How Expensive Is Unlimited Mental Health Care Coverage Under Managed Care?

OBJECTIVES: To study costs, access, and intensity of mental health care under managed care carve-out plans with generous coverage; compare with assumptions used in policy debates; and simulate the consequences of removing coverage limits for mental health care as required by the Mental Health Parity Act. DESIGN: Claims data from 1995 and 1996 for 24 managed care carve-out plans; all plans offered unlimited mental health coverage with minimal co-payments. OUTCOME MEASURES: Probability of care, intensity of care, and total costs broken down by service type and type of enrollee. RESULTS: Assumptions used in last year's policy debate overstate actual managed care costs by a factor of 4 to 8. In the plans studied, costs are lower owing to reduced hospitalization rates, a relative shift to outpatient care, and reduced payments per service. However, access to mental health specialty care increased (7. 0% of enrollees) compared with the preceding fee-for-service plans (6. 5%) or free care in the RAND Health Insurance Experiment (5. 0%). Removing an annual limit of 25000 for mental health care, which is the average among plans currently imposing limits, will increase insurance payments only by about 1 per enrollee per year. Children are the main beneficiaries of expanded benefits. CONCLUSIONS: Concerns about costs have stifled many health system reform proposals. However, policy decisions were often based on incorrect assumptions and outdated data that led to dramatic overestimates. For mental health care, the cost consequences of improved coverage under managed care, which by now accounts for most private insurance, are relatively minor.