Private Health Insurance: Access to Individual Market Coverage May Be Restricted for Applicants with Mental Disorders
Published: 2002-02-28T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: Five percent of adults suffer from serious mental disorders. Although health insurance carriers in a few states guarantee coverage for mental health treatment, in most states individuals with mental disorders face restrictions in purchasing private health insurance for themselves and their families. Eleven states require carriers to accept all applicants regardless of health status, but coverage options vary. Eight of these 11 states require all carriers to guarantee access to coverage sold in this market. In three states, laws apply only to some carriers, such as Blue Cross and Blue Shield, or certain periods of the year. Carriers in nine of the 11 states are also required to limit the extent to which premium rates vary between healthy and unhealthy individuals. In states without guaranteed coverage in the individual market, the seven carriers GAO reviewed would likely deny coverage more frequently for applicants with mental disorders than for applicants with other chronic health conditions. Specifically, for six mental disorders of generally moderate severity, carriers said that they would likely decline applicants 52 percent of the time. State-sponsored high-risk pools are the primary coverage option available to rejected applicants in most states. In 27 of the 34 states where carriers may deny coverage to applicants with mental disorders or other health conditions, high-risk pools offer coverage to applicants denied individual market coverage. The pools are subsidized--generally through assessments on carriers or state tax revenues--and premium rates are generally capped at 125 to 200 percent of standard rates for healthy individuals. Health benefits available under the pools are generally comparable to those available in the individual market, including similar restrictions on mental health benefits; however, benefits for mental disorders or other health conditions are not permanently excluded as they may be in the individual insurance market.

section_title: Letter
paragraphs: About 19 percent of American adults suffer from some type of mental  disorder each year. Most are nonsevere in nature but about 5 percent of  adults have serious mental disorders. While many of these adults have  access to employer-sponsored group health coverage or public programs  such as Medicare or Medicaid, some without such coverage may seek to  purchase health insurance directly in the individual market. This market  provided about 12.6 million Americans with their sole source of health  coverage in 2000. States are the primary regulators of individual health  insurance, and most states allow individual market insurance carriers to  medically underwrite—that is, evaluate applicants’ health status and  possibly deny coverage, offer more limited benefits, or charge higher  premiums to applicants with any health condition, including mental  disorders.
Because of concerns that individuals with mental disorders may face  problems obtaining coverage for themselves and their families in the  individual health insurance market, you asked us to examine carriers’  underwriting practices in this market segment. In particular, you asked us  to examine the following questions:  1.  To what extent do states require individual market carriers to  guarantee access to coverage and limit premiums for applicants and  their families with mental disorders?  2.  How do individual market carriers’ coverage and premium decisions  affect applicants with mental disorders, and how do these decisions  compare to those for applicants with other chronic health conditions?  3.  When denied coverage, what other health insurance options are  available to those with mental disorders?
To determine the extent to which states require carriers to guarantee  access to coverage and the coverage options available to declined  applicants in states without guaranteed access, we reviewed published  summary data on insurance laws and programs to provide coverage for  applicants denied individual market coverage in all of the states, including  the District of Columbia. We discussed state insurance laws and  regulations with regulators in 6 states—California, Connecticut, Georgia,  Illinois, Mississippi, and Montana—that are among the states in which  carriers are not required to guarantee access to coverage in the individual  market. We also interviewed health insurance agents in each of these  states to discuss their experiences finding health insurance coverage for  applicants with mental disorders.
To identify health insurance carrier practices related to coverage and  premium decisions, we interviewed or obtained data from seven large  health insurance carriers regarding their health plans and underwriting  practices. Although we cannot generalize the practices of these seven  carriers to all individual market carriers, the seven carriers collectively  insure more than 10 percent of all individual market enrollees and sell  coverage in most of the states in which carriers are permitted to medically  underwrite. We examined the underwriting practices of the seven carriers  for hypothetical applicants with one of six mental disorders and 1 of 12  other chronic health conditions. We selected the six mental disorders  based on their prevalence—each affects over 1 million Americans—and  we selected the 12 other chronic health conditions based on certain  clinical characteristics they share in common with the mental disorders.  We also analyzed 1997 health care cost and utilization data from the  Medical Expenditure Panel Survey, a national survey administered by the  Department of Health and Human Services. We conducted our work from  July 2001 through February 2002 according to generally accepted  government auditing standards. Appendix I provides more details about  our scope and methodology, and a list of related GAO products is included  at the end of this report.
