EFFECTS OF THE VERMONT Parity.pdf · THE VERMONT Mental Health and Substance Abuse PARITY LAW CMHS9_Cov_Spine.qxd 8/26/03 8:53 AM Page 1. U.S. Department of Health and Human Services

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EFFECTS OF

THE VERMONT Mental Health and Substance Abuse PARITY LAW

CMHS9_Cov_Spine.qxd 8/26/03 8:53 AM Page 1

U.S. Department of Health and

Human Services

Substance Abuse and Mental HealthServices Administration

Center for Mental Health ServicesCenter for Substance Abuse Treatment

Margo RosenbachTim LakeCheryl YoungWendy ConroyBrian QuinnJulie IngelsBrenda CoxAnne PetersonLindsay Crozier

Special Report

EFFECTS OF

THE VERMONT Mental Health and Substance Abuse PARITY LAW

Special Reportii

AcknowledgmentsThis report was prepared by Mathematica Policy Research, Inc., under contract number 282-98-002 (08) for the Substance Abuse and Mental Health Services Administration (SAMHSA),U.S. Department of Health and Human Services (DHHS). Jeffrey Buck, Ph.D., AssociateDirector for Organization and Financing, Center for Mental Health Services, SAMHSA,served as project officer for this report. Mady Chalk, Ph.D., and Joan Dilonardo, Ph.D., ofthe Center for Substance Abuse Treatment, SAMHSA, also provided support for the projectand contributed to its design.

The study also received in-kind support from the Vermont Department of Banking,Insurance, Securities, and Health Care Administration. Theresa Alberghini, Norma Wasko,Susan Gretkowski, and Donna Jerry facilitated access to data and provided feedback on thedesign and implementation of the evaluation.

Numerous Vermont stakeholders contributed to one or more components of this evaluation.The survey of Vermont employers relied on data from the Vermont Department ofEmployment and Training, which provided the sampling frame for the survey. Appreciation isalso given to the staff of the two health plans who provided enrollment and claims data forthis evaluation. The special contributions of Ken Libertoff, Executive Director of the VermontAssociation for Mental Health, are particularly noted for ongoing support of this evaluation.

Without the efforts of many Mathematica Policy Research staff, this report would not havebeen possible. For the employer survey, Sara Bausch served as survey assistant, Mark Dentinias programmer manager, and Jennifer McNeill as CATI programmer. Deborah Reese directlysupervised the interviewing staff, Stephanie Naber supervised the locating staff, and DarrylCreel provided statistical programming support. Joe Garrett and Frank Potter provided inter-nal consultation during the sample design for the employer survey. Deo Bencio provided pro-gramming expertise in the construction of the analytic files for the claims/encounter dataanalysis, and Mei-Ling Mason and Laurie Meneades provided programming support in earlierphases of the project. Deborah Chollet reviewed a draft of this report and made useful sugges-tions to improve the overall quality of the report. Finally, Roy Grisham provided excellent edi-torial support, and Margaret Hallisey and Ruth-Ann Alger provided assistance with the finalproduction of this report.

Disclaimer

The content of this publication does not necessarily reflect the views or policies of SAMHSAor DHHS.

Public Domain Notice

All material appearing in this report is in the public domain and may be reproduced or copiedwithout permission from SAMHSA. Citation of the source is appreciated. However, this pub-lication may not be reproduced or distributed for a fee without the specific, written authori-zation of the Office of Communications, SAMHSA, DHHS.

Electronic Access and Copies of Publication

This publication can be accessed electronically at www.samhsa.gov. For additional freecopies of this document, please call SAMHSA’s Mental Health Services InformationClearinghouse at 1-800-789-2647 or National Clearinghouse for Alcohol and DrugInformation, 1-800-729-6686.

Recommended Citation

Rosenbach, M., Lake, T., Young, C., et al. (2003). Effects of the Vermont Mental Healthand Substance Abuse Parity Law. DHHS Pub. No. (SMA) 03-3822. Rockville, MD: Centerfor Mental Health Services, Substance Abuse and Mental Health Services Administration.

Originating Office

Office of Organization and Financing, Center for Mental Health Services, and Organizationand Financing Branch, Division of Services Improvement, Center for Substance AbuseTreatment, Substance Abuse and Mental Health Services Administration, 5600 Fishers Lane,Rockville, MD 20857.

DHHS Publication No. (SMA) 03-3822Printed 2003

Effects of the Vermont Parity Law iii

Table of ContentsExecutive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

II. Implementation of Vermont’s Mental Health/Substance Abuse Parity Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

III. Health Plan Responses to the Vermont Parity Law . . . . . . . . . . . . . . . .19

IV. Employer Perspectives on the Vermont Parity Law . . . . . . . . . . . . . . . .39

V. Synthesis of Major Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57

VI. References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

VII. Appendix A: Vermont’s Mental Health/ Substance Abuse Parity Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65

Appendix B: The Context for Vermont’s Parity Law . . . . . . . . . . . . . . .69

Appendix C: Methods Used to Conduct the Claims/Encounter Data Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73

Appendix D: Methods Used to Conduct the Survey of Vermont Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95

ExhibitsI.1 Overview of State Mental Health/Substance Abuse

Parity Laws That Exceed the Federal Parity Law, as of August 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

I.2 Conceptual Framework for Evaluating the Effects of Vermont’s Mental Health/Substance Abuse (MH/SA) Parity Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

I.3 Questions Addressed by the Evaluation of the Vermont Parity Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Effects of the Vermont Parity Law v

FiguresIII.1 Simulation of the Effects of Parity and Managed

Care on the Average Number of Outpatient Mental Health Visits per User: Blue Cross Blue Shield of Vermont, 1996–1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

III.2 Simulation of the Effects of Parity and Managed Care on Average Health Plan Spending per User per Quarter: Blue Cross Blue Shield of Vermont, 1996–1999 . . . . . . . . . . . .35

TablesIII.1 Overview of Mental Health/Substance Abuse Benefits

Offered by Two Vermont Health Plans: 1997 Pre-Parity Baseline (Most Prevalent Plans by Line of Business) . . . . . . . . . . . . . . .22

III.2 Access to and Use of Mental Health Services by Members of Two Vermont Health Plans: 1996–1999 . . . . . . . . . . . . . .26

III.3 Annual Level of Mental Health Utilization by Members of Two Vermont Health Plans: 1996–1999 . . . . . . . . . . . . . .28

III.4 Access to and Use of Substance Abuse Services by Members of Two Vermont Health Plans: 1996–1999 . . . . . . . . . . . . . .30

III.5 Annual Level of Substance Abuse Utilization by Members of Two Vermont Health Plans: 1996–1999 . . . . . . . . . . . . . .31

III.6 Spending For Mental Health and Substance Abuse Services: Blue Cross Blue Shield of Vermont, 1996–1999 . . . . . . . . . . . .32

III.7 Annual Level of Health Plan Payments for Mental Health and Substance Abuse Services: Blue Cross Blue Shield of Vermont, 1996–1999 . . . . . . . . . . . . . . . . . . . . . . . . . . .33

III.8 Mental Health and Substance Abuse Spending as a Percentage of Total Spending: Blue Cross Blue Shield of Vermont, 1996–1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

III.9 Median Out-of-Pocket Payments as a Percent of Total MentalHealth Charges Among Members With a Serious Mental Condition,by Level of Mental Health Charges: Blue Cross Blue Shield of Vermont, 1996 and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

IV.1 Knowledge of the Vermont Parity Law, by Firm Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

IV.2 Sources of Information About Parity . . . . . . . . . . . . . . . . . . . . . . . . . . .42

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IV.3 Approaches Used by Employers to Notify Employees About the Parity Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

IV.4 Recent Changes in the Characteristics of Employer-Sponsored Health Insurance as Reported by Vermont Employers and the Extent to Which Parity Was a Factor in the Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

IV.5 Vermont Employers’ Assessment of Factors Contributing to Premium Increases, by Firm Size . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

IV.6 Level of Concern About the Effects of Parity on Health Insurance Costs in the Future, by Firm Size . . . . . . . . . . . . . . . . . . . . . .49

IV.7 Overall Satisfaction With the Vermont Parity Law, by Firm Size . . . . . .51

IV.8 Employer Satisfaction With Selected Aspects of the Vermont Parity Law, by Firm Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

B.1 Market Share of the Five Largest Health Plans in Vermont, 1998 and 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

C.1 Determinants of the Probability of Mental Health Service Use: Kaiser/CHP, 1996–1999 . . . . . . . . . . . . . . . . . . . . . . . . . .76

C.2 Determinants of the Probability of Mental Health Service Use: Blue Cross Blue Shield of Vermont, 1996–1999 . . . . . . . . .78

C.3 Determinants of the Level of Mental Health Service Use: Kaiser/CHP, 1996–1999 . . . . . . . . . . . . . . . . . . . . . . . . . .80

C.4 Determinants of the Level of Mental Health Service Use: Blue Cross Blue Shield of Vermont, 1996–1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82

C.5 Determinants of the Probability of Substance Abuse Service Use: Kaiser/CHP, 1996–1999 . . . . . . . . . . . . . . . . . . . . .84

C.6 Determinants of the Probability of Substance Abuse Service Use: Blue Cross Blue Shield of Vermont, 1996–1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86

C.7 Determinants of the Level of Substance Abuse Service Use: Kaiser/CHP, 1996–1999 . . . . . . . . . . . . . . . . . . . . . . . . . .88

C.8 Determinants of the Level of Substance Abuse Service Use: Blue Cross Blue Shield of Vermont, 1996–1999 . . . . . . . . .90

C.9 Determinants of Average Health Plan Payments on Mental Health and Substance Abuse Services per User per Quarter: Blue Cross Blue Shield of Vermont, 1996–1999 . . . . . . . . .92

D.1 Completed Cases and Response Rates . . . . . . . . . . . . . . . . . . . . . . . . . .96

D.2 Unweighted and Weighted Sample Sizes, by Stratum . . . . . . . . . . . . . . .97

Effects of the Vermont Parity Law vii

D.3 Characteristics of Vermont Employers, by Firm Size . . . . . . . . . . . . . . .99

D.4 Characteristics of Employer-Sponsored Health Insurance Coverage in Vermont, by Firm Size . . . . . . . . . . . . . . . . . . .101

D.5 Health Plan Choices Offered to Employees in Vermont, by Firm Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102

D.6 Distribution of Vermont Employees With Employer-Sponsored Health Insurance Coverage, by Type of Plan Funding . . . . . . . . . . . . .103

D.7 Variation in Health Care Costs and Cost-Monitoring Activities, by Firm Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104

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Vermont implemented the Nation’s most comprehensive par-ity law in 1998, extending equality of health insurance cov-erage to both mental health and substance abuse (MH/SA)

services. This evaluation sought to determine how implementation ofparity in Vermont affected major stakeholders: employers, health plans,providers, and consumers. The evaluation included an implementationcase study, an employer survey, and an analysis of health planclaims/encounter data. Much of the analysis focused on the experiencesof two health plans—Kaiser/Community Health Plan (Kaiser/CHP) andBlue Cross/Blue Shield of Vermont (BCBSVT). These plans covered near-ly 80 percent of the privately insured population at the time parity wasimplemented.

Executive Summary

Major Findings

• Both health plans made changes in theway they managed mental health and substance abuse (MH/SA) services. Beforeparity, BCBSVT provided MH/SA servicesprimarily through indemnity contracts;after parity, most members receivedMH/SA services through a managed carecarve-out. In contrast, Kaiser/CHP had amanaged care system prior to parity; fol-lowing parity, the health plan implementedhospital diversion and step-down programsthat increased the use of partial hospitaliza-tion treatment and group therapy andreduced the use of inpatient treatment.

• Only 0.3 percent of Vermont employersreported that they dropped health cover-age for their employees mainly because ofthe parity law. Only 0.1 percent of

employers reported that parity played arole in the decision to self-insure.

• More people received outpatient MH serv-ices following implementation of parity.The percentage of users per 1,000 mem-bers increased 6 to 8 percent across thetwo health plans.

• In contrast, fewer people received any SAtreatment after parity was implemented.The percentage of users per 1,000 mem-bers decreased by 16 to 29 percent.

• Consumers paid a smaller share of thetotal amount spent on MH/SA services fol-lowing implementation of parity. Forexample, the share paid out-of-pocket byBCBSVT members fell from 27 percent to16 percent of total MH/SA spending.Among those with serious mental healthconditions, the proportion spending more

Effects of the Vermont Parity Law ix

than $1,000 out-of-pocket annually wascut by more than half.

• Spending by BCBSVT for MH/SA servicesincreased by 4 percent following imple-mentation of parity. In other words, theamount spent by BCBSVT for MH/SAservices increased 19 cents per member permonth. Relative to BCBSVT spending forall services, MH/SA services accounted for2.47 percent of the total after parity, upfrom 2.30 percent pre-parity.

• Cost data for Kaiser/CHP were more lim-ited. However, it was estimated that healthplan spending for MH/SA servicesdecreased by 9 percent following parity.This appeared to be due primarily todecreases in utilization of SA treatmentservices.

• Managed care for MH/SA services was animportant factor in controlling costs fol-lowing implementation of parity. For thoseBCBSVT members who received their ben-efits through a carve-out, both the likeli-hood of obtaining MH treatment and theaverage number of outpatient MH visitsper user declined.

• Both consumer and employer awareness ofparity in Vermont was low. As a result,stakeholders felt that some difficultiescould have been avoided if there had beena proactive education campaign concern-ing the law.

ConclusionsThis study reflects experiences during thefirst 2 to 3 years of parity in Vermont. Itis possible that a longer study period mightyield different results. Further, the study islimited to a single State, and the results maynot be generalizable to other States in whichthe mix of providers or services differs.

Despite these qualifications, the studyshows that parity for MH/SA benefits wasachieved in Vermont. Increased use of man-aged care helped make parity affordable butmay have reduced access and utilization forsome services and beneficiaries. Limitedknowledge of the law complicated implemen-tation for employers, providers, and con-sumers. Vermont stakeholders recommendedthat more attention be paid to education andother proactive efforts to better prepare fora change of this magnitude.

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I.Insurers historically have been reluctant to cover mental health and

substance abuse (MH/SA) services on par with general medicaland surgical services because of concerns about adverse selection

and moral hazard (McGuire, 1981).1 During the 1980s, many Statesenacted mandates requiring insurers to cover mental health services andto offer freedom of choice among providers. Concerns about underuti-lization of MH/SA services persist, however, because many insurancepolicies impose higher cost sharing or more restrictive benefit limits forMH/SA services than for general medical and surgical services.

Introduction

In recent years, legislative activitydesigned to introduce parity in insurancecoverage for MH/SA treatment has experi-enced a resurgence. The Federal MentalHealth Parity Act of 1996 (P.L. 104-204), alimited parity law, prohibits different dollarlimits for mental health services and generalhealth care. It does not mandate that insur-ers provide mental health coverage, nor doesit affect the terms and conditions of mentalhealth coverage, such as coinsurance, costsharing, deductibles, or service limits.Further, while the law covers mental illness-es, as defined by each health plan, itexcludes substance abuse. The Federal lawexempts health plans purchased directly

through the individual market, businesseswith 50 or fewer employees, and businessesthat demonstrate that the law resulted in acost increase of at least 1 percent. Currently,the Federal law is scheduled to expire at theend of 2003.

As of August 2002, 33 states had enactedparity laws that surpassed the provisions ofthe Federal parity law (Exhibit I.1). Ofthese, 19 require full parity, while 14 callfor limited parity (GAO, 2000; NCSL,2001). Full parity laws mandate that mentalhealth benefits be included in all groupplans and require parity in all respects—dol-lar limits, service limits, and cost sharing.As displayed in Exhibit I.1, Vermont has themost comprehensive parity law in theNation and is the only State that exceedsthe Federal law on every dimension. (SeeAppendix A for the text of the Vermontparity law.) The Vermont law defines mentalhealth conditions broadly (that is, coverageis not limited to selected conditions); coverssubstance abuse; and requires equal terms

Effects of the Vermont Parity Law 1

1 Adverse selection may result when those who areolder or sicker opt to enroll in or continue insur-ance to a greater extent than those who areyounger or healthier. Moral hazard may occurwhen reduced cost sharing through insurance cov-erage reduces the incentive for individuals to econ-omize in their use of health care.

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Exhibit I.1: Overview of State Mental Health/Substance Abuse ParityLaws That Exceed the Federal Parity Law, as of August 2002

Broad Year Law or Definition CoversAmendment Mandated of Mental SubstanceEnacted Benefit a Illness b Abuse

Total Number of States 33 30 12 14

Vermont 1997 � � �

Arkansas 1997, 2001 � �California 1999 �Colorado 1997 �Connecticut 1999 � � �Delaware 1998, 2001 � �

Georgia 1998 � �Hawaii 1999 �Illinois 2001 �Indiana 1999, 2001 h �Kansas 2001 �

Kentucky 2000 � �Louisiana 1999 � �Maine 1995 jMaryland 1994 � � �Massachusetts 2000 � k

Minnesota 1995 l � �Missouri 1999 �Montana 1999, 2001 � �Nebraska 1999 �Nevada 1999 �

New Hampshire 1994 �New Jersey 1999 �New Mexico 2000 � �North Carolina 1997 � � �Oklahoma 1999 �Pennsylvania 1998 �

Rhode Island 1994, 2001 � � �South Carolina 2000 � �South Dakota 1998 �Tennessee 1998 � �Texas 1997 oVirginia 1999 � �

Federal Mental Health Parity Act 1996 p

Source: Adapted from Gitterman, Daniel, Richard Scheffler, Marcia Peck, Elizabeth Ciemans, and Darcy Gruttadero. “A Decade of Mental Health Parity:The Regulation of Mental Health Insurance Parity in the United States, 1990–2000.” NIMH Grant MH-18828-11. Berkeley: University ofCalifornia, July 2000. Updated based on State parity legislative information from the General Accounting Office, “Mental Health Parity Act:Despite New Federal Standards, Mental Health Benefits Remain Limited,” GAO/HEHS-00-95, May 2000; the National Association for theMentally Ill (NAMI), August 2001; and the NCSL Health Policy Tracking Service “Mental Health Parity” brief, December 2001.


Exhibit I.1 continued

Covers PoliciesProhibits Limits or Employers

on Inpatient Days Requires Regardless and Outpatient Financial Covers Small of Cost

Visits c Parity d Employers e Increases

Total Number of States 23 27 17 25

Vermont � � � �

Arkansas f � �California � � �Colorado � � � �Connecticut � � � �Delaware � � � �

Georgia � � �Hawaii � �Illinois g � �Indiana � � iKansas � �

Kentucky � � �Louisiana �Maine � � �Maryland � � �Massachusetts � � � �

Minnesota � � � �Missouri � �Montana � � � �Nebraska � �Nevada m

New Hampshire � � � �New Jersey � � � �New Mexico � � �North Carolina � � i �Oklahoma �Pennsylvania n �

Rhode Island � � �South Carolina � � iSouth Dakota � � �TennesseeTexas � � �Virginia � � �

Federal Mental Health Parity Act

a A “mandated benefit” refers to State statutes that require health insur-ance policies to include certain benefit provisions. A typical provisionstates that a group health plan shall provide benefits for diagnosis andmental health treatment under the same terms and conditions as pro-vided for physical illnesses. States that are not checked under thiscolumn have either a “mandated benefit offering” or a “mandated, ifoffered” provision. The “mandated benefit offering” provision requiressellers to offer certain types of mental health coverage, with the deci-sion of whether to purchase coverage left to the buyers. Alabama,

Georgia, and Missouri have “mandated benefit offering” provisions.The “mandated, if offered “ provision does not require the employer orinsurer to offer mental health coverage; however, if the employeroffers coverage, then the coverage must comply with parity provi-sions. Indiana, Kentucky, and Nebraska have “mandated, if offered”provisions.

b “Broad definition of mental illness” is defined as encompassing all thedisorders listed in the American Psychiatric Association’s Diagnosticand Statistical Manual of Mental Health Disorders and/or the

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visits for outpatient treatment, including group and individual outpa-tient treatment, and prohibits a lifetime limit on the number of inpatienttreatment days and outpatient visits covered by the plan. Plans mustinclude the same amount limits, deductibles, copayments, and coin-surance factors for serious mental illness as for physical illness.”

h Indiana: Statute specifies a “mandated benefit” for State employeeplans and a “mandated offering” for group and individual plans.

i Indiana, North Carolina, and South Carolina: The parity statute appliesto health plans offered to State employees.

j Maine: The statute mandates coverage for group plans and requires amandated offering for individual policies.

k Massachusetts: Parity for substance abuse applies only in cases ofco-occurring mental illness and substance abuse disorders.

l Minnesota: The statute mandates coverage for health maintenanceorganizations (HMOs) and “mandated, if offered” for individual andgroup plans.

m Nevada: Annual and lifetime dollar limits must be equal to other ill-nesses; cost sharing for copayments and coinsurance must not bemore than 150 percent of out-of-pocket expenses for medical and sur-gical benefits.

n Pennsylvania: Statute requires parity in annual and lifetime dollar lim-its but only specifies that cost sharing “must not prohibit access tocare.”

o Texas: Statute requires “mandated benefits” for group and HMO plansand a “mandated offering” for groups of 50 or fewer.

p The Federal Mental Health Parity Act allows health plans to define thecovered illnesses.

International Classification of Diseases Manual. For States that arenot checked in this column, some narrow their laws’ scope by requir-ing coverage only for “biologically based” illness or “serious mentalillness,” most commonly defined as schizophrenia, bipolar disorder,obsessive-compulsive disorder, major depressive disorder, panic dis-order, schizo-affective disorder, and delusional disorder. Alternatively,some States—as well as the Federal Mental Health Parity Act—allowhealth plans to define the scope of the mental health benefit.

c States that are not checked in this column permit a disparity in theterms and conditions required for mental health coverage comparedto other physical health conditions (for example, allowing a cap on thenumber of inpatient days and/or outpatient visits for mental healthcoverage that differs from that for other physical illnesses).

d States that are not checked in this column permit a disparity betweenthe cost sharing for mental health services and physical health serv-ices.

e States that are not checked in this column exempt small employers,most commonly defined as employers with either 25 or fewer employ-ees or 50 or fewer employees.

f Arkansas: S. 716 (2001) prohibits health plans from imposing limits oncoverage for mental health treatment offered by employers with 50 orfewer employees. This law allows groups of 51 or more employees toimpose an annual maximum of 8 inpatient/partial hospitalization daystogether with 30 outpatient days.

g Illinois: S. 1341 requires “group health benefit plans to provide cover-age based upon medical necessity for the following treatment of men-tal illness in each calendar year: 45 days of inpatient treatment and 35

Exhibit I.1 continued

and conditions with general health care forservice limits and cost sharing.2 Vermont’slaw covers its entire commercially insuredpopulation, with no exemptions for smallbusinesses. The sole exception is self-insuredgroups, due to the Federal preemption underthe Employee Retirement Income SecurityAct. In addition, the Vermont parity lawdoes not apply to Medicare or Medicaidbeneficiaries.

The Vermont law permits health plans touse managed care for coverage of MH/SAtreatment, even if the plans continue to covermedical/surgical treatment on an indemnitybasis. In addition, the law exempts out-of-network benefits provided through a point-of-service option from complying with theterms of parity. Thus, enrollees who go outof network may be subject to visit limits forMH/SA services, separate deductibles, andhigher copayments or coinsurance.

A. Why Study the Effects of Parity inVermont?The enactment of full parity statutes remainscontroversial for several reasons. Employersand health plans are concerned that a moregenerous benefit package for MH/SA servicesmay result in significant increases in healthinsurance costs. Providers and consumers areconcerned that the introduction of paritybenefits may accelerate the trend towardincreased management of behavioral healthservices. Legislators, for their part, requiremore definitive information on the effects of


parity on health care access, utilization, andspending to make sound decisions.

Implementation of the Vermont Parity Actprovides an important opportunity to studythe effects of a full parity law on access, uti-lization, and spending for MH/SA services.As discussed earlier, Vermont has the mostcomprehensive parity law in the Nation.Moreover, the State presents an interestingcontext for studying the effects of paritybecause of the contrasting health plan envi-ronments in which parity is being imple-mented. Between the two dominant commer-cial health plans in Vermont, one hadmanaged care both before and after parity,and one shifted a large share of its membersfrom an indemnity plan to a managed carecarve-out when parity was implemented.Previous literature has shown that the effectsof benefit expansions vary across health planarrangements and, in particular, that healthplans switching from indemnity to managedcare arrangements often experience net sav-ings despite the expanded benefits (Goldman,McCulloch, & Sturm, 1998; Sturm,Goldman, & McCulloch, 1998).

This report presents the results of an eval-uation of the effects of the Vermont ParityAct, sponsored by the Substance Abuse andMental Health Services Administration. TheVermont Department of Banking, Insurance,Securities, and Health Care Administration,the agency charged with overseeing theimplementation of MH/SA parity inVermont, provided extensive in-kind supportto this evaluation. This evaluation had threemajor objectives:1. Document implementation of the Vermont

parity law through a case study;

2. Quantify the effects of the parity law onaccess to, utilization of, and spending forMH/SA services through an analysis of

2 Specifically, the Vermont parity law defines a men-tal health condition to mean “any condition or dis-order involving mental illness or alcohol or sub-stance abuse that falls under any of the diagnosticcategories listed in the mental disorders section ofthe international classification of disease, as peri-odically revised.”

claims/encounter data for two healthplans; and

3. Assess the effects of parity on employersthrough a survey of Vermont employers.

The three components of the evaluation—case study, claims/encounter data analysis,and employer survey—provide a multifacetedview of the implementation and effects of theVermont parity law from the perspective ofkey stakeholders.3

B. Conceptual Framework for ThisEvaluationExhibit I.2 presents a conceptual frameworkthat guided the evaluation design and analysis.The framework illustrates the potential behav-ioral responses and outcomes of various stake-holders. Following implementation of parity,insurers and employers jointly determine thecharacteristics of employer-sponsored insur-ance, including care management strategiesand financial provisions. Employers mayrespond to parity in various ways. They maydecide not to offer coverage. They may shift toself-insured coverage to avoid the state parityprovisions, pass additional premium costs onto employees, or choose a managed care prod-uct. Alternatively, they may change employeecompensation levels to account for the costs ofparity or change the structure of their work-force (such as downsizing) to reduce costs. Thedirection and magnitude of employer respons-es is a function of the actual or anticipatedeffects of parity on their health care costs.

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The effect of parity on providers dependson how insurers restructure provider net-works, reimbursement policies, and utiliza-tion controls. These changes may affectprovider treatment patterns that, in turn,may have a direct effect on health carespending and utilization, as well as an indi-rect effect on consumer experience.

Consumer access and use is a function notonly of enrollee characteristics (such ashealth status and risk) but also of such exter-nal factors as provider availability (as struc-tured by the insurers) and employee costsharing (as determined by the employer).Although parity is hypothesized to raise con-sumer demand by expanding insurance cov-erage, in reality, the effect on access to anduse of services will depend on how insurersrespond, particularly in terms of care man-agement protocols. The conceptual frame-work identifies two intermediate consumeroutcomes—access and satisfaction—and twoultimate outcomes—health status and pro-ductivity.

Finally, the framework incorporates effectson the public MH/SA system. Parity canaffect public system costs if patients whowould have been treated by publicly fundedproviders now are treated by privately fund-ed providers, thus freeing up publicresources, either for other MH/SA services(such as prevention) or for other public pro-grams (health or nonhealth), or resulting inbudget savings.

C. Questions Addressed in ThisEvaluationThe evaluation addresses both qualitativequestions on the parity implementationprocess and quantitative questions on theeffects of parity. The evaluation questionsare organized around six domains:

3 In addition, the evaluation included focus groupswith a convenience sample of providers and con-sumers. This report does not present the results ofthe provider and consumer focus groups. However,the case study findings presented in Chapter IIinclude provider and consumer perspectives (alongwith those of other stakeholders) that were gatheredin the site visits.


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(1) implementation process; (2) employerissues; (3) insurer/health plan issues; (4)provider issues; (5) consumer issues; and (6)effects on health care access, utilization, andspending. Exhibit I.3 presents the questionsaddressed by the evaluation. Although theevaluation addresses a wide range of issues,some questions could not be addressed dueto resource constraints. For example, thisevaluation does not address the effects ofparity on the quality of care or on healthstatus and functioning. In addition, thisstudy was unable to quantify the effects ofparity on the public system, such as whetherimproved commercial benefits have resultedin fewer transitions to Medicaid or whetherthere have been any spillover effects on theState corrections system.

Findings from this study reflect experi-ences during the first two to three years of

parity in Vermont. It is possible that a longerstudy period might yield different results,especially as the effects of managed caretransitions stabilize. This study also is limitedto a single State, and the results may not begeneralizable to other States in which themix of providers or services differs.

D. Organization of This ReportThis report contains four additional chap-ters. Chapter II describes the implementationof the Vermont parity law. Chapter III pre-sents the results of the claims/encounter dataanalysis showing the effects of parity onaccess, utilization, and spending, andChapter IV discusses the results of theemployer survey. Chapter V synthesizes themajor findings of this evaluation across thevarious study components.

