Mental Health Parity: Federal and State Action and Economic Impact







Prepared for Members and Committees of Congress



In the 110th Congress, the Senate and House have passed different versions of expanded mental
health parity legislation (S. 558 and H.R. 1424). These bills have always been strongly supported
by advocates for the mentally ill and have had broad, bipartisan support in Congress. Although
employers and health insurance groups opposed the legislation in the past because of concern that
it would drive up costs, the provisions in S. 558 now have their support. Expanded parity ththth
legislation was introduced in the 107, 108, and 109 Congresses, but each time it failed to pass.
Private health insurers often provide less coverage for mental illnesses than for other medical
conditions. Historically, health plans have imposed lower annual or lifetime dollar limits on
mental health coverage, limited treatment of mental health illnesses by covering fewer hospital
days and outpatient office visits, and increased cost sharing for mental health care by raising
deductibles and copayments. The lack of parity (i.e., equivalence) in part reflects insurers’
concerns that mental disorders are difficult to diagnose, and that mental health care is expensive
and often ineffective. However, the 1999 Surgeon General’s report on mental health concluded
that mental illnesses are largely biologically based disorders, like many other medical conditions.
It found that effective treatments exist for most mental disorders.
Differences in insurance coverage of mental illnesses and other medical conditions are also the
result of economic factors. Studies indicate that demand response of mental health patients to
reduced cost sharing is approximately twice as large as that observed in general medical care.
Partly as a consequence, insurers impose higher cost sharing for mental health. Insurers have also
restricted mental health coverage to protect themselves against adverse selection (i.e., the
tendency for plans with generous mental health coverage to attract patients with mental illnesses
that are costly to treat). Health plans frequently subcontract management of the mental health
component of their benefits to specialized managed behavioral health care organizations
(MBHOs). Recent studies have shown that there is no significant increase in mental health costs
to the insurer when parity is implemented in the context of managed care. Despite this finding,
introduction of managed behavioral health care, and passage of state parity laws, mental health
coverage continues to be subject to more limitations and higher cost sharing than coverage of
other illnesses. Some analysts argue that parity alone is not sufficient to guarantee equal access to
quality care and equal financial protection for people with mental disorders.
Twenty-eight states have laws that mandate full-parity mental health coverage, though these laws
do not apply to self-insured group plans. In 1996, Congress enacted the Mental Health Parity Act
(MHPA), which is more limited in scope and does not compel insurers to provide full-parity
coverage. For group plans that choose to offer mental health benefits, the MHPA requires parity
only for annual and lifetime dollar limits on coverage. Group plans may still impose more
restrictive treatment limitations and cost sharing requirements on their mental health coverage.
On June 17, 2008, the President signed into law (P.L. 110-245) the extension of MHPA through

2008.







Introduc tion ..................................................................................................................................... 1
Economic Factors Opposing Parity.................................................................................................3
Impact of Managed Behavioral Health Care...................................................................................4
State Mental Health Parity Laws.....................................................................................................6
Mental Health Parity Act of 1996....................................................................................................7
Enforcement of MHPA....................................................................................................................8
Enforcement Provisions............................................................................................................9
Tax Code.............................................................................................................................9
ER ISA ................................................................................................................................. 9
PHSA ........................................................................................................................... ....... 9
Existing Enforcement..............................................................................................................10
Federal Employees Health Benefits Program................................................................................10
Mental Health Parity Legislation....................................................................................................11
110th Congress..........................................................................................................................11
Legislative History..................................................................................................................12
Impact of Mental Health Parity on Health Care Costs............................................................13
Coverage of DSM-IV Mental Disorders.................................................................................14
Issues for Congress........................................................................................................................14
Persistent Mental Health Benefit Limitations.........................................................................14
Financial Protection and Access to Quality Care....................................................................15
Appendix A. Comparison of Key Provisions in the Mental Health Parity Act of 2007 (S.

558) and the Paul Wellstone Mental Health and Addiction Equity Act of 2007 (H.R.


1424) .......................................................................................................................................... 18
Appendix B. State Mental Health Parity Laws..............................................................................21
Appendix C. Mental Health Parity Hearings.................................................................................22
Appendix D. Mental Health Parity Websites.................................................................................23
Author Contact Information..........................................................................................................23






In the 110th Congress, there is a renewed push to expand existing federal mental health parity law.
Legislation introduced in the House (H.R. 1424) by Representatives Kennedy and Ramstad, and
in the Senate (S. 558) by Senators Domenici and Kennedy, have passed in the respective 1
chambers. On March 5, 2008, the House passed H.R. 1424 by a roll call vote. On September 18,
2007, the Senate passed S. 558 with an amendment, by a voice vote. The Congressional Budget
Office (CBO) scored S. 558 and H.R. 1424 and estimated that, if enacted, both bills would 2
increase health insurance premiums by 0.4%.
On April 29, 2002, in a speech on mental health care during which he announced the formation of
the New Freedom Commission on Mental Health, President Bush urged Congress to enact
legislation that would provide full parity in the health insurance coverage of mental and physical
illnesses. The President identified unfair treatment limitations placed on mental health benefits as
a major barrier to mental health care. Historically, private health insurers have provided less
coverage of mental illnesses compared to other medical conditions. For example, health plans
have imposed lower annual or lifetime dollar limits on mental health coverage, limited treatment
of mental health illnesses by covering fewer hospital days and outpatient office visits, and
increased cost sharing for mental health care services. Under full parity, a plan must use the same
treatment limitations and financial requirements in its mental health coverage as it does in its 3
medical and surgical coverage.
The New Freedom Commission endorsed mental health parity in its final report, issued on July
22, 2003. “The commission strongly supports the President’s call for federal legislation to provide
full parity between insurance coverage for mental health care and physical health care,” the report 4
said, in reference to the President’s April 2002 address.
In 1996, Congress enacted the Mental Health Parity Act (MHPA), which established new federal
standards for mental health coverage offered by group health plans. However, the MHPA is
limited in scope and does not compel health plans to offer full-parity mental health coverage. It
requires group health plans that choose to provide mental health benefits to adopt the same annual
and lifetime dollar limits on their coverage of mental and physical illnesses. Plans may still
impose more restrictive treatment limitations or cost sharing requirements on their mental health
coverage. Lawmakers recently reauthorized the MHPA through December 31, 2008.
Senators Domenici and Wellstone introduced full-parity legislation (S. 543) in the 107th Congress;
the measure saw some action but failed to pass. The legislation (S. 486) was reintroduced at the th
beginning of the 108 Congress by Senators Domenici and Kennedy. An identical House bill

1 House Roll Call Vote 101: 268-148, March 5, 2008.
2 Congressional Budget Office (CBO), Cost Estimate, H.R. 1424 Paul Wellstone Mental Health and Addiction Equity
Act of 2007, September 2007, available at http://www.cbo.gov/ftpdocs/86xx/doc8608/hr1424.pdf. Congressional
Budget Office (CBO), Cost Estimate, S. 558 Mental Health Parity Act of 2007, March 2007, available at
http://www.cbo.gov/ftpdocs/78xx/doc7894/s558.pdf.
3 Treatment limitations include restrictions on the number of visits or days of coverage, or other limits on the duration
and scope of treatment. Financial requirements include deductibles, coinsurance, co-payments, and other cost-sharing
requirements, as well as annual and lifetime limits on the total amount of coverage.
4 New Freedom Commission on Mental Health, Achieving the Promise: Transforming Mental Health Care in America.
Final Report. DHHS Pub. no. SMA-03-3832 (July 2003). Available online at http://www.mentalhealthcommission.gov.





