Order Code RL31657
CRS Report for Congress
Received through the CRS Web
Mental Health Parity
Updated December 3, 2004
C. Stephen Redhead
Specialist in Life Sciences
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Mental Health Parity
Summary
Private health insurers often provide less coverage of mental illnesses compared
to 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 insurance coverage 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. According to the Substance Abuse and Mental Health Services
Administration, untreated and undertreated mental illness cost the nation an
estimated $204 billion in 1994, mostly in direct treatment costs and lost productivity.
Differences in insurance coverage of mental illnesses and other medical
conditions are also the result of important economic factors. Studies indicate that the
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 care. Insurers have also
restricted their 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).
Twenty-one states have laws that mandate full-parity mental health coverage,
though these laws do not apply to self-insured group health 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. Congress
recently extended the MHPA through December 31, 2005. Full-parity legislation
was first introduced in the 107th Congress, but it failed to pass. The legislation was
reintroduced at the beginning of the 108th Congress (S. 486/H.R. 953), but no action
has been taken. The bills are strongly supported by advocates for the mentally ill and
have broad, bipartisan support in Congress. Employer and health insurance
organizations oppose the legislation because of concerns that it will drive up costs.
Health plans frequently subcontract, or carve out, the management of the mental
health component of their benefits package to specialized managed behavioral health
care organizations (MBHOs). Studies show that the introduction of managed mental
health care has helped control the costs associated with mental health parity. Despite
the introduction of managed behavioral health care and the passage of state parity
laws, mental health coverage continues to be subject to more limitations and higher
cost sharing than coverage of other medical conditions. Some analysts argue that
parity is not sufficient, by itself, to guarantee equal access to high-quality care and
equal levels of financial protection for people with mental disorders.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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
Federal Employees Health Benefits Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Senator Paul Wellstone Mental Health Equitable Treatment Act . . . . . . . . . . . . . 9
Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Impact of S. 486/H.R. 953 on Health Care Costs . . . . . . . . . . . . . . . . . . . . 11
Coverage of DSM-IV Mental Disorders . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Persistent Mental Health Benefit Limitations . . . . . . . . . . . . . . . . . . . . . . . 12
Financial Protection and Access to Quality Care . . . . . . . . . . . . . . . . . . . . . 13
Appendix A. Comparison of Key Provisions in the Mental Health Parity Act
and S. 486/H.R. 953 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Appendix B. State Mental Health Parity Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Appendix C. Mental Health Parity Hearings
(107th & 108th Congress) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Appendix D. Mental Health Parity Websites . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Patient Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Professional Associations: Health Care Providers . . . . . . . . . . . . . . . . . . . 19
Professional Associations: Employers and Health Plans . . . . . . . . . . . . . . 19

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Mental Health Parity
Introduction
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 medical and
surgical coverage.1
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 said, in reference to the President’s April
2002 address.2
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, 2005.
Senators Domenici and Wellstone introduced full-parity legislation (S. 543) in
the 107th Congress, but the measure failed to pass. The legislation (S. 486) was
reintroduced at the beginning of the 108th Congress by Senators Domenici and
1 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.
2 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].

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Kennedy. An identical House bill (H.R. 953) was introduced by Representatives
Kennedy and Ramstad. No legislative action has been taken on either bill.
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 Surgeon General’s
Report on Mental Health.3 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 (SAMHSA) estimated that the total economic
costs of mental illness in 1994 was $204.4 billion, mostly in direct treatment costs
and lost productivity.4
Employer and health insurance associations oppose parity legislation because
of concerns that it will drive up costs. But 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-one states have passed laws mandating full-parity mental health
coverage. Other states have enacted legislation that requires health plans to provide
certain specified mental health benefits, but not 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, the 1996 federal law, and the full-parity legislation (S. 486/H.R. 953) that
is currently before the 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 enough to provide equal financial protection and access to quality
3 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].
4 The total estimated economic cost of mental illness in 1994 included: $91.7 billion in
treatment and other direct medical care; $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.

