October 13, 2006 | Volume 3, Issue 2
Mental Health Parity
Legislation and Implications for Insurers and Providers
Ten years after the Mental Health Parity Act passed, which mandated equitable insurance coverage for mental health problems, insurers and providers still debate the issue.
Introduction
In 2003 in the United States, outpatient visits to physicians’ offices for treatment of mental disorders numbered over 40 million, and visits to hospital emergency rooms numbered close to 4 million.1 Clearly, treatment of mental health represents a large and significant portion of the health care system as a whole. Yet mental health coverage within insurance plans has been treated differently from physical conditions. Within the last 10 years, the debate over mental health parity with other medical and surgical benefits has taken place both at the federal and state level, starting with Congress’s passage of the Mental Health Parity Act of 1996. After five subsequent extensions of the Act’s sunset provision (with the current sunset provision taking effect December 31st of this year), parity remains on the Congressional agenda, although it is overshadowed by other pressing policy concerns such as the War in Iraq, Medicare, and federal budget cuts.
The issue of mental health parity is far reaching and involves many stakeholders. In this paper I will focus on the implications of mental health parity for insurers and providers. My analysis will show that the interests of providers and insurers are at odds with one another, with providers (both physicians and hospital groups) siding with patient advocacy groups.
Defining Mental Health Parity
Mental health parity refers to equivalence of coverage for mental health treatment and clinical visits compared to regular medical and surgical benefits within an insurance plan2. In other words, it is the requirement that mental health coverage be subject to the same dollar limits as the medical and surgical benefits that are covered in a health insurance plan (whether it is traditional indemnity insurance or managed care insurance). In recent debates, “parity” has also been taken to include mandatory coverage of mental health services (both inpatient and outpatient); however, federal legislation has only up to this point reflected the narrower definition of equivalent coverage within existing insurance plans that already cover mental health services. Currently, advocacy groups such as the National Mental Health Association (NMHA) and the National Alliance on Mental Illness (NAMI) consider parity in its expanded form to include mandatory mental health coverage.
Legislative Overview
The Mental Health Parity Act of 1996
The major piece of federal legislation regarding mental health parity, The Mental Health Parity Act of 1996 (MHPA) was passed on Sept. 26th of 1996 as an amendment to the Health Insurance Portability and Accountability Act (HIPAA).3 At the time, numerous states had already enacted different types of parity legislation, but advocacy groups pressed for national legislation that would address the lack of parity in those states where laws had not been passed.4 The 1996 Act required that annual or lifetime dollar limits applying to mental health benefits be no lower than any such dollar limits applying to medical or surgical benefits offered by a group health plan or any health insurance carrier associating itself with a group plan. The law applied to those health plans’ enrollment/coverage years commencing on or after January 1, 1998.5
Other key items included:
- A sunset provision that the requirements for parity would not apply to benefits covering specific services on or after Sept. 30, 2001. (This has been extended on five separate occasions, with the last provision expiring Dec. 31st, 2006.)
- Employers could retain discretion with respect to the extent of coverage for mental health services offered to employees and their dependents. This included cost sharing, limits on the numbers of visits or days of coverage, or requirements addressing medical necessity.6
The Act excluded benefits for substance abuse and chemical dependency. There were also exemptions provided to companies with a small number of employees or in cases where costs rose as a result of the mandate. The Parity Act did not mandate that benefits for mental health services be offered—only that if these benefits were offered, they have parity with the annual and lifetime dollar amounts for medical and surgical benefits.
Patient advocacy groups saw problems with this legislation and argued that it was weak.7 They pointed out that the legislation didn’t mandate parity or require that it be universal in its application. The weakness of the legislation can be partially attributed to the political climate surrounding the creation of the bill at that particular point in time; the insurance industry played a role in applying pressure to influence the outcome. After the bill was passed, employers took advantage of loopholes. Some employers placed restrictions on health benefits by limiting the number of inpatient days for mental health services covered or the number of outpatient office visits covered.
