Volume 19, Number 6
September 2002



By C. Geoffrey Weirich and Ashoo Sharma

Congress enacted the Mental Health Parity Act of 1996 with the intention of prohibiting employers and insurers from setting lower lifetime or annual dollar limits for mental health benefits than for medical/surgical benefits (physical health coverage). It modified ERISA to provide generally that a group health plan that provided both medical/surgical benefits and mental health benefits could not impose either aggregate lifetime limits or annual limits on mental health benefits unless it imposed the same limits on "substantially all" medical and surgical benefits.

Under the MHPA, employers' group health plans were required to apply the same lifetime limit to both types of benefits and make no distinction between them, or to eliminate lower aggregate lifetime limits on mental health benefits. If a group health plan offered two or more benefit packages under the plan, the MHPA applied separately to each package whether or not the mental health benefits were administered separately. In addition, the MHPA requirements applied to both group health plans and health insurance issuers offering coverage in connection with a group health plan.

Regulations implementing the MHPA provided examples of how a group health plan could comply with the act. Specifically, a plan could conform by: not including an aggregate lifetime dollar limit or annual dollar limit on mental health benefits; imposing a single aggregate lifetime or annual dollar limit on both medical/surgical benefits and mental health benefits without distinguishing between the two; or imposing an aggregate lifetime dollar limit or annual dollar limit on mental health benefits not less than the aggregate lifetime dollar limit or annual dollar limit on medical/surgical benefits. For plans with aggregate lifetime dollar limits or annual dollar limits that differed for medical/surgical benefits, the plan could comply by calculating a weighted average aggregate lifetime dollar limit or weighted average annual dollar limit for mental health benefits.

After the MHPA's enactment, the primary debate was whether an employer could claim the exemption based on an estimate of plan costs or actual experience had to be shown. MHPA regulations adopted a compromise position, stating that a plan had to implement the parity requirements for the first plan year beginning on or after January 1, 1998, and continue to comply with the parity requirements until September 30, 2001 (the sunset date), unless the plan satisfied the increased-cost exemption after six months and complied with a notice requirement. Before a group health plan could claim the 1 percent increased-cost exemption, it had to furnish participants and beneficiaries with a notice of the plan's exemption from the parity requirements in a form prescribed by the regulations.

Neither the MHPA nor its regulations preempted state laws that require favorable treatment of mental health benefits under health insurance coverage offered by insurance carriers. In addition, although the MHPA required parity of lifetime dollar limits and annual dollar limits if an employer offered coverage, it did not affect the terms and conditions relating to the amount, duration, or scope of mental health benefits under a plan or coverage, including cost-sharing, limits on the number of visits or days of coverage, and requirements regarding medical necessity, prior authorization for treatment, and primary care physician referrals for treatment.

The MHPA expired on September 30, 2001. Congress is expected to renew the act, however, particularly in light of the MHPA's negligible impact on claims costs for employers. Consequently, when negotiating for group health insurance, employers should consider the possibility that MHPA requirements will be renewed and review how they might apply. In addition, employers would be wise to pay particular attention to litigation surrounding mental health benefits under ERISA plans.

Parity issues in the courts. Most employers were able to comply with the MHPA's parity requirements, and there has been very little litigation under the act since its enactment. Courts have held that plan sponsors generally have significant discretion to define the terms of their plans and that denial of eligibility will not be overturned unless the decision is arbitrary and capricious. Nevertheless, particularly with the expiration of the MHPA, employers need to be mindful of how courts define mental illness. Cases decided prior to the MHPA may provide guidance as to how courts are likely to interpret the term should a challenge be made to an employer's denial of mental health benefits.

In Arkansas Blue Cross & Blue Shield, Inc. v. Doe, a plaintiff sought coverage for his daughter's hospitalization and treatment for bipolar disorder. The policy in question provided extensive benefits for physical illnesses but placed more limits on the coverage for "mental, psychiatric, or nervous conditions" without further definition of those categories. The trial court relied heavily on the expert testimony of a psychiatrist who emphasized the physical origin of bipolar disorder. The doctor pointed out that a mental classification of the impairment would be based on its symptoms, whereas the medical profession viewed bipolar disorder as a physical problem. The Arkansas Court of Appeals affirmed the trial court's holding that for purposes of the insurance policy, the patient's condition was a physical illness not subject to the policy's mental illness limitation.

A similar result was reached by the Ninth Circuit in Kunin v. Benefit Trust Life Insurance Co., in which the insurer paid only the $10,000 policy limit for "mental illness or nervous disorders" in reimbursing for autism treatment. The court determined that the term mental illness, as used in the policy, was ambiguous with respect to autism. Accordingly, the court noted that every state law held that "ambiguities in insurance contracts must be construed against the insurer." Thus, the court upheld the trial court's decision that the insurer had to pay for the treatment in full, accepting the construction that autism was not a mental illness as defined by the policy in question. In reaching this result, the court relied heavily on expert testimony from the insured's psychiatrists, who said that the term mental illness referred to a "behavioral disturbance with no demonstrable organic or physical basis" and that autism fell outside of that definition.

The preceding cases illustrate how a court's focus on the origin of serious mental illness rather than the symptoms or treatment often leads to a finding for insured plaintiffs seeking reimbursement for expenses. Conversely, courts have found for insurers when the focus is shifted to a layperson's understanding of a disease or its symptoms.

In Brewer v. Lincoln National Life Insurance Co., the Eighth Circuit focused on a layperson's understanding of the symptoms of the illness rather than an expert's opinion. The plaintiff had brought an action to recover for his son's severe mood disorder under his group health insurance policy. At trial, the plaintiff presented expert testimony sufficient to convince the judge that because the child's illness was traceable to an organic rather than psychological cause, the condition was physical in nature. The Eighth Circuit reversed this finding, holding that it would be "improper and unfair to allow experts to define terms that were specifically written for and targeted toward laypersons."

In Simons v. Blue Cross & Blue Shield, an insurer, relying on the policy's limitation for psychiatric care, refused to pay fully for an insured's treatment for anorexia nervosa. The court avoided determining whether anorexia constituted a mental illness for purposes of the insurance policy and instead reasoned that because the treatment was directed at the insured's physical malnutrition and hypertension, including nasogastric feeding and medication, it constituted medical treatment, not psychiatric care. The court concluded that "it is the physical condition, and the treatment required to deal with that condition, which is crucial, not the reason for the disorder."

C. Geoffrey Weirich is a partner and Ashoo Sharma is an attorney in the Atlanta, Georgia, office of Paul, Hastings, Janofsky and Walker LLP.

This article is an abridged and edited version of one that originally appeared on page 469 of The Labor Lawyer, Winter/Spring 2002 (17:3).

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