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CRS-3
care for persons with mental disorders. Appendix A provides a side-by-side
comparison of the key provisions in the MHPA and S. 486/H.R. 953. Appendix B
summarizes state mental health parity laws. Appendix C lists, by committee, the
mental health parity hearings in the 107th and 108th Congresses. Finally, Appendix
D provides the websites of various patient advocacy groups and professional
associations that have taken a position on mental health parity.
Economic Factors Opposing Parity5
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 general medical care.6 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 mental illness select health plans that
5 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).
6 J.P. Newhouse and the Insurance Experiment Group, Free for All? Lessons from the RAND
Health Insurance Experiment (Cambridge, Mass.: Harvard University Press, 1993).

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offer more generous mental health coverage.7 Such 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. Requiring parity for
mental health benefits establishes a uniform “floor” of mental health coverage across
all plans.
Impact of Managed Behavioral Health Care
The movement to establish parity for mental health care has been fueled by
important advances 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 clinically
significant mental disorder in any given year.8 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 effectiveness of common treatments for physical illness.9
As noted earlier, 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 the delivery and payment of mental health care.10
7 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.
8 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.
9 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%).
10 More information may be found on the website of the American Managed Behavioral
Healthcare Association, which represents the nation’s leading behavioral healthcare
companies at [http://www.ambha.org].

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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 implemented managed behavioral health care in the
early 1990s.11 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 a result of introducing managed care in 1993.12
Studies also indicate 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 on controlling costs. More recent studies in states that have
enacted full-parity laws for mental health coverage provided by managed care plans
found that premium increases have been modest.13 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
11 William Goldman et al., “Costs and Use of Mental Health Services Before and After
Managed Care,” Health Affairs, v. 17, 1998, pp. 40-52.
12 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.
13 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].

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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 any increase in demand
and premiums.14
State Mental Health Parity Laws15
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 21 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. In 10 states, the laws apply both to group health plans and to
the individual health insurance market, whereas in nine states they apply only to
group plans. In the remaining two states, the laws apply only to state-employee
plans. State full-parity laws also vary in the types of mental illnesses they cover. In
only three states do the laws apply to the treatment of all the conditions listed in the
Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition (DSM-IV).16
All the other full-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 21 states that have enacted full parity legislation, 12 states
have passed laws mandating a certain minimum level of mental health benefits (but
14 Robert Wood Johnson Foundation, Estimating the Costs of Parity for Mental Health.
Available online at [http://www.rwjf.org/publications/publicationsPdfs/parity_report.pdf].
15 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].
16 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].

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not full parity). Still 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. 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 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.
Mental Health Parity Act of 1996
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 plans, most of which are employment based.17
Identical provisions were later added to the Internal Revenue Code (IRC) by the
Taxpayer Relief Act of 1997.18 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
17 P.L. 104-204, Title VII, codified at 29 U.S.C. 1185a and 42 U.S.C. 300gg-5.
18 P.L. 105-34, Section 1531(a)(4), codified at 26 U.S.C. 9812.

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Health Benefits Program and to some state and local government health plans.19
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
comply with the requirements of the MHPA.20 The MHPA does not apply to
Medicare.
In 1999, the General Accounting Office (GAO) reviewed the extent to which
employers were complying with the MHPA and how they had revised their health
plans.21 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 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. A majority of states have passed some
form of parity legislation since the federal law was enacted in 1996. Fourteen states
passed parity laws that essentially mirrored the MHPA, seven of which 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 107th 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
19 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.
20 42 U.S.C. 1396u-2(b)(8); 42 U.S.C. 1397cc(f)(2).
21 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.

