Designing Employer-Sponsored

Mental Health Benefits

> Rachel Sethi
>
> Joanne Jee
>
> Lisa Chimento
>
> D. Richard Mauery
>
> ![](media/image1.png){width="5.740972222222222in"
> height="1.0368055555555555in"}

Acknowledgments

The authors of this report are Rachel Sethi, Joanne Jee, and Lisa
Chimento of The Lewin Group, and D. Richard Mauery of the Department of
Health Policy at The George Washington University School of Public
Health and Health Services. The authors acknowledge the contributions of
Shelagh Smith, government project officer, and Jeffrey A. Buck,
Associate Director of Organization and Financing, Center for Mental
Health Services (CMHS), as well as Karen Linkins, Maya Bhat, and
Catherine Tsien of The Lewin Group. Valuable direction and guidance was
provided by the advisory panel members (listed in Appendix B).

Disclaimer

Material for this report was prepared by The Lewin Group for the
Substance Abuse and Mental Health Services (SAMHSA), U.S. Department of
Health and Human Services (DHHS), under Task Order Number 280-03-2701.
The content of this publication does not necessarily reflect the views
or policies of CMHS, SAMHSA, or DHHS.

Public Domain Notice

All material appearing in this report is in the public domain and may be
reproduced or copied without permission from SAMHSA or CMHS. Citation of
the source is appreciated. However, this publication may not be
reproduced or distributed for a fee without the specific, written
authorization of the Office of Communications, SAMHSA.

Electronic Access and Copies of Publication

This publication can be accessed electronically through the following
Internet World Wide Web connection: www.samhsa.gov. For additional free
copies of this document, please call SAMHSA's Mental Health Information
Clearinghouse at 1-800-789-2647.

Recommended Citation

Sethi, R., Jee, J., Chimento, L., & Mauery, D.R. *Designing
Employer-Sponsored Mental Health Benefits.* (2006) DHHS Pub. No.
SMA-06-4177. Rockville, MD: Center for Mental Health Services, Substance
Abuse and Mental Health Services Administration.

Originating Office

Office of the Associate Director for Organization and Financing, Center
for Mental Health Services, Substance Abuse and Mental Health Services
Administration, One Choke Cherry Road, Rockville, MD 20857.

DHHS Publication No. SMA-06-4177

Printed 2006

Contents

Acknowledgments i

Executive Summary 1

I. Introduction 4

A. Purpose of the Report 5

B. Employer Characteristics and Health Plan Types 6

C. Method 7

1\. Interviews and Conceptual Framework 7

2\. Literature Review 7

3\. Actuarial Analysis 9

4\. Report 9

D. Organization of the Report 9

II\. Prevalence and Financial Implications of Mental Illness 10

A. Prevalence 10

B. Financial Implications 11

1\. The Costs to Employers of Untreated Mental Illness 12

2\. The Cost of Providing Mental Health Benefits 14

3\. Return on Investment 17

4\. Medical Cost Offsets 17

5\. Parity of Mental Health Benefits 18

C. Protection from Catastrophic Costs 21

D. Plan Design Issues and Criteria 23

1\. Regulatory Requirements 24

2\. Cost Factors 24

3\. Consumer-Directed Health Benefits: Issues for Mental Health Benefits
26

III\. Administration of Mental Health Benefits: Overview of\
Carve-Out Purchasing Arrangements 28

IV\. Objectives and Options for Designing an Adequate Mental Health
Benefit 31

A. Provide Protection from Catastrophic Costs, Cover a Wide Array of\
Treatments, and Allow Flexibility within Plan 31

1\. Current Practice and Evidence from the Literature 33

2\. Options for Meeting the Objective 40

B. Ensure Access to Covered Services 42

1\. Current Practice and Evidence from the Literature 42

2\. Options for Meeting the Objective 48

C. Include Evidence-Based Practices and Treatment Guidelines as
Available in\
Mental Health Benefits 49

1\. Current Practice and Evidence from the Literature 49

2\. Options for Meeting the Objective 54

V. Conclusions 55

References 58

Appendices

Appendix A: Actuarial Analysis---Relationship Between Benefits and
Premiums 68

Appendix B: Advisory Panel Members 73

List of Exhibits

Exhibit 1. Summary of Workplace Costs of Mental Illness 15

Exhibit 2. Typical Models of Behavioral Health Care Contracting 30

Exhibit 3. In- and Out-of-Network Cost Sharing 38

Exhibit 4. Benefits and Drawbacks of Carving Out to MBHO 44

Exhibit 5. Hawaii's Medical Definition in State Independent Review
Statute 52

Exhibit 6. NGC Mental Health and Substance Abuse Treatment\
Guideline Categories 53

Exhibit A-1. Estimated PMPM Benefit Costs (excl. admin.) for Typical
In-Network Health Care Plan with Varying Levels of Mental Health and
Substance Abuse Benefits\
(U.S. average, 2005) 70

Exhibit A-2. Estimated PMPM Benefit Costs (excl. admin.) for Typical and
Modified\
PPO Plans with Varying Levels of Mental Health/Substance Abuse Benefits\
(U.S. average, 2005) 71

Exhibit A-3. Estimated PMPM Benefit Costs (excl. admin.) for Typical and
Modified\
HMO Plans with Varying Levels of Mental Health/Substance Abuse Benefits\
(U.S. average, 2005) 72

Executive Summary

This report explores the current design and administration of mental
health coverage and what constitutes adequate mental health coverage in
employer-sponsored health benefits. The information and suggestions
presented in the report have been informed by an extensive literature
review, input from experts in a variety of fields relating to mental
health and illness and insurance and benefits, and actuarial analysis.
While there is no accepted definition of "adequacy" in mental health
benefits, this report lays out the necessary components of an adequate
mental health benefit by examining such areas as the evidence base for
particular mental health benefits; the effects of different types of
benefit limits on access, utilization, and costs; the components of a
cost-effective mental health benefit package; and the effects of
benefits administration on effectiveness.

Recently published analyses of the latest National Comorbidity
Study-Replication revealed high lifetime and annual prevalence of mental
illnesses in the United States (Kessler, Berglund, Demler, Jin, &
Walters, 2005; Kessler, Chiu, Demler, & Walters, 2005). In light of the
high level of burden of illness as a result of the prevalence of mental
disorders, reduced productivity, and increased absenteeism caused by
those disorders, employers have a vested interest in ensuring that
appropriate treatments are available, accessible, and affordable. With
medication, rehabilitation, psychotherapy, group therapy, self-help, or
a combination of these treatments as well as recovery support services,
people with mental illness can recover or manage their conditions. The
costs to employers of not sufficiently covering mental health benefits
include losses in employee productivity, higher disability costs, and
the possibility of employees being faced with catastrophic out-of-pocket
costs that for some may result in medical bankruptcy filings.

The literature reviewed for this study did not provide a conclusive
guide to the development of an adequate mental health benefit, but major
findings include the following:

 Most employer-sponsored health plans cover mental health services,
though these services generally are limited and often have cost-sharing
requirements that are higher than those for medical/surgical benefits.

 Factors influencing employer choices in designing mental health
benefit packages include costs, regulatory requirements, employee
attraction and retention, productivity goals, employee health and
well-being, and treatment effectiveness.

 The mental health care market is now dominated by managed care, and
nearly three-quarters of Americans with health insurance are covered by
managed mental health benefits.

Based on a synthesis of the literature reviewed, discussions with
members of the advisory panel, and our actuarial analysis, we offer the
following three objectives that employers and the health plans with
which they contract should strive to meet in order to provide an
adequate mental health benefit to their employees, along with suggested
options that employers should consider for achieving each of the
objectives.

***Objective: Provide protection from catastrophic costs, cover a wide
array of treatments, and allow flexibility within plan---***

 **Combine the out-of-pocket maximums for mental and physical health
care services.** Patients' out-of-pocket expenses for mental health
services should be applied to a unified benefit out-of-pocket maximum
that also includes unreimbursed expenses for medical/surgical care.

 **Provide coverage for a variety of treatment modalities.** In order
to provide adequate coverage, a health plan should provide for a variety
of treatment types, including inpatient, intermediate, and outpatient
services and prescription drugs.

 **Provide a flexible mental health care benefit with generous or no
limits.** An employer that prefers to retain some limits on care covered
may wish to focus on limits for inpatient services and clarify explicit
criteria for evaluating medical necessity. Some specific options are as
follows:

 *Eliminating limits for outpatient benefits.* Actuarial analysis of
the relationship between benefits and premiums finds that increasing the
number of covered visits would increase plan costs by a relatively small
amount. As the number of covered services increases, the cost per
additional unit of service decreases substantially.

 *Combining coverage for outpatient and intermediate level services* in
a managed but unlimited benefit and retaining some generous limits on
inpatient care.

 *Covering inpatient care with generous limits,* as this is unlikely to
induce additional demand. Actuarial analysis indicates that providing
coverage for additional inpatient days increases plan costs by a
relatively small amount, and the cost per additional day decreases as
the number of covered days increases.

 *Providing a flexible benefit package.* Employers or their health plan
vendors should create a flexible mental health benefit plan that covers
a range of services and treatment types (including intermediate
services) and allows enrollees to trade services of different types
among the benefit limits.

 **Use the EAP for access and integrate it with the mental health
benefit.** If using an employee assistance plan (EAP), employers should
advertise the services to employees and their dependents and use the EAP
to get members who need care into appropriate treatment quickly.

 **Use treatment plans and prior authorization.** Employers and plans
can utilize provider-developed and plan-approved treatment regimens and
prior authorization to manage the care delivered to members. Doing so
would reduce demand for unnecessary services possibly induced by
increased limits or lower cost sharing.

 **Use a disease case management approach to improve outcomes and help
manage costs.** Employers and health plans have found that using disease
case management programs for conditions such as asthma and diabetes is
an effective way to manage care tied to clinically desirable outcomes.
Similar approaches can be taken for managing the treatment of conditions
such as depression or anxiety.

***Objective: Ensure access to covered services---***

 **Choose mental health carve-out vendors carefully** and negotiate
contracts to ensure access, quality of care, care management, and
appropriate care for vulnerable populations.

 **Incorporate approaches to coordinate mental and physical health care
services.** Provide for communication between different provider types
and specialties, to include sharing information about diagnoses,
treatment plans, prescribed drugs, and prognoses.

 **Take care in structuring mental health benefits as consumer-directed
health benefits become more prevalent.** The literature regarding these
plans and what they may mean for mental health care delivery is still in
its infancy but is growing rapidly. More information is needed from the
professional community regarding any special considerations that mental
health should receive when establishing these types of plans.

 **Encourage employees to consider mental health needs in funding
health savings accounts** (HSAs) or other types of accounts. This is
clearly an issue for someone contemplating an HSA who has an existing
mental health condition. It is not yet clear how individuals will
finance HSAs to insure against the catastrophic costs of an
unanticipated mental illness.

 **Contract with health plans that are accredited by a national quality
review organization.** These accreditation standards comprise quality
performance indicators related to access and outcomes that help to
ensure that mental health benefits are provided on a timely basis in
safe and effective treatment settings.

 **Assess care provided by primary care providers and referral
procedures.** A substantial amount of treatment in the form of mental
health screening and prescribing of psychopharmaceuticals occurs in
primary care settings. Primary care physicians should monitor for
"triggers" that indicate a need for specialty mental health providers to
engage in focused therapies such as short-term cognitive behavioral
therapy.

***Objective: Include evidence-based practices and treatment guidelines
as available in mental health benefits---***

 **Include coverage of available evidence-based and effective practices
and monitor fidelity with treatment guidelines.** Employer health plan
purchasers should require coverage of evidence-based practices, as well
as assurances from health plans that covered services are effective,
where appropriate.

 **Establish or contract with health plans that have outcomes
management systems.** These systems may be able to link the use of
evidence-based standards and/or treatment guidelines to clinically
desirable outcomes. Health plans with outcomes management systems should
be flexible enough to incorporate coverage for treatments aimed at
maintenance of functioning and prevention of deterioration as well as
those focused on recovery from mental health disorders.

I.

Introduction

In the United States, the prevalence of mental disorders has remained
relatively stable over time, but rates of treatment, and total spending
for mental health treatment, have been rising. Between 1987 and 2000,
the number of persons receiving treatment for mental disorders doubled
and spending for those disorders increased 3.5 times, accounting for 7.4
percent of the increase in total health care spending over the period.
Only heart disease and pulmonary conditions were responsible for a
greater proportion of the total spending increase (Thorpe, Florence, &
Joski, 2004). In the United States, 39 million people between the ages
of 18 and 54 have at least one mental or substance use disorder each
year, and 72 percent of them are in the workforce (Hertz & Baker, 2002).
The financial impact of mental disorders in the workplace due to
absenteeism, "presenteeism," and disability costs is significant. (The
term "presenteeism" describes a situation in which an employee is at
work but is less than normally productive, often as the result of a
health problem affecting himself/herself or a family member.) At the
same time, however, the cost of providing mental health benefits to
workers has declined as a percentage of total health plan costs (Buck &
Umland, 1997; Foote & Jones, 1999).

Today, 98 percent of workers with employer-sponsored health insurance
have mental health benefits as part of that coverage (Kaiser Family
Foundation and Health Research and Educational Trust \[KFF/HRET\],
2004). This was not always true; mental health treatment was long
regarded as a State responsibility, and few employers offered mental
health benefits until the 1960s. While mental health benefits offered by
employers have expanded since the 1960s, they have yet to reach parity
with physical health benefits in many cases.

Employer-sponsored health insurance often covers treatments for mental
health less generously than it covers treatments for physical health and
imposes stricter limits on coverage or greater cost sharing for
patients. While mental health benefits are regulated by the Federal
Mental Health Parity Act (MHPA) and various State parity and other laws,
these laws often are limited in scope or applicability (Frank, Koyanagi,
& McGuire, 1997). Many of the regulations around the provision of mental
health benefits apply only to employers with some minimum number of
employees, and due to the Employee Retirement Income Security Act of
1974 (ERISA) preemption, State insurance laws do not apply to
self-insured employment-based health plans. These regulatory limitations
leave employer-sponsored and other health plans with much flexibility in
designing benefits, and as a result, where full parity is not required,
mental health benefits often have lower limits on care provision or
greater cost sharing than benefits for general or physical health care.

Coverage of mental health treatments by employers has a direct and
measurable effect on corporate financial well-being. A growing body of
rigorous cost-effectiveness studies has found that employee productivity
is greatly enhanced when such treatments are accessible and affordable
(Simon et al., 2001; Wang et al., 2004). To the extent they are not,
added costs to employers include the costs of diminished productivity on
the job and sick leave absences that may incur the cost of hiring
temporary replacements. From the perspective of viewing employees as a
firm's most important "human capital" asset, providing insurance for
both physical and mental health conditions can be seen as an
indispensable investment in meeting a firm's goal of achieving
sustainable profits in a highly competitive economy.

A. Purpose of the Report

The purpose of this report is to delineate the necessary components of
an adequate mental health benefit, keeping in mind plan sponsors'
concerns about the cost of that benefit. This report is designed to
offer employers and health plan purchasers suggested options to assist
them in providing an adequate mental health care benefit to their
covered employees and dependents. It also may serve as a tool for policy
makers in developing laws, regulations, and government programs that
will assist and encourage employers in this effort. This report embodies
the culmination of an effort to explore what constitutes adequate mental
health coverage in employer-sponsored health benefits. The information
and options presented in the report have been informed by an extensive
literature review spanning the 15-year period from 1989 to 2004; input
from experts in the fields of mental health and illness, insurance,
employers/purchasers, employee benefits design experts, providers,
advocates, and academia; and actuarial analysis. Throughout the study,
the research focus has been on mental health care rather than behavioral
health care, which includes substance abuse services. To the extent
possible in this report, mental health benefits are discussed alone, but
in some cases, such as the actuarial analysis, substance abuse services
are included.

This effort has utilized empirical information and expert opinion to
understand the provision of mental health services and the organization
and financing of care. Adequacy of a mental health benefit plan is
measured differently by individuals and families with varying mental
health care needs. In struc-turing their benefit plan, employers may
ask: For whom is the benefit adequate? What levels of services are
covered, in what cir-cumstances, and to meet what level of need?

 "Adequate" will be what works for most people based on their needs,
and adequacy should consider the efficacy and efficiency of the benefit.
As a concept in mental health benefits, adequacy is distinct from both
parity and generosity. An adequate mental health benefit would be one
that meets the needs of the bulk of the covered population.

 Adequacy must take into consideration the incidence and prevalence of
mental disorders in the population, the possible catastrophic costs of
mental disorders, the effect of benefit limits, the impact of benefits
administration, and the knowledge base for the provision of various
treatments.

While the literature reviewed for this study generally did not comment
directly on the adequacy of mental health benefit packages, some studies
presented analyses, perspectives, and recommendations identifying
criteria to be considered in determining the adequacy of mental health
benefits packages. This report does not recommend one particular set of
benefits that will be adequate for all employers, employees, and
dependents. Rather, it lays out the basis for providing an adequate
benefit and offers three objectives to be met by employer-sponsored
mental health benefit plans---along with options for meeting those
objectives.

B. Employer Characteristics and Health Plan Types

Employer-sponsored heath benefit packages vary from employer to
employer. The benefits offered by an employer are influenced by a
variety of factors, including both characteristics of the firm and the
type(s) of health plan offered.

First, certain employer characteristics are associated with different
likelihoods of offering health benefits and different benefit
structures. These characteristics are

 firm size;

 industry;

 unionization;

 geographic location;

 self-insured status

Firm size impacts employers' likelihood of offering health benefits in
general. Large firms are much more likely than small firms to offer
health insurance to their employees. In fact, nearly all large employers
(with 200 or more employees) offer health insurance, while less than 6
in 10 small employers (with fewer than 200 employees) do so (KFF/HRET,
2005). According to benefit consultants, very large firms (with more
than 20,000 employees) set the standards in benefits offerings, and
mid-sized employers (with 5,000 to 10,000 employees) tend to follow
their lead.

The industry in which an employer operates also affects its benefits
decisions. Government employers and those in the manufacturing industry
are the most likely to offer employer-sponsored health insurance, while
employers in service industries and agriculture are the least likely
(Agency for Healthcare Research and Quality \[AHRQ\], 2002). Even among
employers that offer benefits, the generosity of the benefit plans also
likely varies by industry.

Unionization of a firm's workforce is an important factor in benefit
plan design. Whether or not an employee population is able to
collectively bargain for its benefits has a great impact on benefits
generally. Ninety percent of firms with union workers offer health
benefits, while 59 percent of firms that do not have union workers do so
(KFF/HRET, 2005).

Various aspects of an employer's geographic location also may affect its
decisions about whether to offer health benefits, what type of health
plans to offer, and how generous to be in its benefit plan.
Considerations could include urban/rural status, demand for health
benefits in the local labor pool, other sources of coverage in the area,
and types of health plans available. A related consideration is whether
the firm has a single location or multiple locations, including whether
the company operates locally, statewide, or interstate. Ninety-five
percent of firms with two or more locations offer health benefits, while
45 percent of firms with only one location do so (AHRQ, 2002).

Second, health plan types, alone and in combination with the above
employer characteristics, also affect the benefit structures provided by
an employer. In addition, an employer may offer employees a choice
between different health plan types or may utilize different health plan
types in different geographic areas. Managed care arrangements, such as
health maintenance organizations (HMOs), preferred provider
organizations (PPOs), and point-of-service (POS) plans, dominate the
market, while fee-for\--service (FFS) mental health benefits are less
common. For example, it is common for a very large, national (or
international) employer to offer nationally available PPO and POS plans
as well as locally based HMOs in areas with high concentrations of
employees. The array of health plans an employer offers impacts its
decisions around mental health benefits, including the decision as to
whether to carve out the benefit to a managed behavioral health
organization (MBHO). Employers must consider the particulars of their
benefit plans when assessing the likely impact of changes. Various
health plan types are utilized to offer mental health benefits to
employees.

This discussion of health plan types also must include a mention of
consumer-directed health benefits (CDHB). In recent years, there has
been a movement toward more consumer involvement in the financing and
delivery of health care, and some employers have used high-deductible
health plans (HDHPs) with account-based spending funds to encourage more
consumer involvement in health care decision-making (Fronstin, 2004).
Though CDHB makes up a small percentage of the insurance market, it is
growing. A few employers have begun to offer it as a total replacement
for all of their health benefits, and others offer it as a choice among
a selection of health plans. Enrollment in CDHB is predicted to grow
over the coming years; and as it does, attention will need to be paid to
how these plans provide for mental health care and whether enrollee
needs are being met, particularly in cases of serious mental disorders.
Additional issues related to the movement toward CDHB and spending
accounts are discussed in Section II below.

Finally, whether an employer's health plan is self-insured or fully
insured (via contracts with third-party health insuring organizations)
can affect the administration of mental health benefits in that
self-insuring allows an employer to disregard many State insurance laws.
Self-insured health plans also are exempt from State insurance laws
through ERISA and can exclude State-mandated benefits; they are subject
to Federal oversight and the Federal MHPA. However, while self-insured
employers have greater flexibility in structuring their health benefit
plans and would be able to offer less generous benefits, experts assert
that self-insured plans provide at least as generous mental health
benefits as fully insured plans (Acs, Long, Marquis, & Short, 1996).
Self-insured employers, which tend to be larger employers, can have
greater control and flexibility over their health benefit packages
because they administer their own health plans (or use a third-party
administrator). On the other hand, employers with fully insured plans
purchase a health benefits package from an insurer and pay premiums for
their covered employees. These insurance products are subject to
applicable State and Federal laws.

C. Method

1\. Interviews and Conceptual Framework

Before the literature review was conducted, key experts representing
various stakeholder groups were interviewed and asked to discuss the
issues employers face as they design and administer mental health
benefits. Expert input and initial research findings then were used to
develop a conceptual framework to guide the literature review and
analytic report.

2\. Literature Review

Articles included in the literature review related to the delivery of
mental health services in private managed care plans in the United
States during the past 15 years. Thus, the literature spanned the period
from 1989 to 2004, during which some key milestones related to the
provision of mental health care services were achieved.

 In the early 1990s there was a greater movement to managed delivery
systems for behavioral health care. While physical health care already
had begun transitioning to managed care, behavioral health care services
mostly remained in FFS type plans.

 In 1996, the Federal MHPA was signed into law, with implementation
occurring in 1998. MHPA achieved mental health parity to some degree,
but differences between physical and mental health care persist.

