Reductions in insurance for mental disorders: adverse selection, moral hazard, and consumer demand

Coverage for mental illness has been sharply reduced in the Federal Employees Health Benefits Program (FEHBP), especially in the largest of the participating plans, the Blue Cross and Blue Shield plan. The authors examine the role of adverse selection (accumulation of high- risk consumers within a given plan), moral hazard (demand for services for illness depending in part on the price of the services), and lack of overt consumer demand in the current trend. They point out the critical need for psychiatry to develop more effective approaches to public education on the nature of mental illness and its treatment. If the recent major cutbacks in the FEHBP prevail, this kind of restriction is likely to become the prevailing mode of mental illness coverage under private health insurance.