(H.R. 953) was introduced by Representatives Kennedy and Ramstad. No legislative action was th
taken on either bill. In the 109 Congress, the MHPA was introduced in the House (H.R. 1402) by
Representatives Kennedy and Ramstad. No legislative action was taken on this bill, and no
corresponding legislation was introduced in the Senate. For an analysis of the legislative history
of federal parity legislation, see CRS Report RL33820, The Mental Health Parity Act: A
Legislative History, by Ramya Sundararaman and C. Stephen Redhead.
Patient advocacy groups and health care provider organizations that support mental health parity
argue that there is no longer any scientific justification for discrimination in mental health
coverage, which they believe only reinforces the stigma that many in society attach to mental
illness. Their efforts to combat discrimination received a boost with the release of the 1999 5
Surgeon General’s Report on Mental Health. The report reviewed the extensive scientific
literature on mental health and concluded that mental illnesses were largely biologically based
disorders like many other medical conditions. It also found that the efficacy of mental health
treatments is well documented, and that effective treatments exist for most mental disorders.
Proponents of mental health parity highlight the high costs to society of untreated and
undertreated mental illness. The Substance Abuse and Mental Health Services Administration 6
estimated that the direct treatment costs of mental illness in 2001 totaled $85 billion. This does
not include the economic costs of lost productivity due to illness, lifetime lost productivity, and 7
other indirect costs.
Employer and health insurance associations oppose parity legislation because of concerns that it
will drive up costs. Parity supporters refute those claims, pointing to recent studies that indicate
that full parity can be implemented without substantial cost increases within the context of
comprehensively managed behavioral health care.
Twenty-eight states have passed laws mandating full-parity mental health coverage. Except
Wyoming, all other states have enacted legislation that requires health plans to provide certain
specified mental health benefits, but not necessarily full parity. However, employers who have
self-insured plans (i.e., the employers pay physicians and hospitals directly) are not bound by
state insurance regulations.
This report briefly summarizes the economic forces that help explain the persistent limitations on
mental health coverage in conventional, fee-for-service (indemnity) health plans. It also discusses
issues relating to the feasibility of parity under managed care. In the past decade managed care
has transformed the delivery of mental health care services. Employers and health plans now
frequently contract out administration of their mental health benefits to specialty managed
behavioral health care organizations. The report then reviews state mental health parity legislation
and compares the Senate and House versions of the latest full-parity legislation (S. 558 and H.R. th
1424) in the 110 Congress. It concludes with a discussion of some of the key issues in the
ongoing congressional debate on mental health parity and discusses why parity may not be

5 U.S. Dept. of Health and Human Services, Mental Health: A Report of the Surgeon General. Available at
http://www.surgeongeneral.gov/library/mentalhealth/home.html.
6 http://www.samhsa.gov/spendingestimates/chapter3.aspx.
7 The estimated indirect economic cost of mental illness in 1994 included $88.3 billion in lost productivity due to
illness; $16.5 billion in discounted (at 6%) lifetime productivity losses as a result of premature death; and $7.8 billion
in other related costs, including those associated with crime and incarceration, social welfare administration, and family
care giving.





enough to provide equivalent financial protection and access to quality care for persons with
mental disorders.
Appendix A provides a side-by-side comparison of the key provisions in the engrossed versions
of S. 558 and H.R. 1424. Appendix B summarizes state mental health parity laws. Appendix C th
lists, by committee, the mental health parity hearings since the 106 Congress. Finally, Appendix
D provides websites and annotations of various patient advocacy groups and professional
associations that have taken a position on mental health parity.

Most mental health care used to be delivered and financed by state-run institutions that provided
medical treatment, room and board, and vocational activities for individuals with severe
psychiatric disorders. In the 1960s, the role of state governments in mental health began to
diminish as alternative forms of outpatient and community-based care gradually replaced
institutional care. The mental health system over time started to resemble the general health care
system, financed by a combination of private and public insurance. However, private insurance
coverage for mental health care no longer included some of the nonmedical services provided by
state institutions, such as accommodation and employment. In addition, mental health coverage
tended to be more restrictive than the coverage for physical illnesses and surgery and include a
higher level of cost sharing. The lack of parity in insurance coverage in part reflected insurers’
concerns that the costs of mental health care were high and unpredictable. Insurers argued that
mental disorders were difficult to define, and that treatments involving long-term, intensive
psychotherapy and extended hospital stays were expensive and often ineffective.
Although stigma has played and continues to play an important role in the mental health care
debate, differences in insurance coverage of mental illnesses and other medical conditions are
also the result of important economic factors. Studies of indemnity insurance have found that the
moral hazard problem is more pronounced for mental health care than it is for general medical
care. Moral hazard refers to the tendency for patients to demand more services as the price they
pay for those services declines. While health insurance, in general, creates incentives for overuse
by insulating patients from the total costs of care, research shows that the demand response to
reduced cost sharing in mental health care is approximately twice as large as that observed in 9
general medical care. The result has been for insurers to impose higher cost sharing for mental
health care.
Insurers have also restricted their mental health coverage to protect themselves from adverse
selection. Adverse selection refers to the tendency for health plans with generous coverage
provisions to attract sick (i.e., high-cost) enrollees. The evidence suggests that adverse selection
may be an especially powerful force in mental health care. Studies indicate that individuals with 10
mental illness select health plans that offer more generous mental health coverage. Such

8 For a detailed discussion of the economics of mental health, see Richard G. Frank and Thomas G. McGuire,
Economics and Mental Health,” in Handbook of Health Economics, v. 1B, ed. Anthony J. Culver and Joseph P.
Newhouse (Amsterdam: Elsevier, 2000).
9 J.P. Newhouse and the Insurance Experiment Group, Free for All? Lessons from the RAND Health Insurance
Experiment (Cambridge, MA: Harvard University Press, 1993).
10 For example, see P. Deb et al., “Choice of Health Insurance by Families of the Mentally Ill.” Health Economics, v. 5,
1996, pp. 61-76.





behavior can create a strong economic incentive for health plans to reduce their attractiveness to
users of mental health care.
While competition among plans to avoid enrolling high-risk individuals may represent a good
strategy for an individual plan, health economists argue that it is wasteful and inefficient for the
health insurance system as a whole. Competition among indemnity insurance plans is seen as an
important factor in reducing the level of coverage for mental health care. During the 1970s and
1980s, this argument was used to justify federal and state mandated benefit laws that required
insurers to cover minimum levels of mental health care (see below). Some health economists
claim that parity can improve the efficiency of insurance markets by reducing wasteful forms of
competition that are the result of adverse selection. These commenters note that requiring parity
for mental health benefits establishes a uniform “floor” of mental health coverage across all
plans. Supporters of parity maintain that studies show that implementing parity through managed
mental health care will not lead to a significant increase in costs to the insurers.

The movement to establish parity for mental health care has been fueled by changes in the
scientific understanding of mental illness and the rapid increase in managed behavioral health
care (i.e., mental health and substance abuse treatment). Recently revised estimates suggest that
about 15% of the adult U.S. population (approximately 30 million individuals) are affected by a 11
clinically significant mental disorder in any given year. Clinicians are often able to diagnose
mental illness with precision, and effective treatments now exist for many psychiatric conditions.
Some studies show that the effectiveness of treatments for major mental disorders, which
typically involve a combination of medication and psychotherapy, often match or exceed the 12
effectiveness of common treatments for physical illness. As noted earlier, proponents of parity
argue that untreated and undertreated mental illness has a major impact on the economy and costs
employers tens of billions of dollars annually in lost productivity.
Health plans frequently subcontract, or carve out, to managed behavioral health care
organizations (MBHOs) the management of the mental health (and substance abuse) component
of their benefits package. Over the past few years, behavioral carve-outs have become central to 13
the delivery and payment of mental health care. Nearly three-quarters of Americans with health
insurance are covered by managed health benefits. SAMHSA has published a report that explores
the current design and administration of mental health coverage. The report lays out the necessary
components of an adequate mental health benefit by examining the evidence-base for particular
benefits; effect on access, utilization, and costs; the components of a cost-effective mental health 14
benefit package; and the effects of benefits administration on effectiveness.