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Exhibit I.3: Questions Addressed by the Evaluation of the VermontParity Law

Implementation Process

� What mandates governed mental health/substance abuse (MH/SA) benefits prior to parity? Whatwere the specific benefits and benefit limits for MH/SA for a typical health plan prior to thelaw? What specifically does the Vermont parity law require? What activities have taken placeamong the major stakeholders to implement, coordinate, and ensure compliance with the paritylaw? What obstacles, if any, were encountered? What modifications or clarifications were madeduring implementation? Do stakeholders feel that the law has achieved its objectives? If not,why not?

Health Plan Issues

� How has the parity law affected the scope of MH/SA coverage offered by health plans (forexample, benefits and benefit limits)? Has the parity law affected the number of insurers inVermont, especially in the individual and small group markets? Has the parity law affected thenumber of insurance products offered by Vermont insurers? How has implementation of theparity law varied among health plans (use of managed care, MH/SA carve-outs, utilizationmanagement, provider networks)?

Employer Issues

� What were employer responses to parity? Have employers responded to the parity mandate byincreasing employee premiums, dropping coverage or benefits, or converting to self-insuredplans? How do employer responses vary among small, medium, and large businesses? Havethere been any effects on employers not subject to the mandate? How satisfied are employerswith the parity law, and what recommendations do they have for improving the law in thefuture?

Provider Issues

� Has the parity law led to changes in how health plans contract with MH/SA providers? Hasthe parity law affected the mix of providers with which health plans contract? Has the paritylaw led to changes in how health plans reimburse MH/SA providers?

Consumer Issues

� Who provided consumer education about the changes brought about by the parity law? Howknowledgeable are consumers about the parity provisions? How do consumer advocates viewthe results of the law, especially regarding consumer access to MH/SA services? Were there anyunintended consequences?

Health Care Access, Utilization, and Spending

� How have access, utilization, and spending changed as a result of parity (such as percentage ofcovered population receiving any MH/SA service, intensity of care, MH/SA costs per coveredlife)? What types and amounts of services utilized post-parity would not have been covered pre-parity? Have characteristics of utilization changed following the implementation of parity?Who specifically is better off as a result of the law?


II.

Implementation of Vermont’s mental health/substance abuse(MH/SA) parity law began in January 1998, a little more than 6months after it was signed into law. The law resulted in signifi-

cant changes in the nature of MH/SA coverage, particularly in terms ofthe increased use of managed care for MH/SA services. This chapterdescribes the early implementation experiences in Vermont—the transi-tions and challenges, and how stakeholders responded to those chal-lenges. Such background information is key to understanding the effectsof parity, as described in subsequent chapters, from the perspectives ofhealth plans (Chapter III) and employers (Chapter IV).

Implementation ofVermont’s MentalHealth/SubstanceAbuse Parity Law

The findings presented in this chapter arebased on information gathered during twosite visits to Vermont, the first in July1998—about 7 months after the law wentinto effect—and the second in October 2000.Taken together, these two site visits provideinsights into the early implementation experi-ences and transitions, as well as the longer-term effects of parity on stakeholders.Findings from the two site visits were aug-mented by information gathered from areview of written public documents andongoing telephone interviews with key stake-holders over the past several years. AppendixB contains background information on thecontext leading to Vermont’s parity law,including the legislative history.

A. Early Implementation Experiences

To a large extent, the experiences of theState’s two largest health insurers—BlueCross Blue Shield of Vermont (BCBSVT)and Kaiser/Community Health Plan(Kaiser/CHP)—shaped the early implemen-tation of Vermont’s parity law. BCBSVTrapidly moved most of its enrollees intomanaged behavioral health care in responseto the parity law and encountered adminis-trative difficulties; in contrast, Kaiser/CHPcontinued to use its existing managed caremodel and experienced few changes. Thenext three sections describe the early imple-mentation experiences of BCBSVT,Kaiser/CHP, and other health plans.


1. Blue Cross Blue Shield of Vermont

With the implementation of parity, and asemployer contracts subject to parity wererenewed over the course of the year, BCBSVT began transferring nearly all of itscovered lives in fee-for-service products intoa new “carve-out” arrangement with MeritBehavioral Care (MBC). BCBSVT trans-ferred financial risk for all MH/SA servicesto MBC through a capitation arrangement,while physical health services continued tobe covered on an indemnity basis.1 MBCdeveloped a narrower provider networkthan that of BCBSVT and used managedcare techniques to contain costs. Accordingto BCBSVT representatives, the carve-outarrangement was created specifically to com-ply with the parity law and to contain thecost of the expanded MH/SA benefit.

By nearly all accounts, this initial transi-tion to a carve-out arrangement did not gosmoothly. First, BCBSVT officials indicatedthat they did not inform their members ofchanges in benefits and service deliverybecause they had assumed that employerswould communicate this information to theiremployees. Second, patient-provider relation-ships initially were disrupted, since manyexisting BCBSVT providers were not inMBC’s network. These disruptions ultimatelywere addressed by allowing enrollees sixtransitional visits to out-of-networkproviders and by expanding the provider net-work to ensure adequate geographic cover-age. A management change further compli-cated MBC’s effort to develop its providernetwork because it was purchased by anoth-

er firm, Magellan Health Services, during thetransition.2 Third, BCBSVT experienced sig-nificant computer problems related torevamping its claims adjudication process toreflect the new benefit structure. Finally, the“rolling” implementation of parity withinBCBSVT—at the time of contract renewalson or after January 1, 1998—both compli-cated the communication process and limitedthe visibility of parity-related changes amongBCBSVT enrollees across the State.

In response to the initial transition diffi-culties, BCBSVT collaborated with otherstakeholders—including State regulatory offi-cials, provider groups, and advocacygroups—to address the communication andprovider network problems that followedimplementation of parity. The Department ofBanking, Insurance, Securities, and HealthCare Administration (BISHCA), the Stateagency charged with overseeing the imple-mentation of the parity law, hosted a parityimplementation conference involving allinterested stakeholders in June 1998. Inaddition, the Vermont Association forMental Health hosted a series of publicforums in 1998, to which all stakeholderswere invited to discuss the goals of the paritylaw and to identify solutions to problemsencountered during the early transitionprocess (BISHCA, 1999).

In response to stakeholder concerns, BCBSVT produced two brochures—one forproviders and one for consumers—thatexplained the changes made as a result of theparity law. These brochures were distributedto all BCBSVT enrollees and MH/SAproviders. The plan also took steps to ensurethat MBC increased the size of its provider

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1 BCBSVT used MBC for its health maintenanceorganization (HMO) product (The VermontHealth Plan) prior to passage of the MH/SA paritylaw. Some employers also requested an option tooffer an indemnity product for MH/SA services.

2 For the sake of simplicity, this chapter refers to theorganization as MBC, despite its subsequent namechange to Magellan.

part of the plan’s wider withdrawal fromthe entire Northeast region. (The planceased operations in Vermont in March2000.) A large portion of Kaiser/CHPenrollees chose to enroll in MVP HealthPlan, a health maintenance organization(HMO) operating in the Vermont marketwith a similar managed care approach,while a smaller portion chose BCBSVT orother plans. As a result of this change, MVPcaptured almost a quarter of the privatelyinsured market in Vermont by 2000, afteraccounting for less than 3 percent of themarket in 1998. The transition of enroll-ment to MVP and other plans was reportedgenerally to be smooth, although MVP didhave to expand its MH/SA provider net-work substantially to provide care to thelarge influx of new enrollees.

3. Other Health Plans

Other health plans expanded their in-network benefits to comply with the paritylaw, but little evidence suggests that theyimplemented other significant changes totheir health insurance products (BISHCA,1999). In 2000, one health plan participat-ing in the individual market—Fortis—with-drew from the Vermont market, attributingits decision, in part, to the requirements ofthe parity law. Interviews with Fortis execu-tives indicated that the plan was poorlypositioned to respond to parity because itlacked an existing managed care productand provider network, focused on the indi-vidual market, and represented only a smallmarket share. To remain in the Vermontmarket, Fortis executives believed that theyfaced a decision either to build a costly man-aged care provider network for deliveringMH/SA services or to experience a largeincrease in overall MH/SA utilization and


network, allowing a period of severalmonths during which all nonparticipatingproviders were invited to apply for member-ship in MBC’s network.

The State government also took steps toimprove public awareness of the law. Forexample, State officials developed and dis-seminated 12,000 flyers that described thereform, wrote opinion pieces and editorialsin local newspapers, and sought other newscoverage of the parity law. Through a preex-isting consumer hotline established to assistconsumers with a wide range of health careissues, BISHCA received telephone calls fromconsumers with concerns related to MH/SAparity and resolved consumer complaints(BISHCA, 1999).

2. Kaiser/CHP

Kaiser/CHP simplified its transition toMH/SA parity by changing its benefits for allcontracts in January 1998, regardless of thecontract renewal date. Mental health andsubstance abuse copayments were brought inline with those for physical health benefits,and the 20-visit outpatient and 30-day inpa-tient limits were dropped from the typicalbenefit packages the plan offered. Mentalhealth benefits already were managed tightlyprior to parity, especially in comparison tothe traditional indemnity products offered byBCBSVT. According to health plan officials,Kaiser/CHP enrollees experienced relativelylittle change in the management of MH/SAservices following implementation of the par-ity law. To manage hospital costs under theparity mandate, Kaiser/CHP implementedhospital diversion and step-down programsand increased the use of partial hospitaliza-tion treatment and group therapy.

In 1999, Kaiser/CHP announced that itwas pulling out of the Vermont market as

costs. Since neither option was consideredviable in a market that represented a smallportion of their national business, Fortischose to pull out of Vermont.

B. Early Effects on Vermont’s MH/SADelivery System

1. Perspectives on the Introduction ofManaged Care for MH/SA Services

Perhaps the strongest point of contentionamong stakeholders in Vermont concernedthe implementation of managed care forMH/SA services coincident with the benefitexpansion under parity. Health plan andemployer representatives viewed the use ofmanaged care as a key condition to maintainthe cost-effectiveness of an expanded MH/SAbenefit package. These stakeholders perceivethat the use of managed care arrangementswas the main reason premiums and utiliza-tion have not risen dramatically during thefirst few years following parity implementa-tion. Health plan representatives also believethat the use of managed care arrangementshas not diminished access to or quality ofcare. They maintain that managed careapproaches might improve quality by impos-ing rigorous, uniform standards for deliver-ing services through the development ofpractice guidelines, determinations of med-ical necessity, and reviews of provider prac-tice patterns. Some stakeholders noted thatproviders unrealistically might have expectedthat benefits for mental health truly wouldbe unlimited, and that they never really fore-saw the emergence of managed care forMH/SA services.

Providers who delivered MH/SA servicesto BCBSVT’s fee-for-service enrollees priorto parity were surprised by the immediateimposition of a more restrictive provider

network for their BCBSVT patients.Providers expressed concern about thepotential discontinuity in care for BCBSVTenrollees and the adequacy of MBC’sprovider network to meet enrollees’ needs.Some believed that use of a carve-outarrangement disrupted well-establishedreferral patterns, particularly between pri-mary care providers and mental health pro-fessionals. Many providers also objected tothe terms of MBC’s contracts (including uti-lization review and reduced fees) and to thecredentialing process required to join thenetwork. In particular, they were not happywith MBC’s use of medical-necessity criteriato make coverage decisions, arguing that itprimarily is a cost-containment strategywith little clinical validity. Furthermore,some provider representatives were notpleased that an organization perceived as a“newcomer” in the State (MBC/Magellan)was now dictating payment terms and prac-tice patterns to local providers who wishedto participate in the network.

Consumer representatives echoed many ofthe providers’ concerns. They reported thatthe rapid transition of BCBSVT to managedbehavioral health was poorly coordinatedand communicated to consumers, resulting inconfusion about benefits and coverage.Consumer representatives also expressedconcern about the loss of choice of providersand modes of treatment. They reported thatconsumers experienced discontinuities inprovider relationships and that, in someareas, provider networks did not includeappropriately skilled providers to meet thecomplex needs of some consumers.

2. Effects on the Public Sector

Stakeholders in both the private and publicsectors agreed that the implementation of

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approach to treating chronic mental illnessor chemical dependency.3

C. Stakeholder Reflections on theEffectiveness of Vermont’s Parity Law

1. How Well Did Consumers UnderstandVermont’s Parity Law?

After 3 years of implementation experience,a strong consensus emerged that communica-tion and education efforts should have beenstronger, especially during the first year ofimplementation. Many stakeholdersacknowledged that, prior to passage of theparity law, they were not sufficiently awareof the importance of a coherent educationand communication effort to minimize con-fusion and disruptions in service delivery,especially given the changes BCBSVT madein the coverage and treatment of MH/SAservices. Many stakeholders noted thatresponsibility for communication was notassigned clearly at the outset, and thus it wasnot until several months after parity wasimplemented that more extensive communi-cation efforts were undertaken.

Many stakeholders also agreed that,despite outreach and education efforts,many consumers continue to be unawareof the law or the expanded MH/SA bene-fits. Stakeholders, however, disagreed aboutthe relative importance of undertakingbroader outreach efforts in the future.Consumer advocates and providers general-ly believe that access to MH/SA services canonly be improved significantly with ongoing


parity had little noticeable effect on the pub-lic delivery system or on the extent of public-private sector coordination of care for thosewith MH/SA conditions. Prior to parity, pri-vate health plans usually provided coveragefor mental health services to people withsevere mental illness for only a limited timeperiod. When patients exceeded pre-paritycoverage limits and could not pay for servic-es out-of-pocket, they usually switched topublic sector providers. As a result, the pub-lic system became the main provider oflonger-term treatment for patients withchronic conditions who originally had beencovered by private insurance.

Some advocates anticipated that paritywould increase the role of the private sec-tor in providing care for patients withchronic conditions (and thus reduce publicsector costs). They also expected that pri-vate plans would pay for more MH/SAservices previously provided only by publicsector providers. However, health plansbelieved that the parity law was not intend-ed to give private health plans addedresponsibility for the coverage of publicsector services. They noted that medicalinsurance benefits were not intended tocover custodial services or services thatsupport daily functioning, but that do notaddress underlying illness. In response tothis argument, proponents of expandinghealth plans’ responsibilities indicated thatthe plans often cover services related tochronic medical conditions that maintainfunctioning and thus should take the same

health plan management of chronic mental illnessby pointing out that health plans—through theirmedical-necessity criteria—typically are willing toauthorize only short-term mental health treatment(8 to 10 therapy sessions), unless the patient is inthe midst of an acute episode.

3 One common analogy suggested was how healthplans approach the management of diabetes.Providers noted that health plans routinely pay forlong-term treatment to maintain functioning inpeople with diabetes and to prevent acute episodesthat may require hospitalization. They contrasted

education efforts. Health plan representa-tives, however, express skepticism about theefficacy of broad-based education efforts,noting that consumers ignore most educa-tional material, especially when they do notbelieve that they will need MH/SA services inthe near future.

2. Did Vermont’s Parity Law Achieve ItsObjectives?

Stakeholders identified several objectives ofVermont’s parity law, including makingMH/SA benefits equal to physical healthbenefits; reducing financial hardships forconsumers and their families; and reducingdiscrimination and stigma associated withMH/SA services. Stakeholders expected that,by meeting these objectives, access toMH/SA services would improve and utiliza-tion would increase.

There were mixed opinions aboutwhether Vermont’s parity law achieved theseobjectives. In the view of most stakeholders,parity achieved the explicit goal of expand-ing benefits (including the elimination of dis-criminatory financial and benefit limits forMH/SA services), and, thus, removed sub-stantial financial barriers to care for manyconsumers. Some also believe that the pub-licity surrounding the parity law increasedawareness of the importance of MH/SAservices and removed some of the stigmaassociated with MH/SA conditions. Yet,many viewed the introduction of managedcare for MH/SA services as a significantobstacle to achieving the goal of increasedaccess to care, because of the limitedprovider networks and utilization reviewprocedures. However, many respondentsnoted in the Fall 2000 interviews that it wastoo early to tell whether parity can achievethe goal of increasing access with the man-

aged care arrangements that have been putin place.

State officials, consumer advocates, andprovider association representatives consis-tently noted that the longstanding shortageof certain types of providers, as well as thegeographic maldistribution of existingproviders, potentially limited achievement ofthe goals of the parity law. These stakehold-ers noted, for example, that shortages ofchild psychiatrists and psychiatric hospitalbeds in Vermont placed constraints on theparity law’s ability to expand access to carefor children with serious emotional distur-bances. Moreover, some raised concern thatgeneral provider shortages in rural areasmight constrain access and utilizationdespite the benefit expansion. Some stake-holders expressed hope that the parityreforms would highlight the need to addressexisting provider shortages—especially inchildren’s services.

Health plan and employer representativesgenerally believed that the parity law had lit-tle effect on premiums or the costs of careduring the first few years, especially whencompared to other, more significant, healthcare cost “drivers” such as rising prescriptiondrug costs. Although employers, healthplans, and health insurance agents remainedconcerned about the cumulative effects ofstate-mandated health insurance benefits,they did not believe that the parity law itselfwas a significant contributor to premiumincreases in the first few years. The introduc-tion of managed care arrangements inMH/SA services was cited as an importantreason for the small effects on costs.However, some also said that costs couldincrease if more consumers became aware ofexpanded benefits and sought MH/SA serv-ices from health plans.

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the quality effects of the parity law.Proponents of the new law wanted toaddress concerns about the potential forexcessively low “medical loss ratios” (healthcare claims expenses divided by premiumrevenues) among health plans or their con-tracted MH/SA carve-out organizations.Some speculated that low ratios could indi-cate high profits and/or administrative costs,signifying a diversion of resources away fromdirect service delivery. The law created a taskforce to oversee implementation of the Act,including representatives from BISHCA andother State agencies, health plans, con-sumers, providers, and the business commu-nity. According to State officials, the taskforce deliberations provided an opportunityto educate providers and consumers abouthow health plans operate and the intricaciesof measuring health plan performance.

E. DiscussionThis chapter has described the rollout of par-ity in Vermont, including early transitionsand more recent legislative efforts to extendthe reforms to ensure the quality of MH/SAservices. The results are based on experiencesduring the first few years following imple-mentation of parity. As such, the resultsreflect the initial stages of parity implementa-tion, and a longer study period would berequired to learn about the effects of a moremature parity policy.

This implementation case study demon-strated contrasting health plan experiences inresponse to parity. At one extreme,Kaiser/CHP, an HMO, exhibited relative sta-bility in the management of MH/SA servicesbefore and after parity (until its withdrawalfrom the Vermont market in March 2000).At the other extreme, BCBSVT shifted mostof its fee-for-service enrollees to a managed


Stakeholders also generally agreed that,despite renewed efforts at education andcommunication, most privately insuredVermont residents are unaware of the parityreforms and expanded benefits mandatedunder the law. For these reasons, manyrespondents had now turned their attentionto additional reforms to improve the qualityof MH/SA services.

D. Development of New State-LevelInitiativesIn the context of the new—and, in somecases, unforeseen—managed care environ-ment, many provider groups and consumeradvocates saw the Vermont parity law asonly the first step toward improved qualityand access to MH/SA services. In response tocontinuing concerns about the effects of ashift to managed care for MH/SA services,the Vermont legislature passed Act 129 in2000, which mandated new annual reportingrequirements and quality standards for thefive largest health plans operating inVermont (see Appendix B; Table B.1).4 Thegoal of the law was to gather informationshowing health plans’ performance in deliv-ering MH/SA services. These reports alsowere intended to serve as a “barometer” for

4 The law was intended to build on Vermont’s exist-ing managed health care consumer protection law(Rule 10), which proponents believed was not ade-quate to address concerns about managed carearrangements for MH/SA services. Specifically, Act129 required annual filing of medical loss ratiosspecifically for MH/SA conditions, as well as annu-al filing of a report card showing: (1) annual inpa-tient MH/SA discharge rates; (2) average length ofstay for inpatient treatment and number of outpa-tient visits for MH/SA services; (3) percent of cov-ered lives receiving inpatient and outpatientMH/SA services; (4) number of denials of MH/SAservices; (5) number of denials appealed by con-sumers and/or providers; (6) rates of readmissionfor inpatient MH/SA services; and (7) patient satis-faction measures.

to the widespread use of managed care forMH/SA services. Most stakeholders also rec-ognized that education and communicationefforts about parity were inadequate, result-ing in heightened expectations amongproviders and confusion among consumers.There was less agreement, however, aboutwhether parity had achieved the goals ofexpanding access to care and providingfinancial protections to consumers and theirfamilies. Many now see the parity law as afirst step to improve the status of MH/SAservices in Vermont, acknowledging thatsome effects will be longer-term as con-sumers gradually become aware of expandedbenefits under the parity law.

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care carve-out for MH/SA services, concur-rent with the implementation of parity,resulting in widespread reports of discontinu-ities for consumers and providers. The Stateregulatory agency, consumer advocates, andproviders were proactive in working withBCBSVT to address problems resulting fromchanges in its MH/SA delivery system. Theexperiences of BCBSVT provide importantinsights into what can happen when parityand managed care are implemented concur-rently, especially in a State with a relativelylow managed care presence.

There was broad agreement that parityhad not caused substantial increases in pre-mium costs in the first few years, largely due


III.

This chapter provides evidence on how two health plansresponded to the Vermont parity law. This analysis is basedon the experiences of Blue Cross Blue Shield of Vermont

(BCBSVT) and Kaiser/Community Health Plan (Kaiser/CHP), which,together, accounted for 78 percent of the private insurance market inVermont at the time parity was implemented in 1998. The first sectiondescribes the effects of parity on the terms and conditions of coveragefor mental health and substance abuse (MH/SA) services. The secondsection presents empirical results of the effects of parity on access, use,and spending for MH/SA services.

Health Plan Responses tothe Vermont Parity Law

A. Effects on MH/SA CoverageProvisions

1. Pre-Parity Coverage of MH/SA Services

To understand the potential effects of parityon access, use, and spending, this study firstexamined the pre-parity MH/SA coveragelimits and cost-sharing requirements forBCBSVT and Kaiser/CHP, based on the con-tracts with the highest enrollment in 1997.1

The two most prevalent plans offered byKaiser/CHP in 1997 varied only in the levelof cost sharing ($5 versus $10 per visit).BCBSVT offered a wide range of contractsthat varied not only in coverage provisions,but also in the use of managed care forMH/SA services prior to parity:

• Basic and Comprehensive (Comp):Indemnity products with fee for service(FFS) payment of providers and no limita-tions on the provider network.

• Vermont Freedom Plan (VFP): A pre-ferred provider organization (PPO) with adesignated provider network. Benefits var-ied according to whether the plan coveredgroups or individuals. In addition, theVFP individual plan used a carve-out tomanage MH/SA services prior to parity.

• Vermont Health Partnership (VHP): Apoint-of-service (POS) plan that relied ona carve-out to manage MH/SA services.

• The Vermont Health Plan (TVHP): Ahealth maintenance organization (HMO)with MH/SA services managed by theTVHP network.

1 The empirical analysis presented in Section Bincludes all contracts, regardless of the level ofenrollment or benefit design.

Act,3 indemnity plans typically set annual orlifetime benefit limits, while HMOs typicallyapplied limits on the number of coveredinpatient days or outpatient visits (Buck etal., 1999). The health plans in Vermont gen-erally followed this national pattern (seeTable III.1).

Kaiser/CHP provided coverage for up to30 days of inpatient treatment in psychiatrichospitals and up to 20 outpatient mentalhealth visits per year. Similarly, the threeBCBSVT plans that covered MH/SA servicesthrough managed care arrangements—VFP-individual,4 VHP, and TVHP—set annuallimits on inpatient days (30 to 45 days peryear) and outpatient visits (20 to 30 visitsper year). The BCBSVT indemnity plans(Basic, Comprehensive, and VFP-group prod-ucts) typically had annual limits of $5,000and lifetime limits of $10,000 for mentalhealth services (inpatient and outpatientcombined). The Basic plan capped allowableoutpatient visits at 50 visits per year in addi-tion to the dollar ceilings.

Coverage of substance abuse services wassubject to limits on inpatient days and outpa-tient hours (in compliance with the minimumbenefit mandated by existing state law).Kaiser/CHP had a limit of 28 inpatient daysper year and 56 inpatient days per lifetime.All BCBSVT plans similarly had a limit of 28inpatient days per occurrence and 56 daysper lifetime. The limit on outpatient hours of

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BCBSVT also had an extensive system ofriders that covered MH/SA benefits aboveand beyond the standard plan offerings foran additional premium. However, most peo-ple enrolled in the top plans of 1997 did nothave a rider for MH/SA services.

a. Variation in Covered Services

As shown in Table III.1, the types of MH/SAservices covered by Kaiser/CHP and BCBSVT prior to parity were similar inmany, but not all, respects. Kaiser/CHP cov-ered inpatient psychiatric care in specialtyand general hospitals, as well as outpatienttherapy (including psychotherapy and med-ication management). It also covered inpa-tient and outpatient detoxification and out-patient substance-abuse counseling. Coveragefor nonhospital residential care and intensivenonresidential care was approved on a case-by-case basis.

BCBSVT covered a continuum of mentalhealth services across all its plans: inpatientpsychiatric care, nonhospital residential serv-ices, partial/day treatment,2 and outpatienttherapy. Substance abuse coverage consistedof inpatient and outpatient detoxification,nonhospital residential services, intensivenonresidential services, and outpatient coun-seling. The FFS plans, however, coveredtreatment only for alcoholism; the PPO,POS, and HMO plans covered treatment foralcohol and other drugs.

b. Variation in MH/SA Benefit Limits

Prior to implementation of the Vermont pari-ty law and the Federal Mental Health Parity

2 Partial/day treatment is a form of intensive outpa-tient treatment for MH/SA disorders that requiremoderate to high–intensity services. Treatmentincludes a minimum of 5 hours per day within astructured therapeutic milieu (Merit BehavioralCare Corporation, 1997).

3 The Mental Health Parity Act took effect onJanuary 1, 1998 (concurrent with Vermont’s paritylaw), and prohibited insurers from applying annualand lifetime dollar limits to mental health benefitsthat differed from those applied to general healthbenefits. Refer to Chapter I for a comparison ofthe terms of the Vermont and Federal parity laws.

4 Prior to parity, the VFP individual plan providedMH/SA services through a managed care carve-out, whereas the VFP group plan covered MH/SAservices on an indemnity basis.

ment and coinsurance amounts to controlMH/SA utilization. Typically, the separatecost-sharing requirements applied to outpa-tient services; however, the BCBSVT HMOproduct (TVHP) had an inpatient copay-ment of $500 per mental health admission,while the VFP-group product had a 50 per-cent coinsurance on both inpatient and out-patient mental health services.

More common among the managed careplans—such as Kaiser/CHP, VFP-individual,VHP, and TVHP—was the practice of a two-tiered copayment for outpatient visits. Thecopayment for the first five visits ranged from$0 to $10, while the remaining visits (up tothe limit) were $25. The less managed plansof BCBSVT generally did not have a differentcost-sharing structure for MH/SA services,relying instead on the same deductible andoffice coinsurance rate used for physicalhealth services (usually 80 percent). The oneexception was the VFP-group product, whichhad a 50 percent coinsurance rate for MH/SAservices, compared to an 80 percent coinsur-ance rate for other services.

2. Changes Brought About by the VermontParity Law

With the introduction of parity in 1998,Kaiser/CHP and BCBSVT eliminated differ-ential benefit limits and cost-sharing require-ments for MH/SA services. For Kaiser/CHP,the change was relatively straightforward,resulting in elimination of the 30-day limiton inpatient days, the 20-visit limit on out-patient services, and the two-tiered copay-ment structure for outpatient visits. AllKaiser/CHP contracts were brought intocompliance with the parity provisions onJanuary 1, 1998, regardless of the date ofcontract renewal. Kaiser executives indicatedthat, because few members reached the limit


substance abuse services was the same forKaiser/CHP and BCBSVT plans: 90 hoursper year and 180 hours per lifetime.Kaiser/CHP officials indicated, however, thatthey had no system to manage SA benefitsaccording to the number of hours and,instead, tracked the number of visits.

Exclusions or adjustments to the MH/SAbenefit limits were common, and affectedwhat health plans counted toward the bene-fit limit prior to parity. For example:

• Major Medical products offered by BCBSVT adjudicated inpatient stays atnonpsychiatric hospitals as medical claimsand, therefore, did not apply such stays tothe mental health dollar maximums.

• Kaiser/CHP and BCBSVT considered 2partial days to be a “day equivalent” forinpatient care.

• In determining annual visit counts,Kaiser/CHP did not count medical man-agement visits toward the outpatient MHvisit limit and counted group therapy vis-its as one-half of an outpatient visit.

• Kaiser/CHP did not count MH/SA visitsprovided in inpatient settings toward thevisit limit, but BCBSVT counted inpatientMH/SA visits toward the annual/lifetimedollar limits.

