Order Code RL31657
Mental Health Parity:
Federal and State Action and Economic Impact
Updated October 19, 2007
Ramya Sundararaman
Analyst in Public Health
Domestic Social Policy Division
C. Stephen Redhead
Specialist in Life Sciences
Domestic Social Policy Division

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Mental Health Parity:
Federal and State Action and Economic Impact
Summary
In the 110th Congress, the Senate and House have introduced different versions
of expanded mental health parity legislation (S. 558 and H.R. 1424). These bills have
always been strongly supported by advocates for the mentally ill and have had broad,
bipartisan support in Congress. Although employers and health insurance groups
opposed the legislation in the past because of concern that it would drive up costs,
the provisions in S. 558 now have their support. Expanded parity legislation was
introduced in the 107th, 108th, and 109th Congresses, but each time it failed to pass.
Private health insurers often provide less coverage for mental illnesses than for
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 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.
Differences in insurance coverage of mental illnesses and other medical
conditions are also the result of 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. 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). Health plans frequently subcontract the
management of the mental health component of their benefits package to specialized
managed behavioral health care organizations (MBHOs). Recent studies have shown
that there is no significant increase in mental health costs to the insurer as a result of
implementing parity in the context of managed care. Despite this finding and the
introduction of managed behavioral health care, and despite 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.
Twenty-eight 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. The 109th
Congress extended the MHPA through December 31, 2007.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Economic Factors Opposing Parity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Impact of Managed Behavioral Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
State Mental Health Parity Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Mental Health Parity Act of 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Enforcement of MHPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Enforcement Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Tax Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PHSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Existing Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Federal Employees Health Benefits Program . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Mental Health Parity Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Impact of Mental Health Parity on Health Care Costs . . . . . . . . . . . . . . . . . 15
Coverage of DSM-IV Mental Disorders . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Persistent Mental Health Benefit Limitations . . . . . . . . . . . . . . . . . . . . . . . 17
Financial Protection and Access to Quality Care . . . . . . . . . . . . . . . . . . . . . 18
Appendix A. Comparison of Key Provisions in the Mental Health Parity Act of
2007 (S. 558) and the Paul Wellstone Mental Health and Addiction Equity
Act of 2007 (H.R. 1424) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Appendix B. State Mental Health Parity Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Appendix C. Mental Health Parity Hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Appendix D. Mental Health Parity Websites . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Patient Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Professional Associations: Health Care Providers . . . . . . . . . . . . . . . . . . . 29
Professional Associations: Employers and Health Plans . . . . . . . . . . . . . . 29

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Mental Health Parity:
Federal and State Action
and Economic Impact
Introduction
In the 110th Congress, there has been a renewed push to expand existing federal
mental health parity law. This legislation has been introduced in the House (H.R.
1424) by Representatives Kennedy and Ramstad, and in the Senate (S. 558) by
Senators Domenici and Kennedy. H.R. 1424 was referred to the House Committees
on Ways and Means, Energy and Commerce, and Education and Labor. On July 18,
2007, the House Education and Labor Committee approved H.R. 1424, with an
amendment. The measure, as amended, was approved by the House Ways and
Means Committee on September 26, 2007, and by the House Energy and Commerce
Committee on October 16, 2007. On September 18, 2007, the Senate passed S. 558
with an amendment, by a voice vote. The Congressional Budget Office (CBO)
scored S. 558 and H.R. 1424 and estimated that, if enacted, both bills would increase
health insurance premiums by 0.4%.1
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.2
1 Congressional Budget Office (CBO), Cost Estimate, H.R. 1424 Paul Wellstone Mental
Health and Addiction Equity Act of 2007, September 2007, available at
[http://www.cbo.gov/ftpdocs/86xx/doc8608/hr1424.pdf]. Congressional Budget Office
(CBO), Cost Estimate, S. 558 Mental Health Parity Act of 2007, March 2007, available at
[http://www.cbo.gov/ftpdocs/78xx/doc7894/s558.pdf].
2 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
(continued...)

