Mental Health Parity Rules for Health Insurance

Mental health parity refers to rules that prevent health insurance plans from having more restrictive requirements for mental health benefits than for medical and surgical benefits.

This article will discuss how mental health parity rules have evolved over the years to make mental health care and substance abuse treatment more accessible. But there are still gaps in coverage.

History of Mental Health Parity

The first mental health parity rules took effect in 1998, under the Mental Health Parity Act (MHPA). This law, signed by President Bill Clinton in 1996, prohibited large-group (employer-sponsored) health plans from having lower dollar caps (the maximum they would pay) for mental health benefits than they had for medical or surgical benefits.

But the MHPA did not require coverage for mental health care, so group health plans could simply skip that benefit altogether.

Group plans offering mental health benefits could get around the MHPA by imposing limits on how many mental health visits they would cover or how many days a member could have coverage for inpatient mental health care. (This was allowed under the MHPA because visit/day limits are not the same as dollar limits on benefits.)

Mental Health Parity and Addiction Equity Act of 2008

It was clear that additional legislation was necessary. That came with the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA).

This legislation was initially introduced as a standalone bill. It was ultimately included as a rider on the Troubled Asset Relief Program legislation, signed into law by President George W. Bush in 2008.

The MHPAEA still did not require group health plans to provide mental health benefits, and it also did not apply to individual/family (self-purchased) health insurance. But for group health plans, it did build upon the original Mental Health Parity Act in several ways.

Under the MHPAEA, mental health parity rules were expanded to include coverage for the treatment of substance use disorders. And the overall parity rules were expanded to include cost-sharing and treatment limits, as opposed to just an overall dollar cap on benefits.

Once the MHPAEA took effect, group health plans couldn’t impose higher deductibles, co-pays, or coinsurance for mental health or substance use treatment than they imposed for medical/surgical benefits.

A deductible is how much have to pay for a service before your health plan starts to cover your expenses. A co-pay is a set amount you pay for a service. Coinsurance is a percentage of the cost you must pay for a service while the insurance covers the rest.

The plans cannot impose separate cost-sharing that only applies to mental health and substance use treatment—for example, a plan cannot have a separate deductible for mental health benefits. Plans also can’t impose more restrictive limits on the number of visits or days of coverage that could be provided for mental health or substance use treatment either (treatment limits).

The MHPAEA further ensures that if a group health plan includes coverage for out-of-network care (and assuming it does include coverage for mental health and substance use treatment), it has to include out-of-network coverage for mental health and substance use treatment.

Out-of-network care means that you are using a provider that does not have a contract with your health insurer to provide services at their negotiated rates. But it’s important to understand that your out-of-pocket costs can be much higher if you use an out-of-network provider. And out-of-network providers can balance bill you, which means you’re responsible for paying whatever portion of their charges are not paid by your health plan, and the provider doesn’t have to write off any of the bill.

As of 2016, MHPAEA rules also apply to Medicaid managed care and Children’s Health Insurance Program (CHIP) plans.

Although the MHPAEA helped improve access to mental health and substance use coverage, there were some significant gaps. The legislation did not apply to small group plans or individual/family plans that people purchased on their own.

And if a large-group plan experienced an increase in costs due to compliance with the mental health parity rules, the plan could seek an exemption from compliance for the following year.

It’s also important to clarify that while the MHPAEA did impose significant new parity rules, it still did not require any health plans to actually provide coverage for mental health or substance use treatment.

Mental Health Parity and the Affordable Care Act

Under the MHPA and MHPAEA, group health insurance plans were not required to cover mental health care, and mental health parity rules did not apply to small-group plans or individual/family plans.

But the Affordable Care Act (ACA) made some significant improvements in terms of ensuring access to mental health and substance use care. It was signed into law in 2010 by President Barack Obama and its major provisions went into effect in 2014.

The ACA extended the MHPAEA’s parity rules to the individual/family market as of 2014. That means self-purchased plans can’t impose stricter rules, including coverage limits and prior authorization requirements (which allow the insurance company to approve of treatment before you get it), for mental health/substance use coverage than they do for medical/surgical benefits. They also can’t impose higher cost-sharing for those services.

Under the ACA, all individual/family and small-group health plans with effective dates of 2014 or later are required to cover 10 essential health benefits.

Mental health/substance use care is one of the essential health benefits, which means it has to be covered by new individual and small-group plans nationwide, regardless of whether they’re sold in the health insurance exchange or outside the exchange.

Each state sets its own guidelines for exactly what has to be covered under each essential health benefit category. So specific benefit rules do vary from one state to another.

