Health Reform, Health Insurance, and Mental Health Care

The Affordable Care Act of 2010 (ACA) aims to make broad changes to the structure of the U.S. health care system and includes a host of provisions to improve access to insurance, restructure care delivery, and improve quality of care. Most notably, the law aims to expand insurance coverage through the extension of Medicaid to all low-income individuals, subsidies to help those with moderate incomes purchase coverage on their own, and establishment of health insurance exchanges to create a more organized and competitive market for health insurance. Nearly four million currently uninsured individuals with significant mental health needs are expected to gain coverage, leading to an increase in utilization of mental health services (1).

The analysis by Barry et al. in this issue (2) highlights one of the challenges that behavioral health presents to the implementation of the ACA: adverse selection in health insurance exchanges. Exchanges represent a new mechanism for purchasing insurance, offering enrollees a menu of health plans with common rules regarding coverage and pricing and also providing information to help consumers understand their coverage options. Exchanges will be state based, and enrollees primarily will include middle-income individuals who are currently uninsured or who currently purchase coverage through the nongroup market (3).

A long literature examines the problem of adverse selection in health insurance. Selection occurs when, faced with a choice of health plans with similar premium prices, the sickest and costliest patients disproportionately select plans with richer benefits (4). This problem may be greater for mental health than for other types of conditions, because patients with mental illness tend to have high, persistent medical and behavioral care spending; in insurance terms, they are “bad risks” (5). Because people with mental illness know they are very likely to have an extensive health care need in the upcoming year, they choose more generous plans. In the short term, this “adverse selection” places these plans at a financial disadvantage. Faced with this situation, plans may subsequently raise premiums to the point that they deter healthier, lower-cost individuals, perpetuating the problem. To avoid adverse selection, plans deter enrollment of people with mental illness by limiting behavioral health benefits. In the long term, adverse selection is therefore a problem for patients with mental health needs, who over time face an increasingly limited range of plans from which to choose.

The ACA includes several provisions to address the problem of adverse selection in general, and for behavioral health benefits in particular. First, plans in exchanges are required to offer a minimum benefits package, deemed the “essential health benefits package.” Essential benefits include treatment for behavioral health services, which must be offered at parity, or with financial requirements and treatment limitations similar to those for general medical benefits (6). Establishing a level playing field for benefits restricts plans' ability to use benefit limits to deter high-cost enrollees. Second, the ACA includes temporary reinsurance and “risk corridor” programs, under which plans are reimbursed if enrollees' cost of care exceeds a certain level (and pay back some premiums if enrollees' costs are lower than expected). Reinsurance and risk corridors serve as stop-loss measures against the cost of enrolling very expensive individuals, and thus they reduce the disincentive to enroll people with mental illness. Finally, the ACA also includes several payment mechanisms that aim to adequately compensate plans that enroll high-cost individuals (7). The primary mechanism is risk adjustment, under which exchanges pay plans higher premiums for enrolling patients expected to have higher expenditures on the basis of demographic and clinical characteristics.

Despite these fixes, selection may still occur in exchanges, as plans may differ in provider networks, administrative procedures, quality initiatives, or other factors that make them more or less appealing to individuals with mental illness. There still will be variation in benefits by plan, since plans can expand services beyond the minimum and cost-sharing rules will vary. Last, the temporary stop-loss provisions (reinsurance and risk corridors) end after 2 years, and the permanent risk adjusters may imperfectly predict future health care costs, particularly for mental illness (4).

The study by Barry et al. (2) suggests that current payment strategies may not adequately address the problem of selection for persons with behavioral disorders. The authors use health insurance claims data to assess health care expenditures and mental health status among a sample of individuals; they then sort people into hypothetical plans on the basis of mental illness and calculate how different approaches to plan payment (i.e., with and without risk adjustment and reinsurance) would compare to actual costs of enrollees' care. Their findings demonstrate the potential for plans enrolling a low share of people with mental illness to be overpaid and those enrolling a large share to be underpaid, and they show how risk-adjusted plan payment and reinsurance could attenuate that impact. The authors conclude that payment adjustments may mitigate many—but not all—incentives for plan selection and make a strong case that plans may still have incentives to deter enrollees with mental illness.

This conclusion has timely implications for the design of states' exchanges and for mental health service delivery under reform. As of April 2012, 14 states and the District of Columbia had established their exchanges and were in the process of determining requirements for participating plans, and 22 other states were either studying options or planning their exchanges (8). States have flexibility in exchange design and can, for example, opt to include only a limited number of plans, require plan participation in exchanges as a condition of participation in other contracts, or establish plan requirements for quality or coverage beyond federal minimums. All of these decisions have implications for selection incentives in exchanges. Given the high prevalence and costs of mental disorders, the findings from Barry et al. suggest that the ability of these state decisions to address the problem of selection for behavioral conditions has implications for the sustainability of this new market.

The concerns raised by Barry et al. also extend beyond selection among plans participating in the exchanges. Selection may occur among those who decide to take up coverage (versus paying a penalty for not carrying coverage) or among those who opt to purchase coverage through the exchanges (versus staying in coverage outside the exchanges). The issue is also relevant to the Medicaid expansion, which will capture a large share of individuals with mental illness who gain coverage. Since most states use managed care plans to deliver services to enrollees—usually with beneficiaries having a choice of plans—misaligned plan incentives can also impact plan participation in that program. Ensuring that reform does not create incentives for plans to compete for enrollees without mental illness is crucial; failure to do so would undermine years of effort to expand coverage and access to behavioral health benefits (9).

The ACA has great potential to improve mental health service delivery in the United States. In addition to expanding coverage and payment for mental health care, the ACA may address quality, fragmentation, or even stigma as behavioral health is included in various reform efforts. However, policy makers and advocates will need to remain vigilant if this potential is to be realized, as many decision points remain about how to implement the ACA. Outstanding issues remain regarding workforce capacity, whether benefits will sufficiently meet the needs of people with mental illness, and as already discussed, plan incentives for treating persons with behavioral conditions. Finally, legal and political challenges to the health care law create uncertainty about the final shape of health reform.

Regardless of the final legal and regulatory decisions related to health reform, the initial debate and ultimate passage of the ACA have already catalyzed rapid changes in health care delivery in general and mental health delivery in particular. The article by Barry and colleagues serves as a reminder that the potential to improve mental health services will hinge on the broader success of health reform and that, conversely, health reform can be successful only if it adequately addresses challenges in coverage for behavioral health conditions.