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CRS-2
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.3
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, 2007.
Senators Domenici and Wellstone introduced full-parity legislation (S. 543) in
the 107th Congress; the measure saw some action but failed to pass. The legislation
(S. 486) was reintroduced at the beginning of the 108th Congress by Senators
Domenici and Kennedy. An identical House bill (H.R. 953) was introduced by
Representatives Kennedy and Ramstad. No legislative action was taken on either
bill. In the 109th Congress, the MHPA was introduced in the House (H.R. 1402) by
Representatives Kennedy and Ramstad. No legislative action was taken on this bill,
and no corresponding legislation was introduced in the Senate. For an analysis of the
legislative history of federal parity legislation, see CRS Report RL33820, The Mental
Health Parity Act: A Legislative History.
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.4 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 estimated that the direct treatment costs of
2 (...continued)
annual and lifetime limits on the total amount of coverage.
3 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].
4 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].

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CRS-3
mental illness in 2001 totaled $85 billion.5 This does not include the economic costs
of lost productivity due to illness, lifetime lost productivity, and other indirect costs.6
Employer and health insurance associations oppose parity legislation because
of concerns that it will drive up costs. 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-eight states have passed laws mandating full-parity mental health
coverage. Except Wyoming, all other states have enacted legislation that requires
health plans to provide certain specified mental health benefits, but not necessarily
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 and compares the Senate and House versions of the latest full-parity
legislation (S. 558 and H.R. 1424) in the 110th 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 equivalent
financial protection and access to quality care for persons with mental disorders.
Appendix A provides a side-by-side comparison of the key provisions in S. 558,
as passed by the Senate, and H.R. 1424, as reported out of committee. Appendix B
summarizes state mental health parity laws. Appendix C lists, by committee, the
mental health parity hearings since the 106th Congress. Finally, Appendix D
provides websites and annotations of various patient advocacy groups and
professional associations that have taken a position on mental health parity.
5 [http://www.samhsa.gov/spendingestimates/chapter3.aspx].
6 The estimated indirect economic cost of mental illness in 1994 included $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-4
Economic Factors Opposing Parity7
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.8 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
offer more generous mental health coverage.9 Such behavior can create a strong
economic incentive for health plans to reduce their attractiveness to users of mental
health care.
7 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).
8 J.P. Newhouse and the Insurance Experiment Group, Free for All? Lessons from the RAND
Health Insurance Experiment (Cambridge, MA: Harvard University Press, 1993).
9 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.

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CRS-5
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. These commenters note
that requiring parity for mental health benefits establishes a uniform “floor” of
mental health coverage across all plans. Supporters of parity maintain that studies
show that implementing parity through managed mental health care will not lead to
a significant increase in costs to the insurers.
Impact of Managed Behavioral Health Care
The movement to establish parity for mental health care has been fueled by
changes 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.10 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.11 As noted
earlier, proponents of parity argue that 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.12
Nearly three-quarters of Americans with health insurance are covered by managed
health benefits. SAMHSA has published a report that explores the current design and
administration of mental health coverage. The report lays out the necessary
10 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.
11 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%).
12 More information may be found on the website of the American Managed Behavioral
Healthcare Association, whose members are responsible for managing mental health and
substance abuse services in the public and private sector for more than 110 million
individuals, at [http://www.ambha.org].

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CRS-6
components of an adequate mental health benefit by examining the evidence-base for
particular benefits; effect on access, utilization, and costs; the components of a cost-
effective mental health benefit package; and the effects of benefits administration on
effectiveness.13
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.14 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 1993.15
Studies also suggest 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 and increased use of psychotropic drugs and short-term
psychotherapeutics 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.16 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.
13 Sethi R. et al., “Designing Employer-sponsored Mental Health Benefits,” SAMHSA
Center for Mental Health Services, 2006.
14 William Goldman et al., “Costs and Use of Mental Health Services Before and After
Managed Care,” Health Affairs, v. 17, 1998, pp. 40-52.
15 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.
16 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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CRS-7
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
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.17
State Mental Health Parity Laws18
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 28 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 and also in the types of mental illnesses they cover. In 15 states,
the laws apply both to group health plans and to the individual health insurance
market, whereas in another 9 of these states they apply only to group plans. In the
remaining four states, the laws apply only to state-employee plans. In 12 of the states
with full parity laws, the laws apply to the treatment of all the conditions listed in the
17 Robert Wood Johnson Foundation, Estimating the Costs of Parity for Mental Health.
Available online at [http://www.rwjf.org/publications/publicationsPdfs/parity_report.pdf].
18 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].

