Part 4 of Prof. Dominic Hodgkin's workshop on topics in the economics of mental health care, presented to the Myers-JDC-Brookdale Institute on July 8, 2015.

1. Insurance coverage and
utilization of mental health care
Dominic Hodgkin
Professor
Institute for Behavioral Health
Heller School of Social Policy and Management
Brandeis University
Presentation for Myers-JDC-Brookdale Institute
Jerusalem, July 8, 2015

2. Some key questions
• Given that most countries require some
payments from patients (cost-sharing):
– How much does use of mental health care vary
with patient cost-sharing?
– What is the optimal level of cost-sharing for
mental health care?

3. Outline of talk
A. Price effects: demand for visits
B. Price effects: demand for medications
C. Managed care and mental health parity
D. Other demand shifters
E. Demand-side innovations
F. Conclusions

4. A. PRICE EFFECTS: DEMAND
FOR VISITS

5. Price effects: visits
Demand under insurance
• For uninsured patients, the demand price is
the provider’s fee
• But for insured patients, what’s relevant is
the out-of-pocket cost:
– Deductible
– Copayment (preset fee per visit)
– Coinsurance (preset percent of charge)
– Spending beyond coverage limit

7. Demand curve, under insurance
Out-of-pocket
price per visit
Quantity of
visits
0

8. Price effects: visits
Price response: Early studies
• Various US studies tried to measure price
response by comparing patients in plans
with more versus less generous coverage
• Problem: biased selection
• People expecting to use mental health care
tend to choose plans with better coverage
• Result: not all the difference in use across
plans is an effect of plan generosity

9. Price effects: visits
Price response: Rand study
• The Rand Health Insurance Experiment
(1974-82) randomized individuals across
plans that varied in generosity
• This removed the biased selection problem
• Result: in plans where patients faced high
coinsurance, they cut back mental health
care more than medical care 1
• Demand for MH care is more price-elastic
1. Manning, 1989.

10. Price effects: visits
Price response: Rand study
0 20 40 60 80 100 120
Free care
25% coinsurance
50% coinsurance
95% coinsurance
Total spending, as % of free-care level
Medical care
Mental health
Source: Manning, 1989.

11. Price effects: visits
Price response and ‘moral hazard’
• The Rand results influenced insurance
plans, which placed more limits on mental
health than medical care
• MH care was viewed as more discretionary
• Standard economic theory: insurance
stimulates additional utilization that patients
don’t value. This is ‘moral hazard’
– Based on using demand curve to measure value

12. Source: http://worthwhile.typepad.com

13. Price effects: visits
Optimal level of cost-sharing
• If moral hazard is your only concern, then
the optimal level of insurance is… none!
• But insurance provides other benefits that
consumers value
– risk protection, relief from financial burden
• Manning et al. concluded that optimal
coinsurance for MH was 25% or 50%, after
balancing moral hazard versus other issues

14. Price effects: visits
Actual cost-sharing levels, US, 2010
• Mean copay per visit:
– $25 for MH, $22 for medical care
• Mean coinsurance for visits:
– 13% for MH, 21% for medical care
• Higher for 'out-of-network' care
• 10% of plans still had higher cost-sharing
for MH than for medical care
Source: Horgan, 2015.

15. B. PRICE EFFECTS: DEMAND
FOR MEDICATIONS

16. Demand for medications
Characteristics of medications
• A good, not a service (so price
discrimination is more difficult)
• Prescription requirement
• Patent protection → high price for brands
• ‘Experience goods’: often different drugs
work best for different patients – and they
find out by trial and error

17. Demand for medications
Incentive formularies
• Demand for psychiatric drugs in US is
affected by incentive formularies
• An example:
– Insurer bargains with drug manufacturers, selects 2
drugs as ‘preferred’ in a class (e.g. antidepressants)
– Insurer requires patients to pay $10 per prescription for
‘preferred’ drugs, $25 for other drugs in that class
– Patients either switch (to save money) or pay more (if
they cannot/will not switch)… or stop taking the drug
– Either way, the insurer pays less for drugs

18. Demand for medications
Price sensitivity
• The Rand study didn’t measure price
elasticity specifically for psychiatric drugs
• Meyerhoefer1 did, and found:
– Demand is more price-sensitive for psychiatric
drugs than for other drugs (elas=-0.61 vs. -0.31)
– Demand is more price-sensitive for psychiatric
drugs than for MH visits (elas=-0.61 vs. -0.05)
– Demand has become more price-sensitive lately
1. Meyerhoefer & Zuvekas, 2010.

