Estimating Costs of Mental Health and Substance Abuse Coverage

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Abstract
Prologue:States increasingly are looking for ways to improve the financing of mental health care for their disadvantaged citizens. Will the uncertainty of the cost estimating process lead them to back off from innovative legislation? During the debate on national health care reform, one organization estimated that the cost of providing mental health and substance abuse (MH/SA) treatment coverage to an uninsured person would be a whopping 245 percent higher than the cost of covering a typical, currently insured person. Such estimates discouraged the Clinton administration from proposing more comprehensive mental health coverage. But where did that number come from? Two mental health care financing experts, Richard Frank and Tom McGuire, ask, Do the calculations stand up to scrutiny? This paper sheds light on that difference in results and the many others that caused estimates of the mental health/substance abuse benefit proposed in the Clinton plan to differ by almost 100 percent. State policymakers, charged with reducing expenditures for Medicaid, the corrections system, education, and welfare, would be wise to heed Frank and McGuire s advice on reducing such uncertainty about cost estimates in the future. Frank is a professor in the Department of Health Care Policy at Harvard Medical School and a research associate with the National Bureau of Economic Research. He is conducting studies on public financing of mental health services, immunization procurement policy, and design of MH/SA insurance coverage. He holds a doctorate in economics from Boston University. McGuire is a professor of economics at Boston University. He has written extensively on mental health economics and policy. He is the recipient of two sequential five-year Research Scientist Awards from the National Institute of Mental Health to study the financing of mental health services. The cost of expanding mental health and substance abuse treatment coverage is a major impediment to reforming insurance coverage for these types of conditions. The recent experience with national health care reform offers a case study in cost estimation for mental health and substance abuse coverage. The impact of managed care and the cost of expanding coverage to currently uninsured persons introduced uncertainty into predictions. This paper critically reviews that experience and draws lessons for estimating future costs of policy initiatives.