Mental Health Parity Act: Employers' Mental Health Benefits Remain
Limited Despite New Federal Standards (Testimony, 05/18/2000,
GAO/T-HEHS-00-113).

GAO discussed the implementation and effects of the Mental Health Parity
Act of 1996, focusing on: (1) employers' compliance with the law and the
changes they have made to their health benefit plans, (2) what is known
about the costs of complying with the law, and (3) the oversight roles
of the Departments of Health and Human Services (HHS) and Labor (DOL) in
enforcing this law.

GAO noted that: (1) most, but not all, employers that GAO surveyed
reported that they comply with the law by having parity in mental health
and medical and surgical annual and lifetime dollar limits; (2) among
the 863 employers responding to the GAO's survey that offered mental
health benefits in the 26 states and the District of Columbia with laws
no more comprehensive than the federal law, the percentage reporting
parity in dollar limits grew from 55 percent in 1996, before the law
went into effect, to 86 percent in 1999; (3) however, most of these
newly compliant employers reported that they also made changes to make
their plans more restrictive in the number of hospital days or
outpatient visits covered for mental health than for other medical and
surgical benefits; (4) very few employers reported that the law resulted
in higher claims costs; (5) the Mental Health Parity Act and other
recent federal health insurance standards have expanded DOL's role in
regulating health benefits and have created a regulatory role for the
Health Care Financing Administration (HCFA) that entails federal
enforcement of the law when states do not adopt conforming insurance
regulations; and (6) while HCFA has begun to review state conformance,
it has not completely determined the full extent of its required
oversight role or specific time periods for making this determination.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-HEHS-00-113
     TITLE:  Mental Health Parity Act: Employers' Mental Health
	     Benefits Remain Limited Despite New Federal Standards
      DATE:  05/18/2000
   SUBJECT:  Health insurance
	     Employee medical benefits
	     Mental health care services
	     Health insurance cost control
	     Public health legislation
	     Medical expense claims

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GAO/T-HEHS-00-113

   * For Release on Delivery
     Expected at 10:00 a.m.

Thursday, May 18, 2000

GAO/T-HEHS-00-113

Mental Health Parity Act

Employers' Mental Health Benefits Remain Limited Despite New Federal
Standards

        Statement of Kathryn G. Allen, Associate Director

Health Financing and Public Health Issues

Health, Education, and Human Services Division

Testimony

Before the Committee on Health, Education, Labor, and Pensions, U.S. Senate

United States General Accounting Office

GAO

Mental Health Parity Act: Employers' Mental Health Benefits Remain Limited
Despite New Federal Standards

Mr. Chairman and Members of the Committee:

We are pleased to be here today to discuss the implementation of the Mental
Health Parity Act of 1996. An estimated 40 million American adults suffer
from some type of mental illness each year. Private health insurance plans
typically provide levels of coverage for the treatment of mental illness
that are lower than coverage levels for the treatment of other illnesses.
Consequently, patients with severe mental illness can exhaust their mental
health coverage before they are fully treated. As you know, the Mental
Health Parity Act of 1996 helps address the discrepancies in coverage
between mental health and other illnesses by establishing a new federal
standard for mental health coverage offered under most employer-sponsored
group health plans. Specifically, the law requires parity in dollar limits
by prohibiting employers from imposing annual and lifetime dollar limits on
mental health coverage that are more restrictive than limits imposed on all
medical and surgical coverage. Without legislative action, the federal law
will sunset on September 30, 2001.

We recently issued a report, prepared at your request, examining the
implementation and effects to date of the federal parity law. My remarks
today will focus on our findings concerning (1) employers' compliance with
the law and the changes they have made to their health benefit plans, (2)
what is known about the costs of complying with the law, and (3) the
oversight roles of the Department of Health and Human Services (HHS) and the
Department of Labor (DOL) in enforcing this law.

In brief, we found that most-but not all-employers we surveyed reported that
they comply with the law by having parity in mental health and medical and
surgical annual and lifetime dollar limits. Among the 863 employers
responding to our survey that offered mental health benefits in the 26
states and the District of Columbia with laws no more comprehensive than the
federal law, the percentage reporting parity in dollar limits grew from 55
percent in 1996 (before the law was effective) to 86 percent in 1999.
However, most of these newly compliant employers reported that they also
made changes to make their plans more restrictive in the number of hospital
days or outpatient visits covered for mental health than for other medical
and surgical benefits. Very few employers reported that the law resulted in
higher claims costs. Finally, the Mental Health Parity Act and other recent
federal health insurance standards have expanded DOL's role in regulating
health benefits and have created a regulatory role for HHS' Health Care
Financing Administration (HCFA) that entails federal enforcement of the law
when states do not adopt conforming insurance regulations. While HCFA has
begun to review state conformance, it has not completely determined the full
extent of its required oversight role or specific time periods for making
this determination.