19. C. MANAGED CARE AND
MENTAL HEALTH PARITY

20. Managed care
Special limits on MH care
• Until recently, many insurers had special
limits on mental health care, higher copays1
– E.g. 20 visits per year; 2 episodes per lifetime
• Some justified this by the higher demand
response for MH care
• But the studies showing higher demand
response were from the 1980s, before
managed care
1. Hodgkin et al., 2010

21. Managed care
Managed care tools
• Utilization management
• Selective networks
– Fear of exclusion alters provider practice style
• Differential cost-sharing
– Plan reduces copay on selected providers, drugs
• Risk transfer to providers
– E.g. payment per admission, capitation
– Less used for MH care

22. Managed care
Effect on demand: Theory
• How might managed care affect demand for
mental health services?
• Number of visits: demand becomes less
price-sensitive, due to non-price rationing
• Choice of provider or drug: demand
becomes more price-sensitive, due to
patient incentives

23. Managed care
Effect on demand: Evidence
• US studies showed smaller response of MH
utilization to benefit expansions, once
managed care was in place. This was seen:
– After state parity laws1
– In the Federal employees program2
– At employers that added managed MH care3
• Implication: managed care offsets some of
the demand response, controls utilization
1. Pacula 2000. 2. Goldman, 2006. 3. Goldman, 1998.

24. Parity
Early parity laws
• From 1990-2008, many states passed laws
requiring ‘parity’ of coverage between MH
care and medical care
• Symbolically important
• But many loopholes. Most large employers
were exempt (‘self-insured’)
• A weak federal law passed in 1996, also
with many loopholes

25. Parity
Legislative efforts
• Advocates pushed for a stronger federal
parity law to improve MH coverage
• For years, insurers and employers resisted
these laws, fearing a surge in MH spending
• But in 2008 a new federal parity law passed,
with support from some insurers (managed
behavioral health organizations)

26. Parity
The 2008 parity law
• The 2008 federal parity law does not require
plans to cover MH care. But if they do,
they:
– Can not apply special limits or higher cost-
sharing to MH care than medical care
– Can not apply utilization review, network
management techniques, etc. using different
criteria for MH care than for medical care

27. Parity
Effects of the 2008 parity law
• So far only one study of effects of the 2008
federal parity law, focused on use of
substance abuse care.1 It found:
– No change in percent using substance use care
– Small increase in spending per user ($10)
– No change in patients’ out of pocket spending
(surprising)
1. Busch, 2014

28. D. OTHER DEMAND SHIFTERS

29. Other demand shifters
• Clearly, the demand for mental health care
is affected by many other factors besides its
price
– In economic terms, these factors shift the
demand curve: at a given price, more (or fewer)
services are demanded
• It’s worth briefly reviewing a few factors

30. Other demand shifters
Income/Socioeconomic status (1)
• Various disorders have higher prevalence in
groups with lower income or socio-
economic status (SES).
– Schizophrenia: in a 1974 review, risk was
higher for those of lower SES, in 15 out of 17
studies. Similar finding from a 1998 update.1
– Depression: odds are 1.81 times higher for
those in lower social strata (compared to
higher), according to a meta-analysis.2
1. Muntaner 1974. 2. Lorant 2003.

31. Other demand shifters
Income/Socioeconomic status (2)
• Two possible pathways for the SES/mental
illness correlation:
– Poverty increases adversity, stress which result
in mental disorders
– Mental illness leads to downward social
mobility (or impairs upward mobility)
• Tricky to disentangle – probably both could
be occurring.

32. Other demand shifters
Advertising
• In the US, direct-to-consumer advertising
has helped increase the demand for drugs
– including psychiatric medications
• Studies find these ads drive up demand for
the class, not just the advertised drug
– Also true for antidepressants1
• Ads and sales visits directed at physicians
matter too
1. Donohue, 2004.

33. Advertisement for an antidepressant

34. Trends in US psychotropic medication
fills, 1996-2008
0
20
40
60
80
100
120
140
160
180
million
Antidepressants
Antipsychotics
Antianxiety
Antimanics,
anticonvulsants
Other psychotropic
Source: Mental Health US, 2010. Limited to fills reported to be for a mental health or
substance abuse condition.

