For mental health cost problems, see a specialist; separating mental health care from other benefits helps keep costs down while improving treatment, experts say - includes related information on measuring mental health outcomes

Separating mental health care from other benefits helps keep costs down while improving treatment, experts say.

By implementing carve-out plans for mental health and substance abuse, restructuring mental health benefits, and turning over management of these benefits to companies that specialize in the mental health arena, employers are achieving dramatic cost cuts while improving access to needed treatment.

The trend toward carving out mental health benefits is increasing. IN 1992, 24% of employers used a company that specializes in providing mental health and substance abuse utilization review for inpatient services, compared with 18% in 1991, according to a survey by A. Foster Higgins & Co. Inc., New York benefits consultants. A corresponding increase was seen in specialized UR for outpatient services--22% in 1992, compared with 16% in 1991. Similarly, the number of employers using PPOs or exclusive providers for mental health treatment increased in the past year--from 8% in 1991, to 19% in 1992.

Carvingf out mental health benefits calls for separate management of the benefit by a provider that understands the unique problems of mental health service delivery. Managed mental health plans often incorporate utilization review with incentives for employees to select preferred providers for treatment, case management, prevention education, and integration with existing services, such as the employee assistance plan (EAP), according to a 1991 report, "Depression: Corporate Experiences nd Innovations," developed by the National Institute of Mental Health, in Rockville, Md., and the Washington Business Group on Health, a national health policy group in Washington.

The latest annual health care benefits survey from Foster Higgins shows the cost of providing mental health and substance abuse benefits is increasing. In 1992, employers spent an average $318 per employee on mental health and substance abuse benefits, nearly double the cost of $163 per employee just five years earlier.

Today, 91% of the employers surveyed by Foster Higgins place limitations on inpatient mental health and substance abuse treatment and 94% report capping outpatient limits. By comparison, in 1991, 87% of employers placed limitations on inpatient mental health treatment, and 91% had limitations on outpatient care.

But an increasing number of employers agree that limiting benefits to cut costs isn't the answer. "You can reduce mental health benefits by a million dollars," notes Scott Diebler, manager of the EAP for the Orange County School Board in Orlando, Fla. "But what's the effect on absenteeism, productivity, and workers' compensation claims if you've restricted your mental health and chemical dependency care so much that people don't get well? My assumption would be that you'd see a subsequent increase in turnover, absenteeism, and medical claims. You may think that you saved money. But, in the long term you may be losing a lot of money because you tightened down too much." In fact, many employers feel that they may have cut treatment access too much by limiting benefits, says John Erb, principal with Foster Higgins.

So many employers have increasingly turned to the carve out.

Long-term cost savings

When the Orange County School Board carved out mental health and substance abuse benefits in 1989, it was beacause "we had two crises come to a head simultaneously," says Diebler. "Education funding was at a low. At the same time, health care costs were hitting their peak. As a result, we were looking at 15% to 20% increases in health care costs when there was no money to increase salaries, build classrooms, or buy textbooks." Compounding the problem was the rapid growth of the Orange County public school system, currently the nation's 20th largest school district with about 20,000 employees. "We had to save money somewhere, and it was going to be in the health care area," Diebler says.

The EAP was asked to see what could be done about mental health costs which were running between $1.5 million and $1.8 million annually. After reviewing utilization information going back to 1983, Diebler and his associates said that mental health and substance abuse treatment could be provided for about $700,000 annually without decreasing benefits. A program from Florida Psychiatric Management Inc. (FPM), a managed mental health vendor in Winter Park, Fla., has helped the school board and the EAP to meet those goals, Diebler notes.

Prior to implementing mental health managed care with FPM, the benefits program under the board's indemnity plan had annual caps of 30 days of inpatient care for chemical dependency and mental health treatment and $1,000 on outpatient treatment. Coverage was at 80% and there was no benefit for partial hospitalization or long-term residential care. The carve-out program has the same annual cap on inpatient care and allows up to 44 outpatient visits for substance abuse and 20 outpatient mental health visits per year. In addition, the managed care plan allows up to 60 days of long-term residential care and 45 days of partial hospitalization treatment annually. Mental health benefits were actually enhanced, even while the Orange County School Board began to save about $1 million annually, notes Diebler.

Since 1989, the cost of the program has increased relatively slowly. For the school year 1993-94, the carve-out plan costs about $1 million. In that time, the organization grew from 12,000 employees in 1989 to more than 20,000 employees this year, Diebler says.

Despite the impressive cost containment of the carve out approach, Diebler says that the real return on investing in mental health benefits and an EAP comes in a variety of forms over the long term. For example, employees referred to Florida Psychiatric Management by the EAP are tracked several ways, including changes in sick leave patterns and in the number of workers' compensation and medical-surgical claims filed before and after treatment. For 1,400 employees referred last year, the school board saved about $180,000 in sick leave and about $28,000 in payments for substitute teachers because of reduced absenteeism. Medical-surgical claims filed by the treated employees decreased by $980.32 on average from the previous year, leading to a reduction in medical costs of more than $1.3 million. Prior to treament, workers' compensation claims were filed by 18% of the tracked employees. After treatment, just 3% filed workers' compensation claims.

So far, savings have been achieved through a variety of techniques. all outpatient care is provided by Florida Psychiatric Associates (FPA), a psychiatric group that is the clinical arm of FPM. Inpatient, longterm, and partial hospital care are contracted for by FPM, which handles all provider term negotiations. Case management is handled by the board's internal EAP and FPM.

