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WASHINGTON-Employers are starting to overhaul their mental health care benefits programs as the Jan. 1 deadline approaches for compliance with a federal law that requires greater parity for coverage of mental disorders.
The law bars employers from offering, as most plans now do, lower annual and lifetime benefits for mental disorders than for physical illnesses.
A group plan, for example, could not offer a $150,000 annual limit for physical illnesses and a $1,000 annual limit for outpatient mental health visits.
Responding to the new law, Hartmarx Corp. is scrapping a $2,000 annual limit on outpatient mental health care coverage and a $50,000 lifetime limit on outpatient and inpatient mental health care expenses.
Those limits conflict with the new law, because the Chicago-based clothier has a $750,000 lifetime limit on coverage for physical illnesses and no annual limit.
Hartmarx will retain a 50% copayment rate for outpatient mental health care visits and lifetime limits of two inpatient stays of no longer than 30 days each.
Similarly, Redwood Shores, Calif.-based Oracle Corp. is amending its most popular indemnity plan, which has a $3,000 annual and a $50,000 lifetime limit for mental health expenses, but no annual limit and a $1 million lifetime limit for physical disorders.
The new benefit plan at Oracle, among other things, will provide plan participants up to 150 days of inpatient mental health care per year and a lifetime limit of 300 days of inpatient care.
Many more employers now are going in the same direction.
"There was a slow (employer) reaction to the law initially. It is only in the last three months that activity has picked up," said Ed Kaplan, a vp with The Segal Co. in New York.
A William M. Mercer Inc. survey conducted for the National Alliance for the Mentally Ill, an advocacy group, found that about 75% of surveyed employers either have changed or intend to change their benefit plans to comply with the law.
Other employers "are maintaining their existing programs until regulations clarify what they can and cannot do," said Edward Susank, a Mercer principal in Washington.
"A lot of employers have not yet decided what to do," said Jack Doerr, national group benefits practice leader with Sedgwick Noble Lowndes in Chicago.
And there are no signs of an imminent release of regulations that will interpret a key provision in the law that could exempt employers from having to make any changes to their benefit plans.
That provision says employers can keep lower annual and lifetime limits for mental illness than for physical disorders if they prove that amending their plans would increase their costs by at least 1%.
The federal agencies-the Labor and Treasury departments and the Department of Health and Human Services-in charge of issuing regulations, are hung up on whether the 1% escape hatch should be interpreted retrospectively or prospectively.
Under a retrospective interpretation, an employer would have to amend its health care plans to get rid of discriminatory annual and lifetime dollar limits for mental health care. If such an upgrade, presumably after a year of experience, caused health plan costs to increase by at least 1%, the employer could reinstate its former lower-dollar limits for mental health.
Under a prospective interpretation, an employer might, for example, simply be able to provide a certification from plan actuaries that upgrading the benefits-based on their analysis of plan experience-would increase costs by 1%.
The mental health care benefits community strongly opposes the latter interpretation.
"We don't think Congress intended that employers simply could estimate their costs as a result of changing their mental health care benefits program," said Marilyn Richmond, assistant executive director for government relations at the American Psychological Assn. in Washington.
"If this law is to have meaning, the intent is for companies to actually have a year of experience and then-if their costs exceeded 1%-make a formal request for an exemption," Ms. Richmond added.
Others, though, say the law is vague on the congressional intent of how the 1% exemption should be interpreted.
"This is legitimately an issue that is wide open for interpretation," said Frank McArdle, a consultant in the Washington office of Hewitt Associates L.L.C.
Some employers aren't waiting for regulatory guidance on how the 1% escape hatch should be interpreted.
Michael Pikelny, benefits consultant and corporate actuary at Hartmarx, says it was a lot easier to get rid of the lower mental health care dollar limits than try to prove whether the change would increase costs by at least 1%.
In fact, even with the removal of the $2,000 annual cap of outpatient expenses and the $50,000 lifetime limit on inpatient and outpatient mental health care expenses, Mr. Pikelny expects little impact on the company's mental health care benefit costs or utilization.
That is because current restraints on excessive utilization-the 50% copayments on outpatient visits and the two 30-day inpatient stays-will remain in place.
Similarly, Aldy Duffield, Oracle's benefit manager, says the company's consultants have assured her that dropping the lower dollar limits on its mental health care benefits plan will not have a significant impact on costs.
In fact, some benefit experts say the 1% cost exemption shouldn't even be an issue. Rather than waiting for regulatory guidance, employers-if they want to get rid of discriminatory dollar limits without increasing costs-can make other, legally permitted plan design changes.
For example, employers can impose higher copayments for visits to mental health care therapists than for office visits for treatment of a physical problem. Or, an employer can impose a limit on the number of days it will cover for stays in a mental hospital without a comparable limit for treatment in a hospital for a physical problem.
"I never understood what the law was supposed to accomplish, because there are limits-other than lower annual and lifetime dollar limits-you can impose," said Tom Billet, a vp in the Stamford, Conn., office of The MEDSTAT Group.
"The 1% cap really shouldn't be a burning issue" for companies because there are many ways to design a plan to comply with the law without increasing costs, Mr. Billet said.