One of the overarching calls to action elucidated in the Surgeon General's report is the need to reduce financial barriers to treatment. It states that "equality between mental health coverage and other health coverage -- a concept known as parity -- is an affordable and effective objective."²⁵ As noted above, despite the effectiveness of modern treatments, a majority of Americans suffering from mental disorders do not seek treatment. In a 1998 survey by the Robert Wood Johnson Foundation, concern regarding costs of care was cited as the number one reason for not receiving behavioral healthcare services. ²⁶ 83% of uninsured and 53% of privately insured individuals listed cost concerns as the principal reason for not seeking care.²⁷

Under most health insurance plans, coverage for mental disorders is more restrictive than for physical or somatic disorders. Plans commonly require higher co-payments for outpatient mental health treatment than for other outpatient care. Lower lifetime and annual expenditure limits and more stringent limits on inpatient hospital days for mental disorders are also widespread. In 1993, one study found that 86% of large employers offered plans with more restrictive inpatient mental health coverage and 93% offered a more restrictive outpatient mental health benefit.²⁸ In the Medicare program, for example, outpatient psychotherapy services are covered with a 50% beneficiary copayment requirement as compared to 20% enrollee cost-sharing on other Medicare outpatient services.²⁹

Restrictive coverage for mental disorders was motivated by fear among insurers that generous coverage of mental health benefits would lead to high costs due to long-term or intensive psychotherapy and lengthy hospital stays. There is some evidence that consumers are more sensitive to changes in the price of mental health services than other health care services. The RAND Health Insurance Experiment demonstrated that increased utilization of services by consumers in response to decreased out-of-pocket costs is twice as great for outpatient mental health services as for ambulatory health services as a whole.³⁰ Due to sample size, the RAND experiment was not able to look directly at the issue of inpatient spending. However, economists believe that these services are much less subject to consumer demand incentives.

Insurers attempted to reduce demand for mental health services by structuring mental health benefit co-payments and expenditure limits in such as way as to increase the out-of-pocket costs faced by the consumer. Evidence cited in the Surgeon General's report suggests that while this practice may have discouraged utilization of unnecessary or low benefit care, it also reduced necessary care. There is also evidence to suggest that plans structure mental health benefits to avoid selection of unfavorable or high-risk consumers. Low lifetime or annual dollar limits, for example, send a message to consumers with high expected mental health service use that they may be better off choosing another plan.³¹

The objective of parity legislation enacted at the state and federal levels is to ensure that payers provide the same level of benefits for behavioral health care as for general medical care. Over the past 10 years, 28 states have enacted some form of parity legislation. The scope of these laws differs by state. Some states target parity narrowly by focusing on individuals with only the most severe mental disorders or on specific populations such as state public employees. Other state parity laws apply to a broader population of individuals with both mental and substance abuse disorders. Due to the ERISA law, which exempts self-insured companies from state-mandated benefits, these parity laws apply only to a subset of state residents.

In 1996, the U.S. Congress passed the only federal legislation to address parity in mental health coverage. Enacted as part of the Health Insurance Portability and Accountability Act of 1996, the Mental Health Parity Act took effect in 1998.³² This law targets one aspect of the inequities in mental health insurance coverage -- catastrophic benefits. Specifically, the act prohibits the use of annual or lifetime limits on coverage for mental illnesses. Unlike state parity laws, it extends to all self-insured companies exempt from state mandates under ERISA. Companies with fewer than 50 employees and those that offer no mental health benefit are exempt from the provisions of the federal parity law. The law also does not apply to other kinds of benefit limits, such as day or visit limits, co-payments, or deductibles. Payers experiencing more than 1% increase in premiums as a result of parity implementation can apply for an exemption. Without congressional action, this law will sunset in September 2001.

Preliminary evidence suggests that the federal parity law has not expanded access to mental health services as intended by Congress. In May 2000, the General Accounting Office (GAO) released a report finding that consumers in states without more comprehensive state parity laws have experienced only minor changes in their mental health benefits as a result of the federal law. ³³ Based on a survey of employers, the GAO estimated that 9,000 to 13,000 employers in 26 states were violating federal standards under the law. ³⁴

Concern about the feasibility of parity laws focuses on how premiums might be affected by this change in benefits. Various projections have been undertaken to estimate the costs of parity. These estimates vary based on the scope of the parity law under examination (e.g., full or partial parity) and the level of managed care penetration within a market area. An early estimate conducted by the Congressional Budget Office (CBO) in 1996 on the cost of full parity legislation projected that health insurance premiums would increase by 5.3% in indemnity plan-dominated areas and 4% in areas with both indemnity and managed care plans. Other projections on the cost of this legislation ranged from 3 to over 10% increases in premium costs.³⁵

More recently, evidence is increasingly available on the costs of parity laws already implemented. Case studies of five states with parity laws in effect for at least a year indicate a minimal effect on premiums.³⁶ At the federal level, the CBO estimated a 0.4% increase in premiums due to enactment of the Federal Parity Act of 1996.³⁷ The projections have proved relatively accurate; the GAO reported this year that very few employers surveyed have experienced higher claims costs due to parity.³⁸

Over the last decade, managed care has fundamentally altered the delivery of mental healthcare services. By shifting the focus from demand-side to supply-side mechanisms to control health care costs, managed care profoundly affects the impact of parity laws. Instead of restricting use of mental health services through benefit design, managed care systems use financial incentives, networks of providers, and other administrative mechanisms to limit spending. As the Surgeon General's report notes, management of mental health services has led to dramatic reductions in the cost of mental health care in numerous settings.³⁹

Certain research indicates that use of managed care techniques by insurers may lead to under-treatment or restricted access to services or plans, even in the context of parity laws. Managed care coupled with parity laws allows insurers to control costs by minimizing consumer demand response without restricting coverage through benefit limits or cost-sharing. However, managed care also creates alternatives to benefit design for rationing mental health care.⁴⁰ Some experts worry that if insurers use techniques to restrict use of services in an effort to control costs, benefit design is no longer the only factor in determining service allocation and parity laws may no longer produce their intended effect.⁴¹

Legislation was introduced in the 106th Congress to extend the 1996 federal parity law. S. 796, introduced in the Senate by Senators Pete Domenici (R-NM) and Paul Wellstone (D-MN), and H.R. 1515, introduced in the House of Representatives by Representative Marge Roukema (R-NJ), would mandate full parity in coverage for mental health benefits. In the executive branch, President Clinton issued an executive order in 1999 mandating full mental health parity in the Federal Employees Health Benefits Program (FEHBP).42 This program covers over 9 million federal employees, retirees, and dependents across the country. The Office of Personnel Management will conduct an evaluation of the impact of this benefit change on cost, access, and quality.

Dramatic changes have taken place in the field of mental health over the last 50 years, including significant advances in the diagnosis and treatment of mental illness, positive shifts in public views about people with mental disorders, and a transformation in the delivery of mental health services. In recent years, both the states and the federal government initiated legislative efforts to extend parity in benefits to individuals with mental disorders. To date, the scope of these initiatives is limited; however, legislation is pending to broaden the provisions of the existing federal parity law. Some concern persists among payers regarding the costs of parity.

By minimizing premium changes, managed care reduces the financial barriers to parity. However, some research suggests that use of managed care techniques to manage costs may provide opportunities for limiting mental health services even under parity laws. Evaluation of full parity in the FEHBP will provide an opportunity to assess the impact of full parity in terms of efficiency, equity, access, and quality.