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

Improving MH Insurance Benefit Design

The benefit design recommendations presented in this chapter are based on a review of the literature and discussions with MH clinicians and insurance benefit design experts (see Appendix B). The chapter concludes with a discussion of catastrophic coverage.

MH Benefit Design Recommendations
MH benefit packages should be cost-effective and promote access to treatment and high-quality care (American Managed Behavioral Health Association, 1994; Frank, Goldman, & McGuire, 1992). To achieve these goals, these packages should have the characteristics described below.

Cover a Wide Range of Clinically Effective Services and Treatments
A well-designed benefit package should cover a wide range of clinically effective services and treatments while incorporating financial incentives to substitute lower cost alternatives for higher cost alternatives when it is clinically appropriate to do so (Frank et al., 1996). As discussed in Chapter IV, the vast majority of employer-sponsored plans cover inpatient and outpatient MH treatment services. Roughly half of all employers cover intermediate MH treatment services such as residential treatment and partial (or day) hospitalization. Approximately 60 percent cover intensive outpatient services, which can include psychosocial rehabilitation, case management, and wraparound services for children.¹¹

Intermediate treatment services are an effective, lower cost alternative to inpatient hospital treatment in many cases, so some believe employers should also cover these services (Frank et al., 1996; U.S. Surgeon General, 1999). One way to add such services without significantly increasing costs is to offer them as a trade-off for inpatient care. According to the MH benefit design experts consulted for this report, 1 day of treatment in an inpatient MH setting costs about the same as 2 to 3 days of residential treatment or 2 days of partial hospitalization treatment. Although 1 inpatient day can be traded for more than 2 days of treatment in some intermediate settings (such as residential treatment), using the same rate of trade for all intermediate settings is simpler to administer and remember. Therefore, the experts recommend benefit packages in which 1 day of MH inpatient treatment can be traded for 2 days of treatment in an intermediate setting. Many employers currently offer MH benefits that permit trade-offs between inpatient and intermediate care.

The advantage of allowing enrollees to trade 1 day of inpatient care for 2 days of treatment in intermediate settings is that their treatment is covered for a longer period (if needed), thereby reducing the likelihood of relapse. There is also generally less stigma associated with intermediate care settings than with inpatient settings.

Inpatient treatment should be traded for treatment in intermediate settings only when patients and their provider are quite certain that the traded inpatient days will not be needed—a more likely situation toward the end of the benefit year.

Reduce Enrollee Cost-Sharing Requirements
The design experts felt very strongly that MH benefit design should promote access to care. A primary reason why the need for MH treatment is largely unmet is that most people with mental disorders do not seek professional treatment. According to one study, less than 20 percent of people with a recent mental disorder had obtained treatment within the previous 12 months, and less than 40 percent of people with a lifetime disorder ever receive professional treatment (Kessler et al., 1994).

Given these numbers, it stands to reason that MH benefits can be improved by ­promoting access to treatment for those who need it but do not seek it. Promoting access means removing barriers to treatment. These barriers include patient out-of-pocket costs that are typically higher for MH services than for medical/surgical services and the stigma associated with ­having a mental ­disorder and receiving treatment for it (Simon, Grothaus, Durham, et al., 1996).

To encourage access to treatment with little or no increase in MH benefits costs to employers, the experts recommended reducing both patient cost-sharing requirements for outpatient MH services and service limits in order to pay for the more generous coverage per visit. For example, as indicated in Chapter IV, the less generous HMO plan covers 30 outpatient MH visits at a patient coinsurance rate of 50 percent. To promote access to treatment with little or no increase in costs, these benefits could be modified so that 20 visits are covered (instead of 30) at a patient coinsurance rate of 40 percent (instead of 50 percent).

Alternatively, many experts recommend using progressively tiered patient coinsurance rates for outpatient services to promote access to care. Under a tiered copayment or coinsurance benefit design, the out-of-pocket cost for a particular outpatient MH visit depends on how many visits the patient has already made during the benefit year. The patient’s out-of-pocket costs for the first few visits (e.g., the first three to five visits) would be lowest, and costs would increase with additional visits. For example, the first 3 visits could cost the patient nothing out-of-pocket, the next 10 visits could cost the patient $20 out-of-pocket, and any remaining covered visits could cost $30 out-of-pocket.