Several articles specifically address the impact of these events, while
others written before their occurrence speak for or against their
enactment. These articles provided a useful "before-and-after"
perspective on these important issues.

Literature in the review included professional, peer-reviewed, published
articles as well as unpublished "fugitive" literature. Fugitive
literature refers to reports, analyses, presentations, position
statements, and other general information and research published in
non-peer-reviewed sources, such as publications by mental health
professional and advocacy organizations. It also may include internal
studies conducted by employers, employer groups, insurers, managed care
organizations (MCOs), and MBHOs. Fugitive literature supplemented the
peer-reviewed literature and also was used in cases where little or no
peer-reviewed literature was available.

The initial search was undertaken via PubMed, an electronic retrieval
database. The specific search terms used included mental health care,
employee assistance programs, managed behavioral health, and a
combination of the following terms with "mental health:" carve-out, cost
sharing, parity, benefit design, adverse selection, private insurance,
managed care, evidence-based medicine, and benefit administration. The
search was enhanced by reviewing references cited in the literature to
ensure that seminal and influential works were not missed. Additional
searches were performed in specific publications, including *Health
Affairs, Psychiatric Services, Archives of General Psychiatry,* and the
*Journal of the American Medical Association.* These searches produced
literature on the evidence base for different mental health services;
the factors affecting benefit design; the characteristics of existing
employer-sponsored mental health benefits and analyses of the costs of
such benefits; the prevalence of catastrophic costs; and the effects of
methods of benefits administration on access, utilization, effectiveness
and costs. In all, approximately 7,500 articles were identified.

Nearly 60 percent of the articles identified were strictly clinical in
nature, and were eliminated. The literature search also resulted in
numerous duplicate citations, which were removed. The remaining articles
were sorted by relevance. The following criteria were applied to the 100
most relevant articles for each search term, as determined by the search
engine(s):

 Published in English between 1989 and 2004;

 Conducted in the United States;

 Addressed one or more of the following topics: mental health benefits
design; financial analysis of mental health benefits; catastrophic
costs; administration of mental health benefits; recommendations
regarding adequate mental health benefits;

 Addressed mental health benefits from a managed care perspective and
focused on private insurance coverage;

 Focused on health services and management issues rather than clinical
studies; and

 Considered credible by most audiences, including industry experts and
academics, though not necessarily peer-reviewed (for fugitive literature
sources).

References not meeting these selection criteria were eliminated, the
remaining articles were analyzed, and the literature review was drafted.
An advisory panel of industry experts, including those previously
interviewed, was then convened via teleconference to discuss the draft
literature review. (See Appendix B for the full list of panelists.) This
advisory panel provided input on the findings described in the draft
literature review, identified areas for further research, and suggested
additional literature. Based on the feedback provided by the advisory
panel, the literature review was revised and expanded by performing
additional targeted searches and adding recommended articles.

3\. Actuarial Analysis

Actuarial analysis was performed of the costs of different levels of
mental health benefits. To estimate the costs associated with various
mental health benefit packages, a series of net premium calculations
(i.e., excluding administrative costs) was performed for a typical
health care benefit package, assuming different levels of mental health
benefits for each calculation. The plan design used was typical of what
might be found in an HMO or the in-network portion of a PPO or POS plan
(after converting all flat-dollar copayments into coinsurance
percentages). It included a \$100 combined annual deductible for all
services, a 90 percent benefit rate (i.e., 10 percent beneficiary
coinsurance) for physical health services, and a \$1,000 out-of-pocket
limit for all beneficiary cost sharing. Cost estimates were developed
using a computer program based on commercial health insurance plans and
populations, which was calibrated to reflect average costs in the United
States for calendar year 2005. (See Appendix A for a complete
description of the actuarial analysis and results.)

4\. Report

A report was drafted using the findings from the literature, input from
the members of the advisory panel, and actuarial analysis of the costs
of different levels of mental health benefits in a typical health care
benefit package. The advisory panel was then convened in an in-person
meeting to discuss the draft report. Based on the feedback of the
advisory panel, the report was then revised and augmented with
additional research and information on select topics. Additional
literature sources were reviewed and used in preparing the final report
for this study, including 13 published in 2005, which provided the most
up-to-date statistics in specific areas. In total, 178 literature
sources are cited in this final report.

D. Organization of the Report

This report is organized as follows:

 Section II discusses the literature regarding the prevalence of mental
disorders and conditions and the financial and other consequences of
untreated mental disorders;

 Section III addresses an important issue in the administration of
mental health benefits, namely, the use of carve-out arrangements that
contractually split administration of general medical and mental health
benefits between two health insuring organizations;

 Section IV identifies and describes key objectives employers should
strive to meet in crafting their mental health benefit plans and
examines current practices, describes the published evidence from the
clinical and health services literature, and provides suggested options
for employers in the effort to meet those objectives; and

 Section V presents concluding thoughts and a recap of the objectives
and options to ensure the provision of adequate mental health benefits.

II\.

Prevalence and Financial Implications of Mental Illness

This section describes the prevalence of mental disorders in the United
States, the financial implications to employers of those mental
disorders and business reasons to provide adequate mental health
benefits, including the cost of providing mental health benefits and
returns on that investment, protection from catastrophic costs of mental
disorders for individuals and their families, and plan design issues and
criteria.

A. Prevalence

The 2004 National Survey of Drug Use and Health (NSDUH) estimates that
the 12‑month period prevalence of "serious psychological distress" (SPD)
among non\--institutionalized adults aged 18 years or older in the
United States is 9.9 percent, representing approximately 21.4 million
persons (-SAMHSA, 2005). The NSDUH estimate is based on a 6-item index
of psychological distress experienced "over the past 12 months". Only
those individuals with index scores of 13 and above are classified as
having "serious psychological distress" (SPD). Persons with scores
ranging from 1 to 12 are presumed to have "non-serious" psychological
distress, and those who score 0 presumably have "no" psychological
distress.

In contrast, the 2001--2003  National Comorbidity Study-Replication
(NCS-R) estimates that 26.2 percent of non\--institutionalized adults
aged 18 and older experienced some type of mental disorder(s), ranging
from mild to severe, over a 12-month period (Kessler, 2005). Because the
NCS-R captures the 12 month period prevalence for mental disorders that
includes "mild" cases, it will include persons who meet the NSDUH
criteria for "non-serious" psychological distress.

Consequently, the 12-month period prevalence of SPD estimated by the
NSDUH is lower than the estimated 12-month period prevalence of persons
with mental disorders estimated by the NCS-R because the NSDUH criteria
for SPD is designed to exclude persons with "mild" cases of mental
disorders or "non-serious" psychological distress. Excluding the "mild"
disorders, the NCS-R prevalence rate for moderate to severe mental
disorders is 16 percent (moderate=9.8%; severe=5.8%), a rate which is
more consistent with the NSDUH estimate of SPD.

These differences in criteria for the identification of persons with
mental problems between these two epidemiological cross\--sectional
survey results in differences in estimates of prevalence and treatment
rates for persons with mental illness.

Recently published analyses of the latest National Comorbidity
Study-Replication (a nationally representative face-to-face household
survey conducted between February 2001 and April 2003) revealed high
lifetime and annual prevalence of mental illnesses in the United States
(Kessler, Berglund, Demler, Jin, & Walters, 2005; Kessler, Chiu, Demler,
& Walters, 2005). The authors estimated that approximately half of all
Americans will meet the criteria for one or more Diagnostic and
Statistical Manual of Mental Disorders (4th ed.) (DSM-IV) disorders at
some point in their lives, with first onset usually in childhood
or adolescence.

The availability of mental health services is important for persons who
have chronic and life-threatening physical conditions, such as cancer,
heart disease, diabetes, asthma, multiple sclerosis, or HIV/AIDS
(Drainoni, 1999). Supportive mental health services may assist them with
managing their illnesses and may lead to better outcomes. For example,
depression following surgery for a myocardial infarction is a common
occurrence, and if left untreated the risk of death 18 months after
surgery is nearly doubled (Frasure-Smith, Lespérance, & Talajic, 1995).
Risk of cardiac death in the 6 months after an acute myocardial function
was estimated to be approximately four times greater in patients with
depression compared with nondepressed control subjects. The risk of
cardiac death remains elevated even 5 years after an acute myocardial
infarction, with cardiac patients with depression or depressive
symptomatology having an increased risk of greater than 3.5-fold
compared with cardiac patients without depression (Evans et al., 2005).
In another study, for the 5 to 10 years following hospitalization for
coronary artery disease, cardiac patients with moderate to severe
depression had an 84 percent greater risk of a cardiac death, and a 72
percent greater risk after more than 10 years, than cardiac patients
without depression (Barefoot et al., 1996).

Studies also have found that the rate of depression in individuals with
diabetes is greater than in individuals without diabetes. A study
published in 2002 found that individuals with diabetes were 2.5 times
more likely than a comparable sample from the general U.S. population to
have diagnosed depression. Patients with comorbid diabetes and
depression were most often younger adults (\< 65 years), women, and
unmarried individuals. Patients with diabetes and depression had higher
use of ambulatory care (average of 12 annual visits for comorbid
diabetes and depression versus an average of 7 annual visits for
patients with diabetes but no depression. Patients with comorbid
diabetes and depression filled more prescriptions (average of 43 annual
prescriptions) than their counterparts without depression (average of 21
annual prescriptions). Finally, for the year 1996, among individuals
with diabetes, total health care expenditures for indi-viduals with
depression was 4.5 times higher than that for individuals without
depression (\$247,000,000 versus \$55,000,000) (Egede, Zheng, & Simpson,
2002).

Whether the primary diagnosis is a mental or physical disorder, the
benefits to employers of providing adequate access to a coordinated
spectrum of mental health care services are clear. Doing so results in
higher employee productivity, reductions in severity of illnesses that
affect employees' ability to do their jobs and their quality of life,
and reductions in costs for employer purchasers when fewer expensive
hospitalizations occur as conditions are promptly detected and treated
early in lower intensity levels of care. Each of these considerations is
addressed below.

B. Financial Implications

The costs associated with mental health care can be significant, but
there are also business costs of untreated mental illness, as evidenced
by increased absenteeism, presenteeism, diminished productivity, and
increased disability claims costs. In fact, in some cases, these costs
have been found to be greater than the cost of providing mental health
care benefits. The decision of employers to include mental health care
services in their benefits packages may be informed by the potential for
significant return on investment (ROI) and the opportunity to realize
future medical cost offsets. However, the measures of both the costs of
mental illness in the workplace and potential savings through ROI and
cost offsets are still in development, and exact quantification is
difficult.

In light of the high level of burden of illness as a result of the
prevalence of mental disorders, employers have a vested interest in
ensuring that appropriate treatments are available, accessible, and
affordable. Financial implications of mental disorders include both the
direct medical costs of treating the disorders and indirect business
costs of productivity losses associated with the conditions, which may
increase if coverage for mental disorders is insufficient. The costs of
not sufficiently covering mental health benefits include losses in
employee productivity (in the forms of absenteeism and presenteeism)
either as a result of the employee's own mental disorder or as a result
of having to care for a dependent whose mental disorder is not
sufficiently covered.

In addition, if an employee or a dependent of an employee has a serious
mental illness that is expensive to treat, insufficient mental health
benefits will be exhausted quickly, leaving the family with high and
often unaffordable self-pay costs. A 2001 analysis of 1.5 million
personal bankruptcy filings in the United States revealed that nearly
half were filed due to medical bills that exceeded a family's ability to
pay for costs not covered by their health plans. Approximately 10
percent were for bills related to treatment for mental disorders
(Himmelstein, Warren, Thorne, & Woolhandler, 2005).

Workplace studies have found that direct medical costs to employers
generally amount to less than 50 percent of the total employer costs
associated with physical and mental illnesses among employees and their
dependents (Goetzel, Hawkins, Ozminkowski, & Wang, 2003). While some
have characterized productivity losses as "indirect costs," in reality,
they are true costs to the organization. Goetzel, Hawkins, Ozminkowski,
and Wang (2003) described the nature of these costs:

> ... \[R\]esources must be spent to compensate for downtime or for
> tasks normally performed by absent employees, either in the form of
> overstaffing or by hiring replacements for them. If employers choose
> not to overstaff or hire replacements, they may choose to incur the
> productivity loss, but this will result in fewer goods and services
> sold, lower revenues, and lower profits...\[I\]ndividual health plays
> an important role in the performance of workers and ultimately the
> organization that employs them. Knowing that these conditions exert a
> cost burden on both health and productivity outcomes should inspire
> company officials to direct more attention toward better management of
> these conditions so that worker performance is not compromised (pp. 5,
> 13--14).

1\. The Costs to Employers of Untreated Mental Illness

Quantifying the cost of mental illness at the workplace is challenging,
and the literature demonstrates that estimates vary greatly. This point
was reiterated by members of the advisory panel, who cautioned that it
is important to bear in mind that measurements of productivity losses
and other workplace costs are in developmental stages. Metrics for the
cost of mental illness in context of the workplace include measures of
lost productivity and presenteeism, absenteeism, and disability claims
costs. "Presenteeism" refers to an employee who is physically present on
the job, but due to emotional difficulties, has decreased productivity.
Employer costs for lost productivity and absenteeism are significantly
higher than direct spending for mental health care services (England,
1999).

A. Lost Productivity and Presenteeism

Estimates of the indirect costs of mental illness in the workplace vary
significantly. In 1993, employers incurred \$24 billion in losses from
lost productivity and work time associated with employees with
depression, which affects about 12 million adults in the workforce
(England, 1999). In a later study, depression was estimated to cost
\$28.8 billion in lost productivity and worker absenteeism (Coalition
for Fairness in Mental Illness Coverage, 2003). In another analysis,
Greenberg et al. (2003) found that 60 percent of the economic burden of
depression was workplace costs related to absenteeism and presenteeism.
The authors reported that in 2000, the workplace costs of depression
totaled \$51.5 billion, or 62 percent of the total economic burden of
the illness. The National Mental Health Association (NMHA) estimates
that 20 million employee workdays per year are lost due to depression
alone (Whitehouse, 2003). Another study reported that the cost to
employers of lost productivity among employees with depression was
estimated to be \$44 billion annually (Langlieb & Kahn, 2004). A
national study by Stewart, Ricci, Chee, Hahn, and Morganstein (2003)
found that \$31 billion a year was lost due to unproductive work time,
averaging 5.6 hours per week of lost productivity per depressed worker,
compared with 1.5 hours per week per nondepressed worker. A report by
Pfizer, Inc. estimated that mental disorders are associated with 217
million days of absence or lost productivity, costing \$17 billion
annually (Hertz & Baker, 2002). Simon et al. (2001) found that treatment
of workers with depression could lead to indirect cost savings that
outweigh the direct costs of treatment.

When the scope of conditions studied is broader and includes mental
illness and addictive disorders more generally, figures estimating lost
productivity costs grow to \$105 billion. Using this expanded scope of
conditions, for example, mental and addictive disorders resulted in 1
billion lost days of productivity in 1997 (NMHA, 2001).

Lerner and colleagues developed the Work Limitations Questionnaire (WLQ)
as a measure of the on-the-job impact of chronic health problems and/or
treatments, including the impact of depression. Using the WLQ, Lerner et
al. (2003) found that employee work limitations have a negative impact
on work productivity. Depressive symptoms were found in 15 percent of
employees surveyed. However, in contrast to other studies reviewed,
depressive symptoms were not significantly associated with lower
productivity. These results may reflect reporting inconsistencies, as
well as the need for a depression indicator based on established
diagnostic criteria as opposed to a general mental health score.

Goetzel (2003) presented estimates of presenteeism for various ailments:
On a day during which an employee is affected by an anxiety disorder or
depression, 2.2 hours would be unproductive because of the condition.
Presenteeism is estimated to contribute more to lost productivity than
disability and absenteeism combined (Hymel & Loeppke, 2003). A study by
Wang et al. (2004) of the effects of untreated major depression among a
cohort of service industry personnel found that, as compared to
allergies, arthritis, asthma, back pain, headaches, and high blood
pressure, major depression had a significant deleterious effect on job
performance. The loss in productivity was measured as equivalent to
approximately 2.3 days absent because of sickness per depressed worker
per month of being depressed. The authors noted that even with the
relatively low salaries of the service workers in the study, the
combined salary-equivalent effect of major depression on absenteeism and
lost productivity was more than \$300 per month. According to the
authors, an important implication of these results is that the
cost-effectiveness of depression treatment from the perspective of the
employer might be substantially greater than previously thought (Wang et
al., 2004).

B. Absenteeism

Several studies have looked at absenteeism resulting from mental
illness. Absenteeism is greater among workers with mental health
concerns than those without (French & Zarkin, 1998). A survey of
employers found that employees commonly miss 3 to 5 days of work each
year and that stress and mental health issues at work were on the rise;
on average, the cost of missed workdays was  about \$327 per day
(Updike, 2003). Individuals under a high level of stress are more than
twice as likely to be absent from work more than five times per year
(McClanathan, 2004).

Thirty percent of individuals with depression miss one or more workdays
each month (J.D. Power and Associates, 2004). Workers with depression
are three times more likely to miss work than those who do not have
depression (American Psychological Association, 2004). Jones and Brown
(2003) stated that absenteeism and presenteeism related to depression
among workers result in \$24 billion in losses for employers.

In a 1999 study, decreased use of mental health services was associated
with increased absenteeism and increased use of medical outpatient
services among employees of a large corporation over a 3-year study
period (Rosenheck, Druss, Stolar, Leslie, & Sledge, 1999). Employees in
the same firm who did not use mental health services did not exhibit
similar increases in absenteeism and use of outpatient medical services.

C. Disability Claims Costs

Disability claims costs related to mental disorders contribute to
employer costs. Workers with depression are four times more likely to
take disability days than workers who do not have depression (American
Psychological Association, 2004). Workers with depression have from 1.5
to 3.2 more short-term disability days, with disability costs for these
days ranging from \$182 to \$395 per worker (Coalition for Fairness in
Mental Illness Coverage, 2003; Kessler et al., 1999). Disability claims
costs related to mental illness are lower in employer health plans that
provide greater access to outpatient mental health services (Coalition
for Fairness in Mental Illness Coverage, 2003).

Conti and Burton (1995) found that individuals with depression who were
on short-term disability had longer average lengths of disability and a
higher probability of recidivism than short-term disability recipients
with physical health care conditions such as low back pain, heart
disease, high blood pressure, or diabetes.

Exhibit 1 summarizes various estimates of the workplace costs of mental
health illness presented in the literature.

2\. The Cost of Providing Mental Health Benefits

A key concern among employers is that providing better mental health
care benefits will result in higher costs and increased utilization of
those services. According to a trade journal published by International
Society of Certified Employee Benefit Specialists, mental health care
costs increased significantly throughout the 1980s and early 1900s; in
one year (from 1987 to 1988), these costs grew by 27 percent (Sterman,
1997). Spending for mental health disorders increased three and a half
times between 1987 and 2000 (Thorpe, Florence, & Joski, 2004). However,
with the growth of health care costs generally, a study of a panel of
171 employers with more than 500 employees and a stratified random
sample of all U.S. employers with 10 or more employees indicated that
employers' costs of providing mental health benefits decreased from 6
percent to 4 percent of total health plan costs between 1993 and 1995
(Buck & Umland, 1997). Foote and Jones (1999) reported that in the
Federal Employee Health Benefits Program (FEHBP), the cost of behavioral
health services dropped from 5.3 percent to 1.9 percent of total claims
from 1987 to 1997, while the benefit plans did not change significantly.
The authors attributed this decrease to the growing use of utilization
review techniques. Private employers also experienced declines in mental
health premium costs ranging from 30 percent to 50 percent upon
implementation of benefits management. From 1988 to 1998, the cost of
behavioral health care premiums decreased from 6.1 percent to 3.2
percent of total claims costs (Foote & Jones, 1999). In addition, the
actuarial analysis performed for this study, which is described in
Appendix A, found that increasing the generosity of mental health
benefits by raising (or even eliminating) the limits placed on service
use would increase plan costs by only a relatively small amount on a
per-member per-month (PMPM) basis.

In assessing service needs and costs, employers must consider their
employees' dependents as well as the employees themselves.
Employer-sponsored mental health benefit packages typically provide
mental health coverage to both employees and their dependents. Glied and
Cuellar (2003) reported that an estimated 11 percent of American
children and adolescents have a mental health condition causing
significant functional impairment. The authors found that the total
mental health service-related expenditures for privately insured
children and adolescents were \$11.75 billion in 1998, and the
out-of-pocket share of costs for these children was 33.5 percent of the
total cost in 1998, a significant drop from 1987. This decrease in
out-of-pocket costs was due to managed care, increased treatment through
primary care providers, and increased prescription drug coverage (Glied
& Cuellar, 2003). A study by Glied, Hoven, Moore, Garrett, and Regier
(1997), using 1992 data from the National Institute of Mental Health
(NIMH) Methods for Epidemiology of Child and Adolescent Mental Disorders
study, reported that families with insurance typically paid for half of
the mental health services for their children. A study of enrollees in a
behavioral health care carve-out found that adolescents are more likely
to use inpatient mental health services than adults and younger
children, the annual mean cost of inpatient care for adolescents being
\$8,975, approximately \$4,000 more than the cost for adults. The
authors assert that these higher costs for adolescents imply that the
elimination of coverage limits may benefit this group the most (Gresenz,
Liu, & Sturm, 1998).

The cost of mental health treatment is increased further by nonadherence
to prescribed treatment, which can lead to a greater likelihood of
relapse, rehospitalization, and poor outcomes for patients with serious
mental illnesses (Centorrino et al., 2001). Rittmannsberger, Pachinger,
Keppelmuller, and Wancata (2004) found that nonadherence to prescription
regimens can result in additional inpatient treatment (44.8 days,
compared with 20.6 days for compliant patients) and is associated with a
lack of adequate treatment. Of the 95 patients in inpatient psychiatric
treatment studied by Rittmannsberger and colleagues, only 43 percent
took their medicine as prescribed. In addition, one-third of patients
with bipolar disorders take less than 30 percent of their medication,
leading to rehospitalization and suicide. Nonadherence to treatment is
common; however, interventions that address issues of appropriately
taking medication to manage illness can enhance adherence (Sajatovic,
Davies, & Hrouda, 2004).

