BILL ANALYSIS SENATE COMMITTEE ON INSURANCE Senator Jackie Speier, Chair AB 88 (Thomson) Hearing Date: July 14, As amended: February 24, 1999 Fiscal: Yes Urgency: No Assembly Health: 3/9/99 (10-3) Assembly Floor: 6/3/99 (59-18) Senate Health & Human Services: 6/30/99 (5-1) SUMMARY Would require a health care service plan contract or disability (health) insurance policy to provide coverage for the severe mental illnesses, as defined, of a person of any age, and for the serious emotional disturbances, as defined, of a child under the same terms and conditions as applied to other medical conditions. DIGEST Existing law 1. Requires health care service plan contracts or disability insurance policies covering hospital, medical or surgical services to cover the diagnosis and treatment of specified physical conditions. This bill 1. Would require every health care service plan (health plan) or disability insurer contract issued, amended, or renewed on or after January 1, 2000, that provides hospital, medical, or surgical coverage, to provide coverage for the diagnosis and medically necessary treatment of severe mental illnesses of a person of any age, and for the serious emotional disturbances of a child. 2. Would define "severe mental illnesses" as including: a) Schizophrenia; b) Schizoaffective disorder; AB 88, Page 2 c) Bipolar disorder (manic depressiveness); d) Major depressive disorders; e) Panic disorder; f) Obsessive-compulsive disorder; g) Pervasive developmental disorder or autism; h) Anorexia nervosa; and i) Bulimia nervosa. 3. Would define "serious emotional disturbances of a child" as a child who has one or more mental disorders, other than substance abuse or developmental disability, identified in the Diagnostic and Statistical Manual of Mental Disorders. 4. Would require severe mental illness benefits to include outpatient and inpatient services, hospital services, and prescription drugs if a plan contract or insurance policy otherwise covers prescription drugs. 5. Would require terms for maximum lifetime benefits, copayments and deductibles to be applied equally to all benefits under a plan contract or insurance policy. 6. Would provide that the requirements of this bill do not apply to a contract between the Department of Health Services and a health plan for Medi-Cal beneficiaries. 7. Would exempt specialized health plan contracts and insurance policies, including Medicare supplement policies, from the requirements of this bill. 8. Would neither prohibit nor limits the use of case management, managed care or utilization review in the provision of mental health coverage. COMMENTS 1. Purpose of the bill . The author indicates this bill will prohibit discrimination against people with biologically-based mental illnesses, dispel artificial and scientifically unsound distinctions between mental and physical illnesses, and require equitable mental health coverage among all health plans and insurers to prevent adverse risk selection by health plans and insurers. The author stresses that mental illness is AB 88, Page 3 treatable in a cost-effective manner and that the failure of the health care system to provide adequate treatment for persons with mental illness has been costly not only to mentally ill individuals and their families, but to society as a whole and particularly to state and local governments. The Federal Mental Health Parity Act: The federal Mental Health Parity Act (P.L. No. 104-204), which went into effect on January 1, 1998, prohibits health plans from setting annual or lifetime dollar limits on an enrollee's mental health benefits that are lower than any such limits on other medical care. The federal requirement does not apply to employers with fewer than 50 employees. A recent New York Times article reports that some health plans have responded to the prohibition on monetary limits by instituting limits on patient visits, treatment sessions, and hospital lengths of stay. The Cost of Mental Health Coverage: In April 1998, the U.S. Department of Health and Human Services released a report, "The Costs and Effects of Parity for Mental Health and Substance Abuse Insurance Benefits." The report estimates that full parity for mental health and substance abuse services in managed care health plans would increase family insurance premiums less than 1%. The premium increase projected for a composite of health plans and insurers, including fee for service reimbursement, is an average of 3.6%. The study further specifies that the projected premium increase, for full parity of mental illness and substance abuse, in a health maintenance organization (HMO), is .6%. In a 1996 study, the Congressional Budget Office (CBO) projected premium increases of 3.2% would result from implementation of mental health parity, and increases of 4% would result from full parity including chemical dependency coverage. However, these findings are disputed in a November 12, 1997, RAND study published in the Journal of the American Medical Association. RAND notes that the CBO projections "did not incorporate any cost distinction between managed care or fee-for-service care and