Mental Health Services in a Single Payer System


With so many Americans lacking appropriate health care insurance and so much of the large insurance companies' premiums going to overhead and profit, it makes sense to move forward with a single payer system. The author discusses some of the basic features of a proposed system.

(The counterpoint discussion is the article titled "Single Payer? Yes, But..." - Ed.)

The proposal advocated in this paper arises from a clinical and ethical vision. It insists that it is unacceptable for millions of Americans to remain uninsured and to rely on emergency rooms for health care. It encourages innovation driven by concern for the welfare of patients and stewardship of society's resources.

Access to health care continues to be a problem in the United States, especially for patients with mental illness. Investor-owned organizations dominate the delivery systems for behavioral health care. In such organizations, 50% or more of premium dollars support administrative overhead and profits, and in audits, investigators "have not reviewed such an arrangement in which the combination of administrative loadings and profit was less than 45 percent" (Wrich, 1999). The rise of managed mental health care has limited patients' choice of clinician and threatens confidentiality. Incremental reforms cannot effect any lasting improvement.

A single payer national health care program will end the current tie between employment and health insurance. In principle, it amounts to a universal application of Medicare. It is financed with taxes that are earmarked for health care the way the gasoline sales tax is ear-marked for highway improvement. These taxes replace current health insurance premiums, Medicare tax assessments and other forms of health care subsidies. Costs are contained with global budgets. Every legal resident of the United States is covered for all medically necessary health care services. Necessary services are defined in terms of evidence-based medicine (EBM) -- not by proprietary utilization review guidelines. Patients can choose their clinicians. Professional autonomy and confidentiality are protected. Fee-for-service practice continues, with negotiated fees on par with other specialties.

The fragmented system of multiple insurers generates substantial administrative cost. Payers try to contain costs through micromanagement, such as utilization review. Micromanagement is expensive, interferes with professional autonomy and seems to be only marginally effective in controlling costs (Gabbard, 1992; Thompson et al., 1991).

The proposed health plan will provide universal coverage for all age groups. It will be funded as a public insurance program, similar to Medicare. The public insurance pool will combine funds currently allocated to existing public programs (e.g., Medicare, Medicaid, Veterans' Affairs health benefits) and will replace employer premiums with a payroll tax of about 7% and out-of-pocket spending with a progressive income tax of about 2% (Rasell, 1998).

The reality of limited resources imposes obvious constraints on the design of any health care system. Quality of health care, access and cost-containment cannot all be maximized simultaneously. A health care delivery system that seeks to achieve and maintain high quality and operate within a set budget must manage access. Everyone cannot have access to every service at every time at the expense of the insured community.

The proposed plan aims to manage access by EBM criteria. The patient's health care professional acts as the decision-maker who determines if an individual suffers from a condition for which effective EBM treatment is available. Treatment options outside the plan will remain open to people who want to make individual investments in a particular care plan outside the guidelines of the single payer plan. This would permit people, for instance, to pursue psychoanalysis or to seek counseling for divorce-related distress.

A single, publicly funded insurance plan covers mental health care on the same basis as general health care. A governmental insurer administers the program at the state level. Tax revenue, earmarked for health care, will replace the current patchwork of funding sources (Table 1). The health plan covers care for all psychiatric conditions when functional impairment or subjective distress warrants clinical intervention and when effective treatment or palliation exists.

The proposed program provides access to diagnostic assessment, selected psychotherapies, pharmacotherapy and electroconvulsive therapy (Table 2). The single payer pays for all services for which research provides evidence of effectiveness. A panel of mental health care experts will convene periodically to determine the psychiatric component of the benefits package. Part of this task is to identify services that are unnecessary or ineffective so that they can be excluded from the plan (Table 3).

Hospitals, residential programs and other sites of service will negotiate an annual global budget with the State Health Care Financing Board to cover operating expenses. Input variables for the global budget would include historical data, projected levels of service and proposed new programs. The operating budget would not be used for capital expenditures. The proposed program will pay hospitals a fixed rate of return on existing equity. A separate state-based process would be for approving and funding capital expenditures.

Expenses, currently accrued due to extensive documentation requirements, external utilization management and billing-related clerical costs (e.g., insurance verification, pre-authorization, co-payment processing), will be largely eliminated.

States can transfer funds flexibly between hospital and community-care facilities, according to local priorities. Under the proposed program, states decide, as they do now, which types of clinicians will be permitted to bill on a fee-for-service basis. Independent mental health care practitioners, licensed by the state, would bill the State Health Care Financing Board on a fee-for-service basis and receive payment within 30 days. The State Health Care Financing Board would reflect regional priorities in the fee schedule and budget negotiation process within the framework of an annual capped overall budget.

There are three parties to transactions in the health care market: consumers, providers and payers. It is often argued that health care costs have risen uncontrollably because consumers do not directly pay for the health care product. This assertion assumes economic conditions of perfect competition, which do not apply to the health care market. In health care, demand is, to a large extent, driven by the suppliers (i.e., the providers). Yet health insurance currently relies on demand-side constraints on patients' utilization of health care services. Deductibles and co-payments reduce demand by increasing the cost of care to individual consumers. Unfortunately, demand-side disincentives reduce access to necessary as well as elective care. Rasell's literature review (1995) convincingly demonstrated that cost-sharing harms low-income patients.

The current proposal replaces demand-side constraints with mechanisms for setting and enforcing an overall health care budget. In other words, utilization management will focus on the supply side of the global transaction.

