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

12/31/2004

A series of efforts at parity legislation has also occurred at the State level (Hennessy and Stephens, 1997). 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. Experiences with parity policy at the State level are derived primarily from two sources:

  • parity laws enacted by State governments , and
  • State employee plans that design a parity MH/SA benefit for their health plans.

Valuable lessons can be gleaned from each set of experiences.

State Parity Laws

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.

Some of these statutes are quite limited in scope. For example, South Carolina currently has a parity policy that applies only to the health insurance of State and local public-sector employees. North Carolina and Arizona have mandates that mirror the Federal parity law by requiring that insurers eliminate special annual or lifetime dollar limits for mental health coverage. Finally, some State parity laws essentially copy the 1996 Mental Health Parity Act and thus do not expand a State’s parity policy beyond the Federal parity law.

Twenty-six States have passed more comprehensive parity statutes that prohibit imposing special inpatient day limits, outpatient visit, and/or dollar limits, and differential cost sharing for mental health conditions. These policies differ in terms of the mental health conditions they cover. For example, 17 of these States have limited parity for diagnoses designated as severe mental illnesses or biologically based disorders. Illnesses frequently characterized as severe tend to include schizophrenia, schizoaffective disorder, bipolar disorder, and major depression.

Nine of these more comprehensive policies require parity in coverage for all medically necessary services to treat MH/SA conditions listed in the Diagnostic and Statistical Manual of Mental Disorders, 4th Edition (DSM-IV; American Psychiatric Association, 1994). Nine States include coverage for substance abuse treatment under the terms of their parity statutes.9

State statutes also differ regarding:

  • whether the law applies to both individual and group plans,
  • if the law mandates coverage or simply requires parity if mental health benefits are offered,
  • whether the law includes a small business exemption, or
  • if the law exempts employers experiencing cost growth attributable to parity.

Below we describe three of the more comprehensive state parity laws, as well as parity regulations for State employees in two States, each of which has been evaluated in terms of outcomes.

Vermont State Parity Law

In 1998, Vermont implemented the nation’s most comprehensive parity law. Vermont parity legislation includes both mental health and substance abuse treatment, defines mental illnesses broadly, and requires that mental illnesses and general medical conditions be accorded the same service limits and cost-sharing.

California State Parity Law

In 2001, California implemented a parity statute covering a limited set of diagnoses that focus on serious mental illnesses for adults and serious emotional disturbances for children and youth. The California State parity law prohibited more restrictive benefit limits and higher deductibles and copayments than those for general medical care. Substance abuse disorders were excluded in this legislation.

Maryland State Parity Law

Maryland enacted a parity law in 1994 that prohibits using separate annual and lifetime dollar limits, special deductibles, and special inpatient day and outpatient visit limits for MH/SA disorders. However, it retains a tiered outpatient coinsurance structure of coverage, with higher copayment rates after five visits, which increase again after 30 visits.

State Employee Parity Regulations

Experiences with parity for MH/SA have been studied systematically among two privately insured populations--Massachusetts and Ohio State employees. Experiences reported in those evaluations might predict the likely impacts of the FEHB Program parity initiative.

Massachusetts

State of Massachusetts employees enrolled in PPO and indemnity plans had a parity benefit implemented at the same time as a behavioral health carve-out, i.e., MH/SA care was managed separately from general medical care.

Ohio

Again, parity was introduced after or at the same time as the implementation of a behavioral health carve-out. All health plans serving State of Ohio employees implemented parity (in 1990 for employees in the Ohio indemnity medical plan and in 1995 for all other employees) by expanding the scope of a carve-out program to cover all MH/SA services in all health plans (Sturm, Goldman, and McCulloch, 1998).

Findings from State Parity Laws and Regulations

Vermont State Parity Law

The implementation and effects of the Vermont State parity law are also the most systematically studied (Rosenbach, Lake, Young, et al., 2003). Very few Vermont employers (0.3%) dropped health coverage due to the parity law, and out-of-pocket expenses for MH/SA services declined after the parity implementation. For example, among people with serious mental disorders, the proportion of individuals spending more than $1,000 out of pocket annually was reduced by more than 50%. The implementation of parity was characterized by an increase in managed care for MH/SA services, which was a major factor in controlling costs and may have reduced access and utilization for some services and beneficiaries.

