Mental Health Parity:
Achieving parity in
insurance benefits
Maria Speiser
Political Science Undergraduate Thesis
University of Missouri - Columbia
May 2005
Table of Contents
I. Introduction
4
II. Mental Health Parity Background
1. Mental Health Care: Who’s Paying?
Public and private burden of mental health costs
Figure 1: Distribution of Public and Private Mental Health
Expenditures, 1997
Figure 2: Distribution of Public and Private Mental Health
Expenditures, 1997
2. Mental Health Parity: History and Importance
History of Mental Health Parity
Importance of Mental Health Parity
3. What types of insurance plans have parity already?
Table 1: Privately Funded Insurance Programs, 2003
Table 2: Publicly Funded Insurance Programs, 2003
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7
7
III. Parity Legislation: Effective and Efficient?
19
19
19
19
20
20
21
1. Obstacles and Misperceptions regarding Mental Health Parity
Stigmatization of mental illness
Perceived Cost of parity
Adverse Selection
Moral Hazard
Quality and Access under Parity
2. Overcoming these Obstacles to Parity
Stigmatization – Legitimacy of mental health problems
The Cost of Mental Health Parity
Direct Costs of Parity
Table 3: Cost Estimations of Full Parity
Direct Savings of Parity
Indirect Savings of parity
Disability, loss of productivity, early death
Relieving the Governmental Burden of Mental Health Costs
Managed Care
Table 4: Data from State Parity Laws under Managed Care
Systems
Carve-Outs
Adverse Selection
Moral Hazard
Access under Parity
Quality under Parity
III. What are the characteristics of effective parity legislation?
1. Federal v. State Parity Legislation
2
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8
9
9
12
15
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21
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23
25
26
28
28
30
31
33
34
35
37
38
39
40
40
Federal Parity Legislation
The Mental Health Parity Act of 1996
Future Proposals of Parity Legislation
State Parity Legislation
Variation in state laws
Limitation of state laws
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40
42
43
43
45
2. Definition of Mental Health Used in Parity Laws
Broad Definitions
Narrow Definitions
Inclusion of substance abuse
Influences on a Law’s Definition of Mental Illness
Implications of Mental Illness Definitions
46
47
48
49
50
50
3. Final Recommendation
Federal Law
Full Parity
Definition of Mental Illness
The Encouraged Use of Managed Care Techniques
FEHB Program as a Model
Small Businesses and Price Increase Exclusions
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51
52
52
53
53
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IV. Conclusion
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V. Appendix A: Mental Health Parity Laws
Table 1:
Table 2:
Table 3:
Table 4:
Federal Parity Laws
State Parity Laws
Summary Definition of Mental Illness in State Parity Laws
Summary of Full Parity v. Partial Parity in State Parity Laws
VI. Bibliography
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70
3
Introduction
For decades, health insurance plans have restricted patient access to mental health
treatment by placing more stringent limitations on mental health benefits than those placed on all
other medical benefits. As millions of Americans rely on mental health care each year, this
insurance practice has initiated a public policy debate in the United States regarding whether
federal and state governments should allow this system of inequality to continue. Policymakers
and mental health care advocates now refer to this struggle to achieve equality between mental
health benefits and medical benefits in annual and lifetime dollar limits, inpatient and outpatient
care utilization limits, and patient cost-sharing as “mental health parity”. Although the federal
government and forty states have enacted mental health parity laws, many health insurance plans
continue to lack mental health parity, including approximately 86 percent of employer-sponsored
plans (Center for Mental Health Services, 2002, p. 187-192).
Mental illness and the need for mental health treatment is an issue that has touched the
lives of millions of Americans. Each year, diagnosable mental disorders of various forms inflict
approximately 44 million Americans, roughly equaling one-fifth of the nation’s adult population
(U.S. Department of Health and Human Services, 1999, p. 408). Mental illness often has
debilitating effects on patients. The Global Burden of Disease Study, conducted by the World
Bank, the World Health Organization, and Harvard University, found that four of the top ten
causes of disability around the world are mental disorders, with major depression as the number
one cause of disability. Because serious mental illnesses often occur in people at relatively
younger ages and tend to be more chronic than many other diseases, the burden created by
mental illnesses is higher than many other illnesses (Kirkschstein, 2000, p. 19).
Despite the prevalence of mental illness in the United States today, only about one third
of adults diagnosed with a mental health problem receive treatment for their illness (U.S.
4
Department of Health and Human Services, 1999, p. 408). Americans with mental health
problems go untreated for a variety of reasons, but many continue to suffer because of the high
cost of treatment. A 2004 survey found that the lack of insurance coverage and the high cost of
treatment were the top two reasons why those suffering from mental illnesses remain untreated
(American Psychological Association, 2004). In addition, another survey had similar findings,
with 58 percent of those with a perceived a need for mental health treatment citing high costs as
an obstacle to receiving treatment. Furthermore, 55 percent of insured patients continued to have
this concern, and 32 percent of those with a perceived need for mental health or substance abuse
treatment said that their health plan would not cover the needed treatment (Sturm and
Sherbourne, 2001, p. 81-88).
Mental health services often cost patients disproportionately more than other medical
services because of the restrictions and limitation on mental health benefits. With many private
insurance policies continuing to treat mental and physical ailments differently, many patients are
unable to overcome the large economic barriers to receiving treatment. A 1998 study displays
the “parity gap” between out-of-pocket expenses for mental health treatment and out-of-pocket
expenses for other medical treatments. The study found that for an insured individual with
$35,000 in mental health expenses a year, the family was responsible for paying $12,000 out of
their own pocket. For an individual with $35,000 in other types of health expenses, their family
only paid an average of $1,500. Similarly, someone with $60,000 in mental health expenses will
pay an average of $26,000 out of their pocket, while a person with that amount of expenses in
medical or surgical care will only pay about $1,800 (Zuvekas, 1998, p. 135-143). The out-ofpocket expenses of mental health services, even with insurance coverage, create a situation
where treatment is outside the reach of many Americans suffering from mental health problems.
5
Today, some policy makers and citizens view mental health parity laws as a way to
combat the high cost of mental health care and curb the current obstacles to adequate treatment.
However, thus far, both state and federal government have failed to resolve this disparity despite
their attempts to create effective mental health parity legislation. In 1996, Congress approved
the Mental Health Parity Act with bipartisan support, but because the law only covers group
health plans, only requires parity in annual and lifetime dollar limits, and includes several
exemptions, this piece of legislation was ultimately ineffective in achieving parity.
Although the Mental Health Parity Act of 1996 did not achieve mental health parity, the
passage of this piece of legislation initiated a movement towards state mental health parity laws.
Currently, forty states have some form of mental health parity legislation. Unfortunately, state
parity laws vary from state to state, differing greatly in their breadth and effectiveness.
Furthermore, because state parity laws are unable to require parity from federal health care
programs and self-insured health plans, state parity laws do not provide an ideal solution to
mental health inequality.
Mental health parity remains a complex and often misunderstood issue today, and failed
state and federal attempts to achieve parity reflect this. This paper examines the questions
surrounding mental health parity and ultimately determines what type of parity legislation the
United States should enact, if any. In addition, this paper will define the necessary
characteristics for the creation of parity laws that will be most successful in achieving the goals
of parity.
6
Mental Health Parity Background
In order to understand the issue of mental health parity, it is necessary to be familiar with
both the cost and payment of mental health care in the United States and the history and
importance of mental health parity.
1. Mental Health Care: Who is paying?
The United States spends millions of dollars on the direct costs associated with mental
illness, including the cost of mental health services and treatments in both the private and public
sector. In 1996, the United States spent approximately $82 billion on the direct treatment of
mental health related illnesses, compared with $861 billion spent on other health care. This $82
billion spent on mental health related care accounts for 8 percent of all health care expenditures.
Of the money spent on mental health related treatments, $13 billion was devoted to substance
abuse treatments (U.S. Department of Health and Human Services, 1999, p. 412).
Public and private burden of mental health costs
A large yet fragmented mental health industry has emerged in the United States, and the
cost of mental health treatment currently falls to both private and public sources of insurance.
Health care coverage provided by the government plays a significant role in the payment of
mental health treatment. Figures 1 and 2 show that the government was responsible for the
majority of mental health funding in 1997 and paid for fifty-seven percent of all mental health
expenditures. Meanwhile, the private sector, which includes private insurance coverage and out
of pockets payments, pays forty-three percent of all mental health services. Private insurance
plans only paid for about twenty-four percent of the direct costs of mental health treatment with
the rest coming from federal and state government or directly out of the pockets of Americans
(The President’s New Freedom Commission on Mental Health, 2002, p. 20-22).
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Figure 1: Distribution of Public and Private Mental Health
Expenditures - 1997
Other Federal
4%
Medicare 13%
State and Local
20
Medicaid 20%
Private Insurance
24%
Out of Pocket
17%
Private Insurance 24%
Out of Pocket 17%
Other Private 2%
Medicaid 20%
State and Local 20
Medicare 13%
Other Federal 4%
Other Private 2%
Source: The President’s New Freedom Commission on Mental Health, 2002, p. 22.
Figure 2: Distribution of Public and Private
Mental Health Expenditures - 1997
All Private
43%
All Public
57%
All Private 43%
All Public 57%
Source: The President’s New Freedom Commission on Mental Health, 2002, p. 22.
8
Currently, the government provides a greater percentage of the total funding for mental
health care than for all other types health care. The American public, therefore, is currently
bearing a greater burden in the funding mental health care than it is for other health care.
Furthermore, in the decade between 1986 and 1996, public spending on mental health care
increased faster than private spending on mental health care. With this trend, the government
role in funding mental health care will likely continue to grow (U.S. Department of Health and
Human Services, 1999, p.412, 415).
2. Mental Health Parity: History and Importance
As early as the 1960s, lawmakers began discussing the idea of mental health parity
(Center for Mental Health Services, 2002, p. 187). The basic concept behind the movement for
mental health parity is that insurance companies should offer the same level of coverage for
mental health benefits as for other medical conditions. Essentially, full parity requires that
insurance plans provide mental health benefits equal to all other health benefits by offering equal
annual and lifetime dollar limits, equal inpatient and outpatient care utilization limits, and equal
patient cost-sharing, such as equal co-payments, co-insurance, and deductibles (Maxfield, 2004,
p. 1, 33). Today, many health insurance plans, including approximately eighty-six percent of
employer-sponsored plans, lack mental health parity (Center for Mental Health Services, 2002, p.
187-192; Maxfield, 2004, p. 33-34; U.S. Department of Health and Human Services, 1999, p.
426-27).
History of Mental Health Parity
Prior to the 1960s, state government provided the majority of mental health care, with the
public paying for 85 percent of the nation’s total mental health expenditures in 1956. However,
during the 1960s and the decades that followed, the financial responsibility of mental health
9
treatment began shifting to health insurance, both private and public (Frank, 2001, p. 1701).
Still, many insurance plans only provided limited mental health benefits by limiting coverage for
acute mental illnesses, placing more stringent restrictions on benefits, including higher patient
cost-sharing. As insurance companies began providing a degree of mental health coverage in the
1960s, policymakers started debating the need for mental health parity laws that would require
insurance companies to provide equal mental health benefits. Despite these efforts, the
limitations placed on mental health benefits by insurance plans were firmly rooted in the beliefs
of the time. The public’s understanding of mental health was limited. As a result, many
Americans believed that diagnosis of mental illness was unreliable and inaccurate, and treatment
was a waste of time and money. Mental health advocates and politicians continued discussing
mental health parity, but Congress and state legislatures did not take immediate action. In 1965,
Congress continued to work under the assumptions and stigmas of the time, and when the body
considered whether to provide mental health parity in the Medicare program, they falsely
concluded that it would be too inefficient and costly (Frank, 2001, p. 1701). The stereotypes and
stigmas of the era proved too much to overcome, and mental health parity remained unrealized.
Insurance inequalities for those with mental illness continued for the following three
decades. By the 1990s, however, parity began attracting increased attention, with both federal
and state governments considering legislation to mandate mental health parity. In 1996,
Congress passed the Mental Health Parity Act, creating the first federal mental health parity law
and accelerating the movement towards mental health parity. Prior to 1996, only eight states had
enacted any form of mental health parity (Hawaii, Kentucky, Louisiana, Maine, Maryland,
Minnesota, New Hampshire, and Rhode Island). Although the Mental Health Parity Act of 1996
was ineffective in achieving the goals of parity by only requiring parity in annual and lifetime
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dollar limits, the passage of this law gave the movement momentum. In the years since Congress
approved the Mental Health Parity Act, thirty-two states have developed their own parity
legislation (Hennessy, 2001, p. 61, Kirkschstein, 2000, p. 8).
Currently, forty states have some form of mental health parity (National Conference of
State Legislatures, 2004). Despite this, both state and federal government have failed to remedy
the issue of mental health insurance inequalities. Because almost all parity laws only mandate
limited parity rather than full parity, the legislation is ineffective in combating the problem.
