Managed Care and Psychiatry

Overview

“The main message to the world is that the academy says mental illness is just like cancer, nothing special.” Noted economist Ariel Rubinstein, upon the awarding of the Nobel Prize to the economist John Nash in 1994

“Mental health economics is like health economics only more so: uncertainty and variation in treatments are greater; the assumption of patient self-interested behavior is more dubious; response to financial incentives such as insurance is exacerbated; the social consequences and external costs of illness are more formidable.” Economists Richard Frank and Tom McGuire in the introduction to their essay on “Economics and Mental Health”

These two quotes outline the inherent dilemma in financing mental health care in the US. On the one hand, mental illness is just like other corporeal diseases; it stems from biological underpinnings, it causes tremendous suffering, and it is (increasingly) responsive to treatment. On the other hand, mental illness is decidedly different in terms of its presentation, its patient population, and its perception by society. These differences from other medical conditions have led to the formation of a separate and sometimes unequal system of care delivery. This inherent dichotomy is at the root of current debates over the future of financing of mental health care (MHC).

In order to fully appreciate the forces guiding the financing of MHC, it is useful to consider the mix of social, medical, and financial dynamics that have led to the MHC system as we know it today. This interplay of forces has been particularly evident over the latter half of the twentieth century, with new treatments, deinstitutionalization, and rising costs leading to profound changes in how MHC is financed. Conversely, the rise of new institutional arrangements for the finance and delivery of services (such as managed behavioral health “carve-out” plans) have precipitated major changes in how patients are treated, both in the MHC delivery system and in the community. While these changes have led to significant reductions in inpatient psychiatric hospitalizations, access to outpatient MHC has remained limited compared with general care, prompting advocates to call for mental health parity laws. Parity policies aim to equalize insurance coverage for mental illnesses and other medical conditions.

This chapter will discuss the history of MHC financing (including the formation of public and private health insurance in the US), the evolution of managed MHC and the reasons for its growth, the current structure and attributes of MHC financing in the US, and the controversy over MHC parity laws and their impact on the future of MHC delivery.

The History of Mental Health Care Finance in the United States

Throughout the history of the US, social movements relating to the care of the mentally ill have altered the delivery and financing of MHC ( Table 68-1 ). After the Revolutionary War, increasing urbanization led to the development of asylums for the mentally ill, most notably in Philadelphia (Pennsylvania) and Williamsburg (Virginia). Before the establishment of these state-run, state-financed psychiatric hospitals, local communities and families bore the brunt of the responsibility for caring for the mentally ill, initially through local almshouses (poorhouses) and then through more formalized financing methods. As the financial burden on localities increased over time, an effort was made to shift the costs of financing MHC to the states. A corollary goal supported by the psychiatric profession involved separating the financing of care for the mentally ill from local, charity-based indigent care.

A group of reformers (led by Horace Mann, among others) led the “moral treatment” movement, which advocated for the institutionalization of patients with the hopes that early treatment would lead to a resolution of their mental illness. The activist Dorthea Dix, in particular, was instrumental in lobbying state legislatures for the establishment of psychiatric hospitals. Eventually, each state developed its own asylum system in response to the movement. Over the course of the nineteenth century, asylums became overcrowded, and, as the promise of early intervention went largely unfulfilled, asylums became the permanent home to many chronically ill patients. Funding of asylums did not increase with the rise in the patient population. State and local governments were in conflict as to how to fund mental health services, with the latter often choosing to place the mentally ill in jail or in alms­houses rather than pay for care at asylums. In the latter half of the nineteenth century, a new movement known as the “mental hygiene” movement sought to improve the conditions of patients in asylums. A number of federal laws, known as the State Care Acts, required states to pay for all asylum care, prompting localities to send an ever-increasing number of patients to asylums. Reformers from the National Committee on Mental Hygiene also advocated for treatment of mental illness in medical hospitals, as well as in outpatient settings, bringing MHC more into the medical model of care. This continued to be the case into the 1930s when a new method of private-employer-based health insurance financing was born.

The Rise of Private Health Insurance

The current system of employer-based health insurance, while accidental in its conception, has become entrenched as the primary way by which health care is financed in this country. Until the 1930s, private individuals paid out-of-pocket for health care services on a fee-for-service basis. During the 1930s, non-profit Blue Cross/Blue Shield (BCBS) health insurance plans were developed and, despite skepticism as to their viability, were successful. Once health insurance was shown by the BCBS plans to be a financially-feasible endeavor, a number of private for-profit health insurance companies were founded. During World War II, when the government allowed employers to offer health insurance in lieu of wage increases, private health insurers grew in both size and number, with the number of covered individuals rising from 20.6 million to 142 million between 1940 and 1950. Coverage expanded even further and became more tightly linked to employment contracts when, in 1954, the Internal Revenue Service (IRS) ruled that employer-based health insurance should not be considered as taxable income. While coverage was expanded for general medical care, MHC coverage was substantially more limited. Insurance policies did not include mental health services until after World War II, when insurers began covering some hospital-based psychiatric care. Before the deinstitutionalization movement (discussed in the next section), there was little incentive for private insurers to cover services that were already paid for through the public sector.

The Community Mental Health Center Movement and Deinstitutionalization

In the 1950s, a third movement in US MHC began, referred to as the Community Mental Health Center Movement. It was founded on the belief that, with the advent of new and improved pharmacological and somatic treatments, MHC was best delivered in the community. Movement advocates pointed to continued poor conditions in asylums as evidence that deinstitutionalization of patients would best serve their interests. Federal legislation in the early 1960s targeted federal funds for the development of community mental health centers (CMHCs) across the country. According to historian Gerald Grob, the deinstitutionalization of patients was not simply an en masse exodus from mental hospitals to the community, but rather a shift in emphasis from long-term care to management of more acute episodes, driven by the expansion of outpatient services through CMHCs.

During this time, funding for MHC services became more complex. Services (such as medical care housing and meals that were at one time contained in mental hospitals) were no longer provided within a single context. Federal programs (such as the Social Security Disability Insurance [SSDI] program) would become increasingly important for providing financial support to the chronically mentally ill. Additionally, new public health insurance programs in the 1960s would further change the way MHC was financed.