11 William E. Narrow et al., “Revised Prevalence Estimates of Mental Disorder in the United States,” Archives of
General Psychiatry, v. 59, 2002, pp. 115-123.
12 The National Institute of Mental Health http://www.nimh.nih.gov estimates the following success rates for treating
major mental disorders: schizophrenia (60%); clinical depression (70%-80%); and panic disorder (70%-90%).
13 More information may be found on the website of the American Managed Behavioral Healthcare Association, whose
members are responsible for managing mental health and substance abuse services in the public and private sector for
more than 110 million individuals, at http://www.ambha.org.
14Sethi R. et al., “Designing Employer-sponsored Mental Health Benefits, SAMHSA Center for Mental Health
Services, 2006.





Managed care is changing the way in which mental health services are provided. Whereas
conventional fee-for-service insurance controls the demand for services primarily through cost
sharing (e.g., deductibles, co-payments) and treatment limitations, MBHOs influence the
treatment decisions of mental health care providers through a variety of techniques, including
financial incentives, greater emphasis on preventive medicine, development of treatment
protocols, and prior authorization of certain services. Cost sharing and coverage limits assume
less importance under managed care, which seeks to control moral hazard by internal rationing
methods, rather than having to rely on demand-side cost sharing.
The introduction of managed mental health care can reduce spending and in some cases increase
plan usage. For example, Pacific Bell lowered its mental health expenditures by 13% when it 15
implemented managed behavioral health care in the early 1990s. The cost reduction was not
attributable to decreased initial access to care. The number of persons using any mental health
care actually increased following the change. Instead, the cost reduction was the result of fewer
outpatient sessions per patient, a reduced likelihood of inpatient admission, a reduction in the
length of stay for those admitted as inpatients, and significantly lower costs per unit of service
delivered. Massachusetts saw a 25% decline in behavioral health care costs for state employees as 16
a result of introducing managed care in 1993.
Studies also suggest that MBHOs are able to control the costs associated with mental health
parity. In 1996, estimates of the cost of implementing full parity ranged as high as 11% of the
total health care premium, which led Congress to limit parity-level benefits in the MHPA. But
those estimates did not adequately reflect the impact of managed care and increased use of
psychotropic drugs and short-term psychotherapeutics on controlling costs. More recent studies in
states that have enacted full-parity laws for mental health coverage provided by managed care 17
plans found that premium increases have been modest. Magellan Health Services, the nation’s
largest MBHO covering nearly 70 million individuals, reported that it had yet to see a premium
cost increase of more than 1% as a result of implementing state mental health parity legislation.
At a 2001 Robert Wood Johnson Foundation workshop on the costs of mental health parity,
actuaries, economists, and government officials discussed the assumptions and methods used in
calculating parity cost estimates. There was broad agreement among the workshop participants
that the baseline level of mental health spending has decreased significantly as a result of changes
in clinical practice (e.g., use of psychotropic drugs and short-term psychotherapies) and the
growth of managed care. Baseline mental health spending is often represented by the share of the
total health insurance premium spent on mental health services without parity. Changes in
premium costs that result from parity are then expressed as a percentage change in baseline.
Workshop participants were also in agreement that managed care has had an important affect on
the impact of parity laws. Managed care plans have responded to the expansion of benefits under
parity by tightening their internal controls on the use of mental health services so as to dampen 18
any increase in demand and premiums.

15 William Goldman et al., “Costs and Use of Mental Health Services Before and After Managed Care, Health Affairs,
v. 17, 1998, pp. 40-52.
16 Ching-to Albert Ma and Thomas G. McGuire, “Costs and Incentives in a Behavioral Health Carve-Out,Health
Affairs, v. 17, 1998, pp. 53-69.
17 Studies in Vermont, Maryland, and Minnesota show that the cost impact of full parity is 1-2%. Details of the studies
are available at the American Psychological Association’s website at http://www.apa.org/practice/parity_cost.html.
18 Robert Wood Johnson Foundation, Estimating the Costs of Parity for Mental Health. Available online at
(continued...)






States began to address inequities in mental health coverage in the 1970s. More than a dozen
states enacted laws requiring health plans operating within the state to offer a specific set of
mental health benefits. While these mandated-benefit laws increased coverage, they had
important limitations. They seldom provided catastrophic coverage against the financial risk of
severe mental illness and they did not apply to self-insured employers, which are exempt from
state regulation under the Employee Retirement Income Security Act (ERISA).
In 1991, Texas and North Carolina became the first states to enact mental health parity legislation.
Both state laws were limited in their scope and applied only to insurers that covered state and
local government employees. By 1996, when federal parity legislation was enacted (see below), a
total of seven states had passed laws that required certain specified state-regulated health plans to
provide full-parity mental health coverage. Since then, more than a dozen other states have passed
similar legislation, bringing to 28 the total number of states that now mandate mental health
coverage with full parity.
State laws that mandate full-parity mental health benefits vary in the types of health plans
covered and also in the types of mental illnesses they cover. In 15 states, the laws apply both to
group health plans and to the individual health insurance market, whereas in another 9 of these
states they apply only to group plans. In the remaining four states, the laws apply only to state-
employee plans. In 12 of the states with full parity laws, the laws apply to the treatment of all the
conditions listed in the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition 20
(DSM-IV). The other parity laws restrict coverage to specified “serious” or “biologically based”
mental illness (e.g., schizophrenia, depression, bipolar disorder). About one-third of the state
parity laws exempt small employers, typically those with 50 or fewer employees.
In addition to the 28 states that have enacted full parity legislation, 6 states have passed laws
mandating a certain minimum level of mental health benefits (but not full parity). Fourteen other
states have passed so-called mandated offering laws, under which covered plans that choose to
offer mental health coverage must provide a specified minimum level of benefits. The bills
currently introduced in the House and Senate are mandated offering laws. See Appendix B for a
summary of state parity laws.
New Jersey, which in 1999 enacted a full parity law that covers both group plans and the
individual market, recently passed legislation that requires individual carriers to offer a policy
with minimum mandated mental health benefits. Those benefits include coverage for 90 days of
inpatient treatment with a $500 copayment per inpatient stay, and 30 days of outpatient treatment
with a 30% coinsurance. The new law does not replace the existing full parity mandate, but is
intended to provide individuals with a less expensive alternative to a policy with full-parity
coverage. The aim of the law is to allow individuals who might otherwise not be able to afford a

(...continued)
http://www.rwjf.org/publications/publicationsPdfs/parity_report.pdf.
19 Information on state mental health parity laws is based on data compiled by the National Conference of State
Legislatures’ Health Policy Tracking Service http://www.ncsl.org.
20 The DSM, produced by the American Psychiatric Association, is a comprehensive system of diagnosis for
psychiatric conditions. The fourth and current edition was published in 1995 and is available at http://www.psych.org/
research/dor/dsm/index.cfm.





policy with full parity to purchase insurance coverage. Texas has also enacted new legislation that
allows for the sale of less expensive health insurance policies without state mandates for the
treatment of mental illness. An insurer that offers such a policy must also provide at least one
policy with state-mandated health benefits.

