Academic journal article Health Care Financing Review

Cost Shifting in a Mental Health Carve-Out for the AFDC Population

Academic journal article Health Care Financing Review

Cost Shifting in a Mental Health Carve-Out for the AFDC Population

Article excerpt


Managed care is coming rapidly to Medicaid beneficiaries. States are enrolling Medicaid beneficiaries into various forms of managed care for basic medical benefits. Medicaid managed care enrollment increased by 140 percent from 1993 to 1995 (McGuire, 1996). Only two States have no operational Medicaid managed care plan or have no plans to implement one (Hegner, 1995). All but six States have applied for a 1915b waiver from HCFA to introduce some form of managed care for Medicaid beneficiaries. In addition, many States are using a carve-out program, which places behavioral health services under a separate insurance contract from other medical care (Frank, McGuire, and Newhouse, 1995). Eight States have a mental health and substance abuse carve-out, five more States have a carve-out for just mental health, and two additional States plan to start a carve-out program during 1997.

One reason for the expansion of managed care is that States believe that managed care will lower health care expenditures, or at least slow their growth. Carve-out programs for mental health and substance abuse services have an additional feature that raises further research questions beyond whether total expenditures decrease. Medicaid pays a per member per month fee to a managed care vendor, which then pays fee-for-service (FFS) only for psychiatric treatment. Carve-out programs are financially responsible at the margin for only part of all health care expenditures. Medical care and pharmaceuticals, which are not covered by carve-out programs, may be substitutes for mental health and substance abuse services. If, for example, new expensive drugs can be used to substitute for inpatient psychiatric care, then the managed care vendor has an incentive to encourage the use of pharmaceuticals, thereby getting Medicaid to pay for treatment at the margin, even if the total expenditures remain the same. Therefore, we are interested in knowing not only whether total expenditures are reduced, but also whether cost shifting occurs between the carve-out program and the rest of Medicaid-reimbursed medical care. By cost shifting, we mean when one public agency can reduce its own expenditures by inducing another public agency to pay for similar services.

We address three primary questions by studying the change from FFS to a mental health carve-out in Massachusetts for the Medicaid beneficiaries eligible through AFDC. This change occurred in fiscal year (FY) 1993. First, we address whether total public expenditures rose or fell after 1993, which is clearly an important policy question. We estimated the effect of the carve-out on total public expenditures over a 4-year period, relying on a comparison of expenditures before the carve-out with after.

Second, we address whether there was a shift in the composition of expenditures from psychiatric to non-psychiatric care, which would imply that the managed care vendor shifted costs back to Medicaid. This is an important question for public policy because the point of creating a mental health carve-out is to place a managed care vendor at risk for all psychiatric expenditures, and not to allow the managed care vendor to cost-shift back to Medicaid. We estimated both expenditure models and two-part models for four types of services, two types of services covered by the managed care vendor and two covered by Medicaid, allowing us to test for cost shifting.

Third, we tested for whether the changes were more pronounced for the beneficiaries with major mental illness. These persons are likely to have higher utilization and spending, making cost shifting more appealing for the managed care vendor.

This study is important because, to our knowledge, it is the first to address the issues of cost shifting for the AFDC population. We have unique data because Massachusetts was the first State to implement a statewide Medicaid carve-out program for mental health and substance abuse services. …

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