[The prepared statement of Dr. Harbin may be found in additional material.]

The CHAIRMAN. Dr. Regier? Is that French?

Dr. REGIER. My wife thought it was when she met me. [Laughter.]

It is actually more of a German pronunciation, Regier.

The CHAIRMAN. Thank you.

Dr. REGIER. Well, Mr. Chairman and other members of the committee, it is my pleasure to join me at this historic meeting. I am Darrel Regier and I am the Executive Director of the American Psychiatric Institute for Research and Education, which is the independent research arm of the American Psychiatric Association. This is the same professional medical society that is responsible for the Diagnostic and Statistical Manual that Senator Frist was speaking about earlier today.

I recently joined this Research Institute after 25 years as Research Director at the National Institute of Mental Health and as an Assistant Surgeon General in the U.S. Public Health Service. While there, I served as the scientific director of four National Advisory Mental Health Council reports to the Senate Appropriations Committee on insurance parity for mental health. These reports on cost, access and quality of treatment have provided a systematic review of results from a decade of research on parity insurance coverage for mental disorders and were referenced earlier by Mr. Flynn. My experience in guiding research on this subject at the NIMH and at the new APIRE Institute forms the basis for my remarks this morning.

If we went back to the mid-1970s and through to the mid-1990s, and looked at employers and insurance companies who wanted to offer better mental health benefits, their fear was that improved benefits could result in use of more mental health services than were needed or were cost-effective. This was the so-called moral hazard effect and risk.

After reviewing all available research on this issue, the NIMH and the Council came to the following conclusions. First, the current baseline treatment costs for mental disorders as a percent of total health care premium costs appear to be lower than they were a decade ago. Both the FEHBP drop from about 8 percent to 2 percent of benefit and mid- to large-size corporate drops from 6 to 3 percent of total benefits over a decade support the fact that the national parity legislation is now starting from a much lower baseline than was present in 1996.

Second, in the context of expanding mental health benefits from several State and private insurance parity initiatives, which was the principal focus of these four Senate reports, the expected large increase in cost did not occur. The examples of Texas, North Carolina, Maryland, and many private insurance plans are summarized in the previous Senate reports.

Now, these findings clearly demonstrate that mental health costs have been controllable, and largely through the rapid expansion of managed behavioral health care. There is now evidence that managed care, in the absence of parity benefits, may result in overly restrictive control and even denial of needed mental health benefits.

For example, a study at Yale University highlighted the negative impact when a national company reduced its mental health benefits by 40 percent through tight management over a 3-year period. This was accompanied by a consequent increase of 40 percent in primary health care expenses, and the company's absenteeism rate jumped 20 percent and its worker productivity experienced a 5-percent decline. Presumed savings from reduced mental health benefits had significant adverse health and disability and productivity consequences that are hidden by just a narrow focus on the cost of the mental health benefit alone.

When many of you were considering the initial versions of the Mental Health Parity Act of 1996, cost estimates for comprehensive parity legislation ranged from a low of 3 percent to an 11-percent increase in overall insurance premiums. However, as Mr. Flynn stated, the latest National Council report estimated an overall 1.4percent increase, and you have just heard the Congressional Budget Office came in with a cost estimate of 1 percent. The 1.4 percent did include substance abuse.

Mr. Flynn also indicated that the strong research base provided to OPM and to the Senate supported the FEHB mental health parity benefit. Importantly, this research and evaluation base is continuing to expand as, at APIRE, we lead an effort among psychiatrists and other mental health professionals to study access and quality of care associated with a new benefit as a complement to the large federally-funded Department of Health and Human Services evaluation.

Also, our entire field is really very grateful to the Robert Wood Johnson Foundation, which convened a conference on May 1 of this year that included virtually all of the major actuaries and health economists from private, academic and government sectors, including the Congressional Budget Office, those who had developed the original cost of parity estimates you had in 1996.

