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 Enders Rachel Moskowitz Michael Pancook Carrie 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 Health Parity 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 Children 1,534,000 Adults

Target Population of Parity

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 consumers Moderately supportive of equalized benefits Insurance consumers with a mental illness Supportive of parity policy Employers Oppose because of cost increases and perceived limitations on choice of plans Health insurance companies Oppose additional mandates on insurance market Wisconsin State Government Parity 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