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CRS-8
Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition (DSM-IV).19
The other 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 28 states that have enacted full parity legislation, 6 states have
passed laws mandating a certain minimum level of mental health benefits (but not
full parity). Fourteen 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. The bills currently introduced in the House
and Senate are mandated offering laws. 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.20
Identical provisions were later added to the Internal Revenue Code (IRC) by the
Taxpayer Relief Act of 1997.21 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.
19 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].
20 P.L. 104-204, Title VII, codified at 29 U.S.C. 1185a and 42 U.S.C. 300gg-5.
21 P.L. 105-34, Section 1531(a)(4), codified at 26 U.S.C. 9812.

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CRS-9
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
Health Benefits Program and to some state and local government health plans. 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.22 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.23 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. All states, except Wyoming, have
passed some form of parity legislation since the federal law was enacted in 1996.
Some states passed parity laws that essentially mirrored the MHPA, and 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.
22 42 U.S.C. 1396u-2(b)(8); 42 U.S.C. 1397cc(f)(2).
23 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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3090, P.L. 107-147) further amended the MHPA provisions in the IRC — but not in
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 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. 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.
The 109th Congress further extended MPHA through the end of 2007. In the
first session of the 109th Congress, the Employee Retirement Preservation Act (H.R.
4579, P.L. 109-151) extended the provisions requiring mental health parity in
ERISA, the PHS Act, and the IRC through 2006. In the second session, Section 115
of the Tax Relief and Health Care Act of 2006 (H.R. 6111, P.L. 109-432) extended
the MPHA provisions in all three statutes through 2007.
Enforcement of MHPA
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
Although states have taken on primary responsibility for the enforcement of
many of the mandates as they apply to health insurers, other enforcement actions are
available to the Secretaries of the Department of Labor, Department of Health and
Human Services, and the Internal Revenue Service. The enforcement provisions that
apply through the MHPA (ERISA, Tax Code, and PHSA) are described more
specifically below.
Enforcement Provisions
Tax Code. Tax penalties for violations of federal health mandates take the
form of excise taxes that are imposed on employers or, in the case of multiemployer
plans, on the health plans. The excise tax for violations of certain group health plan
requirements of the MHPA is specified in section 4980D of the Code. The taxes are
payable to the U.S. Treasury.

