Mental Health Parity: Take Two

November 2007

The U.S. Congress recently voted to expand the scope of mental health parity laws, including the Mental Health Parity Law of 2006, to provide insured individuals with mental health benefits that are comparable to general medicine benefits. On September 18, 2007, the U.S. Senate passed the Mental Health Parity Act of 2007 (S-558), sponsored by Senator Pete Domenici (R-N.M.), which has received support from President George W. Bush and the insurance industry.1 On October 17, 2007, the House Energy and Commerce Committee approved the Paul Wellstone Mental Health and Addiction Equity Act of 2007 (H.R. 1424), sponsored by Representative Patrick Kennedy (D-R.I.). While both bills require that insurance companies offer comparable cost-sharing and treatment limits for mental health and general medical benefits, H.R. 1424 includes a greater number of conditions that health plans would be required to cover.2

It is estimated that 58 million Americans have a mental health illness at one point during the year; however, only one third receive adequate treatment.3 Mental health illnesses indirectly cost the United States approximately $79 billion in productivity loss, and untreated mental health conditions can have a severe impact on the quality of life of individuals.4 A 2004 Survey by the American Psychological Association (APA) found that a lack of insurance and high costs were the primary reasons why people did not seek mental health care.5 While insurance companies have provided mental health benefits since the 1950s, the quality and extent of the coverage has been somewhat limited. As a result of research demonstrating the scientific basis of mental health conditions and treatments and the cost impacts of parity laws, states and the federal government have made it a priority to increase mental health coverage benefits.

Provision of Mental Health Care: A Historical Perspective

Although health insurance companies have provided mental health benefits for decades, the stigma, provision, and quantity of care has changed over the past 60 years. Formerly, mental health care was provided primarily in an inpatient setting by specialist physicians.6 Public and private payers covered mental health care; however, the benefits were often limited and out-of-pocket costs were high compared to general medicine benefits. While advocates sought mental health parity-or benefits equal to those for general medicine-insurers were hesitant to implement such laws, due to the associated stigma and fear that individuals with mental health conditions would select plans that offered generous benefits.7

Insurers argued that mental health benefits should not be equal to general medicine benefits, believing that lower prices could lead to unnecessary use and higher costs than general medicine benefits.8 Research conducted in the 1970s and 1980s supported that more generous benefits would subsequently increase demand and costs. The RAND Health Insurance Experiment, for example, found that an increase in price decreased the demand for ambulatory mental health services more so than a similar increase in price for general medicine.9 Consequently, insurers maintained different level of benefits for mental health and general medical care.

Mental Health Parity Law (P.L. 104-204) of 1996 prohibits lifetime spending limits

While many states had already implemented mental health parity laws, the U.S. Congress passed the Mental Health Parity Act in 1996 in an effort to eliminate discrimination against individuals with mental health conditions. This act prohibited insurance companies from setting annual or lifetime spending limits for mental health care services. While this act extended to all payers, including those exempt from state regulations under the Employee Retirement Income Security Act (ERISA), it excluded small businesses and failed to implement full mental health parity.10 To minimize the impact of this law, many insurers increased cost-sharing requirements for mental health services or limited the number of outpatient visits and hospital days covered.11

Because the impact of this law was minimal, 37 states implemented their own mental health parity acts that varied in scope.12 Some states implemented extensive measures, while other states only provided benefits to state employees or covered limited conditions.13 HCFO-sponsored research led by Susan Busch, Ph.D., and Colleen Barry, Ph.D., at Yale University examined the impact of state mental health parity laws on children and their families. The researchers found that children who live in states with mental health parity laws have lower out-of-pocket spending than those living in states without such laws. Moreover, families living in states with mental health parity laws were less likely to report financial distress as a result of their child's illness. (Please click here to access findings from this study.) In addition, Roland Sturm, Ph.D., and colleagues at RAND conducted HCFO-sponsored research that examined how the organization of mental health services affected utilization by children and adolescents across communities and states. The researchers found that mental health services utilization varied significantly across states, and that such variation was attributed to state-level factors and not demographic factors. (Please click here to access findings from this study.)

Recent research helps eliminate stigma and evaluate cost of parity

Research in the late 1990s focused on the impact mental health parity would have on total mental health care costs and out-of-pocket spending.14 Researchers found that parity did not lead to increased costs, in part because managed care was successful in limiting inpatient admissions, length of stay, and spending.15 Managed care companies contracted with mental health "carve out" firms to provide mental health care. These firms create provider networks, negotiate payment rates, and manage the use of mental health care services.16 While studies have shown that carve-outs can reduce the cost of mental health and substance abuse care by 30 to 48 percent, research examining the quality of care is limited.17

In addition, reports from the U.S. Surgeon General discussed racial disparities in access to mental health care and provided a scientific examination of mental health conditions and treatments.18,19 Other research demonstrated that individuals with mental health conditions, such as anxiety, often have physical comorbidities.20 Mark Edlund, M.D., Ph.D., of the University of Arkansas for Medical Sciences, and Thomas R. Belin, Ph.D., of the University of California, Los Angeles, and colleagues completed HCFO-sponsored research that examined physicians' assessment of the quality of care they provided to patients with alcohol, drug, and mental health (ADM) disorders and geographic variation in diagnosis and treatment of ADM disorders. The researchers found that psychiatrists had a lower assessment of their ability to provide quality care than general physicians and that geographic variation in assessment and treatment of these disorders may have less to do with geographic variation, but rather, personal characteristics and patient behaviors. (For more information about these findings, please click here.)