Two studies looked at the level of spending necessary to ensure access
to mental health care services, specifically in a managed care
environment. Weissman, Pettigrew, Sotsky, and Regier (2000) suggest that
a PMPM expenditure of \$6.00 (in 1997 dollars) is necessary to provide
adequate mental health benefits. Cuffel and Regier (2001) analyzed data
on service use and spending from 1992 to 1998 to estimate a target PMPM
expen-diture of about \$4.50 to ensure access to mental health care
services at the level of use that prevailed prior to the widespread
adoption of managed care. The authors of both reports suggested that
employers that spend substantially less than the amount estimated in the
studies may be hampering access to needed mental health services and may
be at risk for experiencing higher disability or medical costs.

The spending target of \$6.00 PMPM found by Weissman, Pettigrew, Sotsky,
and Regier (2000) is in 1997 dollars. The actu-arial analysis prepared
for this study (see Appendix A) updates the 1997 estimate to 2005.
Projecting the \$6.00 target to 2005 using the Consumer Price Index
(CPI) for medical care services (a component of the CPI for medical care
in general) results in an increase of 41.3 percent, bringing the amount
to \$8.48 PMPM. However, it is more appropriate to use an adjustment
factor based on the overall increase in per-capita medical spending,
because that includes utilization increases as well as price increases.
Using such a factor to project the authors' spending target to 2005
dollars results in an increase of 63.1 percent, bringing the amount to
\$9.79 PMPM. Covering substance abuse services would add approximately
35 percent to this amount, resulting in a total of \$13.22. Note that
this is very close to the PMPM benefit cost range calculated for a "less
generous" HMO plan (\$13.05--\$13.26) in the actuarial analysis
described in Appendix A. (Cuffel and Regier do not mention any
adjustment of their data to a single base year, so their spending target
could not be projected forward with the same degree of precision as
Weissman's target.)

According to members of the advisory panel, plans with generous benefits
do not lead to high costs and utilization, but they do lead to employee
satisfaction and positive feedback. Employee satisfaction can serve to
reduce turnover and improve employee retention---a major goal of
benefits in general.

3\. Return on Investment

Employers that provide behavioral health coverage do so to improve the
health and well-being of their employees, and because they believe that
their businesses will benefit from the investment. Employers that cover
behavioral health services may experience improvements in the rates of
disability program use, medical care costs, productivity, absenteeism,
and performance. Mental health treatment is more cost-effective than
treatment for some physical conditions (Langlieb & Kahn, 2004).

The NMHA (2001) reported that for every dollar spent on prevention and
early treatment of mental illness and addictive disorders, between two
and ten dollars is saved. In testimony before the House Committee on
Energy and Commerce, Subcommittee on Health, Regier described one
employer that reported a four-to-one ROI in mental health care provision
once medical claims, absenteeism, and turnover were factored in (Regier,
2002).

Zhang, Rost, Fortney, and Smith (1999) studied 435 subjects and
determined that treatment for depression pays for itself in terms of
savings in lost earnings. The authors noted that their measurement of
cost included only lost workdays, and did not include other benefits
such as reduced pain and suffering and increased productivity while at
work. The study also suggests that cost sharing should be limited to
encourage individuals with depression to seek professional help. Wang et
al. (2004) found that productivity losses related to depression appear
to exceed the costs of effective treatment. There is growing recognition
that employer purchasers need more accurate and comprehensive estimates
of the cost-effectiveness of mental health treatments, particularly
estimates that reflect the costs of productivity losses resulting from
absenteeism and presenteeism. NIMH currently is sponsoring a new
effectiveness trial known as the Work Outcomes Research and
Cost-Effectiveness Study. The results of this trial and future research
initiatives may illustrate the ways that depression and other mental
illnesses affect work performance and better demonstrate the value that
mental health treatment holds for employers (Wang et al., 2004).

4\. Medical Cost Offsets

Cost savings, or cost offsets, may occur in general medical care as a
result of increased access to mental health care services. The cost
offset effect of mental health care treatment occurs when expenditures
in the mental health sector lead to savings in another sector or to
overall savings. Goodman (1989) reported that mental health care does
substitute for aspects of ambulatory physician medical care, and several
studies have found cost offsets in physical health services (or
the potential for them) as a result of the provision of certain mental
health services (Gabbard & Lazar, 1997; Goodman, 1989; Holder, 1998).

Compared with the general population, cost offsets are more likely to
occur in the following three populations: distressed elderly medical
inpatients, primary care outpatients with multiple unexplained somatic
complaints, and nonelderly individuals with alcoholism (Olfson, Sing, &
Schlesinger, 1999). Because the evidence supporting cost offsets occurs
among targeted mental health interventions in specific population
groups, the cost offset effects may not be applicable to broader
populations or to more general mental health care services (Sturm, 2000)
and are subject to continued analysis and debate among industry experts.

Nitzkin and Smith (2004) cited studies showing high prevalence of
psychiatric illness and/or depression among high utilizers of medical
care. These authors suggested that screening for and effective treatment
of depression may serve to reduce physical complaints and medical
visits. Simon, Ormel, Von Korff, and Barlow (1995) studied the overall
health care costs associated with depression and anxiety disorders among
primary care patients. Patients with depression or anxiety disorders had
higher health care costs than patients with no disorder. In a 6-month
period, the total costs (mental and physical) for patients with one of
the disorders were \$2,390, compared with \$1,397 for patients without
depression or anxiety. The cost differences reflected higher utilization
of general medical services.

Simon et al. (2001) examined the cost-effectiveness of a depression
management program for high utilizers of medical care and found that the
program produced better health outcomes but also increased health
service costs. Patients in the depression management program made, on
average, two more outpatient visits than the control group and were
significantly more likely to receive antidepressant treatment. The
authors asserted that achieving better medical results often requires
the investment of additional resources. The study included only a 1-year
period to study cost-effectiveness; therefore, long-term cost savings
may not have been captured.

Olfson, Sing, and Schlesinger (1999) looked at a range of psychosocial
treatments and found that the treatments were associated with an average
10 percent reduction in inpatient medical care costs. Individuals
frequently seeking outpatient medical services for unexplained medical
complaints who also received mental health services had about half the
medical costs of like individuals who received no mental health
services. Medical costs are reported to decrease by as much as \$900 per
employee per year, and absenteeism can be reduced by 9 percent if
employees with depression are treated (Regier, 2002). A study of
depression in the workplace found that between 45 percent and 98 percent
of pharmacotherapy costs for depression could be offset by increased
productivity at work (Kessler et al., 1999).

Olfson, Sing, and Schlesinger (1999) asserted that, to achieve cost
offsets, physical and mental health care delivery and financing should
be integrated, utilization management and medical staff should be
trained to identify patients whose high medical care use may be
influenced by mental health conditions, and pricing policies should be
combined with utilization management techniques to encourage access to
mental health care services. England (1999) stated that to provide
mental health care that is appropriate and yields cost offsets,
employers and health plans must look beyond the benefit design itself
toward care management tools.

In addition, some preventive mental health interventions have been shown
to lead to both cost offsets (or cost savings in general health care
costs) and positive health outcomes (Olfson, Sing, & Schlesinger, 1999).
Examples of effective preventive interventions are prenatal and infancy
home visits, targeted smoking cessation, targeted short-term mental
health therapy, self-care education for adults, presurgical education
for adults, brief counseling to reduce alcohol use, screening children
and adolescents for behavioral disorders, and screening adolescents and
adults for use of tobacco, use/abuse of alcohol, depression, and anxiety
(Dorfman, 2000; Dorfman & Smith, 2002; Nitzkin & Smith, 2004). Such
preventive interventions could be considered to be consistent with the
overarching goal of managed mental health care and may be appropriate
for inclusion in managed care.

5\. Parity of Mental Health Benefits

In recent years, there has been an effort to require through Federal law
that the mental health benefits provided through a benefit plan be on
par with its medical/surgical benefits. Employers and other plan
purchasers have been concerned about the potential cost increases of
meeting this requirement. As described below, studies and evaluations of
the cost effects of mental health parity showed that the cost increases
plans experienced were largely insignificant, and other plans reported
cost decreases with mental health parity implementation. In addition,
the studies described below found that very few employer purchasers
dropped mental health benefit coverage altogether, and that quality and
access were improved as a result of enacting parity of coverage.

The National Business Group on Health, formerly the Washington Business
Group on Health, convened a group of eight very large employers that
provided generous mental health benefits to their employees. These
employers together employed about 1.2 million employees in the United
States, and their health plans covered more than 2.4 million lives.
Apgar (2000) reported that one of these employers implemented behavioral
health parity in 1993 within a managed care carve-out context and
experienced a 46 percent drop in inpatient costs and a 21 percent drop
in outpatient costs.

A. The Effects of Federal Mental Health Parity Legislation

The Federal MHPA was signed into law on September 26, 1996. The law
prohibits differential treatment regarding annual and lifetime maximums
and reimbursement ceilings between physical and mental health benefits.
It applies only to plans that offer mental health benefits and does not
mandate inclusion of such benefits in health plan packages. Plans that
have mental health benefits are allowed to drop such coverage entirely,
and they are allowed to continue to place annual and day visit
limitations on covered services, as well as to require higher levels of
cost sharing for mental health benefits than for physical health
benefits (Frank, Koyanagi, & McGuire, 1997).

During debate over Federal mental health parity legislation, a key
concern was the impact of parity on the cost of providing mental health
benefits. Estimates of the claims cost increases resulting from the
Federal parity law ranged from 0.3 percent to 11.4 percent, depending on
the specifications of the parity provisions (Fronstin, 1997; Sing, Hill,
Smolkin, & Heiser, 1998). However, a recent U.S. Government
Accountability Office (GAO) study indicated that the costs associated
with the Federal mental health parity law appear to have been
negligible. The GAO (2000) found that, while the majority of employers
it surveyed did not know to what extent their claims costs were
affected, only 3 percent of private employers with more than 50
employees in States without more comprehensive parity laws indicated
that their claims costs had increased; 37 percent of surveyed employers
reported that implementing the Federal parity rules did not increase
claims costs. However, two-thirds of employers that were newly compliant
with the Federal rules had increased restrictions for other plan
features, such as office visit or hospital day limits, which may have
limited the extent to which costs would increase. The survey also found
that consumers in these States have seen only minor changes in their
health benefits, with little or no increase in access to mental health
services. The GAO survey results showed that less than 1 percent of
employers eliminated their benefit plans (for mental health or health in
general) after enactment of the Federal mental health parity law. The
survey also reported that a more comprehensive parity law covering
service limits, cost sharing, or both would increase costs by between 2
and 4 percent.

B. Parity in the Federal Employees Health Benefits Program

The U.S. Department of Health and Human Services (DHHS) recently
published an evaluation and actuarial analysis of parity in the FEHBP.
In January 2001, the FEHBP implemented a policy of full parity,
requiring benefit design features for behavioral health services (mental
health and substance abuse), such as deductibles, copayments, and limits
on visits and inpatient days, to match those for general medical care in
all FEHBP plans. This study looked at both implementation results and
the impact of the parity policy. Overall, the study found that the
implementation of the parity policy was achieved as intended and had
little or no significant adverse effect on access, spending, or quality,
and it provided users of behavioral health care services with improved
financial protection (DHHS, 2004). The study evaluated nine FEHBP plans
that were matched to a non-FEHBP comparison group. The use of behavioral
health care increased universally during the study period and was
reflected in both the FEHBP and non-FEHBP plans. In comparison to the
non-FEHBP plans, the FEHBP parity policy did not specifically increase
the utilization of mental health care. Even with an increase in access,
after adjusting for global spending trends, spending for behavioral
health care services actually declined in seven of the nine FEHBP plans,
with four of these plans seeing statistically significant declines. The
parity policy also resulted in decreases in out-of-pocket spending for
beneficiaries in six of the nine FEHBP plans, five of which were
statistically significant. Beneficiaries in the other three plans
experienced increases in out-of-pocket spending that were in line with
system-wide trends. Finally, the study found that quality, represented
by the quality of treatment for major depressive disorder in adults,
remained unchanged or improved slightly as a result of the parity policy
in all but one of the FEHBP plans studied.

C. The Effects of State Mental Health Parity Legislation

The experiences of States that had implemented mental health parity laws
before the Federal parity law, which became effective January 1, 1998,
also provide some insights into the cost effects of mental health
parity. Sing, Hill, Smolkin, and Heiser (1998) estimated that full
parity for mental health and substance abuse services (which is more
comprehensive than the Federal parity law) would raise premiums by 3.6
percent on average. In testimony before the U.S. House of
Representatives Committee on Energy and Commerce, Subcommittee on
Health, Regier (2002) cited studies showing that in Texas and North
Carolina, mental health parity implemented in combination with managed
care resulted in costs for mental health benefits decreasing between 30
percent and 50 percent, and the population accessing care increased 1 to
2 percent. In Maryland, where mental health care already was provided
largely through managed care, costs increased by less than 1 percent
when parity was introduced in 1994 (Regier, 2002). In a study of Ohio's
State employee benefits program, which implemented a behavioral health
carve-out with parity, researchers learned that the cost of behavioral
health services was the same in the periods before and after parity was
implemented (Sturm, Goldman, & McCulloch, 1998).

Vermont implemented the most comprehensive parity law in the Nation in
1998, at the same time the Federal MHPA went into effect. The State's
parity law established equality of coverage for both mental health and
substance abuse and exceeded the provisions of the Federal parity law on
every dimension. The law defined mental health conditions broadly and
required equal terms with general health care for service limits and
cost sharing. Rosenbach et al. (2003) studied the impact of the Vermont
parity law on health plans, employers, providers, and consumers. While
their study was limited to only the first 2 to 3 years of parity in
Vermont, the authors identified several major conclusions around parity
in mental health benefits:

 Parity did not cause employers to drop coverage or switch to
self-insured products.

 Managed care for mental health and substance abuse services was an
important factor in controlling costs.

 Access to outpatient mental health services improved with parity.

 Total spending (health plan payments and consumer out-of-pocket
payments to providers) for covered mental health and substance abuse
services declined after parity, despite lower consumer cost sharing and
higher limits on service use.

 Consumers paid a smaller share of total spending for covered mental
health and substance abuse treatment after parity.

 Awareness of parity was relatively low among consumers, which
complicated implementation of the law for employers, providers, and
consumers.

Managed care may help moderate premium costs when parity is implemented
because of the utilization management strategies of many health plans
and MBHOs (Burnam & Escarce, 1999; Otten, 1998; Sing, Hill, Smolkin, &
Heiser, 1998). Sterman (1997) reported that during the time when managed
behavioral health care was growing in prevalence, the rate of inpatient
days declined while the outpatient visit rate increased. Specifically,
inpatient days per 1,000 lives decreased from 100 per 1,000 in
1986--1988 to 25 per 1,000 in 1994--1995; and the outpatient visit rate
grew from 600 per 1,000 in 1986--1988 to 750 per 1,000 in 1989--1991.
The shift from inpatient to outpatient services affected claims costs by
decreasing the annual per enrollee cost from \$750 in 1986--1988 to
\$150 in 1994--1995.

C. Protection from Catastrophic Costs

While the section above describes costs from the perspective of an
employer purchaser, this section describes costs borne by covered
employees in the form of out-of-pocket costs that result from the need
for services that exceed the duration, level, or scope of mental health
services covered by a health plan, as well as the costs of mental health
services that are not included in, or are specifically excluded from,
the health plan's benefit package and thus not reimbursable.

As previously mentioned, a review of bankruptcy filings for 2001
estimated that about half of the approximately 1.5 million American
families who filed for bankruptcy that year cited out-of-pocket medical
costs as the reason for their filing (Himmelstein, Warren, Thorne, &
Woolhandler, 2005). Results from the 2003 Commonwealth Fund Biennial
Health Insurance Survey revealed that 77 million adults reported that
they had medical bill problems, accrued medical debt, or both. This
finding translates to nearly two of every five (37 percent) adults in
the United States. Of these 77 million adults with medical bill
problems, 71 million are of working age. The burden of this medical debt
has health consequences as well. The survey found that 63 percent of
adults who had problems with medical bills had gone without needed
medical care in the past 12 months. Forty-three percent reported that
they did not fill a prescription, were unable to go to a needed doctor
visit, or skipped recommended follow-up tests or visits (Doty, Edwards,
& Holmgren, 2005).

Employers must consider the potential effect on an employee of
catastrophic costs resulting from a serious mental disorder. A central
purpose of health insurance coverage is to protect individuals and
families from catastrophic financial losses caused by illness or injury.
Mental health benefits, then, protect against the potential catastrophic
costs of a mental disorder. However, there is no single, clear threshold
for identifying catastrophic costs, and definitions vary significantly.
The cost of the mental health benefit must be weighed against the plan's
protection against catastrophic costs, both for the employer and the
employee.

"Catastrophic costs" are not well-defined in the literature---instead,
many authors refer to "catastrophic episodes," during which enrollees
incur high out-of-pocket costs, or catastrophic costs. Different
criteria have been used to define catastrophic costs in mental health
care, including dollar thresholds, exhaustion of covered benefits, and
diagnosis of certain serious mental disorders. However, none of these
criteria have been assigned a generally accepted level above which costs
are considered catastrophic. For example, one study in the literature
review defined two catastrophic scenarios in which an enrollee would
require a large volume of services that would exhaust the benefits
provided by many insurance plans. The first scenario consisted of 90
outpatient visits, a 30-day inpatient stay, and 10 inpatient physician
visits, and the second consisted of 80 outpatient visits, a 60-day
inpatient stay, and 20 inpatient physician visits, both in a 1-year
period (Zuvekas, Banthin, & Selden, 1998). Comparing these catastrophic
scenarios with the "typical" mental health benefit covering 30 inpatient
days and 20 outpatient visits annually leads to the conclusion that, in
general, mental health benefits may be inadequate to protect against
catastrophic costs.

Although the majority of individuals receiving mental health services
incur relatively low expenses, and completion of outpatient treatment
for a mental health disorder typically occurs within 10 visits (DHHS,
1999; Olfson, Sing, & Schlesinger, 1999), individuals with chronic or
serious mental illness have a greater likelihood of incurring
catastrophic mental health care costs (DHHS, 1999; Frank, Goldman, &
McGuire, 1992; Sing, Hill, & Puffer, 2001).

The financial burden of treatment for individuals receiving care for
serious mental illnesses may be quite substantial. However, overall, the
number of individuals who experience a catastrophic mental health
episode in a given year, and therefore incur catastrophic service costs,
is very low. One estimate of the number of individuals experiencing
catastrophic costs is the 1 percent of plan enrollees exceeding the caps
on mental health benefits. Another estimate is the approximately 22.3
percent of the general population suffering from serious mental illness
(Narrow et al., 2000; Zuvekas, 2001). Serious mental illnesses are
defined on the basis of diagnosis, disability, and duration, and include
disorders such as schizophrenia, schizoaffective disorder, manic
depressive disorder, autism, major depression, panic disorder, and
obsessive-compulsive disorder (Narrow et al., 2000). In addition, while
the proportion of the population seeking mental health treatment has
grown, just 1 to 2 percent receives inpatient treatment (Hertz & Baker,
2002; Zuvekas, 2001). Some individuals with high levels of mental health
care needs also may exhaust their financial resources to the extent that
they qualify for coverage of mental health care services in the public
sector. In fact, public programs are paying for a greater proportion of
mental health services now than in past years---63 percent in 2001
versus 57 percent in 1991 (Mark et al., 2005).

The U.S. Tax Code currently allows taxpayers to deduct medical and
dental expenses that exceed 7.5 percent of their adjusted gross income.
In defining the underinsured, or insured persons with insufficient
coverage, Schoen, Doty, Collins, and Holmgren (2005) included those with
medical expenses totaling 10 percent or more of income, or for those
with income below 200 percent of the Federal poverty level, medical
expenses totaling at least 5 percent of income.

Studies of out-of-pocket spending provide some helpful information.
McKusick, Mark, King, Coffey, and Genuardi (2002) studied the trends in
benefits and consumer spending from 1987 to 1997 and determined that
changes in health plan benefits during that period resulted in lesser
coverage for those with more need or high utilization because of the
increased use of service limits that they would likely exceed, while
those with less intensive needs had a slight increase in coverage
because of the accompanying decrease in cost-sharing levels.

Ringel and Sturm (2001) studied out-of-pocket spending for mental health
services among different socioeconomic groups. The study included only
individuals with a probable mental health diagnosis who had used mental
health services in the previous year. Among the privately insured in
their sample, the average out-of-pocket spending was about 3 percent of
household income. However, they found that 5.2 percent of that privately
insured group had significant out-of-pocket spending, defined as
spending equal to or greater than 20 percent of household income. In
relation to the cost of the services received, the privately insured
group paid for an average of 30 percent of their treatment costs, and
nearly 26 percent of the group paid for 50 percent or more of their
total treatment costs. It is important to note that the study did not
indicate the type of private insurance, and may include both group and
individual coverage. The authors also noted that it is possible that
some expenses for the privately insured group may have been incurred at
a time during the year when they were not covered by the insurance.
Findings were similar to a previous study by Zuvekas, Banthin, and
Selden (1998), which estimated consumer share of cost based on current
coverage and possible treatment scenarios. The authors found that for
catastrophic mental health episodes, individual out-of-pocket costs
would average 30 percent of total treatment costs.

Members of the advisory panel suggested that a particular problem in
mental health benefits is that out-of-pocket spending for services
received beyond plan limits does not count toward the plan's overall
out-of-pocket maximum. This same exclusion is used in both mental and
physical health benefits, and any expenses that a member incurs for
services beyond the benefit limit (e.g., on chiropractor visits, or
inpatient mental health days) do not count toward the plan's
out-of-pocket limit (Sing, Hill, & Puffer, 2001). These expenditures
that are not counted toward the out-of-pocket maximums in some cases may
total very large amounts and contribute to the catastrophic nature of
these individuals' and families' health care costs. The advisory panel
members noted that, as mental health benefits often are more limited
than physical health benefits, the risk of exceeding the benefit limit
and then facing unlimited out-of-pocket costs for additional services
may be greater on the mental health side.

D. Plan Design Issues and Criteria

In addition to general concerns about the prevalence of mental disorders
and the financial implications of those disorders to both employers and
employees, several other factors influence employer decisions regarding
mental health benefit design. Employers take into consideration
regulatory requirements and costs, and their benefits decisions also are
influenced by the goals of employee health and well-being, employee
attraction and retention, and employee productivity. Designing mental
health benefits can be challenging because employers may have disparate
goals in providing mental health benefits. The way the mental health
benefit package is designed can help employers achieve a balance among
those goals. On one hand, employers want to assure the mental well-being
of their employers and encourage appropriate service use; on the other
hand, employers face growing health and mental health care costs and see
a need to control their expenditures.

