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Effects of the Vermont Mental Health and Substance Abuse Parity Law

Employer Perspectives on the Vermont Parity Law

Recognizing that the requirements of mental health/substance abuse (MH/SA) parity laws may affect small businesses adversely, the Federal government and 16 States have exempted small businesses from complying with the provisions of their parity laws. The Vermont parity law, however, applies to all employers regardless of size. Employers' responses to and attitudes toward the Vermont parity law provide important insights in designing and implementing MH/SA parity laws at the State and national levels. This chapter presents the results of a survey of Vermont employers, which assessed their awareness of, satisfaction with, and perceptions of the effects of the
Vermont parity law.

Employer groups, especially those representing small businesses, tend to oppose MH/SA parity laws because of concerns about costs associated with expanded benefits and because they believe a benefit mandate reduces the level of choice available to employers in tailoring health insurance coverage to employee needs (U. S. Chamber of Commerce, 2000; National Association of Manufacturers, 2001; National Federation of Independent Business, 2001).

Small businesses are less likely than larger businesses to offer health insurance coverage. When they do offer coverage, their premiums for single coverage tend to be higher than those paid by larger firms (KFF/HRET 2001). Moreover, in recent years, smaller firms have faced greater premium increases than larger firms (Kaiser Family Foundation and Health Research and Educational Trust, 2001), even though small businesses may be less able to absorb premium increases because of tight profit margins (National Federation of Independent Business, 2001). This evaluation included a survey of Vermont employers, providing an opportunity to compare the experiences of small and large businesses in implementing the Vermont parity law.

The survey was conducted from August to November 2000, more than two years after implementation of the parity law began. Findings are divided into four sections: (1) employer awareness of the Vermont parity law; (2) their assessment of the effects of the law to date; (3) their satisfaction with the law; and (4) their recommendations for improving the law in the future. Findings are presented by firm size, which is defined according to four categories: (1) fewer than 10 employees, (2) 10 to 25 employees, (3) 26 to 50 employees, and (4) more than 50 employees. Significance testing was performed to determine the statistical significance of differences between firms according to size.¹⁷ Refer to Appendix D for the survey methods and background information on the characteristics of Vermont employers by firm size.

A. Employer Awareness of the Vermont Parity Law

The survey measured employer awareness of the Vermont MH/SA parity law, how employers learned about the law, how confident they were that they understood the law, how they notified employees about the law, and how well they thought their employees understood the law. Many employers were unaware of the law; among those who knew about it, their self-reported level of understanding was relatively low. Moreover, these employers felt the level of understanding among their employees was even lower.

1. Employer Knowledge of the Parity Law

Nearly half (46 percent) of the fully insured employers in Vermont reported that they had not heard of the Vermont parity law at the time of the survey (Table IV.1).¹⁸ The level of familiarity with parity was highest in very small businesses (fewer than 10 employees). For example, in firms with fewer than 10 employees, 41 percent of respondents indicated they had not heard of parity; 52 percent of firms with more than 50 employees did not know about the law.¹⁹

Among fully insured employers who had heard about the Vermont parity law, their three main sources of information were health insurance plans (44 percent), the media (43 percent), and insurance brokers (33 percent). The Chamber of Commerce, professional or trade associations, and the State government each were reported as a source of information by 12 to 14 percent of insured employers who had heard of the parity law. The majority of employers (56 percent) reported a single source of information, but a sizable proportion received information from three or more sources (23 percent) (see Table IV.2).

Among fully insured employers in which someone had heard of parity, about 40 percent responded that management knew most of what they needed to know about parity; another 31 percent felt they knew some of what they needed to know; and 29 percent indicated they knew almost nothing about parity (Table IV.1). The level of knowledge was highest at the two extremes of firm size: 56 percent of the large firms and 42 percent of the very small firms reported that their management knew most of what they needed to know about the parity law, in contrast to 31 to 33 percent of small and medium-sized firms.

Based on employer response, a composite measure was constructed of the percentage of employers with little or no knowledge of the parity law. Overall, these data suggest that about three-fifths of employers either had not heard about parity or knew almost nothing of what they felt they needed to know, ranging from 56 to 58 percent of the very small and large businesses to 67 to 70 percent of the small and medium-sized businesses.²⁰

2. Employee Knowledge of the Parity Law

Among the fully insured employers that had heard about parity, most notified their employees about the parity law following its implementation in 1998 (or upon renewal of the insurance contract). Only 7 percent indicated they had not notified their employees about parity (data not shown). Of those who notified employees, nearly two-thirds indicated they had issued a written notification about the benefit changes and nearly half conducted meetings with employees (see Table IV.3).