California State Parity Law

One year after California’s State parity implementation, researchers found no evidence of adverse consequences in the State’s health insurance market, such as large premium increases (Lake, Sasser, Young, and Quinn, 2002). Examining the effects of California’s parity law on two large employers in the first year of implementation, Branstrom and Sturm (2002) reported that the parity law was generally producing the intended effects in that “…plans with high costs and high service use show stable or declining spending, and lower-cost plans show increases at tolerable levels (less than 1%).”

Maryland State Parity Law

The National Advisory Mental Health Council (1998) reported on the implementation of parity in the State of Maryland using data from carve-out programs. The Council’s main finding was that parity could be implemented without excessive cost increases.

Ohio State Employees

First, the results for seven years after implementing parity for State of Ohio employees (1990 through 1997 for those in the indemnity plan and 1995 through 1997 for those in other plans) showed no increase in spending within the preferred provider organization (PPO) and indemnity health plans that were part of a carve-out program. The implication is that managed care responds to benefit design to control “moral hazard” effects, i.e., the increase in use and cost of benefits resulting from the price-lowering effect of insurance coverage.

Second, MH/SA spending increased slightly in the health maintenance organization (HMO) plans in response to the benefit expansion, but those plans had very constrained MH/SA benefits before implementing parity.

The Ohio evaluation indicates that the impact of parity is likely to differ across health plans depending on the pre-parity benefits and the organization of the health plan. Moreover, even with a large increase in coverage, the cost increases were modest compared to what one might have expected on the basis of demand response under indemnity insurance (Newhouse and the Insurance Experiment Group, 1993). The Ohio study, however, did not examine changes in enrollment patterns across health plans that may have resulted from the parity benefit.

Massachusetts State Employees

Ma and McGuire (1998) showed that for Massachusetts State employees, the overall impact of managed care exceeded the impact of parity with respect to per person spending on MH/SA. Huskamp (1999) focused her analysis on the outpatient benefits for which the benefit expansion was greatest. She showed that the managed care effect exceeded the moral hazard effect of a benefit expansion. Spending per person fell significantly for MH/SA care, and the statistical analysis also showed a sizable reduction in the probability of use. Her work used a continuously enrolled population and thereby minimized any effects of biased selection due to coverage changes.

Implications of State Parity Experiences for the Evaluation of Parity in the FEHB Program

Because of the variation in the scope of State parity laws and regulations, caution is necessary in drawing inferences from State experiences to the FEHB Program parity initiative. Evidence on the effects of State parity laws comes from both multi-State analyses and single-State case studies. The Health Care for Communities (HCC) and Community Tracking Study (CTS) national household surveys have been used to study effects of parity across States (Sturm, 2000; Capula and Sturm, 2000; Gitterman, 2001; and Bao and Sturm, unpublished manuscript). These studies generally found little overall impact on either access or use due to State parity laws, although some improved access was found for more seriously ill subpopulations. But again, these results must be interpreted with great care.

In addition, Maxfield, Achman, and Cook (2004) found that less than half of Americans in 1999 were affected by either State of Federal parity laws. The Employee Retirement Income Security Act (ERISA) provides the biggest exemption of health plans from State parity laws. ERISA exempts self-insured employer-sponsored health plans, meaning that these health plans are subject only to Federal parity regulations, but exempt from any State parity policy that goes further than the 1996 Mental Health Policy Act. The impact of this exemption is substantial in that Maxfield and colleagues found that 39% of those in employer-sponsored health insurance plans are in self-insured plans. In addition, many states and the Federal parity law also exempt small employers (most States define a “small employer” as one with 50 or fewer employees) for compliance with State parity laws.

This set of studies suggests that the State context may be quite important for assessing the impact of parity in the health plans included in the FEHB Program evaluation. If a State parity law is broad and affects many insured populations, including FEHB enrollees, the subsequent FEHB parity policy may have little effect. If a State parity law is narrow and does not affect many plans, however, the impact of the FEHB parity policy may be larger. Case-studies on the implementation of more comprehensive State parity laws have been conducted in a number of States, including Vermont, California, and Maryland, and are discussed further below.

View full report

Preview
Download

"parity.pdf" (pdf, 5.07Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"parityA.pdf" (pdf, 61.31Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"parityB.pdf" (pdf, 194.85Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"parityC.pdf" (pdf, 134.89Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"parityD.pdf" (pdf, 147.52Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®