Striking a balance: insurers believe passage of a new federal mental-health parity bill will have limited impact on the industry.

While the issue of mental-health parity is not new, a new federal law might soon emerge, forcing a re-examination of what parity means.

For the more than 54 million individuals diagnosed with some type of mental disorder, equality in coverage is more than a welcome benefit--it's a way to spur more treatment. Currently, fewer than 10 million of these individuals seek treatment, in part because of stigma surrounding the diseases and high out-of-pocket costs. But parity is helping to change that.

The majority of states now offer some type of parity coverage for behavioral health disorders that requires insurers to treat mental and physical illness the same. As the 1996 Mental Health Parity Act is about to expire, several bills have made their way before Congress. While some insurers believe the effects of a new federal law will be minimal, many are keeping a watchful eye on what passage might mean for the industry.

Birth of Parity

The birth of federal parity came in 1998 when the national mental-health parity act went into effect. The law requires employers who offer some coverage for mental-health care to equalize annual and lifetime spending limits for mental and physical illnesses. Employers with fewer than 50 employees and those that experience more than a 1% increase in their premiums as a result of implementing the parity requirement are exempt from the federal law.

Over the past several years, 39 states followed suit, enacting their own--in some cases more rigorous--mental-health parity bills. The scope of the laws varies from state to state. About 12 states have enacted parity laws that require more generous mental-health or substance-abuse benefits than those provided in the federal act, while the remainder of the states that require parity don't specify the ways in which mental-health benefits must be equal to those for physical illness.

"We're finding that a number of states are going back and realizing the laws on their books are five to 10 years old and haven't cost anywhere near what people anticipated, so they're expanding laws" to cover broader policies, said Michael Fitzpatrick, director of the Policy Research Institute for the National Association of Mental Illness, a nonprofit advocacy organization of consumers, families and friends of people with severe mental illnesses.

Rhode Island, for example, has an expansive mental-health parity law that was revised in 2002 to include substance-abuse coverage and eliminate diagnostic restrictions. The law did away with any limits on inpatient stays while expanding outpatient visit limits from 20 to 30 sessions a year.

In North Carolina, mental-health expenses have dropped every year since comprehensive parity for state and local employees was passed in 1992. Mental-health costs, as a percentage of total health benefits, decreased from 6.4% in 1992 to 3.1% in 1998, and since 1992, hospital days paid by the plan have been reduced by 70%.

The push for parity comes on the heels of a spike in the number of individuals with mental disorders. One in five adults has some type of diagnosable mental-health disorder, such as major depression, bipolar disorder, suicidal tendencies, schizophrenia, panic disorders, post-traumatic stress, and anorexia and bulimia nervosa, according to the Center for Mental Health Services. Not only are mental disorders the leading cause of disability in Americans, but they are more common than cancer, lung disease and heart disease combined.

New Federal Legislation

The 1996 Mental Health Parity Act was designed to remain in effect for only six years. It was given a sunset provision in 2001, approved again and expires at the end of this year. Now, a handful of bills have made their way before Congress, including the highly publicized proposal by Sens. Pete Domenici, R-N.M., and Edward Kennedy, D-Mass., and Reps. Patrick Kennedy, D-R.I., and Jim Ramstad, R-Minn. The new Paul Wellstone Mental Health Parity Act, which is named after the late senator from Minnesota who was an active proponent of mental-health parity, calls for full parity for all categories of mental-health conditions listed in the "Diagnostic and Statistical Manual of Mental Disorders," a manual published by the American Psychiatric Association that is a standard classification of mental disorders used by mental-health professionals in the United States.

Insurers have differing views on the effects of the legislation, if it is passed.

"Based on our experience, whenever you have mandates, it increases costs and makes access to affordable insurance more difficult," said Cheryl Noncarrow, general manager of behavioral health for WellPoint. "A big problem with the proposed federal legislation is that it requires equal coverage lot all diagnoses and conditions in the DSM IV. It is extremely broad and therefore would be very difficult to manage. The majority of the state parity mandates have limited the diagnoses to selected, serious mental illnesses."

Other insurers, however, are less concerned about cost increases stemming from a new federal bill. "It really isn't going to have a big dollar impact, because people today aren't exhausting their existing benefit limits," said Dr. William Hancur, associate director of behavioral health for Blue Cross Blue Shield of Rhode Island. "Some people believe that an unlimited number of visits will blow the roof off utilization, but that really is not borne out in the facts. Only a relatively small number of patients actually use a lot of sessions or meet annual limits." About 80% of out patients require only 12 or fewer visits a year, with 50% using fewer than six visits, he added.