When asked about their employees' understanding of parity, employers reported a lower level of awareness of parity among their employees than among management: 41 percent reported that their employees knew almost nothing about the parity law (Table IV.1). (There were no significant differences by firm size.) Employers' perceptions of the lack of knowledge of the parity law among consumers were consistent with anecdotal reports gathered during the case study, which indicated that many consumers were unaware of parity following its implementation (see Chapter II).

B. Employers' Perceptions of the Effects of the Parity Law

The analytic framework presented in Chapter I hypothesized that Vermont employers and employees could be affected in various ways following implementation of an MH/SA parity law. First, employers may experience premium increases from insurers to cover the estimated cost of increased access and utilization. In response, they may decide to discontinue health insurance coverage altogether or switch from fully insured plans to self-insured products that are exempt from parity. Alternatively, employers may opt to pass all or part of the premium increases on to employees in the form of higher premium contributions or lower wages (which could result in reduced employee participation).

In addition, to control costs, employers may change the mix of products they offer or introduce managed care for MH/SA services. Moreover, employers may attempt to avert cost and utilization increases by contracting with employee assistance plans, or they may screen for higher risks by initiating drug screening among job applicants or current employees. Employers also may decide to monitor their health care costs and utilization more intensively, so they can be proactive in the future. Finally, employers may enjoy certain benefits from parity to the extent that employees gain access to needed MH/SA services. In such cases, productivity may increase and absenteeism may decrease.

This section presents descriptive information on employers' perceptions of changes that have taken place since parity went into effect (as of January 1, 1998 or upon contract renewal). Employer responses were disaggregated by firm size. In addition, results are presented separately for fully insured versus self-insured businesses, since the latter were not subject to the parity provisions. To gauge the role of parity in bringing about the reported changes, fully insured businesses were asked to assess the effect of the parity law on any changes that they reported.

1. Effects on Health Care Costs

An underlying driver of employer responses is the actual or anticipated effect of parity on health care costs. Nine out of 10 employers reported that their health insurance premiums had increased since parity went into effect (Table IV.4). Fully insured businesses were more likely than self-insured ones to report premium increases (93 percent versus 83 percent). Of the fully insured businesses reporting premium increases, one-third indicated the parity law was not a reason, and nearly half (47 percent) did not know whether parity was a contributing reason. Only 12 percent indicated parity was a main or important reason, and the remaining 9 percent reported it was one of many reasons. Employers were asked to report the single most important factor contributing to increased premiums (see Table IV.5).²¹

• Costs in General. This was the most common response - reported by one-third of the employers that experienced premium increases. This category includes such responses as "the insurance company just raised rates, no explanation," or "cost of doing business by the insurance company," or "nothing we did, insurance company just raised rates." A few employers suggested that recent cost increases could be due to the underwriting cycle: "Hadn't increased in four years, then hit us all at once with [an] increase." Businesses with 25 or fewer employees (38 to 42 percent) were more likely to report "costs in general" than were businesses with more than 25 employees (13 to 20 percent).
   
• Increased Utilization. The second most common response, reported by 27 percent of employers, was increased utilization. Employers typically cited more than one type of utilization driving the recent cost increases, including medical/surgical (21 percent), pharmacy (19 percent), and MH/SA services (13 percent). Of the employers reporting increased utilization as the primary cost driver, fully insured employers (55 percent) were more likely than self-insured employers (24 percent) to report that increased utilization of MH/SA services was a factor in increased costs (data not shown).
   
• Changes in the Vermont Insurance Market. Eighteen percent attributed recent changes in premiums to changes in the Vermont health insurance market, especially reduced competition resulting from health plan exits. For example, one employer responded: "[ there is] no competition for health care [insurance] in Vermont, so they can raise it as high as they want." Others reported that premiums increased due to requirements for community rating of products sold in Vermont's small-business market (which applied to Vermont firms with 50 or fewer employees). Businesses with 50 or fewer employees were more likely to report that market-related factors were affecting their premiums than those with larger numbers of employees.
   
• Cost of Living Adjustments. Eleven percent suggested that premiums were rising primarily due to inflation in health care costs.
   
• Government Regulation. Six percent thought the main cost driver was government regulation. Employers cited as factors "State regulation" and "State mandates," including parity.
   
• Other Factors. The remaining 6 percent reported other factors or were unable to attribute the cost increase to a single factor.

Few employers (16 percent) reported that they had increased their monitoring of health insurance costs and utilization following implementation of parity (Table IV.4). Self-insured firms (30 percent) and large firms (25 percent) were more likely than their counterparts to report increased monitoring. It is unclear, however, whether increased monitoring among fully insured employers was attributable to parity, since 78 percent reported that they did not know the extent to which parity was a factor.

