The Mental Health Parity Act of 1996 (MHPA) prevents certain group health plans from placing annual or lifetime dollar limits on mental health benefits that are lower than annual or lifetime dollar limits for medical and surgical benefits offered under their plans. MHPA applies to group health plans and their issuers, including insurance companies and health maintenance organizations (HMOs), with more than 50 participants. Under MHPA, "mental health benefits" means benefits with respect to mental health services, as defined under the terms of the plan or coverage, but does not include benefits with respect to the treatment of substance abuse or chemical dependency.

A health plan that allows unlimited medical or surgical benefits but only covers up to $ 50,000 for mental health benefits would be in violation of MHPA. Some restrictions on the coverage for mental health benefits are, however, permitted under MHPA. Plans and issuers may restrict the number of visits for mental health treatment or impose higher co-payments or deductibles for mental health care treatment than it imposes for medical or surgical benefits. A common restriction in coverage for mental health benefits is a limit on the number of inpatient days allowed for mental health treatment. This is permissible under MHPA. In addition, plans and issuers are entitled to opt out of MHPA if compliance with its provisions would amount to a cost increase to the plan of one percent or more.

MHPA only applies to health plans and issuers that provide benefits for mental health treatment. It does not require health plans and issuers to provide such benefits. In addition to the protection offered by MHPA, most states, as well as the District of Columbia, have enacted some form of mental health parity protection. State laws requiring more comprehensive coverage than that mandated by MHPA are not affected by MHPA. States cannot, however, enact legislation that provides fewer protections than that required by MHPA. State mental health parity laws vary broadly in their scope. For instance, some states only require mental health parity for public employees. Others restrict mandated coverage to only those with severe mental disorders. On the other hand, some states mandate coverage for all mental disorders, including substance abuse.

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