Mental Health Change May Hit Insurance Rates Hard

With the national spotlight on Congress' bailout of financial institutions, little notice has been paid to another part of the law passed last month that could affect smaller businesses -- the Mental Health Parity and Addiction Equity Act.

For more than a decade, mental health and addiction treatment advocates have lobbied to bring employers' mental health insurance benefits on par with other medical benefits. In the interim, many large employers took that step on their own.

That's not necessarily the case with smaller employers.

When it goes into effect January 2010, the Mental Health Parity Act will exempt businesses with fewer than 50 employees, but those just above that level may be facing a Hobson's Choice -- either significantly upgrade their mental health and substance abuse coverage, or drop it altogether.

"For people who need mental health treatment, it [the new law] is definitely a win because it will be easier to get appropriate care," said Steven Wojcik, vice president for public policy for the National Business Group on Health in Washington, D.C. "But for those smaller employers, it's definitely going to make health-care costs more expensive, so those employers operating at the margins may have a hard time continuing to offer those benefits."

Here's why: While it's not unusual for a small- to medium-size employer to offer unlimited outpatient visits for a physical ailment, doing the same for mental health and addiction treatment can add significantly to a company's health premium. The same may hold true for inpatient hospitalizations.

For a large employer, many of whom self-insure, the risks and costs are spread out enough to be manageable. For a small-to-medium size business, both risk and cost can look daunting.

"Probably what's going to happen is that the substance abuse treatment benefit will become more generous," said Mr. Wojcik. "I can't imagine you would have limits on outpatient services for conditions like stroke, diabetes or asthma."

Under the new law, he said, if you don't limit rehabilitation services for a stroke, you can't limit them for mental health or substance abuse either.

"The timing is certainly not good, and it's ironic that this was attached to the bailout bill. The last thing you want to do is to raise labor costs at a time of rising unemployment."

Covering treatment for mental health and addiction problems is a good investment for employers if it means they retain a good employee.

As addiction treatment expert Michael T. Flaherty noted, "The positive implications of this law will by far exceed any good achieved by the economic 'bailout' over the years. Medicine can now work on finding the true origins of mental illness and empower the patient in each cure."
He added that insurance companies should welcome the change because millions more people would be added to the rolls of the insured, and conditions will be treated before they become catastrophes.

But the impact can differ depending on the size of a company, both in cost to the employee and the company.

A new Kaiser Family Foundation found that the smallest firms "are about half as likely to offer coverage to their employees" -- about 62 percent of businesses with less than 200 employees -- compared with 99 percent of firms with 200 or more employees. The study also found that employees at smaller firms generally pay higher deductibles.

But smaller businesses already have been facing up to 20 percent annual increases in their health-care costs the past three years, so any further add-on becomes a worry.

How much might premiums go up? Highmark spokesman Michael Weinstein says that "there are so many variables unknown yet on this mental health parity law that, at this point, for any insurance company not just Highmark, it's very difficult to calculate the exact impact on health benefit premiums."

Scott Lammie, chief financial officer for UPMC Health Plan, said it already offers mental health coverage as a standard benefit so the new law "is expected to have only a modest impact on premium levels, which we believe over time could also have a favorable premium impact by helping to reduce overall physical health costs."

So far, the issue apparently has not generated much discussion among small to midsize businesses.

"My suspicion is that they're not as aware [of the new law] as they should be," said Lee Taddonio of SMC Business Councils, whose 2,500 members typically have up to 150 employees. Mr. Taddonio said Pennsylvania has had mental health parity laws since 2006, and also noted that the new federal law offers an out if health-care costs increase more than 2 percent the first year, and 1 percent after that.

"My gut feeling is that I don't think it will be a that significant."