Managed Care Fights Mandates Despite Setback

November 1999, Vol. XVI, Issue 11

With the stroke of a pen, California's governor, Gray Davis, approved legislation in September that will soon bring insurance coverage to 25 million individuals suffering from severe mental illnesses. Part of a major overhaul of the state's health insurance laws, when the parity bill becomes effective in July 2000, it will require that insurance companies provide co-payments, deductibles and lifetime benefits equivalent to those for other illnesses, along with reimbursements for partial hospital stays and outpatient and inpatient services.

Once in place, the California reform will protect more than half of all Americans with health insurance coverage-an estimated 53%-by some form of state-mandated mental health parity law. California is the 28th state to enact legislation, and its version is one of the nation's strongest. Under this bill, HMOs will be required to cover adults and children with the most severe mental illnesses-schizophrenia, bipolar disorder, major depressive disorders, schizoaffective disorder, panic disorder, obsessive-compulsive disorder, autism, anorexia nervosa and bulimia nervosa.

The impact of the bill, however, is still uncertain. Proponents of the bill argue that the cost of mental health parity and other mandates will have a negligible effect on premiums, while the managed care industry predicts that as many as 390,000 Californians will lose their coverage as a result of the higher premiums. Meanwhile, the state's Department of Mental Health and officials of other agencies haven't begun to consider what effect the additional private resources will have on the public mental health system. As the national debate over health care reform heats up, the question of whether California acts as a bellwether for Congress or other states is still unanswered.

Standing in front of a banner that proclaimed "Putting Patients First," Davis addressed a crowd of several hundred public officials and invited guests at the bill-signing ceremony. "California has the best health care system in the world, but it is not always best for every Californian, every place, every time. More than infrequently, Californians fighting for their lives are forced at the same time to fight their HMOs. Decisions made by cost-cutting accountants seem to override concerns of caregiving doctors," he told the crowd.

Davis signed 20 bills that imposed a wide range of reforms on the managed care industry. The audience broke into the loudest applause, however, when the governor announced passage of AB 88, the mental health parity bill. "All of these bills are of historic significance," Davis said, "but extending HMO coverage to severe mental illness is really a major step forward. I am pleased to sign it."

For Democratic California Assembly-woman Helen Thomson, a former psychiatric nurse who composed the mental health parity bill, its passage marked the end of a long and arduous struggle that included a veto last year by former governor Pete Wilson, a Republican. "I applaud Governor Davis for his courage to stand up for the interests of the severely mentally ill by ending the blatant discrimination practiced by the insurance industry for decades," Thomas said in a press statement. "His signing of AB 88 today sends a strong message to private industry that the best bang for the health care buck is to treat people fairly and to right our despicable history of stigmatization against the mentally ill."

Private industry has shown no sign of changing its tune any time soon, however. Even though the California reforms represent a major legislative setback, managed care representatives said they would not let up on their opposition to benefits mandates, including mental health parity.

Up until the last minute, opponents urged the governor to veto the mental health parity bill, citing cost and insurance availability concerns. During the legislative battle regarding the bill, the California Association of Health Plans (CAHP), a Sacramento-based organization representing nearly every health plan licensed by the state, urged amendments that would have exempted small groups, reduced the scope of the bill to six serious mental illnesses, permitted reduced limits on inpatient and outpatient days, and allowed for higher co-payments.

Once the bill passed, CAHP president Walter Zelman, Ph.D., released a conciliatory statement, lauding the governor for signing laws that would "increase consumer confidence." Nevertheless, he added, CAHP is "concerned that the reform package includes proposals which we fear may produce more in the way of higher costs than benefits to consumers."

CAHP spokesperson Cory Black told Psychiatric Times that mandated mental health benefits would force employers and individuals to purchase coverage they may not want. "That's like forcing [a supermarket] to sell a sucker to everyone who came through the line regardless of what they wanted," he explained. "If they don't want a sucker, how many people are not going to buy their other things from [that supermarket]."

Nevertheless, Black was unable to identify any state with parity laws where the dire predictions about cost and insurance availability actually occurred. "We don't know what this is going to cost employers in California. The state legislature never costed it out, and no one knows. That's why it's frustrating."