The notion of developing criteria for selecting mental health plan
components is appealing, because in theory the criteria would simplify
employers' decision-making with respect to mental health benefit design.
Possibly, criteria could be set with regard to some factors such as the
evidence base for or cost-effectiveness of treatments. However, several
factors complicate the ability to develop one set of criteria broadly
usable by employers, and may render developing criteria inadvisable. As
discussed in the introduction to this report, employers are diverse in
their size, industry, unionization of their workforces, locations,
self-insured versus fully insured status, and other characteristics that
affect their health care benefit strategies. It would be nearly
impossible to determine a set of criteria that adequately met the needs
of all employers. Factors affecting employers' needs when designing a
mental health benefits package also include whether they offer multiple
health plans and the types of plans offered (HMO, PPO, etc.).

A study of eight employers that offer generous mental health benefits
(Apgar, 2000) identified essential techniques to manage the quality of
mental health care: preferred networks, pre-approval for treatment, a
full range of treatment settings in the networks, referral mechanisms to
connect employees to appropriate services, and utilization review and
financial accountability. Areas that remained problematic for the
employers included stigma surrounding mental health issues, lack of
coordination of care, and co-occurring mental illness and addiction
disorders.

Another study of seven employers that offered generous mental health
benefits (Robinson, Chimento, Bush, & Papay, 2001) reported that these
employers believed generous benefits could decrease health care costs,
increase productivity, reduce absenteeism, and create a comparative
advantage in the labor market. The study also suggested certain common
approaches, including early intervention, offering services across a
continuum of care, and covering treatments for a wide range of mental
health problems. The study found that between 5 and 7 percent of total
health care expenditures were needed to provide a comprehensive mental
health benefit. This level of funding reflected the employers' belief
that adequate mental health services could reduce other health care
costs. These companies also made efforts to reduce the stigma of mental
illness and to offer multiple entry points to mental health care to
facilitate access to services. They also actively managed their mental
health benefits, using extensive review processes and monitoring vendors
throughout their contractual relationships.

Specific issues and criteria affecting the design of mental health
benefits include the following:

1\. Regulatory Requirements

Employers must ensure that their mental health benefits meet Federal
and/or State requirements. As previously mentioned, the Federal MHPA of
1996 requires group health plans sponsored by companies with more than
50 employees to provide the same level of annual or lifetime dollar
limits of coverage for mental health as they provide for medical and
surgical benefits for physical illness, if they offer mental health
benefits at all. However, while total coverage limits may not differ,
plans may have higher deductible amounts, copayment rates, or limits on
covered visits for mental health services. Also, if covering mental
health services at the same level as physical health benefits would
increase a plan's costs by at least 1 percent, the plan may opt out of
the requirement.

In addition, 46 States have laws governing the provision of mental
health benefits under employment-based health plans. These laws vary in
their focus, from parity to minimum benefit mandates to mandated
offering of optional benefits (National Conference of State
Legislatures, 2004). More than half the State laws are more
comprehensive than the Federal parity law by requiring parity in service
limits or cost-sharing provisions. Sixteen of the State laws require
full parity, in that they require mental health coverage in all group
health plans sold, and they require parity in all aspects (GAO, 2000).
While many States regulate provision of mental health benefits, because
of ERISA exemptions, these State insurance laws do not apply to
self-insured employer-sponsored plans.

2\. Cost Factors

The experts interviewed for this project confirmed that cost is one of
the most important considerations for employers in designing a benefit.
Employers are concerned about health insurance costs in general. These
costs increased by double-digit percentages between 2001 and 2004 and
increased by 9.2 percent from spring 2004 to spring 2005 (Gabel et al.,
2005). Employers report that the cost of an episode of care for a mental
health problem is two to three times the cost of an episode of care for
other health problems (Fronstin, 1997). Employers have used various
strategies to control mental health care costs, such as cost sharing,
utilization review, managed care strategies, capitation (fixed payment
per enrollee), and bundling of services (e.g., a fixed total payment for
all care provided during an inpatient stay). In the early days of
employer-sponsored health insurance, employers covered mental health
benefits at the same level as physical health conditions. However, in
the 1970s and early 1980s, they found that the costs associated with
mental health care were very high, even though a small proportion of
their members used the services. In response, employers placed limits on
mental health benefits to reduce their risk of these high-cost claims
(Fronstin, 1997).

A. Adverse Selection

One element of employer concern regarding benefit plan cost is adverse
selection, or attracting employees who need health care services by
offering generous health plans. Deb, Wilcox-Gok, Holmes, and Rubin
(1996) found that the perceived mental health risk of family members
affected choice of health insurance among privately covered individuals.
Branstorm and Cuffel's 2004 study of the existence of adverse selection
after limited parity was introduced supports the view that adverse
selection does exist in partial carve-outs in which mental health
benefits are provided or managed separately from physical health care.
In the study, one employer offered a full carve-out, in which employees
had no choice of health plan, and a second offered employees a partial
carve-out, with the option of choosing between health plans. Under the
partial carve-out, new members not only sought out behavioral health
treatment more frequently than before the carve-out, but also cost more
on average than existing members.

Other studies reviewed reported inconclusive evidence of the occurrence
of adverse selection with regard to mental health benefits. Sturm et al.
(1995) reported that adverse selection initially occurred when the
switch to managed mental health benefits was implemented. Enrollees with
depression who switched from FFS to prepaid health plans had fewer
mental health visits than those who stayed in the prepaid plans, and
those switching from prepaid plans to FFS were among the highest users
of mental health services. However, the adverse selection effects
eventually dissipated.

B. Moral Hazard

A related concern is that of "moral hazard," which occurs when the
availability of generous benefits or lower out-of-pocket costs leads to
increased use of services. Moral hazard is a greater risk with respect
to mental health services than with services for physical health care
(Frank, McGuire, Bae, & Rupp, 1997). One of the strategies employers
have used to control mental health expenditures is increased cost
sharing, such as higher copayments for mental health services. Research
has shown that mental health care is more responsive to cost-sharing
arrangements and that member costs affect the decision to use mental
health care more than they affect the decision to use other health care
services (Fronstin, 1997). Cost sharing also affects enrollee choice of
provider (e.g., psychiatrist, other physician, or other mental health
providers such as social workers or psychologists) at the enrollee's
initial mental health care visit (Holmes & Deb, 1998).

Higher employee cost sharing can also affect utilization of needed
mental health services. Simon, Grothaus, Durham, Von Korff, and Pabiniak
(1996) studied the impact of increasing copayments on the use of
outpatient mental health services in a staff model HMO. They found that
instituting a \$20 per visit copayment was associated with a 16 percent
decrease in the likelihood of service use initiation but no change in
frequency of visits among current service users. A subsequent increase
to \$30 per visit was associated with no significant change in
likelihood of use but resulted in a 9 percent decrease in visits per
year among those already using services. Previous work by the same
authors also found that higher out-of-pocket costs for outpatient mental
health visits reduced utilization among HMO members irrespective of
illness severity. Mental health care is at least as responsive to price
as general medical care (Simon, Von Korff, & Durham, 1994).

In response to the assertion that a lack of coverage for outpatient
mental health care would reduce only unnecessary mental health service
utilization, Landerman, Burns, Swartz, Wagner, and George (1994) studied
utilization of mental health care services for those with and without
diagnoses of a psychiatric disorders and found that both were affected
by insurance coverage. This finding provides further evidence that
limiting coverage would reduce necessary as well as unnecessary
utilization of outpatient mental health care and suggests that coverage
limits and higher cost sharing would affect necessary treatment as well.

Although it predates the large-scale market shift to managed care, the
RAND Health Insurance Experiment (HIE) was a large-scale social
experiment that investigated the effects of alternative health insurance
plans with varying levels of cost sharing on the use of health services
and on the health status of individuals. As noted by members of the
advisory panel, though it dates back to the 1970s and early 1980s, the
RAND HIE provides an important context for understanding the effects of
out-of-pocket costs on mental health service utilization. Findings from
the RAND HIE indicated that ambulatory mental health costs increase
four-fold when full insurance is available where previously there had
been none, as compared to doubling for ambulatory medical costs (Frank,
McGuire, Bae, & Rupp, 1997; Keeler, Wells, Manning, Rumpel, & Hanley,
1986).

The RAND HIE also demonstrated that reducing the level of cost sharing
increased the demand for mental health services (Wells, Manning, Duan,
Ware, & Newhouse, 1982). The authors reported that the probability of
use of ambulatory mental health services in a plan with no cost sharing
(0 percent coinsurance) was double that in a plan with high cost sharing
(95 percent coinsurance with an out-of-pocket maximum); ambulatory
mental health care expenditures for those in the 0 percent coinsurance
plan were 75 percent more than for those in the high cost-sharing plan.

Wells, Manning, and Valdez (1989) found that cost sharing does not have
negative effects on mental health outcomes generally. Using data from
the RAND HIE, the researchers found that, averaged over the covered
population, there was no adverse effect on mental health outcomes of
plans requiring cost sharing relative to plans that did not. This
finding was particularly strong for those who were initially well and
poor; the authors cautioned against generalizing this result to the sick
poor, some of whom were shown to have better improvement under a care
plan with low or no coinsurance requirements.

3\. Consumer-Directed Health Benefits: Issues for Mental Health Benefits

Another consideration related to employer goals and decision-making
around health care benefits is the type of health plan used to provide
the broader health care benefit. The vast majority of employers
currently use managed care plans to provide their health care benefits,
with 61 percent of covered workers in PPOs, 21 percent in HMOs, 15
percent in POS plans, and 3 percent in conventional (FFS) plans
(KFF/HRET, 2005). In addition, there is considerable and growing
interest in CDHB. A growing number of companies are offering HDHPs,
which require more upfront spending on the part of the consumer before
services are covered, and which may be combined with account-based
spending funds, funded either by the employer or the employee or both.
In 2005, 20 percent of all firms offered HDHPs to employees, up from 10
percent in 2004 and 5 percent in 2003. These plans are even more common
among the largest firms; 33 percent of firms with 5,000 or more workers
offer them (KFF/HRET, 2005).

However, fewer firms offer spending accounts along with their HDHPs.
According to the 2005 Employer Health Benefits Survey, about 2 percent
of firms with health benefits offer HDHPs with health reimbursement
arrangements (HRAs), which are funded solely by employers. These plans
cover about 1.6 million workers in 2005. In addition, about 2 percent of
firms with coverage offer health savings account (HSA)-qualified HDHPs,
which allow workers to establish accounts to which both they and their
employers can contribute. About 810,000 workers are covered by
HSA-qualified HDHPs (Claxton et al., 2005). Persons covered by HDHPs in
the individual (non-group) market also can establish HSAs, and a recent
study by Forrester Research indicated that the number of HSAs is
expected to grow to more than 6 million by 2008, driven by growth in
HDHPs (Henrickson, 2005).

Some experts anticipate a shift to more individual coverage as employers
drop coverage in response to the rising costs of providing benefits,
though this has not yet been borne out in the coverage data. Rather,
according to several U.S. Census Bureau *Current Population Reports,*
government-sponsored coverage has been increasing in recent years, while
individually purchased coverage has remained stable (DeNavas-Walt,
Proctor, & Lee, 2005; DeNavas-Walt, Proctor, & Mills, 2004; Mills &
Bhandari, 2003). Additional growth in individually purchased coverage
may occur as a result of the institution of HSAs. Furthermore,
legis-lation was submitted recently---HR 2355, the Health Care Choice
Act of 2005---that would allow an insurer selling individual health
insurance policies in a primary State to sell individual policies in
secondary States as well, while remaining subject to the insurance laws
in the primary State and avoiding most of the insurance laws in the
Secondary states, such as those mandating coverage of certain benefits
or treatments.

With this movement toward CDHB or HDHPs with spending accounts, there
are concerns related to coverage for mental health care services.
Specific concerns related to mental health care services and HSAs
involve the definition of preventive care and the services provided by
Employee Assistance Programs (EAPs). In order to qualify to establish an
HSA, an individual must be covered by an HDHP, which is allowed to
provide first dollar coverage only for preventive care services (U.S.
Department of the Treasury, 2004a). Therefore, as long as the services
provided by the EAP are considered preventive, it will not create an
eligibility problem. A Question and Answer Notice from the U.S.
Department of the Treasury indicates that an EAP will not interfere with
HSA eligibility "if the program does not provide significant benefits in
the nature of medical care or treatment," and that screening and other
preventive care services will be disregarded (U.S. Department of the
Treasury, 2004b).

III\.

Administration of Mental Health Benefits: Overview of Carve-Out
Purchasing Arrangements

When designing a mental health benefit package, employers must consider
how they will administer the benefits. Employers may choose from a
variety of health plan types: HMOs, PPOs, POS plans, FFS, or CDHB plans.
Larger employers may choose to offer several of these plan types, and
they should consider how the plans will deliver the mental health
benefit. After choosing the plan type(s), employers can choose to have a
specialty MBHO deliver the benefit or have the mental health benefit
included in the broader health benefit plans. Employers can also
consider varying models of risk sharing. Employers can put the plans at
full risk with certain limits on losses or profits or create a partial
risk-sharing arrangement. Risk sharing increases the pressure on plans
to ensure that benefits are utilized appropriately.

An employer also may use self-insurance to exert more control over its
health benefit plan. A self-insured plan is one in which the employer
retains the financial risk of the health care services utilized under
the plan by employees and dependents. Conversely, a fully insured plan
is one in which the employer pays a premium per covered member to an
insurance company, and the insurance company assumes the financial risk
for paying for covered services. Self-insured employers, which generally
are large companies, administer their own health plans (or use a
third-party administrator) and are exempt from State insurance laws
through ERISA. Self-insured plans are subject to Federal oversight and
the Federal MHPA. In 2005, 54 percent of workers with health insurance
were enrolled in self-insured or partially self-insured health benefit
plans (KFF/HRET, 2005).

Self-insuring offers employers increased flexibility in the benefits
covered by their health benefit plans. The exemption from certain State
insurance laws through self-insuring can allow an employer to offer less
generous benefits or exclude State-mandated benefits. However, Acs,
Long, Marquis, and Short (1996) gave data showing that self-insured
plans provided at least as generous outpatient mental health benefits as
fully insured plans. In addition, the authors found that average monthly
premiums were similar in self-insured and fully insured plans.

Managed care dominates the mental health care market, and nearly
three-quarters of Americans with health insurance are covered by managed
mental health benefits (Shore & Altman, 1999). The main decision in the
administration of employer-sponsored mental health benefits appears to
be whether to carve the benefit out to a specialty MBHO. The benefits of
carve-outs include cost control, standardization of the benefit, care
management, and (possibly) better access to care, while the drawbacks
include a lack of coordination with physical health services and the
difficulty of treating patients with special needs (Grazier & Eselius,
1999).

Firm size (measured as revenues) is the strongest predictor of an
employer's likelihood of carving out its mental health benefits. Large
firms are more likely to use carve-outs; 40 percent of Fortune 500
companies carve out their mental health benefits, while only 30 percent
of smaller companies (with 10,000 or fewer employees) do so. Firms in
the manufacturing and infrastructure industries also are more likely to
carve out their mental health benefits, and employers using carve-outs
have higher rates of union membership than other firms. In addition,
employers interested in special expertise and cost savings are more
likely to carve out their mental health benefits, while those more
concerned with care coordination are less likely to use carve-outs.
Finally, among employees, those in non-HMO plans are more likely than
HMO enrollees to have their mental health benefits carved out (Hodgkin,
Horgan, Garnick, Merrick, & Goldin, 2000).

Mental health carve-outs can be designed to deliver adequate mental
health benefits, but employers must choose their vendors and negotiate
their contracts carefully. To influence the cost and quality of care, an
employer must be willing to exert its influence during the initial
contract negotiations and during periodic contract reviews. Carve-out
designs vary, as employers must determine the level of responsibility
and control they desire. In addition, many employers use carve-outs for
enrollees in certain health benefit plans, such as indemnity plans,
while using carved-in benefits (i.e., integrated health plans) for other
enrollees, such as those in managed care plans (Hodgkin, Horgan,
Garnick, Merrick, & Goldin, 2000).

Mental health services generally are carved out either by the employer
or by the health plan. Exhibit 2 shows three typical models of
behavioral health care contracting, which are described below. Employers
that prefer having to interact with only one entity may prefer either
the first or second model of carve-out.

 Integrated Plan: The employer contracts with a single integrated
health plan, with a carved-in mental health benefit. The health plan is
responsible for administering both the physical and mental health
benefits.

 Health Plan Carve-Out: The employer contracts with a single entity,
the health plan, but the health plan then carves out mental health
services to an MBHO. The contract exists between the health plan and the
MBHO, leaving the employer little or no ability to affect the contract
with the MBHO.

 Employer Carve-Out: The employer contracts separately with the health
plan(s) for physical health care benefits and directly with an MBHO for
mental health care benefits. This arrangement offers the employer
greater control over the mental health benefit in areas such as making
decisions about what services to cover and the extent of coverage.
However, the employer carve-out also places greater administrative
responsibility on employers for maintaining contracts.

In another model (not shown in Exhibit 2), the partial carve-out,
certain aspects of mental health care are carved out, such as
administrative services, utilization management, or in some cases, all
mental health care services once a certain level of utilization has been
reached.

The potential effects of mental health carve-out designs on access to,
and quality of, benefits are addressed in Section IV.B.

![](media/image2.png){width="4.9527777777777775in"
height="2.6527777777777777in"}

IV\.

Objectives and Options for Designing an Adequate\
Mental Health Benefit

Through review of the literature and expert opinion, we identified three
objectives that employer-sponsored mental health benefits should strive
to achieve:

>  **To provide protection from catastrophic costs, cover a wide array
> of treatments, and allow flexibility within plan;**
>
>  **To ensure access to covered services; and**
>
>  **To include available evidence-based practices and treatment
> guidelines in mental health benefits.**

The sections that follow describe the current state of knowledge about
actions that have been taken to address these three objectives, and
offer suggested options that employer purchasers and plans may consider
using to meet them.

A. Provide Protection from Catastrophic Costs, Cover a Wide Array of
Treatments, and Allow Flexibility within Plan

Mental health benefits can and should be designed to protect individuals
from catastrophic costs, and some options to protect against
catastrophic costs have been identified. The literature asserts that the
most important risks to insure are risks of catastrophic expenditures
and that limiting benefits inhibits protection against catastrophic
costs, but authors also state that cost controls are necessary (Frank,
Goldman, & McGuire, 1992). For example, according to the literature,
users of mental health care services can be protected from catastrophic
costs by providing benefit packages that do not have service limits,
cover a wide range of treatments, have high annual or lifetime spending
limits, and have annual out-of-pocket spending maximums, which could
help cap a beneficiary's financial burden (Sing, Hill, & Puffer, 2001).
Also, in an early report describing a model mental health benefit,
Frank, Goldman, and McGuire (1992) recommend offering a benefit package
without service limits but with a higher level of enrollee cost sharing
to discourage inappropriate or excessive use of services. This model
would make the benefit most useful to those with real needs for
services, rather than inducing demand for services that may be
unnecessary (moral hazard).

As previously mentioned, members of the advisory panel noted that
out-of-pocket expenses for mental health services often are not counted
toward a health plan's overall calculation of protection against
catastrophic costs for enrollees. As a result, enrollees are at risk for
incurring high out-of-pocket costs associated with mental health
treatment services, a finding noted by Zuvekas, Banthin, and Selden
(1998) in their analysis of the 1997 National Medical Expenditure Panel
Survey. A potential remedy, recommended by the advisory panel, is to
require that a health plan's overall catastrophic protection include
both physical and mental health out-of-pocket costs.

While limits are used in most mental health benefit packages (in part to
mitigate risk), whether limits are necessary for all treatment types is
still in question. Twenty percent of individuals covered by
employer-sponsored health plans have no day or visit limits on their
mental health benefits (Sturm & Pacula, 2000). Several States regulate
mental health benefit limits for plans subject to State insurance laws.
Some States also mandate that individuals be allowed to use intermediate
services in place of inpatient stays, and some even prescribe how to
calculate the number of intermediate service units that are equivalent
to each inpatient day (National Association of Insurance Commissioners
\[NAIC\], 2003).

In practice, catastrophic coverage for mental disorders may not mean
protection against high out-of-pocket expenditures from catastrophic
episodes. For example, Utah legislation addressing employer-sponsored
benefits considers catastrophic coverage to mean parity with physical
health coverage; catastrophic coverage for mental health is defined as
"coverage that does not impose any lifetime, annual, episodic, inpatient
service, outpatient service, or *maximum out-of-pocket limit* that
places a greater financial burden on an insured member for the
evaluation and treatment of a mental health condition than for a
physical health condition" (Hawley, 2004, emphasis added). While this
definition suggests that adequacy is achieved through parity with
physical health care benefits, the literature did not specifically
define what constitutes an adequate mental health benefit package. It
also has been noted that mandating parity between mental and physical
health care benefits does not necessarily ensure adequacy of the mental
health benefit if the physical health benefit itself is inadequate
(Otten, 1998).

Quantification of catastrophic costs is difficult, as there is no
commonly accepted definition of these costs. But even without a
definition or threshold for catastrophic costs, it is clear that the
costs associated with care for catastrophic mental illness can place a
great burden on individuals and their families. At the same time, the
occurrence of catastrophic mental health care costs is relatively rare;
the majority of individuals complete outpatient treatment within 10
visits. Individuals with serious mental illnesses are at greater risk
for catastrophic costs, but only about 2.8 percent of the population has
a serious mental illness (Narrow et al., 2000). Limits on care increase
the financial burden for these individuals, as they are more likely to
exceed these limits.

While few individuals and families experience catastrophic mental health
care costs, dependents (especially adolescents) are more likely to have
high-cost illnesses. Covering dependents for possible catastrophic
episodes would address several issues, including employee absenteeism
(to deal with untreated mental illness at home), low productivity and
presenteeism, and possible turnover.

Most employer-sponsored health plans cover mental health services,
although these plans generally are limited and often have moderate to
high cost-sharing requirements. Several studies suggested that benefit
flexi-bility and innovation are important to ensure that the mental
health care package meets the needs of a wide range of enrollees.
Services most frequently covered by mental health plans include
inpatient psychiatric services, outpatient care, and prescription drugs.
Intermediate-level services (e.g., nonhospital residential programs,
partial or day hospitalization) are covered less frequently, but can
substitute for more expensive inpatient treatment when clinically
appropriate.