• Neither Kaiser/CHP nor BCBSVT countedvisits to primary care providers toward theoutpatient visit limit.

These adjustments and exclusions resultedin variations within and across health plansin the “effective” limits that members facedprior to parity.

c. Variation in Cost-Sharing Requirements

In addition to setting dollar and service lim-its, the two plans used differential copay-

Special Report22

Tab

le II

I.1: O

verv

iew

of

Men

tal H

ealt

h/S

ub

stan

ce A

bu

se B

enef

its

Off

ered

by

Two

Ver

mo

nt

Hea

lth

Pla

ns:

199

7 P

re-P

arit

y B

asel

ine

(Mo

st P

reva

len

t P

lan

s b

y Li

ne

of

Bu

sin

ess)

Kais

er/C

HPBl

ue C

ross

Blu

e Sh

ield

of V

erm

ont (

BCBS

VT)

Verm

ont F

reed

om P

lan

Verm

ont H

ealth

Th

e Ve

rmon

t Co

mpr

e/Sh

are

Basi

cCo

mpr

ehen

sive

Gr

oup

Indi

vidu

alPa

rtner

ship

He

alth

Pla

n(N

= 4

5,85

7)(N

= 2

6,70

2)(N

= 2

,946

)(N

= 9

,609

)(N

= 3

,670

)(N

= 1

0,94

5)(N

= 4

,915

)HM

OFF

SFF

SPP

OPP

OPO

SHM

O

COVE

RED

SERV

ICES

Men

tal H

ealth

(MH)

Inpa

tient

psy

chia

tric

care

Yes

Yes

Yes

Yes

Yes

Yes

(2)

Yes

(2)

Non

hosp

ital r

esid

entia

lN

oYe

sYe

sYe

sYe

sYe

s (2

)Ye

s (2

)Pa

rtial

hos

pita

lizat

ion

No

Yes

Yes

Yes

Yes

Yes

(2)

Yes

(2)

Outp

atie

nt th

erap

yYe

sYe

sYe

sYe

sYe

sYe

s (2

)Ye

s (2

)

Subs

tanc

e Ab

use

(SA)

Inpa

tient

det

oxifi

catio

nYe

sYe

s (1

)Ye

s (1

)Ye

sYe

sYe

s (2

)Ye

s (2

)Ou

tpat

ient

det

oxifi

catio

nYe

sYe

s (1

)Ye

s (1

)Ye

sYe

sYe

s (2

)Ye

s (2

)N

onho

spita

l res

iden

tial

No

Yes

(1)

Yes

(1)

Yes

Yes

Yes

Yes

Parti

al h

ospi

taliz

atio

nN

oYe

s (1

)Ye

s (1

)Ye

sYe

sYe

sYe

sOu

tpat

ient

cou

nsel

ing

Yes

Yes

(1)

Yes

(1)

Yes

Yes

Yes

(2)

Yes

(2)

Met

hado

ne m

aint

enan

ceN

oN

oN

oN

oN

oN

oN

o

MEN

TAL

HEAL

TH L

IMIT

S

Amou

nt p

ayab

le p

er y

ear

n.a.

$5,0

00 (3

,4)

$5,0

00 (3

)$5

,000

(3)

n.a.

n.a.

n.a.

Amou

nt p

ayab

le p

er li

fetim

en.

a.$1

0,00

0 (3

)$1

0,00

0 (3

)$1

0,00

0 (3

)n.

a.n.

a.n.

a.

Inpa

tient

Lim

itsIn

patie

nt M

H da

ys p

er y

ear

30 d

ays

No

limit

No

limit

No

limit

30 d

ays

30 d

ays

45 d

ays

Inpa

tient

MH

days

per

life

time

No

limit

No

limit

No

limit

No

limit

No

limit

No

limit

No

limit

High

er in

patie

nt M

H co

insu

ranc

eN

oN

oN

o50

%N

oN

o$5

00 c

opay

Sepa

rate

inpa

tient

MH

dedu

ctib

leN

oN

oN

oN

oN

oN

oN

o

Outp

atie

nt L

imits

MH

visi

ts p

er y

ear

20 v

isits

50N

o lim

itN

o lim

it20

2030

Diffe

rent

MH

coin

sura

nce

Non

e: v

isits

1–5

N

oN

o50

%$1

0: v

isits

1–5

$10:

vis

its 1

–5N

one:

vis

its 1

–5$2

5: v

isits

5–2

0$2

5: v

isits

6–2

0$2

5: v

isits

6–2

0$2

5: v

isits

6–3

0

Offic

e co

insu

ranc

e$1

0 (C

ompr

e)80

% (5

)80

% (5

)80

% (5

)$1

5$5

$5$5

(Sha

re)

Tab

le II

I.1 c

on

tin

ued

Kais

er/C

HPBl

ue C

ross

Blu

e Sh

ield

of V

erm

ont (

BCBS

VT)

Verm

ont F

reed

om P

lan

Verm

ont H

ealth

Th

e Ve

rmon

t Co

mpr

e/Sh

are

Basi

cCo

mpr

ehen

sive

Gr

oup

Indi

vidu

alPa

rtner

ship

He

alth

Pla

n(N

= 4

5,85

7)(N

= 2

6,70

2)(N

= 2

,946

)(N

= 9

,609

)(N

= 3

,670

)(N

= 1

0,94

5)N

= 4

,915

))HM

OFF

SFF

SPP

OPP

OPO

SHM

O

SUBS

TAN

CE A

BUSE

LIM

ITS

Amou

nt p

ayab

le p

er y

ear

n.a.

n.a.

n.a.

n.

a.n.

a.n.

a.n.

a.Am

ount

pay

able

per

life

time

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Inpa

tient

Lim

itsIn

patie

nt S

A da

ys p

er y

ear

2828

day

s pe

r28

day

s pe

r28

day

s pe

r28

day

s pe

r28

day

s pe

r28

day

s pe

roc

curr

ence

oc

curr

ence

oc

curr

ence

oc

curr

ence

occu

rren

ceoc

curr

ence

In

patie

nt S

A da

ys p

er li

fetim

e56

5656

5656

5656

High

er in

patie

nt S

A co

insu

ranc

eN

oN

oN

o50

%N

oN

oN

oSe

para

te in

patie

nt S

A de

duct

ible

No

No

No

No

No

No

No

Outp

atie

nt L

imits

Outp

atie

nt S

A ho

urs

per y

ear

9090

9090

9090

90Ou

tpat

ient

SA

hour

s pe

r life

time

180

180

180

180

180

180

180

Diffe

rent

SA

coin

sura

nce

Non

e: v

isits

1–4

No

No

50%

$10:

vis

its 1

–5$1

0: v

isits

1–5

Non

e: v

isits

1–4

$25:

vis

its 5

–20

$25:

vis

its 6

–20

$25:

vis

its 6

–20

$25:

vis

its 5

–30

Offic

e co

insu

ranc

e$1

0 (C

ompr

e)80

% (5

)80

% (5

)80

% (5

)$1

5$5

$5$5

(Sha

re)

Sour

ce:

Kais

er/C

HP a

nd B

lue

Cros

s Bl

ue S

hiel

d of

Ver

mon

t con

tract

file

s an

d ad

ditio

nal i

nfor

mat

ion

prov

ided

by

the

plan

s.

Not

e:

The

bene

fits

show

n on

this

tabl

e ar

e fo

r the

mos

t pre

vale

nt p

lans

by

line

of b

usin

ess

in 1

997.

The

num

ber o

f enr

olle

es (s

how

n in

par

enth

eses

) ref

lect

s th

e nu

mbe

r eve

r enr

olle

d in

199

7.

(1)

BCBS

VT B

asic

and

Com

p po

licie

s co

ver d

etox

ifica

tion

and

reha

bilit

atio

n se

rvic

es fo

r alc

ohol

ism

but

not

for o

ther

sub

stan

ces.

(2)

A re

ferr

al is

not

requ

ired

from

a p

rimar

y ca

re p

rovi

der (

PCP)

; how

ever

, all

MH/

SA s

ervi

ces

requ

ire p

rior a

ppro

val f

rom

the

plan

.

(3)

The

max

imum

s ap

ply

to c

ombi

ned

inpa

tient

and

out

patie

nt m

enta

l hea

lth b

enef

its.

(4)

For B

asic

/Maj

or M

edic

al p

rodu

cts,

inpa

tient

sta

ys a

t non

psyc

hiat

ric h

ospi

tals

are

trea

ted

as m

edic

al c

laim

s an

d do

not

app

ly to

the

MH

max

imum

s.

(5)

Coin

sura

nce

appl

ies

afte

r a d

educ

tible

is m

et.

FFS

= fe

e fo

r ser

vice

; HM

O =

heal

th m

aint

enan

ce o

rgan

izatio

n; K

aise

r/CHP

= K

aise

r/Com

mun

ity H

ealth

Pla

n; n

.a. =

not

app

licab

le; P

PO =

pre

ferr

ed p

rovi

der o

ptio

n.


pre-parity, they did not make major changesin their approach to care management. Theirphilosophy—both pre- and post-parity—wasthat resources were limited and the healthplan encouraged treatment planning tospread the benefit over a longer period oftime (for example, through the use of inten-sive outpatient treatment as a substitute forinpatient treatment and group therapy ratherthan individual sessions). Following imple-mentation of parity, Kaiser/CHP officialsreported that they attempted to target inpa-tient services more efficiently, increasing theuse of step-down and diversion programs toshorten the length of inpatient stays or toavoid hospitalization altogether.

BCBSVT phased in the parity provisionsupon contract renewal, beginning with con-tracts renewed on January 1, 1998. With theintroduction of parity, BCBSVT streamlinedthe number of benefit packages and rideroptions for MH/SA services. The three basictypes of post-parity benefit packages forMH/SA services included:1. An unmanaged parity benefit, in which

MH/SA services continued to be paid onan indemnity basis;

2. A managed parity benefit with in-networkbenefits only, in which the MH/SA benefitwas managed through a behavioral healthcarve-out; and

3. A managed parity benefit with in-networkand out-of-network benefits, in which theMH/SA benefit was managed through acarve-out, and the out-of-network benefitswere subject to separate limits and cost-sharing requirements.5

Special Report24

Most members enrolled in the BCBSVTindemnity products—Basic, Comprehensive,and VFP-group products—were shifted to amanaged care carve-out for their MH/SAbenefits, although their other benefits con-tinued to be provided on an indemnity basis.As discussed in Chapter II, this initiallycaused disruption and confusion amongproviders and consumers because of a com-bination of such factors as limited communi-cation about the change, tight provider net-works, and aggressive management of thenewly expanded benefit.

B. Effects of Parity on Access, Use,and Spending

1. Analytic Approach

The adoption of parity in Vermont provideda “natural experiment” in which to learnabout the effects of benefit changes onMH/SA access, use, and spending under con-trasting health plan experiences. Kaiser/CHPprovides a measure of effects within an inte-grated managed care model before and afterparity, whereas BCBSVT demonstrates effectsin a plan that shifted a large share of mem-bers from indemnity coverage to managedcare but retained some members in unman-aged care.

The underlying framework for this analy-sis was a decomposition of per capita spend-ing into its component parts: the proportionof enrollees receiving services (a measure ofaccess to care), the number of services per

inpatient mental health—25 days annually and 50days lifetime at 50 percent coinsurance; outpatientmental health—up to 20 visits annually, subject toa $5,000 lifetime maximum benefit; inpatient sub-stance abuse—30 days per occurrence and 60 dayslifetime at 50 percent coinsurance; and outpatientsubstance abuse—90 hours per year and 180 hourslifetime at 50 percent coinsurance.

5 The Vermont parity law does not require out-of-network benefits to conform to the parity law.Comp and VFP contracts with an out-of-networkMH/SA benefit covered the following serviceswhen provided by out-of-network providers:


user (a measure of intensity of care), and thespending per unit of service. This decomposi-tion can be represented as follows:

$/E = U/E * S/U * $/S,where:$/E = MH/SA spending per member per

quarterU/E =number of users per 1,000 enrollees

per quarter (measure of access)S/U = number of services per 1,000 users

per quarter (measure of intensity ofcare)

$/S = spending per unit of service (meas-ure of payment rate)

This approach was used to quantify theextent to which parity affected access tocare, intensity of care, and spending forMH/SA treatment. Refer to Appendix C foran overview of the data and methods used inthis analysis.

2. Patterns of Access to and Use of MentalHealth Services Before and After Parity

a. Outpatient Treatment

Access to outpatient MH services—measuredby the number of MH users per 1,000 mem-bers per quarter—increased significantly forboth Kaiser/CHP and BCBSVT enrolleespost-parity. Kaiser/CHP experienced a 6.4percent increase in the number of outpatientMH users per 1,000 members per quarter,while BCBSVT experienced a 7.9 percentincrease (Table III.2). The likelihood ofobtaining MH services increased by 18 to 24percent as a result of parity.6

The intensity of outpatient MH treat-ment—that is, the number of MH servicesper user per quarter—varied between thetwo health plans. Among Kaiser/CHP mem-bers, the average number of visits per userper quarter increased slightly (from 3.26 to3.48 visits). The combined effect of increasedaccess to and intensity of outpatient MHtreatment led to a 14 percent increase in thenumber of outpatient MH visits per 1,000members per quarter. Relatively fewKaiser/CHP members received group therapyas part of their MH treatment before parity,and the percentage did not change signifi-cantly after parity. However, the averagenumber of group therapy visits per user didincrease, suggesting that Kaiser/CHP reliedon group therapy to extend the number ofvisits per user post-parity but did not widenthe use of group therapy to a larger share ofthe population in treatment.

Among BCBSVT members, there was a 6percent reduction in the average number ofoutpatient services per user. Despite increas-es in initial access to outpatient services,there was no change in the overall numberof services per 1,000 members, due to thereduction in intensity of treatment. Theaggregate reduction in intensity of care wasa function of the shift to managed care. Asshown in Figure III.1, those shifting intomanaged care experienced a reduction in theaverage number of visits per user per quar-ter (all else being equal), while those remain-ing in an unmanaged product experienced aslight increase in the predicted number ofvisits per user. As a result, there was an esti-mated one-half visit differential during thequarter parity went into effect (3.4 visitsmanaged versus 3.9 visits unmanaged).Thus, parity shifted the average level of use

6 This result was derived from the multivariate analy-sis and is based on the odds ratio signifying theindependent effect of parity on the probability ofobtaining outpatient MH services. See Appendix Cfor the complete multivariate results (AppendixTables C.1 and C.2).

Table III.2: Access to and Use of Mental Health Services by Members ofTwo Vermont Health Plans: 1996–1999

Mental Health (MH) Services Before After Percent Parity Parity Change

Kaiser/Community Health Plan (Kaiser/CHP)

Number of MH users per 1,000 members per quarterAny MH services 19.28 20.53 6.5 **Inpatient/residential MH services 0.34 0.21 –38.2 **Partial MH services 0.08 0.14 75.0Outpatient MH services 19.24 20.48 6.4 **

Number of MH services per user per quarterInpatient/residential MH days 10.72 11.23 4.7Partial MH days 8.27 5.96 –27.9Outpatient MH visits 3.26 3.48 6.5 **

Number of MH services per 1,000 members per quarterInpatient/residential MH days 3.98 2.51 –36.9Partial MH days 0.80 1.16 45.0Outpatient MH visits 62.62 71.62 14.4 **

Percentage of outpatient MH users receiving group therapy 5.0% 4.1% –18.9Average number of group therapy visits per user 3.49 4.81 38.1 ***

Blue Cross Blue Shield of Vermont

Number of MH users per 1,000 members per quarterAny MH services 31.13 33.57 7.8 ***Inpatient/residential MH services 0.23 0.40 73.9 **Partial MH services # 0.07 — ***Outpatient MH services 31.09 33.54 7.9 ***

Number of MH services per user per quarterInpatient/residential MH days 8.97 7.70 –14.2Partial MH days # 7.65 — ***Outpatient MH visits 5.06 4.73 –6.4 ***

Number of MH services per 1,000 members per quarterInpatient/residential MH days 1.99 3.18 59.8 *Partial MH days # 0.75 — ***Outpatient MH visits 156.79 159.43 1.7

Percentage of outpatient MH users receiving group therapy 3.4% 3.5% 5.1Average number of group therapy visits per user 5.70 5.89 3.3

Source: Original analysis of Kaiser/CHP and Blue Cross Blue Shield of Vermont claims/encounter data by Mathematica Policy Research, Inc.

# Less than 0.05

* Significantly different from zero at the .10 level, two-tailed test.** Significantly different from zero at the .05 level, two-tailed test.***Significantly different from zero at the .01 level, two-tailed test.

Special Report26

upward, while managed care exerted adownward pressure.

These aggregate patterns of use were con-firmed by examining distributions of theannual level of use. Among Kaiser/CHPmembers receiving any outpatient MH treat-ment, a higher proportion of users exceededthe pre-parity 20-visit limit in 1998 and1999 (Table III.3). In contrast, BCBSVTmembers showed no increase in the propor-tion of outpatient MH users with more than20 visits. Instead, a growing concentration ofusers was noted at the low end of the distri-bution (10 visits or less).

A similar analysis was conducted on thesubgroup of health plan members with aprimary diagnosis of major depression,bipolar disorder, or schizophrenia to deter-mine whether those with a serious mentalcondition may have been affected differently(data not shown). The results paralleled


those in the general population of outpatientMH users. Among Kaiser/CHP members,the intensity of outpatient treatmentincreased, with a higher proportion exceed-ing the 20-visit pre-parity limit (11.9 percentin 1996 versus 16.4 percent in 1999).Among BCBSVT members, no significantchange was observed in the level of outpa-tient use; for example, about one-fourthreceived 20 or more outpatient visits bothbefore and after parity.

b. Inpatient/Partial Treatment

The two health plans exhibited opposite pat-terns of inpatient/partial treatment followingimplementation of parity. Fewer Kaiser/CHPmembers received inpatient MH treatmentpost-parity, as evidenced by a 38 percentreduction in the number of users per 1,000members (Table III.2). The number of daysper 1,000 members did not decline, however,

Quarter

Pred

icte

d N

umbe

r of O

utpa

tient

Men

tal

Heal

th V

isits

per

Use

r per

Qua

rter

16

Pre-Parity Parity - Unmanaged Parity - Managed

Vermont Parity LawWent Into Effect

5

4.5

4

3.5

3

2.5

21 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Figure III.1: Simulation of the Effects of Parity and Managed Care on theAverage Number of Outpatient Mental Health Visits per User: Blue CrossBlue Shield of Vermont, 1996–1999

Table III.3: Annual Level of Mental Health Utilization by Members of TwoVermont Health Plans: 1996–1999

1996 1997 1998 1999

Number of Outpatient MH Visits Percentage of Users

Kaiser/CHP1–5 60.70 60.80 55.54 56.086–10 20.31 22.22 21.32 20.8311–20 14.97 13.33 16.33 15.32More than 20 4.02 3.65 6.81 7.78

Blue Cross Blue Shield of Vermont1–5 41.15 42.09 42.47 43.006–10 19.25 20.44 22.36 21.5811–20 19.80 18.80 19.57 19.07More than 20 19.80 18.67 15.60 16.36

Number of Inpatient/Partial MH Daysa Percentage of Users

Kaiser/CHP1–2 7.79 19.09 22.09 9.093–7 29.87 32.73 36.05 42.428–14 33.77 27.27 30.23 24.2415–21 12.99 7.27 3.49 6.0622–30 11.69 12.73 2.33 3.03More than 30 3.90 0.91 5.81 15.15

Blue Cross Blue Shield of Vermont1–2 12.12 13.64 13.56 13.563–7 31.82 47.73 33.90 37.298–14 31.82 25.00 28.81 33.9015–21 15.15 4.55 11.86 6.7822–30 1.52 6.82 8.47 5.08More than 30 7.58 2.27 3.39 3.39


a One day of partial treatment is counted as one-half day of inpatient treatment.

Kaiser/CHP = Kaiser/Community Health Plan; MH = mental health.

as lengths of stay increased slightly (thoughnot significantly). The distribution of annuallevels of use shed further light on the com-plex patterns observed in the aggregate analy-sis (Table III.3). Kaiser/CHP experienced anincrease in the proportion of inpatient users,with more than 30 inpatient/partial days fol-lowing implementation of parity, as well as agrowing concentration of inpatient users with3 to 7 days per year.

For BCBSVT enrollees, access to inpatientand partial MH treatment increased signifi-cantly following implementation of parity,

despite the shift of the majority of BCBSVTmembers into managed care (Table III.2). Therate of inpatient users per 1,000 members perquarter rose steeply, leading to a 60 percentincrease in the number of inpatient days per1,000 members per quarter. This aggregateincrease in inpatient days was due toincreased access, rather than to increasedintensity. No significant changes were foundin the average number of days per user (TableIII.2) or in the annual level of inpatient MHuse for BCBSVT members (Table III.3).

Special Report28

(Table III.5). Kaiser/CHP members demon-strated a noticeable shift in the distributionof inpatient/partial SA days over the 4-yearperiod toward shorter stays, especially in therange of 3 to 7 days. Among BCBSVT mem-bers, treatment intensity increased, as 10 per-cent received more than 28 days of inpa-tient/partial SA treatment in 1999, comparedto 2 percent pre-parity. These data suggestthat BCBSVT (or its managed care carve-out)first raised the “threshold” for entering treat-ment and then provided more intensive treat-ment to fewer patients.

4. Patterns of Mental Health andSubstance Abuse Spending Before and AfterParity

The analyses of access and use present acomplex picture of increased use of certaintypes of services and a decreased use of oth-ers. How did these changes in utilization pat-terns affect spending for MH/SA services?Spending is comprised of both health planpayments and out-of-pocket expenditures.The analysis shows how both of these spend-ing components, as well as overall MH/SAspending, changed following implementationof parity.

This section first presents data on patternsof BCBSVT spending for MH/SA servicesbefore and after parity and then imputes theeffects of parity on Kaiser/CHP spending.The section concludes with a discussion ofthe effect of parity on cost sharing for thosewith serious mental conditions.

a. Mental Health Spending Patterns

On average, MH spending per BCBSVTmember per quarter was not significantlydifferent before and after parity (Table III.6).Moreover, MH spending as a percentage oftotal spending did not change following


3. Patterns of Access to and Use ofSubstance Abuse Treatment Before and AfterParity

a. Outpatient Treatment

Access to outpatient SA treatment by Kaiser/CHP and BCBSVT members declined follow-ing implementation of parity (Table III.4).Among those in treatment, however, therewas no significant change in the averagenumber of outpatient SA visits per user perquarter. Nevertheless, BCBSVT experienced a38 percent reduction in the total number ofoutpatient SA services per 1,000 membersper quarter post-parity, given the substantialdecline in the level of access. BCBSVT alsorelied increasingly on group therapy follow-ing parity.

b. Inpatient/Partial Treatment

Both health plans experienced large reduc-tions in access to inpatient treatment follow-ing parity, coupled with increased access topartial treatment (although the latter changedid not achieve statistical significance due tosmall sample sizes). The likelihood of obtain-ing inpatient/partial SA treatment dropped51 percent for Kaiser/CHP members and 34percent for BCBSVT members.7 The patternof inpatient use differed across the twohealth plans. Kaiser/CHP members hadshorter lengths of inpatient stays post-parity;BCBSVT members had longer stays andhigher levels of partial treatment.8

The frequency distributions of annual lev-els of use confirmed these aggregate findings

7 This result was derived from the multivariateanalysis (see Appendix Tables C.5 and C.6).

8 The multivariate results for Kaiser/CHP suggestedthat this decline was due to a secular time trendindependent of the implementation of the paritylaw (see Appendix Table C.8).

Table III.4: Access to and Use of Substance Abuse Services by Membersof Two Vermont Health Plans: 1996–1999

Substance Abuse (SA) Services Before After Percent Parity Parity Change

Kaiser/Community Health Plan (Kaiser/CHP)

Number of SA services users per 1,000 members per quarterAny SA services 5.69 4.77 –16.2 ***Inpatient/residential SA services 0.56 0.18 –67.9 ***Partial SA services 0.18 0.24 33.3Outpatient SA services 5.43 4.68 –13.8 ***

Number of SA services per user per quarterInpatient/residential SA days 11.19 8.30 –25.8 ***Partial/intensive outpatient SA days 9.26 8.25 –10.9Outpatient SA visits 4.29 4.44 3.5

Number of SA services per 1,000 members per quarterInpatient/residential SA days 5.70 1.19 –79.1 ***Partial/intensive outpatient SA days 1.52 1.79 17.8Outpatient SA visits 23.97 21.08 –12.1

Percentage of outpatient SA users receiving group therapy 35.1% 32.3% –8.0Average number of group therapy visits per user 6.48 6.26 –3.5

Blue Cross Blue Shield of Vermont

Number of SA services users per 1,000 members per quarterAny SA services 4.98 3.53 –29.1 ***Inpatient/residential SA services 0.39 0.18 –53.8 ***Partial SA services 0.25 0.33 32.0Outpatient SA services 4.85 3.38 –30.3 ***

Number of SA services per user per quarterInpatient/residential SA days 10.45 16.68 59.6 ***Partial SA days 10.07 19.33 92.0 ***Outpatient SA visits 4.68 4.59 –1.9

Number of SA services per 1,000 members per quarterInpatient/residential SA days 4.21 1.91 –54.6 ***Partial SA days 2.47 5.18 109.7 **Outpatient SA visits 23.08 14.24 –38.3 ***

Percentage of outpatient SA users receiving group therapy 18.9% 19.7% 4.3Average number of group therapy visits per user 5.08 6.44 26.9 *


* Significantly different from zero at the .10 level, two-tailed test.** Significantly different from zero at the .05 level, two-tailed test.*** Significantly different from zero at the .01 level, two-tailed test.

Special Report30

implementation of parity, averaging 2.31percent during both periods. However,spending by type of service did change sig-nificantly over the study period. Despite anincrease in outpatient utilization, spendingon outpatient MH services per member per

quarter declined 6.5 percent, and spendingon outpatient MH services per user declined13 percent—driven by a 10 percent reduc-tion in average spending per outpatient visit.The unit cost reduction could be a functionof a changing service mix, as well as of pay-

Table III.5: Annual Level of Substance Abuse Utilization by Members ofTwo Vermont Health Plans: 1996–1999

1996 1997 1998 1999

Number of Inpatient/Partial SA Daysa Percentage of Users

Kaiser/CHP1–2 10.67 16.90 28.21 5.263–7 26.67 26.76 35.90 52.638–14 30.67 36.62 23.08 26.3215–21 24.00 11.27 7.69 15.7922–28 6.67 4.23 2.56 0.00More than 28 1.33 4.23 2.56 0.00

Blue Cross Blue Shield of Vermont1–2 8.16 16.00 5.66 7.323–7 28.57 36.00 26.42 21.958–14 32.65 30.00 41.51 39.0215–21 20.41 6.00 16.98 19.5122–28 8.16 10.00 3.77 2.44More than 28 2.04 2.00 5.66 9.76

Number of Outpatient SA Visits Percentage of Users

Kaiser/CHP1–5 63.73 59.01 58.15 62.946–10 18.03 18.02 17.29 15.8811–20 11.27 11.71 16.04 13.53More than 20 6.96 11.26 8.52 7.65

Blue Cross Blue Shield of Vermont 1–5 46.25 47.15 51.18 51.606–10 24.32 22.81 22.05 19.6811–20 16.82 14.07 16.14 18.09More than 20 12.61 15.97 10.63 10.63


a One day of partial treatment is counted as one-half day of inpatient treatment.

Kaiser/CHP = Kaiser/Community Health Plan; SA = substance abuse.


ment reductions negotiated by the carve-outplan. In contrast to declining outpatientcosts, combined spending on inpatient andpartial MH services doubled.

Relatively few BCBSVT members incurredhealth plan payments of $5,000 or more pre-parity for MH services; and that pattern con-tinued following implementation of parity(Table III.7). Over the 4-year period, the pro-portion of MH users with health plan pay-ments over $1,000 fell from 26 percent to 20percent. A more pronounced trend was a

growing share of MH users spending between$101 and $1,000. This may include twogroups of users: (1) those with chronic condi-tions who received shorter-term psychothera-py and crisis intervention post-parity; and (2)new users with less severe conditions whoreceived a brief course of therapy. Both sce-narios are consistent with the results of thedescriptive analysis, suggesting that moreBCBSVT members had access to MH treat-ment post-parity, but users received fewerservices, on average.

