Mental Health Parity Rule Spurs Employer Angst as Costs Grow

A Biden administration proposal due to be finalized later in 2024 could result in higher costs and poorer quality of employer-sponsored mental health coverage, according to advocates representing companies and health plans.

The proposed rules (RIN 1210-AC11) are intended to prevent health plans from imposing plan restrictions on mental health and substance use coverage compared to medical and surgical benefits. The proposal from the departments of Labor, Health and Human Services, and the Treasury would require self-insured health plans and insurers to do detailed evaluations to confirm that their plans comply with the Mental Health Parity and Addiction Equity Act (MHPAEA) passed in 2008.

Employer groups say they are struggling with the Biden administration’s interpretation of providing parity of coverage for mental health in terms of determining “non-quantitative” treatment limits, and a few have gone so far as to predict that some employer plans would drop mental health coverage altogether if the proposed rule is finalized as drafted.

A surge in the costs of mental health care for employer plans since the Covid-19 pandemic has lent more urgency to the debate over the Biden proposal.

“If the final rule doesn’t look different from the proposed rule it will result in a cost increase in insurance premiums or in behavioral health costs,” said Pamela Greenberg, president and CEO of the Association for Behavioral Health and Wellness, which represents payers that manage behavioral health insurance benefits. Further, “the parity increases may actually have a negative quality impact,” she said.

Increased Costs

Employees’ need for mental health coverage has arguably reached new heights in the years following the Covid-19 pandemic, as rates of depression, anxiety, and substance abuse spiked and have remained elevated.

The Business Group on Health, which represents 74 Fortune 100 companies that provide health coverage for 60 million workers and family members, said 77% of employers surveyed in 2023 reported increased worker mental health issues, up from 44% the previous year. Mental health challenges were cited as the top area of significant prolonged impact resulting from the pandemic.

Spending on benefits that address mental health and substance abuse rose by 53% from March 2020 to August 2022 among people with employer-provided insurance, according to a study by the RAND Corp. and Castlight Health. Mental health service use in August 2022 was nearly 39% higher than before the pandemic, the study said.

Addressing this issue through the proposed MHPAEA rule is a complicated matter.

One of the most worrisome provisions of the proposal for employer groups is a requirement that “substantially all” mental health benefits within each classification—such as in-patient, in-network, and outpatient, out-of-network—must not be less restrictive than those for medical benefits. The proposal defines “substantially all” as two-thirds of the dollar amount of plan payments.

The proposed rule would result in less use of common management utilization tools, such as prior authorization, Greenberg said.

Management utilization tools typically have been applied by health-care plans to in-patient treatments for mental health more than they are to in-patient treatments with hospital stays for conditions such as heart surgery, opening up the possibility the imbalance between the two categories of benefits offerings would violate the proposal’s “substantially all” rule.

“Management tools are used as a check and balance system,” so their absence could result in higher costs and lower quality if plans have to forgo them to comply with the MHPAEA, she said.

In addition to making it harder to meet the rule’s requirements, the new test would entail spending a considerable amount of money to set up new systems in order to comply, said Christopher Condeluci, principal of CC Law & Policy LLC, which gives policy advice to employer groups.

“When you’re spending money on something other than providing benefits, you don’t have the resources and assets to spend money on benefits,” Condeluci said.

Employers may not be able to get claims data needed to comply with the rule from plan administrators, leading to a “significant burden,” said Margaret Faso, senior director of public policy at the HR Policy Association.

`Inaccurate Interpretation’

But Henry Harbin, an adviser to the Bowman Family Foundation, which advocates on mental health issues, said he’s seen no data that indicates the proposed rule would drive costs up significantly.

“Massive insufficiencies” found in the DOL’s comparative analyses of health insurers’ mental health versus medical coverage also clearly indicate that tighter regulation is needed, he said.

Health plans’ arguments that the “substantially all” provision would prevent them from using normal medical management practices “is an inaccurate interpretation,” he said.

Inpatient hospital care for medical and surgical treatments is often reimbursed based on diagnostic related groups (DRGs), bundled payments for treatments under which hospitals receive a fixed amount for similarly priced services, according to comments on the proposal filed by the Bowman Family Foundation, which Harbin co-authored. As a result, plans often don’t require prior authorization or concurrent reviews, the comments said.

Mental health in-patient treatment is typically reimbursed on a per diem basis (non-DRG basis), and plans usually apply prior authorization and concurrent and retrospective medical management reviews, the foundation said.

Current parity regulations allow for prior authorizations to be different for hospital care between medical and behavioral expenditures. Harbin argues that this type of policy would be the same under the proposed regulations.

However, the Bowman Family Foundation comment letter said, plans may still comply with the “substantially all” test “even if non-DRG reimbursed inpatient benefits constitute less than 2/3 of the dollar amount of all plan payments for M/S [medical/surgical] benefits.”

The comment letter suggested that “further clarification would be important with respect to how the substantially all test is to be measured.”

Clarification on the “substantially all” standard could be important, as some employer groups see very high stakes for the proposed rule.

The ERISA Industry Committee (ERIC) has warned that some employers may drop mental health coverage altogether if it is finalized.

Employer plan sponsors that are self-funded and regulated under the federal Employee Retirement Income Security Act aren’t required to cover mental health benefits. But if they do cover them, they must be compliant with the mental health parity law.

“They choose to because it’s of great value to keeping their workforce happy and healthy and employed,” said Melissa Bartlett, senior vice president of health policy for ERIC. “In a world where you’re looking at employers making tough choices when it comes to how to ensure affordable and quality care to their various benefit designs, that has to be a question if these rules were finalized.”