Study Weighs Benefits of Mental Health Insurance

In a study certain to throw fuel on the national debate over mental health coverage, researchers from Rand Corp. and UCLA found that offering broad mental health benefits would not add significantly to insurers’ costs if a managed care approach is used.

“You can provide unlimited benefits without breaking the bank,” said economist Roland Sturm of Rand, who led the study published today in the Journal of the American Medical Assn.

Sturm’s study directly challenges long-standing assumptions about the costs of mental health coverage, saying they overstate costs “by a factor of 4 to 8.”

He estimates, for example, that removing the average $25,000 annual limit would boost insurers’ payments only about $1 per beneficiary per year. Even removing the most onerous limits on mental health care--30-day limits on hospitalization and 20-visit outpatient cutoff per year--would add only $7 dollars to insurers’ tabs for each beneficiary, Sturm found.

Sturm said families with seriously ill children would benefit more than anyone. Care for schizophrenics, for example, who tend to get ill in late adolescence, tends to be very expensive, and families hit the policy limits early in the year. “It’s not really an insurance,” Sturm said.

Mental health advocates immediately hailed the findings with the same vigor that skeptical employer groups questioned them.

“This is a study that comes from a very reputable, non-biased source,” said Mike Malloy, director of the National Alliance for the Mentally Ill’s anti-discrimination campaign. “It lifts the debate above the advocacy groups, above one side or the other. . . . We think it will have a national effect.”

“Anything that adds cost, no matter how seemingly small, is of concern to us,” countered Neil Trautwein, manager of health care policy for the U.S. Chamber of Commerce, which opposes mandated benefits. “That increases the overall costs of [benefits] and prices employers out of the system.”

The study comes at a time when about 20 states, including California, are considering legislation to mandate some form of parity between mental health and other medical coverage. It also comes weeks before a limited federal parity law goes into effect that would abolish dollar caps on mental health coverage.

However, The Clinton administration is drafting related regulations that mental health advocates fear will allow employers to skirt the law. (Exemptions are available if new benefits increase health plan costs by 1% or more.)

Sturm said he is wading into the national policy debate only to ensure that it is conducted in accurate terms. “Many small employers may not be aware that the environment has changed,” he said. “Companies can provide generous benefits without huge costs. That was not true 20 years ago.”

The difference, he said, is managed care--not the standard gate-keeper system familiar to HMO users, but a separate “carved out” system designed primarily to manage so-called behavioral health benefits.

Almost 150 million Americans now receive mental health benefits under this type of system, which requires patients to use network providers and to get prior authorization for medically necessary treatment, but does not mandate a visit to a primary care physician. The referrals often are handled over the telephone.

Under this managed care system, costs are lower mainly because patients are seen more as outpatients, saving the expense of hospitalization, and they are being treated at discounted rates. Sturm said costs also have declined because of “therapeutic advances,” including more effective antidepressant medications.

His findings are based on a study of 24 new managed care plans administered by a single company, United Behavioral Health, which offer “very generous benefits with no limits on coverage.”

The plans, covering 140,000 enrollees mostly in the Midwest, required a $10 co-payment per outpatient visit and a $100 co-payment per inpatient admission, with no deductibles or limits on service. Patients’ care was overseen by a case manager.

Sturm said estimates of the cost of mental health parity cited last year by the Congressional Research Service--and many employer groups--were based on dated information and failed to account for changing trends in the health care market and treatment patterns.

These estimates, he warned, could bias decisions of employers and policymakers.

But employer groups warned that mental health benefits are only a small part of the picture, and that any changes in this area may have a ripple effect elsewhere in the benefit package.

“No employer I’m aware of is expanding the dollars,” said Paul Dennett, vice president of health policy at the Assn. of Private Pension and Welfare Plans. “The offset will come somewhere.”

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How Limits Affect Payments

Here is a look at how various limits on mental health coverage affect insurers’ average annual payments per beneficiary. It is based on a study of 24 plans covering 140,000 beneficiaries administered by United Behavioral Health.

Type of Limit: Cost

No limit: $43.90

$50,000 per year: $43.80

$25,000 per year: $42.90

$10,000 per year: $40.10

30 inpatient days and 20 outpatient visits: $37.00

Source: UCLA/Rand Center for Research on Managed Care