Health Insurance and Mental Health Parity

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Former Patient

For many years, health insurance covered medical illnesses, but provided little coverage for mental illnesses. In recent years, state and federal legislation has required that health insurance provide the same level of coverage for mental illness that it provides for medical illnesses, but complete mental health parity has not yet been achieved.

A review of mental health parity laws demonstrates that, while progress has been made, there are still gaps in health insurance coverage in many cases.

Existing Laws Covering Health Insurance And Mental Health Parity

The federal Mental Health Parity Act, which was signed into law in 1996 and renewed in 2002, provides for parity in the application of aggregate lifetime and annual dollar limits on mental health insurance benefits with dollar limits on medical and surgical benefits.

In addition, 34 states have mental health insurance parity laws that supplement the provisions of the federal law. State mental health insurance parity laws are needed, according to parity advocates, because federal law does not go far enough.

Gaps In Mental Health Parity Laws

In spite of the Mental Health Parity Act:

  • Health insurance plans are not required to provide coverage for mental health.
  • The Mental Health Parity Act does not apply to health insurance coverage of substance abuse or chemical dependency.
  • Parents sometimes have to give up custody of children with mental illness so that they can receive full health insurance coverage for their children through Medicaid.
  • Health insurance plans continue to set terms and conditions for the amount, duration and scope of mental health benefits, such as cost-sharing and limits on the number of visits or days of coverage.
  • If the cost of complying with the Mental Health Parity Act increases a group health insurance plan’s costs by 1 percent or more, the plan can claim an exemption from the requirements of the Mental Health Parity Act. Once a health insurance plan qualifies for the exemption, it never has to comply with the mental health parity requirements of the federal law.

Grassroots efforts are taking place in many states to strengthen mental health insurance parity laws. In New York, for example, efforts are being made to pass Timothy’s Law, which would be among the strongest mental health insurance parity laws.

Timothy’s Law

Timothy’s Law is the reference used for a New York state statute signed into law on December 22, 2006 by Governor George E. Pataki which took effect January 1, 2007. The law requires that health plans sold in the state provide comparable coverage for mental health ailments as it does for physical aliments. This is often referred to as mental health parity.

The law was named after Timothy O’Clair, a boy from Schenectady, NY who committed suicide at age 12 on March 16, 2001. Timothy had been diagnosed with several behavioral disorders and severe depression but had exhausted the mental health benefits on his family’s health plan. As a result, the O’Clairs were forced to relinquish full custody of their child in order to make him eligible for Medicaid which paid for all the services which Timothy needed. However, when Timothy returned home, he once again exhausted his benefits. In 2003, Timothy’s parents joined other mental health advocates and lent Timothy’s name to the parity movement in New York State and petitioned the state government to pass a law that would require health plans to provide coverage for mental health ailments and behavioral disorders comparable with coverage for physical ailments.

The legislation included several provisions that affect the way health insurers in the state cover mental health services.

    • Coverage must be included in plans for at least 30 days of inpatient care and at least 20 days of outpatient treatment with a psychiatrist or psychologist in a state-certified facility, a facility operated by the state, or a group or academic practice.
    • Plans must have premiums and patient cost-sharing for services that are consistent with the costs for physical treatments.
    • Plans for employers with 50 or more eligible employees must provide unlimited coverage for biologically-based mental illnesses, defined as schizophrenia, major depression, bipolar disorder, delusional disorders, panic disorder, Obsessive-compulsive disorder, bulimia, anorexia, and binge eating.   Plans for employers with 49 or less employees must offer this coverage as an option.
    • Children under age 18 with must be covered for serious suicidal symptoms or other life-threatening self-destructive behaviors, significant psychotic symptoms, behavior caused by emotional disturbance that places the child at risk of causing personal injury or significant property damage, or behavior caused by emotional disturbances that place the child at substantial risk of removal from the household.
    • The law requires the state to develop a method to help small employers pay for the additional biologically-based coverage if elected.

The Cost of Timothy’s Law

Supporters of Timothy’s Law cite a 2002 report by PricewaterhouseCoopers showing that, based on a study of similar mental health insurance parity legislation in 34 other states, Timothy’s Law would cost only $1.26 per insured person each month to implement.

They also argue, though, that Timothy’s Law could save more than it costs.

Because of the way existing health insurance regulations are written, many parents, including the parents of Timothy O’Clair, give up custody of their children so they can qualify for full mental health coverage through Medicaid. Such coverage costs hundreds of thousands of dollars a year, because it includes not only health insurance, but the costs of housing, education and other living expenses. Supporters of Timothy’s Law say it would cost less to keep children with their parents.

Supporters of Timothy’s Law also argue that mental illness costs billions of dollars a year in lost productivity, and that treating it would help both those with mental illness and their families to be more productive. The Journal of the American Medical Association estimates that depression alone costs more than $44 billion in lost productivity.

Enactment of Timothy’s Law, supporters say, would help remove the stigma associated with mental illness, and would better enable those with mental illness and their families to live full and productive lives.