NAMI North Carolina State Senate Bill Calls for Mental Health Insurance Parity

News Release

State Senate Bill Calls for Mental Health Insurance Parity

Actuarial Analyst Projects Minimal Cost Increases

Released June 10, 1998

They’re the kind of numbers that leave benefits managers scratching their heads and wondering if there’s a bug in their spreadsheet software or a dead battery in their calculator. But in study after study, the results are strikingly similar: When employee benefit plans cover mental illnesses on the same terms as physical illnesses—called parity—the quality of mental health care typically improves while costs fall, both as a total and as a percentage of all claims.

“I know it’s hard to believe you can improve utilization and coverage and still have a favorable cost analysis, but that’s what happens with parity,” said Ronald E. Bachman, a principal with Coopers & Lybrand. Bachman has conducted actuarial studies of parity’s impact in several states, including North Carolina.

Bachman said the savings usually result from earlier, more effective treatment and reductions in inappropriate hospitalizations. “Parity opens up broader continuum of care options,” he said. “The benefits are more appropriately related to the services actually needed.”

“We have so much accurate, consistent cost information on the table, the debate on cost is over,” he said. “All that’s left for state legislators to consider are the philosophical issues.”

In North Carolina, Senators who considered those issues developed Senate Bill 400, titled “An Act to Require Parity in Health Insurance for Mental Illness,” revised it in committee and approved it by a 43-to-three vote last April. The bill is now in the hands of House Insurance Committee Chair Jerry C. Dockham.

While the revised Senate Bill 400 does not require insurers to cover any new categories of mental health care expenses, it does require them to cover mental health care in the same way they cover other types of health care. If approved in the House, the bill will apply to all insured group benefit plans regulated by the North Carolina Department of Insurance. Many large employers will not be affected immediately because their self-insured benefit plans are governed by federal rather than state law. The revised bill also exempts employers with fewer than five employees.

The Need for Parity in North Carolina

According to Executive Director Beth Melcher of NAMI North Carolina, an advocacy group for people with mental illness and their families, North Carolina needs the parity bill to supplement federal legislation that went into effect January 1, 1998.

“The federal Mental Health Parity Act applies only to annual and lifetime mental health benefit limits,” Melcher explained, adding the Parity Act does not address differing deductible amounts, co-payment percentages, out-of-pocket cost limits or limits on the number of hospital days or outpatient visits. “There’s no question—unfair discrimination still exists—even with the federal law in place,” Melcher said. “It’s up to each state to stop it.”

In North Carolina, mental health parity has already had a trial run as part of the State Employee Health Benefit Plan’s indemnity program. The North Carolina Major Medical Plan for state employees and teachers began covering mental health care on the same terms as other types of health care in January 1992. At the same time, the plan began using a case management approach to mental health care.

“Before, the plan had a cap on mental health care reimbursements,” said Sam Byrd of the General Assembly’s Fiscal Research Division. “We thought it would be a much better approach to look at each case and provide whatever treatment was needed.”

In his actuarial analysis of comprehensive parity’s potential impact on medical plan costs in North Carolina, Bachman estimated an average increase of 2.2 percent, or $2.46 per plan member per month. After offsetting the increase through a variety of cost-cutting strategies, employers would probably cover about 40 percent of the estimated increase, or 98 cents per employee per month.

Actuaries from Blue Cross Blue Shield of North Carolina conducted their own study and projected a monthly per-member cost of $2.50.

“My numbers are very conservative,” said Bachman. “They’re based on generally accepted accounting principals and are appropriate to use in this type of evaluation. Actual costs continue to come in well below the estimates.”

Byrd’s analysis of parity’s impact on the state’s major medical plan costs confirms Bachman’s contention. “Ron Bachman was projecting a slight cost increase,” said Byrd. “But in our Major Medical Plan, we’ve actually experienced a decrease.” In a Legislative Fiscal Note, Byrd reported a 14 percent drop in the average mental health claim during the first four years after implementing mental health parity and case management in the state plan. During the same period, the total average claim cost dropped 10 percent.

Byrd noted about 60 percent of the 257,000 employees and 90,000 retirees covered by the state plan are women—the most frequent users of mental health services. In plans covering a higher percentage of men, he said mental health care claims could decline even more.

A primary concern among North Carolina lawmakers is how parity will affect small businesses. “Insurance works by spreading risks and costs across large populations,” Byrd explained. “If you have five employees in a ten-life group, one employee’s health problems can make your overall claims experience very different from the experience of a group spreading the risks over 500 or 5,000 lives.”

“We understand the concerns about the impact of parity on small business, but insurance plans covering small groups have always been vulnerable,” Melcher said. “North Carolina’s Department of Insurance has regional health insurance purchasing alliances to allow small groups to share risk. So we already have a mechanism in place to minimize the effects of parity on small business.”

Human Costs

While much of the debate about parity focuses on dollars and cents, Melcher emphasized parity’s positive impact on the human costs of mental illness. “NAMI North Carolina supports families of people with mental illness, so we’ve seen what can happen when medical plans discriminate against people who need mental health treatment.

“We’ve seen breadwinners lose their jobs and families get into serious financial trouble because their insurance wouldn’t pay for the treatment they need. We’ve also seen people put off treatment until a crisis develops. In many of cases, early diagnosis and treatment could have prevented a lot of suffering and might have kept the illness from progressing as far.

“For a number of years now, we’ve known most forms of mental illness are brain disorders,” she continued. “Many can be treated as effectively as—and in some cases—more effectively than other major physical illnesses.

“Given the biological origins and increasingly successful treatment of mental illness, parity is the only sensible, humane thing to do.”