This Web site is a component of the SAMHSA Health Information Network.

This Site Mental Health at HHS All Mental Health

Online Publications Order Publications National Library of Medicine National Academies Press Publications Homepage

printer friendly page e-mail this page bookmark this page shopping cart  current or new account

This Web site is a component of the SAMHSA Health Information Network.

Special Report:
Improving Mental Health
Insurance Benefits Without
Increasing Costs

U.S. Department of Health and Human Services
Substance Abuse and Mental Health Services Administration
Center for Mental Health Services
Office of the Associate Director for Organization and Financing

Typical Benefits Packages for MH Treatment

This chapter describes typical employer-sponsored MH insurance benefits. These packages were selected from survey data collected by the Hay Group, a benefits and actuarial consulting firm. The Hay Group used an actuarial model it developed to compute the value of each MH package described in the survey and then identified as typical those with the median actuarial value.

The first section of the chapter discusses the MH treatment components of these health insurance benefit packages. The second section explains why most employers limit coverage for MH treatment. The third section describes the survey and actuarial model used to estimate the value of the health insurance packages. The last section describes MH benefits that are typical of median plans and looks at plans that are more and less generous than the median.

Benefit Design Components

Many components of health insurance plans can affect consumers' access to care, service use, out-of-pocket expenditures, quality of care, and health plan cost experience. The focus of this discussion is on the components over which employers have more direct control: covered services, maximum benefit limits, cost sharing, and maximum out-of-pocket expense limits.

Covered Services
A health plan pays for only those services included in the plan's list of covered services. In the case of mental health services, inpatient and outpatient treatment are most often covered by health plans. However, there is a continuum of services between inpatient and outpatient care that effectively treat many mental disorders and are often more cost-effective than inpatient care. These intermediate services include nonhospital residential services, partial hospitalization services, and intensive outpatient services such as case management and psychosocial rehabilitation.³ Case management involves coordinating and integrating services for patients who require services from two or more providers. Psychosocial rehabilitation includes pharmacologic treatment, social skills training, and vocational rehabilitation. As discussed later in this chapter, intermediate services are covered by about half of employer-sponsored health plans.

Coverage of prescription medications is also important in providing access to treatment for mental disorders. Prescription medications are nearly always covered by health plans (U.S. Department of Labor, 1996; 1998), but this coverage is sometimes limited by formulary restrictions.

Maximum Benefit Limits
There are two types of maximum benefit limits: service limits and dollar limits. Service limits are the maximum number of outpatient visits or inpatient hospital days that will be paid for by the plan. Dollar limits are the maximum amount the plan will spend on services.

Limits may be on an annual or a lifetime basis, with annual limits the most common, especially for service limits. While the Mental Health Parity Act of 1996 does not require employers to offer MH benefits, it does prohibit firms with more than 50 employees that do offer such benefits from having lower dollar limits for mental health services than for medical/surgical services. However, the act does not preclude service limits for covered mental health services. Nor does the act apply to substance abuse benefits. Companies for which the legislation results in cost increases of 1 percent or more are exempt from the act.

Cost Sharing
Health plans generally require the consumer to pay part of the costs of services covered by the plan. Cost sharing can include copayments, coinsurance, and deductibles. Copayments are fixed dollar amounts that the consumer must pay for each covered service used. For example, a health plan may require enrollees to pay $20 per MH outpatient visit to a network provider. Coinsurance requires enrollees to pay a specific percentage of the charges approved by the plan after enrollees pay the deductible. The deductible is the amount of money enrollees must pay for charges approved by the plan before the plan will start paying for all or part of the remaining covered services.

For HMO, POS, and PPO plans, copayments, coinsurance rates, and deductibles are usually higher for services received from providers outside the plan's network. This feature provides enrollees with a financial incentive to seek care within the network of providers, where plans can manage service utilization.

Maximum Out-of-Pocket Expense Limits
Maximum out-of-pocket expense limits are a way of protecting consumers from catastrophic expenses. These limits are the maximum total amount of money consumers would have to pay for cost sharing for covered services during the year. For example, a typical maximum out-of-pocket expense limit for individual health insurance coverage was about $1,600 in 1997 (U.S. Department of Labor, 1999).

