Health Insurance & The Cost of Therapy

Overview on the Cost of Mental Health Care

Mental health is just as an important factor in people’s well-being as physical health. However, insurance providers have not always seen it that way. Historically, health insurance companies have provided significantly better coverage for physical illnesses in comparison to mental illnesses. Fortunately, this all changed with the passing of the Pete Domenici Mental Health Parity and Addiction Equity Act in 2008. This act is also referred to as the mental health parity law, and it requires coverage for services for mental health, behavioral health, and substance-use disorders to be comparable to physical health coverage. The passage of the federal parity law was a great leap forward for mental health coverage, because it grants mental health the recognition it deserves. However, to fully understand the cost of therapy, we need to examine how health insurance works. In order to understand the costs and intricacies of health insurance plans, one must examine their premium, deductible, copayments, coinsurance, out-of-pocket maximum payments, HMOs, and PPOs.

What is an Insurance Premium?

An insurance premium is the amount of money that an individual or business must pay for an insurance policy. The price of an insurance premium is determined by the type of insurance coverage, the likelihood of a claim being made, the area where the policyholder or business operates, the behavior of the parties seeking coverage, and the insurance providers’ regional competition. Premiums serve as income for insurance companies, and represent the degree of liability the provider must issue for claims made against the policy. Premium payments may be paid in full, or in annual or semi-annual installments.

While it seems sensible to seek out the lowest premium option, it should be noted that insurance plans with lower premiums do not typically provide individuals with optimal coverage. For example, if you’re an individual in need of a large amount of health care, or have extensive previous medical conditions, you may want to select a plan with a higher monthly premium and a lower deductible. This is more cost effective because it will reduce that individual’s out-of-pocket maximum payment because they will have to spend less money in order to meet their deductible.

 

What is a Deductible?

A deductible is the amount of money a person pays out-of-pocket for covered health care services before their insurance plan begins to pay. In other words, if a person has a $2,000 deductible, they must pay the full $2,000 out-of-pocket on covered services before their insurance provider begins to pay for covered services. After a deductible has been met, they will usually have to make a copayment or coinsurance payment, and their insurance provider will cover the remainder of the expenses. Deductibles and premiums are inversely related. Meaning that insurance plans with lower premiums have higher deductibles, and plans with higher premiums have lower deductibles. As such, when selecting a plan, a person must consider how much they currently spend on healthcare services. If they typically spend more than the average individual, the most cost effective option would be to select a plan with a higher premium and a lower deductible to minimize their out-of-pocket maximums.

What is a Copayment?

Copayments, sometimes referred to as “copays”, are a fixed amount a person pays for a covered healthcare service after they have met their deductible. Copayments typically range between $20 and $50, and they can vary for different services within the same plan. For example, an in-network copayment would be less expensive than an out-of-network copayment because insurance providers want to incentivize their customers to use their contracted service providers. As with deductibles, copayments are inversely related to premium payments. So plans with lower premiums will have higher copayments, and individuals paying higher premiums will have lower copayments.

What is Coinsurance?

Coinsurance and copayments are very similar. Coinsurance refers to the percentage a person must pay for a service covered by their insurance provider after they. In-network coinsurance are always less than out-of-network coinsurance payments. Coinsurance is often used when an individual has a serious injury that induces a significant cost on the insurance provider and the individual. For example, if a person breaks their leg and requires a $10,000 operation and they have an in-network coinsurance rate of 20%, they will be required to pay $2,000 and their insurance provider will pay the remaining $8,000.

What is an HMO?

A Health Maintenance Organization, or HMO, is a type of health insurance plan that usually limits coverage to doctors and health care providers that work for, or are contracted with, the HMO. When an individual has an HMO plan, they will have to select one primary care physician, and all of their health care services will go through that physician. So HMO plans generally do not cover out-of-network care except in the case of an emergency. In order to receive care from another medical professional, you will need to receive a referral from your primary care physician except in the case of an emergency. The advantage to HMOs and primary care physicians is that they involve less paperwork and health care costs for the parties involved.

What is a PPO?

Preferred Provider Organizations, or PPOs, are health insurance plans that contract with health care providers, like doctors or hospitals, to create a network of participating providers. If you use the PPO’s designated providers you will pay less for services, and be able to receive complete coverage. However, if you choose to use medical professionals outside of the PPO’s network you will be able to receive coverage at an additional cost. The advantage to PPO plans is that they provide flexibility. You will not need a primary care physician, and you will be able to go to any health care professional inside or outside of the PPO’s network without a referral.

The Impact of the Mental Health Parity Law

The passage of the Pete Domenici Mental Health Parity and Addiction Equity Act in 2008 was a momentous change in coverage for mental health issues. The act essentially mandated mental health and substance-use coverage to be comparable to physical health coverage; because it says that insurance policies that offering mental health coverage must treat it the same as they do other medical coverage. The intention of the law was to make mental health and substance-use care more accessible to the general population.

The federal parity law applies to employer-sponsored health coverage for companies larger than 50 employees, all coverage purchased through health insurance exchanges created under the Affordable Care Act, the Children’s Health Insurance Program (CHIP), and the majority of Medicaid programs. The law states that if mental health benefits are offered under the provider’s coverage, they cannot have more restrictive requirements than those that apply to physical health benefits. So, the parity law does not require insurers to provide mental health benefits, but the majority of insurance providers offer plans with mental health benefits. If you’re curious as to whether your health insurance plan offers mental health coverage, check the description of your plans benefits. There should be information regarding coverage for mental and behavioral health services. If you are unable to find any information on mental health coverage within your policy, contact your insurance agent to discuss what coverage may be available.

Interestingly, the law does not require health insurance providers to provide mental health benefits, it merely states that if coverage is offered, it must be comparable to physical health insurance benefits. So, if you believe that you will be in need of mental health coverage you should actively search for an insurance plan that provides mental health coverage. Your mental health is just as important as your physical health. Furthermore, deteriorating mental health can contribute to persistent and often unexplainable physical health problems such as chronic headaches, hypertension, nausea, and sleep issues. Seeking out help for mental health is not a sign of weakness or a character flaw. Psychiatric disorders are very real medical conditions that require proper treatment in order to be effectively managed. Additionally, some mental health conditions, like bipolar disorder, will persist for the entirety of an individual's life, and will become significantly worse if the condition remains untreated.

Selecting the Proper Insurance Plan

When you’re in the process of selecting an insurance program, you must consider the amount of care that you think you will need. If you are an individual in need of a significant amount of care, you may want to consider an insurance plan with a higher monthly premium, and a lower deductible because this will help minimize your out-of-pocket maximum costs.

In other words, selecting a plan with the lowest monthly premium isn’t always the best available option because it is not always the most allocatively efficient option. Insurance premiums are directly correlated to the amount of coverage an individual will receive, and inversely related to their deductible. So, selecting a plan with a higher premium payment is often the best available choice.

References & Additional Resources

Clarity Clinic