Who Is Covered Under State Parity Laws?

February 1, 2002

Will insurance coverage for mental health care ever equal that of physical health care? Until the federal government takes a stand, many states are implementing new laws or revising old ones to help level the grounds. However, with the states' options ranging from full parity to mandated offering and the option to base coverage on type of mental illness, equal mental health care coverage is still left on shaky grounds.

Although the U.S. Congress was unable to reach an agreement on expanding mental health parity last fall, residents of more than two-thirds of the states were already covered under some form of parity legislation (Figure). But even before the ink had fully dried on the latest measures, some governors were looking at cuts in behavioral health care as a means of balancing their budgets.

In January, Illinois put its new plan into effect, bringing the number of states that have enacted some form of parity legislation, either for mental illness alone or for mental illness and substance abuse, to 37. Group health plans in Illinois are required to set equal co-payments and deductibles for nine mental illnesses and other types of disease. In addition, the plans must provide 45 days of inpatient treatment and 35 outpatient visits for mental illness every year, with no lifetime maximums. The law includes a sunset clause that goes into effect in 2005, when the department of insurance is required to report on the effects of the law.

Mississippi, Utah, Wisconsin, Alabama and South Carolina passed some form of parity law last year. In addition, several states improved their existing parity laws in 2001, expanding coverages to additional groups or requiring additional benefit levels. Other states, such as Massachusetts and Rhode Island, revised their older parity laws; but mental health care advocates say they expect to see fewer states adopt similar laws this year.

"It's not surprising after the sort of flurry we've seen in previous years," said Chris Koyanagi, policy director for the Bazelon Center for Mental Health Law in Washington, D.C., in an interview with Psychiatric Times. "It's natural to slow down. We've been going at it for the last several years. The closer we get to the group of states that are not very sympathetic, the fewer you are going to see added.

"The states that went out first [for parity] were states with low mental health utilization, states where the culture is such that people tend not to go to services. The impact [there] is less than in a state where people are anxious and there are more providers. In large rural areas, parity does not matter if there's no one to treat you. On the whole, parity laws have had less impact than people would have liked. And, every state has a certain number of large employers who are self-insured and not covered by the laws."

A handful of states have been reluctant to broach the subject of parity because of fears that increased costs associated with an expanded level of benefits will force employers to scale back benefits in all categories -- an argument that was used with some success during the Congressional debates last November and December. But the chair of the American Psychiatric Association's Joint Commission on Government Relations, Jeremy Lazarus, M.D., told PT that "employer flight" has been the exception rather than the rule.

"Employers have not been running for the hills," said Lazarus. "We're not seeing large groups of employers eliminating benefits. It's been a very small number, maybe 1% to 2%."

Lazarus said the APA will be pushing for more state parity laws this year, but he noted that physicians are beginning to focus on a less-publicized aspect of the debate.

"In Colorado, there was an amendment to the parity law that provides for nondiscriminatory utilization review and precertification. Most of the existing parity laws, especially those that relate to five to seven major psychiatric illnesses, have been implemented through managed care plans that have more stringent utilization review and precertification requirements for mental illness. We need to work to close that loophole. Right now, three or four states have such language. Hopefully, the way it will be implemented will mean the same or an equal amount of paperwork as in other medical practices."

Congress passed a limited form of parity law in 1996 that became effective in 1998. The federal law required health plans to offer the same annual and lifetime limits for mental health coverage as they impose on other illnesses, but it did not affect limits on visits or cost-sharing measures, such as deductibles and co-payments. The law contained a sunset provision, requiring Congress to re-authorize it in 2000. At the end of the year, the Senate approved a broader version of the law, which was added to another spending bill, but that plan was opposed by the House of Representatives and blocked in a joint conference committee. Instead, Congress extended the 1996 law for one more year.

Arizona, Delaware, Louisiana, Montana, Nevada and Tennessee have parity statutes that follow the federal pattern.

Existing parity statutes fall roughly into three categories: mental health parity laws, minimum mandated benefit laws and mandated offering laws, with states mixing and matching provisions to create a wide range of variations. Because there is no federal standard, states have been able to pick and choose the types of plans they offer, who will be covered, the level of benefits that will be required and any exceptions to the basic premise.

