Interim Parity Report Finds Mental Health Care Coverage Cost-Effective


The passage of the Mental Health Parity Act of 1996, which took effect Jan. 1, 1998, came amid dire warnings from edgy business groups that it would cause exorbitant cost increases in health insurance premiums or prompt a dramatic reduction of medical and surgical benefits. But a recently released report emphasized the affordability of mental health insurance coverage.

The passage of the Mental Health Parity Act of 1996, which took effect Jan. 1, 1998, came amid dire warnings from edgy business groups that it would cause exorbitant cost increases in health insurance premiums or prompt a dramatic reduction of medical and surgical benefits. But a recently released report emphasized the affordability of mental health insurance coverage.

Titled Parity in Financing Mental Health Services: Managed Care Effects on Cost, Access and Quality, the interim report to Congress was prepared by the National Advisory Mental Health Council (NAMHC) and the National Institute of Mental Health (NIMH).

The report reaffirms earlier indications that requiring mental health care insurance coverage on par with other serious physical ailments does not result in significantly greater costs.

"Implementing parity in systems already using managed care results in a minimal, less than 1% increase in total health care costs during a one-year period," the report authors said. "In systems not using managed care, introducing parity with managed care results in a substantial [30% to 50%] reduction in total mental health costs."

Sen. Pete Domenici (R-N.M.), who coauthored the Mental Health Parity Act with Sen. Paul Wellstone (D-Minn.), talked about the report in a press statement.

"This report shows that we can afford parity. For those who suffer from serious mental illnesses and their families, this is good news," said Domenici, who knows first-hand of the impact of mental illness. His daughter has schizophrenia, and he has heard the travails of others at family support groups.

"This report should give insurance companies and managed care outfits more impetus to offer mental health care coverage. In terms of social costs, our nation as a whole would be better off in the long run if necessary treatment and coverage is provided to the mentally ill. They have been neglected and forgotten for far too long." Domenici added that an analysis of parity does not end with a study of cost-analysis or cost-effectiveness.

"This report is only a small step in the overall examination of parity," he said. The NAMHC report looks into the costs of mental health care under parity, access to mental health care parity, quality of care and managed care for children.

Parity Included

The impetus for the report came from enactment of the Mental Health Parity Act, which introduced limited mental health care parity requiring annual and lifetime dollar limits for mental health care equal to that of other illnesses. For example, the practice of placing a $25,000 lifetime cap on treatment for schizophrenia, while allowing a $1 million cap on treatment for heart disease, is forbidden. The law applies to both fully insured state-regulated health plans and self-insured plans that are exempt from state laws under the Employee Retirement Income Security Act, but does not preempt existing state parity laws that might be more comprehensive.

The law does not mandate that mental health care benefits be offered in health insurance plans or cover substance abuse treatment, nor does it apply to Medicare or Medicaid plans or businesses with 50 or fewer employees. Additionally, employers who can demonstrate a 1% or more rise in costs due to parity implementation would be allowed to exempt themselves from the law. Thus, some 80 million workers and dependents in small benefit plans are not covered by the provisions of the legislation.

The law is set to expire Sept. 30, 2001, and the Senate has requested periodic reports to assess the effect of the law and parity in general. The recent report, the second such study, summarizes research findings based on the experiences of Texas, Maryland and North Carolina and four private insurance plans that have been providing parity coverage for mental illness.

A major objective of the report, according to Darrel Regier, M.D., M.P.H., associate director for epidemiology and health policy research at NIMH, is to look at the cost of mental health care services with parity-level benefits within the private sector, and to focus "on the interaction between supply-side controls (managed care constraints) and the lifting of demand-side controls (parity benefits) in both actuarial model simulations and claims data experience."

In the report's appendices, it was noted that 15 states now have some degree of mental health parity, with fairness bills pending in many other state legislatures (Table). The parity studies cited in the report were based on state-level parity legislation implemented prior to the Mental Health Parity Act and generally had more comprehensive parity provisions. Most eliminate the use of inpatient day and outpatient visit limits, deductibles, copay-ments and out-of-pocket maximums that are different for mental health care as compared to general health benefits.

As described in the report, Texas, Maryland and North Carolina experienced declining costs with parity legislation.

In Texas, parity legislation covering severe mental disorders and substance abuse was implemented for state employees in 1992, paralleling the introduction of managed care for mental health and substance abuse services. During the next five years under parity, the per-member-per month (PMPM) cost of mental health care services dropped by 50% (increases in outpatient PMPM costs were offset by sharp decreases in inpatient care).

"A generally positive evaluation of this experience with state employees is reflected in the recent enactment of parity legislation [HB1173] covering the entire state, effective Sept. 1, 1997," the report authors said.