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In general, the excise taxes are $100 per day of noncompliance for every
qualified beneficiary. When violations are discovered after notice of examination,
the minimum tax is $2,500, or $15,000 if violations are more than de minimus. The
minimum tax does not apply to church plans. When violations are due to reasonable
cause and not willful neglect, the maximum tax during a taxable year cannot exceed
the lesser of $500,000 or the employer’s group health plan expenses for the prior
year. In addition, when violations are due to reasonable cause and not willful
neglect, the Secretary of the Treasury may waive part or all of the tax if payment
would be excessive relative to the failure involved. No taxes apply if failures were
not discovered when exercising reasonable diligence or if failures are corrected
within certain periods.
Governmental plans are not subject to the excise taxes. In addition, with respect
to violations of HIPAA’s prohibition against discrimination based on health status,
certain small church-sponsored plans are not subject to penalties.
ERISA. Section 502 of ERISA establishes a civil enforcement scheme for
violations of the statute. In general, ERISA provides only for the recovery of benefits
due to a participant or beneficiary under the terms of a plan, or for declaratory or
injunctive relief. Courts have uniformly held that other monetary or damage
remedies are not available.
PHSA.
Enforcement of group health provisions is described in Section 2722
of the PHSA as established by Section 102 of HIPAA. In cases in which HHS is
required, because states have not taken on this responsibility, to enforce group market
rules regarding preexisting condition exclusion periods, discrimination, guaranteed
availability and renewability, and information disclosure, the Secretary may impose
civil money penalties on non-conforming health insurance plans. The penalties
available include $100 per day for each day and for each individual when such a
failure occurs. In imposing the penalty, the Secretary may consider the previous
record of compliance of the entity being assessed. There are limitations on this
penalty as well. Penalties cannot be applied for failures that are corrected within 30
days of discovery and under other limited circumstances. In addition, the entity
assessed may request an administrative review consisting of an initial hearing and
judicial review and appeal.
Existing Enforcement
Little information is available on enforcement actions related to MHPA by the
three agencies.
A 2003 publication available from the Pension and Welfare Benefits
Administration (PWBA) of the Department of Labor, however, summarizes some of
the enforcement activity as part of a 2001 compliance project. The project was
undertaken to give the Agency a baseline for assessing compliance with the health
mandates. PWBA conducted 1,267 investigations of group health plans during
2000-2001 for compliance with 42 specific requirements of the health laws. At that
time, just over one-third of plans were out of compliance with at least 1 of 36
substantive provisions of the new laws. Compliance rates dropped further when six
provisions requiring plan sponsors to provide notice to enrollees for various reasons

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were calculated into the rates. As a result of this work, the department initiated a
program to help employer plans come into compliance with the laws. The program
included additional publications and educational materials, a Web page devoted to
compliance assistance, and live workshops around the country.
The HHS Centers for Medicare and Medicaid Services were unable to provide
information on the use of the civil enforcement penalties under the PHSA. A
spokesman for the agency pointed out that such information has not been made
publically available to date.
Similarly, a contact at the Internal Revenue Service informed CRS that tax
penalties are not tracked in a manner that would allow the separate identification of
amounts assessed or collected only under sections 4980B and 4980D of the tax code.
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
three-year evaluation of the FEHBP parity initiative.24
A recently published study comparing FEHB plans with health plans outside
FEHBP that did not mandate parity concluded that implementation of parity in
insurance benefits for mental health and substance abuse, when coupled with
management of care, resulted in little or no significant adverse impact on access,
spending, or quality, while providing users of behavioral health care with improved
financial protection in most instances.25 The researchers analyzed plan benefits data
for seven FEHB plans both before (1999 and 2000) and after (2001 and 2002) the
introduction of parity. Changes in access, utilization, and cost were compared to
24 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].
25 Howard H. Goldman, Richard G. Frank, Audrey Burnam, Haiden A Huskamp, Susan
Ridgely, Sharon-Lise T. Normand, Alexander S. Young, Colleen Barry, Vanessa Azzone,
Alisa B. Busch, Susan T. Azrin, Garrett Moran, Carolyn Lichtenstein, Margaret Blasinsky,
Behavioral Health Insurance Parity for Federal Employees, New England Journal of
Medicine, 354; 13, March 30, 2006, pp. 1378-1386.