Looking ahead, 64 percent of fully insured employers indicated they were "very" or "somewhat" concerned about the effects of parity on future health insurance costs (see Table IV.6). The remaining 36 percent indicated they were only a little concerned or not concerned at all. Large businesses were less likely than other firms to report that they were very or somewhat concerned about the effects of parity on health insurance costs in the future. Specifically, 60 percent of businesses with fewer than 10 employees, 73 percent of those with 10 to 25 employees, and 65 percent of those with 26 to 50 employees were very or somewhat concerned, compared to 49 percent of large businesses (more than 50 employees).

2. Discontinuation of Employer-Sponsored Coverage

Although most employers reported that their premiums had increased since paritywent into effect, very few dropped their insurance coverage - and even fewer attributed the change to the Vermont parity law. Of the employers offering insurance coverage as of January 1, 1998, the date parity went into effect, 1.6 percent reported that they had dropped their insurance coverage since that date (data not shown). However, taking into account the reasons that employers may drop their coverage, an even smaller proportion - 0.3 percent - reported that parity was the main or an important reason for their decision.²² It is estimated that only 0.07 percent of Vermont employees worked for employers who said parity was the main or an important factor in their decision to discontinue coverage.

3. Changes from Fully Insured to Self-Insured Coverage

Because self-insured plans were exempt from the Vermont parity law, employers may have faced an incentive to switch coverage from fully insured to self-insured products. Therefore, to the extent that employers chose to self-insure as a result of parity, the law's effect may have been diminished. As shown in Table IV.4, 4 percent of Vermont employers switched one or more of their plans from a fully insured to a self-insured product, thereby exempting the self-insured plan from the requirements of the Vermont parity law. Because large employers were more likely to make such a switch, a disproportionate share of employees potentially were affected - roughly 8 percent of Vermont employees were employed in firms that switched from fully insured to self-insured coverage (data not shown).²³

Of Vermont employers who were self-insured at the time of the survey, 27 percent had changed at least one of their products from fully insured to self-insured since implementation of parity. However, the majority of these employers (79 percent) were unable to report whether parity was a factor in the shift to self-insured plans, while another 18 percent reported that parity was not a factor at all. Only 3 percent indicated that parity was a main, important, or contributing factor.

4. Effects on Employee Premium Contributions

Although 90 percent of Vermont employers indicated that they had experienced premium increases since parity went into effect, only 38 percent indicated that they had increased employee contributions to premium expenses (Table IV.4). These findings mirror those of national studies that suggest employers have not passed on premium increases to employees as a result of a strong economy and low unemployment (EBRI, 2001). Large businesses were more likely than very small businesses to report that they had passed increased costs on to employees (51 versus 28 percent). Only 5 percent of fully insured employers (14 percent of 38 percent) reported that parity played a role in the increased premium contributions by employees.

5. Effects on Employee and Dependent Participation in Health Plans

In addition to concerns that employers might drop coverage as a result of parity, there were concerns that employee participation might decline if employers shifted increased costs to employees. The majority of Vermont employers reported no change in employee or dependent participation (possibly because most employers did not raise employee premium contributions, as discussed above). About 14 percent of employers reported increased participation among employees, while 7 percent reported decreased participation.

About 9 percent of employers reported increased participation among dependents, while a similar proportion reported decreased participation. Increased participation was more likely to be reported by self-insured businesses.

Among fully insured businesses reporting a change in employee or dependent participation, few were able to assess the role of parity in contributing to increased or decreased participation. Although it appears that employers reporting decreased participation among employees or dependents were more likely to attribute the change, at least in part, to the parity law, the overall effect on the fully insured market was very small. Only about 1 percent of fully insured employers reported decreased employee participation in health plans and cited the parity law as a main or important reason. About 2 percent of employers reported that parity had some effect on dependent participation. Thus, based on employer reports, the magnitude of effects attributable to parity is extremely small.

6. Effects on the Number and Type of Health Plan Choices

The majority of employers reported that they did not change the number of health plan choices offered to employees, nor did they report changing insurance coverage from fee-for- service to managed care (Table IV.4). Eighty-six percent of fully insured employers indicated that the number of health plan choices stayed the same. Another 8 percent increased the number of choices, and 6 percent reduced the number of choices. Only 2 percent of fully insured employers reported that they changed the number of health plan
choices specifically because of parity.²⁴ Only a few employers reported that they had shifted any of their insurance coverage from fee-for-service to managed care. This might be considered surprising, given that the largest insurer in Vermont - Blue Cross Blue Shield of Vermont - carved out MH/SA services in their indemnity contracts and contracted with a managed behavioral health organization to administer the benefit coincident with the implementation of parity. This likely reflects the fact that employers did not make the decision nor did they sign a managed care contract; instead, the insurer made the change.

