MENTAL HEALTH

PARITY

ACT

Background: The Act is designed to provide parity in dollar limits for mental health benefits and medical/surgical benefits. Plans must not have annual or lifetime dollar limits on mental health benefits that are lower than any limits on medical/surgical benefits.  The effective date for plans covered by the Act is the first day of the plan year beginning after January 1, 1998. The regulations do not impose limits on cost sharing, number of visits or days of coverage.

The new rules are effective for plan years beginning January 1, 1998 The Act applies to all group health plans, other than church plans.  If a state law provides more favorable treatment of mental health benefits under state insurance laws, such laws will override the federal regulations for fully-insured plans Failure to comply with the Act subjects the plan to an excise tax under the IRS Code.

To allow plans time to comply with the Act, enforcement of the regulations is delayed until April 1, 1998 - for plans who request a delay.  These plans may not be subject to the excise tax if they comply in good faith. For plans who claim exemption under the 1% exemption rule, no penalties shall apply prior to April 1, 1998 as long as the plan is amended to comply by March 31, 1998 (there are notice requirements for the plan to claim the exemption).

Retrospective experience for the 1% exemption rule:

If after implementing parity for at least 6 months, a plan experiences an increase in costs by 1% or more due to complying to the Act, the plan may claim an exemption from the Act.  The federal government must be notified at least 30 days prior to the effective date of the exemption. The 1% cost increase is based upon actually incurred expenditure increase, measured retrospectively after implementation of the rules.

 The exemption calculation is based on he ratio of the increase in plan expenditures to the total plan expenditures (medical and mental health). For self-insured plans, the numerator is the actual value of mental health claims paid in excess of the previous plan limits. For example; if the annual mental health limit is $10,000 and the medical/surgical is $1 million, then the sum of all mental health claims paid in excess of $10,000 is included in the numerator of the ratio used for that plan in calculations related to the 1% exemption. The denominator for self-insured plans is the total value of medical and mental health claims, excluding mental health claims in excess of $10,000. If the result is an increase of 1% or more, the plan is exempt from complying with the Act the following year and any other year until the sunset of the Act in 2001.

The plan must notify plan participants prior to applying the exemption to the plan and must obtain approval from the federal government (I) Department of Labor) for the exemption. A sample notice is contained in the regulations. The plan must provide participants with a summary of material reductions in covered services or benefits. The exemption itself is not effective until at least 30 days after the notice is sent to participants and the Department of Labor.