Cost-Shifting from Private to Public Payers: The Scene Before Parity Legislation

BACKGROUND: Analyses that have been conducted previously on the implications of parity have focused on the concern that mental health costs of private payers will substantially increase. A complete analysis of the cost implications of parity, however, also needs to consider whether the mental health costs of public payers may increase particularly if employers or private insurers attempt to extrude enrollees with severe mental illness. This study examines the extent of mental health cost shifting from private to public payers during two separate two-year periods prior to the implementation of parity legislation. The results of the analyses can serve as a necessary baseline against which the consequences of parity legislation on this direction of cost-shifting can be examined. METHODS: The study utilizes an all payer data set that contains information on the use of specialty mental health services (excluding private practitioners) by adults in an urban and a rural county in New York State. For each year of two time periods -1991/1992 and 1995/ 1996 - consumers were classified into payer groups based on whether their services were paid for by "Private Only", "Public Only", "Private/Public", "Self Pay" or "Other" payers. The proportion of individuals who moved from one payer group to another from one year to the following year of each time period and the average yearly costs under these payers were examined. Logistic regression models were used to identify the characteristics of persons most likely to remain with Private Only Payers in contrast to those likely to shift to Private/Public Only payers or to Public Only Payers. RESULTS: In both two-year time periods, the percent of persons who shifted in one year from Private Only to either Private/Public or Public Only payers was small. In contrast, a person in the Private/Public group has more than a 12 percent likelihood of shifting to a Public Only payer in the subsequent year. The average annual costs of the Private/Public group were higher than that of any other payer group. The average annual costs of persons who shifted into the Private/Public group from any other payer group or remained there from the previous year were even higher. The logistic regression analyses for both time periods showed that persons who shifted from Private Only to Private/Public or Public Only payers in contrast to those who remained with Private Only payers were more likely to have subsidized incomes, be younger and have a mental health disability. In 1995, the likelihood of the shift was also increased for those who were nonwhite and/or had a substance abuse disability. IMPLICATIONS: This study has found that individuals rarely shift directly from private payers to public payers. Rather, they first shift to having services reimbursed by both private and public payers, and during this period their average total service costs are extremely high. Persons who shift from private payers to having at least some of their services paid by public payers in subsequent years appear to be either young employees or young dependents who have severe mental illness or mental illness disabilities. Abusing substances and/or being nonwhite also increase the likelihood of a shift to public payers. Along with parity mandates, there has been an increase in managed care controls. The extent to which these controls will be used to accelerate the movement of these high cost persons from private to public payers needs close watch.