What Happens when Employers Switch from a “Carve-out” to a “Carve-in” Model for Managed behavioral healthcare benefits? Evaluation of a natural experiment

Researchers have long debated the pros and cons of “carve-in” models, where medical and behavioral health (BH) benefits are covered through the same insurance plan, versus “carve-out” models, where they are administered separately. Arguments in favor of carve-ins include greater integration of physical and BH care and lower administrative costs. Arguments favoring carve-outs include BH-specific expertise; “set-aside” funds designated solely for BH care; and the ability to limit cream-skimming and dumping. Implications for service use are unclear. Although carve-outs are typically implemented to meet cost containment goals, the written terms for carve-out benefits are actually often more generous, as carve-outs rely on direct care management to contain costs. Early studies documented cost reductions when employers switched from carve-in to carve-out models, although these findings need to be interpreted in light of possible self-selection and regression to the mean.

The current study contributes to our understanding of the impact of managed BH care model on specialty BH treatment patterns by exploiting a natural experiment that dramatically changed the incentives for employer groups to engage in carve-out contracts: the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). A (presumably unintended) consequence of MHPAEA was the creation of a much larger administrative burden for carve-out plans relative to carve-ins. To comply with parity, carve-outs had to identify all of the medical vendors with whom their customers contracted and then obtain benefit design information from each (a more difficult task when the medical vendor was not affiliated with the BH vendor). They then had to either match the most generous medical benefit across the board or else tailor benefits to each medical plan, leading to a proliferation of plans and heterogeneity in benefit design among employers choosing to retain the carve-out model. As a result of these complexities, a number of employer groups chose to move their employees out of carve-out into carve-in plans.

To examine how such switching may have affected specialty BH care utilization, we used Optum administrative databases for employees and dependents who were continuously enrolled for two years (one year pre, one year post) in five large employer groups that chose to switch from a carve-out to a carve-in model for their BH care benefit as a result of parity implementation. Outcomes included annual BH specialty expenditures (total, plan and patient out-of-pocket); annual days of inpatient, day treatment, residential and structured/intensive outpatient care; and annual visits for outpatient assessment/evaluation, medication management and individual, family and group psychotherapy. Fixed patient effects models suggested that even though parity was designed to increase the generosity of BH benefits among commercially insured patients, the resulting switches from carve-out to carve-in models were associated with significant increases in patient out-of-pocket expenditures and significant declines in utilization of outpatient evaluation, individual psychotherapy, medication management and structured outpatient services. Additional analyses will use benefit design data available for a subset of the patients to examine the extent to which these changes were mediated (or perhaps attenuated) by changes to cost-sharing and other benefit design features.