Private Health Insurance: Access to Individual Market Coverage	 
May Be Restricted for Applicants with Mental Disorders		 
(28-FEB-02, GAO-02-339).					 
								 
Five percent of adults suffer from serious mental disorders.	 
Although health insurance carriers in a few states guarantee	 
coverage for mental health treatment, in most states individuals 
with mental disorders may face restrictions in purchasing health 
insurance for themselves and their families in the individual	 
insurance market. Eleven states require carriers to accept all	 
applicants regardless of health status, but coverage options	 
vary. Eight of these 11 states require all carriers to guarantee 
access to coverage sold in this market. In three states, laws	 
apply only to some carriers, such as Blue Cross and Blue Shield, 
or certain periods of the year. Carriers in nine of the 11 states
are also required to limit the extent to which premium rates vary
between healthy and unhealthy individuals. In states without	 
guaranteed coverage in the individual market, the seven carriers 
GAO reviewed would likely deny coverage more frequently for	 
applicants with mental disorders than for applicants with other  
chronic health conditions. Specifically, for six mental disorders
of generally moderate severity, carriers said that they would	 
likely decline applicants 52 percent of the time. State-sponsored
high-risk pools are the primary coverage option available to	 
rejected applicants in most states. In 27 of the 34 states where 
carriers may deny coverage to applicants with mental disorders or
other health conditions, high-risk pools offer coverage to	 
applicants denied individual market coverage. The pools are	 
subsidized--generally through assessments on carriers or state	 
tax revenues--and premium rates are generally capped at 125 to	 
200 percent of standard rates for healthy individuals. Health	 
benefits available under the pools are generally comparable to	 
those available in the individual market, including similar	 
restrictions on mental health benefits; however, benefits for	 
mental disorders or other health conditions are not permanently  
excluded as they may be in the individual insurance market.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-339 					        
    ACCNO:   A02819						        
  TITLE:     Private Health Insurance: Access to Individual Market    
Coverage May Be Restricted for Applicants with Mental Disorders  
     DATE:   02/28/2002 
  SUBJECT:   Health insurance					 
	     Insurance premiums 				 
	     Insurance regulation				 
	     Mental illnesses					 

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GAO-02-339
     
Report to Congressional Requesters

United States General Accounting Office GAO

February 2002 PRIVATE HEALTH INSURANCE

Access to Individual Market Coverage May Be Restricted for Applicants with
Mental Disorders

GAO- 02- 339

Page i GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders Letter 1 Results in Brief 3

Background 4 In A Minority of States, Individual Market Carriers Guarantee

Access to Coverage 8 In Other States, Applicants with Mental Disorders May
be More Likely to be Denied Coverage 11

High- Risk Pools Are the Primary Source of Coverage for Applicants with
Mental Disorders Who Are Denied Coverage 19 Concluding Observations 21
Comments From External Reviewers 21

Appendix I Scope and Methodology 25

Appendix II GAO Contact and Staff Acknowledgments 27

Related GAO Products 28

Tables

Table 1: Prevalence of Selected Mental Disorders among Adults during a 1-
Year Period 5 Table 2: States that Require Carriers to Guarantee Access to
Coverage 10

Table 3: States in Which Certain Carriers Voluntarily Guarantee Access to
Coverage 11 Table 4: Likely Underwriting Decisions of Seven Carriers for

Hypothetical Applicants with Selected Mental Disorders 13

Figures

Figure 1: Seven Carriers More Likely to Deny Coverage to Applicants with
Selected Mental Disorders 15 Figure 2: Seven Carriers? Likely Underwriting
Decisions for

Applicants with Selected Health Conditions 17 Contents

Page ii GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders Abbreviations

APA American Psychiatric Association BCBSA Blue Cross and Blue Shield
Association COBRA Consolidated Omnibus Budget Reconciliation Act HIAA Health
Insurance Association of America

HIPAA Health Insurance Portability and Accountability Act of 1996 HIV human
immunodeficiency virus HMO Health Maintenance Organization NAMI National
Alliance for the Mentally Ill

Page 1 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

February 28, 2002 The Honorable Richard Durbin Chairman Subcommittee on
Oversight of Government Management, Restructuring, and the District of
Columbia Committee on Governmental Affairs United States Senate

The Honorable Edward M. Kennedy Chairman Committee on Health, Education,
Labor, and Pensions United States Senate

About 19 percent of American adults suffer from some type of mental disorder
each year. Most are nonsevere in nature but about 5 percent of adults have
serious mental disorders. While many of these adults have access to
employer- sponsored group health coverage or public programs such as
Medicare or Medicaid, some without such coverage may seek to purchase health
insurance directly in the individual market. This market provided about 12.6
million Americans with their sole source of health coverage in 2000. States
are the primary regulators of individual health insurance, and most states
allow individual market insurance carriers to medically underwrite- that is,
evaluate applicants? health status and

possibly deny coverage, offer more limited benefits, or charge higher
premiums to applicants with any health condition, including mental
disorders. Because of concerns that individuals with mental disorders may
face problems obtaining coverage for themselves and their families in the
individual health insurance market, you asked us to examine carriers?
underwriting practices in this market segment. In particular, you asked us

to examine the following questions: 1. To what extent do states require
individual market carriers to

guarantee access to coverage and limit premiums for applicants and their
families with mental disorders?

2. How do individual market carriers? coverage and premium decisions affect
applicants with mental disorders, and how do these decisions compare to
those for applicants with other chronic health conditions?

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

3. When denied coverage, what other health insurance options are available
to those with mental disorders? To determine the extent to which states
require carriers to guarantee

access to coverage and the coverage options available to declined applicants
in states without guaranteed access, we reviewed published summary data on
insurance laws and programs to provide coverage for applicants denied
individual market coverage in all of the states, including the District of
Columbia. 1 We discussed state insurance laws and regulations with
regulators in 6 states- California, Connecticut, Georgia, Illinois,
Mississippi, and Montana- that are among the states in which

carriers are not required to guarantee access to coverage in the individual
market. We also interviewed health insurance agents in each of these states
to discuss their experiences finding health insurance coverage for
applicants with mental disorders.

