Evaluation of Parity in the Federal Employees Health Benefits (FEHB) Program: Final Report

12/31/2004

In January 2001, the Federal Employees Health Benefits (FEHB) Program, the largest employer-sponsored health insurance program in the Nation, instituted a mental health and substance abuse (MH/SA) parity policy in compliance with an earlier Presidential directive. This policy mandated that MH/SA services would be covered to the same extent as general medical care with respect to benefit design features, such as deductibles, copayments, and limits on visits and inpatient days.

In the fall of 2000, the Department of Health and Human Services awarded a contract to evaluate the implementation and impact of MH/SA parity benefits in terms of access, utilization, cost, and quality of care. The findings of this evaluation are reported in the attached report.

As the report was being finalized for publication, ASPE commissioned an independent actuarial analysis of the impact of MH/SA parity on premiums. The results of this analysis are reported in a memorandum which is available at http://aspe.hhs.gov/health/reports/05/mhsamemo.htm.


 

U.S. Department of Health and Human Services

Evaluation of Parity in the Federal Employees Health Benefits (FEHB) Program: Final Report

Executive Summary

Parity Evaluation Research Team

Northrop Grumman Information Technology
Harvard Medical School
RAND Corporation
University of Maryland, Baltimore
Westat

December 31, 2004


This report was prepared under contract #HHS-100-00-0025 between the U.S. Department of Health and Human Services (HHS), Office of Disability, Aging and Long-Term Care Policy (DALTCP), the U.S. Office of Personnel Management and Northrop Grumman Information Technology, Inc.. For additional information about the study, you may visit the DALTCP home page at http://aspe.hhs.gov/_/office_specific/daltcp.cfm or contact the ASPE Project Officer, Cille Kennedy, at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201. Her e-mail address is: Cille.Kennedy@hhs.gov.

Additional funding for this evaluation was provided by the National Institute of Mental Health, the National Institute on Drug Abuse, the National Institute of Alcohol Abuse and Alcoholism, the Substance Abuse and Mental Health Services Administration, the Agency for Healthcare Research and Quality, and the Centers for Medicare and Medicaid Services.

The views expressed are those of the authors and should not be attributed to the Federal Government or the Parity Evaluation Research Team agencies.


 

Comment on the Independent Actuarial Analysis of the Impact of Mental Health and Substance Abuse Parity in the FEHB Program

In interpreting the results of the actuarial analysis of parity alongside the statistical analysis of the policy change it is important to bear in mind key differences in methodology and definitions used in the two sets of analyses.

Definition of Mental Health and Substance Abuse Care

Mental health and substance abuse (MH/SA) spending in the Parity evaluation included all claims paid for treatment of mental health and substance abuse disorders. These included specialty inpatient and outpatient services (e.g. those delivered by specialized professionals such as psychologists and psychiatrists and inpatient services in psychiatric hospitals and general hospital psychiatric or substance abuse units), psychotropic drugs used to treat mental and addictive disorders, and services used to treat MH/SA problems provided by primary care physicians. In contrast, the actuarial analysis focused only on specialty inpatient and outpatient services. The implication of these definitional differences is that the actuarial analysis focuses on roughly 50% of total spending on MH/SA care. Thus, if the parity policy affected patterns of MH/SA treatment broadly, the actuarial analysis would reflect some but not all of the possible spending changes.

Evaluation Method

The actuarial analysis is based on comparing the before period trend to the after period trend and attributing the difference to parity. The Parity evaluation compared the before/after change in trend for the FEHB population to expenditure patterns for a matched control group of large insured populations to control for what the trend would have been absent parity. Since the period 1999-2003 was one in which there was considerable flux in the rates of change in health care spending, the two methods might well be expected to produce different estimates of the impact of the implementation of parity.