Maximum out-of-pocket expense limits do not apply to services not covered by the health insurance plan. Therefore, they do not apply to outpatient or inpatient MH services that exceed the health plan's maximum service limit often 30 outpatient MH visits and 30 inpatient MH days per year. Consequently, maximum out-of-pocket expense limits do not protect consumers from the most catastrophic expenses they might face for MH treatment. An example of catastrophic expenses is repeated inpatient stays for mental illness that exhaust a 30-day limit on inpatient mental health care. Even with a maximum out-of-pocket limit, enrollees are liable for all charges incurred after 30 inpatient MH days.

Why MH Benefits Have Limits

Many employers restrict their coverage of MH insurance benefits to cap their financial liability. They also believe that the MH benefits they offer cover the bulk of MH treatment expenses incurred by most employees. Employers originally placed limits on MH insurance coverage to protect themselves financially. One widely cited study found that patients enrolled in indemnity plans use about twice as many outpatient mental health services (primarily psychotherapy) as outpatient medical/surgical services when their out-of-pocket costs for MH services fall (Newhouse, 1993).5 Until the 1990's, most employees were enrolled in traditional indemnity plans, which did not manage care, and benefit design was the primary way to contain costs. Consequently, most employers limited MH coverage to a maximum of 30 to 60 outpatient visits and a maximum of 30 to 60 inpatient hospital days. They also imposed higher patient cost-sharing requirements for covered MH services than for covered medical/surgical services.

Although employers typically offer limited MH insurance benefits, many experts believe that these benefits cover most of the MH treatment expenses incurred by employees and their dependents.6 For instance, the average length of stay in a hospital for MH treatment is less than 10 days. Most people with mental disorders who require a hospital stay can be treated within a 30-day stay for the first episode of their illness. This period is within the 30 to 60 days typically covered by plans. Many people with depression or generalized anxiety disorders can be treated with psychotherapy over a 3- to 6-month period, also covered by many employer-sponsored health plans. Nearly all plans cover prescription medications, which are a critical component of much psychiatric treatment. But coverage for prescription medications is sometimes limited by formulary restrictions.

Certain mental health conditions require intensive treatment that is not completely covered by health plans. For example, in cases of serious mental illness such as schizophrenia, limited MH benefit packages often cover a person's first episode of treatment in a year, but not multiple episodes in a year. People with such treatment needs can incur catastrophic out-of-pocket expenses under these limited plans.

The Hay Group's Survey and Actuarial Model

In the spring of 1998, the Hay Group surveyed 1,017 employers and subsequently conducted an actuarial analysis of the survey data to identify the typical MH median benefit package and packages that are more and less generous than the median. The analysis itself is based on data from 1,002 employers who reported useable information. Participating employers were predominantly medium and large firms from a wide mix of industries located throughout the United States.

Employers identified the type of plan (HMO, POS, PPO, or indemnity) that had the highest employee enrollment in their firm. HMOs manage care by covering only care received from network providers. Many HMOs require enrollees to obtain approval from a gatekeeper (who is usually a primary care physician in the network) before receiving care from a specialist in the network. Under POS plans, enrollees may obtain covered services from network or non-network providers, but they incur higher costs when they seek care outside the network. Enrollees in POS plans are required to obtain approval from a gatekeeper before using non-network services.

PPOs allow enrollees to obtain services from network providers or non-network providers without permission from a gatekeeper. To encourage the use of network providers, PPOs cover a larger share of out-of-pocket costs when their enrollees stay in network.

Survey participants gave information on the design of their benefit package that had the highest employee enrollment. Ultimately, they provided data on packages for 259 HMOs, 200 POS plans, 381 PPOs, and 139 indemnity plans. In addition, there are data for 23 managed behavioral health organizations (MBHOs) that contract directly with employers.⁷

To estimate the actuarial value of the MH benefit packages described in the survey, the Hay Group used its Mental Health Benefit Value Comparison (MHBVC) model. This model has been used by the National Institute of Mental Health (NIMH), the Congressional Research Service, and firms in the private sector.

