THE GROWING DEMAND FOR EQUAL TREATMENT OF MENTAL AND PHYSICAL ILLNESSES IN INSURANCE POLICIES, AND WHAT IT MEANS TO EMPLOYERS

By: Bruce S. Harrison

W. Robert Donovan, Jr.

"This article was originally published in Matthew Bender's, Employment Law Bulletin."

I. INTRODUCTION

More than 5 percent of American adults have a serious mental illness; and 23 percent suffer from a diagnosed mental illness in a given year. [i] Major depression, bipolar disorder, schizophrenia and obsessive-compulsive disorder are four of the leading ten causes of disability in the United States. [ii] Psychiatric admissions accounted for 25.8 percent of all hospital admissions in 1998. [iii] Nor surprisingly given this background, in 1990, $69 billion was spent on treatment and rehabilitation for mental disorders. [iv]

Statistics such as those cited above are used by both sides in a growing debate about whether mental and physical illnesses should be accorded equal treatment in employment benefits. The impact of the answer could be substantial as health and disability insurance policies have historically provided lower benefits for mental as opposed to physical impairments. The insurance industry asserts that insurance premiums and health care costs will skyrocket if these lower limits on mental health benefits are now lifted.

On the other side, mental health advocates argue that the benefits of providing equal coverage for mental and physical impairments far outweigh the costs. They assert that parity will result in more people with mental illnesses seeking treatment, and becoming more productive and healthy members of society. And, they contend, more coverage will not result in the significant premiums projected by the insurance industry.

This debate has resulted in recent action in all three branches of the government. In the courts, there have been a number of claims filed under the Americans with Disabilities Act ("ADA"), challenging disparities in coverage between mental and physical health conditions in insurance policies. In Congress, the Mental Health Parity Act was passed in 1996. That Act, which took effect in 1998, is a compromise between the competing concerns voiced by the insurance and mental health lobbies. Additionally, other bills requiring parity in benefits are pending in Congress and at least thirty-one states have laws requiring, to some degree, parity of benefits. [v] This is an issue that transcends traditional political lines. Thus, on April 30, 2002, President Bush went on the record supporting measures to eliminate this disparity in benefits. [vi]

Below, we discuss the Mental Health Parity Act and Americans with Disabilities Act as they apply to these issues.

II. THE MENTAL HEALTH PARITY ACT

The Mental Health Parity Act states that, if a group health plan does not have any aggregate annual or lifetime limits on medical and surgical benefits, the plan cannot have any such limits on mental health benefits. [vii] If the plan does have such limits, then the limits for mental health benefits cannot be less than the limits for medical and surgical benefits. [viii] The Act applies to policies offered through insurance companies as well as employer self-insured policies. [ix]

While the Act requires parity between aggregate annual and lifetime limits on mental and physical health benefits, it provides a number of ways that mental health benefits can be limited more than physical health benefits. The most extreme limitation allowed would be to not provide any mental health benefits at all under a health insurance policy. [x] This is not realistic option for most employers, however, as it would disadvantage them in the labor market.

Another way the Act permits limits to be placed on mental health benefits is by permitting a very narrow definition of "mental health services," in insurance policies, effectively excluding a number of illnesses. Specifically, the Act defines "mental health benefits" as "benefits with respect to mental health services, as defined under the terms of the plan or coverage. . ." [xi] By narrowly defining mental health services in the benefit plan, any benefits falling outside the definition do not have to meet the requirements of the Act. While this option may be deemed a disability-based distinction for ADA principles, as discussed under Section III, below, an employee would still have to show that the plan was being used as a "subterfuge" to evade the purposes of the ADA ­ a heavy burden.

Further, the definition of "mental health benefits" expressly excludes "benefits with respect to treatment of substance abuse or chemical dependency." [xii] Accordingly, it is not a violation of the Act to have lower aggregate lifetime or annual limits for the treatment of substance abuse or chemical dependency than for medical or surgical benefits.

Additionally, the Act provides that it does not otherwise affect the terms relating to the amount, duration or scope of mental health benefits under a policy. [xiii] Thus, for example, it would not to be a violation of this law for a policy to place greater limits on the number of inpatient visits per year for mental health problems than for physical health problems, provided such a limit does not result in greater aggregate annual limits for mental impairments than for physical impairments. [xiv]

In addition to the foregoing, the law does not apply to employers who have less than 50 employees; nor does it apply to a group health plan if such application would result in an increase in the cost under the plan of at least one percent. [xv] Also, as its name suggests, the Act does not apply to disability insurance. Finally, the law does not apply to "benefits for services furnished on or after December 31, 2002." [xvi] With regard to this last point, however, it is important to note that the law originally was slated to expire on September 30, 2001. On January 10, 2002, the law was amended to extend through December 31, 2002. The Act may well be amended again at the end of 2002 to provide an additional extension.

Thus, while it is denominated as the Mental Health Parity Act, in actuality, the law provides employers and insurers with a number of ways to offer fewer mental health benefits than physical health benefits.

III. THE AMERICANS WITH DISABILITIES ACT

Title I of the ADA makes it unlawful for an employer to discriminate "against a qualified individual with a disability because of the disability of such individual in regard to . . .hiring, . . .employee compensation, . . .and other terms, conditions, and privileges of employment." [xvii] Employees with mental disabilities have sued their employers under Title I concerning employer-sponsored health and disability insurance policies that provide lower benefits for mental illnesses than for physical illnesses.