 

BACKGROUND

President Bush has often pointed to the Federal Employees Health Benefits (FEHB) Program as a model for health insurance. The FEHB Program is the largest employer-sponsored health insurance program in the Nation, serving more than 8 million Federal employees, their dependents, and retirees. The U. S. Office of Personnel Management (OPM) administers the FEHB Program, which currently offers about 250 health plan choices, providing over $29 billion in health care benefits annually.

At the White House Conference on Mental Health in June 1999, former President Bill Clinton directed OPM to institute a policy of parity, expanding mental health and substance abuse (MH/SA) coverage within the FEHB Program.

The term parity refers to a policy in which specified MH/SA insurance benefits are equal to the benefits for general medical services. Typically this means expanding the coverage for MH/SA services by removing special limits on care (such as annual and lifetime ceilings on expenditures for MH/SA care or limits on the number of outpatient visits or inpatient days) or reducing copayments or deductibles for MH/SA care.

 

Parity in the FEHB Program

Historically, the FEHB Program has worked toward improved MH/SA benefits. For example, President Kennedy asked the Civil Service Commission (OPM’s predecessor agency) to modify the FEHB Program to treat mental illnesses in the same manner as general medical illnesses (Hustead et al., 1985). In response, from 1967 to 1975, the FEHB Program’s two nationwide health insurance plans offered parity benefits. Beginning in 1975, however, when more flexibility in benefit design was permitted, MH/SA coverage began to erode, with diminution of benefits continuing into the early 1980s. From 1980 to 1997, the share of total claims accounted for by MH/SA claims declined from 7.8% to 1.9% (Foote and Jones, 1999). This trend reflects MH/SA coverage in the larger health care market. It should be noted, however, that other health care costs (e.g., prescription medications) escalated during this time period.

In its annual “call letter” to carriers each spring, OPM issues benefits policy guidance on negotiations for the next contract year. The “call letter” issued by the OPM in 2000 stated that beginning in January 2001, an MH/SA parity policy would go into effect. The aim of the parity policy would be to provide insurance coverage for MH/SA services the same as that for general medical care with respect to benefit design features, such as deductibles, copayments, and limits on visits and inpatient days.

Services to be covered under the parity arrangements are identified as “clinically proven treatment for mental illness and substance abuse… conditions listed in the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition” (American Psychiatric Association, 1994). The descriptions of covered services and benefits imply and encourage “management” of the care process. Specifically, this takes the form of developing treatment plans, applying medical necessity criteria, employing utilization management methods, and creating networks of providers, among other techniques. Parity benefits may be limited to in-network providers only.

It should be noted that prescription medications were already covered with parity between prescription medications used to treat MH/SA disorders and prescription medications used to treat general medical conditions.

Before the FEHB parity policy went into effect, FEHB plans offered mental health benefits with coverage limits that resembled other plans in the private health insurance market.1 The plans included in the analysis and described in chapter II, Design of the Evaluation, cover about 95% of the beneficiaries from the baseline year. Ninety-eight percent of plans continuously participating in the FEHB Program over the four-year study period contained at least one benefit feature in 1999 that was more restrictive for MH/SA care than for general medical care. For example, in 1999, some health plans limited annual outpatient mental health care to 28 visits and inpatient mental health care to 38 days on average. Substance abuse benefits were similarly limited.

Parity for MH/SA Benefits

MH/SA care and its financing have been influenced by a number of secular trends over the last decade including the passage of State parity laws, a shift to managed care and MH/SA carve-outs, and increased use of pharmaceuticals in health care generally and MH/SA care in particular (U.S. Department of Health and Human Services, 1999; Olfson, Marcus, Druss, et al, 2002).

A series of efforts at parity legislation has occurred at the State level. Some States target their parity legislation narrowly to include only people with severe mental disorders, while others cover a broader range of mental illnesses that may also include substance abuse disorders (Hennessy and Goldman, 2001). To date, 37 States have enacted statutes that might broadly be characterized as parity laws. However, these statutes vary substantially in terms of the type of benefits covered, diagnoses included, populations eligible, and level of explicit regulatory direction with regard to the use of managed care. While some of these statutes are quite limited in scope, 26 States have passed more comprehensive parity statutes that prohibit imposing special inpatient day limits, outpatient dollar limits, and differential cost sharing for mental health conditions (Hennessy and Barry, 2004).

