Awaiting Obamacare, Warily

THE first time Melissa Morelli was taken to the hospital, she was suicidal and cutting herself, her mother says. She was just 13, and she had been transferred to a psychiatric hospital, where she stayed for more than a week. Her doctors told her mother, Cathy Morelli, that it was not safe for Melissa to go home. But the family’s health insurance carrier would not continue to pay for her to remain in the hospital.

The second time, the same thing happened. And the third and the fourth. Over the course of five months, Ms. Morelli took Melissa to the hospital roughly a dozen times, and each time the insurance company, Anthem Blue Cross, refused to pay for hospital care. “It was just a revolving door,” Ms. Morelli said.

“You had not been getting better in a significant way,” Anthem explained in one letter sent directly to Melissa, then 14, in July 2012. “It does not seem likely that doing the same thing will help you get better.”

Desperate to get help for her daughter, Ms. Morelli sought the assistance of Connecticut state officials and an outside reviewer. She eventually won all her appeals, and Anthem was forced to pay for the care it initially denied. All told, Melissa spent nearly 10 months in a hospital; she is now at home. Anthem, which would not comment on Melissa’s case, says its coverage decisions are based on medical evidence.

Melissa’s treatment did not come cheap: it ultimately cost hundreds of thousands of dollars, Ms. Morelli said. Patients often find themselves at odds with health insurers, but the battles are perhaps nowhere so heated as with the treatment of serious mental illness.

It was not supposed to be this way. A federal law, the Mental Health Parity and Addiction Equity Act of 2008, was aimed at avoiding fights like this over coverage by making sure insurers would cover mental illnesses just as they cover treatment for diseases like cancer or multiple sclerosis.

Long a priority of Senator Edward M. Kennedy of Massachusetts, it was squeezed into a bank bailout bill with the help of Christopher J. Dodd, then a Democratic senator from Connecticut, after Mr. Kennedy learned that he had brain cancer, which turned out to be fatal. The law requires larger employer-based insurance plans to cover psychiatric illnesses and substance-abuse disorders in the same way they do other illnesses.

But five years after President Obama signed the law, there is widespread agreement that it has fallen short of its goal of creating parity for mental health coverage.

As enrollment in coverage under the Affordable Care Act becomes available on Tuesday, the rules underlying mental health coverage in general — for both private insurers and the new health care exchanges — are still unclear, mental-health patient advocates say, leaving patients and families to grind through the process as best they can.

DECIDING how mental illness should be treated — and at what cost — is no easy matter. Unlike some physical ailments for which there are reams of studies suggesting a relatively clear standard of care, there is often little accepted medical evidence to support the range of treatments for many mental illnesses, like schizophrenia and severe depression.

“It’s very different from the approach to a bypass procedure or a hip replacement,” said Karen Ignagni, the C.E.O. of America’s Health Insurance Plans, a trade association representing the nation’s health insurers.

At issue is not coverage for run-of-the-mill care like prescription medications for depression or a few visits with a therapist. Insurers generally cover these costs the same way they cover medications for, say, high blood pressure.

But when patients need months of residential care, for example, or meetings with a therapist several times a week, insurers balk. The insurance executives say that the medical benefits of such treatments are not clear and that the industry is essentially being asked to write a blank check.

 Mental health accounts for a small part of total health care spending — by one estimate, $113 billion annually, or less than 6 percent of the $2.6 trillion overall health care bill. But pressure is intensifying on insurers under the Affordable Care Act, which includes mental heath care as an essential benefit, because they are already trying to keep the premiums they charge for plans on the new state marketplaces as low as possible. Insurers are concerned about the potential for new costs, while patient advocates worry that mental health will be neglected.

Both sides say Washington is partly to blame. The federal government has yet to write the mental health act’s final regulations for insurance companies, leaving a crucial gap between the intent of the measure and how it actually works.

Senator Kennedy’s son, Patrick J. Kennedy, the former congressman from Rhode Island who was one of the law’s main backers, said he worried that the Obama administration had delayed the rules because officials were preoccupied with the president’s broader legislation and needed the insurance companies’ support.

President Obama “needs the private insurers to implement this law or it’s not going to work,” said Mr. Kennedy, who has talked openly about his struggles with depression and bipolar disorder. He has held hearings on mental health issues across the country to talk to patients and their families, including one earlier this year where Cathy Morelli spoke.

Insurance companies, for their part, say they would welcome final rules under the 2008 law.

