OM: MH Market Reaches 44m, $147b in Annual Spending - The Alliance for Rights and Recovery

NYAPRS Note: This Open Minds feature from the spring still offers predictive and relevant market information for behavioral health reform, including the apt conclusion that mental health funding may remain stable in public products but will be streamlined in access and outcomes through collaborative service delivery methods. The infographics provide excellent background information and recent statistics on the use of and spending for BH in different systems and states.

The U.S. Mental Health Market: 44 Million Adults With Mental Health Issues & $147 Billion In Annual Spending

Open Minds; Feature article, Market Intelligence Team, 3/3/2014

You may not alter, transform, or build upon this work. You may not use this work for commercial purposes without written permission from OPEN MINDS.

In 2009, national spending on mental health services totaled $147 billion and accounted for 6.3% of all health spending. Of that total, public payers accounted for the majority (60%) at $88 billion, while private payers accounted for the remaining $59 billion (40%). Medicaid was the single largest payer for all mental health services; accounting for 27% of total expenditures, followed by other state, federal, and local funds (33%), private insurance (29%), and out-of-pocket expenditures (11%). While 2009 is the latest year for spending reports, by 2014, expenditures on mental health (MH) and substance abuse (SA) treatment are projected to reach $239 billion and account for 6.9% of all health spending (see Projections of National Expenditures for Mental Health Services and Substance Abuse Treatment, 2004–2014).
Source: SAMHSA

The Substance Abuse and Mental Health Services Administration (SAMHSA) estimates that 18.6% of all adults (or 43.7 million) suffered mental illness in 2012. The Centers for Disease Control (CDC) estimates that 20% of American children between the ages of three and 17 (12.3 million) had a behavioral health disorder between 2005 and 2011. For adults suffering mental illness, only 17.9 million (41%) of these individuals reported receiving treatment in the previous year. For children with behavioral health disorders, the most prominent diagnosis reported was attention-deficit/hyperactivity disorder (ADHD).

To describe the mental health services market, we explore six key elements that make up the mental health service delivery system:

Mental Health Services Market Defined

The mental health service market is defined as treatment services for mental and emotional health, and psychiatric care. Mental health services are provided by a wide array of professionals, including certified counselors, psychiatrists, psychologists and neurologists.

The mental health services market cannot be readily “sized.” The existence of layers of overlapping stakeholders and delivery systems—and their implications for access and unmet mental health needs—result in systems that are difficult to describe, much less measure. Although parity and expansion in the insured population under health care reform will expand coverage of mental health services in 2014, mental health benefits will be tightly managed by payers as they seek to control their costs. As a result, it is unlikely that the share of national health care spent on mental health will change dramatically in the near term. Growth opportunities in the market will shift to partnership and collaboration opportunities with primary care and with other specialty care providers in managing population carve-outs for specialty services.

Mental Health Services: Market Segments
Category	Components
Treatment Setting	Inpatient Outpatient Residential
Providers & Products	Hospital care: General and specialty hospitals Physician services: Psychiatrists and other physicians Other professional services: Psychologists, clinical social workers, and others Nursing home care Home health care Center-based providers (specialty mental health centers) Prescription drugs Insurance administration
Payer	Private insurance Medicare Medicaid, both state and federal share Consumer direct/out-of-pocket payment Other private sources — foundation and other charity Other federal sources: Department of Defense; Department of Veterans Affairs (VA); and SAMHSA substance abuse (SA) block grants Other state and local sources: State and local general funds
Populations Served	Adults with any mental illness Adults with serious mental illness (SMI) Children with a behavioral health disorder Children with serious emotional disturbance (SED)

Market Size & Trend By Payer

Spending on mental health services totaled $147 billion in 2009 (the latest year national estimates are available) and accounted for 6.3% of all health spending (down from 7.3% in 1986). Spending on mental health treatment originates from a multitude of public and private sources: Medicaid, Medicare, state agencies, local agencies, foundations, or private insurance. Public funding, however, predominates. The Substance Abuse and Mental Health Services Administration (SAMHSA) estimates that public payers spent $88 billion and accounted for 60% of the total spent on mental health treatment in 2009; while private payers spent $59 billion and accounted for 40% (see National Expenditures for Mental Health Services and Substance Abuse Treatment, 1986-2009). Between the years 1986 and 2009, Medicaid and private payers increased their share of mental health treatment spending. Shares accounted for by Medicare, state and local expenditures, and out-of-pocket spending decreased.