But there are no longer any individual/family plans that simply do not cover mental health care or substance use care unless they’re grandfathered (in effect before 2010) or grandmothered (in effect between 2010 and 2014).

Before the ACA, more than one-third of people with individual/family health plans had no coverage for substance use treatment, and nearly one in five had no mental health benefits at all. Even among plans that included coverage for mental health and substance use care, there were no parity requirements or minimum coverage levels before the ACA.

The essential health benefit rules also extend to the small-group health insurance market. In most states, “small group” means businesses with up to 50 employees, although there are a few states in which the small-group market includes businesses with up to 100 employees.

When small businesses purchase health coverage for their employees, it must include coverage for the essential health benefits, including mental health/substance use care.

It’s important to understand, however, that “covered” does not mean the health plan simply pays for the care. Plan members are responsible for cost-sharing, which includes deductibles, copays, and coinsurance. The specifics vary from one plan to another, but in-network out-of-pocket costs can be as high as $9,450 for a single individual in 2024.

Ongoing Gaps in Mental Health Coverage

The MHPA, MHPAEA, and ACA have made substantial improvements in terms of access to mental health coverage. But there are still people who struggle to access mental health and substance use treatment, even on plans that are regulated under mental health parity laws.

Large-group health plans and self-insured health plans are not required to cover the ACA’s essential health benefits. While these plans do have to follow parity rules if they offer mental health/substance abuse benefits, they are not actually required to offer those benefits at all.

To be clear, most large-group and self-insured plans tend to be robust and do offer coverage for the essential health benefits. An employer’s health plans are an important part of how they recruit and retain employees, and large businesses often compete with one another in offering high-quality health benefits.

But there are no federal rules that require those plans to include mental health or substance use benefits. States can require large-group plans to include coverage for mental health/substance use care, but only if the plan is fully insured.

With fully insured plans, the employer purchases the plan through a commercial insurance company that handles the risk, while with self-insured plans, the employer runs the health plan and assumes financial risk.

The majority of very large employers opt to self-fund (pay employee health claims from their own funds rather than buy insurance for the employees) and self-funded plans are regulated under ERISA (federal law) rather than state laws.

Large groups that self-fund can also opt out of MHPAEA altogether. Again, most self-funded large group health plans tend to be robust, but some are not, particularly in industries with high turnover and low wages.

Mental health parity rules also do not apply to coverage such as:

• Short-term health insurance: Plans that are not ACA-compliant but can be purchased as temporary coverage
• Fixed indemnity coverage: Plans that pay a set amount of money based on the medical service given, regardless of the actual cost of the care. 
• Healthcare sharing ministry plans: Programs where people with a common faith pay monthly to cover the costs of the members’ health care.

These sorts of plans are not regulated by the ACA or the mental health parity rules, which means that they have no specific coverage or parity requirements.

There are also issues with access, even on health plans that do cover mental health and substance use treatment. Mental health professionals are more likely than other specialties to simply not accept health insurance. And provider networks—the number of doctors and medical facilities available to use under the plan—tend to be smaller for mental health care than for other types of medical care.

Summary

For more than a quarter of a century, various mental health parity rules have applied to at least some health plans in the United States. And over time, these provisions have increasingly targeted some of the worst gaps in coverage that previously prevented people from obtaining mental health and substance use treatment.

The Mental Health Parity Act took effect in the late 1990s but didn’t make a substantial difference in the health benefits that most people had. The Mental Health Parity and Addiction Equity Act of 2008 imposed stronger rules and expanded mental health coverage also to include substance use treatment—but there was still no requirement that mental health care be covered on health plans.

The Affordable Care Act further strengthened the rules as of 2014, requiring coverage for mental health/substance use treatment on all new individual and small group plans, with parity rules in place.

Still, millions of Americans don’t have access to affordable mental health or substance use treatment. Some are uninsured, and others have coverage under health plans that don’t cover mental health care or don’t adequately comply with mental health parity rules. Others have health coverage that includes mental health benefits but they’re unable to afford the cost-sharing (deductible, copays, coinsurance) that they’d have to pay to access the benefits.

A Word From Verywell

If you have health coverage in the United States, you likely have coverage for mental health and substance use treatment. And although coverage specifics vary greatly from one plan to another, various rules have been put in place over the last couple of decades to ensure that mental health benefits are covered the same as medical/surgical benefits.

If you feel that mental health parity rules aren’t being followed by your plan, you can reach out to your state’s department of insurance. If your plan is regulated under state law, the staff may be able to provide you with assistance.