The Costs of Parity for
Substance Abuse Treatment
Employment-based health insurance plans typically provide less coverage for mental health and substance abuse services than for medical/surgical services. Some states and the federal government, and some employers, have begun to require that mental health and/or substance abuse treatment be covered in the same way as other medical care. This concept is known as "parity."
The Need for Treatment
In 2002, the estimated number of persons aged 12 or older needing treatment for an illicit drug problem was 7.7 million (3.3 percent of the total population). Of these persons, 1.4 million (18.2 percent) received treatment for drug abuse at a specialty substance abuse facility.1 The societal cost of drug abuse in the United States was $143.4 billion in 1998. The majority of these costs are productivity losses, particularly those related to incarceration, crime careers, drug abuse related illness, and premature death.2
Writing in the Journal of the American Medical Association, addiction researchers conclude drug dependence has much in common with chronic illnesses such as diabetes, hypertension and asthma, and should be insured, treated and evaluated in a like manner. Additionally, the article states that while many physicians believe there are no effective interventions for addiction, the research says otherwise, especially when outcomes are compared with type 2 diabetes, hypertension and asthma, diseases "well studied and are widely believed to have effective treatments, although they are not yet curable."3
In a study of 3,729 alcoholics, a time series analysis revealed that total health care costs of treated alcoholics decreased by 23%, to 55% of their highest pretreatment levels. In contrast, the costs rose for individuals who had been identified but who had not been treated for alcoholism.4 An extensive body of federally funded research shows that with treatment, primary drug use decreases by nearly half. In addition, reported alcohol and drug-related medical visits decline by more than 50%, criminal activity decreases and financial self-sufficiency improves (e.g. employment increases, and welfare receipt and homelessness decline.).5
Cost of Parity
Cost estimates of "full substance abuse parity" to "typical" benefit plans range from an increase in premium rates of $0.14 per member/month for health care plans to $1.35 per member for fee-for-service plans. The estimated composite increase in premium rates is $0.66 per member per month, or less than $8 per year.6
On average, full parity of mental health and substance abuse treatment is estimated to increase premiums by 3.6% based on an actuarial model. Health maintenance organizations that tightly manage care would have a 0.6% premium increase for full parity for mental health and substance abuse services.7
A study of employer-paid health plans with mental health and substance abuse treatment "carve-outs" (where mental health and substance abuse care is administered separately) shows removal of a $10,000 annual limit on substance abuse care increases costs by only 6 cents per member/year, and removing a $1,000 annual limit increases costs by about $3.40. Thus, separating substance abuse care from mental health care does not provide substantial cost savings, and may impede treatment for clients diagnosed with mental health and substance abuse problems. An additional negative effect of inadequate substance abuse treatment coverage is the likelihood that clients will leave or discontinue substance abuse treatment early, thus lowering positive outcomes.8
1 Substance Abuse and Mental Health Services Administration, Overview of Findings from the 2002 National Survey on Drug Use and Health, September 2003.
2 Office of National Drug Control Policy, The Economic Costs of Drug Abuse in the United States, 19921998 (PDF), September 2001.
3 The Journal of the American Medical Association, Drug Dependence, a Chronic Medical Illness: Implications for Treatment, Insurance, and Outcomes Evaluation, October 2000.
4 Substance Abuse and Mental Health Services Administration, Worksite Health Care Costs/Claims, March 1999.
5 Substance Abuse and Mental Health Services Administration, National Treatment Improvement Evaluation Study, 1999.
6 Milliman & Robertson, Inc. for The Coalition for Nondiscriminatory Coverage of Addiction Treatment Premium Estimates for Substance Abuse Parity for Commercial Health Insurance Products, September 1997.
7 Substance Abuse and Mental Health Services Administration, The Cost and Effects of Parity for Mental Health and Substance Abuse Insurance, March 1998.
8 Journal of Behavioral Health Services and Research, How Expensive are Unlimited Substance Abuse Benefits under Managed Care?, May 1999.
Last Updated: April 8, 2004