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Mental health care costs will increase less than 1% as a result of a federal law requiring greater parity between mental and physical health benefits, according to a new study.

The study comes less than two months before the Mental Health Parity Act takes effect on Jan. 1, 1998.

Many large employers are starting to overhaul their mental health care benefit programs as the Jan. 1 deadline approaches for compliance with the federal law (BI, Oct. 27).

Passed in 1996, the law bars employers from offering lower annual and lifetime limits on mental health care benefits compared with those for physical illness, unless employers can show that equalizing the benefits would raise their costs by more than 1%.

The study, conducted by Roland Sturm, an economist at Santa Monica, Calif.-based think tank Rand Corp., examined data from 24 managed mental health care plans from 1995 and 1996. These carve-out plans, covering 140,000 enrollees, offered unlimited mental health coverage and low copayments and all were administered by the same company, San Francisco-based United Behavorial Health. The study was first published Nov. 12 in The Journal of the American Medical Assn.

"This article showed that the effects of removing limits is relatively minor under managed care in carve-out plans, even with low copayments," the study states.

By removing a typical $25,000 yearly limit on mental health care, coverage would cost about an additional $1 per enrollee per year, Mr. Sturm concluded. Even for plans that now have a $10,000 cap on mental health care, removing limits under the new law would increase costs by less than $4 per enrollee per year, the study states.

The biggest beneficiary of removing limits, he said, would be children, as they generally are high-cost users of mental health services.

The Rand study says its results differ from those of a 1996 study conducted by the Congressional Research Service that concluded the law would significantly push up costs.

The CRS survey used older data and "did not incorporate any cost distinction between managed care or fee-for-service care," according to the Rand study.

In an interview, Mr. Sturm said that case management by the managed mental health care plans significantly reduces the frequency and costs of high-end patients. Using that data, which earlier studies did not use, produces Rand's lower cost estimates, he said.

The study itself cites some weaknesses, though. First, the majority of covered employees worked for a public employer. Also, the enrollees were concentrated in the Midwest. But these limitations on geographic and occupational spread would not alter the results, the study says.

Mark Ugoretz, president of the ERISA Industry Committee in Washington, said that the study has another weakness. Using data only from plans that offered unlimited mental health benefits "skewed" the results, he said. Although he had not read the Rand study, Mr. Ugoretz said that if the study looked at less generous plans, it might have reached a different conclusion because that is where the law's impact will be greatest.

Mr. Sturm disagreed and defended his research. To collect the proper data required examining plans without limits, he contended. Looking at plans with low annual limits would not be helpful, he explained, as they lack data on high-cost claims that exceed their cap.

Even prior to the Rand research, many health care experts said the law wouldn't increase costs.

Lee Exton, a consultant with Watson Wyatt Worldwide in Los Angeles, said that many factors contribute to the costs of mental health benefits. So, even though the law will increase benefit levels, employers can raise deductibles or copayments and limit the number of visits to control costs.

The study was funded by the National Institute of Mental Health and the Healthcare for Communities project of the Robert Wood Johnson Foundation. Data was supplied by United Behavioral Health.

For a free copy of the study, contact Rand Distribution Services at 310-451-7002.