Background

Issuers limit mental health coverage primarily because of their concern
about the high costs associated with long-term, intensive psychotherapy and
extended hospital stays. An issuer may also restrict mental health benefits
to protect itself from adverse selection. That is, a plan with relatively
generous mental health benefits may be more likely to attract a
disproportionate number of individuals who have high demands for mental
health care services, thus driving up the claims and premium costs of the
plan.

The Mental Health Parity Act of 1996 amended the Employee Retirement Income
Security Act of 1974 (ERISA) and the Public Health Service Act to require
that employer-sponsored health plans have annual and lifetime dollar limits
for mental health coverage that are no more restrictive than those for all
medical and surgical coverage. The law does not apply to

   * plans sponsored by an employer with 50 or fewer employees,
   * group plans that experience an increase in plan claims costs of at
     least 1 percent because of compliance, or
   * coverage sold in the individual (nongroup) market.

Furthermore, the law does not require any plan to offer mental health
coverage, excludes substance abuse treatment, and does not prevent a plan
from imposing more restrictive service limits (hospital days or outpatient
visits) or higher cost-sharing requirements on mental health coverage than
on medical and surgical coverage. The law became effective for group health
plans for plan years beginning on or after January 1, 1998.

Within the past decade, most states also passed laws regulating mental
health benefits. As of March 2000, the National Conference of State
Legislatures' (NCSL) Health Policy Tracking Service reported that 43 states
and the District of Columbia had laws in effect addressing mental health
benefits in employer-sponsored group health plans. Twenty-nine states have
laws that are more comprehensive than the federal parity law and require
parity not only in dollar limits but also in service limits or cost-sharing
provisions. Sixteen of these states require full parity. That is, they
mandate that mental health coverage be included in all group plans sold, and
they require parity in all respects, including dollar limits, service
limits, and cost sharing. Laws in six states essentially parallel the
federal law by only requiring parity for annual and lifetime dollar limits
and not requiring parity in services or cost-sharing provisions. Laws in
eight states and the District of Columbia are more limited and might not
conform to the federal law, and seven states have no laws addressing mental
health benefits. Appendix I compares state laws addressing mental health
benefits with the federal Mental Health Parity Act.

Enforcement authority for the Mental Health Parity Act is divided between
federal agencies and the states. DOL is responsible for ensuring that
private employer-sponsored group health plans comply with the law-an
extension of DOL's regulatory role under ERISA. In states that do not adopt
and enforce statutes or regulations that meet or exceed the federal parity
standards, HCFA is responsible for directly enforcing the federal insurance
standards on carriers. In states that have standards conforming to the
federal parity law, state insurance regulators have primary enforcement
authority over insurance carriers.

To determine employers' responses to the law, we surveyed 1,656 employers
subject to the law, which statistically represented 103,000 employers in the
District of Columbia and 26 states. We obtained a response rate of 52
percent. Because our goal was to measure the effect of federal rather than
state parity requirements, we surveyed employers with more than 50 employees
in the 26 states and the District of Columbia that did not have state laws
that were more comprehensive than the federal law as of July 1999. To
identify actions the federal agencies have taken to ensure compliance with
the law, we interviewed officials from HCFA and DOL's Pension and Welfare
Benefits Administration.

Most Employers Report Compliance With the Federal Law but Continue to Limit
Mental Health Benefits

The law has resulted in more employers reporting parity in dollar limits for
mental health and medical and surgical benefits. In 1996, before the federal
parity law was enacted, only about 55 percent of employers we surveyed
reported parity in the annual and lifetime dollar limits for mental health
and medical and surgical benefits. When employers were asked why they
changed their annual or lifetime dollar limits, more than 75 percent of
those responding cited the federal Mental Health Parity Act as a significant
or primary reason. Among the employer plans in our survey that were not in
compliance with the federal parity law, most had lifetime limits for mental
health coverage of $100,000 or less.

Most employer plans we surveyed contained other plan design features that
were more restrictive for mental health than for medical and surgical
benefits. Typically, these features included limits on the number of covered
hospital days and outpatient office visits as well as higher cost sharing
such as copayments and coinsurance. As of December 1999, 87 percent of
compliant employer plans contained at least one more restrictive provision
for mental health benefits. Most prevalent were restrictions on the number
of outpatient office visits and hospital day limits, with nearly two-thirds
of compliant employer plans having lower limits for mental health than for
medical and surgical benefits. Very few employers we surveyed imposed any
limits on office visits or hospital days for nonmental health
conditions-about 8 and 10 percent, respectively.

