Failing on Behavioral Health Leaves Insurers Open to Losing Control of Spending, Competitive Advantages

Health insurers could drive down health care spending and gain a competitive edge in the market by better handling enrollees’ behavioral health.

The prevalence of and spending to treat behavioral health issues in the U.S. is growing fast. And people with these conditions often have much higher overall health care costs including for issues that aren’t directly related to behavioral health, according to a new industry review by Moody’s Investor Service. 

Rates of mental and substance use disorder diagnoses have been increasing for years. But COVID-19 exacerbated behavioral health issues in the U.S. For example, the number of people reporting anxiety and depression symptoms increased to 41% in January 2021 compared to 11% in June 2019, according to the report. 

Conditions such as ADHD, anxiety disorders and delirium, dementia and other cognitive disorders were among the 30 conditions identified by the U.S. Bureau of Economic Analysis with the fastest-growing spending, the report states. 

The key implication of higher rates of behavioral health diagnoses is accelerated spending on health care for these conditions but also for other health care issues.

“People with behavioral issues have annual healthcare costs of $12,272, which is 3.5x higher than those with no behavioral health issues,” the report states. “For people with behavioral health issues, only 7.9% of their total healthcare costs are specifically for behavioral health issues.”

Behavioral health issues drive up spending

The report also finds that about half of all “high-cost” individuals — who accounted for about 10% of the population but 70% of the health care spending — had mental or substance abuse disorders.

Tackling accelerating health care costs in the U.S. has been a key priority in both government and the private sector for years. Spending on health care in the U.S. totaled about $4.1 trillion in 2020, according to the Centers for Medicare & Medicaid Services (CMS). This is 19.7% of the country’s GDP. Health care spending in 2020 increased 9.7% year-over-year, “much faster than the 4.3% increase experienced in 2019,” a CMS report states.

The Moody’s report states that the insurance industry has it in its interest to address increased health care costs at a systemic level lest these solutions are forced on insurers.

“The steady rise in behavioral health diagnoses, and the corresponding increase in medical costs, underscores US health insurers’ need to augment and improve the integration of behavioral health services within the full range of their offerings,” the report states. “Those companies that are successfully able to manage behavioral health, and contain medical costs, can also reduce the likelihood that the industry will face political solutions to address this problem.”

The report highlights a few approaches that insurers are taking to better tackle behavioral health issues among their members. But it says it’s too early to tell what approach is the best.

It points to major insurers acquiring specialist firms that target behavioral health issues, specifically highlighting Anthem’s (NYSE: ANTM) acquisition of Beacon Health Options, Centene’s (NYSE: CNC) acquisition of Magellan Health and UnitedHealth Group’s (NYSE: UNH) acquisition of AbleTo.

“In each of these cases, the companies will generate third-party revenue and earnings, but a key consideration in each acquisition is the ability to better identify and treat behavioral health issues and generate better outcomes and, thereby, reduce medical costs,” the report states. “The specialized behavioral health firms have shown that targeted services can improve outcomes for patients.”

The potential of value-based care, telehealth models

Beyond acquiring specialist firms, more insurers are engaging with providers in value-based care models which often tie reimbursement to health outcomes rather than services provided. This incentivizes payers and providers to have a holistic view of mental and physical health, the report states.

The report also highlights the potential for telehealth to address behavioral health issues at scale.

“Behavioral health has proved an especially good fit for telehealth,” the report states. “According to a report by the U.S. Department of Health and Human Services, more than one-third of all behavioral health visits in 2020 were via telehealth, compared to 8% for primary care visits and 3% for other specialists

Addressing these issues is vital for insurers such as UnitedHealth, Anthem and Centene who have a lot of business in Medicaid managed care. 

Those with Medicaid make up the largest share of emergency room spending for several mental health and substance uses disorder conditions at 33.3%. Among specific conditions, those with Medicaid accounted the most spending in alcohol-related visits (34.7%), depression (33.4%), suicide and intentional self-harm (38%), and schizophrenia and other psychotic issues (36.3%).