The purpose was to address many of the assumptions and methods underlying current parity cost estimates. A document summarizing the sense of that meeting has just been made available to the committee. This includes findings that demand response to lowered copayments has been far less than predicted, and management has been more powerful in decreasing costs than parity has been in increasing them. Most interestingly, none of the participants could identify an employer or State in the past several years where forecasting models had underestimated the costs of parity policies.

Now, within the already regulated health insurance industry, mental health services have been particularly vulnerable to something that economists call market failure. For example, when parity level mental health benefits were introduced in the FEHB in the 1970s and early 1980s, plans that offered better benefits experienced something called adverse selection, whereby patients with more severe illnesses gravitated into those plans.

The message from this experience was clear: without universal parity insurance coverage, those plans that tried to respond as enlightened facilitators for equal benefits would be penalized by having all patients who needed treatment flood into their plans. This defeated the intended insurance benefit of spreading risk for the

cost of illness over a large population. Parity legislation is an overdue remedy for this form of market failure.

Market forces, assisted by judicious regulations, will continue to be important for controlling costs and improving access and quality of care in the future. Managed care itself is a market response to escalating costs of private hospital inpatient care and some expansion of outpatient care in the 1980s.

Managed behavioral health care companies demonstrated that they could control costs and offer the promise of providing more appropriate care for those who needed it most, shifting power from the consumer demand side to the management supply side of the market.

The new potential for abuse or moral hazard is no longer the use of unneeded care, but the inappropriate denial of needed care as not being medically necessary treatment. Recent market responses continue. They have included some decreases in management because it was not cost-beneficial. Also, increased fees have appeared in some plans to address the shortages of participating physicians. Recent regulatory responses to limited benefits or treatment denials now include parity laws in 34 States and the Patients' Bill of Rights legislation.

The conclusion from experience with this very dynamic market and regulatory environment is that existing management systems can undoubtedly control costs. However, equal access to medically necessary care is unlikely to occur in the absence of parity legislation-a remedy that can prevent costly adverse selection for insurance plans offering state-of-the-art treatment benefits.

However, the most important reason for improving mental health insurance coverage is the one that Senator Frist raised and had been raised by Steve Hyman at the National Institute of Mental Health at the last set of hearings we had, and that is that mental disorders exact a terrible toll on our society that can be greatly reduced by scientifically validated treatments.

The Global Burden of Disease study that Senator Jeffords referenced, issued in the 1990s by the World Bank and World Health Organization, revealed that mental illnesses are the second leading cause of disability and premature death worldwide, second only to heart disease and outstripping the disease burden caused by can

cer.

The Surgeon General's Report on Mental Health reveals that about 20 percent of the population suffer from a diagnosable mental disorder each year, with only a third receiving any treatment by health care providers. The Surgeon General mentioned that more than other areas of health and medicine, this field is plagued by disparities in access to its services.

The receipt of the Nobel Prize by psychiatrist Eric Kandel earlier this year for his work on the molecular basis for understanding the basic cognitive function of memory telegraphed to the world that the scientific basis for understanding mental disorders is accelerating at equal or faster rates than other medical and surgical disorders.

In conclusion, we know that mental disorders are real. They cause high levels of disability; they are treatable and have a rapidly expanding scientific base for understanding causal mecha

nisms and providing effective treatments. We now have compelling evidence that parity insurance coverage for mental disorders is affordable. It addresses a specific market failure and can support cost-effective treatment to reduce disability. The OPM has provided an excellent road map for implementation of parity benefits in the FEHB program, building on past experience and including an evaluation to make necessary adjustments for assuring access and quality of care.

Setting aside the economic and scientific issues for just a moment, I would like to comment as a psychiatric physician who continues to treat patients. For them, mental health parity legislation is seen much like civil rights legislation as an essential first step in recognizing the value of a previously oppressed and often stigmatized minority, namely our patients, our family members, and our fellow citizens with mental disorders.

However, even if such legislation is passed, the right to equal treatment in health care systems, as in the larger society, will only be achieved by careful attention to the implementation of parity and other such rights through an ongoing evaluation of our progress.