Employers increasingly are offering EAPs to provide outreach, education,
case management, and counseling services for employees, and in some
cases to serve as a gateway to additional behavioral health services
(Teich & Buck, 2003). England and Vaccaro (1991) profiled the EAPs of
six large U.S. corporations, and the results of their interview-based
case studies revealed several common beliefs shared by these companies'
EAP directors. For example, EAP services were seen as enhancing early
case finding and easy access to benefits, as well as providing long-term
management of care. Following implementation of these companies' EAPs,
improvements in access and quality of care were documented, as well as
decreased costs associated with preventive case management services
aimed at reducing avoidable hospitalizations and shortening lengths of
stay.

Benefit limitations typically take the form of limits on total dollars
spent or on the number of days/visits, but the generosity of the limits
varies by type of service and plan. Cost-sharing amounts vary
significantly according to service, whether the service is provided by
an in- or out-of-network pro-vider, and plan type. One of the reasons
employers use cost sharing is to discourage inappropriate or excessive
use of services; however, some employers use innovative cost-sharing
structures to encourage appropriate access to care.

Mental health benefit packages typically include several key components
that employers providing mental health coverage will want to consider
when making benefit design decisions:

 covered services;

 benefit limits;

 cost sharing; and

 disease management.

Decisions regarding each of these components can affect the adequacy of
the mental health benefit.

Additional plan components---related to benefits and service
limits---are treatment plans and grievance and appeals procedures.
Treatment plans allow for more coordination of care and care management,
but often are expensive to support. Grievance and appeals procedures,
which allow patients or their representatives to appeal service denials,
may serve to address distrust of managed behavioral health caused by
disagreements regarding the appropriate course of care, the fact that
some health plans are for-profit entities, and overmanagement of the
mental health benefit. To address that distrust, a grievance and appeals
procedure should be accessible to enrollees, allow patient
representatives to file grievances early in the treatment process, and
provide clear guidelines for service authorization (Mechanic, 2002).

1\. Current Practice and Evidence from the Literature

A. Covered Services

Employer-sponsored health plans typically cover a wide range of mental
health services, and these covered services have remained relatively
unchanged over the last several years. Nearly all employer-sponsored
mental health benefit packages include coverage for inpatient treatment,
outpatient treatment, and prescription drugs, which have become
increasingly central to the treatment of mental illnesses (Buck, Teich,
Umland, & Stein, 1999; Maxfield, Achman, & Cook, 2004; Merrick et al.,
2001; Sing, Hill, & Puffer, 2001). The clinical and cost effectiveness
of intermediate-level services such as partial hospitalization were
documented in 2001 in an extensive meta-analysis of the literature
(Horvitz-Lennon, Normand, Gaccione, & Frank, 2001). Members of the
advisory panel indicated that coverage for intermediate-level services
is becoming more common but is still not sufficient. To ensure that the
benefit package meets the needs of enrollees across types and severity
of mental health conditions, an appropriate range of services should be
covered. If the required services are not provided, enrollee mental
health care needs cannot be met regardless of other design features
(e.g., generous limits or low cost-sharing requirements).

In designing an adequate mental health benefit package, ensuring access
to an appropriate range of services is of key importance. Because
employees have mental health care needs across the spectrum of services,
and those needs often shift across the spectrum, an adequate benefit
package provides access to each of these categories of service in
combination with each other. For example, an acute mental health event
requiring hospitalization often is followed by extensive out-patient and
prescription drug therapy. The appropriate combination of
services---inpatient, outpatient, and prescription drugs---is critical
to improving the mental health condition of an individual in this
situation. A benefit package with unlimited inpatient benefits and few
or no outpatient benefits is very generous from an inpatient
perspective, but does not meet the needs of individuals needing
outpatient mental health care services.

i\) Inpatient Treatment

Studies show that between 94 and 100 percent of employer mental health
plans cover inpatient treatment, which includes care in facilities such
as hospitals and nursing homes (Buck, Teich, Umland, & Stein, 1999;
Merrick et al., 2001). The proportion of mental health spending going to
inpatient treatment decreased dramatically between 1991 and 2001 (Mark
et al., 2005). Some critics of managed care have voiced concerns that
coverage for inpatient care is sometimes inappropriately denied to those
whose severity of illness merits this level of care. Without it (and
without appropriate post-discharge follow-up care), a potentially
preventable deterioration in mental health status may occur, and
additional inpatient admissions may be necessary.

ii\) Outpatient Treatment

Outpatient services are covered somewhat less frequently than inpatient
services but are covered by between 86 and 98 percent of plans (Buck,
Teich, Umland, & Stein, 1999; Merrick et al., 2001). Outpatient
treatment includes both primary care and specialty physicians, other
mental health professionals, and treatment provided at a hospital or
other facility on an outpatient basis. The proportion of mental health
spending accounted for by outpatient treatment remained largely constant
between 1991 and 2001 (Mark et al., 2005).

iii\) Intermediate Services

As stated above, providing intermediate-level services is becoming more
common. Intermediate services offer health plans an alternative to
costly inpatient services, when clinically appropriate.
Intermediate-level services include less intensive or nonhospital
residential programs, partial or day hospitalization, and intensive
outpatient services such as psychosocial rehabilitation and case
management (Buck, Teich, Umland, & Stein, 1999; Buck & Umland, 1997;
Frank, Goldman, & McGuire, 1992; Sing, Hill, & Puffer, 2001). In a study
of 1,017 medium and large firms, about half of employer-sponsored health
plans included coverage of intermediate services (Sing, Hill, & Puffer,
2001). Intensive outpatient services are covered more frequently than
nonhospital residential programs, ranging from 64 percent to 92 percent
and 52 percent to 87 percent, respec-tively. Employer carve-out plans
covered intermediate-level services more often than other plan types
(Buck, Teich, Umland, & Stein, 1999; Merrick et al., 2001). Forty-nine
percent of plans also included coverage for crisis-related services,
such as mental health hotlines or crisis intervention (Buck, Teich,
Umland, & Stein, 1999).

iv\) Prescription Drugs

An increasing number of prescription drugs have been developed to treat
mental disorders, and they have come to be considered a standard mental
health benefit, covered by nearly all employer-sponsored plans
(Maxfield, Achman, & Cook, 2004; Sing, Hill, & Puffer, 2001).
Prescription drugs have grown increasingly important in the treatment of
mental disorders; in fact, they are the predominant form of treatment in
many cases. While the proportion of the U.S. population using outpatient
mental health or substance abuse services was slightly higher in 2001
than in 1996 (7.1 percent versus 6.9 percent, respectively), the mean
number of visits per user decreased from 8.4 to 6.6; at the same time,
the proportion of the U.S. pop-ulation using psychotropic drugs
increased from 5 percent to 8.1 percent (Zuvekas, 2005). In 2001, 21
percent of mental health spending was for prescription drugs, up from 7
percent in 1991 (Mark et al., 2005). In 2001, about 13 percent of total
spending on prescription drugs was for mental health drugs. Costs per
prescription have increased recently in certain classes of mental health
drugs owing to changes in therapeutic mix (the use of more expensive
drugs and drug strengths) and the introduction of new drugs into the
class.

While nearly all employer-sponsored health benefit plans include
coverage for prescription drugs, generosity of the benefit varies across
health plans according to their formulary or preferred drug list
requirements. A common structure for prescription drug benefits
currently is a three-tiered plan, in which member copayments are lowest
for generic drugs, more for preferred brand-name drugs, and highest for
nonpreferred brand-name drugs. In addition, prescription drugs typically
are not included in calculating the cost of mental health benefits, and
these generally are considered separate aspects of an employer's health
benefit plan. Utilization and spending for prescription drugs typically
is managed through traditional prescription drug management approaches
(e.g., tiered copayments, formularies).

v\) Employee Assistance Programs

A considerable and growing percentage of private employers offer EAPs as
part of their employee benefit packages. In 1995, 39 percent of
employers with 50 or more workers offered an EAP, compared with 33
percent in 1993 (French, Zarkin, Bray, & Hartwell, 1999). In 1997, 28
percent of employees in small firms (fewer than 50 employees) had access
to an EAP, as did 61 percent of employees in midsize firms and 75
percent of those in large firms (1,000 or more employees) (Masi et al.,
2004). In 2002, a survey of 645 managed behavioral health provider
organizations found that 80.2 million individuals were enrolled in EAPs,
constituting approximately 32 percent of Americans with health insurance
(Open Minds, 2002). In a survey of more than 1,500 worksites with more
than 50 employees, 80 percent of EAPs were external with a contractor
providing EAP services to employees, 17 percent were internal or staffed
by company employees, and 3 percent used a combined external/internal
model (French, Zarkin, Bray, & Hartwell, 1999). Internal EAPs are
typically more expensive to operate, possibly making them a less popular
option (French, Zarkin, Bray, & Hartwell, 1999).

The relationship between the EAP and the mental or behavioral health
benefit can influence the role of the EAP and how employees access
covered services. In a stand-alone model, there is no service
relationship between the EAP and the behavioral health benefit provider.
In this situation, the EAP cannot transfer an employee as easily from
EAP services to the more extensive services of a behavioral health
provider. In an integrated model, the EAP is linked to the behavioral
health provider and may serve as a gateway to behavioral health services
(Masi et al., 2004). The integrated model also facilitates a behavioral
health provider's ability to suggest use of the EAP for certain patients
(Leopold, 2003).

The role of EAPs has evolved over time, from primarily providing
confidential access to mental health and substance abuse services, to
providing assessment and referral, monitoring short-term disability
cases, and conducting utilization review for mental health services
(Coughlin, 1992; Kent, 1990). In a national survey of 2,180 employers
with more than 10 employees, 79 percent of EAPs provided face-to-face
counseling as opposed to telephone counseling only. Two-thirds of the
EAPs provided brief therapy for behavioral health problems. Most of the
EAPs also reported providing counseling or referral services for work or
family issues (Teich & Buck, 2003). EAPs often are considered one-stop
shops for mental health and work/family life services (Masi et al.,
2004). Experts anticipate that the role and prevalence of EAPs will
continue to expand. While many studies reported on the characteristics
and prevalence of EAPs, few reported utilization rates. A study of the
EAP at Federal Occu-pational Health, a service unit within the DHHS'
Program Support Center that delivers occupational health services to the
Federal civilian and military workforces, reported that between 1999 and
2002, approximately 3.5 percent of the 3.3 million enrollees used EAP
services (Selvik, Stephenson, Plaza, & Sugden, 2004).

B. Benefit Limits

While covering various types of services and treatments, nearly all
plans enforce some limits on the amount or cost of services that are
covered under the plan. Employers and health plans typically place
limits on covered mental health benefits to control their financial
liability. Some also may use limits out of the concern that mental
health services will be used by healthy individuals who are not in need
of them. The type of benefit limit used varies according to the type of
service (i.e., inpatient or outpatient) and provider. The most common
limits are annual limits on the number of visits or days of service.
Annual limits most frequently used across employers of varying sizes and
plan types are 20 outpatient visits and 30 inpatient days (Barry et al.,
2003; Buck, Teich, Umland, & Stein, 1999; Buck & Umland, 1997; Hay
Group, 1999; Merrick et al., 2001).

The use of limits on covered mental health benefits has grown over time,
and nearly all plans have implemented such limits (Hay Group, 1999). It
is estimated that only about 20 percent of all individuals in the United
States with employer-sponsored health plans have no day or visit limits
on mental health benefits (Sturm & Pacula, 2000). By 1997, annual limits
on inpatient days were the most prevalent limit on mental health
benefits (Buck, Teich, Umland, & Stein, 1999). McKusick, Mark, King,
Coffey, and Genuardi (2002) reported findings from a national household
survey that the proportion of plans without limits on inpatient services
decreased from 60.4 percent to 25.4 percent between 1987 and 1996.
During this time, the level of enrollee cost sharing also decreased. The
authors concluded that these benefit design changes---increased use of
limits and lower cost-sharing levels---affect mental health care users
differently depending on their needed level of utilization. Individuals
considered to be catastrophic users (defined as those who used more than
50 inpatient days and 100 outpatient visits) reached their limits sooner
and incurred increased out-of-pocket costs for services beyond their
limits, whereas infrequent users of mental health care services who were
unlikely to reach the limits benefited from the lower cost sharing.

A recent survey of about 3,000 randomly selected employers with three or
more employees found that just 19 percent of covered workers have
coverage for an unlimited number of outpatient mental health visits, and
more than 6 in 10 are limited to 30 or fewer visits per year. For
inpatient mental health care services, 21 percent of covered workers
have coverage for an unlimited number of days of treatment, 14 percent
are covered for 20 or fewer days per year, 45 percent are covered for 21
to 30 days per year, and 21 percent are covered for 31 or more days per
year (KFF/HRET, 2004).

While limits on the number of allowed visits are popular, employers and
health plans may not realize cost savings from limits on the duration of
inpatient stays, as inpatient stays typically are short and the costs
are concentrated in the first few days of the stay. In addition, several
patient- and provider\--specific characteristics influence inpatient
mental health lengths of stay (e.g., a primary diagnosis of
schizophrenia, the number of previous admissions, a primary diagnosis of
a mood disorder, age, a secondary diagnosis of an alcohol- or other
drug-related disorder) merit consideration when designing flexible
benefits without arbitrary limits (Hopko, Lachar, Bailley, & Varner,
2001; Huntley, Cho, Christman, & Csernansky, 1998).

Sing, Hill, and Puffer (2001) made recommendations for improving mental
health benefits without increasing costs. Their recommendations included
strategies to improve access to services by covering a wide range of
clinically effective services and treatment, with incentives to
substitute lower cost treatment when appropriate (e.g.,
intermediate-level care). A current benefit design trend is to allow
members to trade services within limits. That is, rather than having 1
inpatient day stay, a member can receive 2 to 3 intensive outpatient
days or other intermediate-level services, such as partial day
treatment. This arrangement both permits greater flexibility in use of
services within specified limits and encourages use of less costly
mental health services, as appropriate. Members of the advisory panel
also suggested combining outpatient and intermediate-level services in a
managed but unlimited benefit and retaining some generous limits on
inpatient care. The search of the peer-reviewed literature did not
locate sources that reported empirical results of the effects of such a
combination. It is an area that merits further research.

Other limits used include maximum annual and lifetime dollar limits on
the value of services received (Buck, Teich, Umland, & Stein, 1999).
Financial limits vary signifi-cantly across plan type. In 1996 (prior to
implementation of the Federal MHPA), for employers with more than 500
employees, median annual limits on inpatient services were \$10,000 and
lifetime limits were between \$30,000 and \$50,000. Median outpatient
annual limits were \$2,000 and lifetime limits were \$25,000 to \$50,000
(Robinson, Chimento, Bush, & Papay, 2001). Survey data from companies
with 10 or more employees as well as companies with more than 500
employees showed that in 1997, median lifetime limits ranged from
\$25,000 to \$40,000 for inpatient services and from \$20,000 to
\$50,000 for outpatient services. The median annual limits were \$5,000
for inpatient services and between \$1,500 and \$2,000 for outpatient
services (Buck, Teich, Umland, & Stein, 1999; Merrick et al., 2001).
However, use of annual dollar limits for outpatient services is not as
common as it once was (Hay Group, 1999), and industry experts note
that the trend has been away from using maximum lifetime limits.

Laws in many States regulate limits on coverage for mental health
treatment. According to a compendium of State laws published by the NAIC
(2003), 17 States mandate coverage with at least specified minimum
benefits in group contracts, 25 States require that mental health
services (for at least biologically based mental illnesses) be covered
under the same terms and conditions (or with no more restrictive limits)
as other illnesses, and the following 4 States regulate coverage limits
by placing a specific minimum on covered days or visits:

 Mississippi: Group plans are required to cover at least 30 days of
inpatient care, 60 days of partial hospital treatments, and 52
outpatient visits per year.

 Nevada: Plans must provide at least 40 days of inpatient hospital care
and 40 outpatient visits each year for severe mental illness.

 Pennsylvania: Coverage for serious mental illness must include a
minimum of 30 inpatient and 60 outpatient days annually and must have no
difference in annual or lifetime limits from other illnesses.

 Virginia: Coverage is mandated to be the same as for other illnesses
except that coverage may be limited to 30 days per policy year.

In some States, trading of services is required to be an option under
mental health benefit plans. In Texas, for example, a plan with coverage
for inpatient care must cover psychiatric day treatment facilities (an
intermediate service); according to the benefits calculation prescribed
in statute, a full day of care in a psychiatric day treatment facility
is equal to one-half day of inpatient care. Due to ERISA preemption,
State laws regarding insurance do not apply to all employers, and many
workers and their dependents are not covered by these protections.

A case study of employers providing mental health benefits offered
examples of criteria for comprehensive mental health coverage. These
criteria included providing benefits beyond the traditional limits of
30 inpatient days and 20 outpatient visits, providing innovative and
flexible benefits, including intermediate levels of care, coordinating
with EAPs, and encouraging employees' use of mental health services.
Examples of innovative programs include wellness programs, disease
management, onsite psychiatric care, rapid-response teams for crisis
intervention, incentives for participation in preventive health care
programs, training for supervisors to detect mental health problems, and
opportunities for employees to shape pro-vider networks (Robinson,
Chimento, Bush, & Papay, 2001).

Frank, Goldman, and McGuire (1992) recommended that the payment system
encourage substitution of lower cost for higher cost providers, as there
is an array of provider and facility types that can serve patients
appropriately. They also recommended that the payment system be
consistent with managed care techniques that have been shown to be
effective, including prior authorization, concurrent review, and case
management.

C. Cost Sharing

Cost sharing is required in most managed behavioral health care products
to encourage appropriate use of services and to discourage unnecessary
or inappropriate use of services. In a study of 434 MCOs in which 704
different products were available, 67 percent of managed care plans
required copayments for outpatient mental health services, 30 percent
required coinsurance payments, and 3 percent required neither (Hodgkin,
Horgan, Garnick, & Merrick, 2003). In 1997, about 94 percent of plans
offered by Fortune 500 firms with carved-out mental health benefits had
some form of cost sharing. The median in-network cost sharing was a \$15
copayment or 20 percent coinsurance for outpatient services, a \$100
copayment or 20 percent coinsurance for inpatient services, and a \$20
copayment or 20 percent coinsurance for intermediate services (Merrick
et al., 2001).

The level of cost sharing may vary depending on whether in- or
out-of-network pro-viders supply the services, with higher levels of
cost sharing for out-of-network services. In Ma and McGuire's (1998)
study of Massachusetts' behavioral health carve-out for State employees,
in-network coverage for inpatient services required no cost sharing,
while out-of-network services required 20 percent coinsurance. Exhibit 3
shows the median coinsurance rates for in-network versus out-of-network
providers in various health plan types.

Some employers have structured cost-sharing requirements to encourage
the use of less costly services, to move the provision of services from
inpatient settings to less expensive outpatient settings, and to
discourage inappropriate or excessive use of health services. For
example, mental health benefit cost sharing is sometimes structured
incrementally, so that initial mental health care visits are provided
with little or no cost sharing followed by higher cost sharing for
extended use of outpatient services (Robinson, Chimento, Bush, & Papay,
2001). However, according to a member of the advisory panel, this
incremental cost sharing is less common now than it once was. While cost
sharing is an important tool for discouraging inappropriate or excessive
use of mental health services, setting cost-sharing levels too high
might discourage individuals from seeking necessary care (Simon,
Grothaus, Durham, Von Korff, & Pabiniak, 1996; Simon, Von Korff, &
Durham, 1994). In fact, other literature recommended reducing enrollee
cost sharing as a way to promote access to care (Sing, Hill, & Puffer,
2001).

D. Use of Disease Case Management Approaches for Chronic Mental Health
Conditions

Disease management programs are being used increasingly to improve the
care of persons with chronic conditions such as asthma, diabetes, and
heart disease (Bodenheimer, 2000). Many disease management strategies
have been developed for chronic conditions that are high cost both
clinically (in terms of the burden of suffering) and economically (in
terms of resource utilization). Although there is not a universally
agreed-upon definition of the term "disease management," the following
is a particularly helpful one that encompasses features commonly found
in various definitions:

> Disease management is an approach to patient care that coordinates
> medical resources for patients across the entire health care delivery
> system. A critical distinction between disease management and other
> approaches to traditional medical care is a shift in focus from
> treating patients during discrete episodes of care to provision of
> high-quality care across the continuum.
>
> There are at least 4 essential components of disease management. These
> include:
>
> 1. An integrated health care delivery system capable of coordinating
> health care across the continuum;
>
> 2. A comprehensive knowledge base of the prevention, diagnosis,
> treatment, and palliation of disease;
>
> 3. Sophisticated clinical and administrative information systems that
> can be used to analyze practice patterns; and
>
> 4. Continuous quality improvement methods (Ellrodt et al., 1997,
> p. 1687).

Numerous studies have found that the use of a disease case management
approach for persons with chronic mental health conditions such as major
depression has resulted in improved patient outcomes and improved
ability of employer purchasers and health plans to control costs. For
example, a 2001 review of studies that examined the effects of disease
management techniques for persons with major depression found that these
programs had several common successful features related to screening,
patient education, and the use of treatment guidelines. These features
included taking responsibility for patient follow-up, determining
whether adherence to treatment recommendations was occurring, assessing
treatment outcomes for improvement, and intervening when patients were
not adhering to their treatment regimens or achieving expected
improvements. In many of the studies reviewed, case management services
were provided over the telephone at a low cost per case treated.
Successful disease management programs were designed to calibrate the
level and intensity of services based on patient needs (e.g.,
determining how best to coordinate the services of primary care
providers, case managers, and mental health specialty providers such as
psychologists and psychiatrists) (Von Korff & Goldberg, 2001).

A meta-analysis of published studies designed to measure the effects of
disease management programs on treatment of depression found that the
pooled results of these studies documented statistically significant
improvements in the following indicators:

 symptoms of depression;

 physical functioning;

 health status;

 satisfaction with treatment; and

 adherence to treatment regimens.

Other improvements also were found in the following areas:

 the rate of detection of depression;

 adequacy of treatment with antidepressants; and

 outcomes that are influenced by both providers' and patients'
adherence.

Although the authors did not measure productivity gains that might have
occurred as a result of a disease management approach, they noted that
such programs improve quality of care, measured in terms of both
processes and outcomes of care. Although such programs can increase
treatment costs (at least in the short term), the investment potentially
results in longer term cost savings in the form of reductions in
avoidable hospitalizations and enhanced employee productivity
(Badamgarav et al., 2003).