State Parity Legislation
Most legislative activity regarding parity has taken place at the state level. To date, thirty-six states have passed parity legislation, and twelve states and the District of Columbia have made mental health benefits mandatory. Two states, Idaho and Wyoming, have no parity or mandate laws. There is a wide degree of variation among state parity laws. Some states (i.e. North Carolina and Kansas) mandate specifically that only the offering of mental health coverage be included in insurance plans, and this coverage, if accepted by enrollees, be subjected to some, but not all, terms/conditions with physical benefits. In other words, if mental health coverage is taken up, there is not complete parity. Other states, such as Kentucky and Connecticut mandate that insurance companies offer mental health benefits, and if the benefits are chosen then full parity is required; therefore, there is no difference between the terms of coverage between physical and mental health services. Finally, some states recently have passed legislation mandating coverage of mental health services in all group policies and additionally require the terms and conditions, breadth, and any cost restrictions for the coverage to be no more limiting than those conditions for physical illness. Some states even extend the mandates to individual as well as group insurance plans. There is also variation in the different types of mental health services that apply to state parity legislation. Some states restrict parity requirements to “severe” mental illness, while others extend to “serious” cases, and some include full parity for all mental illnesses addressed in the DSMIV, as well as services for substance abuse and alcoholism.8
Why such variation across the states? Are there any solid successes for patients? The answers to these questions revolve around the issue of utilization. Two years after the federal Parity Act was passed, Roland Sturm and Liccardo Pacula conducted a study that found that states with parity laws tended to have lower rates of utilization of mental health services. This remained the case even after controlling for confounding variables such as age, gender, income, ethnicity or region of the country.9 Sturm and Pacula also found that before and after the passage of state parity legislation, rates of utilization for mental health services were largely unchanged. These results, if accepted as prima facie evidence, suggest that parity legislation does not increase utilization, and hence not increase costs.
The study goes further to suggest that since parity legislation was passed in states without high rates of utilization, the resulting legislation was the result of a “political process” in which patient advocacy groups and insurance companies/employer organizations battled it out; patient advocacy groups and provider organizations were drawn to states with a small number of people receiving (or using) mental health services and saw it as an opportunity to affect a change in policy. The low numbers of patients utilizing services also allowed little opposition to the parity legislation.10
Implications for Insurers and Providers
Insurers
The Health Insurance Association of America (HIAA) has from the beginning of the parity debate argued that any legislation, state or federal, mandating mental health benefits would increase health costs, and increase the rolls of the uninsured. The organization has claimed that roughly 20 to 25 percent of the uninsured are not covered as a result of mandates.11 Other studies conducted by academic institutions and non-profit research organizations have had contrary findings.
Managed care, specifically within the context of Managed Behavioral Healthcare Organizations (MBHO’s), offers the chance to offset the purported increased costs of parity. Research by the RAND Corporation conducted shortly after the passage of the 1996 federal parity legislation concluded that given unlimited mental health benefits, under managed care, benefits cost “virtually the same” as those benefits that were capped; the typical increase was found to be $1 per employee when compared with benefits falling under a $25,000 limit.12 During the national debate over parity legislation, insurance groups argued that even under managed care parity would drive up costs; the RAND study disputed that claim. In the end, it becomes difficult to discern the true effects of parity legislation on costs, with a large body of research split and attached to both parity’s proponents and its dissenters.
