The House last night approved a version of mental health parity legislation that is strongly opposed by insurers, employers and the Bush administration.

The 268-148 vote on the Paul Wellstone Mental Health and Addiction Equity Act of 2007, H.R. 1424, sets up talks between the House and the Senate, which unanimously passed a much narrower bill, S. 552.

The Senate bill was a compromise reached after negotiations with businesses, the insurance industry and mental health advocates. Business and insurance groups had fought previous versions, arguing the proposals would drive up insurance costs.

The House bill specifies that if a plan provides mental health benefits, it must cover mental illnesses and addiction disorders listed in the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders, which is used by mental health professionals.

The House bill would not apply to health plans sponsored by an employer with 50 or fewer employees, nor would it apply to coverage in the individual insurance market.

According to officials of America’s Health Insurance Plans, which represents health insurers, and the American Benefits Council, which represents employers, the Senate bill would give insurers more leeway on the types of mental disorders they would have to cover.

The House bill was sponsored by Reps. Patrick Kennedy, D-R.I., who says he has battled depression, alcoholism and drug abuse, and Jim Ramstad, R-Minn., a recovering alcoholic who is Kennedy’s Alcoholics Anonymous sponsor.

The Senate bill was sponsored by Kennedy’s father, Sen. Edward Kennedy, D-Mass., and Sens. Pete Domenici, R-N.M., and Mike Enzi, R-Wyo.

That means that the younger Kennedy will negotiate with his father on a compromise measure.

The White House issued a statement yesterday before the House passed its bill indicating that the administration would not support the House bill because “it would effectively mandate coverage of a broad range of diseases.”

One of the key issues is that the Senate bill provides for what the ABC called “a very targeted and narrow preemption of state insurance, as well as to self-insured plans, that assures a uniform federal rule of the specific parity requirements” of the Senate bill, which include treatment limits, financial requirements, cost exemptions and the like.

According to ABC officials, the Senate measure would avoid an all-or-nothing approach.

“The House bill will put us in the awkward position of either covering everything in the professional manual — or covering nothing at all,” said Neil Trautwein, healthcare lobbyist for the National Retail Federation.

In a letter to members of the House released before the vote, James Klein, ABC president, said the Senate bill is better because it mandates the benefits covered in or out of network; ensures the ability to manage mental health care appropriately through medical management practices and health care provider networks; and helps ensure national uniformity of plan administration and remedies.

Karen Ignani, president and CEO of AHIP, said after the House vote that the bill “would turn back the clock on advances in the quality of care and impose excessive costs on patients and employers.”

She called the bill “well-intentioned,” but said it “would undermine the progress that has been achieved in improving behavioral health benefits through coordinated-care strategies.”

She said that the health insurance industry supports the Senate bill “because it is a balanced approach that would preserve access to health plans’ medical management and quality improvement programs.”