Mental Health Parity Law May Force Employers to Drop Coverage

Published March 1, 2009

Starting January 2010, small business owners across the nation will be required to match mental health coverage to physical coverage under their employees’ insurance plans or cancel mental health benefits altogether, under a new law passed by Congress last October.

The legislature passed the Mental Health Parity and Addiction Equity Act as part of the Troubled Asset Relief Program law. Experts say the measure will cause small businesses to drop health benefits for employees.

Creates ‘Perverse Incentives’

“As we frequently find with so-called public policy solutions, this law creates perverse incentives that will contribute to an even larger problem,” said Jamie Story, president of the Grassroot Institute of Hawaii. “The act will force business owners to choose between spending scarce resources to upgrade mental health coverage or deleting it altogether. Faced with rising costs in other areas of their businesses, many owners will choose the latter.”

Health care activists and groups such as the American Psychiatric Association have sought mental health parity for more than a decade. The bill was originally sponsored in 1996 by Sens. Pete Domenici (D-NM) and Paul Wellstone (D-MN), who became mental health advocates in response to family situations.

Employer Coverage Costing More

Health insurance is already an expensive benefit for employers to provide. While 99 percent of companies with 200 or more employees offer workers some type of health plan, only 62 percent of businesses with fewer than 200 employees currently offer health coverage. Coverage provided by small businesses has become 20 percent more expensive over the past three years, according to the Kaiser Family Foundation.

While the mental health parity law is not expected to affect the share of employers who offer health insurance to their employees, the percentage of those providing mental health coverage almost certainly will fall.

“This is an example of very bad law, which does the opposite of what good public policy should be all about,” said John C. Goodman, president of the National Center for Policy Analysis. “There is rarely any good reason to substitute the judgment of legislators for the judgment of the marketplace with respect to the division between self-insurance and employer-sponsored or other third-party insurance.”

About 35 million Americans experience some form of mental illness every year, according to the American Psychiatric Association.

Krystle Russin ([email protected]) writes from Texas.