Information Center Bulletin
Volume 3, No. 1 Spring 1999

Parity

Examining the Costs

One reason that many mental health problems go untreated in America is that employee benefit plans tend to provide more liberal coverage for physical illness than for mental illness. This disparity has worsened in recent years due to changes in the Nation’s health care delivery systems.

Because so many Americans depend on employee benefits for both mental health and substance abuse treatment, CMHS and its parent agency, the Substance Abuse and Mental Health Services Administration (SAMHSA), are making parity a high-priority issue:

• Parity means equalizing mental health and physical health care benefits.
• Full parity means that both types of health care have the same limitations on services and dollar costs, as well as the same share of costs paid by the employee.
• Partial parity means equality in some but not all of these areas.

The Mental Health Parity Act, passed by Congress and signed into law by President Clinton in 1996, went into effect January 1, 1998. It fits the above description of partial parity. The law prohibits any annual or total lifetime dollar limits on mental health benefits that are lower than the limits on medical and surgical benefits. After the Federal law was passed, scores of bills seeking to enact many different forms of parity were introduced into State legislatures. Twelve States—Arkansas, Colorado, Connecticut, Indiana, Maine, Maryland, Minnesota, New Hampshire, North Carolina, Rhode Island, Texas, and Vermont—now have parity laws.

Debates over the passage of State parity laws have, not surprisingly, tended to focus on cost. Both advocates and opponents of greater parity have scrutinized existing literature for statistics to support their positions—and found data to support both perspectives. The existing body of research contains quite different predictions about parity costs.

Given the wide variation in cost estimates, SAMHSA concluded that developing more substantive data on the costs of parity was of primary importance. "Many of the earlier studies employed assumptions that reflected the political positions of the authors," said Jeffrey A. Buck, Ph.D., director of the Office of Managed Care at CMHS, "so it was essential that the study be evenhanded, that the study use the best possible data sources, with detailed cost models and a methodology reviewed by an independent panel of actuaries."

The resulting study, "The Cost and Effects of Parity for Mental Health and Substance Abuse Insurance Benefits," estimates parity for mental and addictive disorders would cost less than forecasts from many of the earlier studies. The study also estimates the average cost increase of full parity for mental health benefits to be only 3.4 percent (or 3.6 percent including substance abuse) and points out that, through the use of managed care techniques, some employers have been able to lower the increase to less than 1 percent. Case studies from five States where parity laws have gone into effect illustrate and amplify the data.

SAMHSA’s study also analyzes some of the assumptions that led past studies to forecast higher costs. One of these was that greater parity would create a cost shift from the public sector to private benefit plans, but this has not happened in the States where parity is required by law. Neither have employers passed on the costs of parity to their employees, as feared.

Nearly half of all Americans will experience mental or addictive disorders in their lifetimes—and such disorders often occur when people are least able to manage them financially. Because so many are affected, and affected so profoundly, CMHS and SAMHSA view the inclusion of mental health and substance abuse treatment in employee benefit plans as a sound investment.

CMHS is initiating discussions on parity with employers and insurance companies. SAMHSA has begun monitoring insurance coverage of mental health and substance abuse care in employer and HMO plans and is doing further research on the effects of parity on employee productivity.

"The Cost and Effects of Parity for Mental Health and Substance Abuse Insurance Benefits" is available through the Information Center by calling toll free (1-800-789-2647) or visiting the Web site mentalhealth.samhsa.gov). Other parity issues are also reported on the Information Center’s Web site.

States with Parity Laws

For more information, contact Jeffrey A. Buck, Ph. D., at CMHS, 301-443-0588.

Information Center Bulletin
Volume 3, No. 1, Spring 1999