 

EVALUATION DESIGN AND KEY RESEARCH QUESTIONS

The design of the evaluation was quasi-experimental. It analyzed plan benefits data for all FEHB plans and claims data on access, utilization, and cost for a subset of nine FEHB plans, both before (1999 and 2000) and after (2001 and 2002) the introduction of FEHB parity. Changes in access, utilization and cost were compared to changes in a matched set of non-FEHB comparison plans. For the subset of plans selected for in-depth study, case studies on the implementation of the parity policy were prepared based on a site visit to each selected plan.

The key research questions on how the FEHB parity policy was implemented and the impact of the policy are shown below.

Implementation Key Research Questions

  • Did all FEHB plans comply with the parity policy?
  • How did the FEHB parity policy affect MH/SA benefit design and management?
  • How did the FEHB parity policy affect the benefit design and management for general medical care?
  • Did FEHB plans incur additional expenses in implementing the parity policy?
  • How did providers experience the FEHB parity policy?

Impact Key Research Questions

  • How did the parity policy affect access to and utilization of MH/SA care?
  • How did the parity policy affect cost of MH/SA care to the beneficiary and OPM?
  • How did any changes in these areas compare to secular trends?
  • How did the parity policy affect utilization and spending on medications for MH/SA disorders?
  • Was quality of care affected by the parity policy?

Plan Selection

FEHB plans were selected for in-depth study on the basis of various characteristics on which they were likely to differ, i.e., geographic location; the breadth of parity in State law; differences in plan type and structure (e.g., health maintenance organization [HMO], point of service [POS], or fee-for-service (FFS) with a preferred provider option [PPO]); size of the enrollee population; and the plan’s interest in collaborating on the evaluation. The nine selected plans represent over 3.2 million FEHB beneficiaries.

Limitations of the Study

The evaluation is limited in several ways. First, the study design was not experimental, so it is more difficult to attribute all of the effects to parity rather than the secular trend in MH/SA care generally. However, the matched non-FEHB comparison group diminished this threat considerably. Second, while the effect of State parity laws may have mitigated the impact of the FEHB parity policy, the FEHB parity policy is actually substantially broader than nearly all State parity regulations. Finally, generalizations from these selected plans to all FEHB plans must be made cautiously.

 

FINDINGS

How was the FEHB Parity Policy Implemented?

All of the FEHB plans complied with the parity policy, most incurred no added administrative costs, and none reported major problems with implementation. The policy change enhanced MH/SA benefits for FEHB Program enrollees. Table 1 shows the key research questions regarding how the parity policy was implemented and the corresponding findings.

Table 1. Parity Implementation Key Research Questions and Findings
Research Question Findings
Did all FEHB plans comply with the parity policy? All FEHB plans complied with the parity policy.
How did the FEHB parity policy affect MH/SA benefit design and management? Most plans enhanced their MH/SA benefits consistent with the FEHB parity policy; plans were more likely to enter into managed care carve-out arrangements.
How did the FEHB parity policy affect the benefit design and management for general medical care? There was no evidence of general medical care benefit or management changes resulting from the parity policy.
Did FEHB plans incur additional expenses in implementing the parity policy? Two-thirds of the plans incurred no added administrative costs in implementing the parity policy; the majority of plans experienced some increased benefit costs.
How did providers experience the FEHB parity policy? FEHB plan providers had little awareness of the parity policy and very limited understanding of the parity benefit.

FEHB Plans Complied with the Parity Policy

All FEHB plans complied with the parity policy. No plan left the FEHB Program to avoid implementing the policy, and plans enhanced their MH/SA nominal benefits as required by the policy change.