To identify health insurance carrier practices related to coverage and
premium decisions, we interviewed or obtained data from seven large health
insurance carriers regarding their health plans and underwriting practices.
Although we cannot generalize the practices of these seven carriers to all
individual market carriers, the seven carriers collectively insure more than
10 percent of all individual market enrollees and sell coverage in most of
the states in which carriers are permitted to medically

underwrite. We examined the underwriting practices of the seven carriers for
hypothetical applicants with one of six mental disorders and 1 of 12 other
chronic health conditions. We selected the six mental disorders

based on their prevalence- each affects over 1 million Americans- and we
selected the 12 other chronic health conditions based on certain clinical
characteristics they share in common with the mental disorders. We also
analyzed 1997 health care cost and utilization data from the Medical
Expenditure Panel Survey, a national survey administered by the Department
of Health and Human Services. We conducted our work from July 2001 through
February 2002 according to generally accepted

government auditing standards. Appendix I provides more details about our
scope and methodology, and a list of related GAO products is included at the
end of this report. 1 Throughout the remainder of this report, the District
of Columbia is included as a state.

Page 3 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

While in a minority of states health insurance carriers guarantee access to
coverage for individuals with mental disorders, in most states individuals
with mental disorders may face restrictions in purchasing health insurance
for themselves and their families in the individual insurance market. Eleven
states require carriers to accept all applicants regardless of health
status. Coverage options vary, however. Eight of these 11 states require all
carriers to guarantee access to coverage sold in this market. In 3 states,
laws apply only to certain carriers, such as Blue Cross and Blue Shield
plans, or certain periods of the year. Carriers in 9 of the 11 states are
also required to limit the extent to which premium rates may vary between

healthy and unhealthy individuals. The extent of premium rate regulation
varies, ranging from pure community rating- where everyone pays the same
premium- to rate bands that allow limited variation in rates for differences
in individuals? health status and other factors, such as age, gender, or
geography. In 6 additional states, carriers voluntarily guarantee access to
coverage in the individual market and 3 of these also use

community rating to establish premiums. In the remaining 34 states, carriers
are permitted to deny coverage to applicants with mental disorders or other
health conditions, and may deny coverage to applicants that are at higher-
than- average risk to minimize claims costs and keep premiums more
affordable for others. In states without guaranteed coverage in the
individual market, the seven carriers we reviewed would likely deny coverage
more frequently for applicants with selected mental disorders than for
applicants with other selected chronic health conditions. Specifically, for
six mental disorders of generally moderate severity, carriers indicated that
they would likely

decline applicants 52 percent of the time. While these carriers?
underwriting decisions varied depending on the mental disorder and specific
characteristics of the applicant, most of the carriers would likely deny
coverage to applicants with posttraumatic stress disorder, schizophrenia,
manic depressive and bipolar disorder, or obsessivecompulsive disorder, and
several would likely deny coverage to applicants with chronic depression. In
comparison, for 12 other chronic health

conditions of generally moderate severity- such as hypertension or diabetes-
carriers indicated that they would likely decline applicants 30 percent of
the time. In most instances in which coverage would likely be

offered to applicants with either the selected mental disorders or other
chronic health conditions, premiums would be higher and/ or benefits would
be restricted- for example, benefits specifically for treatment of the
disorders or conditions could be permanently excluded. Some carrier
officials said that mental disorders have greater variability and
unpredictability in their associated costs, contributing to the decision to
Results in Brief

Page 4 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

deny coverage to applicants with these conditions. However, our analysis
showed similarly wide variability in total health care costs between the
selected mental disorders and the selected other chronic disorders.

State- sponsored high- risk pools are the primary coverage option available
to rejected applicants in most states. In 27 of the 34 states where carriers
may deny coverage to applicants with mental disorders or other health
conditions, high- risk pools offer coverage to applicants denied individual
market coverage. The pools are subsidized- generally through

assessments on carriers or state tax revenues- and premium rates are
generally capped at 125 to 200 percent of standard rates for healthy
individuals. Health benefits available under the pools are generally
comparable to those available in the individual market, including similar
restrictions on mental health benefits; however, benefits for mental
disorders or other health conditions are not permanently excluded as they
may be in the individual insurance market. Applicants have occasionally had
to wait before receiving risk pool coverage when additional enrollment would
exceed budget constraints set for the state- subsidized risk pools. However,
in the 7 states that do not require carriers to

guarantee access to coverage and do not have high- risk pools, most
applicants without prior group coverage may have few, if any, alternatives.
Representatives of the American Psychiatric Association, the Blue Cross

and Blue Shield Association, the Health Insurance Association of America,
and the National Alliance for the Mentally Ill provided comments on a draft
of this report, which we incorporated as appropriate.

About 19 percent of the nation?s adults and 21 percent of youths ages 9 to
17 have mental disorders at some time during a 1- year period. Among adults,
about 5 percent have severe mental disorders, and nearly 3 percent have
mental disorders that are both severe and persistent. 2 Mental disorders
include a wide range of specific conditions of varying

prevalence. For example, chronic mild depression and major depressive
disorders collectively affect about 10 percent of all adults during a 1-
year period, and attention deficit/ hyperactivity disorder affects about 4
percent

2 U. S. Department of Health and Human Services, Mental Health: A Report of
the Surgeon General (Rockville, Md.: National Institute of Mental Health,
1999). Background

Page 5 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

of youths age 9 to 17 during a 6- month period. 3 Table 1 indicates the
prevalence of selected mental disorders, each of which affects more than 1
million adults in a given year.

Table 1: Prevalence of Selected Mental Disorders among Adults during a 1-
Year Period Disorder Number with disorder (in millions) Percentage of adult

population

Chronic, mild depression 10.9 5.4 Major depressive disorder 9.9 5.0
Posttraumatic stress disorder 5.2 3.6 Obsessive- compulsive disorder 3.3 2.3
Bipolar disorder 2.3 1.2 Schizophrenia 2.2 1.1

Note: For posttraumatic stress and obsessive- compulsive disorders, adults
are defined as individuals ages 18 to 54. Otherwise, adults are defined as
individuals 18 or older. Source: The National Institute of Mental Health,
The Numbers Count: Mental Disorders in America,

NIMH Publication No. 01- 4584 (Bethesda, Md.: NIMH, January 2001). http://
www. nimh. nih. gov/ publicat/ numbers. cfm (downloaded on May 22, 2001).
Health insurance is an important factor influencing whether individuals with
mental disorders have access to treatments that can be effective in
diminishing the symptoms of disorders and improving patients? quality of
life. Absent treatment, according to the surgeon general, many individuals

with mental disorders may suffer increased incidents of lost productivity,
unsuccessful relationships, and significant distress and dysfunction.
Untreated mental disorders among adults can also have a significant and
continuing effect on children in their care.

