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Special Report:
Improving Mental Health
Insurance Benefits Without
Increasing Costs
U.S. Department of Health and Human Services
Substance Abuse and Mental Health Services Administration
Center for Mental Health Services
Office of the Associate Director for Organization and Financing
Introduction
Employer-sponsored health insurance plans typically provide less coverage for mental health (MH) services than for medical/"surgical services. For example, many employer-sponsored health plans cover an unlimited number of inpatient hospital days for medical/surgical care, but allow only 30 to 60 days of inpatient hospitalization per year for MH care (Buck et al., 1999). In addition, out-of-pocket costs are often higher for outpatient MH services than for outpatient medical/surgical care.
In response to this situation, the Federal Government and a number of States have begun to require that mental health services be covered in the same way as other medical care. This concept is known as "parity." Recent legislation designed to achieve parity, however, has had limited impact. Many of these laws do not cover all mental disorders or address only certain types of insurance benefit limits. Further, many employers are exempt from, or not subject to, such laws. Universal parity coverage for MH benefits may not be likely in the near future.
In the absence of legislative mandates, employers are not inclined to voluntarily increase the generosity of their MH benefits under current health insurance market conditions. Employers are already paying more than they once were for about the same level of benefits: data indicate that employer costs for health insurance benefits increased by about 6 percent in 1998 after a 5-year period of relatively flat growth, while the level of health insurance benefits remained roughly the same as in previous years. Even larger cost increases are predicted for the future, at which time experts believe that employers will be inclined to decrease employee benefits rather than expand them (Bureau of National Affairs, 1999, 2000).
Purpose of This Report
This report provides employee benefits managers and purchasers with guidance on how to purchase MH insurance benefits that promote cost-effectiveness, access to treatment, and high-quality care (American Managed Behavioral Health Association, 1994; Frank, Goldman, & McGuire, 1992). It describes MH coverage that provides effective treatment regimens consistent with clinical studies and that have the same or close to the same actuarial value as benefit packages typically offered by employers. These packages incorporate design recommendations that are based on (1) input from MH clinicians and benefit experts (see Appendix B), (2) analysis with an actuarial benefit model, and (3) a review of the literature. The report focuses on packages for health maintenance organizations (HMOs) and preferred provider organizations (PPOs) because these delivery systems have the highest employee enrollments. However, the benefit design recommendations can also be applied to point-of-service (POS) and indemnity plans.
MH benefit design is one of several issues that employers consider when purchasing behavioral health coverage. Employers also select the organization(s) that will administer these benefits, determine the level of service utilization management for health benefits, and decide whether to offer any additional services, such as an employee assistance program (EAP).1 Although employers' decisions about vendors, level of utilization management, and EAPs are important, they are beyond the scope of this study.
Many employers who offer limited MH benefits believe that these packages cover most of the MH expenses incurred by most employees and dependents. But for some individuals with chronic and relapsing serious mental disorders, limited MH benefits can mean extremely high out-of-pocket expenses.
This report's focus on limited MH benefits is not meant to imply that such packages are preferable to ones that establish parity or equivalent coverage for MH and medical surgical services. Limited benefit packages often do not provide adequate coverage for catastrophic mental illnesses. It is true that if employers offer more generous MH benefits, their expenditures for these benefits will increase if the level of utilization management is unchanged. But research suggests that parity in managed behavioral carveout plans and tightly managed HMO's would increase costs by a relatively small amount. Sturm (1997) estimates that costs for managed behavioral carveout plans would increase by $7 per enrollee per year. Sing, Hill, Smolkin, et al. (1998) estimate that total health insurance premiums for tightly managed HMO's would increase by less than 1 percent. Increases would be much greater in loosely managed PPO or indemnity plans-costs for covered mental health services could more than double, and total premiums could increase by about 5 percent (National Advisory Mental Health Council, 1998; Sing et al., 1998). Studies show that employers who switch from an unmanaged indemnity plan that limits MH benefits to a managed plan that offers parity have lower expenditures for MH benefits (National Advisory Mental Health Council, 1998; Sing et al., 1998).
Organization of the Report
This report is organized as follows: Chapter III describes the prevalence, impact, and treatment of mental disorders in the workplace. Chapter IV presents typical benefits packages for MH treatment; these packages are based on an actuarial analysis conducted by the Hay Group, a benefits and actuarial consulting firm. Chapter V presents benefit design recommendations. Finally, Chapter VI presents MH benefits packages for HMOs and PPOs that incorporate these recommendations and that have the same or close to the same actuarial value of MH benefits packages typically offered by employers.
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