2\. Options for Meeting the Objective

To meet the objective of providing protection from catastrophic costs,
covering a wide array of treatments, and allowing flexibility within
their plans, employers should consider the following options:

 **Combine the out-of-pocket maximums for mental and physical health
care services.** Patients' out-of-pocket expenses for mental health
services should be applied to a unified benefit out-of-pocket maximum
that also includes unreimbursed expenses for medical/surgical care. The
role of health insurance generally is to protect against financial ruin
caused by medical care costs. The main concern is the total amount of
these costs and the ability of the individual or family to shoulder the
burden. It may be more appropriate to consider spending for mental and
physical health care services together rather than separately when
calculating out-of-pocket maximums and expenditures.

 **Provide coverage for a variety of treatment modalities.** To provide
adequate coverage, a health plan should cover a variety of treatment
types, including inpatient, intermediate, and outpatient services and
prescription drugs. Intermediate services may be provided both as a less
intensive treatment modality for those not requiring inpatient care and
as a less expensive service. Plans could reduce costs by encouraging
providers and patients to "step down" from inpatient to intermediate
services as soon as is medically feasible for the patient. Also, as
prescription drugs have grown more integral to the treatment of mental
illnesses, the prescription drug benefit should cover a range of mental
health drugs to ensure access.

 **Provide a flexible mental health care benefit with generous or no
limits.** An employer that prefers to retain some limits on care covered
may wish to focus on limits for inpatient services and clarify explicit
criteria for evaluating medical necessity. Some specific options include
the following:

 *Eliminating limits for outpatient benefits.* Actuarial analysis of
the relationship between benefits and premiums finds that increasing the
number of covered visits would increase plan costs by a relatively small
amount, and as the number of covered services is increased the cost per
additional unit of service decreases substantially. If the typical
outpatient benefit limit of 20 visits per year is increased to 90 visits
(essentially an unlimited benefit), the overall cost of the outpatient
mental health benefit will increase by 17 percent, or \$0.68 PMPM for
general mental health and \$0.18 PMPM for substance abuse (based on a 90
percent benefit rate). These dollar amounts represent increases of only
0.2 percent (for mental health) and 0.06 percent (for substance abuse)
of the PMPM cost for all benefits (physical and mental combined) for a
typical health care plan. (See Appendix A for a complete description of
this analysis and for PMPM figures for various benefit limits.)
Employers and health plans also could calibrate graduated cost sharing
for outpatient visits, with the first few visits having low or no cost
sharing.

 *Combining coverage for outpatient and intermediate-level services* in
a managed but unlimited benefit and retaining some generous limits on
inpatient care. While not yet supported in the empirical literature,
based on the advisory panel's advice it may be feasible to implement
such a combination, provided monitoring techniques are in place to
measure the effects on access, cost, and quality of services.

 *Covering inpatient care with generous limits,* as this is unlikely to
induce additional demand. Actuarial analysis, described in Appendix A,
indicates that providing coverage for additional inpatient days
increases plan costs by a relatively small amount, and the cost per
additional day decreases as the number of covered days increases. For
example, if the typical inpatient benefit limit of 30 days is doubled to
60 days, the overall cost of the inpatient mental health benefit will
increase by 22 percent, or \$1.55 PMPM for general mental health and
\$0.62 PMPM for substance abuse (based on an 80 percent benefit rate and
assuming average U.S. costs in 2005). These dollar amounts represent
increases of only 0.4 percent (for mental health) and 0.2 percent (for
substance abuse) of the PMPM cost for all benefits (physical and mental
combined) for a typical health care plan.

 *Providing a flexible benefit package.* Employers or their health plan
vendors should create a flexible mental health benefit plan that covers
a range of services and treatment types (including intermediate
services) and allows enrollees to trade services of different types
among the benefit limits. A flexible benefit package can adapt to the
needs of employees and their dependents, allowing the benefit to cover
more people adequately. Flexibility in the benefit package enables
providers to ensure that individual patients are provided with
treatments that work for them. Plans also should use incentives to
encourage the use of lower cost treatments (such as intermediate-level
care) and providers where appropriate, and they should ensure that the
mental health benefit covers the services needed by patients of
different ages with different needs.

 **Use the EAP for access and integrate it with the mental health
benefit.** If using an EAP, employers should advertise the services to
employees and their dependents and use the EAP to get those who need
care into appropriate treatment quickly. Outreach and employee education
should be stressed. The EAP should be portrayed as an acceptable option
for employees, to reduce the stigma associated with mental health care.
Integration of the EAP with the mental health benefit would allow timely
provision of treatment to individuals identified through calls to the
EAP. Employers also should ensure appropriate funding of the EAP.

 **Use treatment plans and prior authorization.** Employers and plans
can use provider-developed and plan-approved treatment plans and prior
authorization to manage the care delivered to members. These techniques
would serve to reduce demand for unnecessary services possibly induced
by increased limits or lower cost sharing. However, plans should avoid
creating unnecessary barriers to care, such as heavy-handed utilization
management, which may impinge on service delivery. This may be
accomplished through providing initial visits without prior
authorization or referral requirements. In addition, plans should
provide an accessible grievance and appeals procedure with clear
guidelines for approval and denial of services.

 **Use a disease case management approach to improve outcomes and help
manage costs.** Employers and health plans have found that using disease
case management programs for conditions such as asthma and diabetes
leads to clinically desirable outcomes. Similar approaches can be taken
for managing the treatment of depression or anxiety to improve
employees' ability to remain productive both on and off the job.

B. Ensure Access to Covered Services

Regardless of the numbers and types of services covered by a mental
health benefit plan, if employees and their covered dependents cannot
access the covered services they need, the benefit is not adequate.
Employees must be educated about the benefit and the services/provider
types covered in order to know how to seek care when they need it. Other
factors to consider include having sufficient numbers and types of
providers in the plans' networks within a reasonable travel distance to
meet enrollees' needs and to provide enrollees with a choice of
providers and timely appointments.

1\. Current Practice and Evidence from the Literature

A. Effects of Financial Risk-Sharing Arrangements on Access to Care

Financial risk-sharing relationships vary among and across delivery
models of behavioral health care. On one end of the spectrum, all the
financial risk is transferred to the MBHO; on the other end, the MBHO
bears little or no risk. Within the spectrum are shared risk
relationships, in which payment to MBHOs is based on their performance
relative to performance targets (Frank, McGuire, & Newhouse, 1995).
Arrange-ments in which MBHOs share risk appear to be more common than
ones in which MBHOs bear no risk (Garnick et al., 2001). In a survey of
458 MBHOs, Garnick et al. (2001) found that in 1999, 12.8 percent of the
MBHOs operated under partial risk\--sharing agreements. The most
frequent risk-sharing arrangement across plan types is one in which
MBHOs are fully at risk within certain limits on the MBHO's losses or
profits. In 1999, 52.8 percent of managed behavioral health products
participated in this kind of arrangement (Garnick et al., 2001).
Risk-sharing mechanisms affected the supply of services; outpatient
mental health visits were reduced between 20 percent and 25 percent when
risk sharing was introduced in an MBHO that covered approximately 2
million enrollees (Rosenthal, 1999; 2000).

For mental health benefits that are carved into the general health care
benefit plan, financial risk-sharing relationships between the employee
and the employer or plan may change as employers increase their use of
CDHB and HDHPs, with or without account-based spending accounts such as
HSAs. As discussed in Section II, members of the advisory panel
expressed concerns related to coverage for mental health care services
in these types of plans, specifically in regard to the definition of
preventive care and what services will qualify for coverage or apply to
the deductible. As the prevalence of these plans increases, attention
will need to be given to these cost and coverage issues, and employees
will need guidance on their funding decisions related to HSAs or other
health care accounts.

B. Effects of Carve-Outs on Access to Mental Health Care Services

As described in Section III, several factors influence employer
decisions about carving out their mental health benefits. In particular,
employers must consider various aspects of the plans, including
utilization management and quality of care, contracts with accredited
MCOs and MBHOs, care management and coordination, provision of services
to vulnerable populations, and costs, as discussed below.

i\) Utilization Management and Quality of Care

The literature shows that patterns of mental health care utilization
have changed with the increased use of the MBHO model, but the overall
use of mental health care has not. In some cases, access to care has
increased, perhaps due to programs like EAPs, direct access to services
under MBHOs, and better coordination and education efforts among
specialists, primary care providers, and consumers (Feldman, 1998;
Hodgkin, Horgan, Garnick, Merrick, & Goldin, 2000; Zuvekas, Regier, Rae,
Rupp, & Narrow, 2002). For example, enrollees in MBHOs typically access
mental health services via a toll-free number that can be reached 24
hours a day or through an EAP referral, while in general managed care
health plans, enrollees often are required to see a primary care
provider who can then refer them to a mental health care practitioner.
MBHO contracts often include mechanisms such as enrollee education about
benefits, limited maximum telephone wait times, and maximum wait times
before an appointment is scheduled, which can increase access to care
(Feldman, 1998). Nearly all Fortune 500 companies that have a carve-out
also have an EAP, which can be an easy and nonthreatening way for
employees to receive care (Merrick et al., 2003).

A review of one large MBHO, United Behavioral Health, found that while
it frequently performed utilization reviews for appropriateness of
services, the actual denial rate was only 0.8 percent. The authors noted
that while the study indicates that service denial was not a common
method of limiting care, MBHOs may use other processes to limit access
to care, or providers may have learned how to get their requests
authorized (Koike, Klap, & Unützer, 2000).

Another study of the private sector by Goldman, McCulloch, and Sturm
(1998) found that after an MBHO was contracted for mental health care
services, the total number of persons using mental health care services
increased, while the average number of outpatient visits per person
decreased, probability of inpatient admission declined, and average
inpatient length of stay was reduced. In managed behavioral health care
arrangements, the use of intermediate care, such as residential
treatment and partial hospitalization in place of hospital care,
generally increases, which may allay concerns of overhospitalization and
restrictive treatment settings (England & Vaccaro, 1991; Grazier &
Eselius, 1999). A case study of a medium-size firm of 1,943 employees
that implemented managed behavioral health care found that MBHO
enrollees had an increased likelihood of receiving outpatient mental
health care and no difference in the level of care in terms of services
received once the patient was under care (Grazier, Eselius, Hu, Shore, &
G'Sell, 1999). According to a study by Buck, Teich, Umland, and Stein
(1999), MBHOs are less likely than other types of plans (e.g., PPOs and
HMOs) to impose special limits, with one-third of MBHOs having no
special limits at all. The utilization management undertaken by MBHOs
may allow them to set higher benefit limits without concern for cost.

Some of the literature suggested that the structure, administrative
techniques, and specialization of MBHOs may enable them to provide
better mental health care to patients. In integrated medical plans with
competing HMOs, HMOs have an incentive to avoid enrolling patients with
behavioral health problems because their costs exceed their premiums.
Employers can avoid this problem if all employees are enrolled in a
single carve-out, which therefore cannot disenroll or avoid expensive
patients (Frank, Koyanagi, & McGuire, 1997; Hodgkin, Horgan, Garnick,
Merrick, & Goldin, 2000;). In this situation, employees with a mental
illness are unable to choose health plans with greater benefits,
eliminating the problem of adverse selection. Hodgkin, Horgan, Garnick,
Merrick, and Goldin (2000) also hypothesized that a separate budget for
behavioral health services ensures that an HMO cannot divert funds from
behavioral health to general health. One author commented that the
intense case management capabilities of MBHOs can actually ensure
quality care for patients as opposed to using the mechanism to deny care
(Durham, 1995). MBHOs can improve care by developing specialized
clinical practice protocols to guide care delivery, employing mental
health professionals as case managers, and maintaining a comprehensive
behavioral health service network (Teitelbaum, Rosenbaum, Burgess, &
DeCourcy, 1999). MBHOs also have had success coordinating care between
substance abuse and mental health services, which is crucial given the
high prevalence of patients with dual diagnoses (Feldman, 1998).

The American Medical Association (AMA) and the American Psychiatric
Association (APA) are concerned that providing mental health services
separately from physical health through an MBHO stigmatizes and
discriminates against enrollees with mental illness. Another belief of
some psychiatrists is that MBHOs impose onerous authorization
requirements, inappropriately provide only limited authorizations, or
provide insufficient reimbursements, which are disincentives for
psychiatrists' participation in MBHO networks (APA, 2002).

Quality can be difficult to measure, but some common ways to measure it
are hospital readmissions, appropriateness of medications, type of
counseling received, access to a range of appropriate mental health
providers, and adherence to clinical treatment guidelines. MBHOs are
sometimes criticized for shifting patients away from the care of
psychiatrists toward less expensive mental health providers like
doctoral-level psychologists or master's-level therapists. A study by
Sturm and Klap (1999) found that the majority of MBHO enrollees with
depressive disorders and almost all enrollees with psychotic disorders
had contact with a psychiatrist. Merrick (1998) found that while
inpatient service payments and lengths of stay decreased for MBHO
enrollees, readmission rates did not change significantly, and the
proportion of discharges receiving follow-up care increased
significantly. A case study by Busch (2002) found that MBHO enrollees
diagnosed with depression were 25 percent more likely to receive mental
health treatment according to AHRQ and APA guidelines. Exhibit 4
summarizes the benefits and drawbacks of an MBHO carve-out.

Altman and Goldstein (1988) laid out the differences in clinical
practices, management strategies, and benefit design across different
HMO models, including group models, staff models, and individual
practice associations (IPAs). The authors noted differences in cost
sharing for outpatient visits (lower in staff models, incremental
increases in IPAs) and alternative benefits (staff models providing
additional day treatment, other models allowing substitution of day
treatment for inpatient days). No systematic patterns in access were
found in the model types; variation existed both within and between the
models. In all types, plans provided more benefits than their specified
benefit offerings would suggest. The six HMOs studied required a primary
care physician referral for mental health services; however, half of
them ignored this requirement and allowed self-referral for at least the
initial visit. Staff and group model plans were more likely to extend
benefits beyond plan limits to achieve other goals such as prevention of
hospitalization, while none of the IPAs did so.

ii\) Contracts with Accredited MCOs and MBHOs

Employer purchasers have found that requiring contracted health plans
such as carve-out MBHOs to be accredited by organizations such as the
National Committee for Quality Assurance (NCQA), the Joint Commission on
the Accreditation of Healthcare Organizations (JCAHO), or the
Utilization Review Accreditation Committee (URAC) is an essential way to
help ensure access to quality care (Scanlon & Hendrix, 1998). These
organizations require that health plans meet a variety of performance
measures that include standards for access to care, provider network
composition, and improved health outcomes. NCQA and JCAHO, for example,
have developed performance standards specifically for MBHOs. URAC has
standards for utilization review, case management, and disease
management programs. Quality is also measured through NCQA's Consumer
Assessment of Health Plans Survey (CAHPS^®^). A random sample of
consumers is surveyed annually about their experiences and satisfaction
with their health plans, and CAHPS publicly reports aggregate measures
of their responses across health plans. Employer purchasers have found
that plans with high scores provide high-quality care and have high
consumer satisfaction. This information helps to inform employer
purchasers' decisions about the plans with which to contract.

iii\) Care Management and Coordination

Carve-outs are thought to improve care management and health service
delivery through more sophisticated networks and a high level of
expertise on mental health care issues (Grazier & Eselius, 1999). This
improved care management may help mitigate the effects of adverse
selection and moral hazard. A carve-out also may curb adverse selection
by shifting financial risk to the MBHO and by providing the same mental
health benefits to members of different health plans offered by one
employer. However, most employers using carve-outs do so for only some
of their employees and do not create a single benefit for all mental
health needs (Sturm & McCulloch, 1998).

Sturm and McCulloch (1998) reported substantial variety in mental health
benefits, which the authors asserted is indicative of attempts to
address moral hazard and adverse selection. Frank, McGuire, Bae, and
Rupp (1997) also asserted that mental health carve-outs may help
mitigate adverse selection and reduce the incentives for plans to
compete to avoid "bad" risks or individuals with high mental health care
needs (e.g., by offering a limited mental health benefits package).
Salkever and Shinogle (2000) studied factors influencing employers'
decisions to use mental health carve-outs. They identified two ways in
which carve-outs can mitigate adverse selection: (1) employing effective
utilization management strategies for mental health services and (2)
limiting employees' choice of mental health benefits packages by using
one carve-out arrangement across all health plans offered. The study
ultimately was inconclusive regarding whether employers choose
carve-outs specifically to control adverse selection.

On the related topic of care coordination, the experts interviewed for
this project identified the coordination of mental and physical health
services as a challenge, especially when mental health services are
provided as a carve-out through a separate contract, because this severs
the link between the benefits. Separation of the benefits was a common
critique of behavioral health carve-outs throughout the literature as
well, although it was noted that there are no nationally accepted
benchmarks for care coordination and that care coordination is a broader
health care issue. While primary care providers are often the first and
sometimes the only medical professionals who see patients with mental
illness, they may not be as effective in delivering specialized mental
health care as psychiatrists and other mental health clinicians
(Goldberg, 1999; Sturm & Klap, 1999; Varmus, 1998). According to one
article, more than two-thirds of all prescriptions for psychotropic
medications are written by physicians who are not psychiatrists, and 50
percent of patients with mental disorders see a primary care provider
only (Fagan, Schmidt, & Cook, 2002). In addition, according to members
of the advisory panel, some new psychopharmaceuticals carry "black-box"
warnings that require extensive follow-on care, and primary care
providers may be reluctant to prescribe such drugs owing to these
requirements.

Ideally, primary care providers should have a clear mechanism to refer
patients to mental health specialists and to communicate with
specialists about past and concurrent treatments. Administrative
barriers between primary care physicians and mental health specialists
could delay patients receiving the appropriate mental health care. Group
Health Cooperative of Puget Sound in Seattle provided an example of a
successful collaborative disease case management model in which primary
care physicians and mental health providers worked together. A Group
Health experiment found that 74 percent of patients with major
depression treated in a collaborative setting (a primary care physician
and a psychiatrist) saw significant improvement in their condition,
compared with 42 percent of patients who received care only from a
primary care physician. Key elements of Group Health's collaborative
model included getting physicians and psychiatrists to work closely to
share medical records if possible, and ensuring that the billing system
encouraged collaboration (Katon et al., 1997; White, 1997).

Rosenbaum, Mauery, and Kamoie (2001) addressed care coordination between
physical and behavioral services in managed care contracts. The authors
found that the movement toward physical and behavioral health service
integration appears to be founded in the belief that integration is
fundamental to the standard of primary care itself. NCQA includes
standards for care coordination in its accreditation standards for both
MBHOs and general MCOs. However, while purchasers identify care
coordination as a performance standard of interest, few identify
specific benchmarks for care coordination. The authors set forth sample
purchasing specifications for care coordination in managed care
contracts. They suggested that the contract language may be especially
useful for purchasers considering contracting with MBHOs that are not
NCQA-accredited or that wish to use standards exceeding those of NCQA.

Another issue to consider in care coordination is the potential for
medical cost offsets. Cost offsets may be achieved by appropriately
treating diseases like depression or other mental health disorders,
which often lead to general disability (Mechanic, 1998). Coordination of
care between physical and mental health care gives MBHOs the incentive
and ability to practice cost-offset and preventive measures, because the
MBHO will reap the benefits (Hodgkin, Horgan, Garnick, Merrick, &
Goldin, 2000; Mechanic, 1997). However, a study of eight large employers
with generous mental health benefits found that employers choosing
behavioral health carve-outs had concluded that the care quality and
management offered by a behavioral health specialty benefit outweighed
the reported advantages of integrated health care benefits (Apgar,
2001).

iv\) Provision of Services to Vulnerable Populations

A concern associated with mental health carve-outs is that they limit
care for those with special mental health care needs, such as children
and adolescents and those with serious mental illnesses. The most
dramatic reductions in costs have been among individuals with the
highest expenditures and the most serious illnesses, raising concerns
that necessary services may be cut along with unnecessary utilization
(Grazier & Eselius, 1999).

Employer mental health benefits often extend to the families of
employees, who therefore should be considered when designing the
benefit. Adolescents are more likely to use both outpatient and
inpatient mental health services than adults. Thus, limits on benefits
have a greater effect on adolescents (Gresenz, Liu, & Sturm, 1998). In
one study, the implementation of parity and managed care resulted in
reduced inpatient use by children and adolescents, but it was not clear
if this was the result of reducing unnecessary use or of cutting needed
services (Zuvekas, Regier, Rae, Rupp, & Narrow, 2002). In a study of
Medicaid beneficiaries, inpatient readmission of children and
adolescents who received behavioral health services through a carve-out
increased from less than 8 percent to more than 10 percent, and
children's inpatient providers were more critical of clinical decisions
than other providers were. Researchers suggest that children may have
more complex needs than adults and that carve-outs may not have the
resources necessary to coordinate their care with family members,
schools, and other agencies (Grazier & Eselius, 1999).

Several articles raised the concern that MBHOs limit inpatient care to
the point of hindering the care of the seriously mentally ill (Zuvekas,
Regier, Rae, Rupp, & Narrow, 2002). An article in the *Archives of
General Psychiatry* concluded that while enrollment in an MBHO does not
change the likelihood of an individual with schizophrenia receiving
antipsychotic medication, it does negatively impact the use of
individual therapy, group therapy, and psychosocial rehabilitation
(Busch, Frank, & Lehman, 2004). Huskamp (1999) found, in a study of the
Massachusetts State employee carve-out, that seriously mentally ill
patients with unipolar depression or substance dependence experienced
decreased inpatient and outpatient costs per episode. The author
asserted that individuals with severe mental illness potentially
experienced a decrease in necessary services. A study by Landerman,
Burns, Swartz, Wagner, and George (1994) found that financial
requirements such as copayments do reduce the use of mental health care
by those with a psychiatric diagnosis. Finally, the Surgeon General's
Report on Mental Health noted that patients with serious mental
illnesses and children are at greater risk for experiencing negative
outcomes associated with benefits limits and quality concerns related to
managed care (DHHS, 1999).

v\) Costs

Researchers agree that MBHOs reduce costs for the purchaser and the
enrollee at least in the short run (Frank & McGuire, 1997; Goldman,
McCulloch, & Sturm, 1998; Grazier & Eselius, 1999; Grazier, Eselius, Hu,
Shore, & G'Sell, 1999; Huskamp, 1999; Ma & McGuire, 1998; Teitelbaum,
Rosenbaum, Burgess, & DeCourcy, 1999; Zuvekas, Regier, Rae, Rupp, &
Narrow, 2002). Employers may realize savings ranging from 30 percent to
40 percent in their first year of contracting with an MBHO, with savings
stabilizing after year three (Feldman, 1998). Much of these savings
result from MBHO efforts to shift care from inpatient services to less
intensive and less costly outpatient services. According to Feldman
(1998), in the 10 years following the introduction of MBHOs in the late
1980s, the share of total mental health costs accounted for by inpatient
services declined from 75 percent to less than 50 percent.

