Mental Health Parity

Publication Date: December 2004

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

Type:

Abstract:

Private health insurers often provide less coverage of mental illnesses compared to other medical conditions. Historically, health plans have imposed lower annual or lifetime dollar limits on mental health coverage, limited treatment of mental health illnesses by covering fewer hospital days and outpatient office visits, and increased cost sharing for mental health care by raising deductibles and copayments. The lack of parity (i.e., equivalence) in insurance coverage in part reflects insurers' concerns that mental disorders are difficult to diagnose, and that mental health care is expensive and often ineffective. However, the 1999 Surgeon General's report on mental health concluded that mental illnesses are largely biologically based disorders like many other medical conditions. It found that effective treatments exist for most mental disorders. According to the Substance Abuse and Mental Health Services Administration, untreated and undertreated mental illness cost the nation an estimated $204 billion in 1994, mostly in direct treatment costs and lost productivity.

Differences in insurance coverage of mental illnesses and other medical conditions are also the result of important economic factors. Studies indicate that the demand response of mental health patients to reduced cost sharing is approximately twice as large as that observed in general medical care. Partly as a consequence, insurers impose higher cost sharing for mental health care. Insurers have also restricted their mental health coverage to protect themselves against adverse selection (i.e., the tendency for plans with generous mental health coverage to attract patients with mental illnesses that are costly to treat).

Twenty-one states have laws that mandate full-parity mental health coverage, though these laws do not apply to self-insured group health plans. In 1996, Congress enacted the Mental Health Parity Act (MHPA), which is more limited in scope and does not compel insurers to provide full-parity coverage. For group plans that choose to offer mental health benefits, the MHPA requires parity only for annual and lifetime dollar limits on coverage. Group plans may still impose more restrictive treatment limitations and cost sharing requirements on their mental health coverage. Congress recently extended the MHPA through December 31, 2005. Full-parity legislation was first introduced in the 107th Congress, but it failed to pass. The legislation was reintroduced at the beginning of the 108th Congress (S. 486/H.R. 953), but no action has been taken. The bills are strongly supported by advocates for the mentally ill and have broad, bipartisan support in Congress. Employer and health insurance organizations oppose the legislation because of concerns that it will drive up costs.

Health plans frequently subcontract, or carve out, the management of the mental health component of their benefits package to specialized managed behavioral health care organizations (MBHOs). Studies show that the introduction of managed mental health care has helped control the costs associated with mental health parity. Despite the introduction of managed behavioral health care and the passage of state parity laws, mental health coverage continues to be subject to more limitations and higher cost sharing than coverage of other medical conditions. Some analysts argue that parity is not sufficient, by itself, to guarantee equal access to high-quality care and equal levels of financial protection for people with mental disorders.