Depression and other major mental and substance-related illnesses can have a paralyzing effect on an otherwise healthy person. As hope and optimism fade, so does the urge to stay healthy. Depression can compound the severity of a problem for people with chronic physical illnesses, who can cost two to three times as much to treat if they are depressed. And depression itself can lead to poor health, as it often leaves people unmotivated and causes high-risk patients to ignore prevention or necessary treatments, opening the door to chronic and acute illness.
The symbiotic relationship between behavioral health and physical health is often not recognized. Instead, the behavioral healthcare environment that has emerged in the last two decades has largely ignored the interconnectedness between mind and body. It doesn't have to be this way. Indeed, a dramatic transformation for the healthcare industry is ahead as a handful of insurers and employers are beginning to identify the opportunities and economic incentives related to (1) providing benefits for behavioral illnesses on par with physical illnesses, and (2) integrating medical and behavioral healthcare for insured populations.
The split between mind and body in healthcare has been a problem for years, but has been convenient to ignore because, over the last two decades, costs for the care of behavioral disorders fell remarkably as managed-care business practices streamlined the behavioral healthcare industry. More recently, evidence has emerged about the adverse long-term medical effects of untreated behavioral disorders. These two dynamics now combine to suggest that parity in mental and physical health coverage—essentially, financing both on the same basis—would result in a very small added healthcare cost at worst, and quite possibly, a net reduction in total costs.
The first part of this mental healthcare transformation is embodied by the House behavioral health parity bill, the Paul Wellstone Mental Health and Addiction Equity Act of 2007, and the Senate behavioral health parity bill, the Mental Health Parity Act of 2007. To appreciate the impact of these bills and the benefits of behavioral healthcare parity, it is useful to look back at how the current behavioral healthcare situation developed.
Behavioral healthcare carve-outs: 170 million served
The managed-care approach to behavioral healthcare was not built in a day. In the 1980s, before managed behavioral healthcare existed, insurance cost trends for mental health and substance-related disorders were much higher than for mainstream physical healthcare.
Inpatient treatment might have lasted weeks, if not months; recurrence rates were very high, especially with chemical dependency; and behavioral healthcare delivery was criticized as being subjective. At that time, 10 different behavioral professionals might offer 10 different remedies for depression, as compared with treatment for a common physical ailment such as appendicitis, which is almost always fairly straightforward. There was more mystique around behavioral healthcare than around medical care in general.
Early cost-reduction attempts by health insurers called for limits on covered services because insurers couldn't control how behavioral healthcare was administered. For chemical dependency, a common limit was a lifetime cap of only two stays in an addiction recovery facility—a simple way to address high recurrence rates.
With managed care, payers used two tools in the traditional medical sector: utilization management and bargaining directly with providers to lower their prices via network contracts. But the "how to" of applying these techniques to behavioral healthcare treatment was initially unclear.
Some behavioral healthcare professionals, often clinicians, saw a business opportunity. Organizations that later became known as managed behavioral healthcare organizations (MBHOs) began sprouting up to "carve out" the behavioral healthcare benefits from health plans. Typical health plans developed their own managed-care approach to physical healthcare, but rarely had the expertise to do so for behavioral healthcare. The MBHOs filled this void. These MBHOs would contract with health plans to receive a flat dollar amount per insured member per month (capitation) and manage the behavioral service risk within this budget.
This approach delegated the financial risk of insuring behavioral healthcare to the behavioral specialty companies. It became the MBHO's responsibility to build the specialty behavioral network, manage the behavioral healthcare services, pay the providers, provide customer service, and generally do everything a health plan does, but with an exclusive focus on behavioral healthcare benefits.
MBHOs grew rapidly from the mid-1980s to the late 1990s, when they served 170 million people insured by managed-care plans. These specialty behavioral healthcare organizations had financial incentives to reduce costs through utilization management and aggressive provider contracting; they even steered certain patients back into the physical healthcare system. Through effective specialty behavioral healthcare management, cost trends dropped for several years, which was the initial goal of health insurance payers. But this trend had other adverse impacts.
Adverse effects of the growth of MBHOs
The growth of this carve-out sector was not without its unintended consequences, not the least of which was that it truly separated the mind from the body in healthcare delivery. Because the carve-out sector is typically completely separate from the rest of the medical industry, treatment of the mind takes place in isolation from treatment of the rest of the patient. The same disconnect applies to physical health, and even problems with the brain are often treated as part of physical healthcare with little consideration of their effect on behavioral health.
This divided system misaligns patients' incentives for healthy outcomes and the overall well-being of patients suffering from behavioral disorders. Although the behavioral healthcare sector is much more effective at treating and curing behavioral disorders, insurance plans require the patient to pay more to obtain treatment within the specialty behavioral healthcare sector. And because insurance plans pay carve-outs a flat monthly fee per insured member regardless of how many patients they treat, carve-outs make more money if patients instead seek treatment within the traditional medical sector, where they typically obtain prescription medication for their disorders. Many of these medications have great promise yet turn out to be ineffectively used.
The outcomes are horrible. Only eight out of 100 patients suffering from behavioral disorders receive minimally effective treatment in the dual system that exists today. Sixty of these 100 patients receive no treatment for their disorders. And because behavioral disorders very often manifest through pain and other physical symptoms, patients often seek treatments for such physical ailments in general medical settings, without effective treatment for the root cause. In general medical settings, the percentage of patients that receive minimally effective treatment for their behavioral disorders is just 13%.1
The impact of behavioral illness goes beyond health insurance costs. A depressed person completes one or two fewer hours' worth of work per day than someone who is not depressed, a phenomenon known as "presenteeism." Sick days, disabilities, and on-the-job accidents also increase for employees with behavioral disorders.
