By Government Relations Practice Organization Staff

March 2002 -- The “Paul Wellstone Mental Health Parity Act” (PMWH) cosponsored by Senator's Pete Domenici (R-NM), Edward Kennedy (D-MA) and Representatives Jim Ramstad (R-MN) and Patrick Kennedy (D-RI) would prohibit group health plans from imposing more restrictive treatment limitations or financial requirements on mental health benefits than those on physical benefits. The bill would ensure that all persons suffering mental disorders have fair and adequate coverage ("full parity"). The bill would exempt small employers (with 50 or fewer employees) and would not apply to substance abuse services or out-of-network services. Employers and health plans may use pre-admission and other services review to deliver cost-effective mental health care.

The Congressional Budget Office (CBO) estimated that parity legislation will increase premiums by 0.9%. Cost Estimate for S. 543, Mental Health Equitable Treatment Act of 2001. Washington, DC: CBO, August 22, 2001.

PricewaterhouseCoopers estimated the bill would increase premiums by 1.0%. This represents a cost to a typical plan of $1.32 per covered person each month. Bachman, Ronald E. "An Actuarial Analysis of S. 543, the Mental Health Equitable Treatment Act of 2001 [“Paul Wellstone Mental Health Parity Act”]." Atlanta, GA: PricewaterhouseCoopers, July/August 2001.

The (PMWH) Parity Act is modeled on provisions provided for federal workers under the Federal Employees Health Benefits Program (FEHBP), which was implemented in 2001. The Office of Personnel Management (which administers FEHBP) estimated that parity implementation would increase plan premiums by 1.3%. Oversight Hearing on Achieving Parity for Mental Health Services before the Senate Committee on Health, Education, Labor and Pensions (statement of William E. Flynn, III, Associate Director For Retirement and Insurance, Office of Personnel Management, July 11, 2001).

Actuarial analysis through the National Advisory Mental Health Council (NAMHC) estimated that full parity would increase premiums by 1.4%. This estimate is based on actuarial data from FEHBP, cost and utilization data from several large managed behavioral health care companies, and the experience of a large state employees health plan. Kirschstein, Ruth L. "Insurance Parity for Mental Health: Cost, Access, and Quality." Final Report to Congress by the National Advisory Mental Health Council, National Institutes of Health, Department of Health and Human Services, June 2000.

Actual experience of states that have enacted full parity laws show that the cost impact of full parity is about 1% to 2%, or even well below 1%.

Vermont's full parity law is similar to FEHBP's and became effective on January 1, 1998. On filing proposed rates to the State Division of Insurance, insurers identified the proportion of rate increase attributable to parity. Blue Cross Blue Shield of Vermont estimated impact at zero percent for the Vermont Health Partnership (a managed care plan product), 1-3% for its comprehensive plan, and 2% for its base plan. Kaiser Permanente/CHP estimated a 2.07% increase attributable to parity. Costle, Elizabeth R. "Report of the Department of Banking, Insurance, Securities and Health Care Administration on Mental Health and Substance Abuse Parity (Act 25) to the Vermont General Assembly." Montpelier, VT: January 15, 1999.

Maryland implemented full parity in 1995. Shortly after, a small increase was observed in the number of inpatient admissions, but that increase was more than offset by a more significant decrease in the average length of inpatient stays. For one insurer, the proportion of the total medical premiums attributable to its mental health benefit actually decreased by 0.2%. A second managed care company with extensive experience in the State subsequently confirmed that its average expense per member per month increased by less than 1% during the first seven months after implementation of full parity. Additional data received in 1997 indicated that, after an initial increase following parity implementation, costs dropped back towards pre-parity base line levels. Varmus, Harold. "Parity in Coverage of Mental Health Services in an Era of Managed Care: An Interim Report to Congress by the National Advisory Mental Health Council." National Institute of Mental Health, National Institutes of Health, Department of Health and Human Services, April 1997.

Minnesota's full parity law became effective on August 1, 1995. To date, there have been no recognized cost concerns or exodus of insured plans to ERISA status in order to avoid the state's parity mandate. The State's Department of Commerce, which regulates indemnity insurance, estimated costs of 1% of total premium dollars for mental health parity. Medica, an independent consulting organization, estimated that cost for mental health parity is 26 cents ($0.26) per member per month. Varmus, Interim Report to Congress.

The Center for Mental Health Services of the Substance Abuse and Mental Services Administration conducted case studies regarding Maryland and Minnesota and found similar experience data. In Maryland, the total premium increase due to parity was just over 1%. In Minnesota insurers (and other informants) indicated that health care premiums did not increase or did so by only a few percentage points. Relying on judgment and experience, six of them believed that premium increases due to parity were small. Two quantified premium increases as 1% or 2%. Sing, Merrile, et al. "The Costs and Effects of Parity for Mental Health and Substance Abuse Insurance Benefits." Center for Mental Health Services, Substance Abuse and Mental Health Services Administration, Department of Health and Human Services. Rockville, MD: March 1998.