The actuarial values of the MH benefit packages described in this report are estimates of health plan expenditures, including the health plan's administrative costs per adult for a typical population of insured employees and their dependents. To compute the actuarial value of a benefit package, the MHBVC model relies on distributions of actual health care claims data for several types of services (such as inpatient and outpatient mental health and substance abuse treatment). For HMO, POS, PPO, and indemnity plans, the MHBVC model determines how much the health plan would pay for each patient in a distribution, based on the services covered by the plan and the plan's service limits and cost-sharing requirements. The model includes assumptions about administrative costs, level of utilization management in each plan, and consumer responses to changes in out-of-pocket costs. The model then calculates a weighted average across consumers.

Using this information from the MHBVC, the Hay Group identified-separately for HMO, POS, PPO, and indemnity plans-typical benefit packages at or near the 25th percentile ("less generous" benefit packages), the 50th percentile ("median" benefit packages), and the 75th percentile ("more generous" benefit packages) of the distribution of actuarial values. (More details about the Hay Group's survey and the MHBVC are in Appendix A.)

Typical MH Benefit Packages

Compared with information about MH benefit packages presented in other studies, the packages described here are a better measure of typical MH benefits, because the estimates of the packages' actuarial value account for all benefit components (such as covered services, service limits, and cost-sharing requirements) and how these components interact with one another. Other studies that have examined typical MH benefit packages reported on each component separately, describing, for example, the median service limit, the median cost-sharing requirement, and the median annual or lifetime spending limit separately for each covered service (e.g., Buck, Teich, Umland, et al., 1999). The problem with this approach is that median values for each component do not necessarily translate into the median actuarial value of the benefit package as a whole. For example, plans with more generous cost sharing may have lower maximum day or visit limits than plans with less generous cost sharing. Or a benefit package with more generous outpatient coverage and less generous inpatient coverage could have a median actuarial value.

The actuarial values in this study account for (1) cost sharing and maximum benefit limits and (2) benefit provisions for both mental health and substance abuse treatment services. For POS and PPO plans, the actuarial values account for both in-network and out-of-network benefits.

Typical Benefit Packages by Plan Type
In 1998, the highest percentage of employees (40 percent) were enrolled in PPOs, which tend to manage utilization loosely. HMOs, which tend to manage utilization tightly, enrolled 29 percent of employees. About 13 percent of employees were enrolled in indemnity plans and 16 percent were in POS plans (William M. Mercer, Inc., 1999).8 The less generous, median, and more generous benefit packages for PPO, HMO, POS, and indemnity plans based on the Hay Group actuarial model and survey are presented in Tables 1 through 4.9

For most plan types, the primary reason for differences between more and less generous plans is cost sharing (coinsurance rates) for outpatient and inpatient care. Coinsurance rates for outpatient visits range from 30 to 90 percent. The impact of differences in inpatient coinsurance rates on plan and employee costs is greater than the impact of differences in outpatient rates, even though the range of differences is narrower (60 to 100 percent). Small differences in inpatient coinsurance rates have a greater impact on the actuarial values relative to outpatient coinsurance rates because of the greater cost of inpatient care.

Table 1: Typical PPO Benefit Packages

Notes:
1.  Less generous = typical plan at the 25th percentile of the distribution of actuarial values within plan type.
More generous = typical plan at the 75th percentile of the distribution of actuarial values within plan type.
2.  All copayments were converted to coinsurance rates.
3.  Actuarial values are in 1998 dollars and represent the annual premium for a single adult employee.

Source:
The Hay Group’s Mental Health Benefit Value Comparison model and 1998 survey of employers. Based on 381 PPOs.

PPOs
For PPOs, the major difference between more and less generous MH benefit packages is in outpatient coverage (Table 1). The less generous PPO benefit package pays half the cost of up to 20 outpatient visits ­in-network but only 30 percent of the cost for out-of-network visits. The median PPO benefit package pays the same coinsurance rate for outpatient care as does the less generous package, but for more visits. The more ­generous PPO ­benefit package pays for 90 percent of the cost of up to 30 visits ­in-network and 70 ­percent of the cost for ­out-of-network visits. The less generous PPO benefit package also requires some cost sharing for inpatient care and covers slightly fewer days than the other PPO benefit packages.

Table 2: Typical HMO Benefit Packages

Notes:
1.  Less generous = typical plan at the 25th percentile of the distribution of actuarial values within plan type.
More generous = typical plan at the 75th percentile of the distribution of actuarial values within plan type.
2.  All copayments were converted to coinsurance rates.
3.   Actuarial values are in 1998 dollars and represent the annual premium for a single adult employee.