Although the majority (68 percent) of Americans under age 65 have employer-
sponsored group coverage, a significant minority (5 percent, or 12.6
million) relied on private, individual health insurance as their only source
of coverage in 2000. 4 Individuals with certain labor force or demographic
characteristics are more likely to depend on individual

3 See the National Institute of Mental Health, The Numbers Count: Mental
Disorders in America, NIMH Publication No. 01- 4584 (Bethesda, Md.: NIMH,
January 2001). http:// www. nimh. nih. gov/ publicat/ numbers. cfm
(downloaded on May 22, 2001). 4 This information is based on our analysis of
the March 2001 Current Population Survey. Many Americans Rely on

the Individual Health Insurance Market

Page 6 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

coverage than the general population. For example, 14 percent of workers in
agriculture, forestry, and fisheries, and 19 percent of the self- employed,
relied exclusively on individual health coverage in 2000. Moreover, the
individual insurance market is an important source of coverage for early
retirees- people in their fifties and early sixties who are not yet eligible
for Medicare. About 13 percent of retirees between 50 and 64 had individual
health insurance as their sole source of coverage in 2000.

Moreover, federal and state laws provide certain guarantees for eligible
individuals moving from group to individual coverage. Portability provisions
established by the Health Insurance Portability and Accountability Act of
1996 (HIPAA) guarantee access to coverage for certain individuals leaving
qualified group coverage. To implement these portability requirements,
states adopted different approaches, typically including guaranteed coverage
by individual market carriers or enrollment in a state high- risk pool. 5 To
be HIPAA- eligible, individuals must meet

certain requirements, including exhausting any group continuation coverage
available under the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA) or state law. 6 Important differences exist between the individual
and group health insurance markets. Unlike employer- sponsored group
coverage, where

eligibility in a group is guaranteed by federal and state laws and premiums
are generally based on the risks associated with a group of beneficiaries,
eligibility and initial premiums in the individual markets of many states
are based largely on an individual?s health status and risk characteristics.
7 Also, unlike group markets, in which employers generally subsidize

premiums, individuals must pay the full cost of their health insurance 5
Pub. L. No. 104- 191, title I, 110 Stat. 1936, 1939. 6 29 U. S. C. 1161-
1169 (1994). COBRA provided that group health plans covering 20 or more
workers must offer 18 to 36 months of continued health coverage at generally
no more than 102 percent of the total premium, to former employees and their
dependents in certain circumstances, such as when an employee is terminated,
quits, or retires. Some states provide other options to help individuals
extend group coverage or convert from a group to an individual policy when
no longer eligible for group coverage.

7 Under provisions established by HIPAA, group health plan issuers may not
exclude a member within the group from coverage on the basis of the
individual?s health status or medical history. Similarly, the benefits
provided, premiums charged, and contributions to the plan may not vary for
similarly situated group plan enrollees on the basis of health status or
medical history. The Individual Health

Insurance Market Differs from the Group Market

Page 7 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

premiums. 8 Finally, while both federal and state governments regulate group
coverage, individual coverage is regulated almost exclusively at the state
level.

Individual market carriers are concerned about the potential for adverse
selection. Adverse selection occurs when people who believe they are healthy
refrain from purchasing individual market coverage because of its high cost
and unsubsidized nature. If healthy people refrain from purchasing coverage,
high- risk individuals may make up a disproportionate share of those seeking
to purchase individual coverage, causing claims costs to rise. Carriers may
then need to raise premiums to compensate. Responding to the higher
premiums, healthier members of the pool may disenroll, resulting in an
increasing spiral of higher risks and

higher costs. To mitigate the potential for adverse selection, carriers in
most states are permitted to use medical underwriting- that is, evaluate the
health status and risk characteristics of each applicant and make coverage
and premium decisions based on that information.

Although both group and individual market health insurance plans generally
include greater restrictions on mental health benefits than on benefits for
other services, these restrictions are usually greater among individual
market plans. Where not precluded by law, restrictions on mental health
benefits can include (1) lower annual or lifetime dollar limits on what the
plan will pay, (2) lower service limits, such as fewer covered hospital days
or outpatient office visits, and (3) higher cost sharing, such as
deductibles, copayments, or coinsurance. A typical group or individual
health plan, in the absence of a requirement that mental health benefits and
other benefits be equal, might cover unlimited hospital

days and outpatient visits, pay 80 percent of covered services, and impose a
lifetime limit of $1 million for other benefits. However, for mental health
benefits, a typical group plan might cover only 30 hospital days and 20
outpatient visits per year, pay only 50 percent of covered services, and
impose a $50, 000 lifetime limit. Among individual market plans, if offered

coverage, an individual may typically face even greater restrictions on
mental health benefits, such as a lifetime dollar limit of $10,000 or an
annual dollar limit of $3,500. Moreover, some individual market carriers 8
Under current tax law, individuals may be able to claim an itemized
deduction for health insurance premiums to the extent that premiums and all
other out- of- pocket health care

expenses exceed 7. 5 percent of adjusted gross income. Also, self- employed
individuals may be able to deduct 60 percent of health insurance expenses,
and this share is scheduled to rise to 100 percent in 2003. 26 U. S. C. sect.
162( l) (Supp. IV 1998).

Page 8 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

may offer no benefits for outpatient care, such as visits to a mental health
professional; may offer mental health benefits only under a separate policy
at an increased cost; or may not offer any benefits for mental health
treatment. Federal and state laws have begun to partially equalize benefit
levels, although few of the laws apply to individual market plans. The
Mental Health Parity Act of 1996 prohibited certain group plans from
imposing

annual or lifetime dollar limits on mental health benefits that are more
restrictive than those imposed on other benefits, although provisions did
not place restrictions on other plan features such as hospital day or
outpatient visit limits. 9 The provisions apply only to group plans
sponsored

by employers with more than 50 employees and do not apply to coverage sold
in the individual market. Several states have passed laws that exceed the
federal law by requiring that plans not only require parity in dollar
limits, but also in service limits and cost sharing provisions. However,
most of these state laws apply to group coverage and not individual

coverage. As of March 2000, only 10 states required that mental health
benefits be on a par with other benefits for all coverage sold in the
individual market. 10 Access to the individual insurance market for persons
with mental

disorders or other health conditions depends largely on the insurance laws-
and in limited instances, carrier practices- in their states. In 11 states,
laws require that individuals with mental disorders or other health
conditions be guaranteed access to coverage, regardless of health status.

