Behavioral Healthcare Benefit Plans

Typical Plan Features

According to the Substance Abuse Mental Health Services Administration (SAMHSA), the vast majority of employer-sponsored plans cover inpatient and outpatient mental health treatment services. Roughly half of all employers cover intermediate mental health treatment services such as residential treatment and partial (or day) hospitalization. Approximately 60 percent cover intensive outpatient services, which can include psychosocial rehabilitation, case management, and wraparound services for children (developing treatment plans for children that involve their families). Many plans also include a parity benefit—often called a "severe mental illness" benefit—that specifies which disorders are covered under their state parity law. A well-designed benefit package should cover a wide range of clinically effective services and treatments while incorporating financial incentives to substitute lower cost alternatives for higher cost alternatives when it is clinically appropriate to do so.

Benefit Plan Variables

As previously discussed, mental health and substance abuse coverage has long been characterized by limits that do not apply to healthcare coverage in general. The typical employee healthcare benefit plan offers 30 annual inpatient mental health treatment days and 20 annual outpatient mental health visits. Industry studies show that approximately 80 percent of employees have less generous limits, copayments, and coinsurance deductibles for inpatient mental health treatment than for medical treatment. Although nearly 20 percent of all employer-sponsored health plans have no day or visit limits on inpatient and outpatient health care, more than 50 percent of the plans covered just 20 outpatient mental health treatment visits, and nearly 60 percent covered just 30 or fewer inpatient days. While approximately 80 percent of all covered employees have copayments for medical treatment of less than $20 per visit, only 40 percent have copayments of less than $20 for outpatient mental health treatment visits.

ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) regulates the majority of private pension and welfare group benefit plans in the United States. The provisions of ERISA prevent states from regulating multistate employers on the provisions of their health benefits. Most notably, this affects the 9.5 million federal employees enrolled in the Federal Employee Health Benefit Plan (FEHBP). It also affects many large, self-insured employers and union trust groups.

HIPAA

HIPAA applies to all health insurance plans, including MBHOs. HIPAA allows employees to continue their health insurance coverage from one group to another. HIPAA's nondiscrimination provisions prohibit a group health plan or insurance company from denying an individual eligibility for benefits or from charging an individual a higher premium based on a health factor, including health status, medical condition (both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability. HIPAA also may serve to reduce health care fraud and abuse and protect privacy and is projected to significantly reduce the 29 cents of every health care dollar spent today on administration. The HIPAA Administration Simplification component consists of three areas:

• Data Standards. Enforce standards for the electronic transmission of health care information.
• Security. Protects confidential and private information through sound and uniform security practices.
• Privacy. Maintains confidentiality of member information.

Because behavioral stigma still prevails, HIPAA plays a particularly important part in protecting sensitive patient information gathered during behavioral treatment.

The Managed Behavioral Health Market Today

Market Size

Of an estimated 250 million Americans with health insurance, approximately 66 percent are enrolled in some type of managed behavioral healthcare program. This figure does not include individuals who receive behavioral coverage through a health maintenance organization that manages behavioral healthcare benefits without the assistance of a specialty MBHO. During 2002/2003, enrollment in MBHOs and EAPs rose to 227 million, according to Open Minds, a behavioral health and social service industry research and management consulting firm in Gettysburg, PA. This represents a two-percent growth over 2001. Over a 10-year period (between 1993 and 2002), the total number of enrollees in these programs rose 163 percent—from 86.3 million in 1993 to 227 million in 2002.See Figure 1.

 
Figure 1: Total Enrollment by Year in Managed Behavioral Health and Employee Assistance Programs in Millions of Covered Lives 1993–2002

Market Composition

The majority of behavioral healthcare benefits sold in the United States today are purchased by large groups that buy comprehensive healthcare and other insurance benefits for their covered members. Purchasing groups for behavioral carve-outs include self-funded and other large employers, health plans, union trust and Taft-Hartley trust funds, school districts and educational coalitions, state and county mental health agencies supported by public funds, and the government's Federal Employees Health Benefits Program (FEHBP). The smaller the groups the more likely it is that behavioral benefits are sold as an integrated part of a general health plan, which may or may not have a specialty MBHO provide the behavioral benefit.

The Sales Environment

Behavioral benefits are sold through multiple channels. Large brokerage and consulting firms often serve as the go-between for behavioral benefit purchasers, helping them locate and negotiate insurance contracts. A broker or consultant may also be an agent for an MBHO, delivering policies and collecting premiums. Brokers generally work on commission; consultants, on a fixed retainer. In addition, most large MBHOs employ sales forces that sell directly to purchasers or through brokers and consultants and generally are compensated on a combined base salary and commission pay structure. Since many MBHOs are subsidiaries of health plans, health plan sales forces also sell behavioral benefits as part of the plans they offer.

Changing Market Landscape

As with other segments of the managed care industry, MBHOs are rapidly evolving in response to payer, member, legislative, and market demands. MBHOs in the past decade went through a period of consolidation, using mergers, joint ventures, and other strategies to attract investors and capital. Four factors have been cited as drivers of behavioral healthcare mergers and acquisitions:

1. Payers are demanding greater capital reserves to pay providers more quickly and cover risk adequately.
2. Greater investment is required in management information systems to meet accountability and accreditation requirements.
3. Premium and capitation payments are stagnant, meaning that managed care companies are not seeing increases in revenues through existing business.
4. The costs involved in developing public procurement bids, especially for statewide contracts, can be large.

Merger and Acquisition Activity

Today approximately three-quarters of the market is controlled by the 10 largest companies with three companies comprising a little more than half of the market according to 2002 data. In large part, this is a result of merger and acquisition activity. Magellan Behavioral Health, a publicly traded MBHO with 69 million members, currently dominates the market, capturing 30.3 percent of total enrollment as of 2002. In addition to Magellan's acquisitions, MBHO merger and acquisition activity throughout the 1990s was rampant. During the early years of the 21st century, merger and acquisition activity briefly slowed down, but it will likely ramp up again because of continuing price pressures and economy of scale issues.