NCPA - National Center for Policy Analysis

Mental Health Care Is Different

August 9, 2002

Advocates of mental health parity assume that all health care should be paid for the same way. However, mental health care differs from other medical care in several ways:

  • Mental health care must rely largely on the patient's subjective experience of illness -- which is often unreliable.
  • There are few objective standards for either diagnosis or treatment.
  • Mental health care providers exercise considerable discretion in prescribing drugs and administering other treatments, and their choices vary considerably.
  • Patient cooperation is essential in diagnosis and treatment.

Because of these differences, patients and their families are often more effective and efficient monitors of mental health care than third-party payers. On the other hand, requiring health plans to cover both physical and mental health care the same way and to the same extent (parity) would create perverse incentives to waste resources:

  • Individuals have strong incentives to waste resources when a third-party pays the bills -- a problem called moral hazard.
  • The National Bureau of Economic Research found that 38 percent of all mental health care patients -- representing 28 percent of all treatment visits -- are people who do not have any mental health disorder.
  • Producers would also have incentives to overcharge insurance companies -- a problem called rent seeking -- by treating patients until their insurance is exhausted.

Medical savings accounts (MSAs) are an alternative means of financing mental health care that would allow better results for less money spent by letting patients choose how to spend their own money for care.

Source: John C. Goodman (NCPA president) and Wess Mitchell (research assistant), "The Case against Mental Health Parity, Part I: Faulty Assumptions," Brief Analysis No. 410, August 9, 2002, National Center for Policy Analysis.


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