relied on a 1986 report from the National Institute of Mental Health for AB 88, Page 4 practice patterns" and further concluded that the CBO projections were "likely to overestimate the cost effects of parity legislation . . . ." In its 1998 report, "The Costs and Effects of Parity for Mental Health and Substance Abuse Insurance Benefits," the National Advisory Mental Health Council (NAMHC) reviewed state parity laws, and the effect of such laws on premium increases in five states. The NAMHC concluded that in systems already using managed care, implementing full mental health parity results in an increase of less than 1% in total health care costs during a one-year period. In the Actuarial Analysis roundtable discussion hosted by the Senate Insurance Committee and the California HealthCare Foundation at the Capitol on June 22, 1999, all participants acknowledged managed care delivery systems lowered mental health parity costs as opposed to preferred provider or point of service plans. Cost estimates for mental health parity ranged from approximately 1% (including coverage for substance abuse) in states with managed care delivery systems to 3% to 7% for Preferred Provider Delivery systems. The ratio of managed care to other types of delivery in California was estimated to be approximately 70% to 30% respectively. Participants also cited studies that indicate general medical costs decrease and offset the cost of mental health parity coverage. This occurs because mental health patients typically over-utilize medical services and when treated appropriately for mental problems they cease utilize expensive general medical care. A synopsis report prepared by the California HealthCare Foundation will be available mid July 1999. Similar Laws in Other States. At least 19 states have laws requiring equitable coverage for mental illnesses. These benefits range from covering all mental illnesses, plus chemical dependency, to only a selected number of severe or biologically based illnesses. This bill requires equitable coverage for selected severe mental illnesses. 2. Support . The California Alliance for the Mentally Ill (CAMI), the sponsor, argues that this bill would AB 88, Page 5 benefit employers by improving worker productivity, would reduce homelessness, and significantly lower costs to the criminal justice system. CAMI also argues that increased private coverage will reduce costs for the state and counties. The California Psychiatric Association (CPA) argues that nearly all health plans discriminate against patients with genetic biological brain disorders such as schizophrenia, depression and manic depression. This discrimination takes the form of higher co-payments, fewer allowable inpatient days, and caps on doctor visits. CPA states that this discrimination began when it was believed that these disorders were not medical problems. Research now shows that the severe mental illnesses covered by this bill are analogous to diabetes and heart disease. Brain scans show clear differences between normal brains and the brains of patients with schizophrenia, manic depression, depression, bulimia, anorexia and obsessive-compulsive disorder. CPA argues that with managed care, controls are in place to assure that services required to be covered in this bill are limited to those that are medically necessary. CPA further notes that depression is second only to heart disease in causing absence from work. Nearly 20% of disability in women is caused by depression, and 4 of the 5 leading causes of disability of women are brain disorders required to be covered under the provisions of this bill. The California Nurses Association reports that many patients and families are paying significant out of pocket expenses for basic treatment and medication for mental illnesses that should have been covered by health plans. Without coverage, many patients cannot afford medication and therapy associated with a disease, and they suffer needlessly. The National Association for the Mentally Ill Sacramento contends that due to the high market penetration of managed care in California, there is no danger of frivolous and unchecked utilization of services or that costs will spiral out of control. While the California Psychological Association supports this bill in concept, the Psychological Association argues that all mental illnesses should be covered equitably, along with other physical illnesses. The Psychological AB 88, Page 6 Association is concerned that patients who do not suffer from one of the disorders specified in this bill will nevertheless be labeled with one of those diagnoses in an effort to gain third party payment. The Psychological Association is sponsoring SB 468 (Polanco), which would require coverage for all mental illnesses. 