws relating 
        to the individual insurance market or to small 
        employers (as such term is defined for purposes of 
        section 712A(d)).
    [(c)](e) Rules of Construction.--* * *
    [(d)](f) Definitions.--For purposes of this section--
          (1) State law.--* * *

           *       *       *       *       *       *       *


PUBLIC HEALTH SERVICE ACT

           *       *       *       *       *       *       *



    TITLE XXVII--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE


                      Part A--Group Market Reforms


     Subpart 1--Portability, Access, and Renewability Requirements


SEC. 2701 [300GG] INCREASED PORTABILITY THROUGH LIMITATION ON 
                    PREEXISTING CONDITION EXCLUSIONS.

           *       *       *       *       *       *       *


                     Subpart 2--Other Requirements


SEC. 2704. [300GG-4] STANDARDS RELATING TO BENEFITS FOR MOTHERS AND 
                    NEWBORNS

           *       *       *       *       *       *       *


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

    (a) In General.--* * *

           *       *       *       *       *       *       *

    [(f) Sunset.--This section shall not apply to benefits for 
services furnished after December 31, 2007.]
  (f) Sunset.--This section shall not apply to benefits for 
services furnished after the effective date described in 
section 3(a) of the Mental Health Parity Act of 2007.

           *       *       *       *       *       *       *


SEC. 2705A. 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 ensure 
that--
          (1) the financial requirements applicable to such 
        mental health benefits are no more restrictive than the 
        financial requirements applied to substantially all 
        medical and surgical benefits covered by the plan (or 
        coverage), including deductibles, copayments, 
        coinsurance, out-of-pocket expenses, and annual and 
        lifetime limits, except that the plan (or coverage) may 
        not establish separate cost sharing requirements that 
        are applicable only with respect to mental health 
        benefits; and
          (2) the treatment limitations applicable to such 
        mental health benefits are no more restrictive than the 
        treatment limitations applied to substantially all 
        medical and surgical benefits covered by the plan (or 
        coverage), including limits on the frequency of 
        treatment, number of visits, days of coverage, or other 
        similar limits on the scope or duration of treatment.
    (b) Clarifications.--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 be 
prohibited from--
          (1) negotiating separate reimbursement or provider 
        payment rates and service delivery systems for 
        different benefits consistent with subsection (a);
          (2) managing the provision of mental health benefits 
        in order to provide medically necessary services for 
        covered benefits, including through the use of any 
        utilization review, authorization or management 
        practices, the application of medical necessity and 
        appropriateness criteria applicable to behavioral 
        health, and the contracting with and use of a network 
        of providers; or
          (3) be prohibited from applying the provisions of 
        this section in a manner that takes into consideration 
        similar treatment settings or similar treatments.
    (c) In- and Out-of-Network.--
          (1) 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, and that 
        provides such benefits on both an in- and out-of-
        network basis pursuant to the terms of the plan (or 
        coverage), such plan (or coverage) shall ensure that 
        the requirements of this section are applied to both 
        in- and out-of-network services by comparing in-network 
        medical and surgical benefits to in-network mental 
        health benefits and out-of-network medical and surgical 
        benefits to out-of-network mental health benefits.
          (2) Clarification.--Nothing in paragraph (1) shall be 
        construed as requiring that a group health plan (or 
        coverage in connection with such a plan) eliminate, 
        reduce, or provide out-of-network coverage with respect 
        to such plan (or coverage).
    (d) 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 (or 1 in the case of an employer residing in a 
        State that permits small groups to include a single 
        individual) 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 ofwhether 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.
      (e) Cost Exemption.--
          (1) In general.--With respect to a group health plan 
        (or health insurance coverage offered in connections 
        with such a plan), if the application of this section 
        to such plan (or coverage) results in an increase for 
        the plan year involved of the actual total costs of 
        coverage with respect to medical and surgical benefits 
        and mental health benefits under the plan (as 
        determined and certified under paragraph (3)) by an 
        amount that exceeds the applicable percentage described 
        in paragraph (2) of the actual total plan costs, the 
        provisions of this section shall not apply to such plan 
        (or coverage) during the following plan year, and such 
        exemption shall apply to the plan (or coverage) for 1 
        plan year. An employer may elect to continue to apply 
        mental health parity pursuant to this section with 
        respect to the group health plan (or coverage) involved 
        regardless of any increase in total costs.
          (2) Applicable percentage.--With respect to a plan 
        (or coverage), the applicable percentage described in 
        this paragraph shall be--
                  (A) 2 percent in the case of the first plan 
                year in which this section is applied; and
                  (B) 1 percent in the case of each subsequent 
                plan year.
          (3) Determinations by actuaries.--Determinations as 
        to increases in actual costs under a plan (or coverage) 
        for purposes of this section shall be made by a 
        qualified actuary who is a member in good standing of 
        the American Academy of Actuaries. Such determinations 
        shall be certified by the actuary and be made available 
        to the general public.
          (4) 6-month determinations.--If a group health plan 
        (or a health insurance issuer offering coverage in 
        connections with a group health plan) seeks an 
        exemption under this subsection, determinations under 
        paragraph (1) shall be made after such plan (or 
        coverage) has complied with this section for the first 
        6 months of the plan year involved.
          (5) Notification.--An election to modify coverage of 
        mental health benefits as permitted under this 
        subsection shall be treated as a material modification 
        in the terms of the plan as described in section 
        102(a)(1) and shall be subject to the applicable notice 
        requirements under section 104(b)(1).
      (f) Rule of Construction.--Nothing in this section shall 
be construed to require a group health plan (or health 
insurance coverage offered in connection with such a plan) to 
provide any mental health benefits.
      (g) Mental Health Benefits.--In this section, the term 
``mental health benefits'' means benefits with respect to 
mental health services (including substance abuse treatment) as 
defined under the terms of the group health plan or coverage, 
and when applicable as may be defined under State law when 
applicable to health insurance coverage offered in connection 
with a group health plan.

           *       *       *       *       *       *       *


SEC. 2723. [300GG-23] PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION.

    (a) Continued Applicability of State Law With Respect to 
Health Insurance Issuers.--
          (1) In general.--*  *  *

           *       *       *       *       *       *       *

    (b) Special Rules in Case of Portability Requirements.--
          (1) In general.--*  *  *

           *       *       *       *       *       *       *

    (c) Special Rule in Case of Mental Health Parity 
Requirements.--
          (1) In general.--Notwithstanding any provision of 
        section 514 of the Employee Retirement Income Security 
        Act of 1974 to the contrary, the provisions of this 
        part relating to a group health plan or a health 
        insurance issuer offering coverage in connection with a 
        group health plan shall supercede any provisions of 
        State law that establishes, implements, or continues in 
        effect any standard or requirement which differs from 
        the specific standards or requirements contained in 
        subsections (a), (b), (c), or (e) of section 2705A.
          (2) Clarifications.--Nothing in this subsection shall 
        be construed to preempt State insurance laws relating 
        to the individual insurance market or to small 
        employers (as such term is defined for purposes of 
        section 2705A(d)).
    [(c)](e) Rules of Construction.--* * *
    [(d)](f) Definitions.--For purposes of this section--
          (1) State law.--* * *

           *       *       *       *       *       *       *


                                  
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