What’s more important: Physical or mental health?

Costs of mandated mental health coverage debated

With new support from the White House, the effort to pass mental health parity legislation gained momentum last month, eliciting hope from advocates for mental health care reform, but igniting the ire of the insurance industry and House Republicans who claim more mandates will push the cost of health insurance beyond the reach of even more Americans.

In a speech at the University of New Mexico on April 29, President George W. Bush expressed support for legislation requiring private health plans to give parity to mental health services — providing the same level of coverage as for services to treat physical ailments.

"Our country must make a commitment: Americans with mental illness deserve our understanding, and they deserve excellent care," Bush told reporters following a private meeting at the school with families of patients with mental illnesses. "They deserve a health care system that treats their illness with the same urgency as a physical illness."

Although Bush stopped short of endorsing the Mental Health Equitable Treatment Act, the bill proposed by Sens. Pete Domenici (R-NM) and Paul Wellstone (D-MN), and said he did not support a particular proposal, mental health advocates said his statement lent much-needed support to parity efforts.

"I think what the president did was endorse the broad concept, and we are certainly delighted with that endorsement," says Ralph Ibson, vice president for government affairs at the National Mental Health Association (NHMA) in Washington, DC. "What it does is put a spotlight and energy behind this legislation that gives added impetus to members of his party in Congress to give new focus on and to work with him and others to craft legislation that could be adopted."

Advocates for improved coverage of mental health services have been trying for years to get legislation at the federal and state levels prohibiting disparities in reimbursements between physical and mental and emotional illness.

A previous parity law, the Mental Health Parity Act of 1996, also authored by Domenici and Well-stone, expired on Sept. 30. That law prohibited group health plans that offered mental health benefits and covered more than 50 employees from imposing different annual or lifetime limits on mental health care than the limits imposed on medical or surgical care.

However, a report last May from the General Accounting Office (GAO) found that the law had little effect on improving coverage of mental health services. Although 86% of employers surveyed reported compliance with the law, many of those employers instituted new and different restrictions on mental health benefits, the NMHA reports.

Employers are continuing to limit mental health benefits more severely than medical and surgical coverage — most often by restricting the number of covered outpatient visits and hospital stays and requiring higher copayments and deductibles for mental health services, Ibson says.

The current Domenici-Wellstone proposal would require private health plans covering more than 50 people to provide full parity of coverage for all categories of mental health conditions (other than substance abuse disorders) that are listed in the fourth edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM-IV)

The bill is modeled on last year’s establishment and implementation of mental health parity in the Federal Employee Health Benefits Program, which provides health coverage for 9 million federal employees, including members of Congress and their families.

But the proposal to cover all recognized mental health disorders is one of the key elements that make this proposal untenable, say representatives from the health insurance industry.

"We strongly believe that every new mandate, including expansion of mental health coverage, should face careful review, based on the latest and best scientific evidence, so that consumers can have confidence that their money is going to provide better health care," Karen Ignagni, president of the Washington, DC-based American Association of Health Plans (AAHP), said in a statement following Bush’s New Mexico speech.

Including all diagnoses listed in the DSM-IV would require coverage of a "variety of situations," including academic problems, occupational problems, religious or spiritual problems, and even jet lag, Ignagni claims.

Such required-coverage mandates are one of the primary factors driving up the cost of health insurance, she adds.

A study commissioned by the AAHP and conducted by the accounting firm Pricewaterhouse-Coopers found that mandated benefits accounted for 15% of the $67 billion increase in U.S. health care spending in 2001.

By comparison, general inflation accounted for 18% of the increase in spending; rising provider expenses accounted for 18%; drugs, medical devices, and medical advances accounted for 22% of the increase; increased consumer demand for 15%; litigation and risk management for 7%; and miscellaneous categories accounted for 5%.

"As a result of these added costs, many employers are now faced with the painful choices between reducing benefits, passing costs along to their employees, or phasing out health coverage altogether," she says.

In addition, the economic downturn exacerbated by the events of Sept. 11 coupled with rapidly rising insurance premiums may result in 6 million Americans losing their health coverage this year, a new policy study by the National Coalition on Health Care (NCHC) reports. (See the NCHC web site at www.nchc.org/survey.html.)

"While nearly 39 million people were uninsured for the entire year in 2000, we estimate that approximately 45 million people will have no health insurance coverage by the end of 2002 unless the government takes substantial actions to stem the incoming tidal wave of the uninsured," says Joel Miller, the NCHC’s national policy director. "Further, during the three-year period [of] 2001-2003, we estimate that a total of 86 million Americans could suffer a gap in their health insurance coverage."

Substantially increasing the number of mandatory covered services without a study of the cost implications would substantially increase the burden on employers to provide coverage, Ignagni adds.

"Policy-makers should carefully consider the consequences of adding to the more than 1,500 mandates that already exist at the state and federal level," she says. "Proposals to mandate an expansion of mental health coverage at the federal level would add billions of dollars to health care costs at a time when 40 million Americans lack access to health insurance and many more are struggling to afford the coverage they do have."

However, cost data collected in states that have passed parity legislation indicate that the cost impact would be much less than the health plans are anticipating, says Andrew Sperling, deputy executive director for public policy at the National Alliance for the Mentally Ill.