In 8 of the 11 states, all carriers participating in the individual market
must guarantee access to at least one product to all applicants. In the
remaining 3 states only certain carriers, such as health maintenance
organizations (HMO) or Blue Cross and Blue Shield plans, guarantee access to
coverage

9 Pub. L. No. 104- 204, title VII, 110 Stat. 2847, 2944 (codified at 29 U.
S. C. 1185a). 10 Specifically, at our request for a prior report the
National Conference of State Legislatures? Health Policy Tracking Service
summarized state laws on mental illness coverage. This summary identified
laws in 10 states that require individual market carriers to provide mental
health benefits equal to other benefits for inpatient and outpatient

services, deductibles, copayments , and coinsurance. These states generally
define mental health benefits as those for mental disorders that are severe,
serious, or biologically based. For more information, see U. S. General
Accounting Office, Mental Health Parity Act:

Despite New Federal Standards, Mental Health Benefits Remain Limited,

GAO/ HEHS- 00- 95 (Washington, D. C.: May 10, 2000). In A Minority of
States, Individual

Market Carriers Guarantee Access to Coverage

Page 9 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

to all applicants. For example, in Michigan, state law requires the Blue
Cross and Blue Shield plan to guarantee access to coverage for all
applicants, and in Maryland, HMOs are required to have an open enrollment
period every 6 months during which all applicants must be accepted
regardless of health status.

In 9 of the 11 states in which carriers are required to guarantee access to
individual market coverage, carriers must also limit the extent to which
premium rates vary between healthy and unhealthy applicants and thereby
improve the affordability of coverage for high- risk individuals. Rate
restrictions generally fall into two categories known as community rating

or rate bands. Carriers in 6 of the 9 states use community rating. Under
pure community rating, carriers set premiums at the same level for all
enrollees, regardless of health status or demographic factors. Under
adjusted community rating, limited adjustments are made for certain
demographic factors, such as age, gender, or geographic location, but

generally not for health status. For example, Maine permits premium rates to
vary by no more than 20 percent above or below the standard rate for certain
demographic factors, including age. Three of the 9 states require carriers
to use rate bands to reduce the variation in premiums. Like adjusted
community rating, rate bands permit limited adjustments from a base rate,
but typically provide for a greater number of adjustments, including for
health status, and a greater degree of variation in premium rates. For
example, Idaho allows carriers to vary premiums by up to 25 percent above or
below the standard rate for health status. Table 2 indicates the states in
which carriers are required guarantee access to coverage and whether they
are also required to limit the variation in premium rates.

Page 10 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

Table 2: States that Require Carriers to Guarantee Access to Coverage State

Guaranteed issue - all

carriers Guaranteed

issue - certain carriers Community rating Rate bands

Idaho X X Maine X X Maryland X Massachusetts X X Michigan X X New Hampshire
X a X

New Jersey X X New York X X Ohio X X Vermont X X West Virginia X a In New
Hampshire, individual market health carriers will be permitted to medically
underwrite effective July 1, 2002. Sources: Lori Achman and Deborah Chollet,
Insuring the Uninsurable: An Overview of State HighRisk

Health Insurance Pools (New York: The Commonwealth Fund, 2001). Institute
for Health Care Research and Policy, 2000, Summary Comparison of Individual
Market Reforms (Washington, D. C.: Georgetown University, June 14, 2000).
http:// www. georgetown. edu/ research/ ihcrp/ chep (downloaded on August
16, 2001). We also obtained information from the Blue Cross and Blue Shield
Association. In addition, we updated certain information based on contacts
with state insurance regulators. In 6 additional states, certain carriers-
typically Blue Cross and Blue Shield plans- voluntarily guarantee access to
coverage. In 3 of these 6

states, carriers use community rating to establish premiums. In the states
where carriers do not use community rating, premiums for high- risk
applicants may be significantly higher than standard rates. For example,
several insurance agents in North Carolina said guaranteed access coverage
for high- risk applicants in the state can cost several times the standard
rate for a healthy applicant, or about $1,000 to $1,200 monthly. (See table
3.)

Page 11 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

Table 3: States in Which Certain Carriers Voluntarily Guarantee Access to
Coverage State Carriers voluntarily guarantee

access to coverage Carriers voluntarily use community rating

District of Columbia X Hawaii X X North Carolina X Pennsylvania X X Rhode
Island X Virginia X X

Sources: Lori Achman and Deborah Chollet, Insuring the Uninsurable: An
Overview of State HighRisk Health Insurance Pools (New York: The
Commonwealth Fund, 2001). Institute for Health Care Research and Policy,
2000, Summary Comparison of Individual Market Reforms (Washington, D. C.:
Georgetown University, June 14, 2000). http:// www. georgetown. edu/
research/ ihcrp/ chep (downloaded on August 16, 2001). We also obtained
information from the Blue Cross and Blue Shield Association. Analysts have
written extensively on the trade- offs involved in health

insurance regulations intended to improve access to coverage. In general,
requirements that carriers accept all applicants and limit the variation in
the premiums they charge can result in improved access and affordability for
high- risk applicants but may result in higher premiums for healthy
applicants, which may lead some to discontinue their health insurance
coverage. 11 In the 34 states where individual market carriers are not
required to

guarantee access to coverage, carriers may deny coverage to any high- risk
applicant, but may be more likely to deny coverage to those with mental
disorders than other chronic health problems. The seven carriers

participating in our study that sell individual market coverage in many of
these states were more likely to deny coverage for hypothetical applicants
with selected mental disorders (52 percent of the time) than for other
selected chronic health conditions (30 percent of the time). Some carrier 11
For more information on the trade- offs of insurance market reforms and the
experience of states adopting various reforms, see: Katherine Swartz,
Markets for Individual Health Insurance: Can We Make Them Work with
Incentives to Purchase Insurance? (New York: The Commonwealth Fund, 2000);
Len M. Nichols, ?State Regulation: What Have We Learned So Far?? Journal of
Health Politics, Policy and Law, Volume 25 (2000); Jill A. Marsteller and
others, Variations in the Uninsured: State and County Level Analyses

(Washington, D. C.: The Urban Institute, 1998); and U. S. General Accounting
Office, Private Health Insurance: Millions Relying on Individual Market Face
Cost and Coverage TradeOffs,

