NCPA - National Center for Policy Analysis

Unintended Consequences of Mental Health "Parity" Laws

January 8, 2002

It may appear an equitable proposition on the surface: insurers must cover mental illnesses to the same extent they cover physical illnesses. But so-called mental health "parity" laws are backfiring in states that have adopted them.

Currently, such laws are on the books -- with varying degrees of teeth and specificity -- in 34 states, and there is also a federal law.

  • The laws generally make it illegal for an employer who offers coverage for physical conditions like appendicitis, for example, to offer less coverage for mental problems.
  • Under the federal law, lifetime caps on coverage must be the same.
  • But the problem is that while someone filing a claim for an appendectomy cannot return the next year with another appendectomy claim, he can file for more therapist treatments.
  • People use four times as many mental health services when someone else is picking up the costs as they do when they are paying, according to a study in the Journal of Health Economics.

Fearing an explosion of costs, employers are resisting. Larger co-payments are sometimes required. Or they go the managed-care route, which makes treatment harder to get. Or they require tough "utilization review" processes, characterized by one observer as assigning mental claims to a separate, nastier review process than the one it uses for other claims.

The upshot is that over the past decade, mental health spending, as a percentage of total health spending, has dropped. Experts say the mental health "parity" laws have backfired.

Source: Ira Carnahan, "Asylum for the Insane," Forbes, January 21, 2001.


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