Market Spending By Provider & Care Setting Over Time

Spending on mental health services is tracked and reported by provider and care setting. When tracked by provider type, outpatient treatment services and retail prescription drug spending accounted for over half of all spending in 2009. When tracked over time, the most significant changes have been in the share of spending accounted for by inpatient care and prescription drugs. Between 1986 and 2009, the inpatient share of spending dropped from 41% of total spending to 17%; and prescription drug spending rose from 8% to 28%. The rate of increase in spending on prescription drugs shows a decline between 2004 and 2009 due to a “rebalance” of spending toward generic drugs as patents expired and generic alternatives to many psychiatric medications became available (see “rebalanced” prescription drug spending stemming from patent expirations and widespread availability of generic alternatives to many psychiatric medications (see National Expenditures for Mental Health Services and Substance Abuse Treatment, 1986-2009).

Mental Health Treatment Spending By Setting & Product, 2009
Category	Spending (Millions)	Share of Total
Total (Setting & Product)*	$147.3	100%
Inpatient	$25.8	17%
Outpatient	$47.6	32%
Residential	$21.7	15%
Retail Prescription Drugs	$42.0	28%
Insurance Administration	$10.3	7%
* May not add to 100% due to rounding. Source: SAMHSA

Source: SAMHSA

Spending on mental health services is also reported based on provider type and product. Estimates by provider type are broken down into eight spending categories:

Hospital care: General and specialty hospitals (with general hospitals accounting for 58% and specialty hospitals accounting for 42%)
Physician services: Psychiatrists and other physicians (with psychiatrists accounting for 52% and non-psychiatrists accounting for 48%)
Other professional services: Psychologists, clinical social workers, and others (no breakdown available by type in this category)
Nursing home care
Home health care
Center-based providers (specialty mental health centers)
Prescription drugs
Insurance administration

Mental Health Treatment Spending By Provider Type, 2009
Provider Category	Spending (Millions)	Share of Total
Total	$147.3	100%
All hospital care	$37.8	26%
All physicians	$15.9	11%
Other professional services	$7.8	5%
Nursing home care	$9.0	6%
Home health care	$2.7	2%
Center-based providers	$21.1	14%
Other personal & public health	$0.8	1%
Prescription drugs	$42.0	28%
Insurance administration	$10.3	7%
Source: SAMHSA

Source: SAMHSA

Populations Served

In 2012, SAMHSA estimated that 43.7 million adults aged 18 or older (or around 19% of the entire adult population) suffered from some form of mental illness, but that only 17.9 million (41%) of these individuals received treatment for their illness in the previous year (see Results From The 2012 National Survey On Drug Use and Health: Mental Health Findings).

For individuals with serious mental illness (SMI), SAMHSA estimates that there were 9.6 million adults with SMI (or 4.1%) in the past year. Almost six million (63%) of those with SMI reported they received treatment for their illness in the previous year.

The federal Centers for Disease Control and Prevention (CDC)—in its first-ever report to describe federal efforts to monitor child mental disorders—found that about 20% of American children between the ages of three and 17 years had a behavioral health disorder between 2005 and 2011. This translates to approximately 12.3 million of the nation’s 61.76 million children between the ages of three and 17. Among all types of behavioral health disorders, the most prominent diagnosis reported was attention-deficit/hyperactivity disorder (ADHD) (see 20% Of Children In U.S. Have A Behavioral Health Disorder).

Prevalence Of Selected Child Behavioral Health Disorders As Reported By Current Federal Surveillance Systems
Condition	Population Prevalence Estimate	Estimated Number Of Children Affected (Among Children Age 3 To 17, Unless Otherwise Noted)
ADHD	6.8%	4.2 million
Behavior or conduct problems	3.5%	2.2 million
Anxiety	3.0%	1.8 million
Depression	2.1%	1.3 million
Autism spectrum disorders	1.1%	678,000 children
Tourette syndrome (only for children ages six through 17 years)	0.2%	99,000 children ages six through 17
Illicit drug use disorder (only for adolescents between the ages of 12 and 17)	4.7%	1.2 million children ages 12 through 17
Cigarette dependence (only for adolescents ages 12 to 17 years)	2.8%	691,000 children ages 12 through 17
Total (Note: children with co-occurring conditions may be double counted; the sum of the prevalence estimates exceeds 20%)	24%	12.3 million or more children affected by one or more conditions
Source: CDC

SAMHSA estimates that five to nine percent (or 170,000 to 300,000) of the 3.4 million children between the ages of nine and 17 have a serious emotional disturbance (SED) that causes substantial impairment in how they function at home, at school, or in the community (see Identifying Mental Health And Substance Use Problems Of Children And Adolescents: A Guide For Child-Serving Organizations). No study measuring children’s access to mental health service treatment provides a breakout for the share of children with SED not receiving treatment.