Table III.6: Spending for Mental Health and Substance Abuse Services:Blue Cross Blue Shield of Vermont, 1996–1999

Before After Percent Parity Parity Change

Mental Health (MH)

Average MH spending per member per quarterAny MH services $13.98 $14.25 1.9Inpatient/residential MH services $1.04 $2.00 92.3 **Partial MH services # $0.15 — **Outpatient MH services $12.94 $12.10 –6.5 **

Average MH spending per user per quarterAny MH services $445.68 $420.81 –5.6Inpatient/residential MH services $33.74 $59.16 75.3 *Partial MH services # $4.61 — **Outpatient MH services $411.94 $357.04 –13.3 ***

Average unit cost per MH serviceAverage spending per stay $4,246.54 $4,134.16 –2.6Average spending per day $627.31 $643.95 2.7Average spending per visit $82.73 $74.16 –10.4 ***

MH spending as a percentage of total spending 2.31 2.31 0.0

Substance Abuse (SA)

Average SA spending per member per quarterAny SA services $3.80 $2.03 –46.6 ***Inpatient/residential SA services $1.89 $0.60 –68.3 ***Partial SA services $0.30 $0.78 160.0Outpatient SA services $1.61 $0.96 –40.4 ***

Average SA spending per user per quarterAny SA services $827.25 $600.45 –27.4 *Inpatient/residential SA services $430.96 $155.40 –63.9 ***Partial SA services $73.15 $156.88 114.5 *Outpatient SA services $323.14 $288.16 –10.8

Average unit cost per SA serviceAverage spending per stay $4,229.63 $3,039.90 –28.1 ***Average spending per day $468.36 $335.89 –28.3 **Average spending per visit $74.66 $72.88 –2.4

SA spending as a percentage of total spending 0.37 0.24 –33.7 ***

Source: Original analysis of Blue Cross Blue Shield of Vermont claims/encounter data by Mathematica Policy Research, Inc.

# Less than 0.005 dollars.—Could not be calculated due to small baseline number.

* Significantly different from zero at the .10 level, two-tailed test.** Significantly different from zero at the.05 level, two-tailed test.*** Significantly different from zero at the .01 level, two-tailed test.

Special Report32


b. Substance Abuse Spending Patterns

The pronounced reductions in SA utilizationtranslated into substantial reductions inspending. Overall, average SA spending perBCBSVT member per quarter fell by 47 per-cent, with across-the-board reductions inspending for both inpatient and outpatientservices (Table III.6). This resulted in areduction in SA spending as a percentage oftotal spending from 0.37 to 0.24 percent.Per capita spending reductions were a func-tion not only of lower rates of access butalso of lower unit costs for treatment.Among the factors that might account forlower unit costs are differences in servicemix, case mix, or lower reimbursementsnegotiated by the health plan. A moredetailed analysis of the annual level ofspending revealed little change in the distri-bution of health plan spending per user(Table III.7).

c. Changes in Health Plan Payments

In the aggregate, quarterly MH/SA spendingdeclined by about 8 percent, while healthplan payments for MH/SA services increasedby 4 percent (Table III.8). Reductions in con-sumer out-of-pocket payments drove theseincreases in health plan payments. Prior toparity, health plan payments accounted for70 percent of MH spending, while consumerspaid for the remaining 30 percent. Followingparity, the health plan share rose to 83 per-cent as consumer cost-sharing requirementswere brought into compliance with the parityprovisions. The health plan share of SAspending remained constant at 87 percent.

Health plan payments for MH/SA servicesaccounted for 2.47 percent of total healthplan payments for all services post-parity, upfrom 2.30 percent pre-parity (Table III.8).This 0.17-percentage-point increase reflecteda 0.26-point increase for MH services and a

Table III.7: Annual Level of Health Plan Payments for Mental Health andSubstance Abuse Services: Blue Cross Blue Shield of Vermont,1996–1999

Health Plan Payments 1996 1997 1998 1999

Mental Health Percentage of Users

$1–100 18.02 18.25 15.49 15.22$101–250 19.09 20.78 21.66 22.00$251–500 18.02 18.14 23.19 23.10$501–1,000 19.03 17.61 18.74 19.54$1,001–2,500 18.89 18.35 15.42 14.94$2,501–5,000 5.73 5.87 3.62 3.18More than $5,000 1.21 0.99 1.88 2.02

Substance Abuse Percentage of Users

$1–100 13.87 15.29 19.16 16.12$101–250 23.55 20.39 21.07 22.05$251–500 18.38 21.17 20.31 16.67$501–1,000 18.06 14.12 13.41 17.20$1,001–2,500 14.20 17.25 15.71 16.67$2,501–5,000 7.75 6.67 6.52 9.14More than $5,000 4.20 5.11 3.83 2.15


Special Report34

0.09-point decrease for SA services. Overall,health plan payments for MH/SA servicesincreased by 58 cents per member per quarterfollowing the implementation of parity. Inother words, the cost of full parity to BCB-SVT amounted to about $2.32 per memberper year, or 19 cents per member per month.

Multivariate analysis provided evidence ofthe joint effects of managed care and parityon the level of health plan payments per user(Figure III.2). Although implementation ofmanaged care constrained both MH and SAspending, parity offset this effect for MHservices but not for SA services. Thus, spend-ing for MH services was highest in anunmanaged parity environment. In contrast,spending for SA services was higher pre-parity, and higher still before the transitionto managed care.

d. Changes in Kaiser/CHP Spending

Estimates of changes in Kaiser/CHP spendingwere imputed by applying BCBSVT unitcosts to Kaiser/CHP utilization patterns.9

Based on this approach, overall MH/SAspending per member per quarter was esti-mated to have decreased by nearly 18 per-cent. Furthermore, health plan spending (netof patient out-of-pocket expenses) was esti-

9 These results should be interpreted with cautionfor two reasons. First, Kaiser/CHP unit costs maydiffer from those of BCBSVT. Second, out-of-pock-et spending levels among Kaiser/CHP members(both pre- and post-parity) may differ from theaggregate assumptions applied based on BCBSVTmember experiences. Therefore, these resultsshould be considered illustrative of the potentialeffects of parity on spending for MH/SA services.

Table III.8: Mental Health and Substance Abuse Spending as a Percentageof Total Spending: Blue Cross Blue Shield of Vermont, 1996–1999

Before After Percent Parity Parity Change

Total mental health/substance abuse (MH/SA) spending per member per quartera

Mental health $13.98 $14.25 1.9Substance abuse 3.80 2.03 –46.6MH/SA combined 17.78 16.28 –8.4

Health plan payments per member per quarterMental Health $9.74 $11.87 21.9Substance abuse 3.30 1.75 –47.0MH/SA combined 13.04 13.62 4.4

Health plan payments as a percentage of total MH/SA spending

Mental health 69.7% 83.3% n.a.Substance abuse 86.8% 86.2% n.a.MH/SA combined 73.3% 83.7% n.a.

Health plan payments for MH/SA services as a percent of total health plan payments

Mental health 1.98% 2.24% n.a.Substance abuse 0.32% 0.23% n.a.MH/SA combined 2.30% 2.47% n.a.


a Total spending includes health plan payments and out-of-pocket spending by members (deductibles, coinsurance, and copayments).n.a. = not applicable.


Predicted Health Plan Spending for Substance Abuse Services

Pred

icte

d He

alth

Pla

n Sp

endi

ng P

er U

ser P

erQu

arte

r for

Sub

stan

ce A

buse

Ser

vice

s


500

450

400

350

300

250

200

150

100

50

0

Pre-Parity

Quarter1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Parity - Unmanaged Parity - Managed

Figure III.2: Simulation of the Effects of Parity and Managed Care onAverage Health Plan Spending per User per Quarter: Blue Cross BlueShield of Vermont, 1996–1999

Predicted Health Plan Spending for Mental Health Services

Quarter

Pred

icte

d He

alth

Pla

n Sp

endi

ng P

er U

ser P

erQu

arte

r for

Men

tal H

ealth

Ser

vice

s

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Pre-Parity Parity - Unmanaged Parity - Managed


350

300

250

200

150

100

50

0

Table III.9: Median Out-of-Pocket Payments as a Percent of Total MentalHealth Charges Among Members With a Serious Mental Condition, ByLevel of Mental Health Charges: Blue Cross Blue Shield of Vermont, 1996and 1999

Out-of-Pocket Payments as a Percentage of TotalMental Health Charges (Median)

Annual Level of Mental Health Charges 1996 1999

$1–$500 50.0 19.3$501–$1,000 32.0 20.0$1,001–$2,500 27.1 20.3$2,501–$5,000 18.4 14.1More than $5,000 9.0 4.4

*Includes BCBSVT members with a primary diagnosis of major depression, bipolar disorder, or schizophrenia.

Special Report36

mated to have decreased by about 9 percentfollowing implementation of parity.10 Thisreduction was driven entirely by the declinein use of SA treatment.

e. Changes in MH/SA Spending for BCBSVTMembers With Serious Mental Conditions

A more in-depth analysis was conducted ofchanges in the level of health plan paymentsand cost sharing among BCBSVT memberswith serious mental conditions (majordepression, bipolar disorder, or schizophre-nia). This population has the most to gainfrom parity, both in terms of higher utiliza-tion and lower cost sharing. During thestudy period, the proportion of users withhealth plan payments of $5,000 or moreincreased from 3.9 percent in 1996 to 6.0percent in 1999 (data not shown). At thesame time, the proportion spending morethan $1,000 out-of-pocket decreased from5.8 to 2.7 percent, as health plans assumeda larger share of the costs post-parity.Median out-of-pocket payments for highusers (those with total mental health charges

more than $5,000 per year) declined from9.0 to 4.4 percent of their total charges(Table III.9).

Individuals with serious mental conditionswho were relatively low users benefited sub-stantially from the reduction of cost sharing(in relation to their total MH charges). Forexample, among those with total charges lessthan $500 per year, the median out-of-pocketpayment as a percent of total chargesdeclined from 50 percent to 19 percent, asthe higher coinsurance rate for MH serviceswas eliminated. Thus, the cost of initiating anepisode of treatment was lower followingimplementation of parity.

C. Discussion

The two dominant insurers in Vermont atthe time parity was enacted—BCBSVT andKaiser/CHP—offered sharply contrastingparity-implementation experiences, but gen-erally similar results. Across both plans, sig-nificant increases in access to MH serviceswere observed following implementation ofparity. Parity was associated with anincreased likelihood of obtaining any MHtreatment. Parity also had a positive effect on

10 Due to limitations of the estimation methodology,the actual savings to Kaiser/CHP may have beensomewhat lower.

higher-severity case mix. As a result of thesechanges in patterns of access and use, aver-age SA spending per BCBSVT member perquarter was nearly halved after parity.

This analysis revealed that overall spend-ing for MH/SA services per BCBSVT mem-ber per quarter declined by 8 percent.However, due to declines in patient cost-sharing requirements, BCBSVT assumed anincreasing share of total spending forMH/SA services. Thus, BCBSVT spendingfor MH/SA services rose by 4 percent. Onthe basis of this estimate, it is estimated thatthe cost of full parity in Vermont amountedto approximately $2.32 per member peryear, or 19 cents per member per month. Asa percent of total health spending (across alltypes of services), the share attributable toMH/SA services rose 0.17 percentage points,from 2.30 to 2.47 percent.

Overall MH/SA spending per Kaiser/CHP member per quarter was estimated tohave decreased by about 18 percent, whilehealth plan spending decreased by about 9percent following implementation of parity.This reduction was driven entirely by thedecline in use of SA treatment byKaiser/CHP members.

The analysis of MH/SA spending and uti-lization during the 2 years after adoption ofparity in Vermont suggests that the initialcosts associated with movement to full paritywere minimal. This is due, however, to largereductions in SA utilization, and only a mini-mal expansion of MH utilization above lev-els covered prior to parity. These findingsreflect the effects of implementing parity forMH/SA services in a managed care context.


the average number of outpatient visits peruser within the two health plans.

However, these aggregate results do notmean that all health plan members experi-enced increases in outpatient MH access andutilization following implementation of pari-ty. For those BCBSVT members who receivedtheir MH/SA benefits through the managedcare carve-out, the effect of parity was offsetby the use of managed care arrangements.Not only did the likelihood of obtaining out-patient treatment decline for those in themanaged care carve-out, but also the averagenumber of visits per user was lower.

Results were mixed across the two healthplans with regard to use of inpatient or par-tial MH services. Kaiser/CHP members hada significantly lower likelihood of obtaininginpatient or partial MH treatment followingparity, suggesting that outpatient MH serv-ices may have substituted for inpatient treat-ment. In contrast, among BCBSVT mem-bers, access to inpatient or partial MHtreatment increased following parity, cou-pled with increases in outpatient MH treat-ment noted above.

There is considerable interest in howVermont health plans responded to a full-parity law that includes SA treatment.Substantial reductions in access to substanceabuse treatment were observed in bothhealth plans (as measured by the number ofusers per 1,000 members), generally accom-panied by large decreases in the number ofservices used per 1,000 members. BCBSVTmembers experienced an increase in theduration of inpatient and partial treatment;but, given the marked reduction in access tosuch treatment, this may have reflected thetargeting of more intensive treatment to a


IV.

Recognizing that the requirements of mental health/substanceabuse (MH/SA) parity laws may affect small businessesadversely, the Federal government and 16 States have

exempted small businesses from complying with the provisions of theirparity laws. The Vermont parity law, however, applies to all employersregardless of size. Employers’ responses to and attitudes toward theVermont parity law provide important insights in designing and imple-menting MH/SA parity laws at the State and national levels. This chap-ter presents the results of a survey of Vermont employers, which assessedtheir awareness of, satisfaction with, and perceptions of the effects of theVermont parity law.

Employer Perspectiveson the Vermont ParityLaw

Employer groups, especially those repre-senting small businesses, tend to opposeMH/SA parity laws because of concernsabout costs associated with expanded bene-fits and because they believe a benefit man-date reduces the level of choice available toemployers in tailoring health insurance cov-erage to employee needs (U.S. Chamber ofCommerce, 2000; National Association ofManufacturers, 2001; National Federation ofIndependent Business, 2001).

Small businesses are less likely than largerbusinesses to offer health insurance coverage.When they do offer coverage, their premiumsfor single coverage tend to be higher thanthose paid by larger firms (KFF/HRET 2001).Moreover, in recent years, smaller firms havefaced greater premium increases than largerfirms (Kaiser Family Foundation and Health

Research and Educational Trust, 2001), eventhough small businesses may be less able toabsorb premium increases because of tightprofit margins (National Federation ofIndependent Business, 2001). This evaluationincluded a survey of Vermont employers, pro-viding an opportunity to compare the experi-ences of small and large businesses in imple-menting the Vermont parity law.

The survey was conducted from August toNovember 2000, more than two years afterimplementation of the parity law began.Findings are divided into four sections:(1) employer awareness of the Vermont paritylaw; (2) their assessment of the effects of thelaw to date; (3) their satisfaction with thelaw; and (4) their recommendations forimproving the law in the future. Findings arepresented by firm size, which is defined

Special Report40

familiarity with parity was highest in verysmall businesses (fewer than 10 employees).For example, in firms with fewer than 10employees, 41 percent of respondents indi-cated they had not heard of parity; 52 per-cent of firms with more than 50 employeesdid not know about the law.3

Among fully insured employers who hadheard about the Vermont parity law, theirthree main sources of information werehealth insurance plans (44 percent), themedia (43 percent), and insurance brokers(33 percent). The Chamber of Commerce,professional or trade associations, and theState government each were reported as asource of information by 12 to 14 percent ofinsured employers who had heard of the par-ity law. The majority of employers (56 per-cent) reported a single source of information,but a sizable proportion received informationfrom three or more sources (23 percent) (seeTable IV.2).

Among fully insured employers in whichsomeone had heard of parity, about 40 per-cent responded that management knew mostof what they needed to know about parity;another 31 percent felt they knew some ofwhat they needed to know; and 29 percentindicated they knew almost nothing about

according to four categories: (1) fewer than10 employees, (2) 10 to 25 employees, (3) 26to 50 employees, and (4) more than 50employees. Significance testing was performedto determine the statistical significance of dif-ferences between firms according to size.1

Refer to Appendix D for the survey methodsand background information on the charac-teristics of Vermont employers by firm size.

A. Employer Awareness of theVermont Parity LawThe survey measured employer awarenessof the Vermont MH/SA parity law, howemployers learned about the law, how confi-dent they were that they understood the law,how they notified employees about the law,and how well they thought their employeesunderstood the law. Many employers wereunaware of the law; among those who knewabout it, their self-reported level of under-standing was relatively low. Moreover, theseemployers felt the level of understandingamong their employees was even lower.

1. Employer Knowledge of the Parity Law

Nearly half (46 percent) of the fully insuredemployers in Vermont reported that they hadnot heard of the Vermont parity law at thetime of the survey (Table IV.1).2 The level of

BCBSVT issued a certificate to the subscriber. (TheState considers such policies as insured by BCBSVTrather than self-funded by the employer.) For thepurpose of this analysis, businesses that offeredboth fully insured and self-insured plans were clas-sified as fully insured plans, since at least one oftheir plans was subject to parity. There were notenough businesses with both types of plans to per-form a separate analysis.

3 The interview was conducted with the person whowas most familiar with the parity law. When arespondent reported that he or she had not heardabout the parity law, the interviewer asked if therewas anyone else in the firm who might be familiarwith it. In such cases, the interviewer called backto talk to the most knowledgeable person.

1 Firm size is defined as very small (fewer than 10),small (10 to 25), medium (26 to 50), and large(more than 50).

2 Fully insured employers purchase coverage for theiremployees from an insurance company or healthplan. Employers who are self-insured, or self-fund-ed, pay the claims directly (or under an arrange-ment with an administrative-services-only contract).Most self-insured plans were exempt from theVermont parity law due to the Federal preemptionunder ERISA, although they were subject to themore limited requirements of the Federal parity law.However, self-insured plans administered by BlueCross Blue Shield of Vermont (BCBSVT) were notexempt from the Vermont parity law because

Tab

le IV

.1: K

no

wle

dg

e o

f th

e Ve

rmo

nt

Par

ity

Law

, by

Firm

Siz

e, %

Num

ber o

f Em

ploy

ees

All F

irms

Few

er T

han

1010

to 2

526

to 5

0M

ore

Than

50

Perc

enta

ge o

f Em

ploy

ers

Whe

re N

o On

e W

as F

amili

ar W

ith th

e Pa

rity

Law

45.8

40.5

*46

.355

.551

.8

Leve

l of U

nder

stan

ding

Am

ong

Man

agem

ent (

chi–

sq =

10.

63)a

Mos

t of w

hat t

hey

need

to k

now

39.7

42.1

31.4

33.1

56.3

Som

e of

wha

t the

y ne

ed to

kno

w31

.332

.729

.233

.531

.0Al

mos

t non

e of

wha

t the

y ne

ed to

kno

w29

.025

.239

.433

.412

.7

Perc

enta

ge o

f Em

ploy

ers

With

No

or A

lmos

t No

Know

ledg

e of

the

Parit

y La

wa,

b61

.555

.567

.470

.457

.9

Leve

l of U

nder

stan

ding

Am

ong

Empl

oyee

s (c

hi–s

q =

9.26

)a

Mos

t of w

hat t

hey

need

to k

now

33.4

41.6

26.8

26.0

35.0

Som

e of

wha

t the

y ne

ed to

kno

w26

.231

.112

.334

.136

.7Al

mos

t non

e of

wha

t the

y ne

ed to

kno

w40

.527

.360

.939

.928

.3

Sour

ce:

Mat

hem

atic

a Po

licy

Rese

arch

Sur

vey

of V

erm

ont E

mpl

oyer

s to

Ass

ess

the

Impa

ct o

f the

Ver

mon

t Par

ity A

ct.

Not

e:Th

e su

rvey

incl

udes

Ver

mon

t bus

ines

ses

that

wer

e in

ope

ratio

n as

of J

anua

ry 1

, 199

8 an

d th

at re

mai

ned

in o

pera

tion

as o

f the

tim

e of

the

surv

ey (F

all 2

000)

. Th

e su

rvey

exc

lude

d th

ose

that

had

, on

aver

age,

few

erth

an fi

ve e

mpl

oyee

s ac

ross

est

ablis

hmen

ts in

cal

enda

r yea

r 199

9 an

d bu

sine

sses

ope

rate

d by

Fed

eral

and

Sta

te G

over

nmen

t ent

ities

. Th

is ta

ble

is li

mite

d to

fully

insu

red

busi

ness

es th

at w

ere

subj

ect t

o th

e Ve

rmon

tpa

rity

law

.

aAm

ong

empl

oyer

s w

here

som

eone

had

hea

rd a

bout

the

parit

y la

w.

bTh

e pe

rcen

tage

of e

mpl

oyer

s w

ith n

o or

alm

ost n

o kn

owle

dge

of th

e pa

rity

law

is a

com

posi

te m

easu

re re

flect

ing

the

perc

enta

ge o

f em

ploy

ers

whe

re n

o on

e w

as fa

mili

ar w

ith th

e pa

rity

law

, plu

s th

e pe

rcen

tage

with

alm

ost

no k

now

ledg

e of

the

parit

y la

w.

*Si

gnifi

cant

ly d

iffer

ent f

rom

em

ploy

ers

with

mor

e th

an 5

0 em

ploy

ees

at th

e .1

0 le

vel,

two-

taile

d te

st.


ed to know, ranging from 56 to 58 percentof the very small and large businesses to 67to 70 percent of the small and medium-sized businesses.4

2. Employee Knowledge of the Parity Law

Among the fully insured employers that hadheard about parity, most notified theiremployees about the parity law following itsimplementation in 1998 (or upon renewal ofthe insurance contract). Only 7 percent indi-cated they had not notified their employeesabout parity (data not shown). Of those whonotified employees, nearly two-thirds indicat-ed they had issued a written notificationabout the benefit changes and nearly halfconducted meetings with employees (seeTable IV.3).

When asked about their employees’ under-standing of parity, employers reported alower level of awareness of parity amongtheir employees than among management: 41 percent reported that their employeesknew almost nothing about the parity law(Table IV.1). (There were no significant dif-ferences by firm size.) Employers’ percep-tions of the lack of knowledge of the paritylaw among consumers were consistent withanecdotal reports gathered during the casestudy, which indicated that many consumers

Special Report42

parity (Table IV.1). The level of knowledgewas highest at the two extremes of firm size:56 percent of the large firms and 42 percentof the very small firms reported that theirmanagement knew most of what they need-ed to know about the parity law, in contrastto 31 to 33 percent of small and medium-sized firms.

Based on employer response, a compos-ite measure was constructed of the percent-age of employers with little or no knowl-edge of the parity law. Overall, these datasuggest that about three-fifths of employerseither had not heard about parity or knewalmost nothing of what they felt they need-

Table IV.3: Approaches Used byEmployers to Notify EmployeesAbout the Parity Law

Type of Notification Percentage of Employersa

Written notification 64.6Employee meetings 46.7Newsletter 15.4E–mail 2.3Union 0.7Other 3.1

a Includes fully insured businesses where someone had heard of theparity law.

4 It is possible that this estimate understates the levelof knowledge about parity to the extent that therewere others in the firm who knew about parity butwho were not interviewed during this survey. Thiswould be especially plausible if the level of knowl-edge were lower in the large firms, in which thereis greater division of labor for employee benefits,health insurance purchasing, employee relations,and other functions. In small firms, however, it ismore likely that the survey would have identifiedsomeone who was knowledgeable about parity,given the multitude of probes asking to speak withan individual who was familiar with the parity law.

Table IV.2: Sources of InformationAbout Parity

Sources of Information Percentage of Employersa

Health insurance plan 44.2Media 42.9Insurance broker 33.4Chamber of Commerce 14.4Professional/trade association 12.6State government 11.9Benefit consultant 8.7Attorney 6.6Another company 3.4Vermont business roundtable 2.8Other 8.7

a Includes fully insured businesses where someone had heard of theparity law.

effect (as of January 1, 1998 or upon con-tract renewal). Employer responses were dis-aggregated by firm size. In addition, resultsare presented separately for fully insured ver-sus self-insured businesses, since the latterwere not subject to the parity provisions. Togauge the role of parity in bringing about thereported changes, fully insured businesseswere asked to assess the effect of the paritylaw on any changes that they reported.

1. Effects on Health Care Costs

An underlying driver of employer responsesis the actual or anticipated effect of parity onhealth care costs. Nine out of 10 employersreported that their health insurance premi-ums had increased since parity went intoeffect (Table IV.4). Fully insured businesseswere more likely than self-insured ones toreport premium increases (93 percent versus83 percent). Of the fully insured businessesreporting premium increases, one-third indi-cated the parity law was not a reason, andnearly half (47 percent) did not knowwhether parity was a contributing reason.Only 12 percent indicated parity was a mainor important reason, and the remaining 9percent reported it was one of many reasons.

Employers were asked to report the singlemost important factor contributing toincreased premiums (see Table IV. 5).5


were unaware of parity following its imple-mentation (see Chapter II).

B. Employers’ Perceptions of theEffects of the Parity LawThe analytic framework presented inChapter I hypothesized that Vermontemployers and employees could be affectedin various ways following implementation ofan MH/SA parity law. First, employers mayexperience premium increases from insurersto cover the estimated cost of increasedaccess and utilization. In response, they maydecide to discontinue health insurance cover-age altogether or switch from fully insuredplans to self-insured products that areexempt from parity. Alternatively, employersmay opt to pass all or part of the premiumincreases on to employees in the form ofhigher premium contributions or lowerwages (which could result in reducedemployee participation).

In addition, to control costs, employersmay change the mix of products they offeror introduce managed care for MH/SAservices. Moreover, employers may attemptto avert cost and utilization increases bycontracting with employee assistance plans,or they may screen for higher risks by initi-ating drug screening among job applicantsor current employees. Employers also maydecide to monitor their health care costsand utilization more intensively, so theycan be proactive in the future. Finally,employers may enjoy certain benefits fromparity to the extent that employees gainaccess to needed MH/SA services. In suchcases, productivity may increase and absen-teeism may decrease.

This section presents descriptive informa-tion on employers’ perceptions of changesthat have taken place since parity went into

5 Specifically, the survey asked: “Was it increasedutilization, cost-of-living adjustments, changes intypes of health insurance plans offered, or anoth-er factor?” Nearly half of the initial responseswere coded as “other,” and a verbatim responsewas recorded. Where possible, these open-endedresponses were recoded into the specified cate-gories, and two additional categories were creat-ed: costs in general and government regulation.In addition, the category called “changes in typesof health insurance plans offered” was expandedto include changes in the Vermont health insur-ance market.

Special Report44

Tab

le IV

.4: R

ecen

t C

han

ges

in t

he

Ch

arac

teri

stic

s o

f E

mp

loye

r-S

po

nso

red

Hea

lth

Insu

ran

ce a

s R

epo

rted

by

Verm

on

t E

mp

loye

rs a

nd

th

e E

xten

t to

Wh

ich

Par

ity

Was

a F

acto

r in

th

e C

han

ge,

%

Num

ber o

f Em

ploy

ees

Plan

Fun

ding

aEx

tent

to W

hich

Par

ity

Was

a F

acto

r in

the

Chan

geb

Mai

n or

One

ofN

ot a

Al

l Ins

ured

Fe

wer

M

ore

Fully

Self-

Impo

rtant

M

any

Reas

onDo

n’t

Type

of C

hang

eEm

ploy

ers

Than

10

10 to

25

26 to

50

Than

50

Insu

red

Insu

red

Reas

onRe

ason

sat

All

Know

Chan

ge in

the

Leve

l of H

ealth

Insu

ranc

e Pr

emiu

ms

Incr

ease

d92

.191

.093

.391

.692

.4 *

*82

.893

.4 *

11.8

9.4

32.3

46.5

Decr

ease

d2.

24.

10.

01.

91.

45.

41.

7—

——

—St

ayed

abo

ut th

e sa

me

5.8

4.6

6.7

6.5

6.2

11.8

4.9

n.a.

n.a.

n.a.

n.a.

Chan

ge in

the

Leve

l of M

onito

ring

of H

ealth

In

sura

nce

Cost

s an

d Ut

iliza

tion

Incr

ease

d15

.99.

917

.219

.525

.4 *

**29

.513

.8 *

**1.

27.

613

.278

.1De

crea

sed

0.7

0.0

2.0

0.0

0.0

2.6

0.4

——

——

Stay

ed a

bout

the

sam

e83

.590

.180

.880

.574

.667

.985

.8n.

a.n.

a.n.

a.n.

a.

Chan

ge in

the

Fund

ing

of H

ealth

Pla

n(s)

fro

m F

ully

Insu

red

to S

elf–

Insu

red

4.1

2.6

1.2

6.7

11.9

***

0.0

27.1

***

1.7

1.7

18.0

78.6

Chan

ge in

the

Leve

l of E

mpl

oyee

Co

ntrib

utio

n to

Pre

miu

m E

xpen

seIn

crea

sed

37.7

27.6

40.3

44.9

50.7

***

36.4

37.9

8.7

4.9

37.9

48.5

*De

crea

sed

4.1

3.6

4.9

4.4

3.1

5.8

3.8

0.0

0.0

13.9

86.1

Stay

ed a

bout

the

sam

e58

.368

.854

.950

.746

.157

.858

.3n.

a.n.

a.n.

a.n.

a.