"This is a challenging time for health insurers and small-business owners to offer broad benefit packages," said Fitzpatrick of the National Association of Mental Illness. "Studies generally show that parity insurance mandates tend to be a relatively inexpensive buy, and outcomes for employees tend to be more positive economically and in terms of the lives of families."

In addition, more stringent state laws will have a greater impact than new federal legislation. Because a federal law doesn't preclude a state from enacting stronger parity legislation, state laws are generally more comprehensive than the federal law and will likely have greater effects on claims costs.

The greatest impact will likely be felt by employers with Employee Retirement Income Security Act exemptions. "Federal law would impact employers who offer health benefits and have ERISA exemptions in terms of any mandated benefit or consumer protection," said Colleen Reitan, senior vice president with Blue Cross Blue Shield of Minnesota. In addition, she said passage of new federal parity would allow health-care providers to more accurately code filed claims with diagnoses codes, in addition to providing better access to care. "Otherwise, I don't think it will have a huge impact on the industry, at least not in Minnesota. We have had a mental-health parity law in the state for 10 years," she said.

Dr. Jerry Vaccaro, president of PacifiCare Behavioral Health, the managed behavioral health-care subsidiary of Cypress, Calif.-based PacifiCare Health Systems Inc., also said large, multistate employers that are self funded or those not currently operating under parity would feel some effects of a new federal law. "I believe there will be some impact even in parity states because the law will generate greater awareness and lessened stigmatization of mental illness," he said.

Return to Work

Two ways new legislation might prove effective is by reducing lost productivity and helping more children with mental-health disorders seek treatment. "The real issue for private insurers is that the law will help people get treatment early so individuals can return to the workplace," said Fitzpatrick. The indirect costs of all mental illness imposed a nearly $79 billion loss on the U.S. economy in 1990, most of which reflects loss of productivity in usual activities because of illness. In addition, the federal bill, along with many states' newer parity laws, provides coverage for children--something not found in the 1996 act. "If we can get children recovered early, at onset, treatment outcomes are better and families can stay intact and have more productive employees," Fitzpatrick said. Currently about one in five children has a diagnosable mental, emotional or behavioral disorder, and up to one in 10 might suffer from a serious emotional disturbance. However, 70% of children don't receive mental-health services, according to the Surgeon General's Report on Mental Health.

Some insurers are concerned that a new federal law would provide more "disparity" than true parity. "One of the big problems with federal parity is that it only addresses 'mental-health' and not treatment coverage for substance abuse," said Hancur. "You can't exclude substance abuse and think you have a true parity bill. Most of what goes on, even under the guise of mental health, really has a substance-abuse component to it, with alcohol being the biggest offender." Only a handful of states, such as Maryland, Minnesota, North Carolina and Rhode Island, now define substance abuse as part of their parity laws.

In addition, Vaccaro is concerned that in the current environment, it might become more difficult to keep benefits affordable. Contributors driving this concern include more direct-to-consumer advertising by those with vested interests in spurring utilization, and the backlash against managed care that has made this oversight more difficult, he said. "We could again see a rise in behavioral-health rates similar to that in the mid-80s, where rates skyrocketed by over 20% a year," Vaccaro said.

Insurers are skeptical that the last-ditch effort for new federal parity legislation will be passed any time soon. Yet, its appeal remains strong. According to a survey by the National Mental Health Association, 83% of Americans believe it's unfair for health insurers to limit mental-health benefits and require people to pay much more out-of-pocket for mental-health care than for any other medical care. In addition, 79% of Americans support parity legislation, even if it results in an increase in health insurance premiums.

Ups and Downs 

"There is no good reason to treat someone with clinical depression differently than someone with diabetes--they're both medically-based illnesses," said Vaccaro.

The National Advisory Mental Health Council identifies five benefits mental-health parity provides: overcoming discrimination against those with mental illnesses: preventing health plans from becoming financially disadvantaged because of adverse selection; reducing out-of-pocket expense for people with mental illnesses and their families; reducing disability by facilitating access to appropriate treatment: and increasing the productivity and social contributions of people affected by mental illnesses.

"Parity is good for society, but it comes at a cost," said Vaccaro.

While early projections estimated that parity would cause insurance premiums to skyrocket, the Congressional Budget Office projects that enactment of mental-health parity legislation would result in premium increases of less than 1%. The smallest premium increases are found in tightly managed health maintenance organizations and are higher in both point-of-service and fee-for-service plans.

PacifiCare Behavioral Health has noticed a rise in overall premium of 1% to 2% traceable to mental-health parity. "Our experience has been consistent with that of the industry, which depends on baseline benefits and costs. This equates to a 20% to 35%, to as much as 40%, increase in behavioral health premiums," said Vaccaro.