Although this paper will go into more details regarding how and why these laws are limited in
their parity mandates, it is accurate to say that parity laws to date have not truly solved the
problem of parity, and the push for mental health parity continues.
Today, with previous obstacles to mental health parity disappearing, the argument for
mental health parity is gaining strength in both substance and numbers. Many prominent
politicians and organizations have expressed support for parity legislation. 70 members of the
United States Senate and 249 members of the House of Representatives pledged their support for
the creation of mental health parity as sponsors and co-sponsors of federal parity legislation.
Parity legislation received bi-partisan support as well. In the Senate, support for mental health
parity came from 47 Democrats, 21 Republicans, and one Independent, while in the House of
Representatives, 203 Democrats, 44 Republicans, and one Independent pledged their support
(H.R. 953, 2003; S. 486, 2003). In addition, the New Freedom Commission on Mental Health, a
commission created by President George W. Bush, declared its support for federal legislation
mandating full mental health parity (The President’s New Freedom Commission on Mental
Health, 2002, p. 21-22). In conjunction, President Bush confirmed his own support when he
stated:
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“Our country must make a commitment: Americans with mental illness deserve our
understanding, and they deserve excellent care. They deserve a health system that treats
their illness with the same urgency as a physical illness . . . Our health insurance system
must treat serious mental illness like any other disease” (Bush, April 29, 2002).
Although he has not publicly endorsed the parity legislation introduced in the U.S. Senate and
House of Representatives, the support of President Bush and other policy makers helps move
mental health parity in the right direction as the federal government continues to debate this
issue.
Furthermore, state legislatures introduce various forms of mental health parity legislation
frequently, hoping to either enact their first piece of parity legislation or expand their current
laws to demand full parity. Illinois, Iowa, New York, and Arizona are just a few of the many
states that introduced parity legislation in the last year. The support for parity grows with each
passing year, bringing attention and potential to this movement while breaking down some of the
many political and economic barriers to effective mental health parity legislation.
Despite federal and state support, obstacles to effective parity remain. In order to achieve
the goals of parity without negative financial implications, the United States must implement
legislation that includes specific characteristics. Misunderstandings regarding mental health
parity and these necessary provisions have made the achievement of full parity in the United
States difficult.
Importance of Mental Health Parity
With approximately one-fifth of the nation’s adult population suffering from a mental
disorder, the development of an accessible mental heath system is extremely important to the
health and well-being of Americans. Achieving mental health parity is essential in establishing
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an accessible mental health system (U.S. Department of Health and Human Services, 1999, p.
408).
Although 44 million Americans suffer from mental illness, only about one-third of adults
diagnosed with a mental health problem receive proper treatment for their illness (U.S.
Department of Health and Human Services, 1999, p. 408). Americans with mental health
problems remain untreated for a number of reasons, but the high cost of treatment prevents many
from receiving adequate care. A 2004 survey by the American Psychological Association
reports that the high cost of mental health treatment and the lack of adequate insurance coverage
are the two most prominent reasons why mental health patients remain untreated (American
Psychological Association Press Release, 2004, p. 1).
A 1998 study conducted by Dr. Roland Sturm, a senior economist with the RAND
Corporation, and Dr. Cathy Donald Sherbourne, a senior health policy analyst with the RAND
Corporation, had similar findings. This survey of people who perceived a need for mental health
treatment found that the cost of treatment was the most frequent reason people gave for not
receiving mental health treatment, with 58 percent citing this problem. Moreover, fifty-five
percent of insured patients remained concerned about the cost of treatment, and thirty-two
percent responded that their health insurance plan would not cover their needed treatment (Sturm
and Sherbourne, 2001, p. 81-88). Because of the restrictions and limitations on mental health
benefits, mental health services often cost patients disproportionately more than other medical
services. Parity in mental health benefits is an integral step in combating the high cost of mental
health care and the current obstacles to adequate treatment.
The current lack of mental health parity increases the cost of mental health treatment and
prevents many patients from receiving appropriate care. With many private insurance policies
13
continuing to treat mental and physical ailments differently, many patients are unable to
overcome the large economic barriers to receiving treatment. A 1998 study compares out-ofpocket expenses for mental health treatment with out-of-pocket expenses for other medical
treatments. The study found that for an insured individual with $35,000 in mental health
expenses each year, the family was responsible for paying $12,000 out of their own pocket. An
individual with $35,000 in other types of health expenses only paid an average of $1,500.
Similarly, someone with $60,000 in mental health expenses will pay an average of $26,000 out
of pocket, while a person with that amount of expenses in medical or surgical care will only pay
about $1,800 (Zuvekas, 1998, p. 135-143). This parity gap displays the disparity and inequality
between mental health and other medical insurance benefits. Such disparity creates a situation
where treatment is outside the reach of many Americans, even those with insurance coverage.
Legislation mandating full mental health parity is necessary to end this inequality. The
purpose of health insurance is to protect the insured from extreme financial losses due to
illnesses. With private insurance plans’ current practices, insurance companies are failing to
fulfill their most fundamental purpose by not protecting their mental health patients from
financial loss (U.S. Department of Health and Human Services, 1999, p. 418). Denying greater
access to mental health care is a cost containment strategy for private insurance companies, and
it is dangerous to allow insurance companies to avoid paying for the care of patients who need it
most (Mechanic, 2003, p. 1229). The passage of parity legislation will not only end this form of
discrimination, but also improve the care and treatment of the mentally ill.
Parity legislation also contains symbolic importance for the mental health community
(Hennessy, 2001, p. 59). By demanding that insurance companies treat mental illnesses as
14
serious health problems that are essential to a person’s overall health, parity will force the nation
to consider mental illness as a serious problem.
3. What types of insurance plans have parity already?
Insurance is the primary payer of mental health treatment and care, whether obtained in
the private sector or from one of several public programs. Although a number of insurance
plans, both private and public, already provide mental health parity, some health insurances plans
continue to treat mental illness differently than physical health problems. Summarized in Tables
1 and 2, this section is an overview of the many types of health insurance and which of these
already provide mental health parity.
A significant proportion of the population uses private insurance plans as their source of
mental health coverage. In 2003, private insurance plans covered approximately 197.9 million
Americans, roughly equaling 68.6 percent of the population. Of those with private insurance,
174.0 million people, equivalent to 60.4 percent of the population, received employer-sponsored
health insurance. Because only approximately fourteen percent of employer-sponsored
insurance plans provide mental health parity, most discussions and debates regarding mental
health parity focus on this type of health insurance rather than public health care programs (U.S.
Census Bureau, 2003; Maxfield, 2004, p. 33-34). Although insurance plans for large companies
often offer broader benefits, larger companies are less likely to offer parity for mental health
benefits than smaller companies because they are less likely to fall under state law. Larger
companies often self-insure their employees’ health care, which exempts their insurance plan
from the control of state laws. Because state laws cannot mandate mental health parity from
these insurance plans, fewer large companies offer mental health parity (Maxfield, 2004, p. 3334).
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Types of Insurance with Mental Health Parity, 2003
Table 1: Privately Funded Insurance Programs, 2003
Type
Employee-Based
Health Insurance
Direct Purchase
Insurance
Total
Number of People
Covered
174.0 million
Percentage of the
Population
60.4 %
26.5 million
9.2 %
197.9 million
68.6 %
Does it include mental health parity?
14% of these have some level of mental
health parity.1
Varies from plan to plan
Table 2: Publicly Funded Insurance Programs, 2003
Program
Medicare
Medicaid
Military Health
Care
TRICARE
Number of People
Covered
39.5 million
35.6 million
10 million
Percentage of the
population
13.7 %
12.4 %
3.5%
Does it include mental health parity?
No – does not require parity in cost-sharing
Full Parity
TRICARE: Does not require parity in costsharing and utilization limits
Veteran Affairs
Veteran Affairs: Full parity;
CHAMPVA
CHAMPVA: Does not require parity in
utilization limits
SCHIP
M-SCHIP
3.5 million 2
1.2 %
M-SCHIP: Full parity
S-SCHIP
0.55 %
FEHB
1.6 million3
(counted under
Medicaid)
8.5 million4
S-SCHIP: Full parity in 10 states, no parity
in 23 states
Full Parity
2.9 %
Full Parity
Total
76.8 million
26.6 %
Indian Health
Services
Sources:
U.S. Census Bureau. (2003) Health Insurance Coverage: 2003. Accessed at:
http://www.census.gov/hhes/www/hlthins/hlthin03/hlth03asc.html.
U.S. Census Bureau. (2003) “Health Insurance Coverage Status and Type of Coverage by Selected Characteristics:
2003” Accessed at: http://pubdb3.census.gov/macro/032004/health/h01_001.htm.
U.S. Census Bureau. (2003) “National and state population estimates” Accessed at:
http://www.census.gov/popest/states/NST-ann-est.html
1
Maxfield, 2004, p. 9, 34-35.
Maxfield, 2004, p. 9, 34-35.
3
Indian Health Service. (2004) “Indian Health Service Fact Sheet” Accessed at:
http://www.ihs.gov/PublicInfo/PublicAffairs/Welcome_Info/ThisFacts.asp
4
Centers for Medicare and Medicaid, 2004
2
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Many Americans receive publicly funded health insurance plans rather than private
insurance plans. Approximately 76.8 million Americans, equaling 26.6 percent of the
population, receive this type of insurance (U.S. Census Bureau, 2003). The largest public
insurance program is Medicare. Medicare, available to all citizens above the age of sixty-five,
provides healthcare coverage to approximately 39.5 million American seniors, equaling 13.7
percent of the population (U.S. Census Bureau, 2003). However, despite being the largest
financer of mental health care in the United States, Medicare does not provide parity in mental
health benefits (The President’s New Freedom Commission on Mental Health, 2002, p. 21).
Currently under Medicare, beneficiaries are subject to higher cost-sharing for mental health
outpatient visits, paying fifty percent of the cost of the visit as opposed to paying only twenty
percent of the cost for all other outpatient visits (Maxfield, 2004, p. 34-35).
The next largest government-sponsored health insurance plan is Medicaid, which
provides 35.6 million low-income individuals with health insurance, forming approximately 12.4
percent of the United States population (U.S. Census Bureau, 2003). Unlike Medicare however,
Medicaid provides its beneficiaries with full parity, which gives those with Medicare greater
access to mental health treatment than citizens covered by Medicare (Maxfield, 2004, p. 34-35).
The State Children’s Health Insurance Program (SCHIP), providing health insurance for
low-income children, covers approximately 3.5 million individuals, equaling 1.2 percent of the
population (Centers for Medicare and Medicaid, 2004). There are two types of SCHIP, S-SCHIP
and M-SCHIP. M-SCHIP, which includes the SCHIP program in an individual state’s Medicaid
program, provides mental health parity to its beneficiaries. However, S-SCHIP programs, which
operate outside the state’s Medicaid program, only offer mental health parity in ten states. The
17
remaining twenty-three states using the S-SCHIP system still lack mental health parity
(Maxfield, 2004, p. 9, 34-35).
The Federal Employee Health Benefit Program (FEHB), which provides health care
insurance to 8.5 million federal employees and their dependents, is another large public health
insurance program, covering 2.8 percent of the population. The FEHB has provided its
beneficiaries with full mental health parity since 2001, when a 1999 executive order by President
Bill Clinton was implemented (Center for Mental Health Services, 2002, p. 186-188).
Military insurance programs, such as TRICARE, Veteran Affairs, and the Civilian Health
and Medical Program of the Department of Veteran Affairs (CHAMPVA) cover approximately
10 million Americans, accounting for about 3.5 percent of the population. Although the Veteran
Affairs program provides full mental health parity for their beneficiaries, TRICARE and
CHAMPVA do not (Maxfield, 2004, p. 36). TRICARE continues to require higher cost-sharing
for mental health treatments, and both TRICARE and CHAMPVA set lower utilization limits on
inpatient mental health care than for other inpatient care (Maxfield, 2004, p. 36). The Indian
Health Service is the smallest federal health care program. The Indian Health Service covers
only 0.55 percent of the United States population, providing full mental health parity to their 1.6
million beneficiaries (Maxfield, 2004, p. 36).
Beyond federal public insurance programs, state and local governments also sponsor
health insurance plans for their employees. Seven states (Indiana, Louisiana, Massachusetts,
North Carolina, South Carolina, Texas, and West Virginia) require mental health parity for state
employee plans but there is no current data on the total percentage of state employees who have
mental health parity (Maxfield, 2004, p. 37).
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Parity Legislation: Effective and Efficient?
The mental health parity debate has focused on whether parity legislation is an effective
and efficient method of increasing access to appropriate, quality mental health care. Many
obstacles to the passage of effective mental health parity exist, and it is essential to examine
these difficulties and whether is possible and practical to overcome them.