The Mental Health Parity Act (MHPA) amended ERISA and the Public Health Service Act (PHS
Act) and established new federal standards for mental health coverage offered by group health 21
plans, most of which are employment based. Identical provisions were later added to the 22
Internal Revenue Code (IRC) by the Taxpayer Relief Act of 1997. The MHPA is not a full-parity
law. It requires equivalence in only one area: catastrophic coverage. The MHPA prohibits group
plans from imposing annual and lifetime dollar limits on mental health coverage that are more
restrictive than those imposed on medical and surgical coverage. Group plans may still impose
more restrictive treatment limitations or cost sharing requirements on their mental health
coverage compared to their medical and surgical coverage.
The MHPA includes several other important limitations. Group plans that choose not to provide
mental health benefits are not required to add them, and employers with 50 or fewer employees
are exempt from the law. In addition, employers that experience an increase in claims costs of at
least 1% as a result of MHPA compliance can apply to the Department of Labor for an exemption.
The MHPA standards apply to private-sector, employer-sponsored group health plans, including
fully insured and self-insured plans, but not to the individual (nongroup) health insurance market.
They also apply to the Federal Employees Health Benefits Program and to some state and local
government health plans. Under provisions included in the 1997 Balanced Budget Act (P.L. 105-

33), Medicaid managed care plans and State Children’s Health Insurance Programs also have to 23


comply with the requirements of the MHPA. The MHPA does not apply to Medicare.
In 1999, the General Accounting Office (GAO) reviewed the extent to which employers were 24
complying with the MHPA and how they had revised their health plans. GAO surveyed 863
employers in 26 states without full parity laws. While 86% of the employers reported compliance
with the MHPA, a majority of these plans (87%) restricted their mental health coverage in other
ways. For example, about two-thirds of MHPA-compliant plans covered fewer outpatient visits
and hospital days for mental health treatment than for other medical treatment. Surveys by the
Labor Department and the Centers for Medicare & Medicaid Services found similar results.
Many plans that had to increase annual and lifetime dollar limits to comply with the MHPA
reportedly introduced other more restrictive mental health design features to mitigate the financial
impact of the law’s more generous dollar limits. Despite concerns about the MHPA’s effect on
claims costs, only 3% of employers surveyed by GAO reported that their costs had increased, and
less than 1% of surveyed employers dropped their mental health coverage altogether following

21 P.L. 104-204, Title VII, codified at 29 U.S.C. 1185a and 42 U.S.C. 300gg-5.
22 P.L. 105-34, Section 1531(a)(4), codified at 26 U.S.C. 9812.
23 42 U.S.C. 1396u-2(b)(8); 42 U.S.C. 1397cc(f)(2).
24 U.S. General Accounting Office, Mental Health Parity Act: Despite New Federal Standards, Mental Health Benefits
Remain Limited, GAO/HEHS-00-95, May 10, 2000.





the law’s enactment. It is difficult to gauge the impact of the MHPA’s increased dollar limits,
however, because many plans took steps to counter increases in claims costs by restricting mental
health coverage in other ways.
Though limited in its scope, the MHPA nevertheless appears to have added momentum to the
passage of state parity laws. All states, except Wyoming, have passed some form of parity
legislation since the federal law was enacted in 1996. Some states passed parity laws that
essentially mirrored the MHPA, and later strengthened the laws to exceed the provisions of the
federal law.
The MHPA originally sunset on September 30, 2001. In three separate legislative actions, the th

107 Congress extended the MHPA through the end of 2003. Title VII of the FY2002 Labor-


HHS-Education appropriations bill (H.R. 3061, P.L. 107-116) reauthorized the MHPA in all three
federal statutes through December 31, 2002. Section 610 of the Job Creation and Worker
Assistance Act of 2002 (H.R. 3090, P.L. 107-147) further amended the MHPA provisions in the
IRC—but not in ERISA or the PHS Act—by extending the authorization an additional year
through December 31, 2003. Finally, the Mental Health Parity Reauthorization Act of 2002 (H.R.
5716, P.L. 107-313) reauthorized the MHPA provisions in ERISA and the PHS Act through
December 31, 2003.
The 108th Congress extended the MPHA through the end of 2005. First, the Mental Health Parity
Reauthorization Act of 2003 (S. 1929, P.L. 108-197) reauthorized the MHPA through December

31, 2004. The bill amended the MHPA provisions in ERISA and the PHS Act, but not the IRC.


Section 302 of the Working Families Tax Relief Act of 2004 (H.R. 1308, P.L. 108-311)
reauthorized the MHPA through December 31, 2005. P.L. 108-311 amended the MHPA
provisions in all three statutes.
The 109th Congress extended MPHA through the end of 2007. In the first session of the 109th
Congress, the Employee Retirement Preservation Act (H.R. 4579, P.L. 109-151) extended the
provisions requiring mental health parity in ERISA, the PHS Act, and the IRC through 2006. In
the second session, Section 115 of the Tax Relief and Health Care Act of 2006 (H.R. 6111, P.L.

109-432) extended the MPHA provisions in all three statutes through 2007.


The second session of the 110th Congress extended MHPA through the end of 2008. On June 17,

2008, Sec. 401 of the Heroes Earnings Assistance and Relief Tax Act of 2008 (P.L. 110-245, H.R.


6081) passed an extension of MHPA through the end of 2008. The law amends ERISA, the PHS
Act, and the IRC.

By amending all three federal statutes (i.e., ERISA, the PHS Act, and the IRC), the MHPA
standards apply to a broad range of group health plans, as well as state-licensed health insurance
organizations. The ERISA provisions apply to most group plans sponsored by private-sector
employers and unions. The IRC provisions, which cover ERISA plans plus church-sponsored
plans, permit the Internal Revenue Service to assess tax penalties on employers that do not
comply with the MHPA requirements. The PHS Act provisions apply to insurers and some public-
sector group health plans. Self-insured state and local government health plans may elect
exemption from the MHPA





Although states have taken on primary responsibility for the enforcement of many of the
mandates as they apply to health insurers, other enforcement actions are available to the
Secretaries of the Department of Labor, Department of Health and Human Services, and the
Internal Revenue Service. The enforcement provisions that apply through the MHPA (ERISA,
Tax Code, and PHSA) are described more specifically below.
Tax penalties for violations of federal health mandates take the form of excise taxes that are
imposed on employers or, in the case of multiemployer plans, on the health plans. The excise tax
for violations of certain group health plan requirements of the MHPA is specified in section

4980D of the Code. The taxes are payable to the U.S. Treasury.


In general, the excise taxes are $100 per day of noncompliance for every qualified beneficiary.
When violations are discovered after notice of examination, the minimum tax is $2,500, or
$15,000 if violations are more than de minimus. The minimum tax does not apply to church
plans. When violations are due to reasonable cause and not willful neglect, the maximum tax
during a taxable year cannot exceed the lesser of $500,000 or the employer’s group health plan
expenses for the prior year. In addition, when violations are due to reasonable cause and not
willful neglect, the Secretary of the Treasury may waive part or all of the tax if payment would be
excessive relative to the failure involved. No taxes apply if failures were not discovered when
exercising reasonable diligence or if failures are corrected within certain periods.
Governmental plans are not subject to the excise taxes. In addition, with respect to violations of
HIPAA’s prohibition against discrimination based on health status, certain small church-
sponsored plans are not subject to penalties.
Section 502 of ERISA establishes a civil enforcement scheme for violations of the statute. In
general, ERISA provides only for the recovery of benefits due to a participant or beneficiary
under the terms of a plan, or for declaratory or injunctive relief. Courts have uniformly held that
other monetary or damage remedies are not available.
Enforcement of group health provisions is described in Section 2722 of the PHSA as established
by Section 102 of HIPAA. In cases in which HHS is required, because states have not taken on
this responsibility, to enforce group market rules regarding preexisting condition exclusion
periods, discrimination, guaranteed availability and renewability, and information disclosure, the
Secretary may impose civil money penalties on non-conforming health insurance plans. The
penalties available include $100 per day for each day and for each individual when such a failure
occurs. In imposing the penalty, the Secretary may consider the previous record of compliance of
the entity being assessed. There are limitations on this penalty as well. Penalties cannot be
applied for failures that are corrected within 30 days of discovery and under other limited





circumstances. In addition, the entity assessed may request an administrative review consisting of
an initial hearing and judicial review and appeal.
Little information is available on enforcement actions related to MHPA by the three agencies.
A 2003 publication available from the Pension and Welfare Benefits Administration (PWBA) of
the Department of Labor, however, summarizes some of the enforcement activity as part of a
2001 compliance project. The project was undertaken to give the Agency a baseline for assessing
compliance with the health mandates. PWBA conducted 1,267 investigations of group health
plans during 2000-2001 for compliance with 42 specific requirements of the health laws. At that
time, just over one-third of plans were out of compliance with at least 1 of 36 substantive
provisions of the new laws. Compliance rates dropped further when six provisions requiring plan
sponsors to provide notice to enrollees for various reasons were calculated into the rates. As a
result of this work, the department initiated a program to help employer plans come into
compliance with the laws. The program included additional publications and educational
materials, a Web page devoted to compliance assistance, and live workshops around the country.
The HHS Centers for Medicare and Medicaid Services were unable to provide information on the
use of the civil enforcement penalties under the PHSA. A spokesman for the agency pointed out
that such information has not been made publically available to date.
Similarly, a contact at the Internal Revenue Service informed CRS that tax penalties are not
tracked in a manner that would allow the separate identification of amounts assessed or collected
only under sections 4980B and 4980D of the tax code.