Most Plans Enhanced their MH/SA Benefits and were More Likely to Carve-out

The majority of plans enhanced their MH/SA benefits in the post-parity period consistent with the FEHB parity policy. Eighty-four percent of the plans made changes in the amount, scope, or duration of mental health benefits and 73% made such changes for substance abuse benefits. Deductible, copayment or coinsurance limits on mental health benefits were changed by 75% of the plans, and by 64% of the plans for substance abuse benefits.

With the introduction of the parity policy, FEHB plans were more likely to enter into managed care carve-out arrangements with specialty behavioral health care organizations than were comparable non-FEHB plans. However, most other hypothesized changes (e.g., increased gate-keeping at the primary care provider level, reduced provider networks, concurrent or retrospective review, use of disease management programs for MH/SA care, and increased financial risk sharing) occurred less frequently than had been anticipated. While many plans required the submission of treatment plans prior to the parity policy, many more plans required it after the parity policy was implemented.

Finally, while all plans complied with the parity policy for services offered by in-network providers, no plan extended parity to care delivered by out-of-network providers.

General Medical Care was Unaffected by the Parity Policy

While half of the plans changed deductible, copayment and coinsurance limits on general medical benefits, there is no indication that these changes resulted from the FEHB parity policy.

Most Plans Incurred No Added Administrative Costs in Implementing Parity While Benefit Costs Increased for Some Plans

Two-thirds of the FEHB plans reported incurring no added administrative costs in implementing the FEHB parity policy and no plan expressed concerns about any cost increases they did incur. Forty-two percent of the plans reported increased benefit costs only in the immediate post-parity period (2001), and an additional 20% of plans reported these costs increased in both 2001 and 2003.

Providers Had Little Awareness of FEHB Parity

Based on focus groups in three regions of the country, the evaluation found that FEHB plan providers had little awareness of the FEHB parity policy. They also had very limited understanding of the parity benefit itself, often confusing the FEHB parity policy with their State parity laws.

What was the Impact of the Parity Policy on Access, Utilization and Cost?

Overall, the impact of the parity policy on MH/SA service access and utilization, spending, and quality was modest. Utilization and spending results for mental health services alone were not substantially different from those results for MH/SA services combined, nor were utilization and spending results for adults and children significantly different from one another. Table 2 shows the key research questions on the impact of the parity policy on MH/SA access, utilization, spending, and quality and the corresponding findings.

Table 2. Parity Impact Key Research Questions and Findings
Research Question Findings
How did the parity policy affect access to and utilization of MH/SA care? How did these changes compare to secular trends? Access to and utilization of MH/SA services for both adults and children increased consistent with secular trends. For substance abuse services alone, after accounting for secular trends, there was a small but consistent increase in access and utilization across plans.
How did the parity policy affect cost of MH/SA care to the beneficiary and OPM? How did these changes compare to secular trends? Total costs for MH/SA care increased in line with secular trends for both adults and children. In most (but not all) plans, beneficiary out-of-pocket costs declined and no plan’s child beneficiaries experienced cost increases when secular trends were taken into account.
Was quality of care affected by the parity policy? The parity policy had little or no effect on the quality of care for adults with major depressive disorder or substance abuse disorder.

Utilization of MH/SA Care Increased on Par with Secular Trends  

Both adult and child FEHB beneficiaries in all nine plans were more likely to use MH/SA services after parity was implemented, but at a rate consistent with secular trends. (The same was true for mental health services alone.) Thus, the increased utilization of MH/SA care was unlikely a direct result of the parity policy. The parity policy was not associated with changes in inpatient utilization, however, in eight of nine plans.

Access to substance abuse services increased slightly but significantly in all nine plans, but the increase was significant in only four of these plans after accounting for secular trends. Substance abuse services utilization was extremely low, however, both prior to and after the implementation of the parity policy, less than 1% in nearly all plans.