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changes over the same time period in a matched set of non-FEHB comparison plans
(mostly large, self-insured employers). The analysis indicated that the observed
increase in the rate of use of mental health and substance abuse services in FEHB
plans after implementation of the parity policy was due almost entirely to a general
trend in increased use that was observed in the comparison plans.26 Furthermore,
compared to spending trends observed in the non-FEHB plans, the implementation
of parity was associated with significant reductions in out-of-pocket spending in five
of the seven FEHB plans.27
Mental Health Parity Legislation
110th Congress
On February 12, 2007, Senators Domenici and Kennedy introduced the Mental
Health Parity Act of 2007 (S. 558) 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. This bill would amend ERISA and the PHS Act. The bill was
referred to the Senate Health, Education, Labor, and Pensions Committee, where it
was marked up on February 14, 2007 (S.Rept. 110-53). The Senate passed S. 558,
with an amendment, by voice vote on September 18, 2007. On March 7, 2007,
Representatives Kennedy and Ramstad introduced the Paul Wellstone Mental Health
and Addiction Equity Act (H.R. 1424), which would amend ERISA, the PHS Act,
and the IRC. On July 18, 2007, the House Education and Labor Committee approved
H.R. 1424, with an amendment. The measure, as amended, was approved by the
House Ways and Means Committee on September 26, 2007, and by the House
Energy and Commerce Committee on October 16, 2007 (H.Rept.110-374).
H.R. 1424 and S. 558 do not mandate full parity. Like the MHPA, they apply
only to group plans that choose to offer mental health coverage. H.R. 1424, which
is modeled on the parity requirements in the FEHBP, covers the treatment of all
psychiatric conditions listed in the DSM-IV. On the other hand, S. 558’s parity
provisions apply only to conditions that the health plan chooses to cover. Both bills
would extend parity to in-network and out-of-network mental health benefits. Both
bills also exempt small employers with 50 or fewer employees. In an effort to
address some of the concerns of the health insurance industry, H.R. 1424 includes
language permitting employers and health plans to manage mental health benefits and
cover only those treatment services that are medically necessary. Finally, the bills
require GAO, within two years, to evaluate the impact of the new federal parity
standards on access to insurance coverage and on insurance costs.
26 Samuel H. Zuvekas, Agnes E. Rupp, Grayson S. Norquist, The Impacts of Mental Health
Parity and Managed Care in One Large Employer Group: A Reexamination, Health Affairs,
v. 24, no. 6, 2005, pp. 1668-1671.
27 Colleen L. Barry, Richard G. Frank, Thomas G. McGuire, The Costs of Mental Health
Parity: Still an Impediment?, Health Affairs, v. 25, no. 3, 2006, pp. 623-634.

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There are two key differences between the House and Senate parity bills. The
first difference is that the Senate version would allow insurance companies to
determine which mental illnesses they cover, whereas the House version would
require coverage for all mental illnesses (see discussion below). The second key
difference is that the Senate version does not explicitly address preemption of state
mental health parity laws, whereas the House version explicitly states that it does not
preempt state mental health parity laws. For an analysis of the differences between
the House and Senate parity bills, see Appendix A. Unlike previous versions of
expanded parity legislation, the House and Senate versions in the 110th Congress
include parity for substance abuse treatment services. Another difference between
the Senate bill and the previous parity bills is that S. 558 has the support of insurance
companies and employers.
Bills that would amend Title XXI of the Social Security Act to provide for equal
coverage of mental health services under the State Children’s Health Insurance
Program passed in the House on August 1, 2007 (H.R. 3162), and in the Senate on
August 3, 2007 (H.R. 976).
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. Pricewaterhouse Coopers
concluded that S. 543 would result in a 1% increase in costs, or $1.32 per enrollee
per month.28 CBO estimated that, on average, S. 543 would increase premiums for
group health plans by 0.9%.29
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.”
28 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).
29 CBO’s estimates are at [http://www.cbo.gov/showdoc.cfm?index=3013&sequence=0].

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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.
Representatives Patrick Kennedy and Jim Ramstad, and Senators Domenici and
Kennedy introduced full parity legislation on February 27, 2003, which included the
same language as S. 543, as reported by committee, in the 107th Congress. During
the second session, Senator Daschle introduced the Paul Wellstone Mental Health
Equitable Treatment Act of 2003 on November 6, 2003. This bill bears the name of
the late Senator Paul Wellstone, who was killed in a small plane crash on October 25,
2002. No further legislative action was taken on this bill in the 108th Congress.
The Paul Wellstone Mental Health Equitable Treatment Act of 2005 was again
introduced by Representatives Patrick Kennedy and Jim Ramstad on March 17, 2005.
No legislative action was taken on this bill during the 109th Congress, and no
corresponding legislation was introduced in the Senate.
For a more detailed legislative history of these bills, see CRS Report RL33820,
The Mental Health Parity: A Legislative History, by Ramya Sundararaman and C.
Stephen Redhead.
Impact of Mental Health Parity 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
what they characterize as inappropriate discrimination 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 parity legislation 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 have reported 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