35. Other demand shifters
Demand inducement
• In health care, there’s evidence that
providers can influence how much care is
demanded, to suit their own goals
• Classic case: insurer cuts fees, but providers
somehow increase visits, to recoup income
• Seems plausible for MH care too, but not
studied much
• Managed care may make this less likely

36. Other demand shifters
Availability of services
• Increased travel distance to services has
been associated with: 1
– Gaps in treatment for patients with serious
mental illness
– Decreased service use after MH hospitalization
– Receipt of less psychotherapy for depression
• Travel imposes costs, foregone wages
• Distance can also mean unfamiliarity
1. Pfeiffer, 2011.

37. E. DEMAND-SIDE INNOVATIONS

38. Demand-side innovations
Consumer-directed health plans
• In 2000s, insurers started offering plans
with:
– Much higher deductibles, e.g. $1000-2000
– Associated fixed-dollar spending account, often
with employer contribution
– Ability to carry savings across years
– Consumer ability to customize some features
• Overall goal: make patients cost-conscious

39. Demand-side innovations
Consumer directed plans and MH care
• Consumer-directed plans (CDPs) could
pose challenges for MH care
– Patients face full cost of care up to the
deductible
– They may target MH care for economizing

40. Demand-side innovations
Consumer directed plans and MH care
• Hardie et al studied one insurer that offered a
CDP, comparing members who did vs. didn’t join
it. They found:
– MH users were less likely to join the CDP
– Members who switched to the CDP were 3-4%
less likely to use MH care afterward, compared
to non-switchers
– Intensity of MH services use per patient did not
differ between switchers and stayers

41. Demand-side innovations
Value-based insurance design
• Some employers are trying out plans that:
– Reduce or eliminate copayments on
medications for selected chronic diseases, to
improve adherence
– Increase copayments on medications for care
judged to be low-value
• Overall goal: use copays to steer patients
toward higher value care

42. Demand-side innovations
Value-based design and MH care
• Value-based design could help improve adherence
to mental health treatment
• But it is a pretty broad-brush approach
– E.g. All use of antidepressants gets classified as high-
value. (Or none.)
– Whereas managed care approaches try to set more
specific rules about what is low-value
• This relies on patient valuations/decisions
• Little evidence yet about impact on MH care

43. Conclusions
• Demand for mental health care is sensitive
to price
• But patient cost-sharing should not be the
main way to ration care
– That imposes financial burden
– Patients may undervalue MH treatment
• Managed care and provider payment
strategies pose fewer risks

44. References (1)
• Busch, Susan H., et al. "The Effects of Federal Parity on Substance Use
Disorder Treatment." The American journal of managed care 20.1 (2014): 76.
• Donohue, J. M., & Berndt, E. R. (2004). Effects of direct-to-consumer
advertising on medication choice: The case of antidepressants. Journal of
Public Policy and Marketing, 23(2), 115-127.
• Goldman, Howard H., et al. "Behavioral health insurance parity for federal
employees." New England Journal of Medicine 354.13 (2006): 1378-1386.
• Goldman, W., J. McCulloch, and R. Sturm. 1998. Costs and Use of Mental
Health Services Before and After Managed Care. Health Affairs 17(2):40–52.
• Hardie, Nancy A., et al. "Behavioral healthcare services use in health savings
accounts versus traditional health plans." The journal of mental health policy
and economics 13.4 (2010): 159-165.
• Hodgkin, D., Horgan, C. M., Garnick, D. W., & Merrick, E. L. (2009). Benefit
limits for behavioral health care in private health plans. Administration and
Policy in Mental Health, 36(1), 15-23.

45. References (2)
• Horgan CM, Hodgkin D, Stewart MT et al. Health plans’ early response to federal
parity legislation for mental health and addiction services. In press, Psychiatric Services.
• Lorant, Vincent, et al. "Socioeconomic inequalities in depression: a meta-analysis."
American journal of epidemiology 157.2 (2003): 98-112.
• Manning, W. G., Wells, K. B., Buchanan, J. L., Keeler, E. B., Valdez, R. B., &
Newhouse, J. P. (1989). Effects of Mental Health Insurance.
• Meyerhoefer, C. D., & Zuvekas, S. H. (2010). New estimates of the demand for physical
and mental health treatment. Health Economics, 19(3), 297-315.
• Muntaner, C., Eaton, W. W., Miech, R., & O’Campo, P. (2004). Socioeconomic position
and major mental disorders. Epidemiologic reviews, 26(1), 53-62.
• Pacula, R. L., & Sturm, R. (2000). Mental health parity legislation: much ado about
nothing?. Health Services Research, 35(1 Pt 2), 263.
• Pfeiffer, Paul N., et al. "Impact of distance and facility of initial diagnosis on depression
treatment." Health services research 46.3 (2011): 768-786.