Concerns about cost, access, and quality of health care in the United States have led to a variety of legislative proposals that would reform our health care system and its financing. Health insurance benefits for mental illness, including substance abuse, are treated differently from medical/surgical benefits, with stricter limits on outpatient visits and hospital days. Medicare, Medicaid, and most private health insurance plans contain this historic disparity of coverage for mental illness compared to general medical illness. Psychiatric services are also distinguishable because of the large public sector reimbursement for mental illness treatment and support. Principles for a more equitable design of mental health benefits include a non-discriminatory approach; payment on the basis of service rather than diagnosis; application of cost containment for care of mental illness on the same basis as care of general medical illness; retention of the public sector as a backup system for high-cost, long-term care; encouragement of lower-cost alternatives to the hospital through the development of a continuum of care; and a recognition of the distinction between psychotherapy and medical management. All current approaches to universal health care fall short of these principles. A research agenda is needed now more than ever in order to articulate the case for complete coverage of mental illness and substance abuse.Abstract Teaser