NCPA - National Center for Policy Analysis

The Cost of Mental Health Parity

October 9, 2001

The U.S. Senate is scheduled to return to the issue of requiring mental health insurance benefits equal to other medical benefits (parity) in coming weeks. In addition to raising insurance premiums, parity would cost the federal government a significant amount of revenue because employer-provided health insurance is nontaxable compensation for employees.

According to CBO estimates,

  • Mental health parity would cost the federal government $5.4 billion over the next decade.
  • Adding parity to existing policies under the Mental Health Equitable Treatment Act (S. 543) would raise health insurance premiums by an average of 0.9 percentage points.

The increase in health insurance premiums would be borne by companies that provide insurance benefits, although the CBO assumes most of those costs would be either offset through changes in health benefits offered or else passed on to workers in the form of higher premiums or reduced compensation.

Most of the cost to the federal budget would come because of the way the federal tax code treats health insurance. "Higher premiums," according to the report, "would result in more of an employee's compensation being received in the form of nontaxable employer-paid premiums, and less in the form of taxable wages. As a result of this shift, federal income and payroll tax revenues would decline."

Sen. Judd Gregg (R-N.H.), ranking member of the committee that approved the bill last summer -- and one of the people who blocked it from being taken up by the Senate recently -- said the bill lacks a "trigger" that would let employers opt out of providing parity if it raises their insurance premiums by more than one percentage point.

Source: Julie Rovner, "Feds Say Mental Health Bill Would Cost $5 Billion," Reuters Health, October 2, 2001; "Congressional Budget Office Cost Estimate: S. 543 -- Mental Health Equitable Treatment Act," August 22, 2001, Congressional Budget Office, Washington, D.C.


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