Expected Premium Increment for Commercial Insurers Under Parity

Investigators: Carole Siegel, Ph.D., Judith Samuels, Ph.D., Eugene Laska, Ph.D., and Joseph Wanderling, in collaboration with Darrel Regier, M.D. , M.P.H., Director of the Division of Epidemiology and Services Research, National Institute of Mental Health.

This project was developed in response to a request from Dr. Darrel Regier, Director of the Division of Epidemiology and Services Research, NIMH, to provide research-generated information for a report to Congress on the expected premium increment of commercial insurers under then proposed and since enacted mental health parity legislation. The law, enacted January 1, 1998, prohibits disparity between mental health and general health care in the annual and lifetime dollar benefits of employer-based insurance plans for businesses with 50 or more employees.

Specifically the legislation requires that the cap of the annual dollar benefit amount for mental health and general health must be the same. In response to employer concerns, however, it allows an employer who provides mental health coverage to obtain an exemption from parity regulations if it can substantiate that a greater than 1% increment in annual costs has occurred. Advisory groups and accounting firms had estimated that premium increases under various conditions of parity would range from minimal to 11.4%.

This study examines the impact on parity where the user group includes a large percentage of persons with severe mental illness (SMI) who obtain care from the specialty mental health sector by (1) examining the impact upon the premiums of private insurance plans under various usage scenarios, and (2) identifying conditions under which insurers would experience an increment in premiums greater than 1%.

A mathematical model of an insurance premium was developed based upon health and mental health utilization costs. This model was used with a data set of the mental health service utilization experience of the population receiving specialty mental health services in Monroe and Livingston Counties of New York State from 1990-1993. A sizable proportion of this population (30.2%) had private insurance at some point during the 3-year study period. Of this group, 40% received some services that were reimbursed by public payers or self-paid, and 47% were diagnosed with SMI. While the costs of this sample were high because of specialty mental health service use, even persons using specialty mental health services whose costs were completely covered by private insurance were high cost mental health users, incurring mean annual mental health costs of $2,575 in contrast to a cost of $700 reported in the literature for privately insured public employees.

A number of scenarios were created to estimate premium increments under varying hypothetical conditions of whether all mental health consumers or only persons with SMI used specialty mental health services, and whether or not all costs were met by private insurers or some users had shifted from private insurers to public payers. Post-parity percentage change in premiums ranged from 0 to a highly unlikely 10.3%. Since most plans would contain only a proportion of specialty mental health users with the remainder using other mental health services, the estimates are upper bounds for situations likely to occur.

	American Indian or Alaskan Native	Asian or Pacific Islander	Black, not of Hispanic Origin	Hispanic	White, not of Hispanic Origin	Other or Unknown	TOTAL
Female	3	8	277	52	1892	19	2251
Male	1	8	224	51	1410	10	1704
Unknown	0	0	0	0	3	2	5
TOTAL	4	16	501	103	3305	31	3960

The comprehensiveness of the data set used in this study, despite some limitations, has allowed a simulation of parity impact to be conducted where all payer costs are captured, and the user population has SMI. The study supports the conclusion that the likely impact of the parity legislation on premiums will be small, even when the care needs of persons with SMI are considered. These results should provide employers with some assurances that persons with SMI will not unduly increase their health insurance costs.

An ongoing year six project, supported by NIMH funding for completion within a six-month time frame, will provide information relevant to an assessment of cost shifting at the private/public interface, especially for situations that might occur under various parity legislation scenarios.

Siegel, C., Samuels, J., Wanderling, J. and Laska, E. The impact of mental health parity legislation on health insurance premiums of plans in which persons with severe mental illness have coverage. Submitted to Journal of Mental Health Policy and Economics.

Expected Premium Increment of Commercial Insurers Under Parity