Some employers have already used progressively tiered copayment schedules (Goldman, McCulloch, & Sturm, 1998). These schedules appear to work best when the health plan administering the benefits has an information system that can effectively handle this type of benefit design. Without the proper information systems capability, this design can be difficult to administer because it is hard for health plans to correctly identify an enrollee’s first three or five ­visits. Sometimes providers submit bills out of order; that is, they may submit a bill for the fifth visit before they submit a bill for the third visit. Also, providers may bill for a group of services, which can include two or more visits by an enrollee.

Use a Simple Benefit Design
Simple MH benefit packages are easier for enrollees to understand and use, resulting in less confusion. They are also easier for health plans to administer.

Use the Same Design for Mental Health and Substance Abuse
Although the focus of this report is on MH benefits, health plans should have the same service limits, cost-sharing requirements, and dollar spending limits for covered substance abuse services as they do for covered mental health services. The result is a simpler benefit design that employees and dependents can better understand. Another reason for using the same benefit design for mental health and substance abuse treatment services is that, in any year, about 10 million people in the U.S. have co-occurring mental and substance abuse disorders. It is difficult to administer benefits for people with these co-occurring disorders if mental health benefits are different from those for substance abuse. Finally, making mental health and substance abuse benefits the same eliminates one incentive for “diagnosis code creep”—the practice whereby providers treat patients for a disorder that is not covered (such as substance abuse) but record, for billing purposes, a diagnosis code for treatment that is covered (such as mental health) to secure better coverage for the patient and better reimbursement for the provider.

Cover Intermediate Services Only from Network Providers
Treatment in intermediate settings should be covered only if it is administered by network providers because some intermediate services are overused when utilization is not managed. For example, many patients remain in custodial care facilities (such as residential treatment and nursing homes) much longer than necessary if the service is covered by insurance and not properly managed. However, in many cases, residential treatment can be a very cost-effective alternative to inpatient hospital care and should be ­covered if it is well-managed.

Encourage the Use of Network Providers in PPO and POS Plans
MH benefit packages can be modified in ­several ways to encourage the use of network providers in PPO and POS plans. First, they should incorporate financial incentives. One such incentive would be to increase the difference in coinsurance rates for ­in-network services versus non-network services. Typically, there is a 20 percentage point difference in the coinsurance rate for network services compared with non-network services for PPO and POS plans (see Chapter IV, Tables 1 and 3). Increasing this difference to 30 or 40 percentage points would promote greater use of in-network providers. Many employers have modified their MH benefits in this manner.

The use of network providers can also be increased if enrollees are assured of easily accessible, high-quality care. For example, providers should be conveniently located for enrollees, and plans should offer an ­adequate continuum of care.¹²

Catastrophic Coverage
One of the main purposes of health insurance is to protect individuals from catastrophic financial expenses (Frank, Goldman, & McGuire, 1996; U.S. Surgeon General, 1999). Although the vast majority of employees and dependents covered by employer-sponsored MH benefits have relatively small expenses for MH treatment (U.S. Surgeon General, 1999), some have chronic, relapsing serious mental illnesses that can result in excessively high costs. And while many employer-sponsored medical/surgical benefit packages provide catastrophic protection, limited MH packages do not. The former remove MH service limits, cover a wide range of clinically effective treatments and services, have high annual and/or lifetime spending limits (such as a $1 million lifetime spending limit), and impose annual maximum on out-of-pocket expenses for covered MH services (such as $2,000 per year).

In contrast, a limited MH benefit package might cover only 30 inpatient and 30 out­patient visits per year. As noted in Chapter II, MH packages that provide catastrophic coverage will cost more unless employers switch from limited MH benefits in a loosely managed delivery system to more generous MH benefits in a more tightly managed ­system. While estimates indicate that employers will incur relatively small cost increases if they implement parity in tightly managed delivery systems (Sing et al., 1998; Sturm, 1997), the increases will be much greater in unmanaged or loosely managed plans. In fact, the costs for the latter could more than double, and total health insurance premiums could increase by about 5 percent (National Advisory Mental Health Council, 1998; Sing et al., 1998).

When MH benefits are limited, the challenge for employers and benefit design consultants is to incorporate the recommendations presented in the first section of this chapter without spending any more money on MH insurance benefits. The next chapter presents MH benefit packages that do so with little or no increase in cost.

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