MBHOs also can reduce mental health care costs by negotiating lower fees
with providers, creating economies of scale, supporting the use of lower
cost services, and pro-viding better management and selection of
services (Feldman, 1998; Grazier & Eselius, 1999; Ma & McGuire, 1998).
However, researchers must consider confounding variables in their
studies of mental health care costs in MBHOs. In some cases, the drastic
cost savings associated with con-tracting with an MBHO may actually be
attributable to switching from an indemnity plan to managed care, as
opposed to the MBHO specifically (Hodgkin, Horgan, Garnick, Merrick, &
Goldin, 2000). In addition, Goldman, McCulloch, and Sturm (1998)
asserted that the particular risk\--sharing contractual arrangements
between an employer and an MBHO appear to have less impact on total cost
savings than certain other factors, such as the competitive market for
large employer contracts, management consistency between contracts
within an MBHO, and professional values and commitments to patient care.

On the other hand, as described in the above section on care management
and coordination, because carve-outs eliminate the relationship between
the physical and mental health elements of the health care benefit plan,
they eliminate the incentive and ability of a health plan to achieve
cost offsets between the two (Hodgkin, Horgan, Garnick, Merrick, &
Goldin, 2000; Mechanic, 1997).

2\. Options for Meeting the Objective

To meet the objective of ensuring access to covered services, employers
should consider the following options:

 **Choose mental health carve-out vendors carefully** and negotiate
contracts to ensure access, quality of care, care management, and
appropriate care for vulnerable populations.

 **Incorporate approaches to coordinating mental and physical health
care services.** Provide for communication between different provider
types and specialties, to include sharing information about diagnoses,
treatment plans, prescribed drugs, and prognoses.

 **Take care in structuring mental health benefits as CDHB becomes more
prevalent.** The literature regarding these consumer-directed plans and
what they may mean for mental health care delivery is still in its
infancy but is growing rapidly. More information is needed from the
professional community regarding any special considerations that mental
health should receive when establishing these types of plans.

 **Encourage employees to consider mental health needs in funding
HSAs** or other types of accounts. Mental health treatments are clearly
an issue for someone contemplating an HSA who has an existing mental
health condition. It is not yet clear how individuals will finance HSAs
to insure against the catastrophic costs of an unanticipated mental
illness.

 **Contract with health plans that are accredited by a national quality
review organization.** The accreditation standards of organizations such
as NCQA, JCAHO, or URAC comprise quality performance indicators related
to access and outcomes that help to ensure that mental health benefits
are provided on a timely basis in safe and effective treatment settings.

 **Assess care provided by primary care providers and referral
procedures.** At present, a substantial amount of treatment in the form
of mental health screening and prescribing of psychopharmaceuticals
occurs in primary care settings. Primary care physicians should monitor
for "triggers" that indicate a need for specialty mental health
providers (e.g., family therapists, case managers, psychologists,
psychiatrists, and social workers) to engage in focused therapies such
as short-term cognitive behavioral therapy.

C. Include Evidence-Based Practices and Treatment Guidelines
as Available in Mental Health Benefits

The mental health service system has been shaped more by historical
tradition, political decisions, and conventions of practice, financing,
and organization than by a body of research evidence about effectiveness
and efficiency (Goldman, Thelander, & Westrin, 2000). The effectiveness
of mental health treatments and services must be taken into
consideration when making decisions about what to provide through a
benefit plan. Treat-ments and services that have been proven through
research evidence or treatment outcomes to be effective should be among
those that are included, as the provision of evidence-based practices
can lead to positive outcomes. Evidence-based practices are those that
are shown through consistent scientific evidence to be safe (although
they may have side effects that have been judged to be acceptable, in
light of the positive impacts of the practices), efficacious, and
effective for most persons with a given disorder (Center for Mental
Health Services \[CMHS\], 2004).

1\. Current Practice and Evidence from the Literature

To identify evidence-based practices, the literature specified several
necessary characteristics of the practices, including consistent
scientific evidence showing improved outcomes and permitting assessment
of the quality of the practices (Drake et al., 2001). Evidence-based
practices are a means of achieving the dual goals of quality and
accountability in mental health services (Goldman et al., 2001).

In order to ensure their effectiveness, these practices should be
implemented with "program fidelity;" that is, they should adhere to the
treatment parameters that were found to be effective. Health plan
purchasers (i.e., employers) may wish to discuss evidence-based
practices with their mental health benefit plans to ensure their
provision; however, the lack of an evidence base for a treatment may not
be a sufficient reason to exclude the treatment from a benefit package
(Lehman, Goldman, Dixon, & Churchill, 2004). Other standards must be
used to evaluate the effectiveness of services for which there may be
little scientific evidence, such as prevailing professional practice
standards, community needs, and other pragmatic factors. Other services
may be of self-evident value and not require additional evaluation, and
some may continue to be offered with the caveat that an evaluation must
be undertaken in the future. Health care systems are also urged to track
indicators, outcomes, and costs to document efficacy and cost-efficiency
of programs and to secure support of managers and fiscal officers for
preventive services (Nitzkin & Smith, 2004).

A. Sources of Information about Evidence-Based Practices

The Substance Abuse and Mental Health Services Administration (SAMHSA)
Center for Mental Health Services (CMHS) identified several sources of
information about evidence-based practices (CMHS, 2004):

 Individual researchers undertake reviews or meta-analyses of clinical
research.

 Voluntary organizations of scientists, such as the Cochrane
Collaborative and the Campbell Collaboration, use systematic reviews to
synthesize the evidence around health care practices to help clinicians
and patients make informed decisions.

 Professional and trade organizations support the publication of
reviews and meta-analyses in scientific journals and issue practice
guidelines. Many of these guidelines are included in the National
Guideline Clearinghouse (NGC), which is discussed later in this section.

 The Evidence-Based Practices Project, which was initiated by the CMHS
and the Robert Wood Johnson Foundation, is a national demonstration
project in which States have developed centers for implementing
evidence-based practices in mental health, and which has identified
treatment practices that are strongly supported by research.

 The following Federal agencies support the identification and
dissemination of evidence-based practices in mental health:

 National Institute of Mental Health (NIMH)^1^

 Substance Abuse and Mental Health Services Administration, through the
National Registry of Effective Programs and Practices (NREPP)^2^

 Another source of information on evidence-based practices is NREPP,
created as a resource to help professionals in the field become better
providers of prevention programs. NREPP reviews and screens the evidence
base for substance abuse and mental health practices and programs and
then rates them based on methodological rigor, program adoptability, and
usefulness to communities.

 Agency for Healthcare Research and Quality (AHRQ)---formerly the
Agency for Health Care Policy and Research (AHCPR), through the
Evidence-Based Practice Centers^3^ (EPCs) and the U.S. Preventive
Services Task Force^4^ (USPSTF)

-- AHRQ-designated EPCs undertake systematic reviews of the scientific
evidence on health care topics and publish reports to help guide
practice in those areas.

-- AHRQ-sponsored USPSTF conducts rigorous, impartial assessments of the
scientific evidence regarding the effectiveness of a broad range of
clinical preventive services and publishes recommendations in the Guide
to Clinical Preventive Services.

B. Issues in Implementing Evidence-Based Practices

In a paper stemming from the national Evidence-Based Practices Project,
Drake et al. (2001) described the rationale for and difficulty in
implementing evidence-based practices in routine mental health service
settings. The authors found that evidence-based practices are not
provided to the majority of patients in routine mental health programs
and that implementation is difficult. Issues include organizational
structure and commitment, resource development, clarity of roles and
responsibilities, and service boundaries. The authors recommended that
mental health services for persons with severe mental illness reflect
the goals of consumers, which include independence, employment,
satisfying relationships, and good quality of life. They also asserted
that evidence-based practices should be the minimum provisions in mental
health settings for persons with severe mental illness and should not be
displaced by interventions of unknown or lesser effectiveness.

At the end of 2001, Goldman and colleagues reviewed articles published
that year in a journal series on evidence-based practices. The authors
asserted that the implementation of evidence-based practices supports
the goals of quality and accountability in health care, as the practices
represent quality improvements, and accountability is accomplished
through the monitoring of programs for consistency with practices whose
effectiveness has been demonstrated. The authors also found, however,
that some treatments and services lack evidence, especially when
patients with mental disorders suffer from comorbid conditions that have
not been studied in the research on treatment effectiveness, thereby
making applicability of the findings questionable. The authors pointed
to the need for more research to determine the effectiveness of
evidence-based practices in various subpopulations and asserted that,
despite myriad studies on innovation and implementation of health and
mental health services, definitive evidence is lacking to assist in
implementing specific evidence-based practices.

One of the concerns regarding the identification of evidence-based
practices is that they may not be implemented with fidelity. In order to
achieve expected outcomes from an evidence-based practice, it is
important to adhere to specific programmatic standards (Drake et al.,
2001). Program fidelity or fidelity of implementation refers to the
degree to which program implementation remains true to the program that
was studied and found to be effective. Lehman, Goldman, Dixon, and
Churchill (2004) asserted that "Fidelity in implementing programs is key
to both effectiveness and costs." These authors cited evidence showing
that implementing a particular program with good fidelity led to cost
reductions and improved outcomes, while implementing the same program
with poor fidelity increased costs and led to poorer outcomes than if
the program had not been implemented. Regular monitoring of programs and
outcomes is essential, and program fidelity measures have been developed
that permit monitoring and accountability for several evidence-based
psychosocial interventions. Additional technologies need to be developed
to motivate and train providers to implement practices with program
fidelity (CMHS, 2004).

In their synthesis of literature on evidence-based practices, Goldman et
al. (2001) highlighted the importance of financing structures on the
implementation of evidence-based practices. Every author in the reviewed
series of articles identified financing policies as barriers to the
implementation of evidence-based practices. The authors stated that
services for which clinicians can get paid will take precedence, and
evidence-based practices will be pushed aside if they are not covered.
They asserted that in order for evidence-based, state-of-the-art
treatments to be delivered, the necessary medications must be on a
plan's formulary, and the necessary interventions must be covered.
Evidence-based practices must be covered services under the health plan
if they are to be utilized or provided.

C. Evidence-Based Mental Health Services

Research has identified the evidence base for several preventive
behavioral health interventions with positive outcomes. A review of the
literature published by CMHS in 2004 (Nitzkin & Smith, 2004) found the
following clinical preventive mental health services to be worthy of
consideration for implementation in all health care settings:

 Home visitation for selected pregnant women and some children up to
age 5;

 Supplemental educational services for vulnerable infants from
disadvantaged families;

 Screening of children and adolescents for behavioral disorders;

 Screening of adolescents and adults for depression and anxiety; and

 Psychoeducation for persons scheduled for major surgical procedures,
persons with major chronic diseases, and selected other heavy users of
health care services.

Psychoeducation for selected patients and screening for depression in
persons with chronic conditions have been shown to have the potential to
reduce overall health care costs within 12 months of initiation of new
or expanded preventive services. These ser-vices are likely to reduce
the burden of behavioral illnesses but not prevent them completely
(Nitzkin & Smith, 2004).

Two earlier related reports published by SAMHSA also presented
preventive behavioral interventions recommended for consideration by
MCOs and found that the most expensive of the services would add less
than 1 percent to the average HMO premium. The average increase in
premium would be less than 0.5 percent across all of their six
recommended interventions (Broskowski & Smith, 2001; Dorfman, 2000). The
reports encouraged MCOs to consider implementing these behavioral
interventions, as they were shown to improve medical outcomes, increase
patient satisfaction, reduce medical use and costs, and require a very
small increase in premium costs.

Lehman, Goldman, Dixon, and Churchill (2004) pointed to a substantial
body of outcomes research showing the efficacy of a wide range of mental
health services. The authors found that "the most effective services
combine optimal medication management with psychosocial interventions
that provide the patient and the family with information about the
illness, ongoing supports, and rehabilita-tion services." They offered
examples of evidence-based practices for adults with schizophrenia, for
adults with mild to moderate depression, for children with conduct
disorders, for children with attention deficit hyperactivity disorder,
and for those with specific other mental illnesses, such as severe mood
disorders, bipolar disorders, anxiety disorders, posttraumatic stress
dis-order, and borderline personality disorder. These authors
recommended that a wide array of effective services be available. Choice
and selection among effective services are essential, both to maximize
treatment response and to encourage adherence to treatment, because many
services are not equally effective for all individuals and varying
subgroups and individuals respond differently to treatment.

D. Treatment Guidelines

As the development of the evidence base for treatment of mental health
services grows, purchasers, health plans, and providers continue to rely
on the use of treatment guidelines that have been developed and used in
the field. Health plans often stipulate what levels of evidence are used
for determining reimbursement of covered services in their medical
necessity definitions and utilization review processes (Rosenbaum,
Kamoie, Mauery, & Wallitt, 2003). Until such time as more mental health
treatments have established evidence bases, one approach to treatment
decision-making is to create a hierarchy of evidence within the medical
necessity definition. One model for this is found in Hawaii's State
independent review statute, shown in Exhibit 5.

AHRQ sponsors the NGC, a searchable database of clinical practice
guidelines and related documents. The NGC aims to provide health care
professionals and providers, health plans, integrated delivery systems,
purchasers, and others access to objective, detailed information on
clinical practice guidelines and to further the dissemination,
implementation, and use of the guidelines. The NGC includes many
guidelines pertaining to treatment recommendations for mental health
disorders, submitted by a variety of organizations. Exhibit 6 shows the
various behavioral health categories for which treatment guidelines are
provided in the NGC and the number of guidelines in each category.

In addition, the American Psychological Association's Society of
Clinical Psychology (Division 12) has developed an online guide to
empirically supported treatments (ESTs) in the field of psychotherapy
for various mental disorders. The resource is directed toward consumers
to fulfill their needs for information about the benefits of
psychotherapy in different situations. It describes various
psychotherapies that have met basic standards of effectiveness.
Separately, in 1999, the division also commissioned *A Guide to
Treatments That Work* (CMHS, 2004).

In a May 2002 update to the *Guide to Clini-cal Preventive Services,*
the USPSTF recommended screening adults for depression in clinical
practices with the capacity to ensure accurate diagnosis, effective
treatment, and follow-up care (USPSTF, 2002). However, while medical
literature supports the effective-ness of screenings, few MCOs require
mental health screenings in primary care settings, leading to missed
opportunities for diagnosis and treatment of disorders. Horgan et al.
(2003) reported on data from a 1999 survey of 493 MCOs in 60 markets,
including HMOs, PPOs, and POS plans. The survey asked about the
organizations' policies on the screening and treatment of mental health
disorders in primary care settings and found that only 21 percent of
commercial managed care products required primary care physicians to
screen their patients for mental health disorders. Among those that
required screening, 85 percent or more distributed practice guidelines
addressing treatment, referral, and patient education for the disorders.
Among all commercial managed care products, 51 percent provided practice
guidelines for mental health treatment in primary care. Guidelines
included provisions for brief interventions, consultations with
specialty practitioners, patient education, and the prescribing and
monitoring of psychotropic medications.

E. Outcomes Management

A related consideration in developing a mental health benefit package
and ensuring its effectiveness is the assessment and monitoring of
treatment outcomes. Treatment outcomes may be an especially effective
metric in the case of therapies for which program fidelity is difficult
to measure or achieve (e.g., therapies other than pharmacotherapies).
Outcomes management systems have been designed and implemented for large
MCOs, and outcomes have been monitored in public-sector managed
behavioral health benefit plans (Brown, Burlingame, Lambert, Jones, &
Vaccaro, 2001; Hodges & Wotring, 2004). Outcomes monitoring and
self-reports of symptoms, quality of life, and level of functioning can
be used to identify best practices and have become important in both
clinical practice and policy making (Holcomb, Beitman, Hemme, Josylin, &
Prindiville, 1998). Outcome-informed treatment (or outcomes management)
utilizes outcomes data to improve treatment effectiveness (Brown,
Burlingame, Lambert, Jones, & Vaccaro, 2001).

A large MBHO implemented an outcomes management system to improve
treatment outcomes for patients receiving outpatient behavioral health
care services. The methodology of this outcomes management system
involved brief standardized evaluations completed at frequent intervals
by patients to assess their responses to treatment and to determine
which patients are most in need of continued treatment. The system was
implemented initially among a subset of providers in February 1999, and
a recent study of the system assessed care provided by more than 5,000
individual clinicians and 75 multidisciplinary behavioral health group
practices (Matsumoto, Jones, & Brown, 2003).

This outcomes management system identifies patients who need continued
treatment and gives clinicians case-by-case feedback, which allows
treatment dollars to be focused on those who will benefit most from
additional therapy. The evaluations also help to identify effective
clinicians, so that referrals may be directed toward those providers
with the best outcomes (Matsumoto, Jones, & Brown, 2003). Brown,
Burlingame, Lambert, Jones, and Vaccaro (2001) asserted that mental
health treatment should ensure that patients achieve a given level of
outcome rather than a specified duration of treatment; they found that
the costs of additional treatment for the most ill patients are offset
by discontinuing treatment for those who are unlikely to benefit, and
that it is possible to focus resources on those at highest risk without
increasing total costs of care.

2\. Options for Meeting the Objective

To meet the objective of including evidence-based practices and
treatment guidelines as available in mental health benefits, employers
should consider the following options:

 **Include coverage of available evidence-based and effective practices
and monitor fidelity with treatment guidelines.** Employer health plan
purchasers should require coverage of evidence-based practices, as well
as assurances from health plans that covered services are effective,
where appropriate. Plans could allow choice and selection among
effective practices. In the absence of a scientifically established
evidence base, the "evidence base" often is established by what works
most effectively for the "average" individual with the condition.
Allowing for a hierarchy of evidence in medical necessity definitions
enables benefits to be more broadly available and accessible. Plans also
should ensure that the prescription drug benefit covers a range of
effective mental health drugs. Fidelity with treatment guidelines can be
monitored by incorporating reliable quality indicators as a component of
performance measurement.

 **Establish or contract with health plans with outcomes management
systems.** These systems may be able to link the use of evidence-based
standards and/or treatment guidelines to clinically desirable outcomes.
As distinguished from medical services, often designed to lead to "cure"
or "recovery," the goal of some mental health treatments may be
stabilization or maintenance of functioning. Health plans with outcomes
management systems should be flexible enough to include coverage for
treatments aimed at maintenance of functioning and prevention of
deterioration as well as those focused on recovery from mental health
disorders.

V.

Conclusions

The high prevalence of mental disorders in the United States and the
business costs to employers of having employees and dependents with
mental disorders make a powerful case for employers to provide adequate
mental health benefits. Adequate mental health benefits improve
productivity and employee retention, and employers should encourage
employees' use of mental health care services in order to reduce the
business costs associated with untreated mental disorders. Employers may
see returns on their investment in mental health benefits in the form of
medical cost offsets (which can save employers money by reducing overall
health care costs), lower rates of disability program use, and a more
productive workforce. Employers also have to consider their other goals
in offering a mental health benefit, such as reduced absenteeism,
increased productivity, and employee turnover; employee satisfaction;
and a healthier workforce.

The costs associated with mental health care can be significant, so
financial considerations influence employers' decisions related to
mental health benefit packages. Two key considerations are the cost of
providing mental health benefits and the cost of mental illness in the
workforce. The cost of providing mental health benefits grew
significantly between the 1970s and early 1990s; however, costs have
been moderated by the increased prevalence of managed mental health care
and utilization management techniques. The potential cost of mental
health parity was a major concern before the passage of the Federal MHPA
in 1996, but studies indicate that Federal and State parity laws have
contributed only modestly to premium growth, and in some cases have
resulted in decreased health care costs. The cost of mental illness in
the workplace typically is measured in terms of diminished productivity,
absenteeism, presenteeism, and disability claims costs. However, these
factors are difficult to quantify, as the methods for analyzing many of
them, as well as the methods for quantifying ROI and medical cost
offsets, are still being developed and refined. As the cost of untreated
mental illness is likely to be significantly more than the cost of
providing the benefit, investment in adequate mental health benefits
appears to be a wise business decision.

The literature on catastrophic costs was limited, but it was clear that
while costs of that magnitude are rare, their effects can be
devastating, and therefore they should be considered in designing a
benefit program. Since the main purpose of health insurance generally is
to protect individuals and families from financial ruin due to an
illness, protection from catastrophic costs resulting from treatment for
mental disorders is arguably the most important objective in designing
an adequate mental health benefit.

Other considerations include providing adequate care for patients of
different ages (such as adolescent dependents, who have greater use of
certain types of mental health care) and ensuring adherence to treatment
in order to achieve good outcomes and any possible cost savings. The
mode of benefit administration can determine the extent to which
benefits, generous or not, are accessible to the enrollee. Benefit
administration can influence access and quality of care as well as the
cost of the plan.

Employers and health plans can rely on the growing base of scientific
evidence to aid in their benefit design decisions. The use of
evidence-based practices, treatment guidelines, quality improvement
mechanisms, and outcomes management systems promises to reduce waste in
the mental health care system while increasing quality and
accountability.

The recommendations and findings in the literature varied greatly and
did not provide a conclusive guide to the creation of an adequate mental
health benefit. Many factors influence employer choices in designing or
purchasing their mental health benefit plans, including employer
characteristics and health plan types, financial implications,
regulatory requirements, productivity goals, employee attraction and
retention, and employee health and well-being. Mental health benefit
plans may differ from one employer to another, and a variety of plans
may be considered adequate.

Based on a synthesis of the literature reviewed, discussions with
members of the advisory panel, and our actuarial analysis, we offer the
following three objectives that employers (and the health plans with
which they contract) should strive to meet in order to provide an
adequate mental health benefit to their employees, along with suggested
options that employers should consider for achieving each of the
objectives.

