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.