Equity, public policy and outpatient specialty mental health services

This study provides evidence on the role of the public sector in the allocation of ambulatory specialty mental health services across income groups in the adult population. Results suggest that in the early to mid-1980s, the tax and transfer system effectively lowered the price of services to the poor and the rich, thus causing the highest use by persons at the extreme ends of the income distribution. High utilization at the low end of the income scale can be largely attributed to publicly provided insurance. A comparison of demand prior to the Medicaid cuts brought on by the Omnibus Budget and Reconciliation Act (OBRA) of 1981 with post-OBRA estimates reveals the extreme sensitivity of demand to changes in coverage. Among upper income groups the results imply that the implicit price of specialty mental health care falls as income rises. This finding is consistent with the hypothesis that the government's exclusion of health benefits and expenditures from taxation effectively lowers the price of medical services to individuals in high marginal income tax brackets. It also suggests that recent proposals to limit the tax exclusion of employer-paid premiums may lead to a more equitable distribution of resources in the specialty mental health sector.