Fifteen years ago, the estimated cost of mandating behavioral healthcare parity would have swallowed the profit margins of most health insurance plans. But the trend in specialty behavioral healthcare has been one of dramatically falling costs, and recent estimates of parity costs are considerably lower today than those of a dozen years ago, when the Clinton administration pushed reform efforts.
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The direct effects of parity on the cost of healthcare plans come in two forms. First, cost sharing for behavioral health services would be made equal to the cost-sharing provisions for physical care, which would raise insured healthcare costs. Second, the benefit limits that most plans apply to mental health conditions—like annual caps on therapy sessions or hospital stays—would be removed, also bringing the potential to raise insured healthcare costs.
The insurance industry had feared that removing these annual caps would provide a blank check for beneficiaries to over-use behavioral services. But the behavioral healthcare industry has transformed so dramatically over the last two decades that this "Chicken Little" prediction is highly unlikely.
For example, many plans have annual inpatient day limits, such as 60 days per year, on hospital stays for behavioral disorders. But admissions rarely last longer than 10 days. To break the limit, patients would have to be readmitted several times in the same year, and have relatively long inpatient stays. This may be common among pop stars or fugitives, but for the average (managed) behavioral health patient is very unlikely.
Higher insured out-of-pocket payments and policy limits have created great obstacles for people who actually need the specialty behavioral care (see Figure 1, below). These limits were put in place to purposely raise the cost to patients and prevent the runaway utilization of services at a time when excessive utilization was a real problem. But cases of runaway demand and high utilization are rare when these benefits are managed.
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Additionally, for employers, while parity may require slightly more up-front spending on behavioral healthcare services, it could save two to three times the extra expenditures in reduced absenteeism and disability costs, lower accident rates among employees, and improve productivity in the workplace.
Estimates of the potential industry-wide cost increases from mandated behavioral healthcare parity have fallen from 3% or 4% in the early 1990s to 0.6% or lower today, based on a recent Milliman study. The 0.6% cost impact of parity is based on a scenario that assumes plans do not increase their utilization management of behavioral benefits. If all plans increased their utilization management in response to mandated parity, costs could rise by less than 0.1%. The Congressional Budget Office agrees, recently reporting a 0.4% estimated cost impact. None of these analyses consider the effect of cost offsets from savings in other healthcare services, such as the potential for reduced visits to primary-care doctors or emergency rooms. All of these estimates are aggregates, and the impact for particular programs can vary.
As a result of parity, cost increases could be as high as 2% to 3% for some plans, such as those without managed care that have very little existing behavioral healthcare coverage. But these plans make up less than 5% of all group plans.
Two competing bills in Congress that would establish parity, S. 558 in the Senate and H.R. 1424 in the House, have received objections on the basis that attempts to achieve parity would result in runaway costs. But according to the Milliman analysis, the House's more extensive Wellstone Act would raise individual premiums by between $0.03 and $2.40 per insured person per month.
Today, as treatment costs have continued to fall dramatically in the carve-out sector, the parity argument is no longer over high costs or whether it is the right thing to do, but over which parity bill in Congress is better. The House bill is a bit more comprehensive than the Senate bill, but projected costs are comparable. To an outsider, the debate has apparently shifted from costs to politics.
Parity would help improve access, but what's really needed is an integrated healthcare delivery system, one where medical and behavioral healthcare providers deliver coordinated healthcare in a collaborative fashion. Evidence is beginning to suggest that the long-term costs of not treating behavioral health problems, or solely treating them in isolation from other medical issues, may result in total healthcare costs that are much higher than necessary. In medical settings, patients may seek repeated and ineffective care from medical or surgical physicians, rather than more effective specialized care from specialty behavioral professionals.
Twenty-five percent to 40% of patients with a chronic, costly physical condition also have a diagnosable psychological disorder—that's a rate 50% to 100% higher than in the general population, and these are often severe cases.5 What’s more, a disorder like depression can exacerbate a physical illness and lead to increased medical costs. Integrating behavioral healthcare with the rest of the mainstream healthcare system may help catch these double-whammy situations before they do lasting damage to patients and drive up overall healthcare costs. This is the second part of the transformation beginning to occur in the delivery of behavioral healthcare.
Changing the status quo
Three core elements of the behavioral healthcare system must each be altered in order to achieve a truly integrated approach:
- Benefit financing, which parity goes a long way toward improving
- Integrated case and disease management that addresses patients with physical and behavioral disorders
- Day-to-day recognition and responsibility for both physical and behavioral outcomes by all treating clinicians
Many healthcare professionals now argue that ineffective or nonexistent behavioral treatment negatively affects the healthcare system as a whole—and the employers and workers who support and depend on it. This hypothesis is gaining support, although the longitudinal studies to provide conclusive evidence of this are still in the early stages.
Fully integrating the behavioral health system with the rest of the mainstream healthcare system could take a generation to complete, just as it took a generation for the MBHOs to prove that specialty behavioral healthcare could be provided at a reasonable cost. But for the time being, the 92 patients out of 100 diagnosable ones who aren't getting minimally effective treatment are adding costs to health plans and the employers who sponsor them.6,7,8
STEPHEN P. MELEK is a principal and consulting actuary with the Denver office of Milliman. He has extensive experience in the behavioral healthcare specialty field and has focused on parity issues (including recent Congressional testimony) and cost analyses, mental health utilization and costs in primary-care and emergent settings, psychotropic drug treatment patterns and application of quality algorithms, and strategic behavioral healthcare system design.