Health Services and Financing of Treatment

By Stewart, Maureen T.; Horgan, Constance M. | Alcohol Research, October 1, 2011 | Go to article overview

Health Services and Financing of Treatment


Stewart, Maureen T., Horgan, Constance M., Alcohol Research


Financing, payment, and organization and management of alcohol and other drug (AOD) treatment services are closely intertwined and together determine whether people have access to treatment, how the treatment system is designed, and the quality and cost of treatment services. Since the 1960s, changes in these arrangements have driven changes in the delivery of AOD treatment, and recent developments, including the passage of Federal parity legislation and health reform, as well as increasing use of performance contracting, promise to bring additional changes. This article outlines the current state of the AOD treatment system and highlights implications of these impending changes for access to and quality of AOD treatment services. KEY WORDS: Alcohol and other drug (AOD) use treatment; treatment costs; health care delivery and administration; health care financing; costeffectiveness of AOD health services; costbenefit analysis; health insurance;Medicare;Medicaid; legislation; public policy

Financing of Alcohol and Other Drug Treatment

Although most general medical services are paid for through private and public insurance mechanisms, insurance coverage has traditionally played a smaller role in provision of alcohol and other drug (AOD) treatment services (Horgan and Merrick 2001). Both private insurance, purchased by employers for their employees, and public insurance, provided by Federal and State governments in the form of Medicare and Medicaid, often have not covered AOD treatment services or severely limited their coverage. In addition, individuals with AOD problems are more likely to be uninsured. That leaves individuals without insurance coverage or with limited insurance coverage for AOD treatment with two options for accessing treatment: paying out of pocket for treatment services or accessing treatment through publicly funded addiction treatment programs.

Private Financing

Although private insurance spending as a dollar amount has remained stable, it has been declining as a share of total AOD treatment expenditures since 1986, when private insurance contributed $2.8 billion, or almost 30 percent, of all expenditures (Mark et al. 2007b). As managedcare organizations began to dominate the private insurance market, extensive utilization management controls effectively eliminated coverage of what had been standard 28day residential programs and shifted coverage to outpatient care (Shepard and BeastonBlackman 2002). As a result, private insurance expenditures declined at an average annual rate of 9 percent between 1989 and 1992 and then more slowly at an average annual rate of 3 percent between 1992 and 1998 (Mark et al. 2007b). Between 2001 and 2003, private insurance expenditures began to increase at a moderate rate of almost 4 percent per year (Mark et al. 2007b), perhaps because of more members accessing services or costlier service mix (e.g., intensive outpatient services displacing outpatient care).

These estimates of private insurance expenditures likely underestimate actual expenditures because they only count AOD problems when they are recorded as the primary diagnosis. It may be that additional AOD treatment is being provided along with other services but is not counted in the estimates. Therefore, private insurance may be covering more AOD treatment than is reflected in these numbers (Mark et al. 2007b).

Public Financing

The public sector funds AOD services in a variety of ways: States contract for services and provide services directly, for example, through the criminal justice system. The Federal Government and State governments pay a share of Medicaid programs. The Federal Government provides insurance coverage through Medicare and provides services directly through the Veteran's Administration and military facilities.

Together, these public payer programs paid for more than 77 percent of all AOD treatment in 2003 (Mark et al. 2007b). In sharp contrast, public payers funded only 45 percent of general health care expenditures (Mark et al. …

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