Many employers in the states we surveyed changed mental health benefit
design features specifically to mitigate the more generous annual and
lifetime dollar limits required by the Mental Health Parity Act. About 65
percent of employers that changed annual or lifetime dollar limits after
1996 to be no less restrictive than dollar limits for medical and surgical
coverage also changed at least one other mental health design feature to a
more restrictive one. Most commonly changed were outpatient office visit
limits and hospital day limits, as shown in table 1. Only 26 percent of
employers that did not change dollar limits after 1996-that is, plans that
were already in compliance or that remained out of compliance-changed at
least one mental health design feature to something more restrictive.

Table 1: Employer Plans That Have Added Restrictive Mental Health Benefits
Provisions Since 1996
                                     Employers newly
 Change                              compliant with      Other employersa
                                     parity requirement
 Fewer office visits covered         51%                 11%
 Fewer hospital days covered         36                  11
 Increased outpatient office visit
 copaymentsb                         20                  13
 Increased outpatient office visit
 coinsurance                         11                  3
 Increased cap on enrollee
 out-of-pocket costs                 18                  7
 Increased hospital stay coinsurance 7                   2
 Increased hospital stay copaymentsb 3                   7

aIncludes employer plans that already had parity in 1996 and those that did
not have parity in 1996 and remained out of compliance in 1999.

bThe differences in the percentage of newly compliant and other employers
that have increased hospital stay and office visit copayments since 1996 are
not statistically significant.

Source: GAO survey of employers' mental health benefits.

Most Employers Are Not Aware of the Law's Effect on Claims Costs, Which
Appears to Be Negligible

Studies aimed at predicting the costs of the federal parity law generally
corroborate our finding that requiring parity only in dollar limits resulted
in cost increases of less than 1 percent. For example, in 1996, the
Congressional Budget Office estimated that the Mental Health Parity Act
would result in claims cost increases of 0.16 percent, and Coopers and
Lybrand predicted that claims costs would rise by about 0.12 percent. We are
not aware of any additional studies after 1996 that have quantified the
change in costs resulting from the federal parity requirements.

Most states (29) have enacted mental health laws that are more comprehensive
than the federal Mental Health Parity Act and that are thus likely to have a
greater effect on claims costs (see app. I). Unlike the federal law, these
laws require parity not only in dollar limits but also in service limits,
cost-sharing provisions, or both. In addition, many state laws mandate the
inclusion of mental health benefits in fully insured group health plans and
cover substance abuse and chemical dependency. Public and private health
policy researchers have examined the estimated or actual costs resulting
from more comprehensive state parity laws. In addition to estimating
increased claims costs in several states, several studies have examined the
potential premium cost increases associated with full parity nationally.
Most of these studies have estimated the cost increase for full parity in
individual states and nationally to be between 2 and 4 percent. These
estimates represent a composite of the cost increases for fee-for-service,
preferred provider organization, point-of-service, and health maintenance
organization (HMO) plans. Typically, estimates assume that HMO and other
managed care plans will have lower cost increases than fee-for-service
plans.

Federal Agencies Have Made Varying Progress in Overseeing the Parity Law

DOL has traditionally relied on a complaint-driven approach to identify
noncompliance with federal health plan standards. However, with the
enactment of several federal health insurance reforms since 1996, including
the Mental Health Parity Act, DOL's enforcement role has significantly
expanded. Accordingly, it has undertaken several initiatives to improve and
expand its oversight, customer service function, and consumer and employer
education efforts. On April 6, 2000, DOL published its strategic enforcement
plan to make public its goals and intended approach to ensuring that
employee benefit plans comply with federal standards, including mental
health parity.

In particular, DOL has begun to rely on investigations to more
systematically determine health plan compliance. As of March 2000, DOL
officials said that they had completed investigating approximately 200
employers that varied by size and geography. In addition to reviewing
employers' compliance with other health and pension standards, DOL found
that 12 percent of these employers' health plans that were subject to the
Mental Health Parity Act were not in compliance. These plans typically
retained annual or lifetime limits that were lower for mental health
coverage than for medical and surgical coverage or contained other
violations of the law. According to officials, DOL sends letters to
noncomplying employers outlining the violations and in the vast majority of
instances is able to work with the employers to correct them without
resorting to litigation. DOL plans to regularly conduct more investigations,
perhaps as many as 1,000 annually, to help evaluate compliance.

HCFA has a new regulatory role since the enactment of the Mental Health
Parity Act and other recent federal insurance reforms. The agency must
enforce federal requirements in states where it determines that legislation
has not been enacted that meets or exceeds the federal standards or has
otherwise failed to "substantially enforce" the federal standards. HCFA's
activities in support of this role have been evolving since the Health
Insurance Portability and Accountability Act (HIPAA) was enacted in 1996. On
August 20, 1999, HCFA issued enforcement regulations that prescribe how it
assumes an enforcement role in a particular state and describe regulatory
responsibilities it may perform.