1. Obstacles and Misperceptions regarding Mental Health Parity
Stigmatization of mental illness
The stigma associated with mental illness has greatly contributed to today’s lack of
mental health parity. As victims of this stigma, patients of mental illnesses are subject to
discrimination and serious misunderstanding regarding their illness. Historically, people have
mistakenly believed that mental illness is not a serious health problem, not medical in nature, and
not effectively treatable. These assumptions led to widespread institutionalization of mental
health patients, a method of treatment that continued through recent decades. Today, many of
these old notions regarding mental health problems persist, and mentally ill Americans continue
suffering from discrimination, including unequal treatment by insurance companies (U.S.
Department of Health and Human Services, 1999, p. 5-9).
Perceived Cost of parity
Many Americans, both average citizens and elected governmental officials, believe that
the cost of implementing mental health parity will drastically increase costs for insurance
companies (Goodman, 2002, p. 2). This misunderstanding regarding the cost of parity stems
from the perceived possibility the implementation of mental health parity will cause adverse
selection and moral hazard to occur. Opponents of mental health parity use concerns regarding
19
the cost of mental health care to form their main argument against parity legislation, creating a
barrier to the passage of parity legislation.
Adverse Selection
Opponents of mental health parity often cite adverse selection as a potential negative side
effect of parity laws. Adverse selection is the theory that insurance plans, by offering more
generous mental health benefits than average, will create a financial incentive that attracts a
greater number of patients requiring mental health services (U.S. Department of Health and
Human Services, 1999, p. 426). Insurance plans benefit financially from insuring low risk
patients, which helps to keep their costs as low as possible. To avoid this situation of attracting
high-risk patients, many insurance plans purposely limit their mental health benefits in an
attempt to keep large numbers of mentally ill patients from enrolling in their insurance plan. In
the eyes of parity opponents, adverse selection’s role in how people chose a health insurance
plan will increase insurance premiums throughout the entire health insurance industry, forcing
some employers and individual citizens to drop their insurance coverage altogether (Frank, 2001,
p. 1702).
Moral Hazard
Opponents to mental health parity also argue that parity creates a situation of moral
hazard. Moral hazard occurs when patients increase their use of medical services because they
lack a financial incentive to limit their consumption of the services. This problem arises when
patients are no longer responsible for the full cost of their medical care or are only responsible
for a smaller percentage of the costs (Center for Mental Health Services, 2002 p. 187).
Challengers of mental health parity argue that if state and federal government forces insurance
plans to end their special limitations on mental health benefits and increase patients’ access to
20
services, a greater number of people will use mental health services (Frank, 2001, p. 1701).
They feel that without the current benefit limits set by insurance companies, patients will have no
incentive not to engage in wasteful or excessively expensive treatments. This will then increase
insurance premiums, as insurance companies must pay for these unnecessary treatments
(Goodman, 2002, p. 1).
Quality and Access under Parity
Because the goal of parity is to increase access to appropriate mental health treatment,
how mental health parity laws will affect patients’ access to care and quality of care are essential
issues in the debate over mental health parity. Opponents of mental health parity argue that
many of the cost control techniques of managed care, a system which is commonly used in
conjunction with mental health parity, could potentially decrease beneficiaries’ access to
legitimate mental health care and reduce the quality of the care patients’ receive (Kirkschstein,
2000, p. 14- 16).
2. Overcoming these Obstacles to Parity
Despite these obstacles, mental health parity legislation continues to evolve and become
increasingly effective in achieving the goals of mental health parity. Legislators, scientists, and
policy researchers have made great strides in regards to many of these “obstacles,” and renewed
hope for progress in achieving mental health parity.
Stigmatization – Legitimacy of mental health problems
Today, despite the social stigma of mental health problems, the medical community
considers mental illness a true medical problem. The Surgeon General’s 1999 report on the
nation’s mental health recognized the consistency and reliability of diagnosis, and the
effectiveness of today’s treatments, and the scientific validity of the mental health sector of the
21
nation’s health care system (U.S. Department of Health and Human Services, 1999, p. 32-57).
Because of scientific progress, health professionals can medically treat mental illnesses, and with
proper treatment, many patients lead more normal and fulfilling lives.
The term mental illness includes many specific disorders including schizophrenia, major
depression, obsessive-compulsive disorder, bipolar disorder, post-traumatic stress disorder, panic
disorder, and many others. The American Psychiatric Association’s Diagnostic and Statistical
Manual of Mental Disorders, now in its fourth edition, classifies mental health problems (DSMIV) (American Psychiatric Association, 1994). The DSM-IV, used by psychiatrists and other
mental health professionals, creates standardized criteria for the diagnosis of mental disorders.
DSM- IV broadly defines a mental disorder as “a clinically significant behavioral or
psychological syndrome or pattern that occurs in an individual, . . . is associated with present
distress . . . or disability . . . or with a significant increased risk of suffering” (Peck, 2002, p.
1090). According to criteria set forth by the DSM-IV, the severity and duration of specific
symptoms characterize diagnosable mental illnesses. Diagnosis normally requires symptoms to
persist for longer than two consecutive months (Peck, 2002, p. 1090; U.S. Department of Health
and Human Services, 1999, p. 5). With great advances in medical research and standardization
of diagnosis throughout the medical community, scientific guidelines and criteria form a basis
for today’s diagnosis and treatment of mental illness.
Mental health care professionals also use a biologically-based system to classify and
diagnose mental illnesses. This system of classification examines mental illness as a biological
disorder of the brain and uses scientifically identifiable malfunctions of brain as indicators of
mental illness. This system, however, is limiting to mental health professionals because
22
researchers have not yet identified the specific brain malfunctions that cause certain mental
illnesses (Peck, 2002, p. 1090).
Furthermore, according to the New Freedom Initiative, a report commissioned by
President George W. Bush, “Mental health is key to overall physical health” (The President’s
New Freedom Commission on Mental Health, 2002, p. 21). With one-fifth of the population
directly affected by mental illness, the status of the nation’s mental health is profoundly
influential in the country’s overall well-being. The report states, “Understanding that mental
health is essential to overall health is fundamental for establishing a health system that treats
mental illnesses with the same urgency as it treats physical illnesses” (The President’s New
Freedom Commission on Mental Health – Executive Summary, 2002, p. 7). In this sense,
establishing mental health parity will not just help relieve the financial burden on those suffering
from mental illness, but will also work towards ending the stigma against the mentally ill
(Mechanic, 2003, p. 1229).
The Cost of Parity
Direct Costs of Parity
In order to understand mental health parity, it is necessary to understand the financial
impact of implementation. Legislation enforcing mental health parity will have both direct and
indirect costs and savings. Realizing the potential financial effects of parity legislation is
essential to making mental health parity politically feasible and for passing effective mental
health parity laws.
Those resisting the passage of mental health parity, including insurance companies and
some conservatives, base their opposition on the belief that parity will result in a large increase
in expenses for insurance companies. They fear that because of increases in expenses, insurance
23
companies will then pass the costs on to their clients, raising the price of purchasing health
insurance for all Americans. Although it is true that parity will probably increase the costs for
insurance companies somewhat, there has been debate over just how much (Kirkschstein, 2000,
p. 32; Sing, 1998).
Today, however, “significant advances have been made in the actuarial and economic
forecasting models used to predict parity costs, and the baseline data included in these
projections have greatly improved” (Hennessy, 2001, p. 62). More empirical data now exists
from states and large companies, showing the actual cost increases that insurance companies
experienced as a result of mental health parity. These help provide a more accurate picture of
parity legislation’s economic costs. In addition, as studies use bigger sample populations,
researchers have a better understanding of how parity will work and can account for recent
changes in mental health insurance coverage, data is becoming increasingly reliable (Hennessy,
2001, p. 62-63; U.S. Department of Health and Human Services, 1999, p. 428; Kirkschstein,
2000, p. 6-7, 11-12).
Table 3 displays how mental health parity estimations have changed over the past ten
years. Although cost estimates for nationwide mental health parity were as high as 11.4 percent
in 1996, they have declined significantly (Frank et al, 1997, p. 114; Otten, 1998). In 1996, the
average cost estimation of a federal mental health parity law mandating full parity was 6.24
percent. A 2000 report by the National Advisory Mental Health Council (NAMHC) at the
request of the Senate Appropriations Committee predicted that full mental health parity would
result in an increase of only 1.4 percent of the total cost of health benefits (Kirkschstein, 2000, p.
3, 5). Furthermore, because of the increased use of managed care in conjunction to mental health
benefits, the 1.4 percent cost increase may be an overestimation. According to the NAMHC’s
24
Table 3: Cost Estimations of Full Parity
Source
Date
Scope
Watson Wyatt Worldwide5
1996
National
11.4%
Price Waterhouse6
1996
National
8.7%
Congressional Budget Office/
Congressional Research Services7
1996
National
4.0%
Coopers and Lybrand8
1996
National
3.2%
Milliman and Robertson9
1996
National
3.9%
National Advisory Mental
Health Council10
1998
National
<1% - 4%
Substance Abuse and Mental Health
Services Administration11
1998
National
3.6%
State of Vermont – Department of
Banking, Insurance, Securities, and
Health Care Administration12
1999
Vermont
0-3%
National Advisory Mental
Health Council13
2000
National
1.4%
5
Increase in Total Premium
Watson Wyatt Worldwide. "The Costs of Uniform Plan Provisions for Medical and Mental Health Services: An Analysis
of S. 298, the 'Equitable Health Care for Severe Mental Illness Act." Bethesda, MD: Watson Wyatt Worldwide,
March 1996.
6
Rodgers, Jack. "Analysis of the Mental Health Parity Provision in S.1028." Washington, DC: Price Waterhouse LLP,
May 31, 1996.
7
Congressional Budget Office. (May 1996). CBO’s Estimates of the Impact on Employers of the Mental Health Parity
Amendment in H.R. 3103. Washington, D.C.
8
Coopers and Lybrand. (April 1996). An Actuarial Analysis of the Domenici-Wellstone Amendment to S. 1028 “Health
Insurance Reform Act” to Provide Parity for Mental Health Benefits Under Groups and Individual Insurance
Plans, for American Psychological association
9
Milliman and Robertson. (April 1996). Premium Rate Estimates for a Mental Illness Parity Provision to S. 1028,
“Health Insurance Reform Ac of 1995”
10
Kirkschstein M.D., Ruth L. (2000). Insurance Parity for Mental Health: Cost, Access, and Quality, Final Report to
Congress by the National Advisory Mental Health Council. NIH Pub. no. 00-4787. Bethesda, MD: National
Institutes of Health, p. 32. (All Hay Group Models).
11
Mathematica Policy Research. (March 1998). The Costs and Effects of Parity for Mental Health and Substance Abuse
Insurance Benefits, for the Substance Abuse and Mental Health Services Administration. Washington, D.C.
12
Department of Banking, Insurance, Securities, and Health Care Administration. (January 1999). Report of the
Department of Banking, Insurance, Securities, and Health Care Administration on Mental Health and Substance
Abuse (Act 25) to the Vermont General Assembly.
13
Kirkschstein M.D., Ruth L. (2000). Insurance Parity for Mental Health: Cost, Access, and Quality, Final Report to
Congress by the National Advisory Mental Health Council. NIH Pub. no. 00-4787. Bethesda, MD: National
Institutes of Health, p. 32. (All Hay Group Models).
25
2000 Report to Congress, "implementing parity benefits results in minimal if any increase in
total health care cost" (Kirkschstein, 2000, p. 3, 10-11, 32).
Because some government programs already provide mental health parity, parity
legislation will have no effect on the cost of some government sponsored health care programs.
Medicaid already provides full mental health services to their beneficiaries, and federal
employees already have full mental health parity through the Federal Employees Health Benefit
Program. Unfortunately, other government sponsored insurance programs currently lack parity.
Medicare, TRICARE, the Civilian Health and Medical Program of the Department of Veteran
Affairs, and some state’s State Children’s Health Insurance Program programs all lack full
mental health parity. All of these programs will experience costs associated with the
implementation of parity.
Direct Savings of Parity
Although mental health parity has costs for insurance companies, parity also will lower
some health care costs. By providing greater access to specialized care through mental health
parity, insurance companies will decrease the need for future care or more expensive forms of
treatment. A study showed a decrease of 33 percent in general health care spending when
patients were given psychiatric consultation in addition to care from their primary care
physicians (Simon et al, 1995, p. 352-357). By providing specialized mental health care to
patients, insurance plans can avoid the expenses of additional general health care services that
patients will require as they continue suffering from their mental disorder.
In many cases, outpatient utilization of services increases as more patients have access to
this form of treatment under mental health parity laws, suggesting an increase in costs to
insurance companies. However, many studies show evidence that as outpatient treatment
26
increases with the expansion of benefits, inpatient admissions decrease in quantity and length of
stay, with the opposite occurring when benefits are reduced (Salkever et al, 2000, p. 104-105;
Kirkschstein, 2000, p. 12-15; Zuvekas et al, 2002, p. 152-156). This decrease helps offset the
cost of increases in outpatient utilization.