GAO/ HEHS- 97- 8, (Washington, D. C.: November 25, 1996). In Other States,

Applicants with Mental Disorders May be More Likely to be Denied Coverage

Page 12 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

officials said it is more difficult to predict treatment costs for
applicants with mental disorders, perhaps contributing to the reluctance of
some carriers to offer coverage. However, our analysis of treatment cost
variation for selected mental disorders and other chronic health

conditions found that both had similarly wide variations in costs. Carriers
participating in our study would likely deny coverage to slightly more than
half of the applicants currently being treated for one of six selected
mental disorders. Generally, where not precluded by state or federal law,
carriers may decline coverage to any applicant considered to be high risk.
Health care cost and utilization data indicate that individuals with mental
disorders, like others with health problems, are likely to incur higher-
than- average health care costs. Thus, carriers may deny coverage or, if
they offer it, charge a higher premium or restrict benefits, subject to
state regulations. 12 We asked the seven responding carriers to assume a
hypothetical applicant had a selected mental disorder that had been
previously

diagnosed, and was of moderate severity and for which the applicant was on
prescription medication or had otherwise received medical treatment for the
disorder within the prior year. We found that most carriers would

likely reject an applicant with posttraumatic stress disorder,
schizophrenia, manic depressive and bipolar disorder, and
obsessivecompulsive disorder. (See table 4.) Nearly half would likely deny
coverage for chronic depression. In most instances in which coverage would
likely

be offered, applicants would be charged higher premiums and could have
benefits limited- such as by permanently excluding coverage for the mental
disorder. For example, one carrier would accept for coverage an applicant
with chronic depression, but would charge 45 percent above the standard
rate. Another carrier would similarly accept an applicant with chronic
depression, but would eliminate coverage for treatment of the depression in
addition to charging the applicant 40 percent above the

standard rate. An applicant or family member with attention deficit disorder
would least likely be denied coverage. Only one carrier would 12 Carriers we
contacted for this study and a related study of the individual insurance

market in 1997 (GAO/ HEHS- 97- 8) indicated that from 5 to 33 percent of all
individual market applicants are rejected due to preexisting health
conditions, with most carriers typically rejecting about 19 percent.
Information provided by officials from seven state

high- risk pools suggests that a minority of risk pool enrollees who were
rejected by individual market carriers- from about 4 to 14 percent- have
mental disorders. Individuals with Selected Mental Disorders Likely to

Incur High Claims and Thus Be Denied Coverage

Page 13 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

likely deny such an applicant outright, and three carriers would likely
offer full coverage at the standard rate. The other three carriers would
likely offer coverage but charge higher premiums, offer more limited
benefits, or both.

Table 4: Likely Underwriting Decisions of Seven Carriers for Hypothetical
Applicants with Selected Mental Disorders

Likely underwriting decision (number of carriers making underwriting
decision) Mental disorder Deny coverage

Offer coverage, but increase premium and/ or

limit benefits Offer full

coverage at standard rate

Posttraumatic stress disorder 5 2 0 Schizophrenia 5 2 0 Manic depressive and
bipolar disorder 4 3 0 Obsessive- compulsive disorder 4 3 0 Chronic
depression 3 4 0 Attention deficit disorder 1 3 3

Source: Carrier responses to GAO request. Carrier underwriting practices can
vary considerably. For example, an official from one carrier said that only
applicants with serious cases of depression and obsessive- compulsive
disorders who are heavily medicated would be declined coverage, while
another carrier indicated it would

decline any applicant with chronic depression, regardless of severity, if
currently under treatment. Officials from two carriers pointed out that
declined individuals could reapply and be accepted later if their health
problems resolve themselves. One of the carrier officials said an initially
declined applicant could be offered coverage under a plan other than the

one applied for, although the premiums would likely be higher. Health
insurance agents we contacted similarly emphasized the variability of
carrier underwriting practices. Published research also illustrates the
variation in carrier underwriting practices as they relate to mental
disorders. For example, one recent study specifically examined individual
market carrier treatment of situational

(short- term) depression. The study of carriers in eight localities around
the country found that 23 percent would decline an applicant, 62 percent

Page 14 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

would offer coverage with a premium increase and/ or a benefit limit, and 15
percent would offer full coverage at the standard rate. 13 In addition,
carriers? underwriting practices relating to applicants with a

history of treatment for mental disorders can vary considerably. Information
we obtained during current and prior work examining the individual health
insurance market indicates that some carriers may require applicants to be
treatment- free for 6 months to 10 years before applications will be
considered, depending on the carrier and the prior disorder. For example,
the underwriting manual of one multistate carrier indicates that applicants
treated for a specified set of mental disorders of moderate severity could
be declined if treated within the prior year and either declined or accepted
at a higher premium if treated from 1 to 5 years prior to the current
application. Another carrier underwriting manual indicates that applicants
treated for any neurotic or psychotic disorder would be declined until
treatment- free for 2 or 5 years, depending on the nature and severity of
the prior disorder.

To determine whether disparities exist in carrier underwriting practices
based on whether an applicant has a mental or other chronic health
condition, we compared the seven carriers? likely underwriting decisions for
six mental disorders with 12 other chronic health conditions. 14 Our
comparisons show that, although any applicant with a health condition

may be declined, most carriers were more likely to decline applicants with
one of the selected mental disorders than other selected chronic health
conditions- 52 percent versus 30 percent, respectively. (See figure 1.) For
52 percent of the 42 underwriting decisions related to applicants with the
selected mental disorders, the carriers in our study indicated that they
would likely decline the applicants. Only 7 percent of applicants with the

selected mental disorders would likely be accepted at the standard premium
with standard benefits. The remaining 41 percent would likely be

13 Georgetown University Institute for Health Care Research and Policy and
K. A. Thomas and Associates, How Accessible is Individual Health Insurance
for Consumers in LessThan- Perfect Health? (The Kaiser Family Foundation,
2001) http:// www. kff. org (downloaded on August 14, 2001). The authors
examined underwriting treatment of hypothetical applicants by 19 insurance
companies in eight markets around the country. 14 As we did for the selected
mental disorders, we specified that the hypothetical applicants? other
chronic conditions had been previously diagnosed and were of moderate
severity,

and that the applicant was on prescribed drugs or otherwise received medical
treatment within the prior year. Carriers May Be More Likely to Decline
Applicants with Mental

Disorders than with Other Chronic Health Conditions

Page 15 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

accepted for coverage, but with increased premiums and/ or limited benefits.
Estimates of premium increases ranged from 20 to 100 percent above the
standard rate for a healthy applicant. Benefit restrictions

typically involved exclusions of coverage for treatment of the disorder
either temporarily- for example, one carrier would likely exclude coverage
for 2 to 5 years- or permanently. In comparison, for only 30 percent of the
84 underwriting decisions related to applicants with other selected chronic
health conditions would the carriers likely decline the applicants. Similar
to applicants with the selected mental disorders who might be accepted for
coverage, applicants with other selected chronic health conditions accepted
for coverage would also likely face other adverse underwriting actions. In
half of the instances, applicants with

other selected chronic health conditions would be charged a higher premium,
offered more limited benefits, or both. In 20 percent of the instances an
applicant would likely be offered full coverage at the standard premium
rate.