Total Spending on MH/SA Care Increased on Par with Secular Trends and Out-of-Pocket Spending Generally Declined

Overall, FEHB plan total spending increases experienced by the majority of plans generally reflected secular trends in spending on MH/SA care for both adults and children. The FEHB parity policy afforded beneficiaries some improvement in insurance protection in that beneficiaries in five of the nine plans experienced significant decreases in out-of-pocket spending, while no plan’s child beneficiaries experienced an increase in out-of-pocket spending greater than the secular trend.

When secular trends were taken into account, total spending on MH/SA care actually declined in seven of the nine plans, though this decline was significant in only four of the plans. For the two other plans, the spending increases were not significant.

For six of the nine plans, out-of-pocket costs to beneficiaries using MH/SA services declined--even though most plans experienced little or no significant change in use of these services. While three plans experienced significant out-of-pocket spending increases, these increases were in line with secular trends. Patterns of total spending on mental health services alone were nearly identical to those for MH/SA services combined.

Per user total spending on substance abuse care trended upward after the introduction of parity in seven of nine plans, but was significant in only one plan. (Of the two plans experiencing spending decreases, only one was significant). When secular trends were taken into account, total spending on substance abuse care was a mixed picture of spending increases and decreases, but only one plan experienced a significant spending change, i.e., reduced spending of $288 per user of substance abuse care.

Across all plans, the parity policy was associated with a substantial increase in total spending on medications for MH/SA disorders. While per user medication spending ranged from $266 to $519 prior to the FEHB parity policy, in 2002 it increased to a range of $377 to $632.  

Quality of Care Improved Slightly or was Unaffected by the Parity Policy

Quality of MH/SA care for two tracer conditions--major depressive disorder and substance use disorders--was slightly improved or unaffected by the parity policy.

Measures of quality for substance abuse treatment in adults included rates of utilization, identification of individuals with substance use disorders, and engagement in treatment. Except for a small increase in rates of identification, there was no evidence of significant quality change associated with the FEHB parity policy.

Measures of quality for treating major depressive disorder in adults either did not change or improved only slightly with introduction of FEHB parity in all but one of the FEHB plans studied. Quality improvement was more notable in the use of medication than for psychotherapy in the treatment of MDD.

 

EVALUATION FINDINGS IN BRIEF

As of January 1, 2001, all of the FEHB plans had complied with the parity policy, two-thirds incurred no added administrative costs, and none reported major problems with implementation. Furthermore, no plans left the FEHB Program to avoid the parity policy. The policy change enhanced MH/SA benefits for FEHB Program enrollees. At the time of policy implementation, two-thirds of the plans had entered into managed care arrangements with a specialty MH/SA vendor (called a “carve out”).

The impact of the parity policy was assessed in detail in nine FEHB plans that reflect both fee-for-service and health maintenance organizations from regions across the country where Federal employees, their dependents, and retirees reside. Overall, the evaluation showed that parity could be implemented with some increase in access to MH/SA care but little or no increase in total MH/SA spending. Users of services in most but not all plans experienced a decrease in out-of-pocket spending, indicating that parity provided the intended additional financial protection for MH/SA expenditures for many enrollees. There was also little or no impact on quality of treatment of major depressive disorder or substance abuse disorder.

For adults, access to MH/SA services (as measured by the probability of MH/SA service use) in these plans increased from before to after parity. Only one plan showed a significant increase in utilization, however, when secular trends were taken into account; two plans showed a significant decrease in utilization. For substance abuse services alone, all of the plans showed a small absolute increase in access that was significant in all cases when compared to secular trends. Total spending on MH/SA services, however, declined in seven of nine plans; four of these decreases were significant. In all but one instance, substance abuse spending either declined or was unchanged. Out-of-pocket expenditures for MH/SA services decreased in six plans and increased in three plans. The impact of the parity policy on children’s utilization and spending for MH/SA services was similar to that observed for adults.

Overall, the parity policy was implemented as intended with little or no significant adverse impact on access, spending, or quality, while providing users of MH/SA care improved financial protection in most instances.

 

NOTES

  1. See chapter III, Data Collection for additional information on collection and analysis of FEHB plan benefit information.