subsections: section_title: Background
paragraphs: About 19 percent of the nation’s adults and 21 percent of youths ages 9 to  17 have mental disorders at some time during a 1-year period. Among  adults, about 5 percent have severe mental disorders, and nearly 3 percent  have mental disorders that are both severe and persistent. Mental  disorders include a wide range of specific conditions of varying  prevalence. For example, chronic mild depression and major depressive  disorders collectively affect about 10 percent of all adults during a 1-year  period, and attention deficit/hyperactivity disorder affects about 4 percent  of youths age 9 to 17 during a 6-month period. Table 1 indicates the  prevalence of selected mental disorders, each of which affects more than 1  million adults in a given year.
Health insurance is an important factor influencing whether individuals  with mental disorders have access to treatments that can be effective in  diminishing the symptoms of disorders and improving patients’ quality of  life. Absent treatment, according to the surgeon general, many individuals  with mental disorders may suffer increased incidents of lost productivity,  unsuccessful relationships, and significant distress and dysfunction.  Untreated mental disorders among adults can also have a significant and  continuing effect on children in their care.
subsections: section_title: Many Americans Rely on the Individual Health Insurance Market
paragraphs: Although the majority (68 percent) of Americans under age 65 have  employer-sponsored group coverage, a significant minority (5 percent, or  12.6 million) relied on private, individual health insurance as their only  source of coverage in 2000. Individuals with certain labor force or  demographic characteristics are more likely to depend on individual  coverage than the general population. For example, 14 percent of workers  in agriculture, forestry, and fisheries, and 19 percent of the self-employed,  relied exclusively on individual health coverage in 2000. Moreover, the  individual insurance market is an important source of coverage for early  retirees—people in their fifties and early sixties who are not yet eligible  for Medicare. About 13 percent of retirees between 50 and 64 had  individual health insurance as their sole source of coverage in 2000.
Moreover, federal and state laws provide certain guarantees for eligible  individuals moving from group to individual coverage. Portability  provisions established by the Health Insurance Portability and  Accountability Act of 1996 (HIPAA) guarantee access to coverage for  certain individuals leaving qualified group coverage.  To implement these  portability requirements, states adopted different approaches, typically  including guaranteed coverage by individual market carriers or enrollment  in a state high-risk pool.  To be HIPAA-eligible, individuals must meet  certain requirements, including exhausting any group continuation  coverage available under the Consolidated Omnibus Budget Reconciliation  Act of 1985 (COBRA) or state law.
section_title: The Individual Health Insurance Market Differs from the Group Market
paragraphs: Important differences exist between the individual and group health  insurance markets. Unlike employer-sponsored group coverage, where  eligibility in a group is guaranteed by federal and state laws and premiums  are generally based on the risks associated with a group of beneficiaries,  eligibility and initial premiums in the individual markets of many states are  based largely on an individual’s health status and risk characteristics.  Also, unlike group markets, in which employers generally subsidize  premiums, individuals must pay the full cost of their health insurance  premiums. Finally, while both federal and state governments regulate  group coverage, individual coverage is regulated almost exclusively at the  state level.
Individual market carriers are concerned about the potential for adverse  selection. Adverse selection occurs when people who believe they are  healthy refrain from purchasing individual market coverage because of its  high cost and unsubsidized nature. If healthy people refrain from  purchasing coverage, high-risk individuals may make up a  disproportionate share of those seeking to purchase individual coverage,  causing claims costs to rise. Carriers may then need to raise premiums to  compensate. Responding to the higher premiums, healthier members of  the pool may disenroll, resulting in an increasing spiral of higher risks and  higher costs. To mitigate the potential for adverse selection, carriers in  most states are permitted to use medical underwriting—that is, evaluate  the health status and risk characteristics of each applicant and make  coverage and premium decisions based on that information.