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CRS-16
costs remained flat. Spending in other areas of health care declined and employees
missed less work.30
The Congressional Budget Office (CBO) scored S. 558 and H.R. 1424 and
estimated that, if enacted, both bills would increase health insurance premiums by
0.4%.31
Coverage of DSM-IV Mental Disorders
Employers and health insurers are especially concerned about the broad
definition of mental illness in H.R. 1424. 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. S. 558, which covers only mental illnesses that are
specifically included by the health plan, has the support of employers and health
insurers. Critics of H.R. 1424 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
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, H.R. 1424 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.
30 Grazier K, Pollack H, “Viewing employer-based behavioral health services research in the
context of public policy,” paper presented at 128th American Public Health Association
Annual Meeting, November 2000.
31 Congressional Budget Office (CBO), Cost Estimate, H.R. 1424 Paul Wellstone Mental
Health and Addiction Equity Act of 2007, September 2007, available at
[http://www.cbo.gov/ftpdocs/86xx/doc8608/hr1424.pdf]. Congressional Budget Office
(CBO), Cost Estimate, S. 558 Mental Health Parity Act of 2007, March 2007, available at
[http://www.cbo.gov/ftpdocs/78xx/doc7894/s558.pdf].

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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.32 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.
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. Some 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 establish without broader (i.e., federal) parity laws. State parity
laws have a limited impact because they do not cover self-insured plans. ERISA
32 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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exempts self-insured plans from state regulation. About 52% of covered workers are
in a self-insured plan, according to the KFF/HRET survey.33
Financial Protection and Access to Quality Care
Mental health analysts often argue that parity laws are 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 are seen as effective
components of mental health care. Moreover, health plans do not cover supervised
housing or employment for patients with chronic mental health conditions.
Proponents of parity maintain that 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 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.
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, they hold, results in less suffering and lower costs
associated with that treatment. Moreover, they point to studies that 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
33 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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utilization review by clinical care managers) and use a different mix of providers and
services.34
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
relate to analysts’ concerns about the impact of parity on access to quality mental
health care. The HCC survey concluded that state parity laws have had no
discernible impact on the overall use of mental health services. The survey suggested
that 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.35
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
beneficiaries.36 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.
34 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.
35 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].
36 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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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 reported 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.
Finally, parity helps only people who have health insurance. It does not address
the larger questions concerning the 17.5% of the U.S. population with no health
insurance.37
37 Fronstin, Sources of health insurance and characteristics of the uninsured: analysis of the
March 2000 current population survey, Washington DC, Employee Benefits Research
Institute, issue brief no. 228, 2000.

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Appendix A. Comparison of Key Provisions in the Mental Health Parity Act of 2007 (S. 558) and
the Paul Wellstone Mental Health and Addiction Equity Act of 2007 (H.R. 1424)
S. 558
H.R. 1424
Analysis of Differences
(approved by Senate, 09/18/2007)
(reported by committee)a
Laws amendedb
ERISA Part 7
ERISA Part 7
House bill amends IRC, in addition to ERISA
PHSA Title XXVII
PHSA Title XXVII
and PHSA.
IRC Chapter 100
Type of parity lawc
Mandated offering.
Mandated offering.
No difference.
In-network and out-
Parity provisions apply to both in- and
Parity provisions apply to both in- and
No difference.
of-network benefits
out-of-network services by comparing
out-of-network services by comparing
the respective in-network and out-of-
the respective in-network and out-of-
network mental health benefits with
network mental health benefits with
medical and surgical benefits.
medical and surgical benefits.
Substance abuse
If a plan offers substance abuse
If a plan offers substance abuse
No difference.
treatment services
treatment, then the provisions of the Act
treatment, then the provisions of the
apply to the substance abuse services as
Act apply to the substance abuse
well.
services as well.
Exemptions
Exempts small employers with 50 or
Exempts small employers with 50 or
No difference.
fewer employees, as well as employers
fewer employees, as well as employers
that experience an increase in claim
that experience an increase in claim
costs of at least 2% in the first plan year
costs of at least 2% in the first plan
and 1% in subsequent years.
year and 1% in subsequent years.