Figure 1: Seven Carriers More Likely to Deny Coverage to Applicants with
Selected Mental Disorders

Note: Percentages reflect the seven carriers? likely underwriting decisions
for the six mental disorders and 12 other chronic conditions. Source:
Carrier responses to GAO request. While carriers may be more likely to
decline applicants with more costly disorders, in some cases they may also
be more likely to decline applicants with mental disorders than applicants
with other chronic conditions with similar costs. Figure 2 compares the
seven carriers? likely underwriting

Likely to accept at standard premium with standard benefits

Likely to accept with increased premium and/ or limited benefits

Likely to decline Likely to accept at

standard premium with standard benefits

Likely to accept with increased premium and/ or limited benefits

Likely to decline

Selected mental disorders Selected other chronic conditions

52% 7%

41% 30%

20% 50%

Page 16 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

decisions related to the selected mental and other chronic health
conditions. We grouped the disorders into four cost quartiles to enable
comparisons of underwriting decisions for mental and other chronic

health conditions that have similar expected health care costs. Cost
estimates reflect the average total annual health care costs (including
insured and out- of- pocket costs) for individuals with the specified mental
disorders or chronic conditions, based on national health care cost and
utilization survey data. 15 For example, for the mental disorder and the
other chronic health condition in the highest cost quartile, five of the
seven carriers would likely decline an applicant with schizophrenia while
one would likely decline an applicant with osteoarthritis. 15 Because of
data limitations, cost estimates are not precise estimates of the treatment
costs for each disorder or condition, but rather are estimates of the range
of treatment costs for groups of clinically similar disorders or conditions.
See appendix I.

Page 17 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

Figure 2: Seven Carriers? Likely Underwriting Decisions for Applicants with
Selected Health Conditions

a Annual cost estimates are derived from the Medical Expenditure Panel
Survey, 1997, sponsored by the Department of Health and Human Services.
Estimates are not definitive measures of the costs associated with
particular disorders, but rather are used to group disorders within broad
categories of cost for comparison purposes. Source: Carrier responses to GAO
request. Most likely underwriting decision of carriers a through g Condition
Mental disorders Other chronic conditions

a b c d e f g a b c d e f g Cost quartile 1 ($ 1,689 - $3,427) a Attention
deficit disorder

Asthma Intervertebral disc disorders Migraines Other backache/ strain Pelvic
inflammatory disease Spondylosis (deterioration of intervertebral discs)
Cost quartile 2 ($ 3,428 - $5,166)

Chronic depression Obsessive- compulsive disorder Posttraumatic stress
disorder Epilepsy High cholesterol Hypertension Cost quartile 3 ($ 5,167 -
$6,905)

Manic depressive and bipolar disorder Rheumatoid arthritis

Type II diabetes Cost quartile 4 ($ 6,906- $8,644)

Schizophrenia Osteoarthritis Underwriting decision:

= Likely to decline = Likely to accept with increased premium and/ or
limited coverage = Likely to accept with standard coverage, standard rate

Page 18 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

To explain the greater likelihood of denying coverage to applicants with the
selected mental disorders, several carrier officials and agents said that
costs for treating mental disorders can be subject to greater variability

than costs for treating other chronic health conditions, making it more
difficult to accurately price for the unknown risk. They cited three factors
that may contribute to treatment cost variability and unpredictability.
First, they said that diagnosing mental disorders involves greater
subjectivity than diagnosing most other health conditions. According to one
carrier representative, different clinicians might arrive at different
diagnoses for mental disorders, which, in turn, suggest different treatment
approaches and thus variable claims costs. Second, several carrier officials
and agents said that an individual with a mental disorder is likely to have

additional health problems. For example, a carrier official said that
someone suffering from depression or an anxiety disorder is also likely to
incur claims for the treatment of stomach problems, headaches, or chronic
fatigue. Finally, several carrier officials and agents said that certain
forms of treatment for mental disorders have a tendency to be overused. For
example, an agent said that many individuals become dependent upon and thus
overuse expensive outpatient therapy or certain prescription drugs.

Representatives from one carrier that generally accepts individuals with
mental disorders said that the carrier has found no basis for
disproportionately excluding applicants with mental disorders. According to
one senior official of this carrier, which has a large pool of individual
market enrollees, enrollees with mental disorders are not more likely to

suffer from comorbid conditions than those with physical conditions. And
while this official agreed with other carrier officials and agents that
outpatient therapy has the potential for overuse, he believed that the
plan?s cost sharing arrangements and service limits mitigate this tendency
without the need for more restrictive underwriting. Regarding the
subjectivity in diagnoses and varied treatment approaches, the official said
that a majority of mental health treatment involves outpatient therapy, for
which costs per visit are relatively predictable, and the number of visits
is limited by cost sharing arrangements and service limits.

To examine the extent of cost variation associated with the six mental
disorders and 12 other chronic health conditions we reviewed, we analyzed
national health care cost and utilization data and found that both Cost
Variability Cited as a

Key Reason to Deny Coverage to Applicants with Selected Mental Disorders

Page 19 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

types of disorders had similarly wide variations in cost. 16 We also
analyzed the data to determine whether individuals with the selected mental
disorders had a higher number of additional health problems on average than
did individuals with the selected other chronic health conditions and did
not identify a disparate relationship, that is, both the mental disorders
and chronic conditions had similar average numbers of comorbidities-

from 3.4 to 6.1 for the mental disorders and from 4. 2 to 6.6 for the other
chronic conditions.

Options available to individuals with mental disorders who are denied
coverage in the individual market are limited. For most, state high- risk
pools serve as the primary source of coverage. High- risk pool coverage
typically costs 125 to 200 percent of standard rates for healthy
individuals, and the risk pools? mental health benefits are generally
comparable to

those available in the individual market, including more restrictions on
mental health benefits than other benefits. In 7 states without guaranteed
access laws or risk pools, most applicants denied coverage in the individual
market may have very limited or no coverage alternatives.

Risk pools operate in 27 of the 34 states where individual market carriers
do not guarantee access to coverage for all applicants. 17 A risk pool is
typically a state- created, not- for- profit association that offers
comprehensive health insurance benefits to high- risk individuals and
families who have been or would likely be denied coverage by carriers in the
individual market. Premiums for pool coverage are higher than standard
insurance coverage for healthy applicants, although not necessarily higher
than a high- risk applicant could be charged in the individual market if
coverage were available. State laws generally cap risk

16 For example, we analyzed the 1997 Medical Expenditure Panel Survey to
compare the 10th and 90th percentile of total medical costs (including
insured and out- of- pocket costs) for individuals with the selected mental
disorders and other chronic disorders. For the

mental disorders, the high- cost cases were from 33 times (for affective
disorders such as manic depression and bipolar disorders) to 80 times (for
depression and other mental disorders) higher than the low- cost cases. For
the 12 other selected chronic disorders, the high- cost cases were from 37
times (for hypertension) to 114 times (for migraines and other headaches)
higher than the low- cost cases.

