While the nation’s eyes focus on health-care reform, one major health-care issue went to the President’s desk last year and will be implemented in the coming months, at an additional cost to corporations and employees.

Corporations and health insurance companies are racing to prepare their health insurance policies to comply with a 2008 federal law that mandates mental health parity benefits for employees, requiring nearly all insurance plans to include mental health benefits at the same level they provide medical benefits. Benefits will also now have to have mandated coverage for substance abuse treatment as well.

The law is expected to raise premiums by up to 2% for millions of corporate workers while also costing U.S. taxpayers through decreased federal tax revenues and higher outlays for Medicaid, according to government estimates and health insurance professionals. American families could face annual insurance premium increases of $70 a year because of this new law.

If it seems this subject was lost in the nation’s 24/7 news cycle, it was. The Paul Wellstone Mental Health and Addiction Equity Act was the law that the much more prominent $700 billion TARP bill was attached to in order to speedily move TARP through Congress in the wake of the financial crisis.

Mental health parity has been an issue pushed by mental health advocates and professionals for two decades, with service providers arguing that behavioral disorders, like medical disorders, require treatment necessary that cannot be impaired by arbitrary limitations on visitations or treatment. Traditionally, behavioral health polices set limits, such as 20 to 30 visits with a mental health profession a year, which could not be negotiated.

“Parity essentially says behavior health conditions are a medical condition not unlike other medical conditions, requiring the same amount of treatment,” said Dr. Michael Golinkoff, national clinical director for behavioral health for Aetna (AET).

The 2008 law expands on a 1996 mental health parity law which excluded what’s known as self-funded insurance plans, or coverage plans employers fund internally instead of purchasing an insurance policy. By excluding self-funded plans, major corporations large enough to afford such plans did not have to provide mental health benefits at parity with employees’ medical benefits.

While the exact number of large-sized corporations that provided mental health parity benefits is not clear, Golinkoff said a “substantial minority” of corporations voluntarily provided parity to their employees before the 2008 law.  

For the estimated 57.7 million Americans who suffer from a diagnosable mental disorder, according to a 2008 report by the National Institute of Mental Health, this is welcome news, but like any mandate it will cost companies, patients and taxpayers alike.

According to a 2007 and most recent Congressional Budget Office cost estimate, the Paul Wellstone Act will reduce federal tax revenues by $3.1 billion through 2017 as companies pay more in tax-deductible health care premiums, therefore reducing corporate tax liabilities. It will also increase Medicaid spending by $820 million through 2017 and beyond through increased outlays.

In the private sector, the mandate will cost employers $1.3 billion annually starting next year and would grow from there, the CBO estimates.

Corporations Accept Parity

Despite the cost, corporations have warmed up to the idea of providing more comprehensive mental health benefits to their employees. The National Retail Federation, the lobbyist group that represents the world’s largest retailers like Wal-Mart (WMT) and Target (TGT), up until recently opposed parity benefits.

“We were able to find common ground on the issue while at the same time employers became more experienced and more receptive to the idea of managing chronic condition effectively,” said Neil Trautwein, NRF’s chief lobbyist on the issue of health care, who is now representing the industry during this current health care debate.

Trautwein said his clients agree with the idea that not providing benefits to employees with mental health disorders can be similar to not providing health insurance to medically sick employees. Both lead to productivity losses through absenteeism and disability claims, adding to overall higher costs for corporations.

“The system is paying for these services, whether they realize it or not,” said Sam Muszynski, director of health care systems and financing with the American Psychiatric Association.

Trautwein admitted businesses took a long time to accept a parity mandate.  Corporations were hesitant to accept a law that allowed for coverage of every condition found in the American Psychiatric Association’s “Diagnostic and Statistical Manual of Mental Disorders,” which was considered too broad of a directorate to use by corporations for treating patients. The DSM’s diagnostic list was dropped from the bill.

“If you’re going to take off caps or limits, you need to be able to manage that benefit so the cost would not be too hard for employers,” said Kris Haltmeyer, lobbyist for the Blue Cross Blue Shield Association.

Golinkoff, who works with corporations to create health-care plans for companies, said nearly all corporations were aware that parity was going to be required in 2010 and the transition to add benefits have gone “smoothly.”

While it is too early to tell how much covering mental health will cost over the long term, Golinkoff said he has seen premiums increase between 0.5% and 1.5% from last year for corporate customers, with most increases coming at the lower end of the range. The additional cost is being split equally between the employer and employees.

The law sets a cap that health care premiums cannot increase more than 2% next year because of parity benefits and 1% each year specifically because of parity.

There are two exemptions to the law: small businesses and individuals purchasing health insurance on the open market.  Employers who have 50 or fewer employees do not have to provide parity benefits to their employees. This leaves approximately between 21.2 million and 41.8 million employees of small business ineligible, based on 2004 data by the Census Bureau. Based on the estimated 154 million Americans in the workforce, based on October data from the Bureau of Labor Statistics, it leaves a large chunk of the labor force possibly not covered by mental health parity.

A spokeswoman for the National Federation for Independent Businesses, which represents the small business lobby, said the organization was for keeping the exemption, which was originally passed in the 1996 law. According to a 2007 NFIB study, 36.3% of all small employers (which includes firms larger than 50 employees) offer health benefits for their employees.

Parity Long Advocated For, But With a Cost

Patient advocates and health insurers said that the passage of mental health parity was a major victory for people who suffer from mental disorders.

“It’s one more step breaking the stigma associated with behavioral health issues,” Aetna’s Golinkoff said. “A parity law is now saying the psychiatric disorders need the same sort of treatment that medical disorders require.”

Golinkoff said he hopes that this parity will lead to more people who may be undiagnosed with mental disorders to seek treatment.

However because companies now face a possibly greater number of employees seeking treatment and a lifting of a cap on visitations, treatments plans could become more restrictive in a different way. Based on 2009 study that found the average family of four pays $3,515 in annual insurance premium, according to the Kaiser Family Foundation, the average American family could be looking at premium increases of approximately $70 if their employer must add mental health parity to their policies.

Blue Cross’s Haltmeyer said mental health plans will not consist of explicit visitation limits but be constructed to be more like managed health programs, often consisting of a plan of care.

“The major goal is to assure that benefits are being used correctly and that people are receiving necessary services,” he said. You’re not going to face explicit limitation, but you will have to submit to some management of that disorder.”