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CRS-22
S. 558
H.R. 1424
Analysis of Differences
(approved by Senate, 09/18/2007)
(reported by committee)a
Parity provisions
Treatment limits
No more restrictive than that applied to
No more restrictive than that applied to
No difference.
substantially all medical and surgical
substantially all medical and surgical
benefits. Includes limits on the
benefits. Includes limits on the
frequency of treatment, number of
frequency of treatment, number of
visits, days of coverage, or other similar
visits, days of coverage, or other
limits on the scope or duration of
similar limits on the scope or duration
treatment.
of treatment.
Financial limits
No more restrictive than that applied to
No more restrictive than that applied to
No difference.
substantially all medical and surgical
substantially all medical and surgical
benefits. Includes limits on deductibles,
benefits. Includes limits on deductibles,
copayments, coinsurance, out-of-pocket
copayments, coinsurance,
expenses, and annual and lifetime
out-of-pocket expenses, and annual and
limits. Plans may not establish cost-
lifetime limit. Plans may not establish
sharing requirements that are specific to
cost-sharing requirements that are
mental health benefits.
specific to mental health benefits.

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CRS-23
S. 558
H.R. 1424
Analysis of Differences
(approved by Senate, 09/18/2007)
(reported by committee)a
Medical
Does not prevent medical management
Does not prevent medical management
No difference.
management
of mental health benefits, including
of mental health benefits, including
negotiating separate provider payment
negotiating separate provider payment
rates and service delivery systems,
rates and service delivery systems,
utilization review, authorization
utilization review, authorization
requirement, application of medical
requirement, application of medical
necessity and appropriateness criteria,
necessity and appropriateness criteria,
and the contracting and use of provider
and the contracting and use of provider
networks.
networks.
Mental health
Covers mental health services as
The plan or coverage must cover the
This is a significant difference. Employers and
services covered
defined under the terms of the group
same range of mental illnesses and
insurance companies support the Senate version,
plan.
addiction disorders covered by the
which does not require the plan to provide parity
Federal Employee Health Benefit
coverage of all mental illnesses listed in the
(FEHB) plans.
DSM. The House bill, by comparison, would
require the plan to cover all mental illnesses
listed in the DSM (same as FEHB).

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CRS-24
S. 558
H.R. 1424
Analysis of Differences
(approved by Senate, 09/18/2007)
(reported by committee)a
HHS regulations
Requires HHS to issue regulations
No provisions.
The Senate bill restates existing authority for
within one year.
HHS and DOL. HHS is tasked with issuing
regulations and DOL would serve as
ombudsman. The House bill contains no
DOL Ombudsman
DOL to serve as an initial point of
No provisions.
comparable provisions.
contact to permit individuals to obtain
information and provide assistance
concerning coverage of mental health
services under group health plans in
accordance with the Act.
Enforcement
Requires HHS and DOL to conduct
The bill makes amendments to an IRC
Both House and Senate bills make HHS and
random audits of health plans to ensure
provision that imposes a tax penalty of
DOL responsible for ensuring compliance
compliance.
$100 per day per beneficiary on
because both amend ERISA and PHS Act.
employers who do not comply with the
Unlike S. 558, H.R. 1424 also provides for the
parity requirements of the Act.
assessment of excise tax penalties because it
amends IRC. Unlike the House bill, the Senate
version requires random audits, thus implying
active, rather than passive enforcement.