17 Risk pools in Alabama and Florida are not included because Alabama?s risk
pool is open only to certain individuals losing group coverage under HIPAA
provisions and Florida?s risk pool has been closed to new applicants since
1991. High- Risk Pools Are

the Primary Source of Coverage for Applicants with

Mental Disorders Who Are Denied Coverage Risk Pools Operate in Most States
Where Carriers Medically Underwrite

Page 20 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

pool premiums at 125 to 200 percent of comparable commercial coverage
standard rates.

Health benefits contained in state high- risk pool plans are generally
comparable to those available in the individual market; however, benefits
for mental disorders or other health conditions are not permanently excluded
as they can be in the individual insurance market. Also like private plans,
nearly all plans offered by risk pools use features that restrict mental
health benefits more than other benefits. For example, see the following. 18
 Five pools set significantly lower lifetime dollar maximum limits for

mental health benefits ($ 4,000 to $50,000) than for other benefits ($ 1
million to unlimited).

 Eight pools impose more restrictive limits on inpatient mental hospital
days (commonly 30 or fewer) than on other inpatient hospital days (often
unlimited).  Six pools limit mental health outpatient visits to from 15 to
20 annually, and one offers no outpatient benefits, though other outpatient
visits are generally unlimited.

 Five pools reimburse 50 percent for mental health benefits rather than the
usual 80 percent for other benefits.

Because medical claims costs exceed the premiums collected from enrollees,
all risk pools operate at a loss, thus requiring subsidies. States generally
subsidize their pools through various funding sources, including surcharges
on private health insurance premiums (individual and group) and state
general revenue funds. In three recent instances, risk pool applicants have
had to wait for coverage to take effect because of funding

limits. As of January 2002, risk pool applicants in California and Louisiana
had to wait to receive benefits under the pool. In California, applicants
must wait about 1 year to receive benefits. In Louisiana, applicants have

been waiting since August 2001 for funding to become available. The risk
pool in Illinois has had waiting lists in the past because of inadequate
funding, most recently from September 2000 through the early summer of 2001.

18 Communicating for Agriculture, Comprehensive Health Insurance for High-
Risk Individuals- A State- by State Analysis, Fifteenth Edition (Fergus
Falls, Minn.: 2001/ 2002). Data reported on the mental health benefits
contained in each state risk pool were not always complete; therefore, the
examples cited above may not be exhaustive.

Page 21 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

In 7 states without a guaranteed issue requirement or a high- risk pool, 19
applicants with mental disorders or other health conditions who are not
eligible for continuation of group coverage or HIPAA portability coverage
and who are denied coverage in the individual market may have very limited
or no other access options. 20 For example, in Georgia, insurance regulators
said that, absent eligibility for a publicly funded program for low- income
individuals such as Medicaid, individuals with mental disorders who are
denied coverage by private carriers in the individual market have no other
available coverage options.

In most states, applicants with any health problems may have difficulty
finding affordable coverage in the individual insurance market, and those
with mental disorders may face even greater challenges. Because of concern
that individuals with mental disorders will incur more variable and less
predictable health care costs than individuals with other chronic health
conditions, some carriers may be more likely to deny them coverage. However,
our analysis of national health care cost data did not

identify such a disparity for the selected mental and other chronic
disorders we reviewed. If applicants with mental disorders obtain coverage,
mental health benefits are typically more restricted than other benefits in
most states. Although most applicants who are denied individual market
coverage for any health condition may obtain coverage

in a state- sponsored high- risk pool, affordability is still an issue, with
premiums typically 125 to 200 percent of standard rates in the private
market. Moreover, like private coverage, high- risk pools typically restrict
mental health benefits more than other benefits. In those few states with

neither guaranteed coverage nor high- risk pools, most applicants with
mental disorders may have few, if any, options for health insurance
coverage.

Representatives of the American Psychiatric Association (APA), the Blue
Cross and Blue Shield Association (BCBSA), the Health Insurance Association
of America (HIAA), and the National Alliance for the Mentally

19 The 7 states are Alabama, Arizona, Delaware, Florida, Georgia, Nevada,
and South Dakota. 20 In 15 states that guarantee access to coverage for
HIPAA- eligible individuals through a

high- risk pool and report enrollment numbers, about 21 percent of risk pool
enrollees are HIPAA- eligible individuals. In 7 States, Applicants with

Mental Disorders May Have Few or No Coverage Options Available

Concluding Observations Comments From External Reviewers

Page 22 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

Ill (NAMI) provided comments on a draft of our report. The APA and NAMI
representatives concurred with the report?s findings and conclusions, while
BCBSA and HIAA expressed several concerns about some of our findings and
conclusions. BCBSA and HIAA commented that coverage is more widely available
to applicants with mental disorders in many states than we concluded. For
example, HIAA indicated that it would be more appropriate to consider the 27
states with high- risk pools to have guaranteed access to health insurance.
We agree that either approach- guaranteed access in the individual insurance
market or high- risk pools- can provide applicants with access to health
insurance coverage. However, we distinguished those states with carriers
that are required or voluntarily agree to guarantee access from states with
high- risk pools because there are differences in how individual insurance
carriers underwrite in these states. For example, in states with guaranteed
access in the individual insurance

market, some or all carriers do not deny coverage to applicants with mental
disorders and there are often premium restrictions that make coverage more
affordable for high- risk applicants. In contrast, in states that do not
guarantee access in the individual insurance market, carriers can deny
coverage to applicants but the applicants can seek coverage through a high-
risk pool. Like plans typically available in the individual market, high-
risk pool benefits for mental disorders are often more limited than other
benefits, premiums are typically 125 to 200 percent of standard

individual insurance rates, and a few states have had waiting lists for
eligible high- risk pool participants. As we have noted, only 7 states have
neither guaranteed coverage in the individual insurance market nor a
highrisk pool program. Further, both BCBSA and HIAA noted that at least some
states with requirements that carriers guarantee access to all individuals
have had

negative unintended consequences, such as average premium increases, some
individuals dropping coverage, and some carriers leaving the market. While
it was beyond our scope to assess the experience of states that require
carriers to accept all applicants and limit premium variation, we

have noted that there are trade- offs between increasing access and
affordability for high- risk applicants while increasing premiums for
healthy applicants and we cite other studies that have further examined
these issues.

BCBSA and HIAA also indicated that the reports? findings on the number and
percentage of applicants who would be denied coverage are dependent on the
mental and other chronic disorders selected for study.

