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.