Paying for mental illness
Health care reformers would require insurers to provide equal treatment in serious cases
by Scott Koeneman

Randy Wells likes to tell the story of two neighbors.

The son of the first neighbor was diagnosed with lung cancer. While that's certainly a deadly and frightening disease, the family took some comfort in knowing necessary treatments were covered by health insurance, says Wells, executive director of the Illinois chapter of the National Alliance for the Mentally 111. The son of the second neighbor was diagnosed with schizophrenia, a disorder associated with chemical imbalances in the brain. The second family also has health insurance. But, like many policies, theirs treats mental illness differently from physical illness, even when the mental illness is biological in nature. As a result, the second neighbor was forced to take out another mortgage on his home to cover his policy's higher co-payments, deductibles and other out-of-pocket costs.

Wells believes that's not fair. Further, he says, such disparity exists in neighborhoods across the country. As a result, the alliance and other groups, including the Illinois State Medical Society, are calling for "parity" in mental health insurance coverage. They argue that mental disorders are more common than cancer, diabetes or heart disease. In fact, Wells' group estimates that as many as 5 million Americans suffer each year from acute episodes of mental illness for which there is a biological reason, including major depression. Put another way, according to the alliance, one of every 14 people in the United States suffers from some form of life-altering mental illness that is biologically based. Such statistics. Wells says, are difficult to pin down precisely because mental illness still carries a social stigma. The number of cases is even more difficult to track at the state level, he says, because many people who suffer from mental illness are transient.

But U.S. Surgeon General David Satcher concluded in a report issued last month that mental disorders are "legitimate illnesses," and that "society no longer can afford to view mental health as separate and unequal to general health."

Nevertheless, as with managed care, this latest debate over health care reform centers on cost. Opponents of mental health parity, including the Illinois State Chamber of Commerce, warn health insurance would become more expensive for consumers, as well as providers, meaning more Americans would be pushed into the ranks of the uninsured. Proponents counter that, left untreated, mental illness is costly, too, that it can mean more sick days, unemployment, homelessness and suicide.

This debate is underway in dozens of state capitols. Illinois lawmakers, too, are weighing the competing concerns. Legislation that would require insurance companies to provide coverage for serious mental illness under the same terms as coverage provided for other illnesses has won approval in the Illinois House on a bipartisan vote. The measure defines "serious mental illness" as a disorder that is biological or physiological in nature and that substantially limits "life activities," which does not, for example, include psychologically based depression.

The measure was stopped in the Senate Rules Committee, but proponents don't plan to give up. "There is no medical reason to treat mental illness differently from other biological diseases," argues the legislative sponsor, Highland Park Democratic Rep. Lauren Beth Gash. "In some cases, mental illness is more easily treated."

Congress has settled on a form of mental health insurance parity, at least for now. The federal version, which took effect in 1998 and expires in 2001, does not require insurance coverage for mental illness. However, under that law, employers who do offer mental health coverage must set the same annual and lifetime spending limits on those benefits as they do

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for medical and surgical benefits. The law covers state-regulated health plans and the self-insured plans that are exempt from state laws. Nevertheless, there are a number of exceptions. The federal law exempts businesses with fewer than 50 employees and allows employers to exempt themselves if they can demonstrate a 1 percent or more increase in their costs as a result of mental health parity. And it allows providers to mitigate added costs by adjusting limits on inpatient days for mental illness, prescription drugs and outpatient visits.

Meanwhile, recent efforts in the states have concentrated on what the federal law did not do:
mandate mental health benefits.

Over the past decade, 20 state legislatures have approved mental health parity laws, with significant variations. Some states, such as Delaware, specify coverage for disorders with proven biological causes. Others, including Maryland and Virginia, require treatment for substance abuse. The states differ, too, on employer exemptions and on coverage limits for treatment.

Whatever the specifics of their reforms, though, states can address the needs of only a small portion of the country's health care consumers. Nationally — and Illinois fairly closely mirrors the national statistics — 60 percent of all employees work for self- insured companies that are overseen by the federal Department of Labor.

While Illinois' parity proposal has stalled, state law does require every health insurer to offer consumers the opportunity to purchase coverage for treatment and services for mental, emotional or nervous disorders.

And that requirement, along with the federal law, is one major reason opponents say they're against the proposed changes.

Another, and more loudly voiced, reason is cost.

