When patients paid for alcohol and drug abuse treatment out-of-pocket, the treatment of choice was usually Alcoholics Anonymous (AA). The program is incredibly cheap, and itÌs still not clear that any other program is better. Once third-party insurers started paying the bills, however, programs sprang up everywhere and costs began to soar.

Among those paying are large corporations with generous health insurance programs. Often the benefit goes to an employee dependent, rather than the employee, covering problems ranging from eating disorders and sexual abuse to "codependency." One critic contends that mental health hospitals are becoming "dumping grounds for adolescents whose parents want nothing to do with them." One-fifth of all private psychiatric hospital admissions are now patients under age 18.

Many people urge us to ignore the costs and force all policyholders to have coverage for alcohol and drug abuse, mental health and related treatments. Their proposals would extend prepayment of medical care through third-party insurers to an area in which cost containment is extremely difficult, and the costs would be reflected in everyoneÌs health insurance premiums.

In an ideal health care system, people would always be free to purchase policies tailored to individual and family needs; insurance would never be used as a vehicle for the prepayment of medical care; and if insurers were to reimburse policyholders for unexpected alcoholism, drug dependence, or mental illness, the policyholders and their families would become the principal buyers of medical care at the time it is administered, perhaps using insurance reimbursement funds. When people are paying out-of-pocket for alcohol and drug abuse therapy, they wonÌt pay much unless the treatment is clearly more valuable than the free therapy offered by Alcoholics Anonymous. Furthermore, in the ideal health care system, people are encouraged to save for precisely those contingencies for which it is impossible to insure in a competitive marketplace.

The Senate passed an amendment to the Kennedy-Kassebaum health care bill that would require insurance companies and employers who provide health care coverage to pay for treatment of mental illness on the same basis as for physical ailments.

Critics point out that "mental illness" is a vague concept and so is "therapy," and neither is defined in the Senate amendment.

• Currently, almost all companies with employee health benefits offer some coverage for mental illness, but 89 percent set lower limits than for treatment of physical ailments, according to the Congressional Budget Office.

• The Senate amendment would impose direct costs of $11.6 billion on employer-insured workers, averaging $110 each.

• Workers would likely pay the increased cost in the form of lower wages and other benefits, according to CBO Director June E. O'Neill.

Today, relatively inexpensive and effective drug treatment is available for serious psychiatric disorders -- such as obsessive-compulsive disorder, schizophrenia, clinical depression or bipolar manic depression. Typically, employers and insurers set yearly limits of 20 outpatient visits and 30 days' hospitalization for mental illness. Patients pay 50 percent of the cost, and the lifetime payment limit is typically $50,000.

In the 1980s, mental health special interest groups pressured several state legislatures and Congress into requiring or providing coverage for mental illness, resulting in a building boom for psychiatric hospitals, particularly for "problem" adolescents and children. This led to unnecessary commitment of patients -- freed only when their benefits ran out -- and fraudulent "therapy."

• A Georgia psychiatrist billed the state $6.6 million for Medicaid patients, on average billing for 488 hours of therapy per week, although a week has only 168 hours.

• A New Jersey doctor submitted hundreds of claims to private insurers for therapy programs that never took place, kicking back as much as 25 percent of the loot to alleged patients and billing as many as 50 hours in a single day.

• A 1990 federal review of 500 psychiatric in-patient cases, most involving adolescents and children, found two-thirds were unnecessary hospitalizations.

Opponents of the Senate amendment suggest it would unnecessarily raise health care costs without benefiting patients and should be dropped by the House-Senate conference committee that will iron out differences in the legislation.

Source: Eugene H. Methvin, "Cuckoo's Nest," National Review, July 15, 1996.

Seven states have passed laws that require at least some health plans to cover treatment of mental illness or that specify comparable coverage for both physical and mental illnesses. In doing so, these states have gone beyond a new federal law that says that if an employer-provided health insurance plan covers mental illness, it must do so on an equal basis (called parity) with physical illnesses.

The federal law only applies to employers with more than 50 employees and requires health plans that include mental health benefits to apply the same annual and lifetime caps to mental health coverage as they do to medical/surgical services starting January 1, 1998.

The federal parity requirement is expected to raise the cost of employer-provided health insurance; if the increased costs are substantial, it has been suggested that some plans might drop mental health coverage altogether.

However, health plans regulated under state law may be subject both to state mandates requiring that they provide mental health benefits and the federal requirement for parity of benefits, according to some experts.

Thus at least some health insurance plans in these states may not have the option of covering only physical illnesses.

• Maine's new law requires coverage for certain specified serious mental illnesses -- joining New Hampshire and Rhode Island, which passed similar legislation in 1995.

• Maryland and Minnesota had already passed a law requiring parity of coverage for mental disorders in 1994 and 1995 respectively, with Maryland's law requiring coverage for substance abuse.

• State and local government employees must be offered treatment for mental illness equal to that for physical illness under laws passed in North Carolina in 1996 and Texas in 1995.

The legislatures of Louisiana, North Dakota, Oklahoma and Virginia have adopted resolutions to study mental health parity.

Source: "Mental Health Parity Laws in Seven States Go Beyond Federal Law," Full Coverage of State Health Reform Legislation, December 1996, Council for Affordable Health Insurance, 112 S. West Street, Alexandria, VA 22314, (703) 836-6200.

Governments are turning to private mental-health care providers -- often moving patients from large and expensive institutions or nursing homes into private homes. For several generations, mental health treatment -- particularly of lower-income people -- has largely been a government responsibility. While privatization continues to depend on taxpayer support, responsibility for care itself is shifting toward businesses.

• At lease 15 states have waivers from the federal government allowing them to enroll their Medicaid population in privately owned managed care programs.

• The move is being fueled by a quest for economy, since Medicaid costs have doubled since the late 1980s -- to some $150 billion a year.

• Private operators have become much more active in marketing their mental-health services.

• Privatization also extends to juvenile justice programs.

Some critics claim that government has forsaken its oversight responsibility. They object to turning over funds to the private market and question how well private companies will manage the programs. Supporters counter that privatization will provide superior service with greater efficiency.

Federal spending on programs aimed at children has increased by more than 240 percent in the last 20 years, and there are now more than 150 children's programs costing more than $50 billion a year. Key indicators of children's well-being show they are better off today than they have ever been, say researchers.

Much of the improvement in children's well-being occurred early in the century -- for instance, the most dramatic declines in infant mortality and increases in life expectancy occurred early in this century, before widespread federal intervention.

• In 1915, the infant mortality rate was almost 100 deaths per 1,000 live births, but by the late 1930s the rate was cut in half .

• Between 1900 and 1935, life expectancy at birth improved by more than 14 years, whereas it improved by just over five years between 1970 and 1995 .

• Researchers say the earlier decline in infant mortality and increase in life expectancy were due primarily to basic hygienic measures including water purification, efficient sewage disposal and improved food hygiene.

But progress has slowed -- and in some cases trended downward -- since the 1960s. For instance, children's poverty rates steadily declined for decades to about 15 percent in the late 1960s; but now the poverty rate stands at just over 20 percent . This is due to an increase in single, female-headed households, which have significantly higher poverty rates than their two-parent family counterparts.

Family income has been rising throughout this century; but between 1955 and 1995, taxes as a percentage of family income increased by about 10 percent. And finally, expanding government-funded health care for children has reduced the number of privately insured children -- with little increase in children's access to care.