A study performed on behalf of the National Advisory Mental Health Council (NAMHC)
examined the experience of a 150,000 employee company providing mental health parity under a
state parity mandate. This study analyzed health care costs, access to care, and utilization of
services in the mental health sector, both before and after they implemented the mental health
parity law. The report found that although employee utilization of mental health services jumped
almost 50 percent, the company experienced a 40 percent decrease in mental health costs per
beneficiary by the third year after the implementation of parity. By using a “carve-out system”, a
managed care technique used to manage beneficiaries’ mental health care, the insurance plan
provided mental health parity and increased utilization, while decreasing mental health care
costs. Comparing this cost decrease under mental health parity with non-parity health insurance
costs shows that decreases seen under mental health parity are not simply a trend occurring
throughout the entire insurance industry. Non-parity insurance plans experienced increases in
costs over the same period (Kirkschstein, 2000, p. 12-15; Zuvekas et al, 2002, p. 152-156).
The NAMHC study also showed a small reduction of 8 percent for inpatient admissions,
and larger reductions in the length of inpatient stays, which decreased 70 percent. Although this
research also found an increase in outpatient treatment, the reduced emphasis on inpatient care in
favor of preventative outpatient care accounts for this change. 75 percent of this decrease in
inpatient costs results from reducing the length of inpatient treatments, while 25 percent of the
decrease comes from a decline in the total number of inpatient admissions. Interestingly, a
27
majority of these reductions in mental health care costs resulted from changes in the health care
of employees’ dependants, signaling that the shift towards shorter hospital stays and preventative
outpatient care affected children and teenagers more than adults. Unfortunately, it is unclear at
this time how this emphasis on outpatient treatment over inpatient care will affect patients’
mental health in the long term (Kirkschstein, 2000, p. 12-15; Zuvekas et al, 2002, p. 152-156).
Indirect Savings of parity
While the United States only directly spends approximately $82 billion each year on
mental illness services and treatment, additional costs of untreated mental illness exist as well.
Although the burden of mental illness on American society is difficult to quantify, estimations of
indirect costs range from $79 billion to $300 billion each year. In some individual cases, the
indirect economic costs of mental illness can exceed the amount spent on care. For example,
three-fourths of depression’s economic costs result from indirect costs (Zhang et al, 1999, p.
112).
Disability, Loss of Productivity, and Early Death
Each year, mental illness costs the United States millions in lost wages, loss of
productivity, disability, and early death. Mental illness’s prevalence as the leading cause of
disability throughout the world demonstrates its weight on society. In 2000, according to the
World Health Organization, mental illness was the number one cause of disability in the United
States, Canada, and Western Europe (The President’s New Freedom Commission on Mental
Health, 2002, p. 20; World Health Organization, 2001). Serious mental illnesses often occur at
younger ages and are more chronic than many other common diseases, increasing their toll on
society. Without access to proper treatment, some mental health patients will lose years of
28
potential productivity and wages, while others will end up completely disabled (Kirkschstein,
2000, p. 19).
Today, effective treatments can help those suffering from mental illness and increased
access to mental health care through parity will allow some of these patients rejoin the
workforce, minimize their absenteeism, and increase their productivity. Unfortunately, the
severity of mental illness has a profound effect on their likelihood of achieving or maintaining
steady employment, and some mental illnesses will remain so debilitating that the patient will
likely remain unable to rejoin the work force even with proper treatment (Kirkschstein, 2000, p.
19).
In many cases, providing good mental health benefits to employees is cost-efficient for
both employers and employees. Researchers found that depressed patients’ missed work wages
were “nearly comparable to the direct costs of treatment of depression” over the same period.
Unfortunately, this particular study only looked at employed individuals’ short-term disability,
while not considering those with more severe mental health problems that prevent them from
participating in the work force at all. Studies looking at long-term disability may show an even
greater cost-effectiveness of providing adequate mental health treatment (Kessler, et al, 1999, p.
168).
In addition, more generous mental health insurance coverage and increased access to
specialized mental health care on an outpatient basis can lead to fewer disability claims.
Research shows that insurance plans with the least generous mental health benefits receive the
greatest number of mental health disability claims (Salkever et al, 2000, p. 104-105). Parity’s
increase in mental health benefits will help to lower these disability claims.
Furthermore, lost wages decrease when patients receive their care in the mental health
29
sector rather than from their primary care provider. A study examining patients suffering from
depression over the course of one year found that those receiving treatment in the mental health
sector had an average treatment costs $1, 224 higher than if they received services in the general
health sector. However, patients receiving specialized mental health care experienced $2,101
less in lost earnings that year. According to this study, receiving specialized mental health
treatment resulted in a total savings of $877. Because this study only accounts for decreases in
absenteeism and not increased productivity while at work, this estimation of net savings is a
conservative number (Zhang, et al, 1999, p. 111).
Relieving Governmental Burden of Mental Health Costs
If mental health parity results in a shift in responsibility from the public mental health
sector to the private mental health sector, mental health parity may save additional money.
Currently, many patients cannot afford all their necessary treatments because their insurance plan
maintains low limitations on mental health benefits, therefore not providing them with enough
mental health coverage. With mental health parity’s requirement that insurance plans not set
lower benefits for mental health services than for all other types of treatment, insurance plans
will provide more coverage, creating a situation where government health care programs are not
responsible for as much of the nation’s mental health care costs as currently.
If patients switch from relying on publicly funded health care to private insurance plans
with the implementation of parity, the United States could potentially see a decrease in nation’s
total mental health spending. This decrease would occur because mental health spending in the
private sector tends to be more efficient than that of the public sector. For example, one study
found that all mental health services, with the exception of substance abuse treatment, cost more
when administered in the public sector rather than in the private sector. Furthermore, this
30
continues to be the case when a private insurance plan uses managed care methods (Kirkschstein,
2000, p. 21).
Another study found proof of a shift towards privately funded treatment through
insurance plans. While less than one percent of patients with private insurance began relying on
publicly funded mental health care after the implementation of parity, approximately 2.2 percent
shifted from the public sector to the private sector (Kirkschstein, 2000, p. 21).
Managed Care
Dr. Richard Frank of Harvard University proclaimed in the New England Journal of
Medicine that “managed care has effectively gutted the argument that mental health parity will
increase costs too much” (Frank, 2001, p. 1702). Much evidence to support this statement has
emerged in the past several years. The use of managed care systems is now making the passage
of effective parity legislation politically feasible by reducing the costs of parity implementation
(Center for Mental Health Services, 2002, p. 187; Kirkschstein, 2000, p. 5-6).
According to the Substance Abuse and Mental Health Services Administration’s Center
for Mental Health Services, managed care is "an organized system for delivering comprehensive
mental health services that allows the managed care entity to determine what services will be
provided to an individual in return for a prearranged financial payment” (Center for Mental
Health Services, 2005). Managed care systems have become common in the United States as
health care cost continue rising. This type of system functions as a method of controlling health
care costs by using a network of specific health care providers and by preventing patients from
using unnecessary or excessive treatments. While fee-for-service health insurance plans
commonly use benefit restrictions as a method of controlling costs, HMO plans use
administrative controls as a cost containment method, such as authorization prior to treatment.
31
This is essentially a method of combating the potential moral hazard associated with health care
services (Center for Mental Health Services, 2002, p. 187, 192).
Insurance plans can apply managed care to mental health services just as they apply it to
other medical services. Often, an insurance plan provides all benefits using a managed care
system, but this is not always the case. When an insurance plan only applies management
techniques to mental health services but not all other medical services, they commonly refer to
this as a mental health “carve-out” (Center for Mental Health Services, 2005).
The use of managed care fundamentally changed the way insurance companies contain
health care costs (Frank, 2001, p. 1702). Managed care allows insurance companies to control
costs without strictly restricting mental health benefits. Mental Health: A Report of the Surgeon
General states that “Managed care coupled with parity laws offers opportunities for focused cost
control by eliminating moral hazard without unfairly restricting coverage through arbitrary limits
or cost-sharing and by controlling adverse selection” (U.S. Department of Health and Human
Services, 1999, p. 426). Using managed care methods, insurance plans can maintain access to
services while limiting the economic impact of expanding insurance benefits as required by
mental health parity (Center for Mental Health Services, 2002, p. 187). By influencing the
decisions of doctors, managed care can ensure that treatments are medically necessary and cost
effective (Frank, 2001, p. 1702).
Insurance plans using managed care experience a smaller increase in costs when
implementing mental health parity than fee-for-service insurance plans (U.S. Department of
Health and Human Services, 1999, p. 427). A consensus has emerged among mental health
policy experts, confirming that parity when balanced with managed care results in small or
insignificant cost increases. Table 3 shows the results of state mental health parity laws.
32
Table 3:
Data from State Parity Laws under Managed Care Systems
State
Managed Care Implemented
Simultaneously?
Change in Insurance
Costs
Ohio *
Type of
Insurance Plan
Effected
State Employee
yes
Average of savings
Massachusetts **
State Employee
- 25%
Texas ***
Group and HMO
Yes
Implemented simultaneously
Yes
Implemented Simultaneously
yes
Average of savings
yes
<1%
Maryland ***
Rhode Island ***
Group and
Individual
Group,
Individual, and
HMO
<1%
Sources:
*
Sturm, R., Goldman, W., McCulloch, J. (1998) “Mental health and substance abuse parity: a case study of
Ohio's state employees program.” Journal of Mental Health Policy Economics. Vol. 1, No. 3, p. 129-34.
**
Ma, C.A. and McGuire, T.G. (1998) “Costs and incentives in a behavioral health carve-out” Health Affairs
Vol. 17, No. 2, p. 53-69.
***
Varmus, Harold E. (1998). Parity in financing mental health services: Managed care effects on cost,
access, and quality: An interim report to Congress by the National Advisory Mental Health Council.
Bethesda, MD: Department of Health and Human Services, National Institutes of Health, National Institute
of Mental Health, p. 9-12.
The financial implications of parity laws in Ohio, Massachusetts, Maryland, North Carolina, and
Texas all displayed that when insurance plans pair mental health parity with managed care,
insurance costs either remained essentially the same or decreased (Varmus, 1998, p. 9-12; Ma,
1998, p. 66; Sturm, 1998, 129).
In fact, when the Office of Personnel Management mandated that insurance plans
participating in the Federal Employee Health Benefit program implement full mental health
parity, the Office of Personnel Management recommended that insurance plans use "an
appropriate care-management structure" in conjunction with the parity. The Office of Personnel
Management believed that this would minimize negative financial implications while still
33
expanding access to mental health services (Lachance, 2000). They recommended that insurance
plans accomplish this by using some form of managed care or another type of administrative
control over the authorization of care (Office of Personnel Management, 2000; Center for
Mental Health Services, 2002, p. 188). Although the Department of Health and Human Services
has not completed its official evaluation of the FEHB program’s implementation of mental
health parity, early assessments have attracted positive feedback. Policy researchers expect the
cost of implementation to remain low, and some are referring to the design and implementation
of the FEHB’s mental health parity mandate as ideal (Center for Mental Health Services, 2002,
p.186-198; Frank, 2001, p 1701).
Carve-Outs
One method of implementing managed care is through a carve-out. According to the
Substance Abuse and Mental Health Services Administration, a carve-out is "a health care
delivery and financing arrangement in which certain specific health care services that are
covered benefits (e.g., behavioral health care) are administered and funded separately from
general health care services. The carve-out is typically done through separate contracting or subcontracting for services to the special population" (Center for Mental Health Services, 2005).
Insurance plans often implement a mental health care-out by contracting with a managed
behavioral healthcare organization (MBHO), which manages utilization of mental health and
substance abuse benefits for the insurance plan. While all other medical services remain under a
fee-for-service system, MBHOs use gate-keeping techniques, such as authorization prior to care,
to prevent overuse of mental health services.
Research shows that “the use of specialty vendors within a general model of managed
care” decreases mental health costs and saves money for insurance plans (Sturm et al, 1998, p.
34
129-134; Zuvekas et al, 2002, p.148). These results are so compelling that the FEHB program
encouraged plans within their program to use MBHOs, along with other systems of managed
care, as they implemented mental health parity (Lachance, 2000).
The belief that expansion of mental health benefits under managed care systems will
result in cost-shifting as patients attempt to receive services for their mental health problems
through their unmanaged general health provider is a myth (Kirkschstein, 2000, p. 19). If this
type of cost-shifting occurred, it would explain why costs in the mental health care sector
normally decrease when insurance plans implement managed care. However, one study found
that when patients sought mental health treatment, their general medical care costs actually
decreased during a time when insurance general medical care costs were increasing overall. This
indicates that this type of cost-shifting did not occur (Cuffel et al, 1999, p. 78).
Adverse Selection
Although those opposed to mental health parity often cite the possibility of adverse
selection as a danger associated with the implementation of mental health parity, parity can
actually work to remedy the issue of adverse selection. According to Mental Health: A Report
of the Surgeon General, mental health parity legislation is “an effort to address both the adverse
selection problem and the fairness problem associated with moral hazard” (U.S. Department of
Health and Human Services, 1999, p. 426). Because the concept of full mental health parity is to
require a higher level of mental health care by all insurance plans, parity will actually lessen
adverse selection in many cases. By establishing a floor for mental health benefits equal to that
of general medical benefits, the incentive to limit mental health benefits will diminish (Frank,
2001, p. 1702).
