How would mental health parity affect the marginal price of care?

To determine the impact of parity in mental health benefits on the marginal prices that consumers face for mental health treatment.

We used detailed information on health plan benefits for a nationally representative sample of the privately insured population under age 65 taken from the 1987 National Medical Expenditure Survey (Edwards and Berlin 1989). The survey was carefully aged and reweighted to represent 1995 population and coverage characteristics.

We computed marginal out-of-pocket costs from the cost-sharing benefits described by policy booklets under current coverage and under parity for various mental health treatment expenditure levels using the MEDSIM health care microsimulation model developed by researchers at the Agency for Healthcare Research and Quality. Descriptive analyses and two-limit Tobit regression models are used to examine how insurance generosity varies across individuals by demographic and socioeconomic characteristics. Our analyses are limited to a description of how parity would change the marginal incentives faced by consumers under their existing plan's cost-sharing arrangements for mental and physical health care. We do not attempt to simulate how parity might affect the level of benefits, including whether benefits are offered at all, or the level of managed care that affects the actual benefits that plan members receive. Rather, we focus only on the nominal benefits described in their policy booklets.

Our results show that as of 1995 parity coverage would substantially reduce the share of mental health expenditures that consumers would pay at the margin under their existing plan's cost-sharing provisions, with larger changes for outpatient care than for inpatient care. Because current mental health coverage generally becomes less generous as expenditures rise, while coverage for other medical care becomes more generous (due to stop-loss provisions), the difference in incentives between current mental health coverage and the assumed parity coverage widens as total expenditure grows. We also find that the impact of parity on marginal incentives would vary greatly across the privately insured population.

Based on the large variation in the impact of parity on marginal incentives across the population under current plan cost-sharing arrangements, changes in the demand for mental health treatment will likely also vary across the population.