No. 30
October 1, 1999
Mark Schiller, M.D. *

This week, California Governor Gray Davis signed legislation which declares that "mental illness is real." As a psychiatrist I’d have to say that the legislators got this part correct. But the new law also mandates parity in coverage for mental illness—bad medicine for all Californians.

Mental health parity means no differences between insurance coverage for mental health services and other illnesses. On the face of it, this sounds good: if mental illness is real, then insurers should cover it. And to many mental health advocacy and professional groups, the fight for parity has become a civil-rights issue.

These groups believe that an insurance company’s restriction on mental-health coverage is a reflection of discrimination towards those with mental illness. But mental health parity legislation is not a civil-rights issue. It is an issue of whether government should force private companies to do something that is against their business interests and which could have severe unintended consequences for California.

Increased mental health coverage will cost money, thereby increasing the cost of health-care premiums. Academic research concludes that mental-health parity laws can increase insurance premiums between 2.5% and 8.7% in the first year.

What the studies don’t show is that, historically, psychiatric and substance abuse facilities quickly appear to take advantage of new insurance reimbursement sources. These facilities go on to promote their services extensively, leading to further increases in expenditures and ultimately even higher insurance premiums.

One problem with increased insurance premiums is that they expand the number of uninsured people. As premiums increase there comes a time when many businesses, especially small businesses, decide that they can no longer afford to offer medical benefits. Higher premiums may also deter individuals who are not covered by their employers from buying policies for themselves. Several studies indicate the extent of this problem.

The Buckeye Institute in Dayton, Ohio, found that even with the lower range of premium increases for mental health parity, some 30,000 to 45,000 people in Ohio would become uninsured. Higher premium increase estimates would produce 80,000 to 120,000 more uninsured.

The Goldwater Institute found similar results in Arizona, where they estimated that 11,000 to 37,000 Arizonans would lose their medical coverage. These results are supported by a Galen Institute study that found that states with aggressive health-insurance mandates of all kinds suffered a 25.6% increase in the number of uninsured between 1990 and 1996, compared to only 7.2% in states without aggressive mandates.

The same can be expected in California, where Spectrum Economics previously estimated that mental-health parity laws would cause between 200,000 and 430,000 Californians to become uninsured.

Mental-health parity legislation strikes at those least able to manage the loss of health coverage —the working poor. Not surprisingly, it is not well-paid executives at major companies who lose their coverage; it is the clerk at the local grocery store.

The root of the problem—lack of mental health coverage—has nothing to do with discrimination. Instead, it is our system of employer-provided insurance that is the primary cause. Health insurance is deductible for employers but not for individuals. This ties insurance to employment and creates group policies that are inflexible and which must try to please everyone.

The solutions are to remove health-care mandates, which drive up the cost of insurance for everyone, and to offer comparable tax treatment for those who purchase health care on their own. This will mean that more individuals will purchase insurance that meets their needs — including their mental health needs.

Mental illness is real and, as a psychiatrist, I am certainly in favor of people receiving the care that they need. But health policy should, first and foremost, do no harm. California should not have mandated mental-health coverage at the cost of hundreds of thousands of Californians losing all of their medical coverage.

*Mark Schiller, M.D. is a practicing psychiatrist and a Senior Fellow in Medical Studies at the California-based Pacific Research Institute for Public Policy.

For additional information, contact Naomi Lopez at (415) 989-0833.