Courts that have addressed these claims have overwhelmingly held that insurance policies that provide different levels of benefits for mental versus physical disabilities do not violate the ADA. [xviii] One reason for this is because, many courts have held, "the ADA does not mandate equality between individuals with different disabilities. Rather, the ADA prohibits discrimination between the disabled and the non-disabled. . ." [xix] Because the ADA suits have been predicated on disparities between two different classes of disabled individuals ­ those with mental impairments versus those with physical impairments ­ the ADA is not implicated. Put another way, as long as individuals with mental disabilities have the same access to benefits as other employees, no discrimination has occurred. [xx]

A few courts have disagreed with the contention that the ADA only prohibits discrimination against disabled individuals versus non-disabled individuals. In the main, they have relied on a recent decision by the United States Supreme Court, Olmstead v. L.C., [xxi] for their contention that the ADA also prohibits discrimination between individuals with different types of disabilities. [xxii] These courts reason that the issue is whether the individual was discriminated against "because of the disability of such individual," and the answer to this question cannot be determined simply by looking at how the individual is treated as compared to non-disabled individuals. Instead, one must consider how the individual was treated as compared to individuals with other types of disabilities.

Another reason why persons challenging disparities in insurance coverage for mental versus physical conditions have been unsuccessful is that the plaintiffs are often not qualified to perform their old jobs. To bring a claim under the ADA, an individual must be able to show that she is able to perform the essential functions of her job, with or without a reasonable accommodation. [xxiii] When an individual suffering from a mental disability brings a claim alleging that she is being discriminated against because her long-term disability benefits ended sooner than the benefits would have ended if she was suffering from a physical disability, she is basically saying she is still totally disabled and entitled to more benefits. Many courts have held that this proves the individual cannot perform the essential functions of the job, and therefore is not protected by the ADA. [xxiv]

The latter argument is not universally accepted. A number of courts have held to the contrary, relying on the Supreme Court's decision in Robinson v. Shell Oil Co. [xxv] There, the Court ruled that Title VII applies to former, as well as current, employees. Some courts have held that Robinson extends to the ADA, and to former employees who are no longer able to perform the essential functions of their jobs. [xxvi] They find support for that position in the similar definitions of "employee" under Title VII and the ADA, as well as the fact that the ADA prohibits discrimination in post-employment benefits. [xxvii] This, they contend, shows that the ADA was meant to apply to ex-employees. Other courts have ruled that Robinson should not be extended to the ADA. [xxviii]

Another reason courts have held that the ADA does not protect against disparate levels of benefits for mental versus physical disabilities is Congress' recent enactment of the Mental Health Parity Act ("MHPA"). [xxix] Essentially, these courts reason that if Congress meant for the ADA to make such disparities unlawful they would not have seen a need to pass the MHPA. [xxx] This view has also been disputed, by courts holding that the ADA applies to people with disabilities, while the MHPA applies to a much broader category of illnesses ­ those who are and who are not disabled. [xxxi] From this they discern that the MHPA was passed to "take action against non-disability based forms of discrimination even if the ADA already regulated disability-based distinctions in the content of fringe benefits." [xxxii]

Finally, in ruling that these policies do not violate the ADA, many courts have pointed to the ADA's "safe harbor," which exempts employers from liability for a bona fide benefit plan, provided the safe harbor is not used as a "subterfuge to evade the purposes of" the ADA. [xxxiii] Bona fide simply means that the plan "exists and pays benefits, and that its terms have been accurately communicated to covered employees." [xxxiv] The "not a subterfuge" test has been given at least three different interpretations.

The EEOC contends that the safe harbor is being used as a subterfuge unless the employer can show that a disability-based distinction in a benefit plan is based on sound actuarial principles, or on actual or reasonably anticipated claims experience that coverage of the disability would create an intolerable and unsustainable financial strain upon the assets of the plan. [xxxv] This interpretation, however, has received little support from the courts. [xxxvi]

Instead of requiring the employer to show reliance on actuarial data or claims experience to fall within the safe harbor, most courts will find that the safe harbor is being used as a subterfuge only when the employee can establish that the employer "intended, by virtue of the plan, to discriminate [based on disability] in a non-fringe-benefit-related aspect of the employment relation." [xxxvii] To meet this definition of subterfuge, an employee would have to show that she was subject to employment discrimination outside the plan, or that the plan's exclusion somehow adversely affected the employee in some non-fringe-benefit context. [xxxviii] Obviously, this is a very difficult burden to meet.

At least one court has interpreted the "subterfuge" provision to mean that, while an employee will need to show "that the employer specifically intended to discriminate based on disability," the employee will not have to show that the employer intended to discriminate in a non-fringe-benefit-related aspect of the employment relation. [xxxix] However, the court further held that evidence that the employer "did not rely on an objective cost-justification approach" in setting the lower limits for mental illnesses, "would not of itself suffice to carry [the plaintiff's] burden of establishing that [the employer] specifically intended to evade the ADA's anti-discrimination mandate." [xl] Therefore, even under this test, the burden on the employee is significant.

While not always agreeing on all of the above contentions, seven of the eight United States Circuit Court of Appeals that have addressed this issue have ruled that, as a matter of law, insurance policies or plans that provide more benefits for physical than for mental illnesses do not violate the ADA. [xli] Only the Eleventh Circuit has ruled that such a policy could violate the ADA, and since then the opinion has been vacated. [xlii] Moreover, while ruling that such policies may violate the ADA, the Court agreed that the plaintiff would still have to show that the employer specifically intended to discriminate based on disability, making it very difficult for a plaintiff to win such a claim.

IV.  CONCLUSION

Currently, the law favors employers with respect to the ability to maintain differentials in the coverage of mental versus physical health conditions. This may soon change, however, given the fact that bills are currently pending in Congress to demand more parity in such benefits, and President Bush, in espousing "compassionate conservatism," has gone on the record as supporting more equality in such benefits.