Source:
The Hay Group’s Mental Health Benefit Value Comparison model and 1998 survey of employers. Based on 259 HMOs.

HMOs
The only difference among the three HMO benefit packages in Table 2 is in outpatient cost sharing, which typically takes the form of copayments (fixed dollar amounts). The Hay Group model converts copayments into effective coinsurance rates (see Appendix A). The effective coinsurance rates in the typical HMO packages examined here range from 50 percent for the less generous package to 90 percent for the more generous package. All three HMO benefit packages cover 30 outpatient MH visits and pay for the entire cost of 30 days of inpatient care.

Table 3: Typical Point-of-Service Plan Benefit Packages

Notes:
1.  Less generous = typical plan at the 25th percentile of the distribution of actuarial values within plan type.
More generous = typical plan at the 75th percentile of the distribution of actuarial values within plan type.
2.  All copayments were converted to coinsurance rates.
3.  Actuarial values are in 1998 dollars and represent the annual premium for a single adult employee.

Source:
The Hay Group’s Mental Health Benefit Value Comparison model and 1998 survey of employers. Based on 200 point-of-service plans.

POS Plans
POS benefits differ in both inpatient and outpatient coverage (Table 3). The less generous POS benefit package pays 80 percent of inpatient stays up to 30 days in-network and 60 percent of inpatient stays ­out-of-network. It also pays up to 90 percent of 20 outpatient in-network visits and 70 percent of out-of-network visits. The more ­generous POS benefit package covers up to 60 days of in-network inpatient care in full, and pays most of the cost of up to 30 visits in-network.

Table 4: Typical Indemnity Plan Benefit Packages

Notes:
1.  Less generous = typical plan at the 25th percentile of the distribution of actuarial values within plan type.
More generous = typical plan at the 75th percentile of the distribution of actuarial values within plan type.
2.   All copayments were converted to coinsurance rates.
3.  Actuarial values are in 1998 dollars and represent the annual premium for a single adult employee.

Source:
The Hay Group’s Mental Health Benefit Value Comparison model and 1998 survey of employers. Based on 139 indemnity plans.

Indemnity Plans
Unlike the PPO, HMO, and POS benefit packages, the median and more generous indemnity packages do not pay all covered charges for inpatient care (Table 4). In­demnity plans tend to use cost sharing to constrain service use because they are less able than the other types of plans to manage care with utilization management techniques.

Also unlike other plan types, some indemnity plans impose maximum dollar limits on benefits. At the time of the Hay Group survey in 1998, not all employers were ­subject to the Mental Health Parity Act of 1996, so some benefit packages had ­maximum dollar benefits limits below those typical for ­medical/”surgical benefits.¹⁰

Typical indemnity benefits differ in both inpatient and outpatient coverage. The less generous package pays 80 percent of inpatient stays up to 30 days and half the cost of up to 30 outpatient visits. It also limits lifetime benefits to $25,000. The more generous indemnity benefit pays 80 percent of up to 120 days of inpatient care and 80 percent of the cost of up to 50 outpatient visits. It also limits lifetime benefits to $100,000.

Table 5: Covered Intermediate Care Services by Type of Plan

Note:
Excludes plans not covering any MH treatment services.

Source:
Buck et al. (1999).

Covered Services
All of the typical benefit packages examined in this report cover inpatient and outpatient MH treatment services. Hay Group data could not be used to report on the coverage of intermediate MH treatment services such as nonhospital residential and partial hospitalization services because most employers responding to the survey did not answer questions about such coverage. However, another survey, the National Survey of Employer-Sponsored Health Plans, did ­collect data on coverage of residential and intensive nonresidential services (Buck et al., 1999; William M. Mercer, Inc., 1999) from a nationally representative ­sample of employers. Because data from this survey are proprietary, the Hay Group model could not be used to compute actuarial values for them. Consequently, the only MH benefits survey data with sufficient detail for analysis with the model were the data collected by the Hay Group. Table 5 shows the percentage of plans that provide intermediate service coverage, as reported by the National Survey of Employer-Sponsored Health Plans.

TOC | Previous | Next