“We think it may create better clarity,” said a spokeswoman for Aetna, which says it fully supports the 2008 parity law.

Economic View: For Obamacare to Work, Everyone Must Be In

These may seem to be reasonable positions. But they are incompatible. That’s been shown by historical events, and it’s now being strikingly confirmed by recent experience in the emerging Obamacare insurance exchanges.

The crux of the matter is what economists call the adverse-selection problem. Uninsured people with pre-existing conditions often face tens or even hundreds of thousands of dollars in out-of-pocket medical costs annually. If insurers charged everyone the same rate, buying coverage would be far more attractive financially for people with chronic illnesses than for healthy people. And as healthy policyholders began dropping out of the insured pool, it would become increasingly composed of sick people, forcing insurers to raise their rates.

But higher rates make insurance even less attractive for healthy people, causing even more of them to drop out. Before long, coverage would become too expensive for almost everyone.

The adverse-selection problem explains why almost no countries leave health care provision to unregulated private insurance markets. It also predicts that requiring private insurance companies to charge the same rates to everyone will make it prohibitively expensive for most people to buy individual health insurance.

In the 1990s, lawmakers in New York State enacted just such a requirement, and the result was exactly as predicted. Rates for individual policies soared, making New Yorkers’ insurance among the most expensive in the nation. Now, rates quoted under the Obamacare exchanges place individual policies within reach for millions of New Yorkers. New York City residents who had been paying $1,000 a month for individual policies in the earlier environment, for example, will now be able to purchase similar coverage on the Obamacare exchanges for slightly more than $300 a month.

What’s changed? Insurers are able to offer more reasonable rates because the individual mandate — the requirement in Obamacare that everyone buy insurance or face financial penalties — is ensuring a high proportion of healthy people in the insured pool.

Early quotes for individual policies on the exchanges in several other states have exhibited a similar pattern. That’s true in California, for example, and in Maryland, the latest state to report, rates now compare favorably with those in employer group plans.

Despite this experience, many in Congress want to repeal the individual mandate. Some, such as Senator Marco Rubio of Florida, have even threatened to shut down the government unless Obamacare is repealed entirely.

What alternatives are there? One way of avoiding the adverse-selection problem would be to re-emphasize traditional employer-provided health plans. Adverse selection is less serious under such plans, because the favorable tax treatment they receive requires insurers to cover all employees irrespective of pre-existing conditions. (Insurers can meet the requirement because most people employed in any company are reasonably healthy.)

But Obamacare was enacted precisely because employer plans fell short in many other ways. Millions of people, for example, are ineligible for such plans because they don’t have jobs. And millions of others with chronic health problems are trapped in their current jobs, because leaving them would mean losing coverage.

Employer plans arose in the first place only because of a loophole created by wage controls during World War II. In an effort to curb the costs of the war effort, the government prohibited wage increases but, perhaps by oversight, did not prevent employers from offering additional fringe benefits as a way to combat labor shortages. Employer health plans proved an especially effective recruiting tool and had the additional advantage of not being taxed as implicit income.

BUT if universal access to health care is the goal, employer plans are not the solution. Because global competition has increased pressure to cut costs, the number of workers with such plans has been steadily declining for more than 40 years.

The challenge was to design a new system that could cover the more than 50 million Americans without health insurance. The Medicare-for-all proposal favored by many health economists was one approach that the administration considered.

But that approach would have required Americans to abandon their existing employer plans for something new and unfamiliar. In the light of survey evidence that most Americans were reasonably satisfied with their existing plans, it’s hard to second-guess President Obama’s conclusion that this step would have been politically infeasible.

The only remaining option was to supplement existing employer plans with regulated private insurance markets. This approach had been carried out successfully in Switzerland, and in Massachusetts under Mitt Romney when he was governor. Individual mandates were an essential ingredient of that strategy. And given that many people could not afford to purchase insurance, it was also necessary to include subsidies for low-income buyers.

Obamacare, in any event, is now the law of the land. Even its most ardent supporters concede that the program will need to be amended as experience accumulates. But evidence from the emerging insurance exchanges vindicates the basic policy choices underlying the legislation.

We must ask those who would repeal Obamacare how they propose to solve the adverse-selection problem. That problem is not an abstraction invented by economists to justify trampling individual liberties. As experience in most countries around the world has confirmed, it is a profound source of market failure that renders unregulated insurance markets a catastrophically ineffective way of providing access to health care.

Robert H. Frank is an economics professor at the Samuel Curtis Johnson Graduate School of Management at Cornell University.