Chan

ge in

Per

cent

age

of E

ligib

le E

mpl

oyee

s Ch

oosi

ng to

Par

ticip

ate

in H

ealth

Pla

nsIn

crea

sed

13.5

6.7

19.2

13.6

17.5

***

11.9

23.9

*0.

00.

00.

010

0.0

*De

crea

sed

6.7

8.8

3.7

5.8

8.9

7.0

4.4

16.0

0.0

8.3

75.7

Stay

ed a

bout

the

sam

e79

.984

.577

.180

.773

.681

.171

.7n.

a.n.

a.n.

a.n.

a.


Tab

le IV

.4 c

on

tin

ued

Num

ber o

f Em

ploy

ees

Plan

Fun

ding

aEx

tent

to W

hich

Par

ity

Was

a F

acto

r in

the

Chan

geb

Mai

n or

One

ofN

ot a

Al

l Ins

ured

Fe

wer

M

ore

Fully

Self-

Impo

rtant

M

any

Reas

onDo

n’t

Type

of C

hang

eEm

ploy

ers

Than

10

10 to

25

26 to

50

Than

50

Insu

red

Insu

red

Reas

onRe

ason

sat

All

Know

Chan

ge in

Per

cent

age

of E

ligib

le E

mpl

oyee

sEl

ectin

g De

pend

ent C

over

age

Incr

ease

d8.

86.

37.

514

.812

.6 *

*7.

319

.5 *

*0.

00.

00.

010

0.0

Decr

ease

d8.

69.

77.

56.

710

.48.

96.

912

.512

.92.

472

.3St

ayed

abo

ut th

e sa

me

82.6

84.0

85.0

78.5

77.0

83.8

73.6

n.a.

n.a.

n.a.

n.a.

Chan

ge in

the

Num

ber o

f Hea

lth P

lan

Choi

ces

Offe

red

Incr

ease

d8.

410

.45.

69.

18.

98.

011

.013

.10.

011

.975

.0De

crea

sed

5.5

5.1

3.4

9.2

7.8

5.6

5.0

15.6

8.0

11.7

64.7

Stay

ed th

e sa

me

86.1

84.5

91.0

81.7

83.3

86.4

83.9

n.a.

n.a.

n.a.

n.a.

Chan

ge in

any

Insu

ranc

e Co

vera

ge fr

om

Fee-

for-

Serv

ice

to M

anag

ed C

are

Med

ical

/sur

gica

l5.

53.

26.

15.

69.

6 *

5.6

4.5

2.2

10.5

10.3

76.9

Men

tal h

ealth

4.2

2.1

4.6

5.5

7.5

*4.

61.

8 *

3.1

14.8

14.4

67.7

Subs

tanc

e ab

use

4.0

2.1

4.7

3.7

7.5

*4.

31.

8 *

3.1

14.8

14.4

67.7

Impl

emen

tatio

n of

a N

ew E

mpl

oyee

As

sist

ance

Pro

gram

(EAP

)c1.

40.

01.

41.

54.

7 **

*0.

85.

0 **

*—

——

—

Chan

ge in

the

Num

ber o

f Ver

mon

t-Bas

ed

Empl

oyee

sIn

crea

sed

31.8

19.3

36.3

35.8

49.1

***

31.3

35.7

0.0

0.0

0.5

99.5

Decr

ease

d10

.012

.19.

66.

29.

19.

712

.00.

00.

06.

893

.2St

ayed

abo

ut th

e sa

me

58.2

68.6

54.0

58.0

41.8

59.0

52.4

n.a.

n.a.

n.a.

n.a.

Chan

ge in

the

Abse

ntee

ism

Rat

e of

Ve

rmon

t-Bas

ed E

mpl

oyee

sIn

crea

sed

8.2

4.1

10.6

9.5

12.0

*8.

83.

6 **

0.0

2.5

36.7

60.9

Decr

ease

d4.

02.

74.

94.

25.

14.

22.

7—

——

—St

ayed

abo

ut th

e sa

me

87.8

93.2

84.4

86.3

83.0

87.1

93.7

n.a.

n.a.

n.a.

n.a.

Tab

le IV

.4 c

on

tin

ued

Num

ber o

f Em

ploy

ees

Plan

Fun

ding

aEx

tent

to W

hich

Par

ity

Was

a F

acto

r in

the

Chan

geb

Mai

n or

One

ofN

ot a

Al

l Ins

ured

Fe

wer

M

ore

Fully

Self-

Impo

rtant

M

any

Reas

onDo

n’t

Type

of C

hang

eEm

ploy

ers

Than

10

10 to

25

26 to

50

Than

50

Insu

red

Insu

red

Reas

onRe

ason

sat

All

Know

Chan

ge in

the

Prod

uctiv

ity L

evel

of

Verm

ont–

Base

d Em

ploy

ees

Incr

ease

d28

.027

.729

.125

.628

.6 *

26.8

37.0

*0.

61.

70.

697

.2De

crea

sed

4.4

5.9

1.3

6.4

6.1

3.9

8.5

——

——

Stay

ed a

bout

the

sam

e67

.666

.469

.668

.065

.269

.354

.5n.

a.n.

a.n.

a.n.

a.

Sour

ce:

Mat

hem

atic

a Po

licy

Rese

arch

Sur

vey

of V

erm

ont E

mpl

oyer

s to

Ass

ess

the

Impa

ct o

f the

Ver

mon

t Par

ity A

ct.

Not

e:

The

surv

ey in

clud

es V

erm

ont b

usin

esse

s th

at w

ere

in o

pera

tion

as o

f Jan

uary

1, 1

998

and

that

rem

aine

d in

ope

ratio

n as

of t

he ti

me

of t

he s

urve

y (fa

ll 20

00).

The

surv

ey e

xclu

ded

thos

e th

at h

ad, o

n av

erag

e, fe

wer

than

five

em

ploy

ees

acro

ss e

stab

lishm

ents

in c

alen

dar y

ear 1

999

and

busi

ness

es o

pera

ted

by fe

dera

l and

sta

te g

over

nmen

t ent

ities

. Thi

s ta

ble

is li

mite

d to

insu

red

busi

ness

es o

nly.

aFu

lly in

sure

d em

ploy

ers

purc

hase

cov

erag

e fo

r the

ir em

ploy

ees

from

an

insu

ranc

e co

mpa

ny o

r hea

lth p

lan.

Sel

f-ins

ured

firm

s pa

y th

e cl

aim

s di

rect

ly (o

r thr

ough

an

arra

ngem

ent w

ith a

n ad

min

istra

tive-

serv

ices

-onl

y co

n-tra

ct).

bTh

is q

uest

ion

was

ask

ed o

nly

of fu

lly in

sure

d em

ploy

ers

whe

re s

omeo

ne h

ad h

eard

of p

arity

.c

This

que

stio

n w

as a

sked

onl

y of

thos

e w

ith a

n EA

P at

the

time

of th

e su

rvey

.

n.a.

= n

ot a

pplic

able

; — =

insu

ffici

ent d

ata.

* Di

strib

utio

n by

firm

size

or p

lan

fund

ing

is s

igni

fican

tly d

iffer

ent t

han

wha

t wou

ld b

e ex

pect

ed b

y ch

ance

alo

ne, b

ased

on

a ch

i-squ

are

test

(p <

.10)

.**

Dis

tribu

tion

by fi

rm s

ize o

r pla

n fu

ndin

g is

sig

nific

antly

diff

eren

t tha

n w

hat w

ould

be

expe

cted

by

chan

ce a

lone

, bas

ed o

n a

chi-s

quar

e te

st (p

< .0

5).

***

Dist

ribut

ion

by fi

rm s

ize o

r pla

n fu

ndin

g is

sig

nific

antly

diff

eren

t tha

n w

hat w

ould

be

expe

cted

by

chan

ce a

lone

, bas

ed o

n a

chi-s

quar

e te

st (p

< .0

1).

Special Report46

to report that increased utilization ofMH/SA services was a factor in increasedcosts (data not shown).

• Changes in the Vermont InsuranceMarket. Eighteen percent attributedrecent changes in premiums to changesin the Vermont health insurance market,especially reduced competition resultingfrom health plan exits. For example, oneemployer responded: “[there is] no com-petition for health care [insurance] inVermont, so they can raise it as high asthey want.” Others reported that premi-ums increased due to requirements forcommunity rating of products sold inVermont’s small-business market (whichapplied to Vermont firms with 50 orfewer employees). Businesses with 50 orfewer employees were more likely toreport that market-related factors wereaffecting their premiums than those withlarger numbers of employees.

• Cost of Living Adjustments. Eleven per-cent suggested that premiums were risingprimarily due to inflation in health carecosts.


• Costs in General. This was the most com-mon response—reported by one-third ofthe employers that experienced premiumincreases. This category includes suchresponses as “the insurance company justraised rates, no explanation,” or “cost ofdoing business by the insurance compa-ny,” or “nothing we did, insurance com-pany just raised rates.” A few employerssuggested that recent cost increases couldbe due to the underwriting cycle: “Hadn’tincreased in four years, then hit us all atonce with [an] increase.” Businesses with25 or fewer employees (38 to 42 percent)were more likely to report “costs in gener-al” than were businesses with more than25 employees (13 to 20 percent).

• Increased Utilization. The second mostcommon response, reported by 27 percentof employers, was increased utilization.Employers typically cited more than onetype of utilization driving the recent costincreases, including medical/surgical (21percent), pharmacy (19 percent), andMH/SA services (13 percent). Of theemployers reporting increased utilizationas the primary cost driver, fully insuredemployers (55 percent) were more likelythan self-insured employers (24 percent)

Table IV.5: Vermont Employers’ Assessment of Factors Contributing toPremium Increases, by Firm Size, %

Number of Employees

All Fewer MoreFirmsa Than 10 10 to 25 26 to 50 Than 50

Total 100.0 100.0 100.0 100.0 100.0Costs in general 32.7 37.5 42.5 20.0 13.3Increased utilization 26.6 18.4 15.7 33.8 61.2Changes in the Vermont insurance market 18.0 23.0 17.2 18.5 7.8Cost of living adjustments 10.7 9.2 11.7 12.5 10.6Government regulation 6.0 7.2 5.8 8.0 2.1Other factors 6.0 4.7 7.2 7.3 5.0

a Includes fully insured and self-insured businesses reporting a premium increase since January 1, 1998.

Special Report48

went into effect, very few dropped theirinsurance coverage—and even fewerattributed the change to the Vermont pari-ty law. Of the employers offering insur-ance coverage as of January 1, 1998, thedate parity went into effect, 1.6 percentreported that they had dropped theirinsurance coverage since that date (datanot shown). However, taking into accountthe reasons that employers may drop theircoverage, an even smaller proportion—0.3 percent—reported that parity was themain or an important reason for theirdecision.6 It is estimated that only 0.07percent of Vermont employees worked foremployers who said parity was the mainor an important factor in their decision todiscontinue coverage.

3. Changes from Fully Insured to Self-Insured Coverage

Because self-insured plans were exempt fromthe Vermont parity law, employers may havefaced an incentive to switch coverage fromfully insured to self-insured products.Therefore, to the extent that employerschose to self-insure as a result of parity, thelaw’s effect may have been diminished. Asshown in Table IV.4, 4 percent of Vermontemployers switched one or more of theirplans from a fully insured to a self-insuredproduct, thereby exempting the self-insuredplan from the requirements of the Vermontparity law. Because large employers weremore likely to make such a switch, a dispro-portionate share of employees potentially

• Government Regulation. Six percentthought the main cost driver was govern-ment regulation. Employers cited as fac-tors “State regulation” and “State man-dates,” including parity.

• Other Factors. The remaining 6 percentreported other factors or were unable toattribute the cost increase to a single factor.

Few employers (16 percent) reported thatthey had increased their monitoring of healthinsurance costs and utilization followingimplementation of parity (Table IV.4). Self-insured firms (30 percent) and large firms(25 percent) were more likely than theircounterparts to report increased monitoring.It is unclear, however, whether increasedmonitoring among fully insured employerswas attributable to parity, since 78 percentreported that they did not know the extentto which parity was a factor.

Looking ahead, 64 percent of fully insuredemployers indicated they were “very” or“somewhat” concerned about the effects ofparity on future health insurance costs (seeTable IV. 6). The remaining 36 percent indi-cated they were only a little concerned or notconcerned at all. Large businesses were lesslikely than other firms to report that theywere very or somewhat concerned about theeffects of parity on health insurance costs inthe future. Specifically, 60 percent of busi-nesses with fewer than 10 employees, 73 per-cent of those with 10 to 25 employees, and65 percent of those with 26 to 50 employeeswere very or somewhat concerned, comparedto 49 percent of large businesses (more than50 employees).

2. Discontinuation of Employer-SponsoredCoverage

Although most employers reported thattheir premiums had increased since parity

6 Due to the small number of employers discontinu-ing coverage, it is not possible to develop reliableestimates of their characteristics.

(Table IV.4). These findings mirror those ofnational studies that suggest employers havenot passed on premium increases to employ-ees as a result of a strong economy and lowunemployment (EBRI, 2001). Large business-es were more likely than very small businessesto report that they had passed increased costson to employees (51 versus 28 percent). Only5 percent of fully insured employers (14 per-cent of 38 percent) reported that parityplayed a role in the increased premium con-tributions by employees.

5. Effects on Employee and DependentParticipation in Health Plans

In addition to concerns that employersmight drop coverage as a result of parity,there were concerns that employee participa-tion might decline if employers shiftedincreased costs to employees. The majorityof Vermont employers reported no change inemployee or dependent participation (possi-bly because most employers did not raiseemployee premium contributions, as dis-cussed above). About 14 percent of employ-ers reported increased participation amongemployees, while 7 percent reporteddecreased participation.

About 9 percent of employers reportedincreased participation among dependents,


were affected—roughly 8 percent ofVermont employees were employed in firmsthat switched from fully insured to self-insured coverage (data not shown).7

Of Vermont employers who were self-insured at the time of the survey, 27 percenthad changed at least one of their productsfrom fully insured to self-insured sinceimplementation of parity. However, themajority of these employers (79 percent)were unable to report whether parity was afactor in the shift to self-insured plans, whileanother 18 percent reported that parity wasnot a factor at all. Only 3 percent indicatedthat parity was a main, important, or con-tributing factor.

4. Effects on Employee PremiumContributions

Although 90 percent of Vermont employersindicated that they had experienced premiumincreases since parity went into effect, only38 percent indicated that they had increasedemployee contributions to premium expenses

Table IV.6: Level of Concern About the Effects of Parity on HealthInsurance Costs in the Future, by Firm Size, %

Number of Employees

All Fewer MoreFirmsa Than 10 10 to 25 26 to 50 Than 50

Total 100.0 100.0 100.0 100.0 100.0Very concerned 27.8 33.6 20.6 31.1 25.2Somewhat concerned 36.4 26.8 52.3 33.4 23.6Only a little concerned 20.9 20.0 21.6 15.0 28.8Not concerned at all 14.9 19.6 5.5 20.5 22.5

a Includes fully insured employers where someone had heard of the parity law.

7 This estimate overstates the proportion of Vermontemployees actually affected by the shift to self-insured plans, to the extent that some employeesobtained coverage through fully insured productsthat continued to be offered or did not take uphealth insurance coverage through the employer.

that they changed the number of health planchoices specifically because of parity.8

Only a few employers reported that theyhad shifted any of their insurance coveragefrom fee-for-service to managed care. Thismight be considered surprising, given thatthe largest insurer in Vermont—Blue CrossBlue Shield of Vermont—carved out MH/SAservices in their indemnity contracts and con-tracted with a managed behavioral healthorganization to administer the benefit coinci-dent with the implementation of parity. Thislikely reflects the fact that employers did notmake the decision nor did they sign a man-aged care contract; instead, the insurer madethe change.

7. Effects on Other Health-RelatedActivities

About 12 percent of Vermont employersoffered an employee assistance program(EAP) at the time of the survey.9 The likeli-hood of offering an EAP increased with firmsize, ranging from 3 percent of firms withfewer than 10 employees to 32 percent offirms with more than 50 employees (data notshown).

Since the parity law was implemented,only about 1 percent decided to add an EAPbenefit, suggesting that employers did notrespond to the parity law by implementingan EAP to control health care costs (TableIV.4). Among firms with an EAP, about 10percent implemented a new requirement that

Special Report50

while a similar proportion reporteddecreased participation. Increased participa-tion was more likely to be reported by self-insured businesses.

Among fully insured businesses reportinga change in employee or dependent partici-pation, few were able to assess the role ofparity in contributing to increased ordecreased participation. Although it appearsthat employers reporting decreasedparticipation among employees or depend-ents were more likely to attribute the change,at least in part, to the parity law, the overalleffect on the fully insured market was verysmall. Only about 1 percent of fully insuredemployers reported decreased employee par-ticipation in health plans and cited the paritylaw as a main or important reason. About 2percent of employers reported that parityhad some effect on dependent participation.Thus, based on employer reports, the magni-tude of effects attributable to parity isextremely small.

6. Effects on the Number and Type ofHealth Plan Choices

The majority of employers reported that theydid not change the number of health planchoices offered to employees, nor did theyreport changing insurance coverage from fee-for-service to managed care (Table IV.4).Eighty-six percent of fully insured employersindicated that the number of health planchoices stayed the same. Another 8 percentincreased the number of choices, and 6 per-cent reduced the number of choices. Only 2percent of fully insured employers reported

9 Employee assistance programs are designed to pro-vide counseling and referral services to assist work-ers with personal problems that may adverselyaffect their performance on the job. EAPs generallyaddress a wide range of problems, including thoserelated to drug and alcohol abuse and mentalhealth conditions, as well as marriage and familyissues and financial and legal problems (Zarkinand Garfinkel, 1994).

8 This estimate is a composite of the percent report-ing that parity played a role in increasing the num-ber of health plan choices (13 percent of 8 percent)plus the percent reporting that parity played a rolein decreasing the number of health plan choices(24 percent of 6 percent).


employees must contact the EAP beforeobtaining MH/SA services, a requirement sig-nificantly more likely to be implemented byfully insured firms (13 percent) than by self-insured firms (2 percent).

Another possible response to parity wouldbe to implement drug screening for job appli-cants, current employees, or both. Drugscreening can deter drug users from applyingor can lead to early intervention for employ-ees. At the time of the survey, 11 percent ofemployers reported that they screened jobapplicants; 16 percent screened currentemployees. Of these employers, 10 percentreported that they implemented the require-ment after parity went into effect (for a mul-tiplicative effect of about 2 percent of allemployers). Because only a small number ofVermont employers conducted drug screen-ing at the time of the survey, there were toofew observations to determine the effect ofparity on the initiation of drug screeningamong fully insured businesses.

8. Changes in Other Aspects of theBusiness

There is considerable interest in the extent towhich parity may affect such aspects of abusiness as the size of its workforce, its pro-ductivity, or its level of absenteeism. Asshown in Table IV.4, about one-third ofemployers reported that the number of

Vermont-based employees increased sinceimplementation of parity, while about 10percent reported that the number decreased.In general, the economy was strong duringthis period, which may account for the levelof expansion in the workforce. Slightly morethan one-fourth of Vermont employersreported increased productivity since imple-mentation of parity. In addition, a small pro-portion reported changes in absenteeism (8percent reported increases and 4 percentreported decreases). Employers generallywere unable to determine whether parity wasa factor in any of these changes.

C. Employer Satisfaction with theVermont Parity LawMore than two-thirds of fully insuredVermont employers who had heard aboutparity indicated that they were satisfied withthe parity law overall; 20 percent were verysatisfied, 50 percent were somewhat satis-fied, 17 percent were somewhat dissatisfied,and 13 percent were very dissatisfied. Largefirms (more than 50 employees) were morelikely than other firms to report satisfactionwith the law (Table IV.7).

Vermont employers who reported thatthey were “very satisfied” or “very dissatis-fied” with the parity law overall were askedwhat factors motivated their response.Several common themes emerged from the

Table IV.7: Overall Satisfaction With the Vermont Parity Law, by Firm Size, %

Number of Employees

All Fewer MoreOverall Satisfaction With the Parity Law Firmsa Than 10 10 to 25 26 to 50 Than 50

Total 100.0 100.0 100.0 100.0 100.0Very satisfied 20.1 20.5 18.5 19.8 24.1Somewhat satisfied 49.6 43.8 55.9 44.7 53.4Somewhat dissatisfied 17.2 14.2 22.6 20.6 6.7Very dissatisfied 13.1 21.4 3.0 14.9 15.7

a Includes fully insured businesses where someone had heard of the parity law.

open-ended responses, illustrating their atti-tudes and perceptions. The 20 percent ofVermont employers who said they were“very satisfied” cited the following generalreasons for their high level of satisfactionwith the parity law:

• Because coverage should be equal.“Finally getting equal treatment withother illnesses.” “It creates better fairness[and] more access for more people.” “Ithink it’s great; I think mental illness is aphysical condition [and] with drug abuseit could be attributable to brain disor-ders.” “I think that people should haveaccess to treatment; it’s hard enough toknow that they have to have treatmentwithout having to pay more.” “Mentalhealth is just as important or even moreso.” “Because I think it’s the right thingto do; [I] spent years trying to explainwhy mental health and substance abuseservices weren’t covered [equally].” “It’sa good thing; [I’ve] been handling bene-fits for many years and there used to becaps and now it’s treated like a medicalproblem.”

• Because people need it. “Glad that it isan option because a lot of people need itand could not afford it on their own,more so because of stresses of modernlife.” “I think it is an important part ofpeople’s life; the coverage is needed forthat.” “Because the services are necessaryand should be mandated.” “[It] providesservices to people who ordinarily wouldnot get them.” “Part of keeping the per-son well.”

• Because it will help retain employees ormake them more productive. “I would sayin this line of work, we’ve got to have it.”“This is an area where our staff needs

support; it’s an asset for us to be able toprovide the coverage in our plan.” “It isvery important to look at mental healthissues to retain employees.”

Among the 13 percent who indicated theywere “very dissatisfied” with the parity law,the following themes dominated theirresponses:

• Because employers should have the choicewhether to cover or not. “Too much con-trol over choice.” “We are not a socialistcountry; we want more choice [and] lessgovernment mandates.” “I should not beforced to offer it.” “I don’t think it shouldbe forced on the entire populace ofVermont.” “Paying for substance [abuse]... is a person’s choice and you’re payingfor all, whether it is used or not.”

• Because of concerns about costs. “Toocostly.” “The majority pay[s] for the few.”“It has increased our cost so much, whichcauses us to not be able [to offer] theinsurance program we want.”

• Because there was not enough informa-tion. “How can I be satisfied with some-thing I know nothing about?”

Vermont employers also were asked torate their satisfaction with specific aspects ofthe parity law. Table IV.8 displays satisfac-tion ratings for two types of responses: verysatisfied and somewhat satisfied. On average,the highest satisfaction rating was given tothe effect of parity on improving employeeaccess to MH/SA services (79 percent), whilethe lowest satisfaction ratings were given tothe availability of information to explainparity (48 percent) and the effect of parity onhealth care costs (47 percent). Employersreported higher levels of satisfaction with theavailability of information from health plansto monitor their health care costs and utiliza-

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Table IV.8: Employer Satisfaction With Selected Aspects of the VermontParity Law, by Firm Size, %

Number of Employees

All Fewer MoreFirms a Than 10 10 to 25 26 to 50 Than 50

Percentage very satisfied or somewhat satisfied with:

Effects of the parity law on improving employee access to mental health/substance abuse (MH/SA) services 78.9 73.9 83.8 81.5 77.1

Type of information from health insurance plan for monitoring costs and utilization 62.2 56.7 ** 67.3 50.7 ** 78.0

Availability of information explaining theparity law 47.6 34.8 ** 50.1 ** 52.2 ** 80.3

Effects of the parity law on health care costs 47.1 35.0 ** 51.0 53.5 69.3

Percentage very satisfied with:

Effects of the parity law on improving employee access to MH/SA services 27.7 31.7 23.4 30.3 25.1

Type of information from health insurance plan for monitoring costs and utilization 11.7 9.0 * 9.4 * 18.4 23.4

Availability of information explaining theparity law 10.2 5.9 ** 8.1 ** 17.1 26.2

Effects of the parity law on health care costs 12.2 10.8 11.4 19.3 12.7

Percentage somewhat satisfied with:

Effects of the parity law on improving employee access to MH/SA services 51.2 42.2 60.4 51.2 52.0

Type of information from health insurance plan for monitoring costs and utilization 50.5 47.6 57.9 32.3 ** 54.6

Availability of information explaining theparity law 37.4 28.8 ** 42.0 35.1 * 54.2

Effects of the parity law on health care costs 34.9 24.1 ** 39.6 34.2 * 56.6

Source: Mathematica Policy Research Survey of Vermont Employers to Assess the Impact of the Vermont Parity Act.

Note: The survey includes Vermont businesses that were in operation as of January 1, 1998 and that remained in operation as of the time of the sur-vey (Fall 2000). The survey excluded those that had, on average, fewer than five employees across establishments in calendar year 1999 andbusinesses operated by Federal and State government entities. This table is limited to fully insured businesses where someone had heard ofthe parity law.

* Significantly different from employers with more than 50 employees at the .05 level, two-tailed test.** Significantly different from employers with more than 50 employees at the .01 level, two-tailed test.


tion (62 percent) than with the availability ofgeneral information regarding the parity law.

There were a few variations in employers’satisfaction ratings according to their size. Ingeneral, large employers tended to reporthigher satisfaction ratings. For example, 80percent of large employers (50 or moreemployees) were satisfied with the availabilityof information about the parity law, com-pared to only 35 percent of the very smallemployers (fewer than 10 employees). Further,large employers were more likely than smallercompanies to report that they were satisfiedwith the availability of information abouthealth care costs (78 percent versus 57 per-cent). Finally, 69 percent of the large employ-ers, but only 35 percent of the very smallemployers, reported satisfaction with theeffects of parity on their health care costs.

D. Employer Recommendations forImproving the Parity LawEmployers were asked how to improve theparity law in the future. About one-fourth ofthe fully insured businesses that had heardabout parity made a suggestion for improv-ing the parity law. By far, the most commonresponse was that employers needed moreinformation on the parity law—both forthemselves and for the public. Illustrativeresponses included:

• Increase employer education. “Get outmore information to companies so peoplecould understand it better.” “Let businessowners know what the services are.”

• Increase public education. “Get moreinformation out to the public.” “Morepublic information that these conditionsshould be treated as a physical condition;it’s as important as cancer.” “More peopleneed to become aware.”

Others suggested that there is not enoughinformation about the costs of parity toinsurers and employers. For example:

• Increase information about costs. “Giveus more information on the law and whatit will cost us.” “Make it a real number ininsurance so I know how much money weare talking about.” “Does the law affectour premiums?” “I think the insuranceshould be required to disclose the utiliza-tion and costs related to services beforethey are allowed to raise rates, and theyshould not be allowed to hide the profitunder administration and operating[expenses].”

Other employers had specific suggestionsfor improving the administration of MH/SAparity benefits. Some, for example, recom-mended that more attention be paid to howemployees gain access to services:

“Some people complain about the road-blocks that are placed upon them to getservices.”

“[Our] current insurance company doesnot deal with mental health providersemployers already [were] dealing with.All mental health providers were notlisted in their contracts.”

“Guidelines need to be very welldefined. Some people take advantageof the system.”

One employer cited the complexity thatemployers with businesses in multiple statesfaced: “There should be consistent policiesfor all states; makes it hard for employerswith employees in different states.... Expensefor employers [is] prohibitive and to keepeach state straight is difficult.”

Only a few employers expressed such dis-satisfaction that they recommended that theparity law should be optional or should berepealed altogether. For example, one felt it

Special Report54

tive to other factors. The survey further sug-gests that parity was not one of the primarycost drivers in recent health insurance premi-um increases. To the extent that employerswere able to report on the factors influencingpremium increases, evidence suggests thatemployers attributed utilization increases pri-marily to medical/surgical and pharmacyservices, not MH/SA services.

Perhaps the most striking finding toemerge from this analysis is the limitedknowledge among Vermont employers of theparity law in general and its effects in partic-ular.10 About half of the fully insuredemployers in Vermont had not heard aboutparity; and even among those that had,respondents indicated that their level ofunderstanding was relatively low. This is sur-prising, given the level of attention typicallyfocused on parity issues among employergroups at the national and State levels.Nevertheless, evidence suggests that employ-ers currently want to know more about pari-ty—the majority of employers expressed dis-satisfaction with the level of informationavailable about the law. The most commonrecommendation made by employers was forincreased education about the law.


was “not the same as any illness,” whileanother stated that “options should be avail-able only to those who want them andshould not be required.”

E. DiscussionThis analysis has shown that the majority ofVermont employers were at least somewhatsatisfied with the parity law overall and thatthey were particularly satisfied with theprospect of parity to increase their employ-ees’ access to MH/SA services. Employers’concerns, however, centered on the possibleeffects of parity on health care costs; nearlytwo-thirds indicated that they were very orsomewhat concerned about the effects ofparity on health care costs in the future.