"We have reliable information that the cost increases would be minimal," he indicates.

The report, "Parity in Financing Mental Health Services: Managed Care Effects on Cost, Access & Quality," the second in a series of reports to Congress issued by the National Advisory Mental Health Council, found that full parity costs less than 1% of annual health care costs. When implemented in conjunction with managed care, parity can reduce costs by 30%-50%, researchers found.

After the implementation of full parity at the state level, Maryland reported a 0.2% decrease in health care costs and premiums. Rhode Island reported a less-than-1% (0.33%) increase of total plan costs under state parity. Texas experienced a 47.9% decrease in costs for state employees enrolled in its managed care plan under parity.

Issues of civil rights

A total of 32 states now have some degree of mental health parity, and fairness bills are pending in several other state legislatures, says Sperling. However, several states, including Texas, have implemented narrower legislation than the proposed federal statute, limiting the parity requirement to specific, major mental illnesses such as depression, bipolar disorder, and schizophrenia.

Some lawmakers and policy experts have proposed similar limitations for the federal legislation as a way of limiting the initial cost impact. But, mental health advocates fear such limitations would gut the legislation’s purpose.

Such limits, says NMHA’s Ibson, fly in the face of the concept of parity — recognizing that mental disorders are illnesses in the same way that physical ailments are.

"In our view, medical and surgical coverage in most insurance draws no distinction by degrees of risk or severity," he says. "We would be very troubled by the idea, and we assume members of Congress would be horrified to be advised that insurance companies were drawing distinctions between cancer coverage — for example, viewing lung cancer as a serious illness but not covering skin cancer, or covering severe heart disease but not covering hypertension."

Establishing parity for mental health services is an issue of civil rights, Ibson says, a remedy for the discrimination that people with mental illness have suffered because their disorders have not been given equal attention.

"This legislation is analogous to civil rights legislation in terms of the arbitrary discrimination in the marketplace against a group of people who suffer from a particular array of disorders," he explains.

Opponents of the broader legislation have misrepresented the effect of relying on the DSM-IV as the standard for determining what is and is not a mental illness, he adds.

"I think people are misconstruing what the effect would be," Ibson says. "There is a lot of opposition that reflects people flipping through the manual and finding what they feel are sort of silly diagnoses. [They] then draw an illustration describing these sorts of extreme examples of the bad results that would emerge. You hear people say that employers would have to bear the cost of malingering or jet lag, etc."

However, there is a difference between having a disorder recognized in the DSM-IV and a health plan being required to pay for treatment, he adds.

"The bill is very carefully constructed to address a whole range of concerns that the business community raised when it was first considered by the Senate," he notes. "In fact, before anybody would be reimbursed or have insurance coverage for treatment — for jet lag, or whatever — there would have to be a finding that the treatment was medically necessary."

The criteria for defining medical necessity, as with physical ailments, rests with the health plan, not the beneficiary, he says. "It is the plan or the employer who pays for the plan that sets those criteria. In addition, it is very clear in this legislation that the full range of managed care techniques, which are brought to bear in making judgments about whether health care is to be provided, how long it will be provided, those are all the appropriate and permissible means of limiting costs, and they would still apply to all covered conditions. It is highly implausible that some of the horror scenarios would actually come to pass."

However, some advocates argue, even a limited parity law would be better than none. While it would be preferable to have legislation that recognized the necessity of treating all forms of mental disorders, a limited parity bill could be a good first step, says Sperling.

"In some states where limited legislation has passed, lawmakers have gone back later and expanded the legislation," he notes. "Although we would like to see a law that did not limit protection to severe diagnoses, we think even a narrower law would be beneficial."

Major provisions of the proposed Mental Health Equitable Treatment Act

  1. Prohibit group health plans that provide mental health benefits from imposing treatment limitations or financial requirements on the coverage of mental health conditions unless comparable limits are imposed on medical and surgical benefits. This would prohibit discriminatory limits on the frequency of treatment, number of visits, days of coverage, or other limits on the duration or scope of treatment in private health insurance coverage for ALL mental disorders, and rule out higher copayments, deductibles, coinsurance, other cost-sharing, and limits on the total amount payable for mental health care. In closing these loopholes in the 1996 federal parity law, the bill draws no distinction among diagnoses;
  2. eliminates the 1996 provision that exempts insurance companies and other firms from the requirements of the law if they have experienced an increase of more than 1% in their mental health costs;
  3. shrinks the current small-business exemption (covering businesses with 50 or fewer employees) to an exemption of companies with 25 or fewer employees. It is estimated that this legislation would cover 100 million people.

Source: National Mental Health Association, Washington, DC.


  • Ralph Ibson, National Mental Health Association, 1021 Prince St., Alexandria, VA 22314-2971.
  • Andrew Sperling, National Alliance for the Mentally Ill, Colonial Place Three, 2107 Wilson Blvd., Suite 300, Arlington, VA 22201.
  • American Association of Health Plans, 1129 20th St., N.W., Suite 600, Washington, DC 20036-3421. Web site: www.aahp.org
  • National Coalition on Health Care, 1200 G St., N.W., Suite 750, Washington, DC 20005.