At the White House Conference on Mental Health in June 1999, President Clinton directed the
federal Office of Personnel Management (OPM) to implement full parity for both mental health
and substance abuse benefits in health plans offered under the Federal Employees Health Benefits
Program (FEHBP) beginning in 2001. The FEHBP parity requirement covers medically necessary
treatment for all categories of mental illness listed in the DSM-IV. According to the OPM, parity
implementation resulted in an average premium increase of 1.64% for fee-for-service plans and

0.3% for HMOs. FEHBP health plans are providing mental health coverage in a variety of ways.


Some plans are using the services of managed behavioral health care organizations, while others
are managing their own provider networks. Under FEHBP, mental health parity is required only
for services provided on an in-network basis. In-network generally refers to a contracted group of
providers established by a managed health care organization and/or an insurance carrier. OPM
and the Department of Health and Human Services are conducting a three-year evaluation of the 25
FEHBP parity initiative.

25 Additional information on FEHBPs implementation of mental health parity may be found on the OPM’s website at
http://www.opm.gov/insure/health/consumers/parity.asp.





A recently published study comparing FEHB plans with health plans outside FEHBP that did not
mandate parity concluded that implementation of parity in insurance benefits for mental health
and substance abuse, when coupled with management of care, resulted in little or no significant
adverse impact on access, spending, or quality, while providing users of behavioral health care 26
with improved financial protection in most instances. The researchers analyzed plan benefits
data for seven FEHB plans both before (1999 and 2000) and after (2001 and 2002) the
introduction of parity. Changes in access, utilization, and cost were compared to changes over the
same time period in a matched set of non-FEHB comparison plans (mostly large, self-insured
employers). The analysis indicated that the observed increase in the rate of use of mental health
and substance abuse services in FEHB plans after implementation of the parity policy was due 27
almost entirely to a general trend in increased use that was observed in the comparison plans.
Furthermore, compared to spending trends observed in the non-FEHB plans, the implementation
of parity was associated with significant reductions in out-of-pocket spending in five of the seven 28
FEHB plans.


On February 12, 2007, Senators Domenici and Kennedy introduced the Mental Health Parity Act
of 2007 (S. 558) to amend and expand the MHPA by requiring employer-sponsored group health
plans to impose the same treatment limitations and financial requirements on their mental health
coverage as they do on their medical and surgical coverage. This bill would amend ERISA and
the PHS Act. The bill was referred to the Senate Health, Education, Labor, and Pensions
Committee, where it was marked up on February 14, 2007 (S.Rept. 110-53). The Senate passed S.

558, with an amendment, by voice vote on September 18, 2007. On March 7, 2007,


Representatives Kennedy and Ramstad introduced the Paul Wellstone Mental Health and
Addiction Equity Act (H.R. 1424), which would amend ERISA, the PHS Act, and the IRC. On
July 18, 2007, the House Education and Labor Committee approved H.R. 1424, with an
amendment. The measure, as amended, was approved by the House Ways and Means Committee
on September 26, 2007, and by the House Energy and Commerce Committee on October 16,

2007 (H.Rept. 110-374). The House passed H.R. 1424 by a roll call vote of 268-148 on March 5,


2008.


H.R. 1424 and S. 558 do not mandate full parity. Like the MHPA, they apply only to group plans
that choose to offer mental health coverage. H.R. 1424, which is modeled on the parity
requirements in the FEHBP, covers the treatment of all psychiatric conditions listed in the DSM-
IV. On the other hand, S. 558‘s parity provisions apply only to conditions that the health plan
chooses to cover. Both bills would extend parity to in-network and out-of-network mental health

26 Howard H. Goldman, Richard G. Frank, Audrey Burnam, Haiden A Huskamp, Susan Ridgely, Sharon-Lise T.
Normand, Alexander S. Young, Colleen Barry, Vanessa Azzone, Alisa B. Busch, Susan T. Azrin, Garrett Moran,
Carolyn Lichtenstein, Margaret Blasinsky, Behavioral Health Insurance Parity for Federal Employees, New England
Journal of Medicine, 354; 13, March 30, 2006, pp. 1378-1386.
27 Samuel H. Zuvekas, Agnes E. Rupp, Grayson S. Norquist, The Impacts of Mental Health Parity and Managed Care
in One Large Employer Group: A Reexamination, Health Affairs, v. 24, no. 6, 2005, pp. 1668-1671.
28 Colleen L. Barry, Richard G. Frank, Thomas G. McGuire, The Costs of Mental Health Parity: Still an Impediment?,
Health Affairs, v. 25, no. 3, 2006, pp. 623-634.





benefits. Both bills also exempt small employers with 50 or fewer employees. In an effort to
address some of the concerns of the health insurance industry, H.R. 1424 includes language
permitting employers and health plans to manage mental health benefits and cover only those
treatment services that are medically necessary. Finally, the bills require GAO, within two years,
to evaluate the impact of the new federal parity standards on access to insurance coverage and on
insurance costs.
There are two key differences between the House and Senate parity bills. The first difference is
that the Senate version would allow insurance companies to determine which mental illnesses
they cover, whereas the House version would require coverage for all mental illnesses (see
discussion below). The second key difference is that the Senate version does not explicitly
address preemption of state mental health parity laws, whereas the House version explicitly states
that it does not preempt state mental health parity laws. For an analysis of the differences between
the House and Senate parity bills, see Appendix A. Unlike previous versions of expanded parity th
legislation, the House and Senate versions in the 110 Congress include parity for substance
abuse treatment services. Another difference between the Senate bill and the previous parity bills
is that S. 558 has the support of insurance companies and employers.
Bills that would amend Title XXI of the Social Security Act to provide for equal coverage of
mental health services under the State Children’s Health Insurance Program passed in the House
on August 1, 2007 (H.R. 3162), and in the Senate on August 3, 2007 (H.R. 976).
Senators Domenici and Wellstone first introduced the Mental Health Equitable Treatment Act (S.
543) on March 15, 2001. In its June 2000 report to Congress, the National Advisory Mental
Health Council (NAMHC) estimated that full parity similar to that provided by S. 543 would
raise premium costs by 1.4%, adding that this figure may overestimate the true cost of parity
because the forecasting models did not reflect the most recent changes in managed care.
Pricewaterhouse Coopers concluded that S. 543 would result in a 1% increase in costs, or $1.32 29
per enrollee per month. CBO estimated that, on average, S. 543 would increase premiums for 30
group health plans by 0.9%.
On August 1, 2001, the Senate Health, Education, Labor, and Pensions (HELP) Committee
approved a substitute version of S. 543 (S.Rept. 107-61), which retained most of the major
components of the original bill including the full-parity requirement. On October 30, 2001, the
Senate added S. 543 as an amendment to the FY2002 Labor-HHS-Education appropriations bill
(H.R. 3061). The House version of the Labor-HHS-Education appropriations bill did not include
any parity language. During the conference on H.R. 3061, House conferees rejected the Senate
amendment on a party-line vote. Unable to agree on new federal parity standards, the conference
voted to reauthorize the MHPA through December 31, 2002. Conferees added language to the
conference report (H.Rept. 107-350) “strongly urging the committees of jurisdiction in the House
and Senate to convene early hearings and undertake swift consideration of legislation to extend th
and improve mental health parity protections during the second session of the 107 Congress.”

