National Council for Behavioral Health

Skip to content
Find a Provider
The National Council logo

The following commentary is based on the report, The Transition of Behavioral Health Services into Comprehensive Medicaid Managed Care: A Review of Select States. We invite you to read the full report in addition to the commentary below.

The possible merits of a “carve-in” model, where medical and behavioral health benefits are covered through the same insurance plan are obvious – it could lead to greater integration of physical and behavioral health care and lower administrative costs. But this remains an unproven hope.

If carving the Medicaid behavioral health benefit into the general medical benefit was treated as a medical necessity authorization decision using the same principles as managed care organizations (MCOs) apply to authorizing treatments and procedures, it would never get approved. There are currently 23 states that carve in behavioral health services and another 17 states where variable populations or services are carved in or carved out, which perhaps, we should refer to as the “carve-up” model.

In fact, we don’t know the extent contracting both the behavioral health benefit in the medical-surgical (med-surg) benefit in the same MCO results in an actual operational integration of the administration of both benefits. And this is a vulnerability in our case for carve-ins as a road to integration. Most of the MCOs in the 17 carve-up states, where certain populations or benefits are carved out, are still operationally carve-outs because the MCOs administer the behavioral health benefit through separate subsidiaries or have the utilization management, prior authorization and care management work completed by separate staff teams using separate policies, procedures and information technology (IT) systems.

So, it’s not necessarily the functions that determine a whether an MCO operates as a carve-in, but how the functions actually occur in a real-life setting. If the behavioral health benefit is managed by different staff with separate utilization management and care management systems in separate budgets, then it is carved out, even if it is ultimately owned by the same parent organization.

Carve-in of behavioral health benefits has not received the same careful and systematic evaluations that value-based purchasing models are receiving and there is a disheartening lack of research-based evidence available on the topic. No available reports evaluate how much behavioral health benefit administrative operations are actually carved in operationally within MCOs that have received contracts for both behavioral health and med-surg benefits.

There are no peer-reviewed articles reporting a systematic outcomes evaluation showing what, if anything, actually improved subsequent to carving behavioral health benefits into the general medical benefit under Medicaid managed-care administration. Actual execution of behavioral health carve-in models by MCOs in commercial coverage has not proven to be consistent with the community standard of care and have been more restrictive than the standard of care.

A model standard of care was established by Wit versus United Behavioral Health (UBH), a class action suit brought against the country’s largest behavioral health insurer on behalf of a nationwide class of patients who were denied coverage to gain access to outpatient, intensive outpatient and residential treatment for mental health and substance use disorders. This landmark case set the precedent for parity coverage of mental health and addiction treatment and established that separate and unequal systems of care that would never be tolerated for the treatment of cancer or heart disease will also not be tolerated for mental health disorders.

In deciding the case, the court enunciated eight general standards of care applicable to service intensity/patient placement selection for behavioral health care and applied those standards to the guidelines and practices of UBH operations. Unfortunately, some MCOs utilize similar criteria to those that were found deficient by the court for authorization of service and medical necessity in their Medicaid operations and instead of the hoped-for integration and savings, we got less than the community standard of care as a consequence.

It is essential to view the entire landscape of the carve-in versus carve-out issue and examine all sides with equal clarity. It is true that carving the behavioral health benefit into managed care increases administrative costs for both Medicaid and for providers. Administrative costs to Medicaid, Medicaid fee-for-service (FFS) average between 4% and 6% while Medicaid managed care plans administrative costs average 14% due to larger staff that is are paid higher salaries compared to state employees managing FFS Medicaid programs. But that is just part of the bigger picture; Medicaid MCOs reduce costs by reducing provider payments.

For example, an analysis by Mercer of the Missouri Medicaid program in 2010 through 2014 found that the four year average annual savings of managed care compared to FFS was 1.7%. Compared to FFS, managed care:

  • Reduced medical costs/payments to providers by $23.81 per member per month (PMPM) (8% decrease).
  • Increased administrative costs by $18.48 PMPM (149% increase).

For every $1 PMPM of reduced state costs due to managed care:

  • Medical costs/payment to providers were reduced by $4.47 PMPM.
  • Administrative costs were increased by $3.47 PMPM.

Large complicated systems, no matter how well designed and managed, inevitably have some level of ongoing inefficiency and waste due to their size and structure. It only makes sense to increase administrative costs if the subsequent savings from reduction in waste is greater than the increased administrative costs. In health care delivery systems, most waste is due to unnecessary treatments. Medical necessity is not always clear-cut and managed care usually interprets medical necessity criteria more restrictively than FFS programs. There is a point where you cannot further reduce waste and inefficiency without increasing total net cost, but even then there is a policy choice that must be made between having the remaining inefficiency as excess administrative activity or excess provider capacity.

Federal rules requiring Medicaid recipients to have a choice among managed care companies also contribute to increased administrative costs to providers. States almost always use three or more managed care companies, requiring providers to understand and process three or more separate sets of claims forms, prior authorization rules, appeals procedures, etc.

Because managed care companies generally deny more claims and request additional information prior to payment more often than FFS programs, additional billing staff is needed. The combination of reduced provider payments and increased administrative burden decreases provider liability and decreases their ability and capacity to meet surge demands in situations like COVID-19.

Increased research and examination of the ramifications of carve-ins is essential and many questions remain unanswered. The actual effectiveness and outcomes of carving behavioral health into the med-surg benefit in the Medicaid program remains unknown and we do not know the extent to which carving in the financing to the MCO actually results in an integrated operational system. We do not know if the outcomes of suicide rates, disability rates and overdoses have improved. And, in most cases, we do not know if net savings actually occurred because there has been no systematic evaluation. We do know that most of the savings from reduced payments to providers have gone to paying increased administrative costs and that the administrative costs of the providers have increased.

The policy question that must be examined is, “What is the actual evidence for the hypothesized benefits of behavioral health carve-in and are they substantial enough to be worth the increased administrative costs and decreased provider capacity?”

The answer to this question will lead us to the only important outcome – improving the accessibility and quality of mental health and addictions care for all Americans – not just the privileged few.


Read the report, The Transition of Behavioral Health Services into Comprehensive Medicaid Managed Care: A Review of Select States.