State-Specific Market Data

On a state by state basis, spending on mental health varies widely. In its most recent published survey, the National Association of State Mental Health Program Directors (NASMHPD) reports that state mental health agencies (SMHAs) spent a total of $37.6 billion in fiscal year (FY) 2010 on mental health (see SMHA Mental Health Actual Dollar And Per Capita Expenditures By State, FY 2010). Overall, per capita spending across the country in FY2010 averaged $120.56, but varied widely by state – ranging from a low of $36.64 per capita in Idaho to a high of $$360.57 in the District of Columbia.

State Mental Health Agency Spending By State (State Civilian Population), FY 2010
State	Total Spending, Millions	Overall Rank	Per Capita Rank
Alabama	$373.1	28		37
Alaska	$214.2	35		3
Arizona	$1,414.3	6		7
Arkansas	$122.5	45		48
California	$5,674.4	1		15
Colorado	$443.2	25		31
Connecticut	$675.5	17		9
Delaware	$95.0	46		26
District of Columbia	$217.1	34		1
Florida	$742.2	14		49
Georgia	$449.1	24		47
Hawaii	$224.8	33		11
Idaho	$57.4	52		51
Illinois	$1,030.1	8		36
Indiana	$530.1	20		34
Iowa	$409.9	26		18
Kansas	$375.7	27		20
Kentucky	$232.3	32		45
Louisiana	$282.1	30		43
Maine	$459.7	23		2
Maryland	$944.7	10		13
Massachusetts	$714.3	16		24
Michigan	$1,177.1	7		21
Minnesota	$797.0	12		16
Mississippi	$339.5	29		22
Missouri	$518.4	21		32
Montana	$171.4	41		10
Nebraska	$147.2	43		35
Nevada	$184.0	39		41
New Hampshire	$192.6	37		17
New Jersey	$1,758.8	4		8
New Mexico	$191.8	38		28
New York	$4,965.0	2		5
North Carolina	$1,566.2	5		12
North Dakota	$64.3	50		27
Ohio	$843.1	11		39
Oklahoma	$198.1	36		46
Oregon	$602.4	19		14
Pennsylvania	$3,568.7	3		4
Rhode Island	$94.9	47		30
South Carolina	$274.6	31		44
South Dakota	$69.4	49		33
Tennessee	$490.7	22		38
Texas	$979.6	9		50
Utah	$177.7	40		42
Vermont	$150.0	42		6
Virginia	$717.2	15		29
Washington	$761.1	13		23
West Virginia	$135.0	44		40
Wisconsin	$615.2	18		25
Wyoming	$74.8	49		19
Total (United States)	$37,593.0
Source: NASMHPD

Source: NASMHPD

Agencies Tracking Data

National spending on mental health treatment is tracked by SAMHSA. The most recent update was released in 2013 when estimates were updated through 2009 (see National Expenditures for Mental Health Services and Substance Abuse Treatment, 1986-2009). Data reported by SAMHSA includes expenditures by payer and by provider, setting, and specialty type. Although SAMHSA includes an estimate for total state spending on mental health in its payer analysis, breakouts by state are not released.

State spending is tracked by the NASMHPD National Research Institute (NRI). NRI conducts annual surveys of all state mental health program directors. Data reported include both revenues and expenditures managed by each state. Medicaid reimbursements to private providers are not included in these estimates. The latest reporting is for fiscal year (FY) 2010. Categories of expenditures that are included are:

State general and special funds
Medicaid funds paid to state hospitals
Medicaid funds paid to the community mental health system (excluding Alaska, Arkansas, Connecticut, Delaware, Massachusetts, and West Virginia because the SMHA does not control Medicaid funding to community providers in these states)
Medicare and other federal funds received by state hospitals and by community mental health partners

Issues Influencing The Level, Direction, And Mix Of Payers

Looking forward, two issues will have the greatest impact on the level, direction, and mix of payers for mental health services:

Parity
Insurance coverage expansions with implementation of The Patient Protection And Affordable Care Act (PPACA)

Parity

Parity in benefits between mental health and addiction treatment and other physical health services is required under The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008. Parity applies to both public and private health insurers, as well as group health plans. Small employers of between two to 50 employees remain exempt from federal parity requirements, but the 2010 Affordable Care Act (PPACA) extended parity to the individual market.

The relative newness of widespread parity requirements means there is little actual data on its impact on spending on mental health. In a recent effort to quantify parity’s impact, a study published by Psychiatric Services simulated claims for behavioral health services (both mental health and substance abuse) close to the service limits that are conservatively estimated to be likely when fully implemented – 20 inpatient days and 20 outpatient visits (see Mental Health Spending By Private Insurance: Implications For The Mental Health Parity And Addiction Equity Act). At these service utilization levels, study authors estimated that full parity implementation would contribute less than one percent to total health care expenditures by private insurers and would not become a significant cost driver for payers because of their use of managed care tools for benefit (and cost) containment (see Impact Of Federal Parity Requirements On Behavioral Health Service Demand & Delivery: A Review Of The Current Literature).