Little evidence suggests the parity law hadany significant effects on the Vermont insur-ance market. The survey indicated thatVermont employers did not drop their insur-ance coverage or self insure as a result ofparity. Of the employers offering healthinsurance coverage as of January 1, 1998,the date the parity law went into effect, 0.3percent (accounting for 0.07 percent ofVermont employees) reported dropping theircoverage and cited parity as a main orimportant reason for that decision. About 4percent of Vermont employers—whichemployed 8 percent of Vermont employees—switched one or more of their plans to a self-insured product since the implementation ofparity. It is not possible, however, to attrib-ute this trend to parity alone since employerswere unable to report the role of parity rela-

10 On the other hand, it is possible that the level ofknowledge about parity was understated amongemployers. The survey took place more than 18months after the parity law went into effect; thus,it is possible that awareness was heightened duringthe period of early implementation—particularlywhen advocacy efforts led to increased public edu-cation and proactive response by BCBSVT toaddress transition problems.

V.


Findings from this study reflect experi-ences during the first two to three years ofparity in Vermont. It is possible that a longerstudy period might yield different results,especially as the effects of managed caretransitions stabilize. This study also is limitedto a single State, and the results may not begeneralizable to other States in which themix of providers or services differs.

A. Summary of Major Conclusions

1. Parity Did Not Cause Employers to DropCoverage or Switch to Self-Insured Products

The survey of Vermont employers revealedthat employers did not drop health insurancecoverage in response to parity. Of theemployers offering insurance coverage whenparity went into effect (January 1, 1998),just 0.3 percent (accounting for 0.07 percent

of Vermont employees) reported droppingcoverage because of parity. This result isconsistent with evidence that, within thetimeframe of this study, parity did not havea sizable effect on health plan spending forMH/SA services.

Similarly, there was no evidence that asignificant number of employers chose toself-insure to avoid the parity mandate.Since the implementation of parity, about4 percent of Vermont employers (account-ing for about 8 percent of Vermontemployees) switched one or more of theirhealth plans to a self-insured product.However, only 3 percent of those who hadswitched reported parity as a factor.Nevertheless, even if parity was not thedriving force in the decision to self-insure,fewer employees were covered by paritythan might have been anticipated.

Synthesis ofMajor Findings

Vermont implemented the Nation’s most comprehensive par-ity law in 1998, extending full parity to both mental healthand substance abuse (MH/SA) services. This study sought to

determine how the implementation of parity affected major stakeholders:health plans, employers, providers, and consumers. The evaluation tooka multifaceted approach—including an implementation case study, claims/encounter data analysis, and employer survey. Much of the analysisfocused on the experiences of two health plans—Kaiser/CommunityHealth Plan (Kaiser/CHP) and Blue Cross Blue Shield of Vermont(BCBSVT). Together, these plans covered nearly 80 percent of theprivately insured population at the time parity was implemented.

2. Access to Outpatient Mental HealthServices Improved With Parity

The likelihood of obtaining mental healthservices rose between 18 and 24 percent inthe two health plans as a result of parity. Theaverage number of outpatient visits per userincreased as well. Thus, parity improvedaccess to and intensity of outpatient mentalhealth services among many health planmembers in Vermont. However, for BCBSVTmembers who received their MH/SA benefitsthrough the carve-out, the use of managedcare arrangements offset the effect of parity.For these members, both the odds of obtain-ing treatment and the average number ofoutpatient visits per user declined.

Access to inpatient or partial treatmentfell sharply among Kaiser/CHP members.There was a 32 percent lower likelihood ofobtaining inpatient or partial MH treat-ment following parity, as Kaiser/CHPattempted to target inpatient care moreefficiently, increasing the use of step-downor diversion programs as an alternative tohospitalization.

3. Access to Substance Abuse TreatmentWas More Limited After Parity

The likelihood of inpatient or partial sub-stance abuse treatment was much lower afterthe implementation of parity—in Kaiser/CHP,51 percent lower and in BCBSVT, 34 percentlower. At the same time, BCBSVT membersexperienced an increase in the duration ofinpatient or partial treatment, but given themarked reduction in access to such treatment,this may have reflected the targeting of moreintensive treatment to a higher-severity casemix. As a result of these changes in patternsof access and use, average SA spending perBCBSVT member per quarter was nearlyhalved after parity.

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4. Spending for Covered MH/SA ServicesDeclined After Parity

MH/SA spending fell by 8 to 18 percent afterparity was implemented, despite lower con-sumer cost sharing and higher limits on useof MH/SA care. Spending includes two com-ponents: health plan payments and consumerout-of-pocket payments for deductibles,coinsurance, and copayments.

Health plan spending for MH/SA servicesrose slightly for BCBSVT, but spendingappears to have declined for Kaiser/CHP. Itis estimated that health plan spending roseby 4.4 percent for BCBSVT, equal to about19 cents per member per month ($2.32 permember per year). BCBSVT spending forMH/SA services accounted for 2.47 percentof total health plan spending after parity, upfrom 2.30 percent pre-parity. This 0.17 per-centage point increase reflects a 0.26 pointincrease for MH services and a 0.09 pointdecrease for SA services. Health plan spend-ing was estimated to decrease by nearly 9percent for Kaiser/CHP.

5. Consumers Paid a Smaller Share of TotalSpending for Covered MH/SA Treatment AfterParity

In BCBSVT plans, consumer cost sharing fellsharply, from 27 percent to 16 percent oftotal spending for covered MH/SA services.The entire gain was on the mental healthside where, pre-parity, consumers had paid30 percent of the total and post-parity, theypaid 17 percent. The consumer share for SAservices held steady at about 13 percent,both pre- and post-parity. Consumers bene-fited from the reductions in cost sharing formental health services as a result of parity,and this may account, at least in part, for theincreased access to and intensity of outpa-tient mental health services following parity.

6. Managed Care for MH/SA Services Wasan Important Factor in Controlling Costs

Both health plans relied on managed care tocontain the costs of MH/SA services follow-ing the implementation of parity. The use ofmanaged care made parity affordable byshifting the locus of decision making prima-rily from the demand side (based on con-sumer cost sharing and coverage limits) tothe supply side (based on the use of providernetworks and medical-necessity criteria).

Both health plans approved only a limit-ed number of outpatient sessions at onetime and required prior approval and con-current review for inpatient or partial treat-ment. Before approving more sessions, bothrequired providers to set treatment goalsand document progress toward meetingthose goals.

7. Awareness of Parity Was Relatively LowAmong Consumers

The low level of consumer awareness aboutparity also may have affected the growth ofMH/SA access, utilization, and spending. Astrong consensus had emerged among stake-holders that communication and educationefforts could have been better during the firstyear of implementation. Prior to passage ofthe parity law, stakeholders were not suffi-ciently aware of the importance of a well-defined education and communication effortfor minimizing confusion and disruptions inservice delivery, especially given the coveragechanges made by BCBSVT. There was a sensethat many consumers remain unaware of thelaw or their expanded MH/SA benefits.


B. Concluding RemarksVermont stakeholders identified two areas inwhich early implementation could have beenimproved. First, they recommended a proac-tive education campaign about parity—withclear designation of roles and responsibilitiesamong the various stakeholders—to raiseawareness about parity and avoid confusion.Such a campaign could have helped con-sumers and providers develop more realisticexpectations about the effects of the law,particularly in an environment where theimplementation of parity coincided with ashift to managed care for MH/SA servicesand where consumers and providers had lit-tle prior experience with managed care.

Second, they recommended proactive(rather than reactive) strategies to ensuresmooth transitions of patient care whenhealth plans shift to more tightly managedprovider networks. For example, in responseto initial disruptions of care, BCBSVTrequired that its carve-out plan expand theMH/SA provider network and authorize sixvisits to a non-network provider during thetransition. Proactive efforts to ease managedcare transitions may have minimized the con-fusion and disruptions that occurred.

By all accounts, parity in benefit designfor MH/SA services has been achieved inVermont. However, the increased use ofmanaged care that accompanied implementa-tion of parity has introduced new issues withservice delivery. As a result, state officialsand legislators have turned their attention tomonitoring the performance of health plansin delivering MH/SA services.

VI.


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Shah, B. V., Barnwell, B. G., & Bieler, G. S.(1997). SUDAAN User’s Manual,Release 7.5. Research Triangle Park, NC:Research Triangle Institute.

Sturm, R., Goldman, W., & McCulloch, J.(1998). Mental health and substanceabuse parity: A case study of Ohio’s stateemployee program. Journal of MentalHealth Policy and Economics, 1,129–134.

U.S. Chamber of Commerce. (2000, May18). U.S. Chamber urges Senate to letbusiness provide mental health benefitsfree of mandates. Press release.Washington, DC: Author.

Special Report62

U.S. General Accounting Office. (2000).Mental Health Parity Act: Despite newfederal standards, mental health benefitsremain limited. GAO-HEHS-00–95.Washington, DC: Author.

Vermont State Legislature. (2000). Section4089, Mental Illness. Available athttp://www.leg.state.vt.us/statutes/titles08/chap107.htm. Accessed July 20, 2000.

Zarkin, G., & Garfinkel, S. (1994). The rela-tionship between employer health insur-ance characteristics and the provision ofemployee assistance programs. Inquiry,31, 102–114.

Zarkin, G., Garfinkel, S., Potter, F., &McNeill, J. (1995). Employment-basedhealth insurance: implications of thesampling unit for policy analysis.Inquiry, 32, 310–319.


VII.

NO. 25. AN ACT RELATING TOHEALTH INSURANCE FOR MENTALHEALTH AND SUBSTANCE ABUSE DIS-ORDERS.

(H.57)It is hereby enacted by the General Assemblyof the State of Vermont:Sec. 1. 8 V.S.A. ~ 4089a(g) and (h) are addedto read:

(g) Members of the independent panel ofmental health care providers shall be com-pensated as provided in 32 V.S.A. ~ 1010(b)and (c).

(h) A review agent shall pay a license feefor the year of registration and a renewal feefor each year thereafter of $200.00. In addi-tion, a review agent shall pay any additionalexpenses incurred by the commissioner toexamine and investigate an application or anamendment to an application.Sec. 2. 8 V.S.A. ~4089b is added to read:~4089b. HEALTH INSURANCE COVER-AGE; MENTAL HEALTH AND SUB-STANCE ABUSE

(a) As used in this section,(1) “Health insurance plan” means any

health insurance policy or health benefit planoffered by a health insurer, as defined in 18V.S.A. ~9402(7). Health insurance planincludes any health benefit plan offered or

Appendix A: Vermont’sMental Health/Substance AbuseParity Law

administered by the state, or any subdivisionor instrumentality of the state.

(2) “Mental health condition” meansany condition or disorder involving mentalillness or alcohol or substance abuse thatfalls under any of the diagnostic categorieslisted in the mental disorders section of theinternational classification of disease, as peri-odically revised.

(3) “Rate, term or condition” meansany lifetime or annual payment limits,deductibles, copayments, coinsurance andany other cost-sharing requirements, out-of-pocket limits, visit limits and any otherfinancial component of health insurance cov-erage that affects the insured.

(b) A health insurance plan shall providecoverage for treatment of a mental healthcondition and shall not establish any rate,term or condition that places a greater finan-cial burden on an insured for access to treat-ment for a mental health condition than foraccess to treatment for a physical health con-dition. Any deductible or out-of-pocket lim-its required under a health insurance planshall be comprehensive for coverage of bothmental health and physical health conditions.

(c) A health insurance plan that does nototherwise provide for management of careunder the plan, or that does not provide for


the same degree of management of care forall health conditions, may provide coveragefor treatment of mental health conditionsthrough a managed care organization provid-ed that the managed care organization is incompliance with the rules adopted by thecommissioner that assure that the system fordelivery of treatment for mental health con-ditions does not diminish or negate the pur-pose of this section. The rules adopted by thecommissioner shall assure that timely andappropriate access to care is available; thatthe quantity, location and specialty distribu-tion of health care providers is adequate andthat administrative or clinical protocols donot serve to reduce access to medically neces-sary treatment for any insured.

(d) A health insurance plan shall be con-strued to be in compliance with this sectionif at least one choice for treatment of mentalhealth conditions provided to the insuredwithin the plan has rates, terms and condi-tions that place no greater financial burdenon the insured than for access to treatmentof physical conditions. The commissionermay disapprove any plan that the commis-sioner determines to be inconsistent with thepurposes of this section.

(e) To be eligible for coverage under thissection the service shall be rendered:

(1) For treatment of mental illness,(A) by a licensed or certified mental

health professional, or(B) in a mental health facility quali-

fied pursuant to rules adopted by the secre-tary of human services or in an institution,approved by the secretary of human services,that provides a program for the treatment ofa mental health condition pursuant to a writ-ten plan. A nonprofit hospital or a medicalservice corporation may require a mentalhealth facility or licensed or certified mental

health professional to enter into a contract asa condition of providing benefits.

(2) For treatment of alcohol or sub-stance abuse,

(A) by a substance abuse counseloror other person approved by the secretary ofhuman services based on rules adopted bythe secretary that establish standards and cri-teria for determining eligibility under thissubdivision, or

(B) in an institution, approved by thesecretary of human services, that provides aprogram for the treatment of alcohol or sub-stance dependency pursuant to a writtenplan.Sec. 3. REPORT

On or before January 15, 1999, theDepartment of Banking, Insurance,Securities, and Health Care Administrationshall report to the general assembly on thefollowing:

(1) An estimate of the impact of this acton health insurance costs.

(2) Actions taken by the department toassure that health insurance plans are incompliance with this act and that quality andaccess to treatment for mental health condi-tions provided by the plans are not compro-mised by providing financial parity for suchcoverage.

(3) When a health insurance plan offerschoices for treatment of mental health andsubstance abuse conditions as provided by 8V.S.A. ~ 4089b(d), an analysis and compari-son of those choices in regard to level ofaccess, choice and financial burden.

(4) Identification of any segments of thepopulation of Vermont that may be excludedfrom access to treatment for mental healthand substance abuse conditions at the levelprovided by this act, including an estimate ofthe number of Vermonters excluded from

Special Report66

such access under health benefit plansoffered or administered by employers whoreceive the majority of their annual revenuesfrom contract, grants or other expendituresby state agencies.Sec. 4. CONSTRUCTION; TRANSITION-AL PROVISIONS

(a) The provisions of this bill shall not beconstrued to:

(1) Limit the provision of specializedMedicaid covered services for individualswith mental health or substance disorders.

(2) Supersede the provisions of federallaw, federal or state Medicaid policy or theterms and conditions imposed on anyMedicaid waiver granted to the state withrespect to the provision of services to indi-viduals with mental health or substanceabuse disorders.

(3) Affect any annual health insuranceplan until its date of renewal or any healthinsurance plan governed by a collective bar-gaining agreement or employment contractuntil the expiration of that contract.

(b) The rules of the secretary of humanservices adopted under 8 V.S.A. ~4089, relat-

ing to eligibility for payment for treatment ofmental illness, and adopted under 8 V.S.A. ~4099, relating to eligibility for payment fortreatment of alcoholism, shall remain ineffect until the effective date of this act andthereafter shall be deemed to be the rulesadopted by the secretary under 8 V.S.A. ~4089b(e), to the extent that they are consis-tent with the provisions of this act and untilamended or repealed by the secretary.Sec. 5. REPEAL

8 V.S.A. ~4089 (mental illness) and ~~4097–4099b (alcoholism) are repealed inregard to any health insurance plan onlyafter the provisions of this act take effect inaccordance with Sec. 6 of this act.Sec. 6. EFFECTIVE DATE

This act shall take effect on passage andshall apply to any health insurance planoffered or renewed on and after January 1,1998.Approved: May 28, 1997

Source: VT State Legislature home page:http://www.leg.state.vt.us/docs/1998/acts/act025.htm


Appendix B:The Context forVermont’s Parity Law

A. Legislative HistoryPrior to the enactment of the Vermont pari-ty law in 1997, State law specified certainminimum requirements for health insurancecoverage for mental health and alcoholismservices. In 1976, the State required healthplans licensed in Vermont to offer mentalhealth benefits as an option for purchasers,including at least 45 days of annual inpa-tient coverage and $500 of annual outpa-tient coverage. Outpatient visits were to becovered at 100 percent of costs for the firstfive visits, with at least 80 percent coveragethereafter. In 1986, the State mandated thatalcoholism benefits include at least 5 daysof detoxification services per occurrence, alifetime minimum of 56 days of inpatientand partial institutional rehabilitation, anda lifetime minimum of 180 hours of outpa-tient rehabilitation. The alcoholism benefitswere “subject to the durational limits, dol-lar limits, deductibles and coinsurance fac-tors of the basic insurance policy or cover-age” (Vermont State Legislature, 2000).Neither of these laws achieved paritybetween MH/SA and physical health bene-fits, nor did they require coverage of otherdrug abuse treatment.

Vermont’s mental health and substanceabuse (MH/SA) parity law—known as Act25—was enacted in 1997, following passageof a less comprehensive Federal mentalhealth parity law in 1996.1 Enactment ofVermont’s parity law was the result of theefforts of a broad coalition of Vermontstakeholders who sought to remove theremaining limits placed on MH/SA cover-age, including separate outpatient visit orinpatient day limits and higher deductiblesand coinsurance rates. The Vermont lawalso extended parity to substance abuse ben-efits. Led by the Vermont Association forMental Health and other prominentprovider and consumer advocacy organiza-tions, the Vermont Parity Coalition success-fully engaged the Vermont business andhealth plan communities in the reformdebate, convincing them that the reform


1 The 1996 Federal parity law applied only to healthinsurance sponsored by employers with more than50 employees. It also only required that annualand lifetime dollar limits for mental health beequal to those for physical health coverage. Thelaw did not eliminate disparities in deductibles,coinsurance, and visit or day limits for mentalhealth services, nor did it cover substance abusetreatment (USGAO, 2000).

This appendix provides background information for theimplementation case study presented in Chapter II. Section Adiscusses the legislative history and Section B describes the

market and policy environment in Vermont. This information sets thecontext for the implementation of Vermont’s parity law.

would not have substantially adverseimpacts on overall health care costs or pre-miums (Libertoff, 1999).

The lack of significant anticipated effectson costs was an important factor in the deci-sion by the business community not tostrongly oppose passage of the law. An actu-arial study conducted by Coopers andLybrand in 1996 predicted that a compre-hensive parity law in Vermont would have asmall impact on overall premiums (rangingfrom an increase of 1 to 5 percent), particu-larly for benefits offered in managed careproducts (Bachman, 1997). Cognizant of thepotential importance of managed care in lim-iting the cost impacts, health plan and busi-ness representatives successfully sought toensure that the parity law would allow forthe use of managed care in providing MH/SAservices. In particular, Act 25 states:

A health insurance plan… may providecoverage for treatment of mental healthconditions through a managed careorganization provided that the managedcare organization is in compliance withthe rules adopted by the commissionerthat assure that the system for deliveryof treatment for mental health condi-tions does not diminish or negate thepurpose of [the law].

B. Market and Policy EnvironmentVermont’s market for MH/SA services and itshealth care policy environment provided aunique context for the implementation of theparity law. Prior to the enactment of parity,MH/SA services were considered to be inhigher demand and in greater supply than inmost other parts of the United States. Inaddition, the health insurance market washighly consolidated, with two major healthplans dominating the private insurance mar-ket. Because of the State’s small size, leader-

ship and decisionmaking about MH/SA poli-cies were guided by a relatively small numberof actors who were generally well known toone another. These characteristics appear tohave contributed to the passage of a compre-hensive parity law; these characteristics alsoappear to have fostered an expeditious, coor-dinated response to initial implementationchallenges.

1. Demand for and Supply of MH/SAServices

During the case study interviews, many stake-holders contended that, prior to parity, con-sumers in Vermont valued MH/SA counselingservices and other therapies highly and usedthem more frequently than consumers inmost States. Some felt that there was unneces-sary use of services by the “worried well,”while others argued that Vermont consumerswere well educated about mental healthissues and understood the importance ofcounseling and other services for improvingor maintaining their mental health. For thosewith severe mental illness, however, stake-holders agreed that access was constrained byfinancial barriers because of discriminatorybenefit limits for MH/SA services, as well as aremaining stigma associated with seekingtreatment for MH/SA conditions.

In comparison to other States, Vermonthas a relatively large number of MH/SAproviders—including psychiatrists, psycholo-gists, licensed social workers, and other typesof MH/SA counselors or therapists who spe-cialize in treating specific problems or diag-noses. In 1998, 116 psychiatrists, 360 psy-chologists, and 1,680 social workers werepracticing in the State, ranking Vermontfourth among States in the number of psychi-atrists, first in the number of psychologists,and tenth in the number of social workers,

Special Report70

on a per capita basis (HRSA, 2000).Vermont also has several prominent institu-tional providers of MH/SA services, includ-ing the Fletcher Allen hospital system, affili-ated with the University of Vermont, and theBrattleboro Retreat.

Despite the relatively high overall supplyand diversity of MH/SA providers, Vermontwas perceived to have significant shortagesin selected specialties, including child psychi-atrists and specialized inpatient and outpa-tient programs to treat conditions commonamong children and adolescents. A numberof interviewees said that the small, ruralnature of the State presented unique chal-lenges for recruiting certain types of MH/SAspecialists.

A substantial portion of MH/SA servicesis provided through the county mental healthsystem, especially for consumers without pri-vate health insurance coverage. These serv-ices are coordinated and sponsored by vari-ous State agencies, including the Departmentof Developmental and Mental HealthServices and the Office of Alcohol and DrugAbuse Programs.

2. The Health Insurance Market

Like most States, Vermont has a highly con-solidated insurance market. In 1998, abouttwo-thirds of Vermont’s population had pri-vate health insurance.2 At that time, twomajor health plans dominated Vermont’s pri-vate insurance market, accounting for aboutfour-fifths of the privately insured, primarilythrough small and large employer group con-tracts (Table B.1). The larger of the twoplans, Blue Cross Blue Shield of Vermont

(BCBSVT), primarily offered traditionalindemnity health insurance coverage.3 Thesecond largest plan, Kaiser/CommunityHealth Plan (Kaiser/CHP), offered a healthmaintenance organization (HMO) productwith services provided through a network ofproviders.

The rest of the private health insurancemarket consisted of a large number of healthplans with much smaller market shares; noplan had more than 5 percent. A small por-tion of people who were privately insured inVermont were covered through individualinsurance policies, primarily offered by mul-tistate carriers.


2 In 1998, about a quarter of the privately insuredwere covered by self-funded plans offered byemployers or other purchasers not subject toVermont’s parity law (BISHCA, 1999).

Table B.1: Market Share of theFive Largest Health Plans inVermont, 1998 and 2000

Percentage of Market Share a

Five Largest Health Plans in 1998 90

BCBSVT 46Kaiser/CHPb 32The Vermont Health Planc 5Cigna Health Care 4Allianz Life Insurance 3

Five Largest Health Plans in 2000 96

BCBSVT 46MVP Health Plan 26The Vermont Health Planc 13Cigna Health Care 6Allianz Life Insurance 5

Source: Vermont Annual State Supplement: Comprehensive Medical Line of Business, 1998 and 2000.

a Market share is calculated based on total earned premiums for private health insurance plans in Vermont.

b Kaiser/CHP exited the Northeast Region (including Vermont) as ofMarch 2000.

c The Vermont Health Plan is an HMO owned by BCBSVT.

BCBSVT = Blue Cross Blue Shield of Vermont.

3 BCBSVT markets an HMO product through TheVermont Health Plan, an affiliated, licensedHMO.

3. The State Health Policy Environment

According to most stakeholders, Vermonthas had an activist approach to health policy,inclined to pursue legislation to improveaccess to and quality of health care servicesfor its residents. Consistent with this orienta-tion, the State has taken a comprehensiveapproach to regulating managed care.Vermont regulates more areas of managedcare than any other State in the Nation,despite the fact that most Vermont residentswith private coverage historically have notenrolled in managed care plans (FamiliesUSA, 1998; Gentry, 1998). Rule 10, forexample, mandated the filing of performancereport cards for HMOs and established qual-ity standards in such areas as utilizationmanagement, provider network adequacy,and preventive-service delivery. A separateregulation established a consumer appealsprocess with independent review of coveragedenials for mental health services thatoccurred as a result of utilization review. Inaddition, reforms in 1992 and 1993 regulat-ed insurance benefits in the small group andindividual markets, including guaranteedissue of insurance coverage and communityrating (Hall, 2000). The legislature hasenacted a variety of benefit mandates, includ-

ing coverage of chiropractic services, contra-ceptive services, maternity length of stay, andmammography.

Although the State has taken an activistapproach toward health policy reforms, moststakeholders do not perceive the State asbeing overly aggressive in enforcement. TheDepartment of Banking, Insurance,Securities, and Health Care Administration(BISHCA) is charged with overseeing imple-mentation of the parity law, as well as healthcare consumer protection laws. BISHCAviews its role as monitoring health plans’compliance with relevant laws and ensuringthat the processes mandated by consumerprotection laws are in place to deal withaccess or quality problems. Unless majorproblems have been identified, the agencygenerally does not attempt to intervene in thedaily operations of health plans, the clinicaldecisions of providers, or the negotiations orroutine interactions between health plansand providers. To ensure overall compliancewith the parity law, BISHCA requires insur-ers to submit rate and form filings that clear-ly indicate changes in MH/SA coverage andthen tracks these filings for individual healthplans (BISHCA, 1999).

Special Report72

A. Data SourcesClaims/encounter data were acquired for thetwo health plans for dates of service duringthe 4-year study period, 1996 through 1999(2 years prior to parity and 2 years after ini-tial implementation). In addition, each healthplan provided a membership file, employergroup file, and other supporting documenta-tion to facilitate the claims analysis. Theclaims followed standard UB-92 and HCFA-1500 formats for inpatient and outpatientclaims, respectively. Diagnoses were codedwith ICD-9 codes, and most procedures werecoded with CPT-4 codes. Member identifica-tion numbers were encrypted to preserveconfidentiality, and no identifying informa-tion (such as name, address, or telephonenumber) was provided.

B. Study SampleThe analysis was restricted to those whowere continuously enrolled in the health plan

during a given calendar year. The studygroup excluded those who were insuredunder Medicaid or Federal or State employeeplan contracts because they were subject todifferent coverage provisions. Also excludedwere members residing outside of Vermontand those over age 64 because their primarycoverage was through Medicare.

The study group also was restrictedaccording to plan or group type. ForKaiser/CHP, the analytic sample was limitedto those with commercial group coveragebecause they dominated the Kaiser/CHPmembership. In addition, the Kaiser/CHPanalytic sample excluded members in self-insured groups because they were not subjectto the Vermont parity law. In contrast, theBCBSVT sample included members in self-insured plans (known as “cost plus”); thesegroups were subject to the parity lawbecause an insurance certificate was providedto each subscriber. BCBSVT members


This appendix presents an overview of the approach used tomeasure the effect of parity on the mental health and sub-stance abuse (MH/SA) cost and utilization experience of two

health plans: Kaiser/Community Health Plan (Kaiser/CHP) and BlueCross Blue Shield of Vermont (BCBSVT). The first two sections describethe data sources and study sample, while the third section discusses thedefinition of MH/SA claims for analytic purposes. This appendix con-cludes with an overview of the approach used to conduct the descriptiveand multivariate analyses.

Appendix C: MethodsUsed to Conduct theClaims/EncounterData Analysis

enrolled in products that relied on managedcare for MH/SA services prior to parity wereexcluded because their claims data wereincomplete. The BCBSVT analysis, therefore,focused on the three products that shiftedlarge shares of their members from indemni-ty to managed care for MH/SA services fol-lowing the implementation of parity.

C. File ConstructionA person-quarter utilization file was con-structed for each health plan for a 4-yearperiod (1996 through 1999). Considerableeffort was devoted to identifying MH/SAclaims using criteria defined by the twohealth plans. The goal was to follow—asclosely as possible—the procedures used byeach plan to adjudicate MH/SA claims and toaccumulate the claims against the pre-paritybenefit limits. Health plan officials assisted indeveloping plan-specific algorithms that couldbe applied to their respective claims data-bases. Each health plan used some plan-specific procedure codes for MH/SA servicesthat were incorporated in the algorithms.

To identify inpatient MH/SA claims, bothplans relied on revenue and diagnosis codes.In addition, Kaiser/CHP used admission typeand procedure codes, while BCBSVT usedprovider type. Inpatient claims that met theplan-specific criteria were flagged and classi-fied as mental health or substance abuseadmissions, based on their primary diagnosis.

For outpatient facility and professionalclaims, a combination of procedure codesand revenue codes were used, as well as spe-cialty provider type for BCBSVT and billingarea for Kaiser/CHP. Partial hospitalizationclaims were flagged separately based on rev-enue codes. Both health plans counted two“days” of such treatment as equivalent toone day of inpatient treatment. Claims for

professional services were also differentiatedaccording to whether they were provided inan inpatient setting: BCBSVT counted theseservices against the annual and lifetime dol-lar limit, whereas Kaiser/CHP excluded theseservices from the pre-parity visit limit. Aswith inpatient claims, all claims that met theselection criteria as mental health or sub-stance abuse visits were classified accordingto their primary diagnosis.