Although both group and individual market health insurance plans  generally include greater restrictions on mental health benefits than on  benefits for other services, these restrictions are usually greater among  individual market plans. Where not precluded by law, restrictions on  mental health benefits can include (1) lower annual or lifetime dollar  limits on what the plan will pay, (2) lower service limits, such as fewer  covered hospital days or outpatient office visits, and (3) higher cost  sharing, such as deductibles, copayments, or coinsurance. A typical group  or individual health plan, in the absence of a requirement that mental  health benefits and other benefits be equal, might cover unlimited hospital  days and outpatient visits, pay 80 percent of covered services, and impose  a lifetime limit of $1 million for other benefits. However, for mental health  benefits, a typical group plan might cover only 30 hospital days and 20  outpatient visits per year, pay only 50 percent of covered services, and  impose a $50,000 lifetime limit. Among individual market plans, if offered  coverage, an individual may typically face even greater restrictions on  mental health benefits, such as a lifetime dollar limit of $10,000 or an  annual dollar limit of $3,500. Moreover, some individual market carriers  may offer no benefits for outpatient care, such as visits to a mental health  professional; may offer mental health benefits only under a separate policy  at an increased cost; or may not offer any benefits for mental health  treatment.
Federal and state laws have begun to partially equalize benefit levels,  although few of the laws apply to individual market plans. The Mental  Health Parity Act of 1996 prohibited certain group plans from imposing  annual or lifetime dollar limits on mental health benefits that are more  restrictive than those imposed on other benefits, although provisions did  not place restrictions on other plan features such as hospital day or  outpatient visit limits. The provisions apply only to group plans sponsored  by employers with more than 50 employees and do not apply to coverage  sold in the individual market. Several states have passed laws that exceed  the federal law by requiring that plans not only require parity in dollar  limits, but also in service limits and cost sharing provisions. However,  most of these state laws apply to group coverage and not individual  coverage. As of March 2000, only 10 states required that mental health  benefits be on a par with other benefits for all coverage sold in the  individual market.
section_title: In A Minority of States, Individual Market Carriers Guarantee Access to Coverage
paragraphs: Access to the individual insurance market for persons with mental  disorders or other health conditions depends largely on the insurance  laws—and in limited instances, carrier practices—in their states. In 11  states, laws require that individuals with mental disorders or other health  conditions be guaranteed access to coverage, regardless of health status.  In 8 of the 11 states, all carriers participating in the individual market must  guarantee access to at least one product to all applicants. In the remaining  3 states only certain carriers, such as health maintenance organizations  (HMO) or Blue Cross and Blue Shield plans, guarantee access to coverage  to all applicants. For example, in Michigan, state law requires the Blue  Cross and Blue Shield plan to guarantee access to coverage for all  applicants, and in Maryland, HMOs are required to have an open  enrollment period every 6 months during which all applicants must be  accepted regardless of health status.
In 9 of the 11 states in which carriers are required to guarantee access to  individual market coverage, carriers must also limit the extent to which  premium rates vary between healthy and unhealthy applicants and thereby  improve the affordability of coverage for high-risk individuals. Rate  restrictions generally fall into two categories known as community rating  or rate bands. Carriers in 6 of the 9 states use community rating. Under  pure community rating, carriers set premiums at the same level for all  enrollees, regardless of health status or demographic factors. Under  adjusted community rating, limited adjustments are made for certain  demographic factors, such as age, gender, or geographic location, but  generally not for health status. For example, Maine permits premium rates  to vary by no more than 20 percent above or below the standard rate for  certain demographic factors, including age. Three of the 9 states require  carriers to use rate bands to reduce the variation in premiums. Like  adjusted community rating, rate bands permit limited adjustments from a  base rate, but typically provide for a greater number of adjustments,  including for health status, and a greater degree of variation in premium  rates. For example, Idaho allows carriers to vary premiums by up to 25  percent above or below the standard rate for health status. Table 2  indicates the states in which carriers are required guarantee access to  coverage and whether they are also required to limit the variation in  premium rates.
In 6 additional states, certain carriers—typically Blue Cross and Blue  Shield plans—voluntarily guarantee access to coverage. In 3 of these 6  states, carriers use community rating to establish premiums. In the states  where carriers do not use community rating, premiums for high-risk  applicants may be significantly higher than standard rates. For example,  several insurance agents in North Carolina said guaranteed access  coverage for high-risk applicants in the state can cost several times the  standard rate for a healthy applicant, or about $1,000 to $1,200 monthly.  (See table 3.)