35
Furthermore, minimizing the incentive for adverse selection will benefit the insurance
market. The adverse selection incentive for insurance plans to cover only mentally healthy
individuals creates a system of inefficiency. Although the competition between insurance plans
to avoid adverse selection in beneficial to the insurance companies, this practices is inefficient to
the insurance market (Frank, 2001, p. 1702). According to Dr. Richard G. Frank, author of the
article “Will Parity in Coverage Result in Better Mental Health Care?,” “Parity can improve the
efficiency of insurance markets by eliminating wasteful forms of competition that are the result
of adverse selection. Mandating a particular level of mental health care establishes a floor for
coverage. Parity for mental health benefits establishes the same floor for mental health coverage
as for other types of medical care” (Frank, 2001, p. 1702). Parity will not only decrease
instances of adverse selection, but will improve efficiency of the insurance market as well.
The possibility of adverse selection occurring will still exists under a system of mental
health parity, but full mental health parity will make it more difficult for insurance plans to
discourage the enrollment of high-risk mentally ill patients. Under mental health parity, in order
for insurance companies to keep mental health benefits low enough to avoid the enrollment of
mental ill patients, the company would have no choice but to decrease all their medical benefits
to an undesirable level, hurting their company’s overall competitiveness. In situations of
mandated full mental health parity, such as with the Federal Employee Health Benefit Program
(FEHB), there was no evidence of insurance companies employing this strategy of reducing
overall benefits in order to avoid increasing mental health benefits (Center for Mental Health
Services, 2002, p. 193-194).
36
Moral Hazard
Those opposed to mental health parity are greatly concerned with the increase in moral
hazard resulting from the implementation of mental health parity. In reality, the issue of moral
hazard is not unique to mental health care. Moral hazard is a potential problem with all types of
health care where patients do not directly pay for their treatments and services, not just treatment
of mental disorders (U.S. Department of Health and Human Services, 1999, p. 420; Frank, 2001,
p. 1701). However, the fear that insurance beneficiaries will use unnecessary services is greater
with mental health care than physical health care. One study shows that, under a fee-for-service
insurance system, use of mental health treatments did indeed increase more than general health
treatments when benefits were raised (Frank, 2001, p. 1701).
One form of moral hazard occurs when different treatments with similar effectiveness
have drastically different prices. In some situations of mental health problems, especially in less
severe cases, inexpensive forms of mental health treatment do exist. Reasonably priced forms of
treatment include pastoral counseling in which payment is often determined by the individual’s
ability to pay. Self-help or support groups, such as 12-step programs, are another inexpensive
form of treatment, often with no fee involved (Alcoholics Anonymous, 2005; Narcotics
Anonymous, 2005). Without a financial incentive, a patient might automatically pick a treatment
costing thousands of dollars over a free form of treatment. Although self-help groups are more
successful at treating substance abuse than no treatment at all, the best form of treatment is often
a combination of both professional care and participation in a self-help group (Substance Abuse
and Mental Health Services Administration, 2003, p.10-13).
The use of managed care in conjunction with mental health parity reduces the concern of
increasing moral hazard associated with parity by limiting the usage of unnecessary treatments.
37
Many insurance companies exercise methods of managed care to prevent patients from using
unnecessary services or choosing excessively expensive forms of treatment, helping the
insurance company avoid superfluous costs. Managed care allows insurance companies to
control costs without stringently restricting benefits by using networks of providers and
managing use of services. Using managed care methods to ensure that patients are not
unnecessarily using medical services alleviates the potential for moral hazard, allowing insurance
plans to maintain access while limiting the negative economic impact of expanding mental health
benefits. In the case of treatments costing drastically different prices, a managed care system
could require a patient to try a free 12-step program before receiving expensive forms of
treatment (Center for Mental Health Services, 2002, p. 187).
Access under Parity
Although many opponents of mental health parity are concerned whether parity actually
increases access to treatment, current evidence shows that mental health parity will expand
Americans’ access to mental health care (Kirkschstein, 2000, p. 15; Sturm and Sherbourne,
2000, p. 177). One way to measure access to health care is patient utilization of services. A
study measuring patient utilization after three years of mental health parity showed that
outpatient utilization increased dramatically under mental health parity, despite using a mental
health carve-out to apply managed care techniques to mental health services. Beneficiaries
receiving outpatient services increased by a fifty percent, while the number of outpatient visits
increased by fifty percent as well (Zuvekas, 2002, p. 156-157). This displays that when
insurance plans implement mental health parity, they lower financial barriers to treatment,
allowing more patients access to care.
Still, this study does not prove that those in need of mental health care were the ones who
38
experienced this increase in utilization. However, another nationwide study found that, under
mental health parity, insurance plans experienced an increase in the number of outpatient mental
health visits among patients who were actually mentally ill, rather than among patients in decent
mental health. This study indicates that the decreases in cost-sharing that come with parity do
increase access to mental health services for those who need it most (Sturm and Wells, 2000, p.
258-261; Kirkschstein, 2000, p. 15).
Quality under Parity
Quality of mental health care after the implementation of mental health parity remains
unknown. Little data currently exists showing how parity directly affects quality of mental
health care (Kirkschstein, 2000, p. 16). However, some data examining the quality of mental
health care under managed care systems does exist. Because insurance plans often use managed
care to offset the cost of mental health parity, this data is useful in the analysis of mental health
parity. According to Insurance Parity for Mental Health: Cost, Access, and Quality, Final
Report to Congress by the National Advisory Mental Health Council, published by the National
Institutes of Health, there is no evidence to suggest that fee-for-service care produces better
quality care than managed care systems (Kirkschstein, 2000, p. 16). The assurance that managed
care produces care of equal quality puts to rest the skepticism of managed care critics.
Researchers have found it difficult to gather data on the quality of mental health care
under mental health parity. Surveys to determine quality of mental health care remain very
costly, and it is difficult to obtain a group representative of the mental health population.
Furthermore, those conducting studies on quality of care rarely have access to medical records
because of patient confidentiality laws. This leaves researchers to rely on other information
gathering methods and makes the task much more difficult (Kirkschstein, 2000, p. 17).
39
What are the characteristics of effective parity legislation?
1. Federal v. State Parity Legislation
Both state and federal government play a role in developing mental health parity
legislation. As both levels of government debate the issue of mental health parity and consider
parity laws, it is important to understand both the accomplishments and shortcomings of these
two types of parity legislation.
Federal Parity Legislation
The Mental Health Parity Act of 1996
On September 26, 1996, Congress passed the Mental Health Parity Act with bipartisan
support. By amending the Public Health Service Act (PHSA) and the Employee Retirement
Income Security Act of 1974 (ERISA), this law mandates that group insurance plans can not
impose annual or lifetime dollar limits on mental health benefits unless equal limitations are
placed on the plan's other benefits. Originally scheduled to expire on September 30, 2001,
Congress extended the Mental Health Parity Act four times, with the lasted extension protecting
the law through December 31, 2005 (Mental Health Parity Act of 1996; U.S. Department of
Labor, 2005).
This law, however, is limited in its ability to bring greater access in mental health
benefits. The Mental Health Parity Act of 1996 only mandates partial mental health parity. By
only requiring insurance plans to provide mental health parity in annual and lifetime dollar
limits, other utilization limits and higher cost-sharing for mental health benefits remain
permissible. The law also is limited in its definition of mental illness by only mandating parity
for individual insurance plans’ definition of mental health and not requiring parity for substance
abuse treatments (Mental Health Parity Act of 1996).
40
Furthermore, the Mental Health Parity Act of 1996 is limited in regards to who falls
under the law. The law only applies to group health care plans, and therefore does not cover
those who purchase their health insurance individually. The act includes provisions exempting
businesses with fewer than fifty employees from compliance and allowing companies to apply
for exemptions if their costs increase more than one percent because of the mental health parity
law. Although the law includes the FEHB program and state and local government employee
health care plans, it does not apply to federal public insurance programs such as Medicare,
Medicaid, SCHIP, or TRICARE, excluding coverage for 24 percent of the population (Mental
Health Parity Act of 1996).
Following the implementation of this first federal parity law, it is now possible to
evaluate the Mental Health Parity Act’s overall effectiveness. In a review of the Mental Health
Parity Act of 1996, the U.S. General Accounting Office found that 14 percent of insurance plans
failed to comply with the law, although the implementation costs for insurance companies was
almost nothing. Only 3 percent of insurance plans experienced increases in costs due to the
introduction of the federal parity law, and few applied for exclusion due to cost increases over
one percent. The fact that less than one percent of insurance plans dropped mental health
benefits completely in order to avoid complying with the new parity law reflects of the low cost
of implementing the 1996 law (U.S. General Accounting Office, 2000, p. 5-6, 10-11, 16).
Unfortunately, the many limiting provisions of the Mental Health Parity Act prevented
this law from achieving the goals of mental health parity. The law’s exemptions and mandate for
only partial parity made it easy for insurance companies to continue restricting mental health
benefits despite the implementation of the act. The GAO reported that “Because of [the Mental
Health Parity Act’s] narrow scope and reductions in mental health benefits that the employers
41
have made to offset the required enhancements, compliance may have little effect on employees’
access to mental health services” (U.S. General Accounting Office, 2000, p. 5). In the end,
access to mental health services did not increase under the Mental Health Parity Act of 1996,
with 84 percent of employees seeing no change in their access to care (U.S. General Accounting
Office, 2000, p. 37).
Health insurance plans responded to the Mental Health Parity Act by increasing patients'
cost-sharing burden for mental health treatments and by using annual mental health utilization
limits. This made it impossible for this law to achieve the goal of equal access to mental health
services (Center for Mental Health Services, 2002, p. 197; Hennessy, 2001, p. 60; Frank, 2001,
p. 1701; Kirkschstein, 2000, p. 6). A 2000 report by the U.S. General Accounting Office found
that 87 percent of insurance plans which were in compliance with the Mental Health Parity Act
of 1996 continue to use at least one other method to continue restricting mental health benefits.
Furthermore, in order to stop the law's attempt to expand benefits, a majority of insurance plans
actually introduced new restrictions to mental health benefits when implementing the parity law
(U.S. General Accounting Office, 2000, p. 12-13). Ultimately, Congress poorly designed the
Mental Health Parity Act to meet the goals of mental health parity, and the laws has proven
ineffective in providing patients of mental health disorders equal access to proper care and
treatment. As a result, there remains a need for future mental health parity laws that mandate full
mental health parity and include fewer exemptions.
Future Proposals of Parity Legislation
Both before and after the enactment of the Mental Health Parity Act of 1996, Senator
Pete Domenici and the late Senator Paul Wellstone, in a bipartisan effort, pushed for the
enactment of stronger parity legislation. Senator Domenici continues to introduce legislation
42
mandating full mental health parity, frequently referred to as the Senator Paul Wellstone Mental
Health Equitable Treatment Act in memory of Senator Wellstone (S. 486, 2003; H.R. 953,
2003). This piece of legislation goes beyond the 1996 law by requiring parity in mental health
utilization limits and cost-sharing, along with parity in lifetime and annual dollar limits. In
addition, this law includes substance abuse in its parity mandate and includes an exemption for
small businesses with fewer than 50 employees. The National Advisory Mental Health Council
report to Congress estimates that full mental health parity provided by this type of legislation
will result in an increase of 1.4 percent. Although introduced each Congressional session, the
bill’s supporters have not made a great deal of progress in its passage (Kirkschstein, 2000, p. 1011; S. 486, 2003; H.R. 953, 2003).
State Parity Legislation
The Mental Health Parity Act of 1996 jump-started the state movement for mental health
parity. Despite the fact that this law failed to achieve the basic goals of parity, it provided
momentum to the mental health parity movement. Prior to 1996, only nine states had enacted
any form of mental health parity, most of which were passed in the three years directly before
Congress approved the federal parity law. Today, as shown in Appendix A, forty states have
some a mental health parity law of some form. Despite this appearance of success, several major
problems with state mental health parity laws exist.
Variation in state laws
Although many states originally passed mental health parity legislation very similar to the
1996 federal parity law, many states incrementally strengthened their parity laws in the years
following the enactment of the Mental Health Parity Act. As a result, state parity laws apply to
different categories of insurers, define mental illness differently, and include different
43
exemptions. State mental health parity laws differ in six basic ways:
1.
2.
3.
4.
5.
6.
What categories of insurers are subject to the law?
How does the law define mental illness?
Are substance abuse benefits included?
Is full parity or partial parity mandated?
Does the law exempt small businesses?
Can insurance companies apply for an exemption if their rates increase over a certain
amount?
(Hennessy, 2001, p. 61; Frank, 2001, p. 1703; Kirkschstein, 2000, p. 8-9, 41-45)
Table 2 of Appendix A lists and describes each states’ mental health parity laws. By
summarizing these six variables for each individual law, the table clearly displays how state laws
differ from each other. In addition, Table 1 of Appendix A describes the provisions of the
federal Mental Health Parity Act of 1996 for comparison with the provisions of individual states’
laws.
