Estimating Mental Health / Substance Abuse Parity Costs: Do Deductibles Matter?

Rationale. It has become a common practice among many US health insurance plans to create separate ("carved-out") coverage for the mental health (MH) and/or substance abuse (SA) services, and to impose tighter cost-sharing requirements. This situation is often characterized as unfair and discriminatory towards people with MH/SA diagnoses, preventing them from seeking much needed treatment. Parity laws are supposed to mandate equitable coverage of MH (and/ or SA) services, compared to general medical care. The perceived outcome of the parity laws is improved access to care for the MH/SA population, resulting from lower cost sharing requirements. However, the cost of the switch to parity is of major concern. Several studies have already been done, most of them have found parity affordable under managed care. However, the effect of separate deductibles for MH/SA care on parity costs was not closely examined. Objective. To establish and quantify the effect of separate deductibles for MH/SA services on the health care costs and utilization of privately insured non-elderly population in the USA; and to infer the implications for MH/SA parity costs estimates. Data Sources. Medical claims, enrollment records and health benefits design from 40 large health care plans in 1998, obtained through MEDSTAT Group Inc., provided financial and demographic information on more than one million enrollees. Methodology. A translog model with interaction terms and polynomials was used to obtain derivatives at various values of MH/SA deductibles. Marginal effects are modeled as projected changes in average enrollee's annual costs or utilization, per $1-change in MH/SA deductible, in 1998 dollars. Parity cost is estimated by simulating a removal of the 2nd deductible and predicting the resulting effect on costs. Principal Findings. The relationship between MH/SA deductibles and medical costs was found to be negative, the range of derivatives variation is established as (-$19) to (-$0), depending on health plans' and enrollees' characteristics. Elasticity of health expenditures towards the level of MH/SA deductible is estimated to be in the neighborhood of (-0.50), indicating high propensity of MH/SA population to substantially decrease both spending and utilization. Mandating MH/SA parity in deductible levels is predicted to increase average enrollee's annual costs in the observed plans by 34 to 60%. Consistent with the most of the recent research on parity costs, managed care tools were found to be capable of significantly contributing towards cost containment. However, simulated simultaneous adjustment of managed care tools did not necessarily offset parity costs in every health plan. Conclusions. We find that separate deductibles for MH/SA services are indeed important determinants of the parity costs, higher deductibles do have the power to restrict medical costs substantially, and thus private insurers are not likely to support full parity laws. Policy implications. If parity laws are indeed enacted, private insurers are likely to pass the anticipated increase in costs onto all enrollees, through increase in cost sharing, premiums and / or tightening of managed care administrative tools, making health insurance even less affordable. Thus, such policy can potentially lead to further increase in the numbers of uninsured in the US.