Analysts have written extensively on the trade-offs involved in health  insurance regulations intended to improve access to coverage. In general,  requirements that carriers accept all applicants and limit the variation in  the premiums they charge can result in improved access and affordability  for high-risk applicants but may result in higher premiums for healthy  applicants, which may lead some to discontinue their health insurance  coverage.
section_title: In Other States, Applicants with Mental Disorders May be More Likely to be Denied Coverage
paragraphs: In the 34 states where individual market carriers are not required to  guarantee access to coverage, carriers may deny coverage to any high-risk  applicant, but may be more likely to deny coverage to those with mental  disorders than other chronic health problems. The seven carriers  participating in our study that sell individual market coverage in many of  these states were more likely to deny coverage for hypothetical applicants  with selected mental disorders (52 percent of the time) than for other  selected chronic health conditions (30 percent of the time). Some carrier  officials said it is more difficult to predict treatment costs for applicants  with mental disorders, perhaps contributing to the reluctance of some  carriers to offer coverage. However, our analysis of treatment cost  variation for selected mental disorders and other chronic health  conditions found that both had similarly wide variations in costs.
subsections: section_title: Individuals with Selected Mental Disorders Likely to Incur High Claims and Thus Be Denied Coverage
paragraphs: Carriers participating in our study would likely deny coverage to slightly  more than half of the applicants currently being treated for one of six  selected mental disorders. Generally, where not precluded by state or  federal law, carriers may decline coverage to any applicant considered to  be high risk. Health care cost and utilization data indicate that individuals  with mental disorders, like others with health problems, are likely to incur  higher-than-average health care costs. Thus, carriers may deny coverage  or, if they offer it, charge a higher premium or restrict benefits, subject to  state regulations.
We asked the seven responding carriers to assume a hypothetical  applicant had a selected mental disorder that had been previously  diagnosed, and was of moderate severity and for which the applicant was  on prescription medication or had otherwise received medical treatment  for the disorder within the prior year. We found that most carriers would  likely reject an applicant with posttraumatic stress disorder,  schizophrenia, manic depressive and bipolar disorder, and obsessive- compulsive disorder. (See table 4.) Nearly half would likely deny coverage  for chronic depression. In most instances in which coverage would likely  be offered, applicants would be charged higher premiums and could have  benefits limited—such as by permanently excluding coverage for the  mental disorder. For example, one carrier would accept for coverage an  applicant with chronic depression, but would charge 45 percent above the  standard rate. Another carrier would similarly accept an applicant with  chronic depression, but would eliminate coverage for treatment of the  depression in addition to charging the applicant 40 percent above the  standard rate. An applicant or family member with attention deficit  disorder would least likely be denied coverage. Only one carrier would  likely deny such an applicant outright, and three carriers would likely offer  full coverage at the standard rate. The other three carriers would likely  offer coverage but charge higher premiums, offer more limited benefits, or  both.
Carrier underwriting practices can vary considerably. For example, an  official from one carrier said that only applicants with serious cases of  depression and obsessive-compulsive disorders who are heavily medicated  would be declined coverage, while another carrier indicated it would  decline any applicant with chronic depression, regardless of severity, if  currently under treatment. Officials from two carriers pointed out that  declined individuals could reapply and be accepted later if their health  problems resolve themselves. One of the carrier officials said an initially  declined applicant could be offered coverage under a plan other than the  one applied for, although the premiums would likely be higher. Health  insurance agents we contacted similarly emphasized the variability of  carrier underwriting practices.
Published research also illustrates the variation in carrier underwriting  practices as they relate to mental disorders. For example, one recent study  specifically examined individual market carrier treatment of situational  (short-term) depression. The study of carriers in eight localities around the  country found that 23 percent would decline an applicant, 62 percent  would offer coverage with a premium increase and/or a benefit limit, and  15 percent would offer full coverage at the standard rate.
