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

Objective. To determine the impact of parity in mental health benefits on t he marginal prices that consumers face for mental health treatment. Data Sources/Data Collection. We used detailed information on health plan b enefits for a nationally representative sample of the privately insured pop ulation under age 65 taken from the 1987 National Medical Expenditure Surve y (Edwards and Berlin 1989). The survey was carefully aged and reweighted t o represent 1995 population and coverage characteristics. Study Design. We computed marginal out-of-pocket costs from the cost-sharin g benefits described by policy booklets under current coverage and under pa rity for various mental health treatment expenditure levels using the MEDSI M health care microsimulation model developed by researchers at the Agency for Healthcare Research and Quality. Descriptive analyses and two-limit Tob it regression models are used to examine how insurance generosity varies ac ross individuals by demographic and socioeconomic characteristics. Our anal yses are limited to a description of how parity would change the marginal i ncentives faced by consumers under their existing plan's cost-sharing arran gements for mental and physical health care. We do not attempt to simulate how parity might affect the level of benefits, including whether benefits a re offered at all, or the level of managed care that affects the actual ben efits that plan members receive. Rather, we focus only on the nominal benef its described in their policy booklets. Principal Findings. 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 provision s, with larger changes for outpatient care than for inpatient care. Because current mental health coverage generally becomes less generous as expendit ures rise, while coverage for other medical care becomes more generous (due to stop-loss provisions), the difference in incentives between current men tal health coverage and the assumed parity coverage widens as total expendi ture grows. We also find that the impact of parity on marginal incentives w ould vary greatly across the privately insured population. Conclusions. Based on the large variation in the impact of parity on margin al incentives across the population under current plan cost-sharing arrange ments, changes in the demand for mental health treatment will likely also v ary across the population.