In Maryland, parity was phased in beginning on July 1, 1994, when managed care was common. Using data from five Maryland-based private managed care companies that provided statistics on cost utilization and/or access to services, the NAMHC workgroup found that immediately after parity was implemented there was a small increase in the number of inpatient admissions per 1,000 members, a decrease in the average inpatient length of stay and a decrease in outpatient visits.

"New findings indicate that in the past year, inpatient admissions remained level or decreased, while length of stay continued to decrease, outpatient visits increased and the use of intermediate-care treatments [such as intensive outpatient care and partial hospitalization] increased over time. The percentage of the population receiving services remained steady or decreased since the introduction of parity," the report authors said.

In a group of Maryland residents from whom data on total health benefits costs are available, the cost for treating mental/addictive disorders rose by 0.84% of overall benefit costs in the first year following parity (the transition year), were unchanged in the second year and decreased by 0.27% of the total benefit cost in the third year.

Hospital discharge data reported by the Maryland Health Resources Planning Commission and Maryland Mental Hygiene Administration indicate a decreasing proportion of admissions to state hospitals over time, a trend that appears unaffected by parity.

In North Carolina, nondiscriminatory coverage was implemented for state government employees in 1992, along with managed mental health care. (In the state employees' coverage, there are no separate deductibles or copayments for mental health treatment.) All inpatient care undergoes review, while outpatient treatment is reviewed after 26 sessions. Parity for chemical dependence was added in October of 1997.

Since parity implementation in 1992, both utilization and cost of mental health care services have decreased, while the percentage of the population receiving services has increased, according to data from the North Carolina Teachers' and State Employees' Comprehensive Major Medical Plan. From 1991 to 1996, the PMPM cost of mental health services dropped by 32%, from $5.93 in 1991 to $4.06 in 1996.

Private Insurance Plans

Private insurance plans with partial or full parity-level benefits also have experienced declining costs when managed care was added to the mix. In the state of Ohio's employee benefit program, for example, the switch to carveout managed care was associated with a dramatic drop in mental health care costs despite an expansion of benefits for state employees and an increase in treated prevalence from 6% to 7%. The cost reduction was realized through decreases in outpatient sessions per user, inpatient admissions, average length of stay and service unit costs. The lowered costs remained stable despite the addition of parity benefits (Sturm et al., 1998).

Data from the state and the private insurance plans helped in the refinement of actuarial models for predicting parity costs, the report authors said. They noted that many of the attempts to provide national estimates of the effect of parity on the cost of mental health care have used actuarial data on benefit use and cost data from large insurance plans that do not operate under parity conditions. Also, the actuarial models generally did not directly incorporate the recent experience of managed behavioral carveouts and other forms of managed care in greatly reducing mental health care costs.

Thus, new, more sophisticated actuarial models were created, and the report authors said these models "show that, in general, as the overall proportion of the population in managed care increases, the projected cost of parity declines," adding that "introducing parity nationwide may accelerate the trend toward increased management of mental health services. In every example in which parity has been put into place, management has followed."

Access Issues

However, mandating parity coverage does not guarantee that the mentally ill person will receive adequate care, according to the report authors.

"Parity alone does not guarantee improved access to mental health care because of the strong counteracting effect of management," they said. "The proportion of individuals receiving mental health treatment varies considerably across managed behavior health plans-both before and after the introduction of parity benefits."

Access to care as defined in the report can include waiting times for appointments, access to a continuum of care, access to providers from a full range of mental health care disciplines, choice of individual provider, geographic access, access to culturally competent treatment and telephone access.

At a press conference promoting the report's publication, Sen. Domenici noted that despite federal legislation mandating parity, those in need of mental health services are being hit with high deductibles and copayments, which may be another way to prevent access to care. As described in BNA's Health Care Policy Report, Domenici said that the best way to resolve the remaining problems involving parity coverage for mental illnesses is for states to pass parity laws with broader provisions than are federally required.

In future reports, Regier said the NAMHC parity workgroup, chaired by Mary Jane England, M.D., plans to follow up on the experiences of new groups and states regarding cost, access and quality of mental health services as they come under parity legislation or enhanced benefits. Other objectives of the workgroup will be to examine the interface between public and private managed behavioral health care and to more completely study the cost of parity and managed care services to children.




Goldman W, McCulloch J, Sturm R (1998), Cost and utilization of mental health services before and after managed care. Health Affairs 17(2):40-52.


National Institute of Mental Health (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. NIH Publication number 98-4322.


Sturm R, McCulloch J, Goldman W (1998), Mental Health and Substance Abuse Parity: a Case Study of Ohio's State Employees Program, Working Paper No. 128. Los Angeles: UCLA/Rand Center of Managed Care for Psychiatric Disorders.

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