29 Ronald E Bachman, An Actuarial Analysis of S. 543: Mental Health Equitable Treatment Act of 2001. Prepared for
the American Psychological Association (July-August 2001).
30 CBO’s estimates are at http://www.cbo.gov/showdoc.cfm?index=3013&sequence=0.





The House Education and the Workforce Subcommittee on Employer-Employee Relations held a
hearing on mental health parity on March 13, 2002, followed by a House Energy and Commerce
Health Subcommittee hearing on July 23, 2002. On March 20, 2002, Representative Roukema
introduced the Senate parity legislation in the House (H.R. 4066), but there was no further th
legislation action taken before the 107 Congress adjourned.
Representatives Patrick Kennedy and Jim Ramstad, and Senators Domenici and Kennedy
introduced full parity legislation on February 27, 2003, which included the same language as S. th
543, as reported by committee, in the 107 Congress. During the second session, Senator Daschle
introduced the Paul Wellstone Mental Health Equitable Treatment Act of 2003 on November 6,

2003. This bill bears the name of the late Senator Paul Wellstone, who was killed in a small plane th


crash on October 25, 2002. No further legislative action was taken on this bill in the 108
Congress.
The Paul Wellstone Mental Health Equitable Treatment Act of 2005 was again introduced by
Representatives Patrick Kennedy and Jim Ramstad on March 17, 2005. No legislative action was th
taken on this bill during the 109 Congress, and no corresponding legislation was introduced in
the Senate.
For a more detailed legislative history of these bills, see CRS Report RL33820, The Mental
Health Parity Act: A Legislative History, by Ramya Sundararaman and C. Stephen Redhead.
Federal full-parity legislation has staunch support among patient advocates and mental health
provider organizations, who see it as an important step in eliminating what they characterize as
inappropriate discrimination in private health insurance coverage of mental illness. But groups
representing employers and the health insurance industry strongly oppose the legislation on the
grounds that it will add significantly to the dramatically rising costs of health care. They argue
that employers cannot afford to spend more money on health insurance coverage for their
employees in the current economic climate. They contend that parity costs would likely take the
form of increased cost sharing for all covered benefits, reductions in other health care coverage,
and/or the elimination of health coverage entirely, which would lead to an increase in the number
of uninsured.
Proponents of parity legislation counter that full parity does not significantly increase costs under
managed care. They argue that parity can in fact reduce costs to employers by improving
productivity and reducing absenteeism. Furthermore, they claim that full-parity coverage lowers
overall health care expenditures by eliminating the need for medical care and emergency room
visits that result if mental illnesses are left untreated. Some large employers have reported that
parity in mental health benefits has had a net positive financial impact. As an example, they cite
Delta Airlines. Delta increased mental health benefits for its 69,000 employees in 1994, when it
switched to managed care. Use of mental health services increased but costs remained flat. 31
Spending in other areas of health care declined and employees missed less work.

31 Grazier K, Pollack H, “Viewing employer-based behavioral health services research in the context of public policy,
paper presented at 128th American Public Health Association Annual Meeting, November 2000.





The Congressional Budget Office (CBO) scored S. 558 and H.R. 1424 and estimated that, if 32
enacted, both bills would increase health insurance premiums by 0.4%.
Employers and health insurers are especially concerned about the broad definition of mental
illness in H.R. 1424. They believe that federal parity legislation should cover only serious mental
illnesses or illnesses that have been shown to be related to the biological functioning of the brain
(e.g., schizophrenia, bipolar disorder), as do many state laws. S. 558, which covers only mental
illnesses that are specifically included by the health plan, has the support of employers and health
insurers. Critics of H.R. 1424 claim that extending coverage to all the mental disorders listed in
the DSM-IV opens the door to dubious complaints of less serious problems by the “worried
well.” They object to providing coverage for many of the conditions that are classified as mental
disorders in the DSM-IV (e.g., academic skills disorders, sexual desire disorders) because they
are not seen as medically significant.
Parity supporters view opposition to providing coverage of all DSM-IV disorders as stemming, in
part, from stigma and the mistaken belief that mental illness does not have a physiological basis.
They claim that restricting mental health coverage to a few specified psychiatric conditions is no
different than having medical benefits that cover only serious physical disease such as cancer and
heart disease. They argue that covering all the DSM-IV disorders is unlikely to lead to abuse or
inflated costs for two reasons. First, H.R. 1424 does not prevent plans from managing mental
health benefits through such practices as utilization review, preauthorization, the application of
medical necessity and other appropriateness criteria, and through the use of provider networks.
Second, the DSM-IV establishes a threshold for diagnosis by requiring evidence of “clinically
significant impairment or distress.” Any claims for treatment of a patient with a mental health
condition that was not serious enough to meet that threshold could be excluded on the basis of
medical necessity. Advocates of mental health parity also assert that restricting coverage to a few
major mental illnesses is penny-wise and pound-foolish. They point out that milder forms of
emotional illness often worsen into more serious psychiatric disorders, if left untreated.

National employer survey data indicate that despite the passage of state parity laws and changes
in the delivery of mental health services, mental health coverage is still not offered at a level
comparable to coverage for other medical conditions. A recent analysis of the 2002 Kaiser Family
Foundation/Health Research and Educational Trust (KFF/HRET) Employer Health Benefits
Survey found that overall 98% of workers with employer-sponsored health insurance had 33
coverage for mental health care. However, 74% of those covered workers were subject to an

32 Congressional Budget Office (CBO), Cost Estimate, H.R. 1424 Paul Wellstone Mental Health and Addiction Equity
Act of 2007, September 2007, available at http://www.cbo.gov/ftpdocs/86xx/doc8608/hr1424.pdf. Congressional
Budget Office (CBO), Cost Estimate, S. 558 Mental Health Parity Act of 2007, March 2007, available at
http://www.cbo.gov/ftpdocs/78xx/doc7894/s558.pdf.
33 Colleen L. Barry et al., “Design of Mental Health Benefits: Still Unequal After All These Years,” Health Affairs v.
(continued...)





annual outpatient visit limit, and 64% were subject to an annual inpatient day limit. The
proportion of covered workers subject to annual mental health day and visit limits appears to have
increased over the past few years. In contrast, the survey found only 22% of covered workers had
higher cost sharing (i.e., copayment or coinsurance) for mental health benefits. This suggests that
health plans are relying less on higher cost sharing as a means of limiting the use of mental health
services.
The 2002 KFF/HRET survey data indicate that about one-third of workers with employer-
sponsored health insurance receive their mental health care through carve-outs. Surprisingly, the
investigators found relatively little difference in the nominal mental health benefits (i.e., the
treatment limitations and cost sharing requirements spelled out in the insurance contract) under
carve-outs versus integrated health plans. Carve-outs and integrated plans had similar limitations
on the number of inpatient days and outpatient visits. There was also no significant difference in
the percentage of covered workers with higher cost sharing for outpatient mental health services
in carve-outs compared to integrated plans.
Given that MBHOs incorporate supply-side utilization controls rather than relying solely on cost
sharing and benefit limits to lower demand, one might expect them to expand mental health
benefits while maintaining control over costs. But the KFF/HRET survey data indicate that carve-
outs continue to impose special limits and substantial cost sharing on mental health. Some
researchers hypothesize that a lack of employer education about the cost advantages of behavioral
mental health care management, minimal risk sharing under many carve-out contracts, or a
single-minded focus on cost containment could explain why mental health benefit limitations
persist. Lingering concerns about adverse selection could also play a role in the persistence of
benefit limits.
Overall, the 2002 KFF/HRET survey findings suggest that mental health parity may be difficult to
establish without broader (i.e., federal) parity laws. State parity laws have a limited impact
because they do not cover self-insured plans. ERISA exempts self-insured plans from state
regulation. About 52% of covered workers are in a self-insured plan, according to the KFF/HRET 34
survey.
Mental health analysts often argue that parity laws are an important step in improving the
efficiency and fairness of insurance coverage for mental illness. But many are concerned that
parity in nominal benefits for mental health care, by itself, is not sufficient to guarantee equal
access to high-quality care and equal levels of financial protection for people with mental
disorders. For one thing, many mental health services do not have any counterpart in general
medical care and are, therefore, unaffected by parity legislation because they do not have to be
included in covered benefits. Private insurance usually does not cover day-hospital care,
psychosocial rehabilitation, or residential treatment programs, all of which are seen as effective

