On behalf of the New Jersey Business and Industry Association's more than 23,000 members, I would like to express our strong opposition to Assembly Bill 2512, sponsored by Assemblyman Robert M. Gordon, Gordon M. Johnson and Louis Manzo. This measure mandates unlimited coverage for mental health and substance abuse treatment for those purchasing State regulated health insurance. It also applies to the State Health Benefits Plan.

Health Insurance Costs Are Out of Control

The cost of health insurance has exploded in recent years, making it too expensive for some New Jersey companies. As a consequence, the percentage of private-sector employers providing health insurance coverage for their employees is beginning to fall.

This trend has been documented in NJBIA's annual Health Benefits Survey. This year's survey found that the average cost of employee health coverage soared by 11 percent to a record $7,307 per employee in 2004. This followed a 13 percent increase in 2003 and a record 15 percent increase in 2002. The cumulative increase over the last four years was 55 percent.

Employees, not just employers, also end up paying more . Employers have passed some of the cost of rising premiums on to their employees. That means that employees are paying more and more of the cost of their health insurance. However, if you look at the proportion of the total cost, the amount of the cost borne by employees has remained stable -- at about 20% of the total cost, according to the Towers Perrin employer survey. Thus, as premiums rise, employee costs escalate at the same rate.

Employers Are Forced to Drop Coverage

In response to exploding costs, a declining percentage of survey respondents provided coverage in 2004. This was the first statistically meaningful drop in the percentage of respondents providing health coverage in the 12-year history of the survey.

Ninety percent of survey participants said they provided coverage for full-time employees in 2004, down from 94 percent the year before. The decline in coverage was more pronounced among smaller companies. Eighty-seven percent of small businesses (2-19 employees) provided coverage in 2004, down from 92 percent.

Mandate Laws Only Reach Small Employers

Two-thirds of New Jerseyans get their health insurance through their employer. Roughly 5.5 million people in New Jersey obtain their health insurance through their employer. That equates to roughly 66% of the population. Another 21% are in government programs. The rest are uninsured.

However, small employers are least able to afford premiums and provide the benefit. There is a direct relationship between the size of a company and the likelihood that it is able to afford to offer health insurance. On average about 60 percent of small businesses with less than 50 employees provide health care coverage.

The State regulates only a small portion of the health insurance market – mandate laws reach less than one-third of New Jerseyans. There are about 2.4 million individuals (about 28% of the population) purchasing in the State regulated market -- about 1.4 million in the large employer market, 900,000 in the small employer market and 77,000 in the individual market.

Enacting this legislation will surely provide more cost pressure on small businesses – the group most at risk for dropping coverage for their employees.

Legislature Can Help Small Employers

Some of the forces driving health insurance costs higher are national in scope, such as an aging population, new medical technologies and treatments, and greater utilization of healthcare services.

However, many of the forces driving costs higher in New Jersey are specific to this state, and they often are a direct consequence of outdated or misguided State laws and regulations. Inflexible insurance-market regulations, costly coverage mandates, and other State-based problems have contributed to costs that are the highest in the nation. (The 2004 Mercer Human Resources Consulting national survey reports that New Jersey employers continue to pay the country's highest health insurance costs.)

Enacting unlimited mental health parity mandate legislation will only exacerbate the current crisis.

Cost Estimates Assume No Additional Treatment

It is unclear what a mental health parity mandate law would cost employers and employees, but it is clear that premiums will increase. The Mandated Health Benefits Advisory Commission (MHBAC) estimated that Assembly Bill 333 of 2004-2005 would result in premium increases of 0.3% to 0.7%. This number assumes no increase in the utilization of services , which seems unlikely. The MHBAC report seems find a large unmet need for mental health services (26% need services), so the estimated premium increase seems to understate the impact.

The report's conservative estimate is that up to 5,000 people could lose all of their healthcare coverage as a result of the increased cost. This is because, generally, as premiums increase policyholders drop insured coverage. These policyholders may become uninsured or form self-funded plans.

The Measure Requires Virtually Unlimited Coverage

The bill provides that if coverage is provided for any condition in the Diagnostic and Statistical Manual of Mental Disorders (DSMD) that is not a biologically based mental illness (BBMI), such condition must be covered under the same terms and conditions as any other illness.

The bill also requires that drug and alcohol addiction must be covered and that such coverage must be the same as for any other illness when ordered by a physician or licensed addiction professional based on criteria of the American Society of Addictive Medicine.

Significant Mental Health Treatment Coverage Already Exists

In all insured markets (large employer, SEH, IHC) and the SHBP, the state BBMI mandate, P.L. 1999, c.106, requires carriers to cover biologically based mental illness under the same terms and conditions as any other disease (deductibles, copays, and benefit maximums) – this is called full parity.

In the large employer market , plans may provide additional mental health benefits only to the extent that (1) carriers offer the benefits (they are not required to), and (2) purchasers (employers) choose to purchase them. Large employer carriers typically offer, and employers typically purchase, some additional coverage for mental health but with limitations typically imposed on the number of days of inpatient treatment or the number of visits for outpatient treatment.

In the Small Employer market , carriers must offer, as part of the standard SEH plans, non-BBMI benefits limited to 30 inpatient days and 20 outpatient visits per year. However, a carrier may offer modified coverage through a rider -- reducing (or eliminating) the non-BBMI benefit ( but not reducing the mandated BBMI benefits ), or providing additional benefits . In fact, only one carrier offers a rider that reduces, but does not eliminate, the non-BBMI benefit, so this element of flexibility is not in fact exercised.

The IHC market also has standard plans, but no modification via rider is possible . BBMI is covered as a mandated benefit. The standard IHC plans also provide limited coverage for non-BBMI plans (30 inpatient days and 20 outpatient visits for HMO plans, $5,000 a year and $25,000 lifetime for non-HMO plans.)

The State Health Benefits Program is subject to the BBMI mandate by law applicable to the SHBP. The SHBP determines in its plan design whether to offer additional benefits. The SHBP covers non-BBMI with benefit limits. In the preferred provider organization (PPO) plan offered by the SHBP, the most popular option, non-BBMI is subject to a combined in-network and out-of-network limit of $15,000 per year and $50,000 per lifetime. The indemnity plan offered by the SHBP has a limit for non-BBMI of $10,000 per year and $20,000 per lifetime. Both plans offer $2,000 restoration of benefit per year. Dollar limits are used because the SHBP has opted out of the federal parity mandate as explained below. Alcoholism and drug abuse are covered in both plans, the same as physical illness. The HMO plans offered by the SHBP place day and visit limits on non-BBMI, alcoholism and drug abuse treatments.

Self-funded plans, which are federally regulated, are NOT subject to any state mandates (but may be subject to the Federal mandate). Furthermore, the benefit provisions of self-funded plans are set by the plan sponsor. Even though self-funded plans have the flexibility to exclude all coverage for mental illness, they typically offer some level of coverage for mental illness, but generally provide lower levels of coverage for mental illness than physical illness.

Conclusion

The government must not make things worse by ordering new mandates that drive up costs and make everyone pay even more -- employers and employees alike. Employers need the Legislature to continue to hold the line on mandates. They can significantly increase the cost of purchasing health insurance. When the Legislature mandates new coverages, it drives up costs.

We appreciate your consideration of our views and we urge you not to release Assembly Bill 2512.