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Date
Jun
06
2006

Demand Response of Mental Health Services to Cost Sharing Under Managed Care

Presenter:

Chunling Lu

Authors:

Chunling Lu, Thomas McGuire, Richard Frank

Chair: Glenn Blomquist; Discussant: Mark Dickie Tue June 6, 2006 8:00-9:30 Room 313

Rationale: Demand-side cost sharing on mental health services is usually higher than that on general health services, based on the efficiency rationale that because the demand for mental health care is more responsive to insurance coverage than for general health care services, the welfare loss associated with insurance is higher. Previous studies of price elasticity of demand for mental health services under traditional health care delivery systems, which were mainly done in 80s, provide the supporting evidence by demonstrating a large, statistically significant effect of demand-side cost sharing on the utilization level of mental health services. The new feature of mental health care delivery since 1980s - managed care - was not considered in these studies. The role of demand-side cost sharing in controlling expenditures is different between traditional indemnity plans and managed care plans. Under an indemnity plan, demand-side cost sharing is the only plan policy affecting utilization, whereas in managed care plans, both demand-side cost sharing and managed care mechanisms play roles in determining individuals’ expenditures.

Objective: Demand response under managed care could well be less than under traditional plans, and such a finding would have important implications for designing insurance coverage for mental health care. Although some studies of demand response in managed care have been conducted, none have made an explicit comparison of demand response in traditional and managed care plans. In this study, we use 1996 Medical Expenditure Panel Survey data to examine the demand response of mental health services to demand-side cost sharing under managed health care.

Methodology: The 1996 data are used because this is the only year in which sufficient detail is available on coverage and forms of insurance in order to make the desired comparison. To address the selection problem, we focus on employees (and their dependents) who are privately insured and who have no choice of health plan, a strategy for minimizing the adverse selection problem at least with respect to choice of insurance plans. Couples with more than one insurance plan are also excluded from the analysis. We use logit models to analyze the effect of prices on the probability of any ambulatory mental health uses. We compare the estimated demand response to demand-side cost sharing between managed care plans and non-managed care plans by examining how demand prices affect the likelihood of seeking mental health services.

Results: In the ranges observed, deductibles have no impact on the likelihood of utilization or the level of spending. The coinsurance rate has significantly negative effects on the likelihood of seeking mental health services under conventional plans.

Conclusion: The effect of coinsurance rate on likelihood of seeking mental health services under managed care plan is smaller than that under conventional plans but not significant, implies that demand response to a coinsurance rate under managed care plans is less than that under conventional plans.

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