Federal Study Demonstrates Affordability of Parity

Legislation to ensure parity for mental health and substance abuse treatment got a boost last month from a new federal study demonstrating the low costs of parity.

Private insurance premiums would increase about 3.6 percent for full parity based on an aggregate of health plans including HMO's, fee-for-service, and preferred provider organizations, according to the results of a study commissioned by the federal Substance Abuse and Mental Health Services Administration (SAMHSA).

The increase to provide parity for substance abuse treatment was only .2 percent, compared with 3.4 percent to provide parity for mental health treatment alone.

Estimated Increases

The estimated premium increase varies widely depending on the type of plan. For example, in tightly managed HMO plans, the increase would be less than 1 percent compared with fee-for-service plans, in which the increase would be about 5 percent, according to the study.

Parity mandates limited to cost-sharing or service limits would result in lower increases.

Bernard Arons, M.D., director of SAMHSA's Center for Mental Health Services, said in a press statement, "We commissioned this study to learn more about the effects of state parity mandates and to provide improved estimates of the costs of parity, based on recent data and the best advice of actuaries and economists. The new data will provide us, along with legislative staffs and others, a foundation for the development of future policies related to health insurance benefits."

The Mental Health Parity Act passed by Congress in 1996 became law in January. It requires health plans to provide the same annual and lifetime limits for mental health benefits as they do for other health care benefits, according to the press statement.

Moreover, 84 parity bills were introduced in 37 states during 1997, some of which included substance abuse services. At least 12 states passed parity laws last year.

Key Findings

These are the key findings of the SAMHSA study:

• Most state parity laws do not address substance abuse treatment, and many are limited to treatment for serious mental illnesses.


• State parity laws have had a small effect on premiums. The increases in cost have been the lowest in plans that are tightly managed and have generous baseline benefits.


• Employers have not attempted to avoid parity laws by becoming self-insured. None of the employers identified its state parity laws as a reasons to self-insure.


• Costs have not shifted from the public to the private sector because most people who receive publicly funded services are not privately insured.


• Projected premium increases do not reflect potential market responses such as an increase in employers' contracting with managed care firms to manage benefits that would result in lower premium increases.


• Premium increases to provide parity in children's insurance plans would be higher than those in equivalent plans for adults and families.

Camille Barry, Ph.D., the acting director of SAMHSA's Center for Substance Abuse Treatment, noted that "73 percent of current substance abusers are employed. Treatment of drug and alcohol problems not only reduces their abuse, but leads to increased productivity and better physical and mental health. Providing parity for substance abuse treatment in family health insurance coverage is both affordable and a very smart investment."