Special Report: Improving Mental Health Insurance Benefits Without Increasing Costs

Executive Summary

During any year, roughly a third of noninstitutionalized civilians between ages 15 and 54 have a mental disorder. Yet workers who are covered by employer health plans typically find that their benefits for mental health (MH) services are much more limited than those for medical/surgical care. As a result, many in need of MH services may be forced for financial reasons to forgo them or discontinue treatment prematurely. Mental health problems take a heavy toll on the American economy, costing billions of dollars each year in lost productivity and increased absenteeism.

This study suggests ways that MH benefits can be improved at little or no additional cost to employers. It is based on actuarial analysis, discussions with benefit design experts, and a review of the professional literature. Results show that health plans can keep the costs of MH benefit improvements to a minimum if they do the following:

• Provide financial incentives for substituting lower-cost alternatives (such as partial hospitalization or psychosocial rehabilitation) for higher-cost inpatient hospital care.
• Reduce employee cost sharing for outpatient services (which will encourage employees to seek treatment) by covering fewer outpatient visits (to keep total benefit costs the same).
• Employ a simple design that is easy to administer and easy for consumers to understand and follow.
• Cover treatment in intermediate settings (such as partial hospitalization) in preferred provider organization (PPO) and point-of-service (POS) plans only if the treatment is provided by network providers, where care can be managed.
• Increase coinsurance rates for PPO and POS enrollees who use non-network services (to encourage the use of network providers).

This report describes benefit packages that incorporate some of these principles and have actuarial values equivalent or similar to benefits packages typically offered by employers. Because employee enrollment is highest in health maintenance organizations (HMOs) and PPOs, modification to MH packages offered by these two delivery systems will have the most far-reaching effects. However, POS and indemnity plans would benefit from improvements to their MH benefits as well.

The MH plans described in this report are still limited in scope compared with most medical/surgical coverage, and therefore are not meant as substitutes for parity in health/mental health benefits. These limited benefit packages do not provide adequate coverage for catastrophic mental illnesses, and they require trade-offs (e.g., reducing covered outpatient visits to allow for lower employee cost sharing). Nevertheless, because they provide better benefits than those typically offered by employers, they hold the promise of increasing access to mental health services for millions of American workers and their families and of improving workplace productivity.