3. Oppose Unless Amended . The Association of California Life and Health Insurance Companies (ACLHIC) requests amendments to 1) limit the mandated coverage to mental disorders that have a biological cause, such as schizophrenia and exclude those such as eating and panic disorders that have not been shown to be biologically-based, 2) limit to thirty the number of annual hospital inpatient days; 3) allow PPO's the option of providing copays and deductibles with all other terms and conditions the same, and 4) exclude small employers and individuals from the mandate. Trauma Survivors United requests amendments to remove language that allows for compulsory drugging or involuntary hospitalization for persons with mental illness. Trauma Survivors is a group of survivors of severe childhood trauma, including incest and physical violence, that believes many in the group were misdiagnosed by mental health professionals who attempted to treat the symptoms with medication rather that the underlying trauma. The group is concerned that children and adults who are being sexually and/or physically abused will be drugged and hospitalized rather than having the abuse halted. 4. Oppose: The Californians for Affordable Health Reform (CAHR) explains their policy is to oppose all measures that mandate specific coverages that may increase premiums and jeopardize the ability for employers and employees alike to maintain medical insurance. CAHR cites a 1998 study by The California Wellness Foundation that found small employers cite financial reasons to explain why they do not provide health insurance to their employees. CAHR also notes that CalPERS recently announced that health care premiums will rise an average of 9.7% next year without considering the impact of any current legislation. CAHR cites a Barents Group study indicating that for every 1% increase in the cost of health care coverage, at least 40,000 Californians lose AB 88, Page 7 their coverage. CAHR quotes estimates that this bill will have a cost impact between .75% and 1.0%. The California Manufacturers Association echoes the concerns of the CAHR that the consequent increase in premium rates would have an adverse effect on an employer's ability to offer affordable health care to employees. RELATED LEGISLATION This bill is substantially similar to AB 1100 (Thomson) of 1998, which was vetoed last year by the Governor. In his veto message, Governor Wilson argued that mandating mental health coverage would lead to increased insurance costs, and thereby result in reduced access to health insurance for many Californians. SB 468 (Polanco) requires equitable coverage for all mental disorders and illnesses (excluding substance abuse disorders) and serious emotional disturbances of a child. SB 468 passed out of Assembly Health Committee with amendments and was re-referred to the Assembly Committee on Appropriations. QUESTION The increase in premiums expected from mental health parity is estimated to be 1% in HMO products and 3 - 7% in PPO or POS products. As individuals with mental disorders have been shown to be high utilizers of medical services and high utilizers of medical services are also known to migrate toward an HMO/managed care product, could the advantages of mental parity be offered through the HMO product alone and capture the majority those individuals who need the service? Might not a "carve out" of the PPO product limit the increase of the expected premium while benefiting the target population through the coverage in the HMO product alone? POSITIONS Support California Alliance for the Mentally Ill (sponsor) Alliance for the Mentally Ill Alliance for the Mentally Ill of Orange County Alliance for the Mentally Ill of Los Angeles AB 88, Page 8 Alliance for the Mentally Ill of San Mateo County Alliance for the Mentally Ill of Santa Clara County Alliance for the Mentally Ill of Shasta County Association of Regional Center Agencies California Association of Catholic Hospitals California Healthcare Association California Medical Association California Mental Health Directors Association California Mental Health Planning Council California Nurses Association California Professional Firefighters California Psychological Association (in concept only) California Psychiatric Association California School Employees Association California Society of Industrial Medicine and Surgery California State Association of Counties California State Employees Association California Teachers Association County Health Executives Association of California County of Los Angeles County of Marin, Department of Health and Human Services County of Sacramento Family Service Council of California League of Women Voters Many Individuals Mount San Jacinto Alliance for the Mentally Ill NAMI Inland Valley National Alliance for the Mentally Ill, Sacramento Chapter National Association of Social Workers Novartis Older Women's League of California Orange County Coalition for Mental Health Pharmacia and Upjohn San Diego Alliance for the Mentally Ill San Gabriel Valley AMI INC. Santa Clara County Board of Supervisors Solano County Board of Supervisors Union of American Physicians & Dentists Urban Counties Caucus Several individuals Oppose Association of California Life and Health Insurance Companies (unless amended) Trauma Survivors United (Unless Amended) AB 88, Page 9 Californians for Affordable Health Reform California Manufacturers Association Allison Reed, Marketing Specialist Consultant: Sharon Barclay Kime