(...continued)
22, 2003, pp. 127-137. The 2002 KFF/HRET survey sampled 2,014 randomly selected public and private employers
with three or more workers.
34 In a self-insured plan, the employer assumes direct financial responsibility for the costs of the workers’ medical
claims and pays the physicians and hospitals directly. Self-insurance is common among large employers with many
workers over which to spread the risk of costly claims.





components of mental health care. Moreover, health plans do not cover supervised housing or
employment for patients with chronic mental health conditions. Proponents of parity maintain
that taking a broader view of access to quality mental health care means encompassing a variety
of social-welfare services.
Advocates for the mentally ill worry that behavioral health carve-outs may not provide patients
with all the appropriate and medically necessary care. While managed behavioral health care has
proved effective at controlling the costs of full parity, patient advocates are concerned about
management decisions that may result in across-the-board reductions in treatment without regard
to clinical circumstances. MBHOs are under pressure to contain costs. The internal management
processes that they use to ration treatment are difficult to regulate. Even under federal and state
parity laws, MBHOs still retain wide latitude to manage coverage and control access to mental
health care in order to achieve cost-control goals. Managed care contacts, with their complex
internal rationing devices, are more remote from regulation than the traditional fee-for-service
contracts.
MBHOs maintain that by lowering costs and offering parity-level benefits, patients have greater
access to treatment at an earlier point in the development of their illness. This, in turn, they hold,
results in less suffering and lower costs associated with that treatment. Moreover, they point to
studies that have shown that early, effective treatment of mental illness leads to lower medical
costs generally, lower disability costs, and less absenteeism in the workplace. But critics of
behavioral carve-outs contend that the managed care tools employed by MBHOs are widening the
gap between a plan’s nominal benefits and the care actually received by patients. In contrast to
using a primary care physician as the gatekeeper to more specialized care, which is a model
commonly employed in managed care, MBHOs use a larger range of techniques to manage
mental health care (e.g., concurrent utilization review by clinical care managers) and use a 35
different mix of providers and services.
The American Psychiatric Association and the American Medical Association (AMA) have
criticized carve-outs as discriminatory because they separate behavioral health care from
“mainstream” health care rather than integrating the two, thus reinforcing the notion that
behavioral health is somehow different from other medical conditions.
Results of the 1996-1998 Health Care for Communities (HCC) national survey relate to analysts’
concerns about the impact of parity on access to quality mental health care. The HCC survey
concluded that state parity laws have had no discernible impact on the overall use of mental
health services. The survey suggested that utilization of mental health care was no higher in parity
states than in states without such laws. HCC researchers said their survey supports the view that
the insurance market has responded to parity laws by increasing the management of care in order
to control costs. They analyzed the self-reported unmet needs among respondents seeking
treatment for mental health and substance abuse problems. When unmet needs was defined as
delays in receiving treatment or receiving less treatment than desired, significantly more
respondents in managed care reported unmet needs than those enrolled in indemnity insurance.
However, when unmet needs was defined as obtaining no care, those in managed care reported

35 Recent articles on the history and development of parity legislation and the impact of managed behavioral health care
include (i) Kevin D. Hennessy, and Howard H. Goldman, “Full Parity: Steps Toward Treatment Equity for Mental and
Addictive Disorders,Health Affairs, v. 20, 2001, pp. 58-67; (ii) Daniel P. Gitterman et al., “Toward Full Mental
Health Parity and Beyond,” Health Affairs, v. 20, 2001, pp. 68-76; and (iii) Richard G. Frank et al., “Will Parity in
Coverage Result in Better Mental Health Care?” New England Journal of Medicine, v. 345, 2001, pp. 1701-1704.





unmet needs less often. According to the HCC researchers, results of the survey reinforce 36
concerns about the impact of parity on access to quality health care.
A recent study of the implementation of Vermont’s 1998 parity law also found that the increased
use of managed care, while helping make health care more affordable, may have reduced access 37
and utilization for some services and beneficiaries. The study examined the experiences of the
state’s two largest health insurers—Kaiser/Community Health Plan (Kaiser/CHP) and Blue Cross
Blue Shield of Vermont (BCBSVT)—which together covered nearly 80% of Vermont’s privately
insured population at the time the parity law was implemented. Vermont’s parity law, one of the
nation’s most comprehensive, covers both mental health and substance abuse treatment services.
As a result of the law, both plans made changes to their management of mental health and
substance abuse (MH/SA) services. Managed care was an important factor in controlling costs
following implementation of parity. Before the parity law took effect, BCBSVT provided MH/SA
services mainly through indemnity contracts. After parity, most BCBSVT members received
those services through a managed care carve-out and reported a decline both in the likelihood of
obtaining mental health treatment and in the average number of outpatient visits. Kaiser/CHP,
which had managed care prior to the parity law, increased the use of partial hospitalization
treatment and group therapy and reduced the use of inpatient treatment. Overall, MH/SA
spending fell by 8-18% after parity was implemented, despite lower consumer out-of-pocket costs
and higher limits on the use of MH/SA care.
Finally, parity helps only people who have health insurance. It does not address the larger 38
questions concerning the 17.5% of the U.S. population with no health insurance.

36 Several RAND studies have analyzed the HCC data to see how parity legislation is affecting insurance coverage and
access to care for people with mental illness. Details of those studies are available online at http://www.rand.org/health.
37 Margo Rosenbach et al., Effects of the Vermont Mental Health and Substance Abuse Parity Law, DHHS Pub. no.
(SMA) 03-3822. The study was conducted for SAMHSA by Mathematica Policy Research Inc. and released in
September 2003. It is available online at http://www.mentalhealth.samhsa.gov/publications/allpubs/sma03-3822/
default.asp.
38 Fronstin, Sources of health insurance and characteristics of the uninsured: analysis of the March 2000 current
population survey, Washington DC, Employee Benefits Research Institute, issue brief no. 228, 2000.







