Harvard Mental Health Letter

Benefiting from mental health parity

Determining coverage, understanding the limits, appealing decisions.

Two significant changes in health insurance coverage of mental health and substance abuse disorders, enacted into law in 2008, will begin taking effect in 2010. The laws are part of a nationwide push for mental health parity, which aims to provide coverage for psychiatric disorders on a par with other medical disorders. Until recently, it was perfectly legal for many insurers to limit care for mental health and substance abuse services and require patients to pay more out-of-pocket costs for such services than they would pay for care for diabetes, heart disease, or other medical conditions.

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, signed into law on Oct. 3, 2008, affects large employers, Medicaid managed care plans, and some State Children's Health Insurance Program plans. In July 2008, Congress enacted the Medicare Improvements for Patients and Providers Act, which phases in mental health parity for Medicare recipients. These new laws supplement mental health parity laws in force in every state but Idaho and Wyoming.

An ongoing challenge for patients and clinicians, however, is to navigate the patchwork of parity provisions at the state and national levels. Further complicating matters is the larger health care environment. Although the Congressional Budget Office estimates that adding mental health parity will increase health insurance premiums by less than 0.4% a year, health care costs overall have been increasing dramatically. The Kaiser Family Foundation reported that average employer-sponsored premiums for family coverage increased 119% between 1999 and 2008.

It is therefore likely that employers and health insurers will continue to take steps to contain health insurance costs in the years ahead. Thus while parity may exist in the law, managed care constraints may limit the mental health care benefits patients can receive and services providers can offer.

The Wellstone-Domenici Act

The Wellstone-Domenici Act applies to any organization with 50 or more employees that offers group health insurance with mental health or substance abuse coverage. The law applies to self-funded plans, which is significant, because more than half of employer-sponsored plans are self-funded and therefore have not been subject to state mental health parity laws. The Wellstone-Domenici Act also goes well beyond the scope of an earlier 1996 federal parity law, which prohibited annual or lifetime financial limits on mental health coverage, but allowed other restrictions to continue, such as limits on outpatient visits or inpatient days.

Conditions covered. The Wellstone-Domenici Act allows health insurers to determine which mental health and substance abuse disorders they will or won't cover — as all do now for medical conditions. In practical terms, insurers tend to limit coverage to treatments and services deemed "medically necessary."

Medical necessity. Medically necessary care can be defined as generally accepted treatments that meet usual community standards of care. The definition generally excludes anything deemed experimental or not yet proven.

In practice, insurers have established their own definitions for medical necessity but have not made those definitions public. The Wellstone-Domenici Act requires that an insurer provide, upon request, its criteria for determining medical necessity. When appealing a decision, the person making the claim needs to argue that a particular service was necessary, using the same criteria.

Excluded services. Health plans rarely list what services they cover. Sometimes the fastest way for patients to understand what mental health or substance abuse services are not covered is to look at the list of excluded conditions, which is usually contained in the back of a policy or in an appendix.

Managed care controls. Most group health plans now incorporate some form of managed care. Only 3% of employer-sponsored plans offer "conventional" fee-for-service coverage (which hardly makes it conventional any more). Well-known methods for managing both care and cost include requirements that patients receive prior authorizations for certain services, receive care only for certain periods of time (designated by utilization reviews), and receive care only from those clinicians who are part of "preferred provider networks" or other pre-approved lists.

Carve-outs. In addition, many managed care companies choose to "carve out" or subcontract the management of mental health and substance abuse coverage to an independent behavioral health care company. Insurers say the goal is to provide specialty services or negotiate discounts, but in practical terms it may mean that patients may have to deal with two sets of administrators — one for mental health and substance abuse services, and another for other medical services.

Impact on state law. Most states now have their own parity bills — some of which are more restrictive than the Wellstone-Domenici Act and some more expansive. Although the way that federal and state laws interact in health insurance is complex — and is still being determined by court cases — in general, the weaker state laws will be replaced by the new federal law, while the stronger state laws will remain intact. For instance, the state mental health parity law enacted in Vermont, considered one of the most comprehensive in the country, will trump the new federal law.

