does mental health parity make economic sense for wisconsin? an evaluation of the effects of mental...

Does Mental Health Parity Make Economic Sense for Wisconsin?An evaluation of the effects of mental

health parity in the commercial insurance market

Prepared by Christina EndersRachel MoskowitzMichael PancookCarrie Schneck

La Follette School of Public Affairs

Prepared for Office of Policy Initiatives

and Budget

Wisconsin Department of Health and Family Services

Barriers to Mental HealthParity Social barriers

Stigma Concern over increased financial costs

resulting from additional coverage

Economic barriers Adverse selection

Prevalence of Mental Illness in Wisconsin

1.8 million Wisconsin residents

266,000 Children1,534,000 Adults

Target Population of Parity

Uninsured5%

Government30%

Commercial 26%

Self-Funded39%

No Mental Illness, 19.27%

Mental Illness, Did not seek

treatment, 4%

Mental Illness, Sought

Treatment, 2.73%

Federal Mental Health Mandate

Federal Mental Health Parity Act of 1996

Mandates benefits if plans offer mental health coverage

Has limitations

Wisconsin Mental Health Mandate Mandates minimum coverage of mental

health benefits

Coverage levels: Inpatient - $7,000 Outpatient - $2,000 Transitional - $3,000

Levels set in 1985, last revised in 1991

Evidence of Gap in Coverage

48.1% of adults with an unmet mental health need cited cost of insurance as a barrier

31.2% of adults with an unmet need for substance abuse cited cost of insurance as a barrier

Costs of Inpatient Services in Wisconsin

Average Charge

Charges Above Mandate($7,000)

Schizophrenia $16,837 $9,837

Depression $5,816 --

Bipolar Disorder $10,549 $3,549

Alcohol Abuse / Dependence $6,352 --

Substance Abuse / Dependence (with Rehabilitation and/or Detoxification)

$8,232 $1,232

Childhood Mental Disorders $14,166 $7,166

Average $9,831 $2,831

Mental Health Parity Mandate Evaluated Equality in cost-sharing provisions between

physical and mental health coverage: Co-payments Deductibles Lifetime and annual benefit limits

Mental illness: All major classes of DSM-IV disorders Childhood mental disorders Substance abuse

Methodology for Cost Estimates

Includes policyholders in group and individual market

Relies on other state estimates and actuarial analysis of premium increases

Criteria for Cost Estimates

Comparable parity mandate

Account for impact of managed care

Assume existing level of coverage for mental health services

Estimates of Total Annual Premium Increases Under Parity

Range of cost increase:0.4 to 2.0 percent

Total Annual Increase:$33 million to $165 million

Estimates of Premium Increases Under Parity, Group Market

Total Annual Increase Per Policy: $43 to $214

Monthly increase for Employers:

$2.82 to $14.11 per employee

Monthly increase for Employees:

$0.75 to $3.75

Total Annual Increase:$6.6 million to $33.2 million

Estimates of Premium Increases Under Parity, Individual Market

Total Annual Increase Per Policy: $7 to $67

Monthly increase for Single Plan:

$0.59 to $2.97

Monthly increase for Family Plan:

$1.12 to $5.62

Other Impacts of Parity

Decreases out-of-pocket costs for mental health care consumers

Employers are unlikely to alter health insurance coverage

A small number of policyholders may drop insurance coverage

Utilization of mental health care services may not change significantly

The Role of Managed Care

Managed Care penetration rate in Wisconsin: 90.9 percent in group market 93.8 percent in individual market

Managed Care’s cost-control techniques may also impact utilization

Projected Benefits of Parity, Individuals with Mental Illness

Receiving optimal level of treatment

Reduced out-of-pocket costs for services

Projected Benefits of Parity, Employers

Reduced absenteeism

Increased on-the-job productivity

Reduced short-term disability claims

Others including lower turnover and workplace accidents

Projected Benefits of Parity, Health Insurance Companies

May have reduced expenditures on claims for physical health services as mental health concerns are better addressed

Projected Benefits of Parity, Society

Reduced crime

Reduced incarceration costs

Fewer traffic accidents

Increased human capital development for children

Political Feasibility

Health insurance consumersModerately supportive of equalized

benefits

Insurance consumers with a mental illness

Supportive of parity policy

EmployersOppose because of cost increases

and perceived limitations on choice of plans

Health insurance companiesOppose additional mandates on

insurance market

Wisconsin State GovernmentParity legislation has failed in past

years with only incremental changes occurring

Recommendation

Future discussions of a mental health parity mandate should

incorporate the report’s thorough examination of cost increases, potential benefits,

and political feasibility.

Other Considerations

Parity in State Employee Health Plans

Parity in the BadgerCare Plus benchmark plan

Explore managed care’s cost control strategies that affect utilization of services