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; 




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       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  




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    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  




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    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  




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    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  




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    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  




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  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




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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)




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Californians for Affordable Health Reform
California Manufacturers Association
Allison Reed, Marketing Specialist

Consultant:   Sharon Barclay Kime