Insurance Coverage Expansions

On the health care reform side, Medicaid eligibility expansion (in states that opted to expand Medicaid) combined with federally subsidized private state health insurance exchanges (HIEs) will cement the role played by Medicaid and private insurers in paying for mental health treatment (together they accounted for over half of spending on mental health in 2009). The key differentiating element will be whether the state expands Medicaid in 2014. As of December 2013, 25 states plus the District of Columbia are implementing expansion in 2014; two states seek to move forward with expansion post-2014 (Indiana and Pennsylvania); and 23 states will not expand.

In the 25 states plus the District of Columbia expanding Medicaid eligibility in 2014, there will be an immediate reduction in the demand for uncompensated care. Pre-2014, these services would be paid primarily (in the case of outpatient care) through state general funds, and (in the case of inpatient care) through disproportionate share hospital (DSH) funding. PPACA will replace state and local dollars spent on uncompensated care with subsidized federal Medicaid funding for those newly eligible for Medicaid (100% for the first three years for newly eligible). A recent study by the Kaiser Family Foundation and Urban Institute concluded that states would cover only about seven percent of the cost of Medicaid expansion between 2013 and 2022, which would represent a small (2.9%) increase compared to what states would have spent on Medicaid if the health care reform law had not been enacted (see The Cost And Coverage Implications Of The ACA Medicaid Expansion: National And State-by-State Analysis).

Current projections for health care spending under health care reform provide no breakout for mental health as a sector, but some assumptions can be made about the nature of the demand. It is expected that the mental health needs of expansion populations (both Medicaid and private HIEs) will be predominantly in the mild to moderate range (see The Health Status Of New Medicaid Enrollees Under Health Reform) because individuals with severe and chronic illness are likely to already be in the public systems (and eligible for services, even if not enrolled). Given the emphasis on care integration, many of these newly addressed mental health needs will be met in primary care practices. The key unknown is the level of services offered under state essential health benefit packages (and similarly, Medicaid benefit packages for newly eligible enrollees). Early indications are that state mental health essential benefits will involve service limits, co-pays, and co-insurance (see California Picks Kaiser HMO As Essential Health Benefits Benchmark Plan). From a spending standpoint, this points to a cost shift to consumers through increased out-of-pocket expenses for mental health services.

In the 25 states opting to not expand Medicaid eligibility in 2014 (Alabama, Alaska, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee Texas, Utah, Virginia, Wisconsin, and Wyoming), spending trends are less clear. States opting not to expand Medicaid coverage in 2014 create two separate pools of uninsured:

Pool 1: Individuals with incomes between 100% and 138% of FPL, who would be eligible for federal subsidies for coverage through state health insurance exchanges
Pool 2: Individuals with incomes below 100%, who would not be eligible under PPACA to receive subsidies on the exchanges and would remain uninsured – the Medicaid “donut hole”

Individuals in the Medicaid “donut hole” (Pool 2) will remain uninsured after 2014 (over 6.5 million in the states not expanding Medicaid in 2014). Although federal rules on reductions in DSH funding will take into account whether a state is expanding Medicaid for at least the first two years (see CMS Proposes Methodology For Medicaid DSH Payment Cuts In 2014 & 2015), uncompensated care will loom as a larger issue in states not expanding (and for providers delivery mental health services). Estimates for the number of adults affected – and the likely number with SMI – have been made by the Urban Institute (for the number with incomes below 100% FPL) and SAMHSA (for the prevalence of SMI in Medicaid expansion populations). These estimates for uninsured range from a low of 18,000 in Wyoming to a high of 1.3 million in Texas. The number of uninsured with SMI range from 800 in Alaska to 77,000 in Florida.

Even when insurance coverage is available, it does not necessarily translate into treatment. A study completed by the UCLA Center for Health Policy Research for the California Department of Mental Health found that about half of adults with both mental health needs and health insurance coverage also reported receiving no treatment (a conclusion also consistently reached in SAMHSA’s annual NSDUH surveys) (see Half A Million Uninsured California Adults With Mental Health Needs Are Eligible For Health Coverage Expansions). Issues unrelated to insurance, including access, stigma, and cultural and linguistic barriers are cited as playing a role in whether treatment is sought and received. These market dynamics can be expected to continue.

From a provider standpoint, reductions in the share spent on inpatient and residential care combined with a shift toward outpatient care, point to an increased role for outpatient mental health providers in mental health service delivery driven in part by payer emphasis on cost containment and the market shift toward integrated and coordinated care. Opportunities for mental health providers to partner and collaborate in integrated and coordinated care arrangements will expand, but will hinge on their readiness to meet payer requirements for credentialing and network participation.

For more resources on mental health services funding and service delivery:

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