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Parity coverage of mental health services is readily affordable under managed care carveouts, according to a new study by a major economic think tank.
The study, reported in the November 12 issue of the Journal of the American Medical Association (JAMA), was conducted by economist Roland Sturm, Ph.D., at the RAND Corporation in Santa Monica, Calif. It finds that even the most costly change—eliminating both limits on dollar amount incurred and on inpatient days and outpatient sessions—would raise costs annually only $7 per enrollee in a plan without deductibles and with minimal copayments of $10 per outpatient visit and $100 per hospitalization.
Simply removing the typical average annual dollar limit of $25,000 and leaving other limits intact would increase mental health care costs annually by about $1 per enrollee.
"The RAND study demonstrates, once again, that access to timely and appropriate mental health care is affordable as well as the right thing to do from a clinical and moral perspective," remarked APA Medical Director Steven Mirin, M.D. "Inflated estimates of the cost of ending discrimination against persons with mental illness and providing coverage of these disorders have been based on a fee-for-service model, which, for the most part, doesn’t reflect the current realities of the mental health marketplace," Mirin continued. "Such estimates also fail to consider the savings generated when appropriate care serves to reduce or prevent medical and occupational disability in persons with mental illness including those with substance abuse disorders."
The study’s findings come less than two months before the January 1 implementation of the 1996 Mental Health Parity Act. Prior estimates of covering mental health benefits have failed to account for the rise of managed care, particularly carveout plans in which services are contracted to a specialty provider, says Sturm. One source quoted widely last year during the debate over the parity legislation, the Congressional Research Service (CRS), failed to incorporate cost distinctions between managed care and fee-for-service care, Sturm observes. Even more misleading, the CRS relied on a 1986 report from the National Institute of Mental Health to determine mental health care practice patterns. Earlier estimates have also failed to account for the psycho-pharmacological revolution that has shifted much psychiatric care from inpatient to outpatient, the author notes. Further, managed care has reduced payments per service. The failure to factor in these changes have led CRS and critics of parity to overestimate grossly its cost effects, leading to bias among both employers and policymakers, says Sturm.
Assumptions used in last year’s policy debate surrounding the Mental Health Parity Act overstated the true cost of managed mental health benefits by a factor of 4 to 8, the author concludes.
In addition to finding managed parity affordable, the study revealed that removing limits benefits children more than employees or adult dependents.
"The RAND study puts the lie to the ongoing campaign by national business and insurance lobbyists who continue to argue that implementation of the Mental Health Parity Act of 1996 will result in significant health insurance cost increases," said Jay Cutler, J.D., director of APA’s Division of Government Relations. It is an "extremely useful study that confirms what we have argued all along: that parity will not cause insurance premiums to skyrocket," Cutler added. "In fact, APA’s own Milliman & Robertson study last year is now shown to be very conservative in its estimate of the likely cost impact."
The study looked at claims data from 1995 and 1996 for 24 managed care carveout plans with unlimited mental health coverage and minimal copayments. It required that the plans surveyed have three characteristics. The first was "very generous benefits" with no coverage limits; second, that the plans be new because "very generous plans are likely to attract higher users over time unless legislation requires similar benefits"; and third, all employees had exactly the same benefits "to avoid the dramatic selection effects across different plans offered by the same employer."
The constraints were designed to identify any tendency for costly utilization of mental health services.
"As long as business is willing to accept comprehensive managed care, they should not be concerned about costs," Sturm told Psychiatric News. "If, however, they want to continue using unmanaged care and offer multiple options, they may have an extreme adverse selection problem."
The study highlights that parity for mental health services results in less use of more costly inpatient care and more use of less costly outpatient care, remarked Clarke Ross, D.P.A., executive director of the American Managed Behavioral Healthcare Association. "It merely adds evidence to a list of professionally developed studies over the last few years reinforcing that parity is affordable within a managed approach," said Ross. "Although it’s just one of many such studies, the prestige of both RAND and JAMA significantly enhances the findings."
Not everyone agrees with the conclusions reached by Sturm, Ross, and others. Paul Dennett is vice president for health policy for the Association of Private Pension and Welfare Plans, whose members are mainly Fortune 500 companies.
"Although the study is helpful in determining the cost risk that employers may face in changing their benefit plans, the real [question] they have to ask themselves is ‘What does it mean for my benefit plan and my group of employees and their families?,’ " said Dennett. The 24 employers in the RAND study may not be typical, Dennett commented.
"This becomes particularly important for smaller employers," he added. Although the parity act exempts businesses with up to 50 employees, businesses with fewer than 100 employees may find that the impact of parity is magnified, he contended. "That’s a small-group, large-group problem," said Dennett. "The other issue, apart from the cost, is who should decide this. The real issue [our members] care about is keeping a benefit plan responsive to their budget and the needs of their employees. Because the reason for having the plan in the first place is to attract and retain the workforce that you need."
What about fairness? "The objection of employers is more the objection to legislated imposition of any benefit design than the substance of the argument about the merits of the benefits," Dennett said. Ultimately, [employers] want to "keep control over what’s affordable and responsive to their employees’ needs."
The health care system of today is far different from that of a decade ago, not as a result of coercive legislation, but mainly as a consequence of the marketplace, Dennett noted. All such changes have not been positive, he conceded, but the question is whether society wishes to reverse the market-driven changes through a coercive legislative approach.
While business interests worry about legislated benefit design, psychiatrists worry that part of the savings under managed care result from shifting services to master’s degree–level therapists and counselors. But the study offers some reassurance on this count. The author found that nearly a quarter (23 percent) of the costs of claims was attributable to psychiatrists. Although this may seem low, it appears to reflect an increase in the role of psychiatrists when compared with patterns identified in HMO’s 10 years ago. A 1986 survey of depressed patients in HMO’s, while not directly comparable to the current study, found that only 10 percent were treated by psychiatrists.
Several variables may limit the study’s applicability, according to the author. The sample was heavily concentrated in the Midwest; the policyholders were all covered by a public, rather than a private, employer; and there were substantially fewer ethnic minorities than in the general population. The sample was similar, however, to a national comparison group in terms of income and housing costs. —R.B.K.