Utilization of an exclusive provider for outpatient treatment, PPO negotiations for other care, and joint case management are effective approaches for cost containment. However, Diebler emphasizes that case review in and of itself tends to control costs. The board learned that lesson in the first year of transition from the indemnity plan to FPM. At that time, the board contracted with a local psychologist to review mental health treatment for employees by any provider outside of the FPM network. "As soon as some knowledgeable person was asking the provider questions about the treatment plan, the cost was controlled and the visits were limited," he says. By the end of the first year, virtually everyone was being treated through FPM and the internal EAP.

New alternatives

Carving out its mental health benefits allowed General Dynamics Space Systems Division the opportunity to cut mental health costs and offer alternatives that were not available under the old plan. Located in San Diego, the division builds and launches space machinery. Costs for mental health and substance abuse benefits for approximately 4,200 employees went up between 30% and 50% for each of the two years before the company decided to carve out mental health from its self-funded indemnity plan, says Steve Woolley, manager of employee benefits and services.

In January 1992, General Dynamics contracted with Vista Health Plans, a managed mental health care company in San Diego, to implement and manage the carve-out program. One approach used to cut costs was to offer strong incentives to use the company EAP Employees who are referred to Vista through the EAP, for example, have virtually no copayments for mental health treatment. If the employee bypasses the EAP, copayment on inpatient treatment starts at $25 a day and eventually goes up to $50 a day, depending on the number of days a patient is confined to a hospital, says Woolley. Maximizing EAP utilization in this way makes sense because "a good number of cases are solvable at the EAP level. Sometimes someone can get four or five visits at the EAP and become functional again and not even have to enter the medical delivery system," Woolley says.

Benefits under the carve-out plan have been substantially redesigned and, in some cases, cut. For example, the old plan had lifetime maximums of $200,000 on mental health and $20,000 on substance abuse treatment. The current lifetime maximum for mental health and substance abuse benefits combined is $100,000. Formerly, there was no annual limit on mental health treatment visits, and substance abuse coverage included 20 outpatient visits and 30 inpatient visits annually.

A total of 60 outpatient visits and 50 inpatient visits are covered annually. However, the carve-out program also provides treatment alternatives, such as group therapy, residential halfway houses, and day hospital treatment--alternatives that weren't covered under the indemnity plan.

Likewise, a more flexible plan design has enabled General Dynamics Space Systems Division to cut the costs for delivering mental health and substance abuse benefits almost in half, according to Wooley. Today, mental health benefits account for about 6% of the company's total health care benefits expenditures. Before the carve out, these benefits represented aobut 10% of the health care bill.

A first step

Employers considering the carve-out approach are unanimously concerned about mental health benefit costs. However, cost containment isn't always the primary reason a company chooses to carve out its mental health benefits.

Sometimes, carving out the benefit serves as the first move to more universal managed care. Such has been the case at CPC International, an international food company, in Englewood Cliffs, N.J., with about 8,000 U.S. employees.

"CPC is a very conservative company. I viewed a mental health carve out as being a low impact way to introduce the provider networks," explains Steve Patterson, director of benefits and human resources information systems.

Although the program from Preferred Health Care Ltd. (PHC) Wilton, Conn., was implemented only last January, Patterson believes that already the carve out is doing more than enabling employees to become accustomed to managed care. Plan provisions haven't changed from those of the former indemnity plan, but costs are going down dramatically. In 1992, CPC paid incurred mental health charges of approximately $1.25 million. "Through the first six months of this year, it's about $433,000," says Patterson. The year-end number is expected to be about $850,000.

To encourage employees to use managed care reimbursement for services from providers outside of the PHC network is only 50%, compared with 80% for in-network providers.

Recognizing that employees currently receiving treatment from out-of-network providers might be reluctant to make the transistion, CPC has allowed employees to stay with current providers for the first year of the carve out, provided they notify PHC. During this transistion year, "PHC is trying to get them into the network," Patterson says.

For Reynolds Metals Co., an integrated producer of aluminum products in Richmond, Va. with 20,000 employees nationwide, carving out mental health was one component in a redesign of health care benefits. "We weren't comfortable that the standard utilization review vendors would do a good job at mental health and substance abuse review because it's a highly specialized field," says Dave Werner. manager, group health plans.

Reynolds inplemented a mental health program from PHC in May 1993 with the objectives of increasing accessd, improving treatment and containing costs. "Our cost trend over the past 10 years hasn't been all that terrible--about 10% increases overall." Werner notes, however, that mental health was escalating at 13%

to 15%.

Previously, inpatient visits were limited to 30 days annually. Outpatient visits were limited to 20 annually, reimbursed at 80%, with no limit on further outpatient visits reimbursed at 50%. Outpatient care, covered under major medical, had a $30,000 lifetime maximum.

As part of the redesign, all benefits have been reduced, Werner says. For mental health and substance abuse treatment, that means a lifetime maximum benefit of $50,000. However, in-network treatment is actually reimbursed at a higher rate of 90%; out-of-network care charges are reimbursed at 50%.

While it's too early to measure the economic impact of the carve out, Werner says, though, that employees' access to mental health care has increased and PHC can help employees navigate their way through the system.

COPYRIGHT 1993 A Thomson Healthcare Company
COPYRIGHT 2004 Gale Group