A new law goes into effect this month that mandates many employers to increase coverage for mental health care.
Signed in conjunction with the economic bailout bill, the Mental Health Parity and Addiction Equity Act requires employers and group health plans to provide equal coverage for mental and physical illnesses. As a result, separate costs and limitations to treatment are prohibited. Also, out-of-network coverage must be extended for mental health illnesses if it is provided for physical health.
With the new requirements, employers fear that they will face huge increases in health care costs. Brokers face the challenge of being in the crossfire of this issue, but many will find the opportunity to help their clients find ways to reduce their costs.
Who is affected?
The law applies to any group health plan of 50 employees or more that provides medical and surgical benefits and mental health or substance abuse disorder benefits.
For some employers, the regulations are not new. Several states have already passed similar legislation, which expands upon legislation passed during the Clinton administration. Likewise, federal employees have received equal physical and mental health benefits since 1999.
For others, changes will occur. The New York Times reported that the new law would provide increased coverage for upwards of 113 million people, more than 70 percent of which are covered by employer-sponsored plans that are not state regulated.
The act allows for two main exceptions: Small businesses with less than 50 employees are automatically excluded; and companies may apply for an exemption if implementation of the plan results in an increase in actual total plan costs of greater than 2 percent in the first year or 1 percent in subsequent years.
However, in the latter exception, the process of applying for an exemption will be not be feasible for most employers. In order to qualify, companies must certify cost increases through an actuary in good standing with the American Academy of Actuaries. The employer must go six months before seeking the exception and records must be kept for six years and made available for inspection. Because the review requires the company to open its books to an audit and to spend time and money in review, many companies will likely shy away from this process.
What are the costs?
The costs may be more modest than feared. A study performed by a national actuary firm to determine the impact of parity legislation forecast that overall health plan costs will increase by 0.6 percent.
The Congressional Budget Office estimates that the utilization of facilities-based care will increase by 9.7 percent and utilization of professional services will jump by as much as 30 percent. However, these increases are expected to be offset by a decrease in primary care costs, as beneficiaries will begin to visit mental health professionals.
While many feel that the Mental Health Parity Act will be an increased burden in both cost and administration, it is actually an opportunity for many employers and a benefit for employees.
"Many studies show the negative impact on health care costs when employers do not focus on mental health benefits," said Scott Smith, a benefits specialist with Strategic Employee Benefit Services/Northwestern Mutual in Birmingham, Ala. "Depression alone is a significant driver in health care costs. We see this as an opportunity for employers to effectively manage a segment of health care that is often ignored."
The effects of mental illness and substance abuse on productivity are well documented. A 2003 study by Paul Greenberg calculates the cost from lost productivity due to depression at $83 billion annually for U.S. businesses. Meanwhile, the U.S. Department of Health and Human Services reports that substance abuse costs U.S. businesses more than $81 billion in lost productivity and turnover each year. With additional resources devoted to treating mental illness and addiction, companies will benefit from better productivity.
Brokers: Review client plans
Brokers have the opportunity to help guide their clients toward compliance while keeping their costs within their defined budget.
The first step brokers should take is to review the client's medical plan to determine what changes need to be made to the mental health plan. If a separate vendor is used for managed behavioral health, the medical plan should be shared with the behavioral health care vendor.
Because the act requires that physical and mental health have equal coverage, it will be necessary to determine what deductibles, copays, hospital and outpatient limits and out-of-network provisions are in order to adjust the mental health plan to match.
For instance, typical mental health plans are limited to 30 days for hospitalization and 30 visits for outpatient treatment. Such limits are rare for physical health plans, so it will be necessary to eliminate the limits for the mental health side.
Second, brokers will be able to find relief for many employers by reviewing their certificate of coverage. The Mental Health Parity Act gives self-insured employers the power to decide which conditions they may exclude, as they are able to with physical health plans. This allows a degree of flexibility for companies to customize plans to meet employees' needs and determine what conditions will be excluded in order to control costs.
However, it is critical to advise clients to maintain transparency in defining coverage limitations. Employers must provide the criteria for determining medical necessity and denying treatment to any current or potential participant, beneficiary, or contracted provider.
Benefit Design Changes
Some organizations may find that changes in benefit design can help lower their costs. The two most important benefit design changes for brokers to offer are the addition of a care management component and an Employee Assistance Program, if one is not already in place.
Brokers can offer their clients a managed care mental health plan. The Mental Health Parity Act allows managed care mental health plans, which will trim costs by 25 percent to 50 percent for organizations with self-funded health plans as opposed to unmanaged plans.
Using a behavioral health care organization to actively manage patient care and assist employees in locating providers who specialize in their area of concern saves both time and money by getting employees to the right provider at the right time at the right intensity of care. In managed plans, proposed treatments are subject to review for medical necessity, which is not available in unmanaged plans. Managed plans utilize credentialed providers, a practice that helps deliver more accurate and efficient treatment recommendations. Also, providers are often willing to negotiate lower rates in return for a steady stream of referrals and a reliable payment source provided by managed plans.
Brokers should advise employers to look for a managed care company that is accredited by medical review organizations such as National Committee for Quality Assurance or Utilization Review Accreditation Commission. Companies that have earned accreditation meet national standards which ensure that they follow accepted guidelines and best practices in health plan management.
In the same way, a high quality Employee Assistance Program can also save money by providing early intervention services. However, not all EAPs are created equal and many of them are often under-utilized. If an employer takes the initiative to regularly communicate and promote the services offered through the EAP, they are often able to significantly reduce costs to the medical plan by providing early intervention services.
Additionally, when the EAP or mental health benefit administrator offers telephonic counseling services 24/7, some emergency room trips may be avoided. Wellness initiatives may also be beneficial, particularly if the Health Risk Appraisal screens for depression and a mechanism is in place to refer the employee into the EAP. Since depression can increase medical care costs by up to 80 percent, treating the depressive symptoms should also ultimately lower medical care costs.
"Through plan design change, employee communication and well-structured wellness initiatives, the Parity Act could actually have a long-term effect of reducing health care costs and improving benefits for some organizations," said Smith.
In the end, employers will need to make a cost-benefit analysis to determine what kinds of changes they will make. Companies provide behavioral health benefits because they understand the value of maintaining a mentally-fit workforce. When faced with federally-mandated increases to those benefits, employers do have options that can help them avoid substantial cost increases. After a thorough review of alternatives, brokers can help employers develop the best solution for their work force.