Mental health parity laws vary between states for several reasons. Political necessity
often shapes state mental health parity laws, as politicians must create parity laws that are
politically acceptable to state legislatures in different parts of the country (Hennessy, 2001, p.
61). Other factors specific to individual states influence state parity laws as well. Higher levels
of education, mandated health benefits, per capita mental health spending, and a higher
proportion of citizens using managed care health insurance all increase the likelihood that a state
will pass strong parity legislation. States with high levels of small businesses are less likely to
adopt a strong mental health parity law (Kirkschstein, 2000, p. 9).
Similar to the outcome of the Mental Health Parity Act of 1996, the limited parity offered
in most state laws lowers the effectiveness of parity and hurts the law’s ability to achieve the
goals of mental health parity. Table 4 of Appendix A lists states according to the level of parity
required. Twenty-two states require full parity while only eighteen states only require partial
parity. Only six states, Arkansas, Connecticut, Kentucky, Minnesota, Rhode Island, and
44
Vermont, have truly strong mental health parity laws by requiring full mental health parity and
by using a broad-based definition of mental illness. Without both a broad definition of mental
illness and a mandate for full parity, mental health parity laws do not actually increase access for
many patients.
A law’s definition of mental illness significantly influences its effectiveness. Table 3 of
Appendix A list states according to their definition of mental illness. Of the forty states with
mental health parity laws, only sixteen states use a broad definition of mental illness while
twenty-four states use a narrow definition. Nineteen states include substance abuse disorders in
their definition of mental illness. Several states only require mental health parity for state
employee health plans, and conversely, other states have mental health parity laws excluding
state employee health plans from the mandate.
Limitations of State Parity Laws
Beyond the variations between state mental health parity laws, state parity laws have
other limiting factors as well. Primarily, state parity laws do not apply to federally sponsored
public health care plans and private companies who self-insured their employees’ health
insurance plans. This drastically cuts down on the percentage of people who covered by state
mental health parity laws (Maxfield, 2004, p. 42, 45-46).
A self-insured health insurance plan is a plan in which “the employer bears the insurance
risk rather than contracting it out to a third-party insurer, such as a Blue Cross organization or an
HMO. The employer can administer self-insured plans directly or can contract out
administrative services - such as setting up a provider network or conducting utilization review to a third-party administrative services organization” (Maxfield, 2004, p. 39). This type of
insurance plan is exempt from state law because of the Employee Retirement Income Security
45
Act of 1974 (ERISA), a law enacted to create consistent regulations across the country regarding
private employee pension plans in order to ease compliance for businesses operating in multiple
states. This law extends to the regulation of self-insured health plans, therefore giving regulating
power of this type of health insurance to the federal government. In 1998, approximately 130
million people in the United States received their health insurance through self-insured health
plans, and this type of health insurance is especially prevalent in large corporations. While only
12 percent of companies with fewer than fifty employees have self-insured health plans, almost
50 percent of employers with more than fifty employees use this type of health insurance
(Hennessy, 2001, p. 62; Maxfield, 2004, p. 7, 39-40).
In addition, state parity laws normally do not apply to most governmental insurance
programs. States do not have control over federally funded public insurance plans, and although
some public health insurance plans already require full parity, state parity laws would not change
the non-parity status of Medicare, SCHIP, TRICARE, or the Civilian Health and Medical
Program. In addition, states often choose to exempt state employee insurance plans from their
mental health parity laws, leaving another group of Americans without mental health parity
(Maxfield, 2004, p. 46-47).
2. Definition of Mental Health Used in Parity Laws
Definitions used in mental health parity laws can vary drastically among states, as state
laws use different methods and terms to define mental illness. How a law defines mental illness
is an integral aspect of parity legislation, and this can have a profound effect on the laws ability
to provide true parity and increase access to mental health care.
46
Broad Definitions of Mental Illness
Some states define mental illness very broadly, including many mental health disorders
under the term and expanding the scope of the law. Table 3 of Appendix A show the sixteen
states that define mental illness broadly, although these broad definitions come in several forms.
The DSM-IV and ICD are two such forms of broad-based definitions of mental illness. The
Diagnostic Statistical Manual (DSM-IV), published by the American Psychiatric Association and
now in its fourth edition, and the International Classification of Diseases and Related Health
Problems (ICD) are two publications frequently used by laws to define mental illness. The
DSM-IV and the ICD’s listings of mental illnesses are essentially the same, with the ICD
including all diagnoses listed in the DSM-IV (Peck, 2002, p. 1090). When lawmakers define
mental illnesses as any diagnosis listed in either of these two publications, they are defining the
term mental illness very broadly and including thousands of disorders under the parity law.
In addition, some laws use broad, descriptive language to define what mental health
problems are included in the law’s parity requirement. For example, a 1997 North Carolina
parity law defines mental illness vaguely as:
“(i) when applied to an adult, an illness which so lessens the capacity of the individual to
use self-control, judgment, and discretion in the conduct of his affairs and social relations
as to make it necessary or advisable for him to be under treatment, care, supervision,
guidance, or control; and (ii) when applied to a minor, a mental condition, other than
mental retardation alone, that so impairs the youth's capacity to exercise age adequate
self-control or judgment in the conduct of his activities and social relationships so that he
is in need of treatment” (North Carolina State Statute, Sec. 58-51-55).
47
This type of definition allows a wide range of mental disorders to fall under the term mental
illness, as doctors have a great deal of latitude in their diagnosis (GAO, 2000, p. 40-41).
Narrow Definitions of Mental Illness
Many states, however, do not define mental illness so broadly. Table 3 of Appendix A
displays the twenty-four states using narrow definitions of mental illness. Just as broad
definitions of mental illness come in several forms, there are also several common types of
narrow definitions.
With an asterisk, Table 3 also indicates the nine states’ with mental health parity laws
using biological criteria to define mental illness. According to Dr. Martha Peck, this definition
of mental illness is “based on the hypothesis that disruptions in brain function lead to mental
illness” (Peck, 2002, p. 1090). Therefore, doctors diagnose patients based on “heritability,
biochemical markers, and anatomical lesions” (Peck, 2002, p. 1090). As discussed in Appendix
A, the use of a biologically-based definition drastically limits the number of diagnoses included
in a mental health parity law. For example, the DSM-IV lists only 13 diagnoses as biologicallybased, all of which the introduction of Appendix A lists. However, mental health parity laws
often state that the law covers biologically-based mental illnesses, but then give their own
definition of which specific diagnoses fall into this category. Some states list as few as three
specific diagnoses under this term while others include all thirteen listed in the DSM-IV as
biologically-based (GAO, 2000, p.58).
Other states’ mental health parity laws only include severe or serious mental illnesses.
The term severe or serious mental illness, however, is not a medical term included in such
publications as the DSM or the ICD. In cases where these terms are used, the law usually
includes a list of covered diagnoses. The most common diagnoses included under the term
48
serious or severe are schizophrenia, bipolar disorder, obsessive-compulsive disorder, major
depressive disorder, panic disorder, schizo-affective disorder, and delusional disorder. The
diagnoses included under this definition, however, varies some between laws. Interestingly
though, the list of diagnoses which fall under the umbrella term of severe mental illness are often
very similar to the diagnoses listed for biologically-based definition (Peck, 2000, p. 1091-1093;
Kirschstein, 2000, p.43).
Inclusion of substance abuse
Of the forty states with mental health parity laws, only nineteen states include substance
abuse under their laws. Table 3 of Appendix A lists these nineteen states. Substance abuse
generally refers to alcohol and drug addictions, and is included in the DSM-IV and the ICD as a
mental disorder (American Psychiatric Association, 1994). The question of moral hazard and the
fact that there are many relatively inexpensive treatment options for substance abuse has deterred
many states from considering the inclusion of substance abuse. Managed care, however, helps
reduce this moral hazard concern (Center for Mental Health Services, 2002, p. 187).
Furthermore, despite the success of self-help and other inexpensive forms of treatment,
people must have access to professional treatment for substance abuse problems. Some patients
simply need a more structured program for successful treatment, despite its additional cost. In
addition, studies show that the most effective form of treatment for substance abuse is a
combination of both self-help groups and professional treatment, fully displaying the need for
insurance plans to provide substance abuse benefits at parity levels (Substance Abuse and Mental
Health Services Administration, 2003, p.10-13).
49
Influences on a Law’s Definition of Mental Illness
Several factors influence the definition of mental illness used in state laws. Primarily,
mental health advocacy organizations affect mental illness definitions. These groups often help
write parity legislation, testify before committees, and participate in other activities that
influence legislative outcomes. Because these groups differ in their opinions of what lawmakers
should include under a definition of mental illness, the outcomes in state legislature reflect this.
One study found that eight-five percent of state parity laws written by the National Alliance for
the Mentally Ill (NAMI) defined mental illness as biologically-based diagnoses or severe or
serious mental disorders. This reflects the organization’s focus and target audience. The same
study also found that one-hundred percent of state parity laws written by the National Mental
Health Association (NMHA) defined mental illness in broader terms (Peck, 2002, p.1091).
In addition, cost of mental health parity and the lobbying of the business and insurance
community influence definitions used in state mental health parity laws. These groups oppose
mental health parity laws and they benefit from decreasing the scope of the law and reducing the
number of people whose diagnoses would require parity treatment. Furthermore, issues of
political necessity often influence the definition use in legislation. Legislators find it easier to
gain support for this type of bill when fewer or only biologically-based diagnoses are included
(Peck, 2002, p. 1092). All of these influences have a profound effect on what type of definition
emerges in a state parity law.
Implications of Mental Illness Definitions
The definitions used in mental health parity laws have profound effect on the law’s
ability to provide greater access to mental health care. Because mental health parity laws only
cover mental illnesses as defined in the law, a patient must meet all the criteria for diagnosis in
50
order to receive parity in their insurance benefits. A patient could be in great need of care, yet
not qualify for parity in benefits. For example, a patient only meeting four of the five necessary
criteria for diagnosis could be experiencing more severe effects of his or her symptoms than a
person who met all five of the criteria while only mildly experiencing symptoms.
This issue leads some to feel that the emphasis in diagnosing patients should be on their
ability to function rather than their ability to meet stringent criteria as required by the DSM and
the ICD. Although this type of definition could make it easier for doctors and patients to qualify
falsely for parity in mental health benefits, this type of definition would theoretically give the
greatest level of access to those who are in need of mental health care (Peck, 2002, p. 1093).
3. Final Recommendation
While mental health parity will never entirely satisfy the need for greater access to mental
health care, parity laws will increase access to mental health care for the insured portion of the
population at a reasonable cost to insurance companies. However, lawmakers must construct
mental health parity properly in order to achieve the most basic goal of increasing access to
mental health care. In order to meet this objective and to create effective legislation, a mental
health parity law must come in the form of federal legislation, mandate full parity, contain a
broad yet practical definition of mental illness, and allow flexibility in implementation.
Federal Law
In order to achieve mental health parity, parity legislation must come from Congress
rather than state legislatures. States laws are simply not as effective as federal laws at regulating
health insurance policy. The Employee Retirement Income Security Act of 1974’s (ERISA)
exempts a majority of self-insured health plans from state regulation. The Mental Health Parity
Act of 1996 required parity from 70 percent self-insured health plans. If all fifty states had
51
mental health parity laws, state parity laws would only affect 36 percent of self-insured plans
(Maxfield, 2004, p. 46, 48-49). Parity laws must be federal to give a significant number of
Americans mental health parity.
Full Parity
Mental health parity laws must provide Americans with full parity. Full parity mandates
that insurance companies maintain equal cost-sharing, equal utilization limits for treatments, and
equal annual and lifetime dollar limits between mental health benefits and all other medical
benefits. The Mental Health Parity Act of 1996 only requires parity in annual and lifetime dollar
limits, making the law ineffective. When a parity law, whether federal or state, only requires
partial parity, it remains easy for insurance companies to continue restricting mental health
benefits. Without full parity, insurance companies can simply adjust other limitations on mental
health benefits to compensate for the mental health parity law. Partial parity does not increase
access to mental health care because insurance companies will keep other benefit limitations
high or increase them further (Frank, 2001, p. 1701). Full parity is necessary to stop insurance
from continuing to use discriminatory practices against patients of mental illnesses.
Definition of Mental Illness
Effective mental health parity legislation requires a broad yet practical definition of
mental illness. Although there are some disadvantages to using the listings of DSM and the ICD
to define mental illness in parity legislation, this method is both a broad definition of mental
illness and practical as well. Although this method will exclude some of those who do not quite
meet the necessary criteria, it will also prevent the potential problems associated with descriptive
definitions of mental illness. Description definitions of mental illness lack the scientific basis
52
necessary to diagnose mental illness accurately while preventing the abuse of a vague term by
both doctors and patients.
