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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