S. 558 (approved by Senate, 09/18/2007)a H.R. 1424 (approved by House, 03/05/2008)a Analysis of Differences
Laws amendedb ERISA Part 7 ERISA Part 7 House bill amends IRC, in addition to ERISA
PHSA Title XXVII PHSA Title XXVII IRC Chapter 100 and PHSA.
Type of parity Mandated offering. Mandated offering. No difference.
lawc
In-network and Parity provisions apply to both in- and out-of-Parity provisions apply to both in- and out-of-This is an important difference. While the
iki/CRS-RL31657out-of-network benefits network services by comparing the respective in-network and out-of-network mental health benefits network services by requiring plans to provide the respective in-network and out-of-network mental House bill requires plans to provide out-of-network benefits for mental health care if
g/wwith medical and surgical benefits. health benefits if they provide them for medical and the plan provides out-of-network benefits
s.orsurgical benefits. for medical and surgical care, the Senate bill
leakrequires parity for out-of-network benefits
only if a plan chooses to offer these benefits.
://wikiSubstance If a plan offers substance abuse treatment, then the If a plan offers substance abuse treatment, then the No difference.
httpabuse provisions of the Act apply to the substance abuse provisions of the Act apply to the substance abuse
treatment services as well. services as well.
services
Exemptions Exempts small employers with 50 or fewer Exempts small employers with 50 or fewer No difference.
employees, as well as employers that experience an employees, as well as employers that experience an
increase in claim costs of at least 2% in the first increase in claim costs of at least 2% in the first plan
plan year and 1% in subsequent years. year and 1% in subsequent years.
Parity
provisions
Treatment No more restrictive than that applied to No more restrictive than that applied to No difference.


limits substantially all medical and surgical benefits. substantially all medical and surgical benefits.
Includes limits on the frequency of treatment, Includes limits on the frequency of treatment,
number of visits, days of coverage, or other similar number of visits, days of coverage, or other similar
limits on the scope or duration of treatment. limits on the scope or duration of treatment.


S. 558 (approved by Senate, 09/18/2007)a H.R. 1424 (approved by House, 03/05/2008)a Analysis of Differences
Financial No more restrictive than that applied to No more restrictive than that applied to No difference.
limits substantially all medical and surgical benefits. substantially all medical and surgical benefits.
Includes limits on deductibles, copayments, Includes limits on deductibles, copayments,
coinsurance, out-of-pocket expenses, and annual coinsurance, out-of-pocket expenses, and annual
and lifetime limits. Plans may not establish cost-and lifetime limit. Plans may not establish cost-
sharing requirements that are specific to mental sharing requirements that are specific to mental
health benefits. health benefits.
Medical Does not prevent medical management of mental Does not address medical management of mental This is an important difference. While the
management health benefits, including utilization review, health benefits. Senate bill explicitly allows plans to
authorization requirement, application of medical medically manage mental health benefits, the
necessity and appropriateness criteria, and the House bill does not address this issue.
contracting and use of provider networks.
Mental health Covers mental health services as defined under the The plan or coverage must all the mental illnesses This is a significant difference. Employers
services terms of the group plan. and addiction disorders listed in the Diagnostic and and insurance companies support the Senate
covered Statistical Manual (DSM). version, which does not require the plan to
provide parity coverage of all mental
iki/CRS-RL31657illnesses listed in the DSM. The House bill, by comparison, would require the plan to
g/wcover all mental illnesses listed in the DSM.
s.or
leakHHS regulations Requires HHS to issue regulations within one year. No provisions. The Senate bill restates existing authority for HHS and DOL. HHS is tasked with
://wikiDOL DOL to serve as an initial point of contact to No provisions. issuing regulations and DOL would serve as ombudsman. The House bill contains no
httpOmbudsman permit individuals to obtain information and provide assistance concerning coverage of mental comparable provisions.
health services under group health plans in
accordance with the Act.
Enforcement Requires HHS and DOL to conduct random audits The bill makes amendments to an IRC provision Both House and Senate bills make HHS and
of health plans to ensure compliance. that imposes a tax penalty of $100 per day per DOL responsible for ensuring compliance
beneficiary on employers who do not comply with because both amend ERISA and PHS Act.
the parity requirements of the Act. Unlike S. 558, H.R. 1424 also provides for
the assessment of excise tax penalties
because it amends IRC. Unlike the House
bill, the Senate version requires random
audits, thus implying active, rather than
passive enforcement.




S. 558 (approved by Senate, 09/18/2007)a H.R. 1424 (approved by House, 03/05/2008)a Analysis of Differences
GAO study Requires GAO to study the impact of Requires GAO to conduct (1) a study of the bill’s The House bill requires the GAO to
implementation of the Act on the cost of and impact on things such as health care costs, access to investigate a broader range of issues, which
access to health insurance coverage, the quality of coverage, quality of care, government spending on includes obstacle to obtaining care and
health care, the impact on benefits and coverage mental health and addiction treatment and other determination of medical necessity.
for mental health and substance abuse, the impact public services, and use of medical management by
of any additional cost or savings to the plan, and plans; (2) a biennial assessment of obstacles
the impact on state mental health benefit mandate beneficiaries face in obtaining appropriate care
law. GAO is required to report to Congress on under their health plans; and (3) a study of the
this study within two years. availability and use of uniform patient placement
criteria that can help guide health plans’
determinations of medical necessity.

Preemption of Does not address preemption of state laws, aside Does not preempt state parity laws. This is an important difference. While the
state parity law from that for small employees. House version explicitly states that it does
not preempt state parity laws, the Senate
version does not address this issue. Some
iki/CRS-RL31657experts believe that the Supremacy Clause of the Constitution may imply preemption
g/wof state parity laws by the federal law, unless
s.orthe issue is clarified in the law.
leak
a. S. 558 passed the Senate on September 18, 2007. H.R. 1424 passed the House on March 5, 2008.
://wikib. The Employee Retirement Income Security Act (ERISA) regulates employee benefit plans, including employer-sponsored group health plans. The Internal Revenue
httpCode (IRC) also covers group health plans (using a slightly broader definition than ERISA). The Public Health Service Act (PHSA) Title XVII applies to insurance
companies and managed care organizations and to non-federal government health plans.
c. Under a mandated offering law, health plans are not required to provide mental health benefits; however, plans that choose to provide mental health coverage must
provide the specified minimum level of mental health benefits.






Full Parity (i.e., covered plans must provide full-parity mental health benefits)
Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Iowa, Maine, Maryland,
Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, New York, North Carolina, New Mexico,
Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Vermont, Virginia, Washington, West
Virginia.
Minimum Mandated Benefits (i.e., covered plans must provide the specified minimum level of mental health
benefits, but not full parity)
Alaska, Michigan, Nevada, North Dakota, Pennsylvania, Tennessee, Texas.
Mandated Offering (i.e., if covered plans offer mental health coverage, they must provide the specified minimum
level of benefits)
Alabama, Arizona, District of Columbia, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Mississippi,
Missouri, Nebraska, Utah, Wisconsin.
Source: National Conference on State Legislatures, Health Policy Tracking Service.
Note: For a more detailed comparison of state mental health parity laws, see CRS Report RL33820, The Mental
Health Parity Act: A Legislative History, by Ramya Sundararaman and C. Stephen Redhead.






Senate Committee on Health, Education, Labor, and Pensions
May 18, 2000 Mental Health Parity
July 11, 2001 Achieving parity for mental health services.

House Committee on Education and Labor
March 13, 2002 Assessing mental health parity: Implications for patients and employers (Subcommittee on
Employer-Employee Relations)
July 10, 2007 Mental Health and Addiction Programs (Subcommittee on Health, Employment, Labor and
Pensions)
House Committee on Energy and Commerce
July 23, 2002 Insurance coverage of mental health benefits (Subcommittee on Health)
June 15, 2007 Mental Health and Addiction Equity (Subcommittee on Health)
House Committee on Ways and Means
March 27, 2007 Mental Health and Substance Abuse Parity (Subcommittee on Health)






• National Alliance for the Mentally Ill http://www.nami.org
• National Mental Health Association http://www.nmha.org
• Bazelon Center for Mental Health Law http://www.bazelon.org
• Suicide Prevention Action Network USA http://www.spanusa.org
• American Psychiatric Association http://www.psych.org
• American Psychological Association http://www.apa.org
• American Medical Association http://www.ama-assn.org
• American Managed Behavioral Healthcare Association http://www.ambha.org
• American Health Insurance Plans http://www.ahip.org
• ERISA Industry Committee http://www.eric.org
Ramya Sundararaman C. Stephen Redhead
Analyst in Public Health Specialist in Health Policy
rsundararaman@crs.loc.gov, 7-7285 credhead@crs.loc.gov, 7-2261