President's Commission aimed to improve delivery and decrease stigma of mental health care

In February 2001, President George W. Bush appointed the President's New Freedom Commission on Mental Health to evaluate the delivery of mental health services and to make recommendations for improvement. The commission found that although the federal government invested a significant amount of money in mental health research, the time between discovery and patient treatment is approximately 15 to 20 years.21 Moreover, the provision of mental health care has transitioned to the outpatient setting and is provided by a variety of health care professionals, including primary care physicians, psychologists, psychiatrists, and social workers.22 Subsequently, the commission recommended decreasing the time between discovery and delivery of mental health treatment, treating mental health similarly to general medicine as mental health affects overall health, and providing proper training for all mental health care professionals.


Recent legislation and recommendations demonstrate that achieving mental health parity and improving the delivery of mental health services is a priority of Congress, the executive branch, and the public. AcademyHealth will host the 2008 National Health Policy Conference, in Washington, D.C., February 4-5, 2008 which will include a panel titled, "Mental Health Parity: Opportunities and Limitations." In addition, the following selected grants from HCFO's portfolio may help inform policymakers working to implement mental health parity and improve the delivery of mental health services. For other grants related to health care costs see

Title: Effects of Prior Authorization of New Medications among Medicaid Beneficiaries with Bipolar Disorder
Grantee Institution: Harvard Pilgrim Health Care Inc.
Principal Investigator: Stephen B. Soumerai, Sc.D.
Grant Period: October 2007 - March 2009

The researchers will evaluate the effects of prior authorization of new medications among Medicaid beneficiaries with bipolar disorder in the state of Maine. As part of their study, they will: (1) describe baseline demographic and clinical characteristic and patterns of treatment; (2) examine the impact of prior authorization on utilization and expenditures of preferred versus non-preferred atypical antipsychotic (AA) agents and anticonvulsant (AC) agents among patients continuously enrolled for the entire study period in Maine and New Hampshire (comparison state); and (3) examine the impact of prior authorization on rates of hospital admission and rates of cessation of all medical treatment, two potential adverse outcomes. The objective of the project is to examine the effect of prior authorization, an increasingly popular drug utilization management policy for patients with chronic mental illness, on medication use and associated outcomes.

Title: Effect of State Parity Laws on Children with Mental Health Care Needs
Grantee Institution: Yale University
Principal Investigator: Susan Busch, Ph.D.
Grant Period: February 2006 - July 2007

What is the impact of state mental health parity laws on children? While they acknowledge that prior studies have evaluated these laws, they indicate that their study would differ due to its focus on children (rather than adults). In addition, they state prior multi-state studies looked at utilization and access and did not evaluate the impact of state parity laws on the economic burden of seeking mental health treatment. They propose to examine how state parity laws affect out-of-pocket health care spending and other measures of the financial burden of treatment costs on families. The objective of this study is to inform the debate about the impact of mental health parity laws at both the state and federal levels.

Title: Geographic Variation in Alcohol, Drug Abuse, and Mental Health Services Utilization: What is the Role of Physician Practice Patterns?
Grantee Institution: University of California, Los Angeles
Principal Investigator: Thomas R. Belin, Ph.D.
Grant Period: March 2002 - March 2003

How do physician practice patterns affect the evaluation, treatment, and quality of treatment for alcohol, drug and mental disorders (ADM)? Specifically, the researchers will test the effects on treatment of seven markers of physician practice patterns (1) ease of referral; (2) propensity to refer; (3) physician perceived autonomy; (4) intensity of clinical care; (5) physician self-reported use of clinical guidelines and/or patient satisfaction surveys; (6) time available to spend with patient; and (7) continuity of care. In addition, the researchers will analyze how organizational structure and financial mechanisms affect two key markers of psychiatric practice patterns, the psychiatrist's ability to provide appropriate continuity of care and the psychiatrist's propensity to utilize clinical guidelines. The researchers will build on current work in which they used individual level HealthCare for Communities data to investigate the patterns and predictors of ADM evaluation and treatment in outpatient primary care settings. The objective of this study is to better understand the relationship between physician practice patterns and the likelihood of evaluation, treatment and guideline-concordant care for alcohol, drug, and mental disorders, with the ultimate goal of implementing policies that meet the treatment needs of individuals with these disorders.