In mid-1999, HCFA undertook an initial state-by-state analysis of whether
state laws conform to the federal standards-a precursor to its determining
whether it is required to play an enforcement role in a particular state.
HCFA officials said that this preliminary examination identified 7 states
that appeared not to have laws addressing the federal parity standards, 24
states with laws about which the agency has questions concerning their
conformance to the federal standards, and 20 states with laws that appeared
to conform fully.

In December 1999, HCFA sent letters to the seven states that appeared not to
have laws, indicating that it had a reason to question whether a state's
standards substantially met the specified federal parity requirements. As of
May 2000, HCFA officials said that four of these states have enacted
conforming laws or other directives or have otherwise demonstrated that they
enforce the federal parity requirements. In any of the remaining three
states that do not meet standards through other regulatory means, HCFA will
begin its formal determination process in which it could ultimately assume
direct enforcement responsibilities. As of April 2000, HCFA was continuing
to examine the 24 other states where it had questions concerning
conformance, but it has not provided a specific time period for the
completion of this review or the initiation of the formal determination
process.

Concluding Observations

Mr. Chairman, this concludes my prepared statement. I will be happy to
answer questions from you and other members of the Committee.

GAO Contacts and Acknowledgments

Appendix

State Laws Affecting Mental Health Benefits Compared With the Federal Mental
Health Parity Act

                             More
                             limited     Meets        Exceeds
 State           No law      than        federal      federal     Full
                             federal     lawb         lawc        parityd
                             lawa
 Alabama         X
 Alaska                                  X
 Arizona                                 X
 Arkansas                                             X           X
 Californiae                 X
 Colorado                                             X           X
 Connecticut                                          X           X
 Delaware                                             X           X
 District of
 Columbia                    X
 Florida                                 X
 Georgia                                              X
 Hawaii                                               X           X
 Idaho           X
 Illinois                    X
 Indiana                                              X
 Iowa            X
 Kansas                                               X
 Kentucky                                             X
 Louisiana                                            X           X
 Maine                                                X           X
 Maryland                                             X           X
 Massachusetts               X
 Michigan        X
 Minnesota                                            X
 Mississippi                 X
 Missouri                                             X
 Montana                                              X           X
 Nebraska                                             X
 Nevada                                               X
 New Hampshire                                        X           X
 New Jersey                                           X           X
 New Mexicof                             X
 New York                                             X
 North Carolina                                       X
 North Dakota                X
 Ohio                        X
 Oklahoma                                             X           X
 Oregong         X
 Pennsylvania                                         X
 Rhode Island                                         X           X
 South Carolina                          X
 South Dakota                                         X           X
 Tennessee                                            X
 Texas                                                X
 Utah            X
 Vermont                                              X           X
 Virginia                                             X           X
 Washington                  X
 West Virginia                           X
 Wisconsin                   X
 Wyoming         X
 Total           7           9           6            29          16

Note: State laws in effect as of March 1, 2000.

aLaw addresses mental health benefits but does not require parity in dollar
limits. However, the law may require mandated mental health benefits, impose
minimum service levels, or place limits on cost-sharing features for mental
health benefits.

bLaw requires parity in dollar limits but not in services or cost sharing.

cLaw requires parity in dollar limits and requires parity in services or
cost sharing or requires mandated mental health benefits.

dLaw requires parity in all respects-dollar limits, services, and cost
sharing-and also requires mandated mental health benefits.

eA law that exceeds the federal law becomes effective July 2000.

fA law that exceeds the federal law becomes effective October 2000.

gA law more limited than the federal law becomes effective July 2000.

Source: GAO review of data compiled by Tracy Delaney, the National
Conference of State Legislatures' Health Policy Tracking Service.

Related GAO Products

Mental Health Parity Act: Despite New Federal Standards, Mental Health
Benefits Remain Limited (GAO/HEHS-00-95, May 10, 2000).

Implementation of HIPAA: Progress Slow in Enforcing Federal Standards in
Nonconforming States (GAO/HEHS-00-85, Mar. 31, 2000).

Private Health Insurance: Progress and Challenges in Implementing 1996
Federal Standards (GAO/HEHS-99-100, May 12, 1999).

Private Health Insurance: HCFA Cautious in Enforcing Federal HIPAA Standards
in States Lacking Conforming Laws (GAO/HEHS-98-217R, July 22, 1998).

Health Insurance Standards: New Federal Law Creates Challenges for
Consumers, Insurers, Regulators (GAO/HEHS-98-67, Feb. 25, 1998).

(201061)

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