Mental health costs soar.

In this new column, the President of the National Association of Employers on Health Care Action discusses the viewpoints of health care purchasers and some of the techniques that they are using to reduce their health care costs.

While health care costs in general continue to rise at rates well above the general level of inflation, the evidence is mounting

The use of mental health and substance abuse benefits grew 27 percent in 1988, according to "foster Higgins Healthcare Benefits Survey 1988."* This increase was one of the factors that contributed to the rapid increase in health care costs in 1988, the survey, which successfully queried more than 1,600 employers, notes.

"1988 saw the return of double-digit cost inflation to most employer-sponsored health plans in the United States," the Foster Higgins survey reports. Total annual health plan costs per employee averaged $2,354 in 1988, an 18.6 percent increase over 1987's average cost of $1,985. This is in contrast to a 7.9 percent increase in 1987 and a 7.7 percent increase in 1986.

The cost of providing mental health and substance abuse benefits grew 27 percent, from an average of $163 per employee in 1987 to more than $207 per employee in 1988. The expenditures on these benefits now account for 9.6 percent of total medical plan costs.

Many employers today face the problem of managing the treatment of mental health and substance abuse ailments. Health care practitioners do not agree in many cases on standards for treatment. Therefore, the standard cost management techniques--preadmission certification and concurrent review--that are used to control medical and surgical expenses have not worked as well in controlling mental health and substance abuse care costs.

To control these costs, many employers are limiting benefits. HMOs also often limit benefits. Federally qualified HMOs are allowed to limit benefits under the HMO Act of 1973. However, in some states, mandated coverage for mental health/substance abuse treatment prohibits employers from imposing limitations beyond those in place for other medical coverage.

A growing number of employers are using preferred provider arrangements or separate utilization review mechanisms to monitor mental health and substance abuse care. Xerox Corp., for instance, adopted a managed mental health program in 1988 to provide cost management, coordination, and medically appropriate access to care rather than impose limits. "We felt it was unfair to employees to not try to manage first before trying limits," stated Patricia Nazemetz, Manager of Benefits, Xerox Corp., at NAEHCA'S national case management conference on June 2, 1988.

Xerox mental health costs increased from 16 percent of of Xerox medical plan costs in 1985 ($11 million) to 20 percent of medical plan costs in 1986 ($14 million). There was excessive and inappropriate utilization of mental health services and ineffective coordination between our employee assistance program and medical plan," stated Nazemetz. "In addition, we had 40 percent of our employees in HMOs, which leaves some employees with inadequate mental health benefits."

Xerox established a bid process for managed health care. "We did not want an off-the-shelf product but rather a plan custom made to Xerox specifications," stated Nazemetz.

Following a review of 10 proposals, American PsychMangement, Inc., (APM) was selected by a Xerox team composed of employee assistance program staff, benefits staff, disability personnel, and a medical consultant.

The Xerox managed mental health plan now pays 80 percent for all certified inpatient treatment after the deductible. For outpatient treatment, the first two diagnostic visits are covered at 100 percent and the next four visits are covered at 80 percent with no deductible. If treatment is certified, all subsequent visits are covered at 80 percent after the deductible. in addition, outpatient mental health treatment does not go toward the out-of-pocket maximum. For those employees not contacting APM before receiving mental health care, coverage is reduced to 50 percent for the first 10 days of inpatient care after the deductible is met.

Data should be available soon on the results of the program, which began in 1988. Nazemetz reports significant savings in some long term inpatient cases that were reviewed by APM and for which case management techniques and alternative treatments were introduced. She states, "We believe it is a step in the right direction."

* Copies of the survey may be obtained from Foster Higgins Health Care Benefits Survey 1988, 212 Carnegie Center, Princeton, N.J. 08543-5323, 609/520-2289 or 2283.

T H E A U T H O R

Ruth H. Stack is President of the National Association of Employers on Health Care Action, Key Biscayne, Fla.