7. Effects on Other Health-Related Activities

About 12 percent of Vermont employers offered an employee assistance program (EAP) at the time of the survey.²⁵ The likelihood of offering an EAP increased with firm size, ranging from 3 percent of firms with fewer than 10 employees to 32 percent of firms with more than 50 employees (data not shown).

Since the parity law was implemented, only about 1 percent decided to add an EAP benefit, suggesting that employers did not respond to the parity law by implementing an EAP to control health care costs (Table IV.4). Among firms with an EAP, about 10 percent implemented a new requirement that employees must contact the EAP before obtaining MH/SA services, a requirement significantly more likely to be implemented by fully insured firms (13 percent) than by self-insured firms (2 percent).

Another possible response to parity would be to implement drug screening for job applicants, current employees, or both. Drug screening can deter drug users from applying or can lead to early intervention for employees. At the time of the survey, 11 percent of employers reported that they screened job applicants; 16 percent screened current employees. Of these employers, 10 percent reported that they implemented the requirement after parity went into effect (for a multiplicative effect of about 2 percent of all employers). Because only a small number of Vermont employers conducted drug screening at the time of the survey, there were too few observations to determine the effect of parity on the initiation of drug screening among fully insured businesses.

8. Changes in Other Aspects of the Business

There is considerable interest in the extent to which parity may affect such aspects of a business as the size of its workforce, its productivity, or its level of absenteeism. As shown in Table IV.4, about one-third of employers reported that the number of Vermont-based employees increased since implementation of parity, while about 10 percent reported that the number decreased. In general, the economy was strong during this period, which may account for the level of expansion in the workforce. Slightly more than one-fourth of Vermont employers reported increased productivity since implementation of parity. In addition, a small proportion reported changes in absenteeism (8 percent reported increases and 4 percent reported decreases). Employers generally were unable to determine whether parity was a factor in any of these changes.

C. Employer Satisfaction with the Vermont Parity Law

More than two-thirds of fully insured Vermont employers who had heard about parity indicated that they were satisfied with the parity law overall; 20 percent were very satisfied, 50 percent were somewhat satisfied, 17 percent were somewhat dissatisfied, and 13 percent were very dissatisfied. Large firms (more than 50 employees) were more likely than other firms to report satisfaction with the law (Table IV.7).

Vermont employers who reported that they were "very satisfied" or "very dissatisfied" with the parity law overall were asked what factors motivated their response. Several common themes emerged from the open-ended responses, illustrating their attitudes and perceptions. The 20 percent of Vermont employers who said they were "very satisfied" cited the following general reasons for their high level of satisfaction with the parity law:

• Because coverage should be equal. "Finally getting equal treatment with other illnesses." "It creates better fairness [and] more access for more people." "I think it's great; I think mental illness is a physical condition [and] with drug abuse it could be attributable to brain disorders." "I think that people should have access to treatment; it's hard enough to know that they have to have treatment without having to pay more." "Mental health is just as important or even more so." "Because I think it's the right thing to do; [I] spent years trying to explain why mental health and substance abuse services weren't covered [equally]." "It's a good thing; [I've] been handling benefits for many years and there used to be caps and now it's treated like a medical problem."
   
• Because people need it. "Glad that it is an option because a lot of people need it and could not afford it on their own, more so because of stresses of modern life." "I think it is an important part of people's life; the coverage is needed for that." "Because the services are necessary and should be mandated." "[ It] provides services to people who ordinarily would not get them." "Part of keeping the person well."
   
• Because it will help retain employees or make them more productive. "I would say in this line of work, we've got to have it." "This is an area where our staff needs support; it's an asset for us to be able to provide the coverage in our plan." "It is very important to look at mental health issues to retain employees."

Among the 13 percent who indicated they were "very dissatisfied" with the parity law, the following themes dominated their responses:

• Because employers should have the choice whether to cover or not. "Too much control over choice." "We are not a socialist country; we want more choice [and] less government mandates." "I should not be forced to offer it." "I don't think it should be forced on the entire populace of Vermont." "Paying for substance [abuse] ... is a person's choice and you're paying for all, whether it is used or not."
   
• Because of concerns about costs. "Too costly." "The majority pay[s] for the few." "It has increased our cost so much, which causes us to not be able [to offer] the insurance program we want."
   