In addition, carriers’ underwriting practices relating to applicants with a  history of treatment for mental disorders can vary considerably.  Information we obtained during current and prior work examining the  individual health insurance market indicates that some carriers may  require applicants to be treatment-free for 6 months to 10 years before  applications will be considered, depending on the carrier and the prior  disorder. For example, the underwriting manual of one multistate carrier  indicates that applicants treated for a specified set of mental disorders of  moderate severity could be declined if treated within the prior year and  either declined or accepted at a higher premium if treated from 1 to 5  years prior to the current application. Another carrier underwriting  manual indicates that applicants treated for any neurotic or psychotic  disorder would be declined until treatment-free for 2 or 5 years, depending  on the nature and severity of the prior disorder.
section_title: Carriers May Be More Likely to Decline Applicants with Mental Disorders than with Other Chronic Health Conditions
paragraphs: To determine whether disparities exist in carrier underwriting practices  based on whether an applicant has a mental or other chronic health  condition, we compared the seven carriers’ likely underwriting decisions  for six mental disorders with 12 other chronic health conditions. Our  comparisons show that, although any applicant with a health condition  may be declined, most carriers were more likely to decline applicants with  one of the selected mental disorders than other selected chronic health  conditions—52 percent versus 30 percent, respectively. (See figure 1.) For  52 percent of the 42 underwriting decisions related to applicants with the  selected mental disorders, the carriers in our study indicated that they  would likely decline the applicants. Only 7 percent of applicants with the  selected mental disorders would likely be accepted at the standard  premium with standard benefits. The remaining 41 percent would likely be  accepted for coverage, but with increased premiums and/or limited  benefits. Estimates of premium increases ranged from 20 to 100 percent  above the standard rate for a healthy applicant. Benefit restrictions  typically involved exclusions of coverage for treatment of the disorder  either temporarily—for example, one carrier would likely exclude  coverage for 2 to 5 years—or permanently. In comparison, for only 30  percent of the 84 underwriting decisions related to applicants with other  selected chronic health conditions would the carriers likely decline the  applicants. Similar to applicants with the selected mental disorders who  might be accepted for coverage, applicants with other selected chronic  health conditions accepted for coverage would also likely face other  adverse underwriting actions. In half of the instances, applicants with  other selected chronic health conditions would be charged a higher  premium, offered more limited benefits, or both. In 20 percent of the  instances an applicant would likely be offered full coverage at the  standard premium rate.
While carriers may be more likely to decline applicants with more costly  disorders, in some cases they may also be more likely to decline applicants  with mental disorders than applicants with other chronic conditions with  similar costs. Figure 2 compares the seven carriers’ likely underwriting  decisions related to the selected mental and other chronic health  conditions. We grouped the disorders into four cost quartiles to enable  comparisons of underwriting decisions for mental and other chronic  health conditions that have similar expected health care costs. Cost  estimates reflect the average total annual health care costs (including  insured and out-of-pocket costs) for individuals with the specified mental  disorders or chronic conditions, based on national health care cost and  utilization survey data. For example, for the mental disorder and the  other chronic health condition in the highest cost quartile, five of the  seven carriers would likely decline an applicant with schizophrenia while  one would likely decline an applicant with osteoarthritis.
section_title: Cost Variability Cited as a Key Reason to Deny Coverage to Applicants with Selected Mental Disorders
paragraphs: To explain the greater likelihood of denying coverage to applicants with  the selected mental disorders, several carrier officials and agents said that  costs for treating mental disorders can be subject to greater variability  than costs for treating other chronic health conditions, making it more  difficult to accurately price for the unknown risk. They cited three factors  that may contribute to treatment cost variability and unpredictability.  First, they said that diagnosing mental disorders involves greater  subjectivity than diagnosing most other health conditions. According to  one carrier representative, different clinicians might arrive at different  diagnoses for mental disorders, which, in turn, suggest different treatment  approaches and thus variable claims costs. Second, several carrier officials  and agents said that an individual with a mental disorder is likely to have  additional health problems. For example, a carrier official said that  someone suffering from depression or an anxiety disorder is also likely to  incur claims for the treatment of stomach problems, headaches, or chronic  fatigue. Finally, several carrier officials and agents said that certain forms  of treatment for mental disorders have a tendency to be overused. For  example, an agent said that many individuals become dependent upon and  thus overuse expensive outpatient therapy or certain prescription drugs.
Representatives from one carrier that generally accepts individuals with  mental disorders said that the carrier has found no basis for  disproportionately excluding applicants with mental disorders. According  to one senior official of this carrier, which has a large pool of individual  market enrollees, enrollees with mental disorders are not more likely to  suffer from comorbid conditions than those with physical conditions. And  while this official agreed with other carrier officials and agents that  outpatient therapy has the potential for overuse, he believed that the  plan’s cost sharing arrangements and service limits mitigate this tendency  without the need for more restrictive underwriting. Regarding the  subjectivity in diagnoses and varied treatment approaches, the official said  that a majority of mental health treatment involves outpatient therapy, for  which costs per visit are relatively predictable, and the number of visits is  limited by cost sharing arrangements and service limits.