Page 23 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

For example, BCBSA stated that if different chronic disorders had been
selected, such as cancer, heart disease, chronic obstructive pulmonary
disease, or human immunodeficiency virus (HIV), the difference in denial

rates between applicants with mental disorders and those with other chronic
disorders may have disappeared. We agree that our findings are limited to
the specific conditions selected and the carriers responding to our requests
for information. We did not compare mental disorders to nonmental disorders
of a more serious or life- threatening nature- such as those cited by BCBSA-
because we did not believe such comparisons would be valid, and previous
studies have shown that insurers are likely to deny coverage for applicants
with many of these life- threatening conditions. 21 We selected the other
chronic conditions based on several criteria to enhance their comparability
with mental disorders, in particular that they be of a chronic and
manageable nature. We agree that within

either the selected mental disorders or other chronic disorders there is a
range of clinical severity, expected treatment costs, and insurer
underwriting practices. Therefore, we asked the seven carriers to consider

that each of the disorders was of moderate severity and that the applicant
was taking prescribed drugs or received other medical treatment for the
disorder within the past year. BCBSA and HIAA provided other technical
comments that we incorporated as appropriate.

As we agreed with your office, unless you publicly announce this report?s
contents earlier, we plan no further distribution until 30 days after its
date. We will then send copies to other interested congressional committees
and members. We will also make copies available to others on request. Please

21 See for example GAO/ HEHS- 97- 8 and Georgetown University Institute for
Health Care Research and Policy and K. A. Thomas and Associates, How
Accessible is Individual Health Insurance for Consumers in Less- Than-
Perfect Health? (The Kaiser Family Foundation, 2001). http:// www. kff. org
(downloaded on August 14, 2001).

Page 24 GAO- 02- 339 Access to Health Insurance for Applicants with Mental
Disorders

call me at (202) 512- 7118 or John Dicken, assistant director, at (202) 512-
7043 if you have any questions. Other major contributors are listed in
appendix II. Kathryn G. Allen

Director, Health Care- Medicaid and Private Health Insurance Issues

Appendix I: Scope and Methodology Page 25 GAO- 02- 339 Access to Health
Insurance for Applicants with Mental Disorders

To determine the extent to which states require individual market carriers
to guarantee access to coverage, we reviewed summary data for all states
published by the Commonwealth Fund in collaboration with Mathematica Policy
Research, Inc. in August 2001, and the Institute for Health Care Research
and Policy, Georgetown University, updated as of June 14, 2000.

Although we did not independently verify these data, we did follow up with
state insurance regulators in selected instances when we had reason to
believe that the summary data were no longer current. We also contacted
insurance regulators in 6 states- California, Connecticut, Georgia,
Illinois, Mississippi, and Montana- to discuss the implications of state
insurance regulation. We selected these states to represent a cross

section of states in which carriers are not required to guarantee access to
coverage in the individual market.

To identify health insurance carrier practices related to coverage and
premium decisions, we contacted 25 individual market carriers nationally to
request their participation in our study. We also asked the BCBSA and the
HIAA to contact some of their members to request participation. Seven
carriers that offer HMO, preferred provider organization, or traditional
feefor- service plans across the country agreed to participate. We
interviewed or obtained data from these carriers regarding their health
plans and underwriting practices. We cannot generalize the practices of
these seven carriers to all individual market carriers; however, the seven
carriers collectively insure more than 10 percent of all individual market
enrollees and sell coverage in most of the states in which carriers are
permitted to medically underwrite.

We compared the underwriting practices of the seven carriers for selected
mental disorders and other chronic health conditions. We selected six mental
disorders, each of which affects over 1 million Americans. We selected the
other chronic health conditions based on certain clinical characteristics
they share in common with mental disorders. Among other

criteria, the health conditions selected are generally of a chronic and
manageable nature, may require prescription drug therapy, may require care
throughout the patient?s life, and may be of intermittent severity. We asked
the seven carriers to consider that each of the disorders was of moderate
severity and that the applicant was taking prescribed drugs or received
other medical treatment for the disorder within the past year.

We discussed our approach of comparing mental disorders and other chronic
health conditions with mental health experts and an insurer risk management
consultant. To ensure that individuals with the mental disorders and chronic
health conditions we compared were likely to incur similar health care
costs, we analyzed 1997 cost data from the Medical Appendix I: Scope and
Methodology

Appendix I: Scope and Methodology Page 26 GAO- 02- 339 Access to Health
Insurance for Applicants with Mental Disorders

Expenditure Panel Survey, a national survey of health care cost and
utilization administered by the Department of Health and Human Services. We
calculated the total average annual health care costs incurred by
individuals with the selected disorders. These cost data do not provide
definitive estimates of the cost of treating specific disorders, however,
because the data set aggregated costs for several clinically similar
disorders. For example, treatment costs for obsessive- compulsive disorders
are aggregated with costs for other related disorders, including
hypochondria, panic disorder, and phobic disorders. We also used the data to
examine the extent of variation in total health care costs incurred by

individuals with the selected mental and other disorders and the extent to
which individuals with the selected disorders are likely to have additional
health problems.

Finally, to examine additional health insurance coverage options available
to high- risk individuals, we summarized state high- risk pool program
information published in the literature and reviewed alternative coverage

options during our interviews with insurance regulators in the 6 states. We
also interviewed health insurance agents in the 6 states to discuss their
experiences finding coverage for clients with mental disorders.

Appendix II: GAO Contact and Staff Acknowledgments Page 27 GAO- 02- 339
Access to Health Insurance for Applicants with Mental Disorders

John Dicken, (202) 512- 7043 Randy DiRosa and Betty Kirksey made key
contributions to this report. In addition, Kelli Jones and Kara Sokol
provided statistical support. Appendix II: GAO Contact and Staff
Acknowledgments

GAO Contact Acknowledgments

Related GAO Products Page 28 GAO- 02- 339 Access to Health Insurance for
Applicants with Mental Disorders

Mental Health Parity Act: Despite New Federal Standards, Mental Health
Benefits Remain Limited. GAO/ HEHS- 00- 95. Washington, D. C.: May 10, 2000.

Private Health Insurance: Progress and Challenges in Implementing 1996
Federal Standards. GAO/ HEHS- 99- 100. Washington, D. C.: May 12, 1999.

Health Insurance Standards: New Federal Law Creates Challenges for
Consumers, Insurers, Regulators. GAO/ HEHS- 98- 67. Washington, D. C.:
February 25, 1998.

Private Health Insurance: Millions Relying on Individual Market Face Cost
and Coverage Trade- Offs. GAO/ HEHS- 97- 8. Washington, D. C.: November 25,
1996. Related GAO Products (290082)

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