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Comprehensive Mental Health Insurance Benefits:
Case Studies
U.S. Department of Health and Human Services
Substance Abuse and Mental Health Services Administration
Center for Mental Health Services
Office of Managed Care
II. Overview and Background
The Center for Mental Health Services sought to explore and document the experiences of, and lessons learned by, several employers and MCOs that offer comprehensive mental health coverage. This report provides indepth case studies of six employers, two HMOs, and one MBHO, resulting in several clear and well-documented examples for other companies and MCOs to consider. Although the majority of employers studied are large and self-insured, the findings have implications for smaller businesses that want to provide cost-effective, comprehensive care to a small workforce. This report discusses the methodology used to select participants and presents key findings distilled from the case studies.
Issues concerning employer-sponsored mental health care have made national headlines in recent years. Legislative efforts to mandate parity for physical and mental health care and to regulate MCOs have received extensive national publicity. At the same time, the relationship between productivity and mental health, most notably depression, has recently attracted scholarly attention. Each of these timely issues bears a relationship to new directions in employer-sponsored mental health benefits.
Private sector attitudes toward insurance coverage for mental health care have been transformed over the past 30 years. Long regarded as a State responsibility, mental health care increasingly was incorporated in private sector insurance coverage during the 1960s and 1970s as many employers came to believe that such coverage resulted in greater productivity. However, many of the expanded benefits failed to reach parity with physical health coverage, containing special limits on hospital days and outpatient visits, higher copayments and coinsurance, and separate and lower annual lifetime limits on total payments. Many plans, including those offered by the Federal Government and some large corporations, provided relatively generous benefits by today's standards.
Rising health care costs in the late 1980s halted this expansion in coverage. Starting from a very low cost base, the new mental health benefits often appeared to be growing faster than other health care costs. For a variety of reasons, many employers began to identify mental health benefits as expendable, reducing them to realize short-term cost savings. As employers started the transition to managed care, they began by shifting their mental health benefits--a trend that continues today.
A Hay Group study analyzing trends in health plan design between 1988 and 1998 suggests the decade was marked by significant changes in the type and structure of employer-sponsored health insurance. In 1987, 92 percent of employers enrolled most of their employees in fee-for-service plans; by 1998, only 14 percent of employers reported fee-for-service as the most prevalent arrangement; the balance operated managed care plans (Hay Group, 1999).
Managed care's emphasis on cost reduction has resulted in growing limits on mental health care. In the 1998 study of managed care plans sponsored by 1,017 medium and large employers, 88 percent of plans, up from 63 percent in 1990, imposed limits on inpatient psychiatric care; for outpatient care, 57 percent of plans had utilization restrictions, compared with 26 percent in 1988. Furthermore, annual benefit caps had not kept pace with inflation; the average limit held at $2,500 from 1988 to 1998.1 In 1997, more than 75 percent of employer-sponsored health plans imposed greater limits on mental health treatments than on physical health care (Buck, Teich, Umland, & Stein, 1999).
An extensive body of literature suggests that increasing limits on mental health benefits, in fact, may not be a successful long-term strategy to reduce health care expenditures. American businesses lose an estimated $43.7 billion every year to employee behavioral health problems. These estimates include losses from absenteeism, sick leave, substance abuse, health insurance claims, accidents, overtime pay, disability payments, damage to the corporate image, and diverted supervisor time (Vennochi, 1995). Many studies reveal a high prevalence of mental health needs among the workforce. The following examples illustrate the relationship of mental health to medical claims costs and absenteeism as well as the larger link between mental health benefits and health care costs.
The Health Enhancement Research Organization (HERO) recently linked medical claims data to health risk appraisal information for 46,026 employees enrolled in fee-for-service, self-insured health care plans. Analysis of risk factors associated with health care claims revealed that depression and stress were the two most significant factors in increased claims expenditures. Individuals reporting persistent depression (2.2 percent of the sample) had health care costs 70 percent greater than other employees; those with uncontrolled stress (18 percent of the sample) had 46 percent greater expenditures. These two factors had a greater impact on total health care costs than did obesity, high blood pressure, high cholesterol, and tobacco use (Goetzel et al., 1998).
In addition to increased health care expenditures, depression also produces significantly more short-term disability absences. A recent study found that depressed workers miss between 1.5 and 3.2 more days for short-term disability than other workers. Furthermore, the study suggests that this increased absenteeism produces monthly salary-equivalent disability costs of $182 to $395 or between 45 and 98 percent of the estimated cost for effective depression pharmacotherapy ($402). These figures exclude significant indirect costs, including expenses inherent in hiring and training new workers, decreased productivity of the employee and of coworkers, and increased incidence of workplace accidents (Kessler et al., 1999).
Few studies have examined the relationship between mental health benefits and overall health care spending, particularly the impact on overall cost levels of mental health coverage. A recent study of one large company, however, suggests that a decrease in mental health spending yields concomitant increases in total health expenditures and employee absences. In this study, increased physical health costs completely eliminated the savings generated by decreased mental health expenditures. As a result, the company experienced reduced mental health coverage and no associated financial benefit (Rosenheck, Druss, Stolar, Leslie, & Sledge, 1999).
These studies suggest that the trends toward increased limitations on psychiatric services and the resultant decreases in mental health expenditures may have limited effects on a firm's overall health care costs and, in fact, may have an adverse effect on the company's overall financial situation.
Many employers do not offer equal physical and mental health benefits because they believe the cost will prove prohibitive. This lack of parity has led governments, both Federal and State, to examine employer-sponsored health coverage. As of October 1999, 24 States had enacted mental health parity laws, and many others continue to consider such legislation (Hiebert-White, 1999).
Self-insured employers, such as the majority of study participants, are exempt from these restrictions because of the Employee Retirement Income Security Act. However, legislative mandates, including parity legislation and managed care reform, could have significant effects. A recent study suggests that parity legislation may result in premium increases between 3 and 11 percent, depending on plan type; indemnity and preferred provider organization (PPO) plans, characterized by more provider choice, would experience greater premium increases (Findlay, 1999). At the same time, mandates and competitive pressure to provide generous mental health benefits may lead to long-term cost savings for employers by fostering increased productivity, decreased absenteeism, and a decline in total health care costs.
Current State of Private Sector Mental Health Care
Managed care dominates the employer-sponsored health insurance market. According to the 1996 Foster Higgins survey of all U.S. employers with 10 or more employees, only 22 percent of eligible employees were enrolled in indemnity plans while the remaining 78 percent received coverage under managed care plans. Of all eligible employees, 30 percent enrolled in HMOs, 29 percent in PPOs, and 18 percent in point-of-service (POS) plans (Foster Higgins, 1997).2
Many indemnity and managed care plans place significant limits on services. Plans frequently impose annual or lifetime benefit maximums or limits on days per year. Table 1 details inpatient and outpatient limits by plan.
In addition, while most plans cover inpatient and outpatient mental health care, many do not offer multiple levels of care. For example, only half of plans cover nonhospital residential psychiatric services. Plans appear to focus on traditional levels of care (inpatient, outpatient) and, in general, to place significant limitations on services.
1 Under the Federal Mental Health Parity Act of 1996, such disparities benefit limits now generally are prohibited for firms with more than 50 employees.
2 Figures for employers with more than 500 employees.
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