Full parity laws require insurers to offer the same levels of benefits -- limits on visits, co-payments, deductibles, and annual and lifetime maximums -- for mental illness as for physical illness. However, full parity can be a misleading term, if the law itself limits coverage to certain diagnoses or allows exclusions for certain groups. For example, most full parity laws state that the provisions only apply to a laundry list of mental illnesses, usually defined as biological in origin. All but a handful of states exclude substance abuse from the parity requirements.

Some full parity states provide loopholes for small businesses or for employers whose insurance costs will increase above a specified limit as a result of equalizing coverages. Arkansas requires full parity for mental illnesses and developmental disorders for employee groups but excludes groups of 50 or fewer workers and waives the parity requirement for employers whose premiums would increase by 1.5% or more. A 1991 Texas law requires full parity for state employee groups only.

Until last year, advocates said that only Vermont provided a full parity law with no exclusions for substance abuse. This year, however, a new law in Rhode Island, which replaces an earlier statute, offers a similarly broad range of coverage.

Mandated benefit laws require that some level of coverage be provided for mental illness, but they allow health plans to set different levels for physical and mental illnesses. A plan may set higher co-payments and deductible levels for mental health care.

In some states, co-payments and deductibles must be equal until a threshold level of care is reached, after which the patient costs for mental health care can be higher. Nevada, for example, requires that severe mental illness be covered, but co-insurance or co-payments can be as much as 150% of the out-of-pocket expenses for medical or surgical benefits. In North Dakota, there are no co-payments or co-insurance for the first five hours of mental health care, but they can be as high as 20% for the remaining hours.

In addition to its parity law covering state employees, Texas has a mandated benefit law for HMOs and groups of 50 or more employees. The 2001 statute passed in Massachusetts provides full parity for biologically based mental illnesses, but it stops at mandated benefits for substance abuse. Michigan passed a mandated benefit law in 2001 that includes an exemption for employers whose costs would increase by 3% or more.

Mandated-offering laws do not require any level of benefits. In some states, the mandated-offering law requires that mental health coverage be offered to an insured, with the plan allowed to impose whatever pricing, co-payment or co-insurance levels it wishes. Some mandated-offering laws stipulate that if benefits are offered, they must be equal to the benefits for other illnesses.

"Mandate-to-offer plans have been around since the '70s and early '80s," Linda Raines, executive director of the Mental Health Association of Maryland, told PT. "When advocates tried to get mandated benefits, the industry would lobby for mandate-to-offer."

Raines does not believe that all of the new parity legislation at the state level will have a positive effect on coverage. "In South Carolina, it's not really a state parity law," she said, "because it covers a very limited pool of people -- state employees. Some states have started with that and then shifted to private employees. In my book, I don't log that as a parity law."

"Alabama's new law won't have much effect," Raines continued, "because it's a mandated-offering law and small businesses are excluded. Put those two things together and that bill will have a minimal effect."

In addition to the 2001 statute in South Carolina, a mandated-offering measure that covers both mental illness and substance abuse was passed as a state law in 1994. The new law in Utah is a mandated offering measure that covers mental illness as defined in the DSM-IV. Some states initially passed mandated-offering laws and later imposed either mandated benefits or full parity. California, for example, in 1974 enacted a mandated-offering law that covered mental or nervous disorders for group health plans. In 2000, the state extended the law to require parity for severe mental illness for group, individual and HMO plans.

At least one state, Virginia, is going the other way. It requires full parity for biologically based mental illness, including alcohol and drug addiction, through June 30, 2004. On July 1, 2004, the law changes to the mandated-benefit category, with co-payments and co-insurance of up to 50% for outpatient care.

While parity took much of the attention at the state level, mental health funding took some serious hits. With revenues down as the nation slid into a recession, some state and local governments opted to cut programs that already were on the books. Ohio Gov. Bob Taft ordered state mental health agencies to cut their expenditures by 3% in October -- half of the percentage cuts ordered for other state agencies. In Michigan, state agencies were facing a budget cut of up to 10%. But in New Jersey, the governor announced a $110 million program to provide community mental health facilities.