A final implication for insurers has been the need after any state parity legislation and after the federal 1996 law to redesign benefit schemes to reflect compliance. During the period between passage of the federal 1996 parity legislation and its enforcement date, RAND conducted a study of 4,000 firms and found that 90% of these firms’ mental health plans were not consistent with the parity legislation and hence necessitated revision. At the same time, research found that inefficiencies and unnecessary complexities could be eliminated under such a benefit redesign.13
Providers
Providers, composed of both physician groups such as the American Medical Association (AMA) and hospital groups such as the American Hospital Association (AHA) have on the other hand expressed positions that parallel those of patient advocacy groups (i.e. NAMI and NMHA). The American Medical Association has called for state medical associations to press for mental health parity at the state level. The AMA also supports parity with respect to coverage of substance abuse and alcoholism-treatment programs. The AMA has allied itself with the American Psychiatric Association (APA) in its lobbying efforts.14
The AHA sent a letter to Senator Pete Domenici, co-sponsor of current legislation that will expand provisions of the federal parity act of 1996, affirming its support of the legislation. They wrote that they admired Domenici’s “leadership in promoting nondiscriminatory insurance coverage for those that suffer mental illness…”15 The justification for the support from both physician and hospital groups of parity legislation is not clearly stated in their respective professional publications. However, hospitals—both for-profit and non-profit—ultimately serve the community as well as a board of directors. So they have a vested interest in ensuring access to their services—specifically if the costs of these services (mainly mental health services) are placed on insurance plans. Physician groups also have a vested interest in the issue of access, especially if they are reimbursed under capitation or fee schedules instead of being paid a set salary. Several studies have confirmed that financial incentives may have an impact on mental health providers’ courses of treatment.16[17]
Conclusion
In the debate over mental health parity the incentives facing insurers are quite the opposite of those facing provider groups. Insurers face the imperative of compliance with state and federal parity legislation, while at the same time trying to offset costs. Providers must act in accordance with professional expectations (the AMA) and those of the community (in the case of the AHA). In the end, the outcomes of mental health parity legislation have reflected the various concerns of both insurance and provider groups. The debate continues with the same concerns. Ultimately, as seen at the state level, what proved to be successful was the fact that patient advocacy groups worked in states with low rates of utilization, thus encountering few opposition groups. States with large rates of utilization must overcome the legislative obstacles that exist to see any lasting results of parity legislation.
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1 National Center for Health Statistics, “Fast Stats A to Z: Mental Health Disorders,” Centers for Disease Control and Prevention, U.S. Department of Health and Human Services, 14 Nov. 2005, http://www.cdc.gov/nchs/fastats/mental.htm.
2 Centers for Medicare and Medicaid Services, “The Mental Health Parity Act,” HIPAA Insurance Reform: Health Insurance Portability and Accountability Act, Department of Health and Human Services, 09 Feb. 2005, http://www.cms.hhs.gov/hipaa/hipaa1/content/mhpa.asp.
3 Ibid.
4 From this point, I will refer to Mental Health Parity Legislation simply as “parity legislation” and Mental Health Parity simply as “parity.”
5 Centers for Medicare and Medicaid Services, “The Mental Health Parity Act,” HIPAA Insurance Reform: Health Insurance Portability and Accountability Act, Department of Health and Human Services, 09 Feb. 2005, http://www.cms.hhs.gov/hipaa/hipaa1/content/mhpa.asp.
6 Ibid.
7 Jacobi, John V, “Parity and Difference: The Value of Parity Legislation for the Seriously Mentally Ill,” American Journal of Law and Medicine 29, no. 2–3 (2003): 185–201. Accessed through LexisNexisTM Academic Universe: http://web.lexis-nexis.com/universe November 13, 2005.
8 Ibid.
9 Ibid.
10 Ibid.
11 Ziegler, Jan, “The Realities of Mental Health Parity in the U.S.” Business & Health 18, no. 7 (2000): 16–21.
12 Rand, “How Does Managed Care Affect the Cost of Mental Health Services?” RAND Health Research Highlights, 1998, http://www.rand.org/pubs/research_briefs/RB4515/index1.html (accessed Nov. 13, 2005).
13 Ibid.
14 American Medical Association, “D-180.998: Insurance Parity for Mental Health and Psychiatry,” Policy Finder, 24 Sept. 2005, http://www.ama-assn.org/apps/pf_new/pf_online?f_n=browser&doc=p.
15 American Hospital Association, “Letters to the Hill: To the Honorable Pete V. Domenici,” 10 July 2001,
http://www.aha.org/aha/advocacy-grassroots/advocacy/hillletters/Hill.
16 Agency for Healthcare Research and Quality, “Mental health visits are cut by one-fourth when providers are paid a fixed rate per patient,” Research Activities, Feb. 2001, http://www.ahcpr.gov/research/feb01/201RA16.htm.
17 —-, “Financial Incentives May Influence Health Care Providers’ Mental Health Treatment Decisions.” Research Activities, Dec. 1999, http://www.ahcpr.gov/research/dec99/1299ra11.htm