"Absolutely nothing is free," says •Kelsey Lundy, director of legislative relations for the Illinois Chamber of Commerce, one of the leading critics of the Illinois reform proposal. "The chamber opposes any state or national health care mandate because of the increased costs associated with them. State legislators across the country are trying to create the perfect health care policy. The problem is that most Americans and most employers can't afford a perfect health care policy."

Counters Wells, "We have produced significant amounts of data from the states that have enacted these laws, and the cost is pennies on the dollar."

Proponents and opponents in this debate cite a 1997 study by the Rand Corp., which found that equalizing annual limits for physical and mental illnesses boosts insurance costs by about $1 per employee per year, and that more comprehensive changes required by some states add about $7 per employee per year.

But proponents of mental health parity also cite a 1998 study conducted by the National Advisory Mental Health Council for the U.S. Senate Appropriations Committee. That study found that full parity costs less than 1 percent of annual health care costs and, when implemented in conjunction with managed care, it can actually reduce costs.

The chamber points to another study conducted early last year by Baylor University in Waco, Texas, that analyzed the costs incurred by parity mandates established under federal law and under state laws in Maine, Nevada, California and Virginia. According to Baylor's researchers, costs increased by an average of 4.5 percent for each mandated benefit. That study also analyzed premiums under Virginia's various mental health care options and came up with an assessment that those options increase costs anywhere from 1.37 percent to 2.58 percent. "Of most importance," according to those researchers, "the increase in costs has three unintended consequences: The

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For every 1 percent increase in insurance premiums, according to Baylor's assessment, the number of uninsured, currently estimated at about 43 million people nationally, grows by approximately 100, 000 to 250, 000 people. Adds Lundy, "Our No. 1 priority should be to increase the number of people who have access to health insurance."

Not surprising, the alliance offers yet another cost-benefit analysis. That group puts the nation's tab for mental illness at $81 billion, including such direct costs as hospitalization and medication, and such indirect costs as absences from work and suicide. Even if insurance costs go up slightly, parity supporters argue, employers will more than make up for the increased costs through increased employee productivity.

"The cost savings is significant when you make a fiscal analysis. You have to do that," says Gash. "Businesses are choosing to do this because it is the right thing to do. But, what is really important to them, they are doing it because it is cost efficient."

A recent analysis on state parity laws issued by the National Conference of State Legislatures appears to support Gash's assessment.

"Generally, the cost estimates that were projected have not been realized," says Tracy Delaney, a policy researcher for the conference.

About Maryland, which passed a parity law in 1994 that included substance abuse, the analysis says, "The state's most experienced managed care company reported that the proportion of the total medical premium attributable to mental health decreased 0.2 percent. In addition, lengths of stay in psychiatric hospitals and psychiatric units of general hospitals showed a continuing decline during the first year of implementation of parity."

Still, it's easy to get lost amid dueling studies and fiscal analyses. And that's why Wells likes to tell the story of two neighbors. For him, it's a story about human costs. And fairness. ž

Scott Koeneman is communications manager at the Institute of Government and Public Affairs at the University of Illinois. Prior to that he was city editor at The News-Gazette in Champaign.

Mental illness by the numbers Mental illnesses are physical brain disorders that profoundly disrupt a person's ability to think, feel and relate to others and the environment. • One in every five Americans has a severe mental illness, such as bipolar disorder, schizophrenia and major depression. • A conservative estimate is that a total of 12 percent (7.5 million) of the country's 63 million youths under age 18 have mental, behavioral or developmental disorders. Yet, only one-fifth of these children and adolescents who need mental health treatment receive it. • The treatment success rate is 60 percent for schizophrenia, 65 percent for major depression and 80 percent for bipolar disorder. Comparatively, the success rate for treatment of heart disease ranges from 41 percent to 52 percent. • The No. 1 reason for hospital admissions nationwide is a biological psychiatric condition. At any moment, people with a mental illness fill almost 21 percent of all hospital beds. • Roughly 159, 000 people with severe mental illnesses are incarcerated in jails and prisons, mostly for crimes they committed because they were not being treated for their illnesses. • On any given day, approximately 150, 000 people with severe mental illness are homeless. • Roughly 80 percent to 90 percent of people with serious brain disorders are unemployed. Source: National Alliance for the Mentally Ill; U.S. Surgeon General

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