To examine the extent of cost variation associated with the six mental  disorders and 12 other chronic health conditions we reviewed, we  analyzed national health care cost and utilization data and found that both  types of disorders had similarly wide variations in cost. We also analyzed  the data to determine whether individuals with the selected mental  disorders had a higher number of additional health problems on average  than did individuals with the selected other chronic health conditions and  did not identify a disparate relationship, that is, both the mental disorders  and chronic conditions had similar average numbers of comorbidities— from 3.4 to 6.1 for the mental disorders and from 4.2 to 6.6 for the other  chronic conditions.
section_title: High-Risk Pools Are the Primary Source of Coverage for Applicants with Mental Disorders Who Are Denied Coverage
paragraphs: Options available to individuals with mental disorders who are denied  coverage in the individual market are limited. For most, state high-risk  pools serve as the primary source of coverage. High-risk pool coverage  typically costs 125 to 200 percent of standard rates for healthy individuals,  and the risk pools’ mental health benefits are generally comparable to  those available in the individual market, including more restrictions on  mental health benefits than other benefits. In 7 states without guaranteed  access laws or risk pools, most applicants denied coverage in the  individual market may have very limited or no coverage alternatives.
subsections: section_title: Risk Pools Operate in Most States Where Carriers Medically Underwrite
paragraphs: Risk pools operate in 27 of the 34 states where individual market carriers  do not guarantee access to coverage for all applicants. A risk pool is  typically a state-created, not-for-profit association that offers  comprehensive health insurance benefits to high-risk individuals and  families who have been or would likely be denied coverage by carriers in  the individual market. Premiums for pool coverage are higher than  standard insurance coverage for healthy applicants, although not  necessarily higher than a high-risk applicant could be charged in the  individual market if coverage were available. State laws generally cap risk  pool premiums at 125 to 200 percent of comparable commercial coverage  standard rates.
Health benefits contained in state high-risk pool plans are generally  comparable to those available in the individual market; however, benefits  for mental disorders or other health conditions are not permanently  excluded as they can be in the individual insurance market. Also like  private plans, nearly all plans offered by risk pools use features that  restrict mental health benefits more than other benefits. For example, see  the following.
Five pools set significantly lower lifetime dollar maximum limits for  mental health benefits ($4,000 to $50,000) than for other benefits ($1  million to unlimited).
Eight pools impose more restrictive limits on inpatient mental hospital  days (commonly 30 or fewer) than on other inpatient hospital days (often  unlimited).
Six pools limit mental health outpatient visits to from 15 to 20 annually,  and one offers no outpatient benefits, though other outpatient visits are  generally unlimited.
Five pools reimburse 50 percent for mental health benefits rather than the  usual 80 percent for other benefits.
Because medical claims costs exceed the premiums collected from  enrollees, all risk pools operate at a loss, thus requiring subsidies. States  generally subsidize their pools through various funding sources, including  surcharges on private health insurance premiums (individual and group)  and state general revenue funds. In three recent instances, risk pool  applicants have had to wait for coverage to take effect because of funding  limits. As of January 2002, risk pool applicants in California and Louisiana  had to wait to receive benefits under the pool. In California, applicants  must wait about 1 year to receive benefits. In Louisiana, applicants have  been waiting since August 2001 for funding to become available. The risk  pool in Illinois has had waiting lists in the past because of inadequate  funding, most recently from September 2000 through the early summer of  2001.
section_title: In 7 States, Applicants with Mental Disorders May Have Few or No Coverage Options Available
paragraphs: In 7 states without a guaranteed issue requirement or a high-risk pool,  applicants with mental disorders or other health conditions who are not  eligible for continuation of group coverage or HIPAA portability coverage  and who are denied coverage in the individual market may have very  limited or no other access options. For example, in Georgia, insurance  regulators said that, absent eligibility for a publicly funded program for  low-income individuals such as Medicaid, individuals with mental  disorders who are denied coverage by private carriers in the individual  market have no other available coverage options.
