History and Industry Overview | Managed Behavioral Health Care Benefits

The Early Years

Today, managed behavioral health plans are widely adopted, but that was not always the case. Prior to the 1940s, treatment for mental disorders was usually only provided in state mental hospitals. After World War II, general hospitals opened onsite psychiatric clinics and added psychiatrists to their staffs, which prompted commercial insurance carriers to include hospitalization coverage for mental illness. Initially, this coverage provided the same level of benefits as for nonpsychiatric benefits. Soon, however, insurers placed limits on outpatient mental health care because treatment often continued for indefinite lengths of time, and there was much subjectivity surrounding mental disorders and treatment methods.

Growth of Managed Care

The Health Maintenance Organization (HMO) Act of 1973 promoted and set minimum standards for health maintenance organizations and required managed care plans to include an outpatient mental health benefit consisting of 20 visits annually for emergency assessment and crisis intervention. While HMOs proliferated in the 1980s as a response to rapidly rising health care costs, their coverage for mental illness was extremely limited and differed significantly from coverage for physical illness. Hospital coverage was restricted to 30–45 days per mental illness, or 30 or 60 days per year. For medical illnesses, the number of days was usually unlimited. And for outpatient services—care received in the outpatient department of a hospital or in a clinician's office—coverage limitations were dramatically lower for mental health treatment than for medical treatment.The most common limitations for mental health outpatient treatment were a maximum dollar limit of $1,000 per year and a maximum reimbursement per visit ranging from $25 to $40. Coinsurance rates also varied dramatically between medical and mental coverage.

Advent of the Behavioral Healthcare Carve-Out

Because of the limitations of HMO coverage for mental health disorders, a new opportunity paved the way for behavioral health "carve-outs." A behavioral healthcare carve-out is a program that separates—or carves out—mental health and chemical dependency services from the medical plan and provides them separately, usually under a separate contract and from a separate company known as a managed behavioral healthcare organization (MBHO). MBHOs offer mental health and chemical dependency plans that fillthe coverage gaps in medical plans—many MBHOs also offer employee assistance programs. They are able to offer enriched, flexible and affordable behavioral healthcarebenefits along with sophisticated administrative, operational and care management capabilities. MBHOs focus on matching appropriate levels of specialists and treatment settings with the behavioral treatment needs of members to most cost-effectively provide care and maximize treatment effectiveness. Behavioral healthcare carve-outs have thepotential to produce significant savings because (1) they are usually managed by firms that specialize in behavioral health treatment; (2) they allow large, self-funded employers to offer the same behavioral health benefits across all health plans offered; and (3) they allow a health plan to minimize adverse selection, which may occur when employees who utilize high levels of behavioral treatment opt for an indemnity medical plan instead of an HMO.

Growth of the Employee Assistance Program

An employee assistance program (EAP) is a confidential resource for information and referral to emotional counseling, covering such matters as relationship issues, family conflicts, job-related stress, alcohol abuse, drug addiction, financial hardships, and other personal problems. The first EAPs arose in the 1950s and focused on early intervention for alcohol and drug abuse. Since the 1970s, EAPs have evolved into an industry of their own. In the mid-1980s, EAPs began diversifying their services to include a wide rangeof work/life services along with human resource support, and the EAP is now considered a low-cost, high-return tool for enhancing workplace productivity.

Overall Employee Benefit Plans Concerns

Because employee benefits, as noted previously, provide such an important dimension of financial security in our society, some overall questions need to be asked to evaluate any existing or newly created employee benefit plan.

Employer and Employee Objectives

The design of any employee benefit plan must start with the objectives of the benefit plan from the standpoint of both employer and employee.

What Benefits Should Be Provided?

There should be clearly stated reasons or objectives for the type of benefits to be provided. Benefits provided both under governmental programs and by the individual employees also should be considered.

Who Should Be Covered Under the Benefit Plan?

Should only full-time employees be covered? What about retirees or dependents? What about survivors of deceased employees? These and a host of similar questions must be carefully evaluated. Of course, some of these issues depend on regulatory and legislative rules and regulations.

Should Employees Have Benefit Options?

