MENTAL HEALTH PARITY

June 1999
		Should health insurance agencies have to cover treatment for mental health? The president of the Health Insurance Association of America, Chip Kahn, and the executive director of the National Alliance for the Mentally Ill, Laurie Flynn, take your questions.

Forum Introduction What is included in the Domenici-Wellstone measure? How will private policies react to federal changes? Does parity really drive up costs? Is expense the deciding factor? How much coverage do people have now?

Beatrice Greenwald of Edmonds, WA, asks: There is plenty of research demonstrating that the inclusion of mental health coverage, rather than driving up costs, reduces costs by reducing the need for treatment of stress-related and psychosomatic conditions. Chip Kahn responds: The vast majority of private, employer sponsored health plans provide at least some level of coverage for mental disorders. Ninety-four percent of medium and large employers and ninety-eight percent of small employers provide coverage for hospital care. Ninety-four percent of medium and large employers and ninety-seven percent of small employers provide coverage for outpatient care. This represents a significant commitment to addressing the mental health needs of workers and their families. Given the wide availability of a basic level of coverage, it is not at all clear that providing even more generous coverage would reduce overall costs. When properly analyzed, state experience with mental health and substance abuse mandates demonstrates that costs rise when coverage is expanded. This may not always be evident because managed care programs often are implemented at the same time that parity requirements are imposed as a way of offsetting the cost of expanded coverage and the potential for medically inappropriate overutilization of services as a result of the new mandates. Some studies have thus concluded that parity has little or no cost impact, when in reality the cost of parity simply has been hidden by savings properly attributable to managed care. Independent studies of state experience with mental health and substance abuse parity support this position. For example, an analysis of parity mandates in Texas, Maryland, and Rhode Island by the National Advisory Mental Health Council concluded that "insurance carriers in other States might also respond to the introduction of parity by increasing the cost of indemnity plans. This response, in turn, is likely to result in a continued shift to more tightly managed plans such as HMOs." Additionally, a study conducted by Mathematica Research for the Substance Abuse and Mental Health Services Administration (SAMHSA) concluded that "most insurers, especially managed care plans, experience small increases in total premiums." However, this was attributed largely to the effect of managed care ("MH/SA treatment dropped dramatically for employers who introduced managed care for MH/SA services when parity was adopted"), the generous baseline mental health benefits of some states that have adopted parity requirements, and the limited nature of other state's parity laws. The impact is summarized in this way: "MH/SA parity laws increase the incentive for insurers and employers to minimize the cost of MH/SA treatment. They may reduce these costs in three main ways. First, employers can offer coverage through managed care rather than FFS plans. Second, they can drop insurance coverage or become self-insured. . . . Finally, they can pass on the costs of parity to employees by raising employee contributions to health insurance or by paying lower wages." The Employee Benefit Research Institute (EBRI) summarized the situation well. "All studies on mental health parity, and mandated benefits in general, assume that there is a strong likelihood that increased health benefit costs would be passed along to workers in the form of higher cost sharing for health insurance, lower wage growth, or lower growth in other employee benefits." This ultimately threatens the coverage of the affected workers. "If mental health parity results in increased health insurance premiums, we can expect continued erosion in employment-based health insurance coverage. The CBO has estimated that as many as 800,000 workers and their dependents could lose health insurance coverage, while Watson Wyatt Worldwide estimated that between 1.1 million and 3.2 million individuals would lose coverage, and Price Waterhouse estimated that 1.7 million individuals would lose coverage." Although the Lewin Group has recently revised its previously published figures downward as to the relationship in numbers of persons losing coverage when costs of coverage increase (400,000 revised to 300,000 for every 1% increase in costs of coverage), the impact on insured persons remains significant. Laurie Flynn responds: That's correct. To some degree, it's a matter of common sense. For example, employers whose health insurance plans provide mental health parity for their employees gain significant benefits from reduced rates of absenteeism; fewer physical complaints; increased morale and efficiency among coworkers; and greater productivity overall. Parity's cost is minimal: the National Advisory Mental Health Council reported to Congress in 1998 that full parity costs less than one percent of annual healthcare costs and under managed care can reduce costs 30 to 50 percent. Meanwhile, the investment in human potential is tremendous.