On December 22, 1997, the Department of the Treasury, the Department of Labor and the Department of Health and Human Services (collectively, the "Departments") issued interim regulations under the Mental Health Parity Act of 1996 ("MHPA") to be effective simultaneously with the January 1, 1998 effective date of the law.(fn1) MHPA is currently scheduled to expire on September 30, 2001. Set forth below is a discussion of MHPA and the new requirements for employer-provided mental health care coverage.

MHPA imposes restrictions on certain limitations utilized in the provision of mental health care services, with the purported goal of creating parity between those services and medical and surgical benefits. Specifically, effective for plan years beginning on or after January 1, 1998, any group health plan that provides both medical/surgical benefits and mental health benefits may not impose either an aggregate lifetime or annual expenditure limit on mental health benefits that is less than that applicable to medical/surgical benefits. The interim regulations clarify, however, that these requirements do not apply to benefits for substance abuse or chemical dependency.

In general, the MHPA requirements are applicable to any group health plan offering both medical/surgical and mental health benefits even if the mental health benefits are administered separately under the plan. However, MHPA does not require a group health plan (or insurance coverage offered through a plan) to offer any mental health benefits if none are otherwise offered; nor does it impose any limits on the amount, duration or scope of any mental health benefits. Instead, the only element of mental health benefits that must be in parity with any medical/surgical benefits is the aggregate lifetime or annual expenditure limits.

The interim regulations provide the following guidelines for applying these limits: First, if a plan provides no lifetime or annual limits for medical/surgical benefits or applies such a limit to less than one-third of all medical/surgical benefits provided under the plan, the plan may not impose any limits for mental health. Application of the "less than one-third" rule is to be based on the amount of medical/surgical benefits expected to be paid under the plan for the plan year (using any reasonable method). Second, group health plans that impose a lifetime or annual limit to two-thirds (or more) of all medical/surgical benefits, must either (i) aggregate the medical/surgical and mental health benefits in applying such limits or (ii) apply a separate limit to mental health benefits that is no less than the limit on medical/surgical benefits. And, third, group health plans that have different aggregate lifetime or annual limits on different categories of medical and surgical benefits may comply by calculating a weighted average aggregate lifetime dollar limit or weighted average annual limit for mental health benefits under a formula established in the regulations.

There are two exemptions from MHPA’s parity requirements: The first exemption is for "small" employers – that is, employers who employed an average of at least two but not more than 50 employees on any business day during the preceding calendar year. The second exemption, which relates to the financial impact of MHPA, applies where the MHPA requirements would result in an increase in the cost under the plan (or, where different coverages are offered under the Plan, the cost for the particular coverage) of at least one percent. The interim regulations provide that the cost exemption may be utilized if a plan’s expenditures incurred in complying with the requirements of MHPA increase more than one percent over a "base period" of at least six consecutive months. Thus, the interim regulations require that covered plans must comply with MHPA for a minimum of six consecutive months before the one percent exemption can be applied. Once the requirements for the exemption have been satisfied, it will be become effective 30 days after the requisite participant notification is provided and may continue in effect until September 30, 2001 (the date MHPA is scheduled to expire), even if (in the case of an insured arrangement) a different policy is later purchased from the same or a different insurer or (in the case of a self-insured arrangement) changes are later made to the plan’s benefit structure.

The restrictions imposed by MHPA are extremely limited. First, while covered plans must meet MHPA's restrictions during the "base period," the one percent cost increase exemption creates a broad avenue of escape as the regulations allow for a one-time compliance assessment. Second, there is nothing in the MHPA which prevents non-parity with respect to any element of health plan design other than the expenditure limits, which allows plan sponsors to design around MHPA’s restrictions. For example, consistent with the law, unequal levels of co-payment or deductible requirements may be established for medical/surgical benefits as compared with mental health benefits. Moreover, while the restrictions of MHPA will apply even if mental health benefits are administered separately under one plan, it appears that the restrictions can be applied on a plan by plan basis, allowing the establishment of separate plans for mental health and surgical/medical benefits. Under a separate mental health care plan, any level of aggregate lifetime or annual cost limitations could be used, completely bypassing MHPA restrictions, as there would be no other benefits under the plan with which to be in parity.

Close examination of MHPA begs the question of what protections have indeed been provided. In the final analysis, MHPA appears to gain more political than actual mileage. The only real result is additional record keeping requirements and plan design considerations for sponsors of group health plans and insurance issuers. Employers should, however, stay tuned. MHPA is likely to be only the first installment of piecemeal-styled health care reform, as Congress targets a variety of specific and purportedly problematic health care practices.