section_title: Concluding Observations
paragraphs: In most states, applicants with any health problems may have difficulty  finding affordable coverage in the individual insurance market, and those  with mental disorders may face even greater challenges. Because of  concern that individuals with mental disorders will incur more variable  and less predictable health care costs than individuals with other chronic  health conditions, some carriers may be more likely to deny them  coverage. However, our analysis of national health care cost data did not  identify such a disparity for the selected mental and other chronic  disorders we reviewed. If applicants with mental disorders obtain  coverage, mental health benefits are typically more restricted than other  benefits in most states. Although most applicants who are denied  individual market coverage for any health condition may obtain coverage  in a state-sponsored high-risk pool, affordability is still an issue, with  premiums typically 125 to 200 percent of standard rates in the private  market. Moreover, like private coverage, high-risk pools typically restrict  mental health benefits more than other benefits. In those few states with  neither guaranteed coverage nor high-risk pools, most applicants with  mental disorders may have few, if any, options for health insurance  coverage.
section_title: Comments From External Reviewers
paragraphs: Representatives of the American Psychiatric Association (APA), the Blue  Cross and Blue Shield Association (BCBSA), the Health Insurance  Association of America (HIAA), and the National Alliance for the Mentally  Ill (NAMI) provided comments on a draft of our report. The APA and  NAMI representatives concurred with the report’s findings and  conclusions, while BCBSA and HIAA expressed several concerns about  some of our findings and conclusions.
BCBSA and HIAA commented that coverage is more widely available to  applicants with mental disorders in many states than we concluded. For  example, HIAA indicated that it would be more appropriate to consider  the 27 states with high-risk pools to have guaranteed access to health  insurance. We agree that either approach—guaranteed access in the  individual insurance market or high-risk pools—can provide applicants  with access to health insurance coverage. However, we distinguished  those states with carriers that are required or voluntarily agree to  guarantee access from states with high-risk pools because there are  differences in how individual insurance carriers underwrite in these states.  For example, in states with guaranteed access in the individual insurance  market, some or all carriers do not deny coverage to applicants with  mental disorders and there are often premium restrictions that make  coverage more affordable for high-risk applicants. In contrast, in states  that do not guarantee access in the individual insurance market, carriers  can deny coverage to applicants but the applicants can seek coverage  through a high-risk pool. Like plans typically available in the individual  market, high-risk pool benefits for mental disorders are often more limited  than other benefits, premiums are typically 125 to 200 percent of standard  individual insurance rates, and a few states have had waiting lists for  eligible high-risk pool participants. As we have noted, only 7 states have  neither guaranteed coverage in the individual insurance market nor a high- risk pool program.
Further, both BCBSA and HIAA noted that at least some states with  requirements that carriers guarantee access to all individuals have had  negative unintended consequences, such as average premium increases,  some individuals dropping coverage, and some carriers leaving the market.  While it was beyond our scope to assess the experience of states that  require carriers to accept all applicants and limit premium variation, we  have noted that there are trade-offs between increasing access and  affordability for high-risk applicants while increasing premiums for  healthy applicants and we cite other studies that have further examined  these issues.
BCBSA and HIAA also indicated that the reports’ findings on the number  and percentage of applicants who would be denied coverage are  dependent on the mental and other chronic disorders selected for study.
For example, BCBSA stated that if different chronic disorders had been  selected, such as cancer, heart disease, chronic obstructive pulmonary  disease, or human immunodeficiency virus (HIV), the difference in denial  rates between applicants with mental disorders and those with other  chronic disorders may have disappeared. We agree that our findings are  limited to the specific conditions selected and the carriers responding to  our requests for information. We did not compare mental disorders to  nonmental disorders of a more serious or life-threatening nature—such as  those cited by BCBSA—because we did not believe such comparisons  would be valid, and previous studies have shown that insurers are likely to  deny coverage for applicants with many of these life-threatening  conditions. We selected the other chronic conditions based on several  criteria to enhance their comparability with mental disorders, in particular  that they be of a chronic and manageable nature. We agree that within  either the selected mental disorders or other chronic disorders there is a  range of clinical severity, expected treatment costs, and insurer  underwriting practices. Therefore, we asked the seven carriers to consider  that each of the disorders was of moderate severity and that the applicant  was taking prescribed drugs or received other medical treatment for the  disorder within the past year.
BCBSA and HIAA provided other technical comments that we  incorporated as appropriate.
