Wrong On Mental Health
by John Goodman
Issue 121 - December 3, 2008

It was easy to overlook in the midst of a historic financial crisis, but buried in the middle of the bailout bill was a mental health parity law. It contains so many loopholes and exceptions, it may not have any more impact than the previous mental health parity bill - enacted in 1996.

Ostensibly, employers of more than 50 people must apply the same copayments, deductibles, etc., to mental health services as they have for medical services. But the employer doesn't have to cover mental health at all. And if there is coverage, employers can pick and choose which disorders they will cover.

So why does this interest us? Because it is an example of very bad law. It does the opposite of what good public policy should be all about.

With respect to insurance for any health condition there are three public policy questions:

• Is there a legitimate social interest in whether private insurance covers treatment costs at all?
• Is there a legitimate social interest in how private insurance contracts allocate coverage between third-party insurance and individual self-insurance?
• If the answer to 2 is "yes," what should the allocation be?

The law just passed implicitly says "no" to question (1), "yes" to question (2) and "equal allocations for all covered services" to question (3). These are the wrong answers to all three questions.

There may be a legitimate social interest in whether people insure for catastrophic mental health care costs, just as there may be a legitimate interest in insurance for other catastrophic costs. But given some level of catastrophic coverage, 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 third-party insurance. And there is no conceivable reason to dictate the terms of question (2), while leaving the private sector completely free to answer "no" to question (1).

Further, even if there was a legitimate social interest in question (2), the legislation gets it all wrong. There is no conceivable circumstance in which rational people would freely choose to be in plans in which deductibles and copayments are the same for all services. To the contrary, people should self insure for those services where it is appropriate and desirable for patients to exercise discretion. They should rely on third-party insurance for services where it is inappropriate and undesirable for patients to exercise discretion.

Mental health services frequently have the very characteristics which make patient discretion highly desirable. Therefore, it is far more efficient to put funds in Health Savings Accounts (HSAs) and let patients make more of their own decisions. But even within the category of "mental health," we would almost never want the same amount of self insurance for every service.

Notice that the same mistake made by the mental health parity bill is also embedded in the HSA law. Congress has left people free to decide whether to insure, but has chosen to dictate the division between third-party insurance and self-insurance for those who choose to do so - even going so far as to regulate what the deductible can be for every service!

John Goodman is President of the National Center for Policy Analysis