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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 has further 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. More recently, 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.
Federal Employees Health Benefits Program
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
3-year evaluation of the FEHBP parity initiative.22
Senator Paul Wellstone
Mental Health Equitable Treatment Act
On February 27, 2003, Senators Domenici and Kennedy reintroduced legislation
(S. 486) 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. The
Mental Health Equitable Treatment Act bears the name of the late Senator Paul
Wellstone, who was killed in a small plane crash on October 25, 2002. An identical
bill was introduced in the House (H.R. 953) by Representatives Kennedy and
Ramstad.
22 Additional information on FEHBP’s implementation of mental health parity may be found
on the OPM’s website at [http://www.opm.gov/insure/health/consumers/parity.asp].

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S. 486 does not mandate full parity. Like the MHPA, it applies only to group
plans that choose to offer mental health coverage. The legislation, which is modeled
on the parity requirements in the FEHBP, covers the treatment of all psychiatric
conditions listed in the DSM-IV. The bill’s parity provisions apply to in-network
mental health benefits. Out-of-network mental health benefits could be provided
subject to additional treatment limitations and financial requirements. S. 486 also
exempts small employers with 50 or fewer employees. In an effort to address some
of the concerns of the health insurance industry, S. 486 includes language permitting
employers and health plans to manage mental health benefits and cover only those
treatment services that are medically necessary. Finally, the bill requires GAO,
within 2 years, to evaluate the impact of the new federal parity standards on access
to insurance coverage and on insurance costs. Appendix A provides a side-by-side
comparison of the key provisions in the MHPA and S. 486/H.R. 953.
Legislative History
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. PricewaterhouseCoopers
concluded that S. 543 would result in a 1% increase in costs, or $1.32 per enrollee
per month.23 The Congressional Budget Office (CBO) estimated that, on average, S.
543 would increase premiums for group health plans by 0.9%.24 CBO’s estimate is
a weighted average across all covered plans. Some employers would face little or no
additional costs, including companies with 50 or fewer employees, companies that
do not offer mental health benefits, and companies that are already subject to state
full-parity mandates. Many employers that currently use more restrictive benefit
design elements in their mental health coverage would experience premium cost
increases greater than 0.9% as a result of having to comply with S. 543.
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 and improve mental health
parity protections during the second session of the 107th Congress.”
23 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).
24 CBO’s estimates are at [http://www.cbo.gov/showdoc.cfm?index=3013&sequence=0].

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CRS-11
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 legislation action taken before the
107th Congress adjourned.
Impact of S. 486/H.R. 953 on Health Care Costs
Federal full-parity legislation has staunch support among patient advocates and
mental health provider organizations, who see it as an important step in eliminating
the discrimination that exists 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 S. 486/H.R. 953 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 report 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. Spending in other areas of health care declined and employees missed
less work.
Coverage of DSM-IV Mental Disorders
Employers and health insurers are especially concerned about the broad
definition of mental illness in S. 486/H.R. 953. 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. Critics of the legislation 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

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CRS-12
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, S. 486/H.R. 953 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.
Issues for Congress
Persistent Mental Health Benefit Limitations
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 coverage for mental
health care.25 However, 74% of those covered workers were subject to an 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.
25 Colleen L. Barry et al., “Design of Mental Health Benefits: Still Unequal After All These
Years,” Health Affairs v. 22, 2003, pp. 127-137. The 2002 KFF/HRET survey sampled
2,014 randomly selected public and private employers with three or more workers.

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CRS-13
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. 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 achieve 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 survey.26
Financial Protection and Access to Quality Care
Mental health analysts see parity laws as 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 can be effective
components of mental health care. Moreover, health plans do not cover supervised
housing or employment for patients with chronic mental health conditions. 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 intense 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.
26 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.

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CRS-14
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, results in less suffering and lower costs associated with
that treatment. Moreover, studies 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 different mix of providers and services.27
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
have reinforced analysts’ concerns about the impact of parity on access to quality
mental health care. The HCC survey found that state parity laws have had no
discernible impact on the overall use of mental health services. 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 unmet needs less often. According
to the HCC researchers, results of the survey reinforce concerns about the impact of
parity on access to quality health care.28
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 and utilization for some services and
27 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.
28 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].

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CRS-15
beneficiaries.29 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 experienced 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.
29 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].