Title: The Impact of Managed Behavioral Health Market Share, Public Sector Carve-Outs, and Parity Legislation on Service Utilization for Children and Adolescents: Results from NSAF and CTS
Grantee Institution: RAND
Principal Investigator: Roland Sturm, Ph.D.
Grant Period: January 2002 - December 2002

How do variations in the organization of mental health services across states and communities affect service utilization for children and adolescents? Roland Sturm, Ph.D., and colleagues at RAND are using the NSAF and the CTS' household surveys to study three variables in assessing the effect of mental health services organization on service utilization. They will examine: 1) the market penetration of commercial carve-outs; 2) how insurance mandates for behavioral health services, especially parity legislation, affect private insurance; and 3) the organization of behavioral health services in the public sector. Looking beyond individual health and socioeconomic factors and community factors, which likely predict need for mental health services, the findings will inform public and private decision makers about the effects of various policy tools in influencing behavioral health care.

Title: Evaluation of Baltimore 's [Mental Health] Capitation Program
Grantee Institution: Johns Hopkins University, School of Medicine
Principal Investigator: William R. Breakey, M.B., F.R.C.Psych
Grant Period: February 1996  July, 2000

How does single stream-funded, capitated payment for mental health services affect provider behavior? This study evaluated Baltimore 's experiment to provide capitated mental health services to long term state hospital inpatients being discharged to community care and Medicaid high cost users. The evaluation included two components: 1) a prospective controlled study of Medicaid high cost users, comparing two samples of patients randomly assigned to the capitation program or to traditional service systems; and 2) a strategic analysis of the capitation programs, comparing their methods with those used by traditional service providers. The objective of the study was to develop a good understanding of how mental health provider performance is affected by program incentives and of how these providers adapt to a single funding stream, in terms of flexibility and innovation in service delivery.

1 "House Committee Approves Mental Health Parity Legislation, Sends Bill to Chamber Floor," Kaiser Daily Health Policy Repor t,, October 17, 2007. Also see
2 ibid.
3 "Mental Health Care: Adequacy of Treatment for Adults," Commonwealth Fund, December 2006,
4 Rice, D.P. and L.S. Miller. "The Economic Burden of Schizophrenia: Conceptual and Methodological Issues and Cost Estimates." Schizophrenia. Eds. Moscarelli, M., Rupp, A., and N., Sartorius. Chichester, UK: Wiley, 1996. 321-334.
5 "Mental Health Parity," American Psychological Association (APA) Help Center, 2004. Also see
6 Barry, C. "Trends in Mental Health Care," Issue Brief, Commonwealth Fund, November 4, 2004. Also see
7 McGuire, T.G. 1981. Financing Pyschotherapy: Cost, Effects, and Public Policy. Cambridge: Ballinger Press.
8 Barry, C., et al. "The Cost of Mental Health Parity: Still an Impediment?" Health Affairs, Vol 25, No. 1, May/June 2006: pp. 623-634.
9 ibid.
10 "The Mental Health Parity Act of 1996." National Alliance on Mental Illness, 2007. Also see
111 Mental Health Parity: Fact Sheet," National Mental Health Association,
12 Demchak, C. "Financial Relief: The Effect of State Mental Health Parity Laws on Families of Children with Mental Health Care Needs," Findings Brief, AcademyHealth, Vol. X, No. 6, August 2007. 1
13 "Mental Health Parity," American Psychological Association (APA) Help Center, 2004. Also see
14 Barry, C., et al. "The Cost of Mental Health Parity: Still an Impediment?" Health Affairs, Vol. 25, No. 1, May/June 2006: pp.623-34.
15 ibid.
16 ibid.
17 Barry, C. "Trends in Mental Health Care," Issue Brief, Commonwealth Fund, November 4, 2004. Also see
18 U.S. Department of Health and Human Services. Mental Health: A Report of the Surgeon General. Rockville, MD: U.S. Department of Health and Human Services, Substance Abuse and Mental Health Services Administration, Center for Mental Health Services, National Institute of Mental Health, 1999. Also see
19 U.S. Department of Health and Human Services. Mental Health: Culture, Race, and Ethnicity-A Supplement to Mental Health: A Report of the Surgeon General. Rockville, MD: U.S. Department of Health and Human Services, Substance Abuse and Mental Health Services Administration, Center for Mental Health Services, 2001. Also see
20 "Anxiety Disorders Can Have Broad, Negative Health Effects," Fact Sheet, RAND Health. December 2005. Also see
21 Balas, E.A. and S.A. Boren. 2000. "Managing Clinical Knowledge for Health Care Improvement." Yearbook of Medical Informatics. Bethesda, MD: National Library of Medicine, pp. 65-70.
22 Barry, C. "Trends in Mental Health Care," Issue Brief, Commonwealth Fund, November 4, 2004. Also see