Encouraged Use of Managed Care Techniques
In order to achieve mental health parity while minimizing costs resulting from potential
moral hazard, a mental health parity law should encourage insurance companies to use
reasonable levels of cost management techniques. By encouraging the use of managed care in
the implementation of parity, full mental health parity becomes economically practical
(Hennessy, 2001, p. 64). Managed care is an ideal strategy for implementing mental health
parity because it will allow greater access to mental health services while not strictly denying or
restricting mental health benefits.
The FEHB Program as a Model
The Federal Employee Health Benefit program’s successful implementation of mental
health parity serves as a model for future implementation of parity. The FEHB program provides
health care coverage to approximately 8.5 million employees of the federal government and their
dependents. Although the FEHB program’s mental health parity resulted from an executive
order rather than by legislation, this program’s implementation has many admirable and effective
characteristics (Center for Mental Health Services, 2002, p. 186).
President Clinton’s 1999 executive order requires insurance plans participating in the
FEHB program to implement full mental health parity for all mental illness and substance abuse
included in the DSM-IV. Before implementation in 2001, the U.S. Office of Personnel
Management encouraged participating insurance plans to use managed behavioral healthcare
organization (MBHO) to employ managed care strategies to mental health benefits. The
program allows some flexibility in implementation, such as allowing fee-for-service plans to
53
continue non-parity for benefits received out-of-network as long as insurance plans implement
parity for benefits received in-network. This flexibility lessens the burden on insurance
companies while still ensuring patients access to parity-level benefits (Office of Personnel
Management, 2000, p. 2-4).
In implementation, the OPM includes necessary oversight. Oversight of insurance plans’
implementation consists of meeting a minimum standard for patient access to treatment, which
includes looking at waiting times for appointments and travel distance to the nearest provider. In
addition, the OPM requires insurance plans to have approved strategies for the transition to
parity and for educating both providers and beneficiaries about changes in their benefits as parity
is implemented (Office of Personnel Management, 2000, p. 2-6).
Small Businesses and Price Increase Exclusions
The Mental Health Parity Act of 1996 and many state laws provide exemptions for
insurance plans that experience cost increases over a certain level. However, with the current
price estimates for mental health parity, lawmakers can feel assured that insurance costs will not
increase drastically because of mental health parity. Furthermore, inclusion of such exemptions
could give insurance plans an escape strategy. If lawmakers include a price increase exemption
in a parity law, insurance plans may not make an honest effort to minimize the cost of
implementing parity. Instead, an insurance plan may purposely allow their costs to rise
temporarily in order to meet the criteria for exemption.
Nineteen percent of the insured population does not receive mental health parity because
of small business exemptions often included in parity laws (Maxfield, 2004, p. 45-46). In most
cases, laws allow businesses with fewer than 50 employees to avoid the parity mandate.
However, with the use of managed care, the cost of mental health parity remains low, leaving no
54
reason for laws to exempt small business owners from the mandate (Center for Mental Health
Services, 2002, p. 187; Kirkschstein, 2000, p. 5-6). While not providing an automatic
exemption for small businesses, allowing exemptions for small businesses if they experience cost
increases over 1 percent is a potential solution.
Conclusion
Through my research, I have concluded that mental health parity legislation has the
potential to be both effective in achieving its intended goal and economically efficient. Despite
current obstacles such as stigmatization, the perceived high cost of mental health parity, and
concerns relating to access and quality of care, mental health parity can create positive change
for those suffering from mental illness in the United States without producing unreasonable
hardship on insurance plans. The most recent estimations predict that full mental health parity
will result in only 1.4 percent cost increase, while producing savings in general health care costs
by providing patients with more specialized care (Kirkschstein, 2000, p. 3-5; Simon et al, 1995,
p. 352-357).
Mental health parity improves the treatment and lives of mental health patients by
increasing patients’ access to mental health care. Utilization of outpatient treatments increase,
and this increased access to outpatient preventative care has resulted in decreases in inpatient
admissions (Kirkschstein, 2000, p. 12-15; Zuvekas et al, 2002, p.152-156). Increases in access
to mental health care also help prevent disability and loss of productivity. One study found that
generous mental health benefits and increased access to specialized mental health care lowers the
number of patients claiming disability, and another study found that patients receiving
specialized mental health care experienced greater productivity in the workplace (Salkever et al,
2000, p. 104-105; Zhang et al, 1999, p. 111).
55
Today, effective mental health parity legislation is politically feasible. In addition to
lower cost estimates for parity, newer examples of successful mental health parity
implementation provide models for future legislation, such as the Federal Employees Health
Benefits Program. With both liberal and conservative policymakers pledging their support for
cost-effective parity legislation, effective mental health parity maintains a legitimate chance of
becoming law.
Effective mental health parity legislation, however, must include several key
characteristics. To achieve the goals of mental health parity and to avoid the problems
associated with previous parity attempts, an effective law must mandate full parity, be enacted at
the federal level of government, incorporate all diagnosis included in the Diagnostic and
Statistical Manual of Mental Disorders (DSM-IV), and encourage the use of managed care
techniques. Without these traits, additional parity laws will remain as ineffective as previous
laws and will provide little real progress for those suffering from mental health problems.
Currently, millions Americans with mental health problems continue to pay more for
their mental health treatments than for other medical treatments because they lack mental health
parity. A person with $60,000 in mental health expenses can expect to pay almost fifteen times
as much of that amount out of their pocket than if the expenses were for other medical
treatments. Until this disparity between mental health benefits and other medical benefits
disappears, there will remain a need and a demand to develop effective parity legislation.
56
Appendix A:
Mental Health Parity Laws
Definitions used in table:
Types of Illnesses Covered by Parity Laws:
Broad-based definition of mental illness: This term indicates that all mental illnesses listed in the
DSM-IV and/or the ICD are covered by the law. The DSM-IV and ICD both include
substance abuse disorders. In addition, some state laws define mental illness in vague terms
or do not define mental illness at all.
Narrow definitions of mental illness: Some states list specific diseases that fall under their law’s
definition of mental illness. These usually come in two forms:
1. Biologically-based mental illnesses: Biologically-based definitions of mental illness only
cover diseases that are caused by a biological disorder. Usually, laws specifically
define several diseases that the state considers biologically-based and are covered under
the law. This term can include all or some of the following: schizophrenia, schizoaffective disorder, bipolar disorder, obsessive-compulsive disorder, major depressive
disorder, panic disorder. Biologically-based mental illness also sometimes includes
paranoia and other psychotic disorders, autism, although they rarely include substance
abuse. This list of mental illnesses is very similar to the list of mental illnesses
described in some state laws as severe mental illnesses.
The DSM-IV’s list of biologically-based mental illnesses:
Schizophrenia
Paranoia and psychosis
Schizoaffective disorder
Delusional disorder
Bipolar disorder
Childhood depression
Major depressive disorder
Attention-deficit hyperactivity disorder
Obsessive-compulsive disorder
Anorexia and bulimia nervosa
Panic disorder
Post-traumatic stress disorder
Autism
2. Severe or serious mental illnesses: Most commonly includes schizophrenia, bipolar
disorder, obsessive-compulsive disorder, major depressive disorder, panic disorder,
schizo-affective disorder, and delusional disorder (Kirschstein, 2000, p.43). Other
mental illnesses sometimes included in this definition by state parity laws are autism,
anorexia nervosa, bulimia nervosa.
Substance abuse: Includes alcohol and drug addictions.
Full Parity versus Partial Parity
Full Parity: A parity law requiring mental health benefits equal to other benefits in:
1. cost-sharing (co-payments and coinsurance)
2. annual and lifetime utilization limits
3. annual and lifetime dollar limits
Partial Parity: Laws requiring equality between mental health benefits and other benefits in
some, but not all of the criteria for full parity.
57
Sources:
American Psychiatric Association. (1994). Diagnostic and Statistical Manual of Mental
Disorders (4th ed.). Washington D.C.: American Psychiatric Association.
Kirkschstein M.D., Ruth L. (2000). Insurance Parity for Mental Health: Cost, Access, and Quality,
Final Report to Congress by the National Advisory Mental Health Council. NIH Pub. no. 004787. Bethesda, MD: National Institutes of Health, p. 41-45.
National Alliance for the Mentally Ill. (2005) “State Mental Illness Parity Laws: Chart of State
Laws”. Accessed at:
http://www.nami.org/Content/ContentGroups/Policy/State_Mental_Illness_Parity_Laws___Sta
te_by_State_Chart.htm
National Conference of State Legislatures. (2004) “State Laws Mandating or Regulating Mental
Health Benefits.” Accessed at: http://www.ncsl.org/programs/health/Mentalben.htm.
Peck, Marcia C. and Richard M. Scheffler. (Sept. 2002) “An Analysis of the Definitions of Mental
Illness Used in State Parity Laws” Psychiatric Services. Vol. 53, No. 9, p. 1089-1095.
U.S. General Accounting Office. (May 2000). Mental Health Parity Act: Despite New Federal
Standards, Mental Health Benefits Remain Limited. Washington: GAO, p.40-61.
58
Table 1: Federal Parity Laws
Law
Mental Health
Parity Act
1996
Type of
Insurance
Affected
Illnesses
Covered
Full or Partial
Parity (Inpatient and
Group
Mental illness (broaddefinition, excluding
substance abuse)
outpatient utilization
limits, cost-sharing, and
annual and lifetime
dollar limits)
Partial parity – Only
requires parity in annual
and lifetime dollar
limits.