***Objective: Provide protection from catastrophic costs, cover a wide
array of treatments, and allow flexibility within plan.***

 **Combine the out-of-pocket maximums for mental and physical health
care services.**

 **Provide coverage for a variety of treatment modalities.**

 **Provide a flexible mental health care benefit with generous or no
limits.**\
Options include the following:

 *Eliminating limits for outpatient benefits;*

 *Combining coverage for outpatient and intermediate level services;*

 *Covering inpatient care with generous limits; and*

 *Providing a flexible benefit package.*

 **Use the EAP for access and integrate it with the mental health
benefit.**

 **Use treatment plans and prior authorization.**

 **Use a disease case management approach to improve outcomes and help
manage costs.**

***Objective: Ensure access to covered services.***

 **Choose mental health carve-out vendors carefully.**

 **Incorporate approaches to coordinating mental and physical health
care services.**

 **Take care in structuring mental health benefits as CDHB becomes more
prevalent.**

 **Encourage employees to consider mental health needs in funding HSAs
or other types of accounts.**

 **Contract with health plans that are accredited by a national quality
review organization.**

 **Assess care provided by primary care providers and referral
procedures.**

***Objective: Include evidence-based practices and treatment guidelines
as available in mental health benefits.***

 **Include coverage of available evidence-based and effective practices
and monitor fidelity with treatment guidelines.**

 **Establish or contract with health plans with outcomes management
systems.**

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Notes

^1^ More information available at
http://www.nimh.nih.gov/nimhhome/index.cfm

^2^ More information available at
http://modelprograms.samhsa.gov/template.cfm?page=nrepbutton

^3^ More information available at http://www.ahrq.gov/clinic/epc/

^4^ More information available at
http://www.ahrq.gov/clinic/uspstfix.htm

More information available at
http://nmhicstore.samhsa.gov/cmhs/ManagedCare/pubs.aspx

Appendix A\
Actuarial Analysis---Relationship Between Benefits and Premiums

Relationship Between Benefits and Premiums

In addition to including financial considerations as part of the
literature review for this study, we performed an actuarial analysis of
the costs of different levels of mental health benefits in a typical
health care benefit package. Our analysis found that raising (or even
eliminating) limits placed on mental health service use would increase
plan costs by only a relatively small amount on a per-member per-month
(PMPM) basis.

To estimate the costs associated with various mental health benefit
packages, we performed a series of net premium calculations (i.e.,
excluding administrative costs) for a typical health care benefit
package, assuming different levels of mental health benefits for each
calculation. The plan design that we worked with is typical of what
might be used for an HMO or for the in-network portion of a PPO or POS
plan (after converting all flat-dollar copayments into coinsurance
percentages). It includes a \$100 combined annual deductible for all
services, a 90 percent benefit rate (i.e., 10 percent beneficiary
coinsurance) for physical health services, and a \$1,000 out-of-pocket
limit for all beneficiary cost sharing. We developed our cost estimates
using a computer program that is based on commercial health insurance
plans and populations, and we calibrated it to reflect average costs in
the United States for calendar year 2005.

The first step was to develop baseline costs by calculating the net
premium for a benefit plan that excludes coverage for mental health
services but that otherwise reflects the benefits found in a typical
in-network benefit plan. That is, we determined the PMPM benefit costs
for the *non-mental health benefits* under this plan. Then we
recalculated the net premium assuming the inclusion of various mental
health benefit packages. We considered four types of mental health
benefits: general mental health inpatient, substance abuse inpatient,
general mental health outpatient (including office visits for talk
therapy and/or medication management), and substance abuse outpatient.
We added mental health benefits to the baseline plan in increments of 10
days (for inpatient services) or 10 visits (for outpatient services).
Finally, to see the range of costs that can result from using different
values for the benefit rate (i.e., one minus the member coinsurance
percentage), we calculated the net premiums using two different benefit
rates for inpatient benefits (80 percent and 100 percent) and two
different benefit rates for outpatient benefits (50 percent and
90 percent).

The results of this analysis are shown in Exhibit A-1. For each of the
four types of mental health benefits, for each level of coverage shown
(i.e., number of inpatient days or outpatient visits covered), and for
each benefit rate used, the exhibit shows (1) the total PMPM cost for
all benefits (for both physical and mental health services), (2) the
cost for the specified level of mental health benefits, and (3) the
incremental cost per unit of additional mental health service.

Perhaps the key result of this analysis is that, as we increase the
number of covered services, the cost per additional unit of service
decreases substantially. For example, the cost of going from 0 general
mental health inpatient days to 10 days (assuming an 80 percent benefit
rate) is \$3.59 PMPM, or about 36¢ per additional day. Meanwhile, the
cost of going from 20 days to 30 days is 93¢ PMPM (\$7.02 minus \$6.09),
or about 9¢ per additional day. Note that going from a 90-day benefit to
a 365-day benefit (i.e., to the point of parity with the physical health
benefit) is practically free in terms of the cost per additional covered
day (0.1¢ for general mental health inpatient benefits, and 0.02¢ to
0.03¢ for substance abuse inpatient benefits). A similar result holds
for outpatient benefits: The PMPM cost of covering 90 visits per year
(essentially an unlimited benefit), compared to the cost of covering 70
visits, is 0.2¢ to 0.4¢ per additional covered visit (depending on the
coinsurance rate) for general mental health outpatient benefits, and
0.02¢ to 0.9¢ for substance abuse outpatient benefits. Note that these
incremental costs already include the effect of induced utilization that
results from providing more generous benefits (i.e., benefit packages
with higher service limits). Even with this effect taken into account,
health plan experience shows that most utilization will be concentrated
in the first few days or visits, and that only a small proportion of the
covered population will incur a high number of utilized services.

To show how the "a la carte" cost estimates presented in Exhibit A-1
relate to the benefit plans actually found in the employer marketplace,
we developed cost estimates for typical PPO and HMO benefit packages
(including mental health benefits) as determined by The Hay Group's 1998
survey of employers. Exhibits A-2 and A-3 show the benefit provisions
and our cost estimates for the typical and modified PPO and HMO benefit
plans described in Tables 6 through 9 on page 25 of Sing, Hill, and
Puffer (2001). Note that the benefit packages labeled as "more generous"
are not necessarily designed in accordance with the "adequacy" criteria
found in the literature and discussed throughout this report. Instead,
they indicate the typical benefit design among plans that are at the
75th percentile of actuarial values for plans of that type (PPO or HMO),
according to The Hay Group's Mental Health Benefit Value Comparison
model and 1998 survey of employers (as referenced in Sing, Hill, &
Puffer, 2001). Note that the "actuarial value" of a benefit package is
defined as the expected direct cost of providing that package of
benefits, expressed as a per-member amount (i.e., spread over the entire
population covered by the plan, not just those who utilize the benefit).
It does not include administrative costs or any profit or contingency
margins.

In developing these cost estimates, we used the same assumptions
regarding the average in-network fee discount (15 percent) and---for the
PPO plans---the portion of claims that occur in-network (70 percent) as
those used by The Hay Group in determining the relative actuarial values
of the plans in their survey. One result of using these assumptions is
that the PMPM cost of the HMO plans is higher than the cost of the
comparable PPO plans: the lack of a 15 percent discount on
out-of-network PPO services is offset by the considerably lower benefit
rate for these services (in general, 20 percentage points less than the
corresponding in-network benefit rate). A larger discount on in-network
provider fees---say, 25 to 30 percent, which would not be unusual in the
current health insurance marketplace---would result in lower costs for
the HMO, because 100 percent of its utilization is in-network (versus
70 percent for the PPO).

+---------------+--------+--------+--------+--------+--------+--------+
| Exhibit A-2.  |        |        |        |        |        |        |
| Estimated     |        |        |        |        |        |        |
| PMPM Benefit  |        |        |        |        |        |        |
| Costs (excl.  |        |        |        |        |        |        |
| admin.) for   |        |        |        |        |        |        |
| Typical and   |        |        |        |        |        |        |
| Modified PPO  |        |        |        |        |        |        |
| Plans with    |        |        |        |        |        |        |
| Varying       |        |        |        |        |        |        |
| Levels of     |        |        |        |        |        |        |
| Mental        |        |        |        |        |        |        |
| Hea           |        |        |        |        |        |        |
| lth/Substance |        |        |        |        |        |        |
| Abuse         |        |        |        |        |        |        |
| Benefits^a\   |        |        |        |        |        |        |
| ^(U.S.        |        |        |        |        |        |        |
| average,      |        |        |        |        |        |        |
| 2005)         |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
|               | T      |        |        | Mo     |        |        |
|               | ypical |        |        | dified |        |        |
|               | PPO    |        |        | PPO    |        |        |
|               | Plans  |        |        | Pl     |        |        |
|               |        |        |        | ans^b^ |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
|               | Less   | Median | More   | Less   | Median | More   |
|               | Ge     |        | Ge     | Ge     |        | Ge     |
|               | nerous |        | nerous | nerous |        | nerous |
+---------------+--------+--------+--------+--------+--------+--------+
| Inpatient day | 28     | 30     | 30     | 28     | 30     | 30     |
| limit         |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Inpatient     |        |        |        |        |        |        |
| benefit rate  |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| In-network    | 90%    | 100%   | 100%   | 90%    | 100%   | 100%   |
+---------------+--------+--------+--------+--------+--------+--------+
| O             | 70%    | 80%    | 80%    | 60%    | 80%    | 80%    |
| ut-of-network |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Outpatient    | 20     | 30     | 30     | 15     | 25     | 30     |
| visit limit   |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Outpatient    |        |        |        |        |        |        |
| benefit rate  |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| In-network    | 50%    | 50%    | 90%    | 60%    | 50%    | 90%    |
+---------------+--------+--------+--------+--------+--------+--------+
| O             | 30%    | 30%    | 70%    | 30%    | 30%    | 70%    |
| ut-of-network |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Total PMPM    | \$     | \$     | \$     | \$     | \$     | \$     |
| Cost^c^       | 296.23 | 297.73 | 299.93 | 296.11 | 297.80 | 300.07 |
+---------------+--------+--------+--------+--------+--------+--------+
| Cost for      | \      | \      | \      | \      | \      | \      |
| MH/SA         | $11.13 | $12.63 | $14.83 | $11.01 | $12.70 | $14.97 |
| Benefits      |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Source: Based |        |        |        |        |        |        |
| on plan       |        |        |        |        |        |        |
| designs       |        |        |        |        |        |        |
| described in  |        |        |        |        |        |        |
| Tables 6 and  |        |        |        |        |        |        |
| 7 on p. 25 of |        |        |        |        |        |        |
| Sing, Hill,   |        |        |        |        |        |        |
| and Puffer    |        |        |        |        |        |        |
| (2001).       |        |        |        |        |        |        |
|               |        |        |        |        |        |        |
| Notes: "Less  |        |        |        |        |        |        |
| generous"     |        |        |        |        |        |        |
| indicates the |        |        |        |        |        |        |
| typical plan  |        |        |        |        |        |        |
| at the 25th   |        |        |        |        |        |        |
| percentile of |        |        |        |        |        |        |
| the           |        |        |        |        |        |        |
| distribution  |        |        |        |        |        |        |
| of actuarial  |        |        |        |        |        |        |
| values among  |        |        |        |        |        |        |
| PPO plans,    |        |        |        |        |        |        |
| and "more     |        |        |        |        |        |        |
| generous"     |        |        |        |        |        |        |
| indicates the |        |        |        |        |        |        |
| typical plan  |        |        |        |        |        |        |
| at the 75th   |        |        |        |        |        |        |
| percentile.   |        |        |        |        |        |        |
| All           |        |        |        |        |        |        |
| flat-dollar   |        |        |        |        |        |        |
| copayments    |        |        |        |        |        |        |
| have been     |        |        |        |        |        |        |
| converted to  |        |        |        |        |        |        |
| coinsurance   |        |        |        |        |        |        |
| rates.        |        |        |        |        |        |        |
| Source: The   |        |        |        |        |        |        |
| Hay Group's   |        |        |        |        |        |        |
| Mental Health |        |        |        |        |        |        |
| Benefit Value |        |        |        |        |        |        |
| Comparison    |        |        |        |        |        |        |
| model and     |        |        |        |        |        |        |
| 1998 survey   |        |        |        |        |        |        |
| of employers, |        |        |        |        |        |        |
| referenced in |        |        |        |        |        |        |
| Sing, Hill,   |        |        |        |        |        |        |
| and Puffer    |        |        |        |        |        |        |
| (2001).       |        |        |        |        |        |        |
|               |        |        |        |        |        |        |
| ^a^Substance  |        |        |        |        |        |        |
| abuse benefit |        |        |        |        |        |        |
| limits are    |        |        |        |        |        |        |
| separate but  |        |        |        |        |        |        |
| numerically   |        |        |        |        |        |        |
| equal to the  |        |        |        |        |        |        |
| general       |        |        |        |        |        |        |
| mental health |        |        |        |        |        |        |
| benefit       |        |        |        |        |        |        |
| limits.       |        |        |        |        |        |        |
|               |        |        |        |        |        |        |
| ^b^Modified   |        |        |        |        |        |        |
| plans allow   |        |        |        |        |        |        |
| each          |        |        |        |        |        |        |
| in-network    |        |        |        |        |        |        |
| inpatient day |        |        |        |        |        |        |
| to be traded  |        |        |        |        |        |        |
| for two days  |        |        |        |        |        |        |
| of crisis     |        |        |        |        |        |        |
| residential   |        |        |        |        |        |        |
| services,     |        |        |        |        |        |        |
| partial       |        |        |        |        |        |        |
| hos           |        |        |        |        |        |        |
| pitalization, |        |        |        |        |        |        |
| and/or        |        |        |        |        |        |        |
| psychosocial  |        |        |        |        |        |        |
| re            |        |        |        |        |        |        |
| habilitation. |        |        |        |        |        |        |
| This is       |        |        |        |        |        |        |
| assumed to    |        |        |        |        |        |        |
| increase      |        |        |        |        |        |        |
| in-network    |        |        |        |        |        |        |
| inpatient     |        |        |        |        |        |        |
| MH/SA costs   |        |        |        |        |        |        |
| by 2%.        |        |        |        |        |        |        |
|               |        |        |        |        |        |        |
| ^c^PMPM costs |        |        |        |        |        |        |
| based on      |        |        |        |        |        |        |
| Lewin         |        |        |        |        |        |        |
| estimates,    |        |        |        |        |        |        |
| using         |        |        |        |        |        |        |
| HealthMAPS^®^ |        |        |        |        |        |        |
| 2005 Medical  |        |        |        |        |        |        |
| Rate Manual   |        |        |        |        |        |        |
| and Software. |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+

+---------------+--------+--------+--------+--------+--------+--------+
| Exhibit A-3.  |        |        |        |        |        |        |
| Estimated     |        |        |        |        |        |        |
| PMPM Benefit  |        |        |        |        |        |        |
| Costs (excl.  |        |        |        |        |        |        |
| admin.) for   |        |        |        |        |        |        |
| Typical and   |        |        |        |        |        |        |
| Modified HMO  |        |        |        |        |        |        |
| Plans with    |        |        |        |        |        |        |
| Varying       |        |        |        |        |        |        |
| Levels of     |        |        |        |        |        |        |
| Mental        |        |        |        |        |        |        |
| Hea           |        |        |        |        |        |        |
| lth/Substance |        |        |        |        |        |        |
| Abuse         |        |        |        |        |        |        |
| Benefits^a\   |        |        |        |        |        |        |
| ^(U.S.        |        |        |        |        |        |        |
| average,      |        |        |        |        |        |        |
| 2005)         |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
|               | T      |        |        | Mo     |        |        |
|               | ypical |        |        | dified |        |        |
|               | HMO    |        |        | HMO    |        |        |
|               | Plans  |        |        | Pl     |        |        |
|               |        |        |        | ans^b^ |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
|               | Less   | Median | More   | Less   | Median | More   |
|               | Ge     |        | Ge     | Ge     |        | Ge     |
|               | nerous |        | nerous | nerous |        | nerous |
+---------------+--------+--------+--------+--------+--------+--------+
| Inpatient day | 30     | 30     | 30     | 30     | 30     | 30     |
| limit         |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Inpatient     | 100%   | 100%   | 100%   | 100%   | 100%   | 100%   |
| benefit rate  |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Outpatient    | 30     | 30     | 30     | 30     | 30     | 30     |
| visit limit   |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Outpatient    | 50%    | 80%    | 90%    | 50%    | 80%    | 90%    |
| benefit rate  |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Total PMPM    | \$     | \$     | \$     | \$     | \$     | \$     |
| Cost^c^       | 302.21 | 303.77 | 304.29 | 302.42 | 303.98 | 304.50 |
+---------------+--------+--------+--------+--------+--------+--------+
| Cost for      | \      | \      | \      | \      | \      | \      |
| MH/SA         | $13.05 | $14.61 | $15.13 | $13.26 | $14.82 | $15.34 |
| Benefits      |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Source: Based |        |        |        |        |        |        |
| on plan       |        |        |        |        |        |        |
| designs       |        |        |        |        |        |        |
| described in  |        |        |        |        |        |        |
| Tables 8 and  |        |        |        |        |        |        |
| 9 on p. 25 of |        |        |        |        |        |        |
| Sing, Hill,   |        |        |        |        |        |        |
| and Puffer    |        |        |        |        |        |        |
| (2001).       |        |        |        |        |        |        |
|               |        |        |        |        |        |        |
| Notes: "Less  |        |        |        |        |        |        |
| generous"     |        |        |        |        |        |        |
| indicates the |        |        |        |        |        |        |
| typical plan  |        |        |        |        |        |        |
| at the 25th   |        |        |        |        |        |        |
| percentile of |        |        |        |        |        |        |
| the           |        |        |        |        |        |        |
| distribution  |        |        |        |        |        |        |
| of actuarial  |        |        |        |        |        |        |
| values among  |        |        |        |        |        |        |
| HMO plans,    |        |        |        |        |        |        |
| and "more     |        |        |        |        |        |        |
| generous"     |        |        |        |        |        |        |
| indicates the |        |        |        |        |        |        |
| typical plan  |        |        |        |        |        |        |
| at the 75th   |        |        |        |        |        |        |
| percentile.   |        |        |        |        |        |        |
| All           |        |        |        |        |        |        |
| flat-dollar   |        |        |        |        |        |        |
| copayments    |        |        |        |        |        |        |
| have been     |        |        |        |        |        |        |
| converted to  |        |        |        |        |        |        |
| coinsurance   |        |        |        |        |        |        |
| rates.        |        |        |        |        |        |        |
| Source: The   |        |        |        |        |        |        |
| Hay Group's   |        |        |        |        |        |        |
| Mental Health |        |        |        |        |        |        |
| Benefit Value |        |        |        |        |        |        |
| Comparison    |        |        |        |        |        |        |
| model and     |        |        |        |        |        |        |
| 1998 survey   |        |        |        |        |        |        |
| of employers, |        |        |        |        |        |        |
| referenced in |        |        |        |        |        |        |
| Sing, Hill,   |        |        |        |        |        |        |
| and Puffer    |        |        |        |        |        |        |
| (2001).       |        |        |        |        |        |        |
|               |        |        |        |        |        |        |
| ^a^Substance  |        |        |        |        |        |        |
| abuse benefit |        |        |        |        |        |        |
| limits are    |        |        |        |        |        |        |
| separate but  |        |        |        |        |        |        |
| numerically   |        |        |        |        |        |        |
| equal to the  |        |        |        |        |        |        |
| general       |        |        |        |        |        |        |
| mental health |        |        |        |        |        |        |
| benefit       |        |        |        |        |        |        |
| limits.       |        |        |        |        |        |        |
|               |        |        |        |        |        |        |
| ^b^Modified   |        |        |        |        |        |        |
| plans allow   |        |        |        |        |        |        |
| each          |        |        |        |        |        |        |
| in-network    |        |        |        |        |        |        |
| inpatient day |        |        |        |        |        |        |
| to be traded  |        |        |        |        |        |        |
| for two days  |        |        |        |        |        |        |
| of crisis     |        |        |        |        |        |        |
| residential   |        |        |        |        |        |        |
| services,     |        |        |        |        |        |        |
| partial       |        |        |        |        |        |        |
| hos           |        |        |        |        |        |        |
| pitalization, |        |        |        |        |        |        |
| and/or        |        |        |        |        |        |        |
| psychosocial  |        |        |        |        |        |        |
| re            |        |        |        |        |        |        |
| habilitation. |        |        |        |        |        |        |
| This is       |        |        |        |        |        |        |
| assumed to    |        |        |        |        |        |        |
| increase      |        |        |        |        |        |        |
| in-network    |        |        |        |        |        |        |
| inpatient     |        |        |        |        |        |        |
| MH/SA costs   |        |        |        |        |        |        |
| by 2%.        |        |        |        |        |        |        |
|               |        |        |        |        |        |        |
| ^c^PMPM costs |        |        |        |        |        |        |
| based on      |        |        |        |        |        |        |
| Lewin         |        |        |        |        |        |        |
| estimates,    |        |        |        |        |        |        |
| using         |        |        |        |        |        |        |
| HealthMAPS®   |        |        |        |        |        |        |
| 2005 Medical  |        |        |        |        |        |        |
| Rate Manual   |        |        |        |        |        |        |
| and Software. |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+

Appendix B\
Advisory Panel Members

  ----------------------------------- -----------------------------------
  **Jeffrey Akman, MD\                **Laura S. Altman, PhD\*\
  **Department of Psychiatry\         **Consultant\
  George Washington University        Behavioral Health, Towers Perrin
                                      (Retired)

  **Ronald E. Bachman, FSA, MAAA**\   **Becky J. Cherney\
  Healthcare Visions, Inc.\           **Florida Health Care Coalition\
  PricewaterhouseCoopers (Retired)    National Business Coalition on
                                      Health

  **Dennis Derr, MA, LPC, CEAP, SPHR\ **Saul Feldman, DPA\*\
  **Integrated Human Solutions\       **United Behavioral Health
  United States Postal Service        

  **Ron Finch, EdD\                   **Don Fowls, MD\*\
  **National Business Group on Health Rich Beland\
                                      **Schaller Anderson, Inc.

  **Karen G. Graham\*\                **Pamela Greenberg, MPP\*\
  **Marriott International            **American Managed Behavioral
                                      Healthcare Association

  **Kimberly Hoagwood, PhD\           **Ron Honberg, JD\*\
  **Department of Clinical Psychology Joel Miller, MA\
  and Psychiatry\                     **National Alliance for the
  Columbia University                 Mentally Ill

  **Edward Jones, PhD\                **Darrel Regier, MD, MPH\
  Charles Gross, PhD\                 **American Psychiatric Association
  **PacifiCare Behavioral Health      

  **Kimberly Robinson, JD\            **Chuck Zebrowski\*\
  **Office of Maryland Insurance      **Federal Employee Program\
  Commissioner                        Blue Cross Blue Shield Association

  **Sam Zuvekas, PhD\                 
  **Agency for Healthcare Research    
  and Quality                         

  \* Participated in initial expert   
  interviews.                         
  ----------------------------------- -----------------------------------