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008



Effective date

On or after Jan. 1, 2010, depending on plan renewal date.

Plans affected

Large private group health insurance plans that offer mental health or substance abuse coverage in addition to medical and surgical coverage.

Scope of coverage

"Financial requirements" such as deductibles, copayments, coinsurance, out-of-pocket expenses, and annual and lifetime limits.

"Treatment limitations" such as limits on frequency of treatment, number of visits, days of coverage, and duration of treatment.

Conditions covered

Health insurers may determine which mental health and substance abuse conditions they will cover.


If a health insurer denies a claim, it must provide its criteria for "medical necessity" and explain why the service was not covered.

Out-of-network providers

If a health plan offers out-of-network coverage for medical and surgical services, it must also provide equivalent out-of-network coverage for mental health and substance abuse services.

Cost exemptions

A group health plan can qualify for exemption from the law if it finds that providing mental health and substance abuse coverage increases its costs by 2% or more in the first year, or 1% or more in subsequent years.

Source: U.?S. Emergency Economic Stabilization Act of 2008, Subtitle B, Sec. 512.

Potential advantages and limitations

Dr. Richard G. Frank, a professor of health economics at Harvard Medical School, thinks the most important accomplishment of the 2008 Wellstone-Domenici Act is that it offers new financial protections to the most severely ill patients, who need intensive mental health treatment and inpatient care. For example, adults with bipolar disorder or schizophrenia might incur $15,000 to $20,000 in medical bills a year for inpatient stays and other intensive treatment — much of which has not been covered by insurance. With the new law, most of those costs will be covered.

The new law also eliminates arbitrary limits on outpatient visits, which will translate into fewer out-of-pocket expenses for patients who see therapists or addiction counselors on a continuing basis.

But Dr. Frank points out that the Wellstone-Domenici Act does not cover the types of services that many patients with the most severe mental illnesses need to support their recovery — but aren't typically included in health insurance policies. These include services such as psychosocial rehabilitation and supportive employment services.

Many of the fears about mental health parity laws — namely, that they would dramatically increase costs for employers and drive up premiums for patients, or result in claims for frivolous services — have not been realized, even with broad parity laws. A dramatic example is the Federal Employees Health Benefits Program (FEHB), which started requiring parity for mental health coverage in 2001, following a directive by President Bill Clinton. An analysis of FEHB claims data found that most reimbursed services were for the treatment of anxiety, attention deficit hyperactivity disorder, depression, bipolar disorder, and schizophrenia.

Medicare mental health parity

Although it received less media attention than the Wellstone-Domenici Act, a law authorizing mental health parity for Medicare beneficiaries will be phased in over several years. Medicare enrolls patients who are 65 and older, as well as younger people who are permanently disabled.

Medicare recipients must pay half of the cost for outpatient psychotherapy and other mental health services. Starting in 2010, the copay will be reduced gradually until it reaches 20% in 2014 — equivalent to the current Medicare copay for other outpatient health services. The new law also provides expanded coverage for prescription antidepressants, antipsychotics, and anticonvulsants.

Be prepared; find help

Insurance counselors recommend that purchasers of insurance do the following on an annual basis.

Read the policy. Plans are renewed each year, and provisions may change. Take the time to know which services are covered, and which excluded.

Understand the rules. Identify which services require pre-authorizations or referrals, and which providers are included in a particular network. These rules are a major source of confusion.

Learn how to appeal. Every plan provides information on how to appeal decisions, whether for administrative reasons (such as whether a proper authorization was obtained) or for medical reasons (whether a service meets the criteria for medical necessity). Knowing this information in advance may make the appeals process easier.

Barry CL, et al. "Mental Health and Substance Abuse Insurance Parity for Federal Employees: How Did Health Plans Respond?" Journal of Policy Analysis and Management (Winter 2008): Vol. 27, No. 1, pp. 155–70.

For more references, please see www.health.harvard.edu/mentalextra.