Small
Business
Exemption
Cost
Exemption
Yes – 50
employees or
fewer
Yes – 1%
increase or more
Table 2: State Parity Laws
State and
year of law
Type of
Insurance
Affected
Illnesses
Covered
Individual and
Group
Mental illness (narrow
definition)
Full parity
Amends 2000 law
to include HMOs
Mental illness (narrow
definition)
Full parity
Alaska
1997
Group
1997
Group
Mental illness (Broadbased definition,
excluding substance
abuse)
Substance abuse
Arizona
1998
Group
Arkansas
1997
Alabama
2000
2002
California
1999
Full or Partial
Parity (Inpatient and
Small
Business
Exemption
Cost
Exemption
Yes – 50
employees or
fewer
Yes – 50
employees or
fewer
No
Partial – only requires
parity in dollar annual
and lifetime limits
Yes – 50
employees or
fewer
Yes – 1%
increase or more
Partial – only requires
parity in cost-sharing
Yes – 5 employees
or fewer
No
Mental illness (Broadbased definition,
excluding substance
abuse)
Partial – only requires
parity in dollar annual
and lifetime limits
Yes – 50
employees or
fewer
Yes – 1%
increase or more
Group
Mental illnesses (broadbased definition,
excluding substance
abuse)
Full parity
Yes – 50
employees or
fewer
Yes – 1.5%
increase or more
Group, HMO, and
individuals
Mental illnesses
(narrow definition)
Full parity
No
No
outpatient utilization
limits, cost-sharing, and
annual and lifetime
dollar limits)
59
No
State and
year of law
Colorado
1997
Connecticut
1999
Delaware
1996
1998
Type of
Insurance
Affected
llnesses Covered
Group
Mental illnesses
(narrow definition –
biologically-based
definition)
Group and
individual
Group
Group and
individual
Full or Partial
Parity (Inpatient and
Small
Business
Exemption
Cost
Exemption
Full parity
No
No
Mental illness
(broad-based
definition, including
substance abuse)
Full parity
No
No
Mental illness
(broad-based
definition, excluding
substance abuse)
Mental illnesses
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Full parity
Yes – 50
employees or
fewer
Yes – 1%
increase or more
No
No
outpatient utilization
limits, cost-sharing, and
annual and lifetime
dollar limits)
(narrow definition –
biologically-based)
District of
Columbia
No Law
Florida
1998
Georgia
1998
Hawaii
1988
1999
Idaho
No law
Illinois
2001
Group
Mental illness
(broad-based
definition, including
substance abuse)
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Yes – 50
employees or
fewer
Yes – 1%
increase or more
Group and
individual
Mental disorders
(broad-based
definition, including
substance abuse)
Partial parity – only
requires parity in
cost-sharing and
annual and lifetime
dollar limits
No
No
Group,
individual, and
HMO
Mental illness
(broad-based
definition, including
substance abuse)
No
No
Group and
individual
Mental illness
(narrow definition)
Partial parity – only
requires parity in
cost-sharing and
annual and lifetime
dollar limits
Full parity
Yes – 25
employees or
fewer
No
Group
Mental illness
(narrow definition)
Partial parity – only
requires parity in
cost-sharing and
annual and lifetime
limits
Yes – 50
employees or
fewer
No
60
State and
year of law
Type of
Insurance
Affected
Illnesses
Covered
Small
Business
Exemption
Cost
Exemption
Group
Mental illness
(narrow definition)
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Full parity
Yes – 50
employees or
fewer
Yes – 1%
increase or more
Group,
individual, and
state employees’
plans
Group,
individual, and
state employees’
plans
Mental illness
(narrow definition)
Yes – 50
employees or
fewer
Yes – 4%
increase or more
Amends 1999 law to
include substance
abuse
Full parity
Yes – 50
employees or
fewer
Yes – 4%
increase or more
Iowa
No law
Kansas
1997
Group
Mental illness
(narrow definition)
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Yes – 50
employees or
fewer
Yes – 1%
increase or more
Kentucky
1986
Group
Full parity
No
No
2000
Group
Full parity
Yes – 50
employees or
fewer
No
2002
Group
Mental illness
(broad-based
definition, excluding
substance abuse)
Mental illness
(broad-based
definition, including
substance abuse)
Mental illness
(broad-based
definition, including
substance abuse)
Full parity
Yes – 51
employees or
fewer
No
Mental illness
(broad-based
definition)
Mental illness
(broad-based
definition, excluding
mental illness)
Mental illness
(narrow definition)
Full parity
No
No
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Partial parity – only
requires parity in
cost-sharing and
annual and lifetime
Yes – 50
employees or
fewer
Yes – 1%
increase or more
No
No
Indiana
1997
1999
2003
Louisiana
1982
1997
1999
Group, selfinsured, and state
employee plans
Group
Group, HMO,
and state
employee plans
Full or Partial
Parity (Inpatient and
outpatient utilization
limits, cost-sharing, and
annual and lifetime
dollar limits)
61
Yes – 1%
increase or more
Small
Business
Exemption
Cost
Exemption
Full parity
Yes – 20
employees or
fewer
No
Mental illness
(narrow definition)
Substance abuse
Full parity
No
No
Full parity
Yes – 20
employees or
fewer
No
Group and
individual
Mental illness
(broad-based
definition, including
substance abuse)
Partial parity – only
requires parity in
cost-sharing,
inpatient care, and
annual and lifetime
dollar limits
No
No
State employee
plans
Mental illness
(narrow definition)
and substance abuse
No
No
Group,
individual, and
HMO
Mental illness
(narrow definition –
biologically-based)
Partial parity – only
requires parity in
inpatient and
outpatient care
Partial parity – does
not require parity in
cost-sharing
Yes – 50
employees or
fewer
No
Group,
individual, and
HMOs
Mental health (broadbased definition,
including substance
abuse)
Full parity
No
No
Group and
individual
Mental illness
(broad-based
definition, including
substance abuse)
Partial parity – only
requires parity in
inpatient care
Yes – 100
employees or
fewer
Yes – 1%
increase or more
Group and
individual
Mental illness
(Broad-based
definition, including
substance abuse)
Partial parity – Only
requires parity in
cost-sharing,
outpatient care, and
annual and lifetime
dollar limits
No
No
Group, HMO,
and state
employee plans
Mental illness
(narrow definition)
State and
year of law
Type of
Insurance
Affected
Illnesses
Covered
Maine
1995
Group
Mental illness
(narrow definition)
1996
Individual
2003
Groups (of 21 or
more including
HMOs)
Maryland
1994
Massachusetts
1993
2000
Michigan
No Law
Minnesota
1995
Mississippi
2001
Missouri
1997
dollar limits
Partial parity – only
requires parity in
cost-sharing and
annual and lifetime
dollar limits
Yes – 50
employees or
fewer
2001
Full or Partial
Parity (Inpatient and
outpatient utilization
limits, cost-sharing, and
annual and lifetime
dollar limits)
62
1999
Group,
individual, and
HMO
Mental illness
(narrow definition)
and substance abuse
2004
Group,
individual, and
HMO
Mental illness
(narrow definition)
and substance abuse
State and
year of law
Type of
Insurance
Affected
Illnesses
Covered
Group
Mental illness
(narrow definition)
Group and
individual
Mental illness
(narrow definition)
Nebraska
1989
Group and HMO
Alcoholism
2000
Group and HMO
Mental illness
(narrow definition –
biologically -based)
Nevada
1997
Group
Mental illness
(Broad-based
definition, excluding
substance abuse)
Substance abuse
Montana
1997
1999
1997
1999
New Hampshire
1994
New Jersey
1985
1999
New Mexico
1987
Group,
individual, and
HMO
Group and
individual
Partial parity – Only
requires parity in
outpatient care,
inpatient care, and
annual and lifetime
dollar limits.
Full parity
No
No
No
Yes – 2%
increase or more
Full or Partial
Parity (Inpatient and
Small
Business
Exemption
Cost
Exemption
Partial parity – Only
requires parity in
annual and lifetime
dollar limits
Full parity
Yes – 50
employees or
fewer
Yes – 1%
increase or more
No
No
Partial parity – only
requires parity in
cost-sharing and
annual and lifetime
dollar limits
Partial parity – Does
not require parity in
cost-sharing
No
No
Yes – 15
employees or
fewer
No
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Partial parity – only
requires parity in
cost-sharing
Partial parity – only
requires parity in
annual and lifetime
dollar limits.
Yes – 50
employees or
fewer
Yes – 1%
increase or more
No
No
Yes – 25
employees or
fewer
Yes – 2%
increase or more
outpatient utilization
limits, cost-sharing, and
annual and lifetime
dollar limits)
Mental illness
(narrow definition)
Group and HMO
Mental illness
(Narrow definition –
biologically based)
Full parity
No
No
Group and
individual
Group and
individual
Alcoholism
Full parity
No
No
Mental illness
(Narrow definition –
biologically based)
Full parity
No
No
Group
Alcoholism
Partial parity – only
No
No
63
requires parity in
cost-sharing and
annual and lifetime
dollar limits
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Yes – 50
employees or
fewer
Yes – 1%
increase or more
Small
Business
Exemption
Cost
Exemption
Full parity
No
Yes – 1.5%
increase or more
for businesses
with fewer than
50 employees;
2.5% increase
for larger
businesses
Partial parity – only
requires parity in
cost-sharing
Partial parity – does
not requires parity in
annual and lifetime
dollar limits
Full parity
No
No
No
No
No
No
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Yes – 50
employees or
fewer
Yes – 1%
increase or more
Mental illness
(narrow definition)
Full parity
Yes – 50
employees or
fewer
Yes – 2%
increase or more
Mental illness
(broad-based
definition, including
Partial parity – only
requires parity in
cost-sharing
No
No
1998
Group
Mental illness
(narrow definition)
State and
year of law
Type of
Insurance
Affected
Illnesses
Covered
2000
Group
Mental illness
(narrow definition)
New York
No law
North Carolina
1985
Group
Substance abuse
1991
State employee
plans
1997
State employee
plans
1997
Group
Mental illness
(broad-based
definition, excluding
substance abuse)
Mental illness
(broad-based
definition, including
substance abuse)
Mental illness
(broad-based
definition, including
substance abuse)
North Dakota
No law
Ohio
No law
Oklahoma
1999
Group
Oregon
2000
Group and HMO
Full or Partial
Parity (Inpatient and
outpatient utilization
limits, cost-sharing, and
annual and lifetime
dollar limits)
64
substance abuse)
Pennsylvania
1999
Group and HMO
Mental illness
(narrow definition)
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Yes – 50
employees or
fewer
No
Group,
individual, and
HMO
Group,
individual, and
HMO
Mental illness
(narrow definition)
Full parity
Yes – 50
employees or
fewer
No
Mental illness
(broad-based
definition, including
substance abuse)
Full parity
Yes – 50
employees or
fewer
No
Type of
Insurance
Affected
Illnesses
Covered
Full or Partial
Parity (Inpatient and
Small
Business
Exemption
Cost
Exemption
Group
Mental illness
(Broad-based
definition, excluding
substance abuse)
Mental illness
(narrow definition –
biologically-based)
and substance abuse
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Full parity
Yes – 50
employees or
fewer
Yes – 1%
increase or more
No
No
Group,
individual, and
HMO
Alcoholism
No
No
Group,
individual, and
HMO
Mental illness
(narrow definition –
biologically-based)
Partial parity – only
requires parity in
cost-sharing and
annual and lifetime
dollar limits
Full parity
No
No
Tennessee
1982
1997
Group and HMO
Group
No
Yes – 50
employees or
fewer
Yes – 1%
increase or more
Group
Full parity
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Partial parity – only
requires parity in
cost-sharing and
annual and lifetime
dollar limits
No
1998
Substance Abuse
Mental illness
(broad-based
definition, excluding
substance abuse)
Mental illness
(broad-based
definition, including
substance abuse)
Yes – 25
employees or
fewer
Yes – 1%
increase or more
Mental illness
(narrow definition –
biologically-based)
Mental illness
(narrow definition)
Full parity
No
No
Partial parity – only
requires parity in
Yes – 50
employees or
No
Rhode Island
1994
2002
State and
year of law
South Carolina
1997
2000
South Dakota
1979
1998
Texas
1991
1997
State employee
plans
State employee
plans
Group and HMO
outpatient utilization
limits, cost-sharing, and
annual and lifetime
dollar limits)
65
Utah
No law
Vermont
1997
Virginia
1999
State and
year of law
Washington
No law
West Virginia
1997
cost-sharing and
annual and lifetime
dollar limits
fewer
Group and
individual
Mental illness
(broad-based
definition, including
substance abuse)
Full parity
No
No
Group and
individual
Mental illness
(narrow definition –
biologically-based)
and substance abuse
Full parity
Yes – groups of 25
or fewer members
No
Type of
Insurance
Affected
Illnesses
Covered
Full or Partial
Parity (Inpatient and
Small
Business
Exemption
Cost
Exemption
Group
No
Yes – 1%
increase or more
No
Yes – 1%
increase or more
No
Yes – 2%
increase or more
outpatient utilization
limits, cost-sharing, and
annual and lifetime
dollar limits)
1998
Group and
individual
Mental illness
(broad-based
definition, excluding
substance abuse)
Mental illness
(narrow definition)
2002
State employee
plans
Mental illness
(narrow definition)
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Partial parity – only
requires parity in
annual and lifetime
dollar limits
Partial parity – only
requires parity in
cost-sharing
Wisconsin
No law
Wyoming
No Law
Sources:
U.S. General Accounting Office. (May 2000). Mental Health Parity Act: Despite New Federal
Standards, Mental Health Benefits Remain Limited. Washington: GAO, p.40-61.
Kirkschstein M.D., Ruth L. (2000). Insurance Parity for Mental Health: Cost, Access, and
Quality, Final Report to Congress by the National Advisory Mental Health Council. NIH Pub.
no. 00-4787. Bethesda, MD: National Institutes of Health, p. 41-45.
66
National Alliance for the Mentally Ill. (2005) “State Mental Illness Parity Laws: Chart of State
Laws”. Accessed at:
http://www.nami.org/Content/ContentGroups/Policy/State_Mental_Illness_Parity_Laws___Sta
te_by_State_Chart.htm
National Conference of State Legislatures. (2004) “State Laws Mandating or Regulating Mental
Health Benefits.” Accessed at: http://www.ncsl.org/programs/health/Mentalben.htm.
Peck, Marcia C. and Richard M. Scheffler. (Sept. 2002) “An Analysis of the Definitions of
Mental Illness Used in State Parity Laws” Psychiatric Services. Vol. 53, No. 9, p. 1089-1095.
67
Table 3: Summary of How State’s Define Mental Illness
Broad-based Definition
Narrow Definition
* Biologically-based definition
Includes Parity for
Substance Abuse Benefits
Alaska
Arizona
Arkansas
Connecticut
Florida
Georgia
Kentucky
Maryland
Minnesota
Mississippi
North Carolina
Oregon
Rhode Island
Tennessee
Vermont
West Virginia
Alabama
California
Colorado*
Delaware*
Hawaii
Illinois
Indiana
Kansas
Louisiana
Maine
Massachusetts*
Missouri
Montana
Nebraska*
Nevada
New Hampshire*
New Jersey*
New Mexico
Oklahoma
Pennsylvania
South Carolina*
South Dakota*
Texas
Virginia*
Alaska
Connecticut
Florida
Georgia
Indiana
Kentucky
Maine
Maryland
Minnesota
Mississippi
Missouri
Nevada
North Carolina
Oregon
Rhode Island
South Carolina
Tennessee
Vermont
Virginia
Total: 16 states
Total: 24 states
Total: 19 states
Source: Author’s calculations
68
Table 4: Summary of Full Parity v. Partial Parity
Full Parity
Partial Parity
Alabama
Arkansas
California
Colorado
Connecticut
Delaware
Hawaii
Indiana
Kentucky
Maine
Minnesota
Missouri
Montana
New Hampshire
New Jersey
New Mexico
Oklahoma
Rhode Island
South Carolina
South Dakota
Vermont
Virginia
Alaska
Arizona
Florida
Georgia
Illinois
Kansas
Louisiana
Maryland
Massachusetts
Mississippi
Nebraska
Nevada
North Carolina
Oregon
Pennsylvania
Tennessee
Texas
West Virginia
Total: 22 states
Total: 18 states
Source: Author’s calculations
69
No Mental Health Parity
Law
Idaho
Iowa
Michigan
New York
North Dakota
Ohio
Utah
Washington
Wisconsin
Wyoming
District of Columbia
Total: 10 states
(and the District of Columbia)
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