• Because there was not enough information. "How can I be satisfied with something I know nothing about?"

Vermont employers also were asked to rate their satisfaction with specific aspects of the parity law. Table IV.8 displays satisfaction ratings for two types of responses: very satisfied and somewhat satisfied. On average, the highest satisfaction rating was given to the effect of parity on improving employee access to MH/SA services (79 percent), while the lowest satisfaction ratings were given to the availability of information to explain parity (48 percent) and the effect of parity on health care costs (47 percent). Employers reported higher levels of satisfaction with the availability of information from health plans to monitor their health care costs and utilization (62 percent) than with the availability of
general information regarding the parity law.

There were a few variations in employers' satisfaction ratings according to their size. In general, large employers tended to report higher satisfaction ratings. For example, 80 percent of large employers (50 or more employees) were satisfied with the availability of information about the parity law, compared to only 35 percent of the very small employers (fewer than 10 employees). Further, large employers were more likely than smaller companies to report that they were satisfied with the availability of information about health care costs (78 percent versus 57 percent). Finally, 69 percent of the large employers, but only 35 percent of the very small employers, reported satisfaction with the effects of parity on their health care costs.

D. Employer Recommendations for Improving the Parity Law

Employers were asked how to improve the parity law in the future. About one-fourth of the fully insured businesses that had heard about parity made a suggestion for improving the parity law. By far, the most common response was that employers needed more information on the parity law - both for themselves and for the public. Illustrative responses included:

• Increase employer education. "Get out more information to companies so people could understand it better." "Let business owners know what the services are."
• Increase public education. "Get more information out to the public." "More public information that these conditions should be treated as a physical condition; it's as important as cancer." "More people need to become aware."

Others suggested that there is not enough information about the costs of parity to insurers and employers. For example:

• Increase information about costs. "Give us more information on the law and what it will cost us." "Make it a real number in insurance so I know how much money we are talking about." "Does the law affect our premiums?" "I think the insurance should be required to disclose the utilization and costs related to services before they are allowed to raise rates, and they should not be allowed to hide the profit under administration and operating [expenses]."

Other employers had specific suggestions for improving the administration of MH/SA parity benefits. Some, for example, recommended that more attention be paid to how employees gain access to services:

"Some people complain about the road-blocks that are placed upon them to get services."

"[ Our] current insurance company does not deal with mental health providers employers already [were] dealing with. All mental health providers were not listed in their contracts."

"Guidelines need to be very well defined. Some people take advantage of the system."

One employer cited the complexity that employers with businesses in multiple states faced: "There should be consistent policies for all states; makes it hard for employers with employees in different states.... Expense for employers [is] prohibitive and to keep each state straight is difficult."

Only a few employers expressed such dissatisfaction that they recommended that the parity law should be optional or should be repealed altogether. For example, one felt it was "not the same as any illness," while another stated that "options should be available only to those who want them and should not be required."

E. Discussion

This analysis has shown that the majority of Vermont employers were at least somewhat satisfied with the parity law overall and that they were particularly satisfied with the prospect of parity to increase their employees' access to MH/SA services. Employers' concerns, however, centered on the possible effects of parity on health care costs; nearly two-thirds indicated that they were very or somewhat concerned about the effects of parity on health care costs in the future.

Little evidence suggests the parity law had any significant effects on the Vermont insurance market. The survey indicated that Vermont employers did not drop their insurance coverage or self insure as a result of parity. Of the employers offering health insurance coverage as of January 1, 1998, the date the parity law went into effect, 0.3 percent (accounting for 0.07 percent of Vermont employees) reported dropping their coverage and cited parity as a main or important reason for that decision. About 4 percent of Vermont employers - which employed 8 percent of Vermont employees - switched one or more of their plans to a self-insured product since the implementation of parity. It is not possible, however, to attribute this trend to parity alone since employers were unable to report the role of parity relative to other factors. The survey further suggests that parity was not one of the primary cost drivers in recent health insurance premium increases. To the extent that employers were able to report on the factors influencing premium increases, evidence suggests that employers attributed utilization increases primarily to medical/surgical and pharmacy services, not MH/SA services.

Perhaps the most striking finding to emerge from this analysis is the limited knowledge among Vermont employers of the parity law in general and its effects in particular.²⁶ About half of the fully insured employers in Vermont had not heard about parity; and even among those that had, respondents indicated that their level of understanding was relatively low. This is surprising, given the level of attention typically focused on parity issues among employer groups at the national and State levels. Nevertheless, evidence suggests that employers currently want to know more about parity - the majority of employers expressed dissatisfaction with the level of information available about the law. The most common recommendation made by employers was for increased education about the law.

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