Risk Contracts in Managed Mental Health Care

Abstract

Prologue:The term risk contracting has become a familiar part of the vocabulary and the landscape of managed care. Risk contracting refers to an arrangement whereby the cost or claims risk for an insured population is borne by the entity that is designated to bear risk: a prepaid plan or, as is increasingly the case for mental health care, a specialty managed behavioral health care plan. Such plans have gained an enormous foothold in the United States over the past five years; one estimate is that virtually half of all Americans with insurance (including public plans) are enrolled in some type of “carve-out” managed behavioral health care plan. In addition to bearing claims risks, these plans are responsible for providing and managing mental health care services. In this paper economists Richard Frank, Tom McGuire, and Joe Newhouse make the case for risk contracting in behavioral health care, describing the economics of risk contracting and its implications for the quality and cost-effectiveness of a large fraction of the mental health care delivered in today's system. Frank is a professor in the Department of Health Care Policy at Harvard University and is a research associate with the National Bureau of Economic Research. He holds a doctorate in economics from Boston University. McGuire is a professor of economics at Boston University. He and Frank jointly received an Investigator Award in Health Policy from The Robert Wood Johnson Foundation to study reform of the organization and financing of mental health and substance abuse care in the United States. Newhouse is the John D. Mac Arthur Professor of Health Policy and Management at Harvard and directs Harvard's Division of Health Policy and Research Education. He has done extensive research and analysis of risk adjustment in the context of health system reform. Private employers and state Medicaid programs are increasingly writing risk contracts with managed behavioral health care companies to manage mental health and substance abuse benefits. This paper analyzes the case for a carve-out program and makes recommendations about the form of the payer-managed behavioral health care contract. Payers should consider using a “soft” capitation contract in which only some of the claims' risk is transferred to the managed behavioral health care company. To avoid incentives to underserve seriously ill persons, we recommend that payers not allow choice by enrollees among risk contractors.