UPDATE 1-New U.S. rules set parity for mental health care

* Equal coverage will apply to most group plans

* New rules could take effect as early as July (Adds reaction, background, byline)

WASHINGTON, Jan 29 (Reuters) - Employer-provided group health plans must offer the same level of coverage for mental illness and drug abuse treatment as for other ailments, according to federal regulations issued on Friday.

The measures, known as mental health parity, ban group health plans from applying different coverage standards for mental health disorders or substance abuse treatment than those for general medical treatment or surgery.

“The rules we are issuing today will, for the first time, help assure that those diagnosed with these debilitating and sometimes life-threatening disorders will not suffer needless or arbitrary limits on their care,” U.S. Health and Human Services Secretary Kathleen Sebelius said in a statement.

Some 150 million Americans are enrolled in employer-provided group health insurance plans, the government says. The new rules, which stem from a bill passed by Congress in 2008, exempt group plans covering 50 or fewer workers.

Under the parity system, group plans that offer mental health and substance abuse treatment cannot charge higher deductibles or place different limits on frequency of treatment than they would for medical and surgical care.

“These rules expand on existing protections to ensure that people don’t face unnecessary barriers to the treatment they need,” said Deputy Treasury Secretary Neal Wolin.

The rules could take effect as early as July 1, after federal agencies review comments from the public, industry and other interested parties.

The National Council for Community Behavioral Healthcare, a Washington-based advocacy group, said the regulations begin the final chapter in an effort to ensure that Americans with mental illness have equal access to health care.

“Now people in need won’t have to go without treatment because of discriminatory insurance policies,” president and chief executive Linda Rosenberg said in a statement.

The rules will implement the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008.

The law is named for the late Democratic Senator Wellstone, who was a strong advocate of equal treatment of benefits, and former Republican Senator Domenici, who first introduced parity legislation in 1992.

The late Democratic Senator Edward Kennedy was another driving force behind the bill Congress passed after a decade-long effort by advocates for the mentally ill who said insurers often shortchanged people with conditions ranging from depression to schizophrenia. (Editing by Xavier Briand)