This is becoming more and more of a crucial question under employee benefit plans because of the changing workforce. With the growth of flexible benefits or cafeteria plans, employee choice is on the increase. Even in nonflexible benefit plan situations, should some choices be given?

How Should Benefit Plans Be Financed?

Several important questions need to be answered in determining the approach to funding employer benefit plans. Should financing be entirely provided by the employer (a noncontributory approach) or on some shared basis by the employer and employee (a contributory approach)? If on a contributory basis, what percentage should each bear?

What funding method should be used? A wide range of possibilities exists, from a total insurance program to total self-funding with many options in between. Even when one of these options is selected, further questions still remain concerning the specific funding instrument to be used.

How Should the Benefit Plan Be Administered?

Should the firm itself administer the plan? Should an insurance carrier or other benefit plan provider do the administration? Should some outside organization such as a third-party administrator (TPA) do this work? Once the decision is made, the specific entity must be selected.

How Should the Benefit Plan Be Communicated?

The best employee benefit plan in existence may not achieve any of its desired objectives if it is improperly communicated to all affected parties. The communication of employee benefit plans has become increasingly important in recent years with the increased employee choice in several benefit areas and increased reporting and disclosure requirements. Effective communication and education of what benefit plans will and will not do is essential if employees are to rely on such plans to provide part of their financial security at all stages of their lives. Technology has provided many new options in this area.

Future of Employee Benefits

With the spate of legislation affecting certain aspects of employee benefit plans, the varying needs of today's changing workforce and the outsourcing of many benefit functions, some benefit experts believe there may be more changes than ever before. While certain new approaches and techniques may be utilized, employee benefit plans are woven into the fabric of our society in such a way that the basic character or importance of such plans will not be changed. With pressures to contain healthcare and retirement costs ever increasing, greater efficiencies in the benefits approach, more tailoring to individual needs in the growth of flexible benefits or cafeteria compensation plans, and other refinements will drive the employee benefits mechanism. While it seems certain that employee benefits will not grow as rapidly as they have in the past, their place is secure and there will continue to be a demand for people who are knowledgeable about all aspects of the design, funding, administration, and communication of employee benefits in order to make such plans more effective while helping to provide for the economic security of society at large.

Group Disability Income Coverage

The purpose of disability income coverage is to partially (and sometimes totally) replace the income of employees who are unable to work because of sickness or accident. While employers expect employees to miss a few days of work from time to time, there is often a tendency to underestimate both the frequency and severity of disabilities that last for longer periods. At all working ages, the probability of being disabled for at least 90 consecutive days is much greater than the chance of dying. One out of every three employees will have a disability that lasts at least 90 days during his or her working years, and one out of every ten employees can expect to be permanently disabled prior to age 65.

In terms of its financial impact on the family, long-term disability is more severe than death. In both cases, income ceases. In the case of long-term disability, however, family expenses—instead of decreasing because of one less family member—may actually increase because of the cost of providing care for the disabled person.

Employers are less likely to provide employees with disability income benefits than with either life insurance or medical expense benefits. It is difficult to estimate the exact extent of disability coverage because often benefits are not insured and workers are sometimes covered under overlapping plans. However, a reasonable estimate would be that at least 75 percent of all employees have some form of short-term employer-provided protection, but only about 40 percent have protection for long-term disabilities. This does not mean that almost all employees have some sort of disability income coverage, because many employees have both short-term and long-term protection and thus are included in both estimates. These estimates are also somewhat misleading because most employees have long-term disability income coverage under Social Security as well as coverage for certain types of disabilities under other government programs.

Group disability income protection consists of two distinct products:

Short-term disability income plans, which provide benefits for a limited period of time, usually six months or less. Benefits may be provided under uninsured plans or under insured plans, often referred to as accident and sickness insurance or weekly indemnity benefits.

Long-term disability income plans, which provide extended benefits (possibly for life) after an employee has been disabled for a period of time, frequently six months.

Two important tasks in designing and underwriting insured group disability income plans are to coordinate these products with each other (if both a short-term and a long-term plan are provided for employees) and to coordinate them with other benefits to which employees might be entitled under social insurance programs or uninsured sick-leave plans. A lack of coordination can lead to such a generous level of benefits for employees that absences from work because of disability might be either falsified or unnecessarily prolonged.