Do State Parity Laws Reduce the Financial Burden on Families of Children with Mental Health Care Needs

The intent of parity laws is to improve equity in private insurance coverage for mental health care. Health insurers have covered mental health care at a significantly lower level than coverage for other conditions for many years (U.S. Bureau of Labor Statistics 1982; Jensen et al. 1998; Buck et al. 1999; Barry et al. 2003). Health plans commonly require higher cost sharing and impose special inpatient day and outpatient visit limits on service utilization for mental health treatment. By requiring equivalent levels of insurance coverage for mental health and general medical care, parity policies aim to broaden access to services while decreasing the financial burden associated with seeking treatment. Parity insurance regulation may particularly benefit privately insured individuals with more severe mental health conditions at risk for high treatment expenses. A series of multistate research studies find that state parity laws have had minimal or no effects on utilization of mental health services, perceived quality and generosity of insurance coverage and perceived access to care (Pacula and Sturm 2000; Sturm 2000; Bao and Sturm 2004). These findings have been cited as evidence that state laws are not fulfilling the aims of policy makers. This article examines the effects of state parity laws but differs from previous research in several important ways. Most notably, all previous multistate studies considered the impact of state parity laws on adults. In contrast, we examine how state parity laws affect privately insured children with mental health care needs. Unlike adults, children with mental health disorders are likely to be covered under private health insurance irrespective of the severity of their illness. Also important, prior multistate studies have not evaluated the impact of state parity laws on the economic burden of seeking mental health treatment. In this study, we examine how state parity laws affect out-of-pocket (OOP) health care spending and other measures of the financial burden of mental health treatment costs on families. We use data from the national 2000 State and Local Area Integrated Telephone Survey (SLAITS) National Survey of Children with Special Health Care Needs (CSHCN) to study how state parity laws affect children with mental health disorders. These data are a large nationally representative sample of children whose parents report that they had more health care needs or disability than other children, and that the their condition is expected to last for at least 12 months. This allows us to examine the impact of parity on the child population most likely to benefit—those with more severe mental health care needs. We compare those in parity and nonparity states and those needing mental health care with other special needs children. A difficulty in estimating the impact of state parity laws on health care outcomes in cross-sectional data lies in the potential confounding effects of state characteristics that may be associated with both the passage of parity legislation and the use of mental health care by children and adolescents (also known as omitted variable bias or endogeneity). Level of stigma is one example of a factor that might be heterogeneous across states that could affect both the likelihood of state enacting a parity policy and the family financial burden of mental health services use within a state. We use instrumental variable estimation controlling for detailed information on a child's health and functional impairment to address this problem. We chose our instruments on the basis of political theory on state policy making. Dating back to Daniel Elazar's classic study of state political cultures (1966), empirical research has supported the view that electoral beliefs, legislative institutions, and policy priorities are uniquely ascribed to a state.1 Based on this conceptual frame, we view the likelihood of passing parity as a function a state's political party power structure, a state electorate's political ideology, and the professionalism of a state's legislature. Our results indicate that living in a parity state significantly reduced the financial burden on families of children with mental health care needs. Specifically, the likelihood of a child's annual OOP health care spending exceeding $1,000 was significantly lower among families of children needing mental health care living in parity states compared with those in nonparity states. Families with mentally ill children living in a parity state also had significantly lower reports of various other measures of financial burden compared with those in nonparity states. These results indicate that state parity laws are providing important economic benefits to families of mentally ill children undetected in prior research.