Health Care Costs and Financing

Mental health/substance abuse carve-out programs substantially reduce costs for these services

Carve-out programs for special health conditions, such as mental health/substance abuse (MHSA) problems, are not included in a health insurance plan's covered services. Instead, they are covered under a separate contract known as a "carve-out." The insurer contracts with a specialty vendor to manage only the MHSA risk for all of the plan's enrollees within a single MHSA plan.

In 1992, the Massachusetts Group Insurance Commission (GIC) adopted a carve-out program to cover MHSA services. The GIC sought a soft capitation contract that exposed the vendor to a limited amount of financial risk to avoid providing the vendor with strong incentives to skimp on service provision. Still there was the incentive to perform well on the contract and to save the GIC a substantial amount of money.

The carve-out resulted in a 54 percent decrease in total episode costs for individuals with unipolar depression and a 33 percent decrease for those with substance dependence, according to a study supported in part by the Agency for Health Care Policy and Research (National Research Service Award training grant T32 HS00020). These savings were most likely due to the shift from traditional inpatient care to less intensive and less expensive partial hospitalization services and traditional outpatient care for people with unipolar depression, concludes Haiden A. Huskamp, Ph.D., of Harvard Medical School. He attributes this shift to two key changes in benefit design: the addition of partial hospitalization services for MHSA conditions, which previously had been uncovered, and the expansion of the outpatient MHSA benefit, which reduced copayments and removed the annual limits on use of outpatient services.

Without the pharmacy data, Dr. Huskamp could not determine whether the carve-out arrangement resulted in a shift away from facility and outpatient treatments toward use of psychotropic drugs, which were not the financial responsibility of the carve-out vendor. Nor was it clear whether the decreases in costs and shift in treatment sites resulted in more or less appropriate care. However, Dr. Huskamp cautions that disproportionate decreases in per-episode spending for individuals with severe MHSA conditions may be a cause for concern.

More details are in "Episodes of mental health and substance abuse treatment under a managed behavioral health care carve-out," by Dr. Huskamp, in the Summer 1999 Inquiry 36, pp. 147-161.

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