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Appendix A. Comparison of Key Provisions in the Mental Health Parity Act and S. 486/H.R. 953
MHPA
S. 486 (Domenici)/H.R. 953 (Kennedy)
Parity provisions
Group plans that do not include an aggregate lifetime limit or an
Groups plans that offer both medical and surgical benefits and
annual limit on medical and surgical benefits may not impose any
mental health benefits may not impose any treatment
such limits on mental health benefits. Group plans that include an
limitations or financial requirements on the mental health
aggregate lifetime limit or an annual limit on medical and surgical
benefits unless comparable treatment limitations and financial
benefits must apply the same (or higher) limits to mental health
requirements are imposed on the medical and surgical benefits.
benefits. Group plans are not required to provide mental health
Group plans are not required to provide mental health benefits.
benefits.
Exemptions
Small employers with 50 or fewer employees are exempt from the
Exempts small employers with 50 or fewer employees.
MHPA. Employers that experience an increase in claims costs of
at least 1% as a result of MHPA compliance are also exempt.
In-network and out-of-
No provisions.
The parity provisions do not apply to out-of-network coverage,
network benefits
as long as the plan provides in-network benefits in accordance
with the requirements of the Act and provides reasonable
access to in-network providers and facilities.
Medical management
No provisions.
Does not prevent the medical management of mental health
benefits, including utilization review, the application of
medical necessity and appropriateness criteria, and the
contracting and use of provider networks.
Mental health services
Covers mental health services as defined under the terms of the
Covers mental health services for all mental disorders listed in
covered
group plan. Does not include substance abuse treatment.
the DSM, provided such services are part of an authorized
treatment plan and are medically necessary.
GAO study
No provisions.
Requires GAO to study the impact of implementation of the
Act on the cost of and access to health insurance coverage and
to report to Congress within 2 years. The study must include
an estimate of the cost of extending parity to the coverage of
substance abuse treatment.

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Appendix B. State Mental Health Parity Laws
Full Paritya (i.e., covered plans must provide full-parity mental health benefits)
Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Illinois,
Maine, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey,
New Mexico, North Carolina, Oklahoma, South Carolina, South Dakota,
Vermont, Virginia, West Virginia.
Minimum Mandated Benefits (i.e., covered plans must provide the specified
minimum level of mental health benefits, but not full parity)
Kansas, Louisiana, Maryland, Michigan, Mississippi, Nevada, North
Dakota, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas.
Mandated Offering (i.e., if covered plans offer mental health coverage, they
must provide the specified minimum level of benefits)
Alabama, Arizona, Florida, Georgia, Indiana, Kentucky, Missouri,
Nebraska, New York, Ohio, Utah, Washington, Wisconsin.b
Source: National Conference on State Legislatures, Health Policy Tracking Service.
a In Arkansas, Connecticut, and Minnesota, the full-parity laws apply to all mental disorders
listed in the DSM-IV. Full-parity laws in the remaining 18 states apply to certain
specified mental health disorders. The North Carolina and South Carolina parity laws
apply only to state employee health plans.
b Alabama, Indiana, and Kentucky require plans that choose to offer mental health coverage
to provide full-parity benefits.

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Appendix C. Mental Health Parity Hearings
(107th & 108th Congress)
Senate Committee on Health, Education, Labor, and Pensions
July 11, 2001
Achieving parity for mental health services.
House Committee on Education and the Workforce
March 13, 2002
Assessing mental health parity: Implications for patients and
employers (Subcommittee on Employer-Employee
Relations)
House Committee on Energy and Commerce
July 23, 2002
Insurance coverage of mental health benefits (Subcommittee
on Health)

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Appendix D. Mental Health Parity Websites
Patient Advocacy
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]
Professional Associations: Health Care Providers
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]
Professional Associations: Employers and Health Plans
American Association of Health Plans
[http://www.aahp.org]
Health Insurance Association of America
[http://www.hiaa.org]
ERISA Industry Committee
[http://www.eric.org]

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