Each type of use was quantified in termsof a dichotomous measure of no use/any use(0,1) and a continuous measure of the levelof use (visits, days). For BCBSVT, spendingwas measured for each type of use in threeways: “total spending” was defined as theallowed charge, which included the healthplan payment plus the member payment(that is, deductible, coinsurance, or copay-ment); “health plan payment” was defined asthe actual payment by the health plan, net ofmember cost sharing; and “patient copay-ment” was defined as the member payment.

Reliable spending data were not availableat the claim level for Kaiser/CHP becausemuch of the care was provided in a staff-model HMO where providers were salariedor in a group-model HMO where providerswere capitated. However, aggregate measuresof MH/SA spending were imputed forKaiser/CHP based on BCBSVT unit costs.

D. Approach to Descriptive andMultivariate AnalysisThe descriptive analysis provided a snapshotof pre- versus post-parity levels of access,use, and spending. Analyses were conductedseparately for mental health and substanceabuse treatment. PROC DESCRIPT inSUDAAN was used to produce standardizedmeasures, which controlled for age, gender,and subscriber status (Shah, Barnwell, &

Special Report74

Bieler, 1997). Frequency distributions ofMH/SA utilization and spending were alsoproduced over the 4-year period to trackshifts in the level of annual use followingimplementation of parity. This approachenabled an assessment of the extent to whichhealth plan members were receiving servicesthat would have exceeded the pre-parity ben-efit limits. Analyses were conducted for allmembers, with separate analyses for thosewith serious mental conditions (major depres-sion, bipolar disorder, or schizophrenia).

The multivariate analysis provided a morerigorous test of the effect of parity. PROCLOGISTIC was used to test the effect of par-ity on the probability of use, while PROCREG was used to examine the effect of pari-ty on the level of use among those with anyuse (SAS Institute Inc., 1999). The multivari-ate analysis controlled for demographic char-acteristics, including age, gender, subscriberstatus, and county of residence (a proxy forsuch local factors as public and privateprovider supply). Due to the small numberof observations in seven counties, adjacentcounties were grouped—Caledonia/Essex/Orleans, Franklin/Grand Isle, andWindham/Windsor—similar to the catch-ment areas used for publicly funded services.

The volume-of-use analyses controlled fortype of MH/SA diagnosis. The MH analysesincluded four diagnosis variables: majordepression/bipolar disorder/schizophrenia,mild/moderate depression, adjustment reac-tion, and dual MH/SA diagnosis. The SAanalyses included an indicator of dualMH/SA diagnosis but did not specify thetype of MH diagnosis due to the limitednumber of observations.

The multivariate analysis included a“quarter counter,” ranging from 1 to 16, tocontrol for secular trends independent of

parity. The BCBSVT analyses also controlledfor the type of plan (Basic, Comp, or VFP)and whether MH/SA benefits were managedor unmanaged during the quarter.

The variable of primary interest was theparity indicator, which had a value of 1 inpost-parity quarters and a value of 0 in pre-parity quarters. The coefficient estimatesassociated with this variable indicated thedirection and magnitude of the effect of pari-ty on access, use, and spending (controllingfor individual characteristics, geographiclocation, and the secular trend). In additionto examining the sign and significance of theparity coefficient, odds ratios were obtainedfrom the logistic regressions.1 Predicted levelsof use were also computed for selecteddependent variables related to utilization andspending, where the parity coefficient wasstatistically significant. Selected results of themultivariate analysis were incorporated intothe discussion of the descriptive analysis tohighlight the independent effect of parity.

The complete results of the regressionanalyses are presented in this appendix. Thedeterminants of mental health access and useare presented first, followed by the determi-nants of substance abuse treatment.


1 The odds ratio shows the probability of obtainingtreatment post-parity compared to pre-parity. Anodds ratio of 1 indicates there was no difference inthe probability of obtaining treatment before andafter parity. An odds ratio greater than 1 indicatesthat the probability of obtaining treatment washigher after parity than before parity, while anodds ratio less than 1 indicates that the probabilityof obtaining treatment was lower after parity thanbefore parity.

Special Report76

Tab

le C

.1: D

eter

min

ants

of

the

Pro

bab

ility

of

Men

tal H

ealt

h S

ervi

ce U

se: K

aise

r/C

HP,

199

6–19

99

Any

Men

tal H

ealth

Ser

vice

sIn

patie

nt/P

artia

l MH

Outp

atie

nt M

H

Coef

ficie

nt (S

.E.)

Odds

Rat

ioCo

effic

ient

(S.E

.)Od

ds R

atio

Coef

ficie

nt (S

.E.)

Odds

Rat

io

Inte

rcep

t–3

.449

***

–7.2

97**

*–3

.452

***

(0.0

26)

(0.1

74)

(0.0

26)

Age

(40

and

over

om

itted

)18

and

und

er–0

.161

***

0.85

–0.2

81*

0.76

–0.1

62**

*0.

85(0

.023

)(0

.147

)(0

.023

)19

to 2

9–0

.069

**0.

930.

153

1.17

–0.0

69**

0.93

(0.0

28)

(0.1

76)

(0.0

28)

30 to

39

0.23

7***

1.27

0.07

81.

080.

237*

**1.

27(0

.020

)(0

.142

)(0

.020

)Ge

nder

(Fem

ale

omitt

ed)

–0.4

87**

*0.

62–0

.570

***

0.57

–0.4

87**

*0.

62(0

.016

)(0

.113

)(0

.016

)Su

bscr

iber

Sta

tus

0.02

31.

02–0

.411

***

0.66

0.02

31.

02(D

epen

dent

om

itted

)(0

.019

)(0

.128

)(0

.019

)

Coun

ty (C

hitte

nden

om

itted

)Ad

diso

n0.

060*

1.06

0.41

1*1.

510.

056*

1.06

(0.0

34)

(0.2

12)

(0.0

34)

Benn

ingt

on0.

237*

**1.

270.

319*

1.38

0.23

8***

1.27

(0.0

28)

(0.1

93)

(0.0

28)

Cale

doni

a/Es

sex/

Orle

ans

–0.3

43**

*0.

71–0

.802

0.45

–0.3

41**

*0.

71(0

.077

)(0

.713

)(0

.077

)Fr

ankl

in/G

rand

Isle

–0.3

47**

*0.

71–0

.276

0.76

–0.3

46**

*0.

71(0

.029

)(0

.203

)(0

.029

)La

moi

lle–0

.217

***

0.81

0.05

91.

06–0

.217

***

0.81

(0.0

43)

(0.2

73)

(0.0

43)

Oran

ge–0

.099

0.91

0.02

51.

03–0

.097

0.91

(0.0

73)

(0.5

08)

(0.0

73)

Rutla

nd0.

096*

**1.

10–0

.312

0.73

0.09

6***

1.10

(0.0

29)

(0.2

46)

(0.0

29)

Was

hing

ton

–0.3

37**

*0.

710.

147

1.16

–0.3

34**

*0.

72(0

.038

)(0

.227

)(0

.038

)

Tab

le C

.1 c

on

tin

ued

Any

Men

tal H

ealth

Ser

vice

sIn

patie

nt/P

artia

l MH

Outp

atie

nt M

H

Coef

ficie

nt (S

.E.)

Odds

Rat

ioCo

effic

ient

(S.E

.)Od

ds R

atio

Coef

ficie

nt (S

.E.)

Odds

Rat

io

Win

dham

/Win

dsor

0.38

8***

1.47

0.60

6***

1.83

0.38

6***

1.47

(0.0

21)

(0.1

41)

(0.0

21)

Quar

ter

–0.0

12**

*0.

990.

029

1.03

–0.0

12**

*0.

99(0

.003

)(0

.023

)(0

.003

)Pa

rity

(1 =

yes

)0.

162*

**1.

18–0

.380

*0.

680.

160*

**1.

17(0

.029

)(0

.203

)(0

.029

)

Over

all C

hi-S

quar

e2,

346.

74**

*85

.10*

**2,

334.

82**

*N

707,

896

707,

896

707,

896

Sour

ce: O

rigin

al a

naly

sis

of K

aise

r/CHP

cla

ims/

enco

unte

r dat

a by

Mat

hem

atic

a Po

licy

Rese

arch

, Inc

.

*Sig

nific

antly

diff

eren

t fro

m z

ero

at th

e .1

0 le

vel,

two-

taile

d te

st.

**Si

gnifi

cant

ly d

iffer

ent f

rom

zer

o at

the

.05

leve

l, tw

o-ta

iled

test

.**

*Sig

nific

antly

diff

eren

t fro

m z

ero

at th

e .0

1 le

vel,

two-

taile

d te

st.

S.E.

= S

tand

ard

erro

r.


Special Report78

Tab

le C

.2: D

eter

min

ants

of

the

Pro

bab

ility

of

Men

tal H

ealt

h S

ervi

ce U

se: B

lue

Cro

ss B

lue

Sh

ield

o

f Ve

rmo

nt,

199

6–19

99

Any

Men

tal H

ealth

Ser

vice

sIn

patie

nt/P

artia

l MH

Outp

atie

nt M

H

Coef

ficie

nt (S

.E.)

Odds

Rat

ioCo

effic

ient

(S.E

.)Od

ds R

atio

Coef

ficie

nt (S

.E.)

Odds

Rat

io

Inte

rcep

t–2

.620

***

–8.0

49**

*–2

.621

***

(0.0

22)

(0.2

42)

(0.0

22)

Age

(40

and

over

om

itted

)18

and

und

er–0

.334

***

0.72

–0.1

090.

90–0

.334

***

0.72

(0.0

19)

(0.1

79)

(0.0

19)

19 to

29

–0.3

47**

*0.

710.

371*

1.45

–0.3

46**

*0.

71(0

.024

)(0

.203

)(0

.024

)30

to 3

90.

182*

**1.

200.

121

1.13

0.18

2***

1.20

(0.0

16)

(0.1

78)

(0.0

16)

Gend

er (F

emal

e om

itted

)–0

.539

***

0.58

–0.3

93**

*0.

68–0

.539

***

0.58

(0.0

13)

(0.1

34)

(0.0

13)

Subs

crib

er S

tatu

s0.

194*

**1.

22–0

.227

0.80

0.19

4***

1.22

(Dep

ende

nt o

mitt

ed)

(0.0

15)

(0.1

53)

(0.0

15)

Coun

ty (C

hitte

nden

om

itted

)Ad

diso

n–0

.336

***

0.72

0.21

51.

24–0

.336

***

0.71

(0.0

27)

(0.2

90)

(0.0

27)

Benn

ingt

on–0

.108

***

0.90

0.14

91.

16–0

.107

***

0.90

(0.0

24)

(0.2

90)

(0.0

24)

Cale

doni

a/Es

sex/

Orle

ans

–0.9

31**

*0.

390.

154

1.17

–0.9

32**

*0.

39(0

.025

)(0

.237

)(0

.025

)Fr

ankl

in/G

rand

Isle

–0.7

12**

*0.

490.

331

1.39

–0.7

12**

*0.

49(0

.032

)(0

.284

)(0

.032

)La

moi

lle–0

.512

***

0.60

–0.4

980.

61–0

.512

***

0.60

(0.0

33)

(0.4

37)

(0.0

33)

Oran

ge–0

.686

***

0.50

–0.0

900.

91–0

.685

***

0.50

(0.0

33)

(0.3

42)

(0.0

33)

Rutla

nd–0

.470

***

0.63

–0.5

060.

60–0

.469

***

0.63

(0.0

25)

(0.3

29)

(0.0

25)

Tab

le C

.2 c

on

tin

ued

Any

Men

tal H

ealth

Ser

vice

sIn

patie

nt/P

artia

l MH

Outp

atie

nt M

H

Coef

ficie

nt (S

.E.)

Odds

Rat

ioCo

effic

ient

(S.E

.)Od

ds R

atio

Coef

ficie

nt (S

.E.)

Odds

Rat

io

Was

hing

ton

–0.4

18**

*0.

660.

310

1.36

–0.4

18**

*0.

66(0

.021

)(0

.224

)(0

.021

)W

indh

am/W

inds

or–0

.190

***

0.83

0.42

6**

1.53

–0.1

90**

*0.

83(0

.019

)(0

.21)

(0.0

19)

Line

of B

usin

ess

(VFP

om

itted

)Ba

sic

0.12

9***

1.14

0.37

9**

1.46

0.12

9***

1.14

(0.0

17)

(0.1

69)

(0.0

17)

Com

p0.

249*

**1.

280.

038

1.04

0.24

9***

1.28

(0.0

14)

(0.1

57)

(0.0

14)

Quar

ter

–0.0

031.

000.

009

1.01

–0.0

031.

00(0

.002

)(0

.022

)(0

.002

)

Man

aged

Car

e fo

r MH/

SA

–0.2

96**

*0.

740.

006

1.01

–0.2

96**

*0.

74(1

= y

es)

(0.0

2)(0

.200

)(0

.020

)Pa

rity

0.21

6***

1.24

0.29

61.

350.

216*

**1.

24(1

= y

es)

(0.0

24)

(0.2

34)

(0.0

24)

Over

all C

hi-S

quar

e6,

045.

13**

*49

.76*

**6,

044.

57**

*N

656,

735

656,

735

656,

735

Sour

ce: O

rigin

al a

naly

sis

of B

lue

Cros

s Bl

ue S

hiel

d of

Ver

mon

t cla

ims/

enco

unte

r dat

a by

Mat

hem

atic

a Po

licy

Rese

arch

, Inc

.

*Sig

nific

antly

diff

eren

t fro

m z

ero

at th

e .1

0 le

vel,

two-

taile

d te

st.

**Si

gnifi

cant

ly d

iffer

ent f

rom

zer

o at

the

.05

leve

l, tw

o-ta

iled

test

.**

*Sig

nific

antly

diff

eren

t fro

m z

ero

at th

e .0

1 le

vel,

two-

taile

d te

st.

S.E.

= S

tand

ard

erro

r.


Special Report80

Table C.3: Determinants of the Level of Mental Health Service Use:Kaiser/CHP, 1996–1999

Log of Number of Log of Number of Outpatient Inpatient/Partial Mental

Mental Health Visits per User Health Days per Usera

Intercept 0.582*** 1.635***(0.022) (0.220)

Age (40 and over omitted)18 and under 0.098*** –0.154

(0.017) (0.160)19 to 29 0.040** 0.095

(0.020) (0.179)30 to 39 –0.004 –0.101

(0.014) (0.148)Gender (Female omitted) –0.005 0.189

(0.012) (0.116)Subscriber Status (Dependent omitted) 0.017 –0.037

(0.013) (0.129)

County (Chittenden omitted)Addison 0.227*** –0.235

(0.025) (0.216)Bennington –0.007 0.058

(0.020) (0.196)Caledonia/Essex/Orleans 0.419*** 0.382

(0.056) (0.723)Franklin/Grand Isle –0.022 0.011

(0.021) (0.207)Lamoille 0.212*** –0.398

(0.031) (0.275)Orange 0.142*** 0.843

(0.053) (0.527)Rutland 0.040* 0.481*

(0.021) (0.252)Washington 0.109*** –0.303

(0.028) (0.232)Windham/Windsor 0.133*** 0.121

(0.015) (0.149)Diagnosis

Major Depression/Bipolar Disorder/Schizophrenia 0.349*** 0.384***

(0.015) (0.130)Mild/Moderate Depression 0.282*** 0.156

(0.014) (0.113)Adjustment Reaction 0.232*** –0.089

(0.013) (0.110)Dual Diagnosis (MH/SA) –0.083*** 0.196

(0.032) (0.141)

Table C.3 continued



Quarter –0.006*** –0.041*(0.002) (0.024)

Parity (1 = yes) 0.140*** 0.134(0.021) (0.192)

R-Square 0.067 0.100F 63.9*** 1.92***N 17,954 365Dependent Variable Mean 0.948 1.730

Source: Original analysis of Kaiser/CHP claims/encounter data by Mathematica Policy Research, Inc.

a The dependent variable reflects an inpatient-day equivalence, where two days of “partial” treatment are counted as one day of inpatient treatment.

*Significantly different from zero at the .10 level, two-tailed test.**Significantly different from zero at the .05 level, two-tailed test.***Significantly different from zero at the .01 level, two-tailed test.


Special Report82

Table C.4: Determinants of the Level of Mental Health Service Use: BlueCross Blue Shield of Vermont, 1996–1999



Intercept 1.175*** 1.641***(0.021) (0.273)

Age (40 and over omitted)18 and under 0.045*** 0.061

(0.016) (0.178)19 to 29 0.001 –0.258

(0.020) (0.201)30 to 39 0.073*** –0.028

(0.013) (0.169)Gender (Female omitted) –0.033*** –0.059

(0.011) (0.126)Subscriber Status (Dependent omitted) 0.060*** –0.215

(0.012) (0.146)

County (Chittenden omitted)Addison 0.032 0.665**

(0.022) (0.269)Bennington 0.010 0.269

(0.020) (0.268)Caledonia/Essex/Orleans –0.178*** 0.282

(0.021) (0.214)Franklin/Grand Isle –0.104*** 0.217

(0.027) (0.261)Lamoille –0.001 0.482

(0.027) (0.397)Orange –0.093*** 0.108

(0.028) (0.318)Rutland –0.093*** –0.389

(0.021) (0.300)Washington –0.032* 0.215

(0.017) (0.207)Windham/Windsor –0.021 0.288

(0.016) (0.198)Diagnosis

Major Depression/Bipolar Disorder/Schizophrenia 0.129*** 0.305**

(0.014) (0.143)Mild/Moderate Depression 0.227*** –0.063

(0.013) (0.120)Adjustment Reaction 0.173*** –0.155

(0.012) (0.129)Dual Diagnosis (MH/SA) –0.013 0.110

(0.043) (0.178)

Table C.4 continued



Line of Business (VFP omitted)Basic –0.040*** 0.219

(0.014) (0.162)Comp 0.001 –0.024

(0.012) (0.150)Quarter –0.006*** –0.017

(0.002) (0.019)Managed Care for MH/SA (1 = yes) –0.156*** –0.177

(0.017) (0.189)Parity (1 = yes) 0.069*** 0.204

(0.020) (0.221)

R-Square 0.025 0.129F 32.07*** 1.48*N 28,304 252Dependent Variable 1.294 1.842


a The dependent variable reflects an inpatient-day equivalence, where two days of “partial” treatment are counted as one day of inpatient treatment.



Special Report84

Tab

le C

.5: D

eter

min

ants

of

the

Pro

bab

ility

of

Su

bst

ance

Ab

use

Ser

vice

Use

: Kai

ser/

CH

P, 1

996–

1999

Any

Men

tal H

ealth

Ser

vice

sIn

patie

nt/P

artia

l MH

Outp

atie

nt M

H

Coef

ficie

nt (S

.E.)

Odds

Rat

ioCo

effic

ient

(S.E

.)Od

ds R

atio

Coef

ficie

nt (S

.E.)

Odds

Rat

io

Inte

rcep

t–6

.245

***

–7.8

60**

*–6

.344

***

(0.0

74)

(0.2

18)

(0.0

75)

Age

(40

and

over

om

itted

)18

and

und

er–0

.097

0.91

–0.8

35**

*0.

43–0

.064

0.94

(0.0

67)

(0.1

96)

(0.0

68)

19 to

29

0.41

4***

1.51

–0.5

83**

0.56

0.44

0***

1.55

(0.0

66)

(0.2

69)

(0.0

66)

30 to

39

0.64

5***

1.91

0.14

01.

150.

659*

**1.

93(0

.049

)(0

.157

)(0

.049

)Ge

nder

(Fem

ale

omitt

ed)

0.80

3***

2.23

0.88

0***

2.41

0.79

2***

2.21

(0.0

43)

(0.1

42)

(0.0

44)

Subs

crib

er S

tatu

s0.

219*

**1.

24–0

.373

**0.

690.

243*

**1.

28(D

epen

dent

om

itted

)(0

.051

)(0

.154

)(0

.052

)

Coun

ty (C

hitte

nden

om

itted

)Ad

diso

n–0

.446

***

0.64

–0.7

40*

0.48

–0.3

88**

*0.

68(0

.108

)(0

.390

)(0

.109

)Be

nnin

gton

0.68

1***

1.98

–0.3

110.

730.

768*

**2.

16(0

.060

)(0

.276

)(0

.059

)Ca

ledo

nia/

Esse

x/Or

lean

s–0

.600

***

0.55

–1.2

330.

29–0

.507

**0.

60(0

.226

)(1

.005

)(0

.226

)Fr

ankl

in/G

rand

Isle

–0.1

82**

*0.

83–0

.492

**0.

61–0

.098

0.91

(0.0

68)

(0.2

44)

(0.0

68)

Lam

oille

–0.4

51**

*0.

64–0

.85*

0.43

–0.3

73**

*0.

69(0

.121

)(0

.458

)(0

.121

)Or

ange

–0.0

760.

93–0

.452

0.64

–0.0

550.

95(0

.189

)(0

.714

)(0

.195

)Ru

tland

0.27

3***

1.31

0.03

01.

030.

347*

**1.

41(0

.068

)(0

.235

)(0

.068

)W

ashi

ngto

n–0

.624

***

0.54

–0.8

22**

0.44

–0.1

080.

90(0

.112

)(0

.391

)(0

.075

)


Tab

le C

.5 c

on

tin

ued

Any

Men

tal H

ealth

Ser

vice

sIn

patie

nt/P

artia

l MH

Outp

atie

nt M

H

Coef

ficie

nt (S

.E.)

Odds

Rat

ioCo

effic

ient

(S.E

.)Od

ds R

atio

Coef

ficie

nt (S

.E.)

Odds

Rat

io

Win

dham

/Win

dsor

–0.1

44**

0.87

0.44

3***

1.56

–0.1

220.

89(0

.065

) (0

.164

) (0

.134

)

Quar

ter

–0.0

130.

990.

016

1.02

–0.0

17*

0.98

(0.0

09)

(0.0

28)

(0.0

09)

Parit

y (1

= y

es)

–0.0

430.

96–0

.709

***

0.49

–0.0

080.

99(0

.076

) (0

.253

) (0

.077

)

Over

all C

hi-S

quar

e1,

023.

77**

*11

6.00

***

977.

17**

*N

707,

896

707,

896

707,

896

Sour

ce:

Orig

inal

ana

lysi

s of

Kai

ser/C

HP c

laim

s/en

coun

ter d

ata

by M

athe

mat

ica

Polic

y Re

sear

ch, I

nc.

*Sig

nific

antly

diff

eren

t fro

m z

ero

at th

e .1

0 le

vel,

two-

taile

d te

st.

**Si

gnifi

cant

ly d

iffer

ent f

rom

zer

o at

the

.05

leve

l, tw

o-ta

iled

test

.**

*Sig

nific

antly

diff

eren

t fro

m z

ero

at th

e .0

1 le

vel,

two-

taile

d te

st.

S.E.

= S

tand

ard

erro

r.

Special Report86

Tab

le C

.6: D

eter

min

ants

of

the

Pro

bab

ility

of

Su

bst

ance

Ab

use

Ser

vice

Use

: Blu

e C

ross

Blu

e S

hie

ld o

fVe

rmo

nt,

199

6–19

99

Any

Men

tal H

ealth

Ser

vice

sIn

patie

nt/P

artia

l MH

Outp

atie

nt M

H

Coef

ficie

nt (S

.E.)

Odds

Rat

ioCo

effic

ient

(S.E

.)Od

ds R

atio

Coef

ficie

nt (S

.E.)

Odds

Rat

io

Inte

rcep

t–6

.714

–8.0

00**

*–6

.757

***

(0.0

89)

(0.2

55)

(0.0

91)

Age

(40

and

over

om

itted

)18

and

und

er–0

.054

***

0.95

–0.1

780.

84–0

.062

0.94

(0.0

77)

(0.2

13)

(0.0

79)

19 to

29

0.63

6***

1.89

0.52

6***

1.69

0.62

8***

1.87

(0.0

69)

(0.2

03)

(0.0

71)

30 to

39

0.72

8***

2.07

0.35

1**

1.42

0.73

5***

2.09

(0.0

54)

(0.1

72)

(0.0

54)

Gend

er (F

emal

e om

itted

)1.

012*

**2.

750.

883*

**2.

421.

017*

**2.

77(0

.051

)(0

.15)

(0.0

52)

Subs

crib

er S

tatu

s0.

343*

**1.

410.

064

1.07

0.34

7***

1.42

(Dep

ende

nt o

mitt

ed)

(0.0

58)

(0.1

68)

(0.0

59)

Coun

ty (C

hitte

nden

om

itted

)Ad

diso

n–0

.331

***

0.72

–0.7

67**

0.46

–0.3

14**

*0.

73(0

.108

)(0

.361

)(0

.110

)Be

nnin

gton

0.11

91.

13–0

.605

*0.

550.

154*

1.17

(0.0

91)

(0.3

45)

(0.0

92)

Cale

doni

a/Es

sex/

Orle

ans

–0.0

660.

94–0

.826

***

0.44

–0.0

320.

97(0

.077

)(0

.278

)(0

.078

)Fr

ankl

in/G

rand

Isle

–0.3

09**

*0.

73–0

.813

**0.

44–0

.275

**0.

76(0

.110

)(0

.379

)(0

.110

)La

moi

lle–0

.467

***

0.63

–0.4

890.

61–0

.455

***

0.63

(0.1

31)

(0.3

78)

(0.1

33)

Oran

ge–0

.366

***

0.69

–1.0

15**

0.36

–0.3

60**

*0.

70(0

.117

)(0

.432

)(0

.120

)Ru

tland

–0.1

73*

0.84

0.02

61.

03–0

.184

**0.

83(0

.089

)(0

.236

)(0

.091

)

Tab

le C

.6 c

on

tin

ued

Any

Men

tal H

ealth

Ser

vice

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l MH

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.)Od

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nt (S

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910.

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88(0

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)(0

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)(0

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)W

indh

am/W

inds

or–0

.093

0.91

–0.2

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78–0

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0.93

(0.0

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(0.0

74)

Line

of B

usin

ess

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itted

)Ba

sic

0.16

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1.18

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21.

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170*

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)Co

mp

0.08

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073

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ter

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61.

010.

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060.

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1.01

(0.0

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aged

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e fo

r MH/

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***

0.81

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90–0

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***

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(1 =

yes

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)(0

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190.

98–0

.413

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0.99

(1 =

yes

)(0

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)(0

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r.


Special Report88

Table C.7: Determinants of the Level of Substance Abuse Service Use:Kaiser/CHP, 1996–1999

Log of Number of Log of Number of Outpatient Inpatient/Partial Substance

Substance Abuse Visits per User Abuse Days per Usera

Intercept 1.075*** 2.225***(0.066) (0.180)

Age (40 and over omitted)18 and under –0.296*** 0.216

(0.059) (0.174)19 to 29 –0.155*** –0.056

(0.058) (0.227)30 to 39 0.014 –0.137

(0.043) (0.136)Gender (Female omitted) 0.014 –0.200*

(0.038) (0.120)Subscriber Status (Dependent omitted) 0.007 –0.276**

(0.045) (0.130)

County (Chittenden omitted)Addison 0.127 –0.413

(0.095) (0.326)Bennington 0.066 0.337

(0.052) (0.237)Caledonia/Essex/Orleans –0.014 1.398*

(0.197) (0.840)Franklin/Grand Isle 0.001 0.029

(0.060) (0.211)Lamoille 0.237** 0.269

(0.105) (0.381)Orange 0.084 –0.005

(0.170) (0.594)Rutland 0.063 0.680***

(0.059) (0.197)Washington –0.207** –0.537

(0.098) (0.336)Windham/Windsor 0.042 0.276**

(0.058) (0.140)Dual Diagnosis (MH/SA) –1.101*** –0.327

(0.071) (0.348)

Quarter 0.013* –0.046*(0.008) (0.026)

Parity (1 = yes) –0.032 0.032(0.067) (0.227)


Table C.7 continued



R-Square 0.116 0.193F 19.42*** 3.17***N 2,545 242Dependent Variable Mean 0.140 1.784

Source: Original analysis of Kaiser/CHP claims/encounter data by Mathematica Policy Research, Inc.

a The dependent variable reflects an inpatient-day equivalence, where two “partial” days of treatment are counted as one day of inpatient treatment.


MH/SA = mental health/substance abuse.