The responsibility for addressing the remaining barriers to mental health care for the entire U.S. population rests with you in the Senate. I hope you will find the research base presented today relevant and helpful as you carry out your policymaking task.

Thank you.

The CHAIRMAN. Thank you very much for really very powerful testimony, it was enormously helpful.

[The prepared statement of Dr. Regier may be found in additional material.]

The CHAIRMAN. Let me go through these questions.

For Ms. Cohen, it is my understanding you live in New Jersey, which also has a law requiring full parity for biologically-based illness. Doesn't the State law already require that you receive equal coverage for your two illnesses?

Ms. COHEN. Yes, Senator, thanks for asking. You are right. I do live in New Jersey, and in 1999 then-Governor Whitman did pass the law that did give full parity for mental illness. However, I work in Pennsylvania and my employer isn't bound by New Jersey statutes.

Pennsylvania also has a law and that was enacted in 1998, and that provides some coverage for mental illness which includes minimal coverage for inpatient and outpatient care. While this mental health mandate doesn't equalize copayments, the benefits that it does offer are additionally limited in that Pennsylvania law exempts employers with 50 or fewer employees. My current employer has 47 employees, and so therefore I am not protected by Federal law, I am not protected by Pennsylvania law, and I don't come under New Jersey law.

As you stated in your opening statement, Senator Kennedy, nobody should be subjected to inequality because of where they happen to live, and the legislation that Senator Wellstone and Senator Domenici propose would correct this inequity. If the exemption was lowered to 25 or fewer employees, my coworkers and I would have fair coverage for both our physical and mental illnesses. I would be

able to get coverage for my blood disorder and my depression, and I would be covered equally by my insurer. That would mean that I would have access to health care and greater peace of mind.

The CHAIRMAN. What do you think your life would have been like if you didn't have mental health services?

Ms. COHEN. If I didn't have them?

The CHAIRMAN. Yes.

Ms. COHEN. I don't think I would have managed to have a job. I think I would have had to have been on Medicaid. I am sure I would not have graduated college. I am sure that I would not have managed to almost be a social worker, which I will be next year. Actually, I do have a number of friends who were not able to have the support of their family or the means on their own to get the mental health services that they need, and they have been in the predicament where over the last 10 years they haven't been able to get the services they need or they have had to rely on Medicaid themselves. The predicament for them has been very, very difficult, so I would have seen myself very similar to them, which has been without a job and basically barely managing and spending more time in the hospital without the care that they need.

The CHAIRMAN. Well, we can talk about it, but you live it and I think you give a very fair kind of assessment about mental illness. I think that is important for us to understand. Too often around here, we understand the cost of things without understanding the value, and I think we are hearing all that again today. I thank you very much for your presence and your statement, and for pointing out these disparities.

We will hear a lot-and we won't get into it now-about how the States are implementing parity and that sort of thing. We are not trying to replace the State activities where they are doing a good job. We are really trying to establish a floor-a basic kind of floor. If States want to enact additional protections, they ought to be able to do so. We have run into this argument in other public policy questions as well.

Let me ask you, Dr. Harbin—and you have been very eloquent and a very powerful speaker-just as a side bar, did you support the Patients' Bill of Rights or did your organization oppose it?

Dr. HARBIN. We didn't take a stand on it.

The CHAIRMAN. I was just interested.

Dr. HARBIN. We did support aspects of it.

The CHAIRMAN. Having listened to you on this issue, I was kind of interested in your opinion.

We are going to find out about the impact on large and small employers in rural, urban and suburban areas. That is enormously important. You also have other comments about how the cost estimates don't take into account the savings achieved by the employers in terms of having a healthier and more productive workforce. I don't know how we get that. We say it, we State it. It ought to be self-evident. It is implicit; it ought to be explicit. I don't know how else we can deal with it, but it is powerful. I don't know what you think is the best way of trying to persuade our colleagues on this issue.

Dr. HARBIN. Partly, it is difficult to measure-maybe Dr. Regier would have a comment on this, too-because very few people have