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

12/31/2004

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).

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