Special Report90

Table C.8: Determinants of the Level of Substance Abuse Service Use:Blue Cross Blue Shield of Vermont, 1996–1999



Intercept 1.346*** 2.073***(0.081) (0.264)

Age (40 and over omitted)18 and under –0.190*** –0.115

(0.069) (0.211)19 to 29 –0.131** –0.196

(0.062) (0.202)30 to 39 –0.032 –0.195

(0.047) (0.171)Gender (Female omitted) –0.106** 0.007

(0.047) (0.147)Subscriber Status (Dependent omitted) 0.064 –0.088

(0.051) (0.168)County (Chittenden omitted)

Addison 0.174* 0.063(0.096) (0.352)

Bennington –0.009 0.184(0.08) (0.346)

Caledonia/Essex/Orleans –0.008 0.167(0.067) (0.264)

Franklin/Grand Isle –0.175* 0.296(0.096) (0.371)

Lamoille 0.280** –0.011(0.116) (0.367)

Orange –0.007 0.894**(0.104) (0.424)

Rutland 0.060 0.221(0.079) (0.231)

Washington –0.237*** –0.243(0.067) (0.191)

Windham/Windsor 0.059 0.303(0.064) (0.212)

Dual Diagnosis (MH/SA) –0.027 –0.196(0.048) (0.137)

Line of Business (VFP omitted)Basic –0.003 0.113

(0.054) (0.189)Comp 0.075 0.128

(0.048) (0.154)

Table C.8 continuedLog of Number of

Log of Number of Outpatient Inpatient/Partial Substance Substance Abuse Visits per User Abuse Days per Usera

Quarter 0.009 –0.037*(0.007) (0.021)

Managed Care for MH/SA (1 = yes) –0.193*** 0.057(0.068) (0.225)

Parity (1 = yes) –0.135* 0.617***(0.075) (0.237)

R-Square 0.047 0.135F 4.93*** 1.65**N 2,009 232Dependent Variable Mean 1.229 1.913


a The dependent variable reflects an inpatient-day equivalence, where two “partial” days of treatment are counted as one day of inpatient treatment


MH/SA = mental health/substance abuse; VFP = Vermont Freedom Plan.


Special Report92

Table C.9: Determinants of Average Health Plan Payments for MentalHealth and Substance Abuse Services per User per Quarter: Blue CrossBlue Shield of Vermont, 1996–1999

Log of Health Plan Log of Health PlanPayments per Mental Payments per Substance Health Service User Abuse Service User

Intercept 4.918*** 5.678***(0.028) (0.114)

Age (40 and over omitted)18 and under 0.065*** –0.277***

(0.022) (0.096)19 to 29 0.034 –0.132

(0.027) (0.087)30 to 39 0.071*** –0.144**

(0.017) (0.066)Gender (Female omitted) –0.022 –0.139**

(0.015) (0.066)Subscriber Status (Dependent omitted) 0.046*** –0.096

County (Chittenden omitted)Addison 0.058* 0.101

(0.030) (0.137)Bennington 0.024 –0.263**

(0.027) (0.112)Caledonia/Essex/Orleans –0.213*** –0.171*

(0.028) (0.095)Franklin/Grand Isle –0.113*** –0.246*

(0.035) (0.137)Lamoille –0.004 0.152

(0.037) (0.168)Orange –0.165*** –0.239*

(0.037) (0.144)Rutland –0.095*** 0.065

(0.028) (0.111)Washington –0.011 –0.218**

(0.023) (0.093)Windham/Windsor –0.058*** 0.015

(0.021) (0.090)Diagnosis

Major Depression/Bipolar Disorder/Schizophrenia 0.251*** —

(0.019)Mild/Moderate Depression 0.300*** —

(0.017)Adjustment Reaction 0.262*** —

(0.016)Dual Diagnosis (MH/SA) 0.245*** 0.323***

(0.056) (0.065)


Table C.9 continued

Log of Health Plan Log of Health PlanPayments per Mental Payments per Substance Health Service User Abuse Service User

Line of Business (VFP Omitted)Basic 0.140*** 0.136*

(0.019) (0.075)Comp 0.213*** 0.178***

(0.016) (0.068)Quarter 0.002 0.018*

(0.003) (0.009)Managed Care for MH/SA (1 = yes) –0.350*** –0.275***

(0.022) (0.094)Parity (1 = yes) 0.171*** –0.202**

(0.026) (0.103)

R-Square 0.043 0.056F 51.15 *** 5.720 ***N 26,055 1,944Dependent Variable Mean 5.289 5.495



MH/SA = mental health/substance abuse; VFP = Vermont Freedom Plan.

Appendix D:Methods Used toConduct the Surveyof Vermont Employers

A. Sample DesignThe sample for the Survey of VermontEmployers was drawn from theUnemployment Insurance (UI) File main-tained by the Vermont Department ofEmployment and Training (DET). The filecontains all employers who paid unemploy-ment taxes in Vermont. Since businesses aremandated to report unemployment taxesannually, the UI file provided an up-to-datesample frame. The target population for thesurvey was businesses currently in operationin Vermont, excluding (1) those that had, onaverage, fewer than five employees acrossestablishments in calendar year 1999; (2)those not in business before January 1, 1998(when the parity law was enacted); and (3)Federal and State government entities.

Employer surveys can be conducted at theenterprise or establishment level, and thesampling unit may depend on the objectivesof the survey (Zarkin et al., 1995).1 Becausemost insurance decisions typically are madeat the level of the enterprise, the sampling

unit for the Vermont employer survey wasdefined as the “Vermont portion of the busi-ness enterprise.” The DET sampling framewas used to identify those Vermont establish-ments associated with each enterprise operat-ing in Vermont as of December 31, 1999.

The sample was selected using a strati-fied, simple random sample without replace-ment of businesses in Vermont enterprises.The records were divided into three strata:small (5 to 25 employees), medium (26 to50 employees), and large (more than 50employees). Each stratum was then divided


1 An “enterprise” is the unit representing the entirecorporation, including all divisions, subsidiaries,and branches. An “establishment” is the physicallocation of a single business, which typically pro-duces a single good or provides a single service. Anenterprise may consist of multiple or single estab-lishments. According to Zarkin et al. (1995),“Because multi-establishment enterprises generallymake health insurance decisions for the enterpriseas a whole rather than for individual establish-ments, enterprise surveys are the most appropriatesource of data for information on the factors affect-ing the decision to provide health insurance cover-age and the rationale for designing health plans.”

This appendix describes the methods used to conduct theSurvey of Vermont Employers, including the sample design,data collection procedures, and analytic approach. This

appendix also presents background information on the characteristics ofVermont employers and the attributes of employer-sponsored healthinsurance coverage in Vermont.

Table D.1: Completed Cases and Response Rates

LargeType of Enterprise Small (5 to 25) Medium (26 to 50) (More Than 50) Total

InsuredEstimated completes 200 200 200 600Actual completes 221 225 228 674

UninsuredEstimated completes 96 20 5 121Actual completes 106 21 5 132

TotalEstimated completes 296 220 225 741Actual completes 327 246 233 806Response rate (percent) 81.5 78.5 82.1 80.7

into seven substrata: six substrata wereformed based on three Standard IndustrialClassification (SIC) codes (retail trade, serv-ices, and other) and two locations(Chittenden County and other counties),and a seventh substratum that included alllocal government entities. Thus, 21 substra-ta were defined for the study.

A total of 1,311 records originally weredesignated and separated into three waves.The goal was to complete 200 interviewswith insured businesses in each of the threesize strata (uninsured businesses would nat-urally distribute themselves across the strataas a result of screening for insurance status).The eligibility rate was projected at 85 per-cent and the response rate at 80 percent.However, after fielding two waves, the eligi-bility rate was much higher than expected(97.5 percent) and, as a result, the size ofthe third wave was reduced, such that atotal of 1,040 records actually were releasedfor interview: 421 in stratum 1 (small), 326in stratum 2 (medium), and 293 in stratum3 (large).

Altogether, 806 employers completed thesurvey (674 insured and 132 uninsured), andthe overall response rate was 80.7 percent.

Across the three size strata, the number ofcompleted cases and response rates areshown in Table D.1.

B. Data Collection ProceduresInterviews were conducted using computer-assisted telephone interviewing (CATI). Priorto conducting the interview, pre-field locatingwas performed to confirm that the sampledbusinesses were still in operation in Vermont,to verify that sampled businesses were at theenterprise level, and to identify the appropri-ate respondent for the survey (defined as thehead of Vermont operations). Contact infor-mation was verified, and an advance letterand information packet were mailed to eachemployer prior to the CATI interview. Inaddition, the survey was publicized toVermont employers through stories in localnewspapers and trade magazines andthrough an informational Web site.

The questionnaire included the followingtopics: (1) employer eligibility for the survey,including health insurance status (insured,uninsured); (2) eligibility for and participa-tion in employer health plans; (3) characteris-tics of health insurance coverage; (4) costs ofhealth insurance coverage; (5) awareness of

Special Report96

the parity law; (6) effects of the parity law;(7) satisfaction with parity; (8) concerns andrecommendations about parity; and (9) firmcharacteristics. Once an employer had beendetermined eligible for the survey, the inter-viewer identified the respondent who wasmost familiar with the Vermont parity law toconduct the remainder of the interview.

Uninsured businesses completed two sec-tions of the instrument—the eligibilityscreener and firm characteristics. In addition,a brief set of questions was administered tonewly uninsured businesses (uninsured sinceJanuary 1, 1998) to determine the role of theMH/SA parity law in their decision to dis-continue coverage.

Quality control was performed through-out the data collection process, including theuse of supervisors and interviewers withexperience on surveys of professionals; aone-day training session, including generalinstruction on data collection procedures andsurvey-specific training on the instrumentand the project; consistency checks withinthe CATI system; random monitoring by theproject director, survey director, and surveysupervisor; and automated editing for skippatterns following completion of the survey.

C. Analytic ApproachWeights were developed for analysis, toadjust for the disproportionate probability of

selection by size of employer. Medium andlarge businesses were oversampled, whilesmall businesses were undersampled. TableD.2 shows the unweighted and weighted dis-tributions of responding businesses acrossthe three strata.

To account for the complex sample design,SUDAAN software was used to compute thestandard errors for significance testing. Twotypes of significance tests were performed: at-test for continuous variables and chi-squaretest for categorical variables. Unless otherwisespecified, all reported differences are signifi-cant at the .10 level or higher.

Most analyses compared employer percep-tions of, and responses to, parity by the sizeof the firm. A measure of firm size was creat-ed based on the number of permanent full-time and part-time Vermont employees, as ofDecember 31, 1999, as reported in the sur-vey. Four size categories were analyzed:fewer than 10 (very small), 10 to 25 (small),26 to 50 (medium), and more than 50(large). Thus, for the purpose of this analy-sis, we divided the stratum containing 25 orfewer employees into two analytic categoriesbecause of the differences in characteristicsand responses of the small and very smallbusinesses.

Most analyses are performed at theemployer level to ascertain differences inemployer attitudes and responses to parity.


Table D.2: Unweighted and Weighted Sample Sizes, by Stratum

Unweighted Frequency Weighted Frequency

Stratum Number Percent Number Percent

Total 806 100.0 6,700 100.0Small (5 to 25) 327 40.6 5,172 77.2Medium (26 to 50) 246 30.5 815 12.2Large (More than 50) 233 28.9 713 10.7

In addition, some analyses are presented atthe employee level; that is, they are weightedby the number of employees in the firm.These analyses estimate the proportion ofVermont employees affected by variouschanges in employer-sponsored health insur-ance coverage (such as the percent affectedby the discontinuation of coverage or by theshift to self-insured coverage).

D. Background Information on theCharacteristics of Vermont EmployersBecause the analysis in Chapter IV focuseson variations in employer perspectives onparity according to firm size, this appendixprovides background information on thecharacteristics of Vermont businesses by firmsize. The definition of “large business” usedin this survey—more than 50 employees—isdifferent from that used in many other sur-veys.2 This analysis focused on businesseswith more than 50 employees, as distinctfrom those with 50 or fewer, for two rea-sons. First, the Federal mental health paritylaw (along with many State laws) exemptsbusinesses with 50 or fewer employees fromcompliance. Second, Vermont’s small busi-ness market is subject to different ratingrequirements than companies with more than50 employees. Moreover, there is substantialevidence that virtually all businesses withmore than 50 employees offer coverage, butthere is considerable heterogeneity amongsmaller firms (KFF/HRET, 2001).

As shown in Table D.3, significant differ-ences existed in the characteristics of busi-nesses in Vermont along all dimensions otherthan urban/rural location. The vast majority(83 percent) of Vermont employers repre-sented in the survey were for-profit enter-

prises; another 10 percent were not-for-prof-it, and the remaining 7 percent were localgovernment entities (such as school districts).Businesses with 25 employees or fewer weremore likely to be for-profit enterprises,whereas firms with more than 25 employeesincluded a disproportionate representation ofnot-for-profit and publicly owned businesses.

Among the nongovernmental firms, morethan one-third (37 percent) were associatedwith service industries, while about one-fourth (26 percent) were involved in retailtrade. In general, businesses with 50 or feweremployees were more likely to specialize inretail trade, agriculture/forestry/fishing/min-ing, construction, and wholesale trade, whilelarge businesses (more than 50 employees)were more likely to concentrate on manufac-turing and services.

About 93 percent of businesses were head-quartered in Vermont, though the likelihoodof having a headquarters outside Vermontincreased with size—18 percent of firms withmore than 50 employees had their center ofoperations in another State or even outsidethe United States. Large businesses also weremore likely to have a union presence—23percent of those with more than 50 employ-ees, versus 2 percent of those with fewerthan 10 employees, employed staff with col-lective bargaining agreements.

The vast majority of Vermont firms hadbeen in operation for more than 5 years,including 46 percent for 5 to 20 years and45 percent for more than 20 years. A highershare of the large firms (79 percent) thansmall firms had been in business for morethan 20 years. In general, the self-reportedfinancial status was stronger in medium andlarge firms than in small or very smallfirms—21 to 26 percent of firms with 25 orfewer employees reported that they were in

Special Report98

2 The KFF/HRET survey, for example, defines largefirms as those with more than 200 workers.


Table D.3: Characteristics of Vermont Employers, by Firm Size

Number of Employees

Fewer MoreAll Firms Than 10 10 to 25 26 to 50 Than 50

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Ownership (chi-sq = 49.96*)For-profit 83.0 86.0 88.2 73.6 65.2Not-for-profit 9.6 7.7 7.7 14.1 18.7Local government 7.4 6.4 4.2 12.3 16.1

Type of industry (chi-sq = 51.33*)a

Agriculture, forestry, fishing, mining, construction, wholesale trade 17.6 19.2 18.9 16.9 8.3

Manufacturing 11.3 7.5 12.1 12.3 22.4Transportation, communication,

utilities 4.2 4.0 3.6 5.3 5.4Retail trade 26.1 28.3 25.4 27.4 18.3Finance, insurance, real estate 3.4 4.4 2.3 2.0 4.2Services 37.4 36.6 37.6 36.1 41.5

Location of headquarters (chi-sq = 30.12*)

Vermont 92.9 94.6 95.6 88.0 82.5Outside Vermont 7.1 5.4 4.4 12.0 17.6

Unionization (chi-sq = 87.94*)Any unionization 6.7 1.8 5.3 14.1 23.0No unionization 93.3 98.2 94.7 85.9 77.0

Years of operation (chi-sq = 117.58*)2–5 9.4 8.3 13.9 6.6 2.76–20 45.5 50.3 50.1 39.8 17.9More than 20 45.2 41.3 36.0 53.7 79.4

Self-reported financial status (chi-sq = 31.76*)

Excellent 31.1 24.6 32.3 46.5 38.5Good 48.0 49.8 47.1 44.2 46.9Fair or poor 21.0 25.6 20.6 9.3 14.7

Location (chi-sq = 0.34)Urban 34.1 33.0 35.8 34.0 33.7Rural 65.9 67.0 64.2 66.0 66.3


Note: The survey includes Vermont businesses that were in operation as of January 1, 1998 and that remained in operation as of the time of the sur-vey (Fall 2000). The survey excluded those that had, on average, fewer than five employees across establishments in calendar year 1999 andbusinesses operated by Federal and State government entities.

a Excludes businesses operated by local governments.* Distribution by firm size significantly different than what would be expected by chance alone, based on a chi-square test (p < .01).

fair or poor financial status, compared to 9to 15 percent of firms with more than 25employees. Finally, two-thirds of Vermontbusinesses were located in rural areas (out-side Chittenden County), and there were nosignificant differences in the geographic dis-tribution by firm size.

E. Characteristics of Employer-Sponsored Health Insurance Coveragein VermontThis section provides background informa-tion to set the context for the discussion ofthe effects of parity on employers, includingthe rates and characteristics of employeroffers of insurance coverage and employeeparticipation; the number and types ofhealth plan choices offered by employers;and the extent of employer monitoring ofhealth care costs.

1. Employer Offers of Insurance Coverage

As shown in Table D.4, three out of fourVermont employers offered employer-sponsored insurance (ESI) coverage to theiremployees at the time the survey was con-ducted. The likelihood of offering coverageincreased significantly with employer size,ranging from 62 percent of employers withfewer than 10 employees in Vermont to 97percent among those with more than 50Vermont employees. Virtually all firms—91percent—that offered coverage to employeesalso offered coverage to their dependents.However, firms with 25 employees or fewerwere less likely to offer dependent coveragethan firms with more than 25 employees.

Firms offering ESI may restrict coveragebased on the number of hours worked.Overall, about one-third of Vermont busi-nesses offered coverage to part-time employ-ees. Large firms (53 percent) were more like-

ly to offer coverage to part-time workersthan smaller firms (25 to 40 percent).

Firms may require a minimum length ofemployment prior to offering coverage toemployees. About two-thirds of Vermontemployers had a waiting period for eligibility,although the rate was slightly higher amongemployers with more than 25 employees.Only one-fourth of Vermont employers had awaiting period for preexisting conditions(PEC); employers with more than 25 employ-ees were at least twice as likely as smallerbusinesses to have a PEC clause.

2. Employee Participation

In addition to finding considerable variationamong firms in whether they offered cover-age—and to whom they offered coverage—there was significant variation in the partici-pation rate among eligible workers (TableD.4). Across all firms that offered coverage,the participation rate among eligible workerswas about 72 percent. In other words, nearlythree-fourths of workers who were eligible toparticipate in ESI actually obtained coverage.The participation rate was higher among eli-gible employees in businesses with more than50 employees (78 percent) than amongemployees in small or very small businesses(70 to 72 percent). In part, this may reflectthe tendency of employees in small business-es to obtain coverage through a spouse orpartner who is employed by a larger firm(Cromwell et al., 1994).

The Vermont Family Health InsuranceSurvey provides insights into why someworkers may decline coverage when it isoffered (BISHCA, 2000). By far the mostcommon reason—reported by 47 percent ofemployees who declined coverage—was thatthey had obtained coverage through aspouse’s or partner’s employer. Ineligibility

Special Report100

Tab

le D

.4: C

har

acte

rist

ics

of

Em

plo

yer-

Sp

on

sore

d H

ealt

h In

sura

nce

Co

vera

ge

in V

erm

on

t, b

y Fi

rm S

ize

Num

ber o

f Em

ploy

ees

Few

er

Mor

eAl

l Firm

sTh

an 1

010

to 2

526

to 5

0Th

an 5

0

Perc

enta

ge o

f em

ploy

ers

offe

ring

heal

th in

sura

nce

cove

rage

73.5

62.0

**

74.1

**

94.0

97.3

Perc

enta

ge o

f ins

ured

em

ploy

ers:

Offe

ring

depe

nden

t cov

erag

e90

.790

.5 *

*85

.0 *

*96

.698

.6Of

ferin

g co

vera

ge to

par

t-tim

e em

ploy

ees

35.6

25.3

**

37.5

**

40.2

**

53.2

With

a w

aitin

g pe

riod

for e

ligib

ility

67.2

64.1

*64

.5 *

71.9

76.6

With

a w

aitin

g pe

riod

for p

reex

istin

g co

nditi

ons

25.5

19.6

**

18.9

**

36.3

42.3

Perc

enta

ge o

f elig

ible

wor

kers

taki

ng u

p co

vera

ge71

.971

.6 *

70.7

*70

.0 *

*77

.5

Sour

ce:

Mat

hem

atic

a Po

licy

Rese

arch

Sur

vey

of V

erm

ont E

mpl

oyer

s to

Ass

ess

the

Impa

ct o

f the

Ver

mon

t Par

ity A

ct.

Not

e:Th

e su

rvey

incl

udes

Ver

mon

t bus

ines

ses

that

wer

e in

ope

ratio

n as

of J

anua

ry 1

, 199

8 an

d th

at re

mai

ned

in o

pera

tion

as o

f the

tim

e of

the

surv

ey (F

all 2

000)

. The

sur

vey

excl

uded

thos

e th

at h

ad, o

n av

erag

e, fe

wer

than

five

empl

oyee

s ac

ross

est

ablis

hmen

ts in

cal

enda

r yea

r 199

9 an

d bu

sine

sses

ope

rate

d by

Fed

eral

and

Sta

te g

over

nmen

t ent

ities

.

* Si

gnifi

cant

ly d

iffer

ent f

rom

em

ploy

ers

with

mor

e th

an 5

0 em

ploy

ees

at th

e .0

5 le

vel,

two-

taile

d te

st.

** S

igni

fican

tly d

iffer

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Table D.5: Health Plan Choices Offered to Employees in Vermont, by Firm Size

Number of Employees


Number of health plan choices, %One 89.2 93.8 94.9 84.6 69.0Two 7.8 6.3 2.7 11.9 19.6Three or more 3.0 0.0 2.5 3.5 11.4Mean number of plans 1.1 1.1 * 1.1 * 1.2 * 1.4

Percentage of employers offering plansHMO 19.2 21.5 19.5 14.6 17.1POS 18.6 17.8 17.8 19.9 20.9PPO 42.0 34.5 * 42.6 * 43.4 * 58.3FFS 21.2 21.8 14.8 * 28.0 27.8Unknown 6.2 6.3 7.7 4.7 3.6

Percentage with self-insured plan 15.4 10.4 * 6.6 * 19.4 * 44.6


Note: The survey includes Vermont businesses that were in operation as of January 1, 1998 and that remained in operation as of the time of the sur-vey (Fall 2000). The survey excluded those that had, on average, fewer than five employees across establishments in calendar year 1999 andbusinesses operated by federal and state government entities. This table is limited to insured businesses only.

* Significantly different from employers with more than 50 employees at the .01 level, two-tailed test.

FFS = Fee-for-service indemnity plan; HMO = Health maintenance organization; POS = Point of service plan; PPO = Preferred provider organization.

due to part-time status was reported by 19percent, while 11 percent reported that theywere ineligible due to a waiting period.Sixteen percent cited cost as a barrier.

3. Health Plan Choices Offered by VermontEmployers

Among employers that offered health insur-ance coverage, there was considerable varia-tion in the number and types of health planchoices (Table D.5). Nearly one-third oflarge firms (more than 50 employees) offeredmore than one choice, compared to about 5percent of firms with 25 employees or fewer.

Vermont employers were most likely toreport that they offered their employees apreferred provider organization (PPO) plan(42 percent), and less likely to report offering

a health maintenance organization (HMO),either with or without a point-of-service(POS) option (38 percent combined). Only21 percent of employers offered a traditionalfee-for-service, or indemnity, option. Therewas no significant variation by employer sizein the percentage that offered a managedcare plan (HMO or POS), but large employ-ers were more likely to report that theyoffered a PPO plan. These data mirrornational trends in two respects—the entry ofmanaged care into the small group market(Jensen et al., 1997) and the strong emer-gence of PPOs, as “heavier” forms of man-aged care retreat (Gabel et al., 2001).

To the extent that most employers offeredonly one health plan, many employees couldnot choose an alternative health plan follow-

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ing implementation of parity. Moreover,when that one plan was a managed careplan, network composition or care manage-ment strategies may have affected the choiceof providers and accessibility of care. Amongbusinesses that offered only one plan, therewere significant differences by firm size inthe type of health plan offered. Businesseswith 50 employees or fewer were more likelyto offer a managed care plan (HMO or POS)as the only option, while large businesses(more than 50 employees) were more likelyto offer a PPO plan as the only option (datanot shown).

Approximately 15 percent of Vermontemployers reported that they provided healthinsurance through a self-insured plan at thetime of the survey (Table D.5). Large busi-nesses were three times more likely to offerat least one self-insured plan. Thus, 30 per-cent of employees were employed by firmsoffering only a self-insured plan, while 12percent were in firms with a choice betweenfully insured and self-insured plans (TableD.6). This means that, because self-insuredplans are exempt from Vermont’s parity law,nearly one in three Vermont employeesworked for insured businesses that werebeyond the reach of the Vermont MH/SAparity law.

4. Employer Monitoring of Health Care CostsThe majority of Vermont employers reportedthat they monitor their health care costs atleast once or twice a year or upon contractrenewal (Table D.7). The frequency of moni-toring varied by firm size, however. Largefirms were more likely to monitor theirhealth care costs at least quarterly, whileother firms were more likely to report thatthey never monitored their costs.

About half of Vermont employers reliedon outside sources for monitoring,although the likelihood of using an outsidesource was about twice as high among thelarge firms (77 percent) as among the verysmall firms (39 percent). Among thoseusing outside sources to assist in monitor-ing, the most common sources were insur-ance brokers (57 percent), benefits consult-ants (24 percent), and health plans (23percent). Firms of all sizes relied most oftenon insurance brokers, although other dif-ferences were observed by firm size. Largefirms were more likely than very smallfirms to hire benefits consultants (37 versus16 percent) and more likely to rely onhealth plans or third-party administrators(30 versus 12 percent). Very small business-es were more than three times as likely tocall on trade or professional associations,


Table D.6: Distribution of Vermont Employees With Employer-SponsoredHealth Insurance Coverage, by Type of Plan Funding

Number of VermontEmployees in Insured

Type of Plans Offered Businesses Percentage of Total

Total 201,059 100.0Fully insured plans only 116,950 58.2Self-insured plans only 60,023 29.9Both fully and self-insured plans 24,086 12.0

Table D.7: Variation in Health Care Costs and Cost-Monitoring Activities,by Firm Size, %

Number of Employees


Frequency of Monitoring (chi-sq = 34.83****)

Four or more times yearly 16.9 14.1 14.4 12.8 33.7One or two times yearly 57.8 58.4 60.7 60.0 47.4Monitors at contract renewal

or other time 13.0 13.0 12.5 16.7 10.6Never 8.2 11.9 6.6 6.5 3.9Unknown 4.2 2.7 5.9 4.1 4.5

Percentage Using Outside Sources for Monitoring 53.4 38.6 *** 56.7 *** 58.0 *** 76.8

Sources of Help in MonitoringInsurance broker 57.2 53.4 61.6 62.4 * 51.0Benefits consultant 23.8 16.0 *** 19.4 *** 28.8 36.7Health plans 22.7 11.8 ** 25.5 24.7 30.2Trade or professional association 13.2 24.0 ** 10.8 9.4 6.7Business consultant 7.9 7.9 13.0 2.8 3.2Other 2.1 2.8 0.4 4.2 2.8

Percentage of Health Care Costs Attributable to MH/SA Services (chi-sq = 119.97****)

None 23.1 30.3 26.0 18.0 3.11–5 6.0 5.1 5.7 5.1 10.26–10 1.9 0.9 0.9 2.9 5.8More Than 10 1.6 0.8 1.2 0.0 6.4Unknown 67.3 63.0 66.3 74.0 74.5

Change in MH/SA Costs Over the Past 3 Years (chi-sq = 8.51)

Increased 18.1 14.5 18.5 19.1 25.4Decreased 0.9 0.9 0.9 0.9 0.9Stayed the same 40.9 41.3 44.0 35.9 38.0Unknown 40.1 43.4 36.6 44.1 35.6


Note: The survey includes Vermont businesses that were in operation as of January 1, 1998 and that remained in operation as of the time of the sur-vey (Fall 2000). The survey excluded those that had, on average, fewer than five employees across establishments in calendar year 1999 andbusinesses operated by Federal and State Government entities. This table is limited to insured businesses only.

* Significantly different from employers with more than 50 employees at the .10 level, two-tailed test.** Significantly different from employers with more than 50 employees at the .05 level, two-tailed test.*** Significantly different from employers with more than 50 employees at the .01 level, two-tailed test.**** Distribution by firm size significantly different than what would be expected by chance alone, based on a chi-square test (p ~ .01).

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many of which sponsored association plansfor small businesses in Vermont (24 versus7 percent).

Despite these efforts to monitor healthcare costs periodically—often with the assis-tance of outside sources—few employerswere able to estimate what percentage oftheir health care costs were attributable toMH/SA services. Between 78 and 93 percent

of firms reported that the share of costsattributable to MH/SA services was eitherzero or unknown. A sizable proportion—about 40 percent—were unable to report thedirection of the change in costs attributableto MH/SA services over the past 3 years.Another 41 percent reported that costsstayed the same, while 18 percent reportedthat they increased.


DHHS Publication Number (SMA 03-3822)Printed 2003 Substance Abuse and Mental

Health Services Administration

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Documents

EFFECTS OF THE VERMONT Parity.pdf · THE VERMONT Mental Health and Substance Abuse PARITY LAW CMHS9_Cov_Spine.qxd 8/26/03 8:53 AM Page 1. U.S. Department of Health and Human Services