As we agreed with your office, unless you publicly announce this report’s  contents earlier, we plan no further distribution until 30 days after its date.  We will then send copies to other interested congressional committees and  members. We will also make copies available to others on request. Please   call me at (202) 512-7118 or John Dicken, assistant director, at (202) 512- 7043 if you have any questions. Other major contributors are listed in  appendix II.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the extent to which states require individual market carriers  to guarantee access to coverage, we reviewed summary data for all states  published by the Commonwealth Fund in collaboration with Mathematica  Policy Research, Inc. in August 2001, and the Institute for Health Care  Research and Policy, Georgetown University, updated as of June 14, 2000.  Although we did not independently verify these data, we did follow up  with state insurance regulators in selected instances when we had reason  to believe that the summary data were no longer current. We also  contacted insurance regulators in 6 states—California, Connecticut,  Georgia, Illinois, Mississippi, and Montana—to discuss the implications of  state insurance regulation. We selected these states to represent a cross  section of states in which carriers are not required to guarantee access to  coverage in the individual market.
To identify health insurance carrier practices related to coverage and  premium decisions, we contacted 25 individual market carriers nationally  to request their participation in our study. We also asked the BCBSA and  the HIAA to contact some of their members to request participation. Seven  carriers that offer HMO, preferred provider organization, or traditional fee- for-service plans across the country agreed to participate. We interviewed  or obtained data from these carriers regarding their health plans and  underwriting practices. We cannot generalize the practices of these seven  carriers to all individual market carriers; however, the seven carriers  collectively insure more than 10 percent of all individual market enrollees  and sell coverage in most of the states in which carriers are permitted to  medically underwrite.
We compared the underwriting practices of the seven carriers for selected  mental disorders and other chronic health conditions. We selected six  mental disorders, each of which affects over 1 million Americans. We  selected the other chronic health conditions based on certain clinical  characteristics they share in common with mental disorders. Among other  criteria, the health conditions selected are generally of a chronic and  manageable nature, may require prescription drug therapy, may require  care throughout the patient’s life, and may be of intermittent severity. We  asked the seven carriers to consider that each of the disorders was of  moderate severity and that the applicant was taking prescribed drugs or  received other medical treatment for the disorder within the past year.  We discussed our approach of comparing mental disorders and other  chronic health conditions with mental health experts and an insurer risk  management consultant. To ensure that individuals with the mental  disorders and chronic health conditions we compared were likely to incur  similar health care costs, we analyzed 1997 cost data from the Medical  Expenditure Panel Survey, a national survey of health care cost and  utilization administered by the Department of Health and Human Services.  We calculated the total average annual health care costs incurred by  individuals with the selected disorders. These cost data do not provide  definitive estimates of the cost of treating specific disorders, however,  because the data set aggregated costs for several clinically similar  disorders. For example, treatment costs for obsessive-compulsive  disorders are aggregated with costs for other related disorders, including  hypochondria, panic disorder, and phobic disorders. We also used the data  to examine the extent of variation in total health care costs incurred by  individuals with the selected mental and other disorders and the extent to  which individuals with the selected disorders are likely to have additional  health problems.
Finally, to examine additional health insurance coverage options available  to high-risk individuals, we summarized state high-risk pool program  information published in the literature and reviewed alternative coverage  options during our interviews with insurance regulators in the 6 states. We  also interviewed health insurance agents in the 6 states to discuss their  experiences finding coverage for clients with mental disorders.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Randy DiRosa and Betty Kirksey made key contributions to this report.
In addition, Kelli Jones and Kara Sokol provided statistical support.
section_title: Related GAO Products
paragraphs: Mental Health Parity Act: Despite New Federal Standards, Mental Health  Benefits Remain Limited. GAO/HEHS-00-95. Washington, D.C.: May 10,  2000.
Private Health Insurance: Progress and Challenges in Implementing  1996 Federal Standards. GAO/HEHS-99-100. Washington, D.C.: May 12,  1999.
Health Insurance Standards: New Federal Law Creates Challenges for  Consumers, Insurers, Regulators. GAO/HEHS-98-67. Washington, D.C.:  February 25, 1998.
Private Health Insurance: Millions Relying on Individual Market Face  Cost and Coverage Trade-Offs. GAO/HEHS-97-8. Washington, D.C.:  November 25, 1996.