<nobr>Jun 25, 2003</nobr>

Outline of Remarks by Anthony J. Knettel, ERIC Vice President Health Affairs; Hearing on Mandated Benefits, Federal Trade Commission, June 25, 2003

INTRODUCTION

ERIC represents:
* 110 of the largest employers in the US
* Large proportion sponsor self-funded health plans
* Many also provide retiree health coverage

Overview of remarks:
* The current benefit design environment
* How mandates impact plan sponsors' benefit design decisions
* Specific example - mandated mental health parity

THE CURRENT BENEFIT DESIGN ENVIRONMENT

Unprecedented pressure to contain health benefit costs due to:
* Domestic and global competition from competitors who provide less or no health coverage to employees and/or retirees
* Current state of the economy
* Health care cost trends
* Pressures have completely changed corporate budgeting/planning processes

In this corporate fiscal environment, benefit mandates do not result in any net increase in coverage:
* Individual covered services, and whole categories of covered services, increasingly compete against each other to retain the most favorable level of cost-sharing under the plan, as well as to remain in the benefit package
* They also compete against other benefits, e.g., vision, dental, life insurance, disability, pensions, stock ownership
* Covered services that have poor perceived value may be subject to higher deductibles, copayments or coinsurance, or omitted entirely from coverage
* Each mandate is offset by a benefit reduction of equal or greater cost

HOW MANDATES IMPACT PLAN SPONSORS' BENEFIT DESIGN DECISIONS

Insured arrangements:
* ERIC members contracting with national carriers, or desiring to provide uniform benefits to employees across multiple carriers, are forced to adopt coverage that aggregates the most restrictive provisions of each related state mandate in their insured arrangements in order to maintain uniformity
* The alternative is to abandon uniformity in benefit design and cope instead with the cost and administrative complexity of overlapping and inconsistent state mandates

Self-funded arrangements are not necessarily immune
* There is frequent "leakage" where carriers acting in an ASO capacity do not want to maintain separate administrative systems from their insured and ASO products

SPECIFIC EXAMPLE - MANDATED MENTAL HEALTH PARITY

Wide range in state (and federal) versions of "parity": from mandated coverage of a specified list of serious disorders to full parity between mental health and medical/surgical benefits

Mandated coverage of specified list of serious disorders has minimal impact on ERIC members because:
* They don't exclude any of these specific conditions from coverage to begin with
* The nature of the mandate requires no changes in benefit plan design

Full parity, however, has the potential to be exceedingly disruptive:
* Flexible interpretation and enforcement makes a difference in impact
* All it takes is one litigant to convince one court to adopt an inflexible interpretation and everything changes
* For example, if full parity is applied to treatment limitations, not just to cost-sharing, employer-provided mental health coverage could implode:
** Such coverage depends on managed behavior healthcare arrangements that frequently rely on closed networks, tighter networks and/or vigorous utilization management and review that are not comparable to out-of-network coverage, broader networks and less vigorous UR/UM of the medical/surgical coverage they are paired with.
** Since all of these techniques have the potential to limit access to treatment, all of them are potentially illegal under a full parity mandate that applies to treatment limitations.

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