We used claims data over a 4-year period to estimate expenditures for four types of health services, two of which were paid for by the managed care vendor and two by Medicaid. Total per person public expenditures declined by only about 3 percent. Inpatient psychiatric services were replaced by outpatient psychiatric services and some pharmaceuticals, but overall there was little or no evidence of cost shifting to the medical sector. These results are in contrast to what was found in a sample of Medicaid beneficiaries eligible due to a mental health disability. Public policy to counter incentives created by adverse selection is difficult when managed care controls cost through methods that are largely beyond the grasp of direct regulation.
Adverse selection is a serious problem in the context of managed care.
Risk adjustment is not likely to help much, but carving out the benefit and cost-sharing are promising directions for policy. The study finds that uninsured student months in area public schools were likely reduced by one-half. Overall, these results suggest the value of using schools as a medium for providing coverage, and the importance of taking deliberate steps to manage access to reduce non-financial barriers to care. This study provides an overview of Medicare's current coverage and payment policies regarding hospitalization for psychiatric disorders, and presents new information on demographic, diagnostic, utilization, and expenditure characteristics associated with inpatient psychiatric care among 1995 Medicare beneficiaries. The implications of these findings for current management of the Medicare program as well as the evolution of Medicare managed care systems for behavioral health services are discussed.