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CRS-25
S. 558
H.R. 1424
Analysis of Differences
(approved by Senate, 09/18/2007)
(reported by committee)a
GAO study
Requires GAO to study the impact of
Requires GAO to conduct (1) a study
The House bill requires the GAO to investigate a
implementation of the Act on the cost of
of the bill’s impact on things such as
broader range of issues, which includes obstacle
and access to health insurance coverage,
health care costs, access to coverage,
to obtaining care and determination of medical
the quality of health care, the impact on
quality of care, government spending
necessity.
benefits and coverage for mental health
on mental health and addiction
and substance abuse, the impact of any
treatment and other public services, and
additional cost or savings to the plan,
use of medical management by plans;
and the impact on state mental health
(2) a biennial assessment of obstacles
benefit mandate law. GAO is required
beneficiaries face in obtaining
to report to Congress on this study
appropriate care under their health
within two years.
plans; and (3) a study of the availability
and use of uniform patient placement
criteria that can help guide health
plans’ determinations of medical
necessity.
Preemption of state
Does not address preemption of state
Does not preempt state parity laws.
This is an important difference. While the House
parity law
laws, aside from that for small
version explicitly states that it does not preempt
employees.
state parity laws, the Senate version does not
address this issue. Some experts believe that the
Supremacy Clause of the Constitution may
imply preemption of state parity laws by the
federal law, unless the issue is clarified in the
law.

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CRS-26
a. H.R. 1424 was reported on by the House Education and Labor Committee on July 18, 2007, the House Ways and Means Committee on September 26, 2007, and the House Energy
and Commerce Committee on October 16, 2007. It now awaits full House consideration.
b. The Employee Retirement Income Security Act (ERISA) regulates employee benefit plans, including employer-sponsored group health plans. The Internal Revenue Code (IRC)
also covers group health plans (using a slightly broader definition than ERISA). The Public Health Service Act (PHSA) Title XVII applies to insurance companies and managed
care organizations and to non-federal government health plans.
c. Under a mandated offering law, health plans are not required to provide mental health benefits; however, plans that choose to provide mental health coverage must provide the
specified minimum level of mental health benefits.

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CRS-27
Appendix B. State Mental Health Parity Laws
Full Parity (i.e., covered plans must provide full-parity mental health benefits)
Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho,
Illinois, Iowa, Maine, Massachusetts, Minnesota, Montana, New
Hampshire, New Jersey, New York, North Carolina, New Mexico, Ohio,
Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota,
Vermont, Virginia, Washington, West Virginia.
Minimum Mandated Benefits (i.e., covered plans must provide the specified
minimum level of mental health benefits, but not full parity)
Alaska, Maryland, Michigan, Nevada, North Dakota, Pennsylvania,
Tennessee, Texas.
Mandated Offering (i.e., if covered plans offer mental health coverage, they
must provide the specified minimum level of benefits)
Alabama, Arizona, District of Columbia, Florida, Georgia, Indiana,
Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, Utah,
Wisconsin.
Source: National Conference on State Legislatures, Health Policy Tracking Service.
Note: For a more detailed comparison of state mental health parity laws, see CRS Report
RL33820, The Mental Health Parity Act: A Legislative History, by Ramya Sundararaman
and C. Stephen Redhead.

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CRS-28
Appendix C. Mental Health Parity Hearings
Senate Committee on Health, Education, Labor, and Pensions
May 18, 2000
Mental Health Parity
July 11, 2001
Achieving parity for mental health services.
House Committee on Education and Labor
March 13, 2002
Assessing mental health parity: Implications for patients and
employers (Subcommittee on Employer-Employee
Relations)
July 10, 2007
Mental Health and Addiction Programs (Subcommittee on
Health, Employment, Labor and Pensions)
House Committee on Energy and Commerce
July 23, 2002
Insurance coverage of mental health benefits (Subcommittee
on Health)
June 15, 2007
Mental Health and Addiction Equity (Subcommittee on
Health)
House Committee on Ways and Means
March 27, 2007
Mental Health and Substance Abuse Parity (Subcommittee
on Health)

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CRS-29
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]
! Suicide Prevention Action Network USA [http://www.spanusa.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 Health Insurance Plans [http://www.ahip.org]
! ERISA Industry Committee [http://www.eric.org]
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