When enacted in 1996, the federal Medical Health Parity Act (MHPA) was expected to increase health insurance premiums by 3.2% to 8.7%. For employers with 50 or more employees, the Act required parity between annual and lifetime dollar limits for mental health and physical health services.

Specifically, the MHPA:

1. Requires parity of mental health benefits with medical and surgical benefits with respect to aggregate lifetime and annual dollar limits under a group health plan.

2. Says that employers still have discretion regarding the scope of mental health benefits offered to employees and their dependents (e.g., cost sharing, limits on number of visits, and medical necessity).

3. Does not apply to benefits for substance abuse or chemical dependency.

4. Does not apply to a coverage if the parity provisions result in an increase in the cost one percent or more.

An excellent new analysis by Steve P. Melek, a principal and consulting actuary with Milliman, shows that the federal mandate did not increase costs as expected. In fact, MHPA had little effect on overall health costs and, in some cases, may have helped save dollars. This is at least partially due to the fact that MHPA came at the same time as a big increase in the use of managed behavioral health care.

Coverage mandates are rarely a good idea, are driven largely by political expediency and health system naivete, and often generate unintended consequences. But Mr. Melek's analysis shows how health policy and market interventions by the government are not made in a vacuum. Indirectly, it also suggests that employers, health plans, and legislators should focus their attention on what patients need - not on arbitrary or discriminatory limits on access.

As promised, here's my list of likely losers under the new Medicare prescription drug benefit:

● Dual Eligibles: These 6.5 million highly vulnerable beneficiaries will lose their Medicaid drug benefit and be enrolled in the less generous, slightly more expensive, far more complex Medicare drug benefit. They also face the likelihood of a dangerous transition in drug therapy. If there is a silver lining here, it's the prospect of Medicare Advantage Special Needs Plans (MA-SNPs). That is, the hope that over time dual Medicare-Medicaid beneficiaries will sign up to get all their Medicare benefits from health plans tailored to their needs. Even better states work with MA-SNPs to bundle all Medicaid services with Medicare Part A, Part B, and Part D. See my earlier post on this idea and other stories on dual eligible issues.

● Retirees with Employer-Sponsored Drug Coverage: The trend has certainly been toward employers reducing retiree health coverage. With $100 billion in new taxpayer-financed incentives and an array of options to cost shift, Medicare Part D ensures that millions of retirees will move - slowly but inevitably - from relatively generous employer-sponsored drug coverage to more limited, more costly taxpayer-subsidized coverage. Employers are in a bind, to be sure, so don't blame them for taking advantage of this gift horse. It's anyone's guess whether Part D and the $100 billion in subsidies for employers will serve to slow or hasten the death of employer-sponsored drug coverage for retirees.

● States: Because of the now notorious "clawback" and variety of other factors, including a likely strong woodwork effect, loss of supplemental rebates, and unfunded mandates, drug benefits for dual eligibles will cost cash-stripped state governments more under federal management. Under Part D and the resulting fragmentation of benefits across multiple, uncoordinated programs, state Medicaid programs also lose critically important data and face greater challenges to managing the health costs of the most expensive, most vulnerable Medicaid beneficiaries. Since it's highly likely that many dual eligibles will have problems getting their prescriptions in the early months of Part D, states may be forced to step in and use their own money to cover drugs as the bugs are worked out.

● Community Pharmacies: The shift of dual eligibles to Medicare for their prescription drugs also means a large chunk of retail pharmacy business is moving from Medicaid (which, in most states, is the highest payor of pharmacy services) to private drug plans (which are the lowest payors). Specifically, state Medicaid programs commonly pay much higher dispensing fees and pay a higher rate for a pharmacy's drug acquisition costs. Commercial insurers, including those offering Medicare drug plans, are just the opposite. States do get better deals from drug manufacturers because of rebates and the Medicaid "best price" law, but those dollars are on the backend and pharmacies don't benefit. The large drug store chains have some flexibility to juggle the business impact of Part D. However, many small independent pharmacies face significant financial losses.

● Big Pharma: Some, perhaps most, pharmaceutical manufacturers will see a temporary boost in their top lines. Yet, most will experience a significant and likely steady, long-lasting hit to the bottom line. Yes, some drug makers will benefit from the pent-up demand released by the Medicare drug benefit. But the potential for increased sales in the short term is nothing compared to pricing pressures generated by the confluence of market dynamics, including drug plan competition, price transparency, and price sensitivity of at-risk drug plans. Add to this the likelihood of a massive increase in government oversight, substantially higher compliance risks, and challenges of shifting from a sales-based to research-based strategy. Some drug makers will win but it will depend on how quickly and deftly they can adapt to a brave new world of Part D.

Please check out my previous post on the Medicare drug benefit, including post on the likely winners in the business of Part D.