The reason Black was unable to point to other states, said Davis spokesperson Michael Bustamante, is that none of those predictions have ever panned out. Accusing the managed care industry of "posturing" to protect their business interests, Bustamante told PT that "the governor worked very hard with the legislature, and also with HMO providers, patient groups and doctors' groups to insure that the package of HMO reform legislation that was passed would either be at no cost or at a very low cost to consumers. There is no reason why anyone should see an increase in their premiums, and there is no reason why anyone should lose their health care [benefits] over this."

Thomson said that the most significant obstacle she faced in convincing her colleagues to vote for the bill was persuading them that it was cost-effective and would not drive the cost of health care beyond the reach of Californians. In fact, research showed that, in states with parity, overall treatment costs were reduced by providing mental health care.

"There wasn't a single state in which the gloom and doom predicted by the managed care industry came to pass," Thomson told PT. "Not one of those states has lost people from insurance. Not one of them has the costs of insurance driven up significantly."

She disagreed that employers did not want mental health benefits. According to her polling data, small businesses supported equal mental health benefits, as long as premium increases were controlled.

Kaiser Permanente, one of California's largest HMOs, strayed from the health care industry's opposition. In a letter to Thomson, a Kaiser executive noted that enactment of mental health parity "would not disproportionately impact our individual and small employer group products." Kaiser predicted any additional costs associated with equalizing benefits "would spread evenly across our product lines."

Nevertheless, there are no signs that opponents of government-enforced benefits mandates are about to give up. The American Association of Health Plans, the nation's largest health plan trade association and a powerful industry lobbying force in Washington, D.C., claimed that HMO reform was not high on the agenda for American voters. According to a spokesperson, the organization was not planning to alter its opposition to government regulation.

Richard Coorsh, assistant vice president of communications for the Health Insurance Association of America, another Washington, D.C.-based trade group, accused advocates of any mandated insurance benefits of narrow-mindedness, saying they were foisting additional costs on health plans before the needs of other Americans were considered. He told PT, "The insurance industry is more than willing to provide any kind of coverage that people or employers are willing to pay for, but to mandate any particular type of coverage across the board ignores the needs of more than 43 million uninsured Americans who can't even think about basic coverage."

According to Susan Laudicina, director of state services research at the Blue Cross and Blue Shield Association, the majority of parity bills have not been in place long enough to develop the claims data necessary to analyze their impact on cost and access to health care. "It is premature to form any conclusion about the importability of parity of legislation based on the actual state experiences. Having said that, as we get more experience we're going to get different results."

Nevertheless, the association is not ready to throw in the towel on its opposition to mental health parity. "Blue Cross/Blue Shield is against mandated health benefits, including mandating parity, however you define it, not just for cost reasons, but also for equity and fairness reasons," she said. "We will sell any kind of benefit that a purchaser wants us to design for them, but the reason we have problems with mandated health benefits as an approach to giving people coordinated care is because we just don't think the best person to make the choice is a state senator or an assemblywoman. We don't think that a legislature is the right place to make all those decisions [about benefits], and those choices should be made by the employers and the employees."

Liz Figueroa, a Democratic California state senator who played a key role in passing several of the reform measures, told PT that the managed care industry's greater loyalty to shareholders than to patients is its real reason for concern. Denying that mandated reforms will increase costs significantly or add to the problem of uninsured individuals, she compared industry opponents to "Chicken Little, running around [saying] 'the sky is falling, the sky is falling.'"

As Congress grapples with its own managed care reform efforts, it is still too soon to tell whether it will follow California's lead. That state's governor, however, has thrown down the gauntlet. "I hope Congress pays attention to what we're doing here, because there's no reason they can't do the same thing," Davis said.

(On the national level, the House of Representatives passed a bill on Oct. 7 that would guarantee access to emergency care, allow patients to appeal coverage decisions to an independent board, permit doctors to talk freely with patients about treatment options, and allow injured patients to sue HMOs for damages caused by improper denial of care. The bill must now be reconciled with the bill previously passed by the Senate-Ed.)