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Chapter 1 of TAP 15: Forecasting the Cost of Chemical Dependency Treatment Under Managed Care: The Washington State Study

Chapter 1—The Washington Study

In 1993, the Washington State Legislature passed and Governor Mike Lowry signed the Health Care Reform Act, the first State legislation in the Nation mandating universal coverage and minimum benefits for all State residents through an employer mandate. Rather than specify the covered illnesses and procedures in statute, the act set up a Health Services Commission and gave it 2 years to decide which benefits should be included and at what cost, what caps ought to be placed on benefits, and what copayments should be charged. Following approval of the Health Services Commission's plan by the legislature, the plan has been mandated for the largest employers starting July 1995. Smaller employers, medicaid and medicare recipients, and uninsured individuals would be phased in over the next 4 years.

Under the plan, all employers must offer a choice of health care plans, including health maintenance organizations and managed-care approaches, that include at least the minimum benefits. The Health Services Commission will regulate rates. "Health care purchasing cooperatives" will be created so that smaller employers can join together and bargain with health insurers for lower rates.

The general guidance provided by the legislature mandated that "case managed chemical dependency and mental health services" must be part of the proposed coverage. Details about what services would be included, what caps or limits would be placed on the number of days or counseling sessions, and how much patients would pay was left to the Health Services Commission. The legislature clearly intended to cover chemical dependency—addiction to alcohol or other drugs—but it was not clear whether nicotine dependence was included. The choice of the term "chemical dependency" was intended to exclude nondependent use of alcohol or other drugs. The critical term "case management" was left undefined.

Washington State's Division of Alcohol and Substance Abuse determined that the Health Services Commission was not going to give early or close attention to chemical dependency treatment coverage. The task of designing a politically acceptable and clinically sound package of health benefits was enormous, and chemical dependency issues were fairly far down the commission's list. The division took the initiative to convene a Chemical Dependency Issue Investigation Group to recommend to the commission what a comprehensive chemical dependency treatment benefit ought to include. Since the total cost of the health care reform package was destined to be a major concern, the division hired a consulting actuary to calculate the cost of the recommended benefit package. If the cost of the recommended benefit package turned out too high, the division could suggest reductions, limits, or copayments to get the cost down.

Even though the Health Care Reform Act had been adopted with coverage for chemical dependency treatment, there was a possibility that the Health Services Commission and the legislature might remove chemical dependency treatment coverage before implementation if coverage turned out to be too expensive. The division expected that it would have to "sell" the chemical dependency treatment benefit. It had three strong arguments:

1. Chemical dependency treatment is relatively inexpensive. To keep this selling point, it was necessary to design a benefit package that would cost less than $2 per person covered per month.
2. Exclusion of chemical dependency treatment from the benefit package would encourage chemically dependent persons to postpone treatment, allowing their condition to deteriorate progressively until they are jobless or incarcerated, or they otherwise qualify for publicly supported treatment.
3. Chemical dependency treatment will pay back the health insurer in reduced future health care costs, particularly from reduced hospitalization rates. This feature is known as cost offset in the evaluation literature.

The first issue went to the heart of the actuarial study. The matter of excess public burden was essentially a policy argument, and one that the division did not ask the actuary to address. The cost offset argument was one that the division expected the actuary to be capable of making, but there was surprising reluctance. It turns out that such analysis is extremely rare in actuarial work. The State therefore turned to a health economist, Tom Wickeiser, to review the available literature on cost offset and estimate the probable savings. His paper is included as section 4 of the actuarial study appended to this report (Appendix B).

Last Updated 11-7-02