* The leading reason for hospital admissions nationwide is a biologic psychiatric condition. At any moment, almost 21% of all hospital beds are filled with patients who have mental illness.

NATIONAL EXPENDITURES / PUBLIC AND PRIVATE SECTORS

Although the economic impact of mental illnesses continues to be enormous, a new study that examines nationwide health care spending trends indicates that spending for mental health treatment declined over the last ten years as a share of national health expenditures. In part, this trend has been attributed to the impact of managed care for mental health services. For example, introducing managed care in Medicaid-funded* child mental health services resulted in cost reductions and shifts from inpatient treatment to less intensive treatment.⁵⁸ The study, National expenditures for mental health, alcohol and other drug abuse treatment, was the first in an annual series designed to track expenditures for treatment by the U.S. government.⁵⁹

* Medicaid is a state public insurance program based on income eligibility.

The research findings have been used to create a baseline to assess future trends in spending on mental health treatment. The following data presents a current overview of expenditures: ⁶⁰

* The average annual growth of expenditures for treatment of mental illness was 7.3% annually between 1986 and 1996. Out of the total expenditures, an estimated $46.9 billion (59.1%) comprised treatment by specialty providers. Specialty providers include psychiatric hospitals, mental health clinics, and specialty substance abuse clinics ($33.2 billion), as well as psychiatrists, psychologists, counselors and social workers ($13.6 billion).

* Hospital settings accounted for the largest share of mental health and alcohol and drug expenditures in 1996 (33.4%). The second largest share went to expenditures on independent practitioners (26.2%).

Public sector and private insurance expenditures ⁶¹

* The public sector paid for the majority of treatments (54%). The public sector's share of expenditures has increased from 49% in 1986 to 54% in 1996.

* Among the public sector payers, state and local government sources other than Medicaid paid for the greatest share (18.7%), followed by Medicaid (18.2%) and Medicare (13.4%).

* Other U.S. federal government programs accounted for only 3.8% of all payments. Private insurance accounted for 29.8% of total mental health, alcohol and drug treatment expenditures. Out of pocket payment represents an estimated 16% of expenditures.

TRENDS AFFECTING MENTAL HEALTH TREATMENT COST

During the last five years two important trends have influenced availability and cost of treatment. They are health insurance parity for mental illness and managed care and its implications for mental health services.

Health insurance parity for mental illness
The Mental Health Parity Act of 1996 ends the long-held practice of providing less insurance coverage for mental illnesses than for equally