Parity's impact on managed care is also minimal. The RAND Corp., a nonprofit research organization, estimated that in a managed care environment the removal of lifetime dollar limits for the treatment of mental illnesses would cost only $1 per enrollee per year. However, the National Advisory Mental Health Council found that in states with mental-health parity laws, premiums for managed care patients rose about one-half of 1% in the first year.

For Vermont, which has what many people call the most comprehensive mental-health parity law in the country, treatment spending for mental-health and substance-abuse services dropped by nearly double digits. In the first two years after the state's parity law took effect, state mental-health and addiction treatment spending dropped by 8% to 18%, according to the Substance Abuse and Mental Health Services Administration. Some of the savings also were attributable to the advent of managed care in the state.

But parity does have some disadvantages. "You can't look at parity in isolation. There has been a number of legislative mandates passed that has expanded benefits for things other than parity, including maternity benefits, second surgical opinion, and others. Parity is just a piece of the larger issue," said Noncarrow of WellPoint. She also noted that parity does increase the continuing costs for health-care services and insurance, which contributes to the inability of some people to pay for health benefits. "There is always a challenge to balance expanding benefits and access while maintaining affordable health coverage," she said.

Some opponents believe that parity will not only significantly increase health-care costs while having little impact on helping combat the prevalence of mental illness, but also product an even higher number of uninsured Americans. A Congressional Budget Office study estimates that for every 1% increase in premiums, 200,000 Americans lose their insurance. This implies that a nationwide parity law would cause 2 million additional people to be uninsured, according to a brief analysis posted on The National Center for Policy Analysis' Web site.

Driving Utilization?

Utilization doesn't increase with parity, especially when parity is coupled with managed care, said Dr. Steven Sharfstein, vice president of the American Psychiatric Association. Some insurers disagree, however.

California-based PacifiCare Behavioral Health saw an 8 a/a to 10% rise in utilization of behavioral health services, driven in large part by the state's parity bill and delayed effects of parity. In 2000, California enacted its Mental Health Parity Law (AB88), mandating that treatment of several mental illnesses be included in every contract issued, amended or renewed after July 1, 2000. The law requires coverage for nine specific mental-health diagnoses: schizophrenia, schizo-affective disorder, bipolar disorder major depressive disorders, panic disorder, obsessive-compulsive disorder, pervasive development disorder or autism, anorexia nervosa and bulimia nervosa.

"We have fortunately developed the tools to better manage this increase in utilization: assertive care management of people with chronic or serious mental illnesses so that they can live in the community and avoid more inpatient hospitalizations, and patient self-report tools that serve as early warning signs of patients at high risk for suicide, depression or substance abuse," said Vaccaro. "With these tools, we can identify the patients' risk level and get them the appropriate treatment. Patients at high risk receive more intensive care, and patients who can get better with short-term therapy receive that level of care. Using these tools, we have evidence that after nine weeks, fewer than half of those who were work-impaired are still in that category; most have returned to productive status at work."

But many insurers believe that parity laws alone aren't driving overall demand. The real issue with parity is much more attitudinal than one of dollar impact, said Hancur of Blue Cross Blue Shield of Rhode Island. "In my opinion, too much attention has been focused on new parity laws as the reason for increased utilization of mental-health services," he said. "Utilization has gone up dramatically in recent years, not due to increased benefit limits, but rather because people are more aware of emotions and the impact that their emotions have on their overall health. There should be true parity, but there are many other factors accounting for why members elect to use or not use behavioral health benefits."

A Closer Look at Mental Illness

* More than 54 million Americans have a mental disorder in any given year. Many people suffer from more than one mental disorder at a given time.

* Four of the 10 leading causes of disability in the United States and other developed countries are mental disorders: major depression, bipolar disorder, schizophrenia and obsessive-compulsive disorder.

* About 19 million American adults are affected by depression and anxiety disorders annually. Approximately 12 million U.S. women--about twice the rate of men--experience depression each year.

* As many as one in every 33 children and one in eight adolescents may have depression.

* Eating disorders such as anorexia nervosa and bulimia nervosa affect millions of Americans, 85% to 90% of whom are teens.

* More than 2.5 million Americans have schizophrenia, while more than 2 million Americans suffer from bipolar disorders.

* Approximately 15% of all adults with a mental illness also simultaneously experience a substance-abuse disorder.

* Up to half of all visits to primary care physicians are due to conditions that are caused or exacerbated by mental or emotional problems.

* In 2000, nearly 30,000 people died by suicide in the United States.

Source: National Mental Health Association