Of course, cost escalation is a legitimate concern. The RAND Health Insurance Experiment found that outpatient mental health care services are highly price-elastic. Compared to plans that required the patient to pay the majority of the cost, a free care plan increased outpatient expenditure fourfold (Manning et al., 1989). These economic dynamics are the basis for projections of runaway costs by some insurance actuaries (Rosen, 2000).

The proposed system will manage cost through prospectively determined global budgets that operate like capitation in shifting utilization from resource-intensive service units to less expensive ones. Savings will be further realized in pharmacy expenses, as the single payer can negotiate prices as a bulk purchaser of medications.

The State Health Care Financing Board will develop and enforce an annual budget for the ambulatory- and community-care sectors. Organized systems such as large group practices and rehabilitation programs receive global budgets, just as hospitals do. Like hospitals, these systems will manage themselves in accord with clinical priorities, subject to annual performance review and budget negotiations. They will allow continued fee-for-service practice by independent practitioners.

The federal government will act as the centralized collector of funds supporting an annual global federal health care budget. The federal government will allocate these funds to the states according to actuarially predicted health care needs. The state then subdivides this allocation into its components, one of which is mental health care services. Next, the state allocates portions of the global mental health care budget to institutions, community programs and the fee-for-service sector. The bureaucratic infrastructure need not be more complex than the one currently administering state Medicaid and simpler than many HMOs.

An analysis by the National Advisory Mental Health Council suggests that non-discriminatory benefits would not lead to proportionally greater expenditure for mental health care than at present (NIMH, 1998). Services for the mentally ill should be allowed to compete freely with other sectors for their share of the total health care budget. No a priori decision should be made that precludes the mental health share from going beyond its current level.

Over the past decade, the trend toward proprietary ownership of insurance and delivery systems has accelerated. A small number of large, investor-owned managed behavioral health firms control access for hundreds of millions of people. The single payer proposal would improve access by providing health insurance coverage to all and including psychiatric services on a non-discriminatory basis. It would offer patients and clinicians more choices than alternative proposals. Still, a number of concerns must be addressed.

Some fear that the single payer model means that the federal government would be taking over health care. The proposed single payer system does not mean government-run medicine, but public insurance. Even in the United States, government manages insurance (not health care) more efficiently than the private sector does. While private insurance overhead averages 11.9% of premium, the federal insurance program Medicare averages 3.2% (Letsch et al., 1988).

What about the tax increase? The taxes to fund the health care system are tied to the specific service they support, like public insurance premiums. To the degree that they replace current insurance premiums levied on employers and individuals, the overall out-of-pocket cost will be reduced, especially for large corporations that currently pay significant proportions of their gross margin toward employees' health insurance.

The image of medical practice free from funding limits and external influence may be appealing, but it is fantasy. In choosing who makes funding health care decisions -- directors of managed care organizations who are accountable to shareholders or regulatory bodies that are appointed by legislatures -- the public management option is clearly preferable.

The U.S. General Accounting Office estimated that the administrative savings of a single payer system would amount to 10% of total health care spending (about $80 billion in 1992) -- enough to insure all of the 44 million uninsured (Himmelstein and Woolhandler, 1992). There is no evidence that the dominance of managed care has improved quality or efficiency of health care.

A fraction of the total budget for mental health care should be set aside in early years as a reserve fund for unforeseen contingencies. If a particular global budget ran out in the middle of the fiscal year due to erroneous projections or poor management, funds would be available to address the crisis.

The next several years will continue to be a time of change in health care organization and financing. The multiple strains on our health care system will not abate. Historically, the American system of fragmented insurance has led to fragmented health. It is time to create a unified system of health care financing so that we may finally develop an integrated health care delivery system. If there is a better way to achieve improved access to care, maintain professional autonomy and achieve cost control, it has yet to be mentioned.


1. Gabbard GO (1992), The big chill: the transition from residency to managed care nightmare. Academic Psychiatry 16:119-126.
2. Himmelstein DU, Woolhandler S (1992), The National Health Program Chartbook. Chicago: Physicians for a National Health Program, p80.
3. Letsch SW, Levit KR, Waldo DR (1988), National health expenditures, 1987. Health Care Financ Rev 10(2):109-122.
4. Manning WG, Wells KB, Buchanan J et al. (1989), Effects of Mental Health Insurance: Evidence from the Health Insurance Experiment. Santa Monica, Calif.: RAND, p30.
5. NIMH (1998), Parity in Financing Mental Health Services: Managed Care Effects on Cost, Access, and Quality. Bethesda, Md.: NIMH. Available at: Accessed Feb. 1, 2001.
6. Rasell ME (1998), Universal coverage: how do we pay for it? Technical Paper No. 234. Presented at the Conference of Health Care Justice: Building a New Movement for Universal Health Care. Washington, D.C., Economic Policy Institute; April 1-2.
7. Rasell ME (1995), Cost sharing in health insurance--a reexamination. N Engl J Med 332(17):1164-1168 [see comments].
8. Rosen D (2000), Statement on Mental Health Parity Before the Committee on Health, Education, Labor and Pensions. Available at Accessed Feb. 1, 2001.
9. Thompson JW, Smith J, Burns BJ, Berg R (1991), How mental health providers see managed care. J Ment Health Adm 18(3):284-293.
10. Wrich JT (1999), Brief summary of audit findings of managed behavioral health services submitted to the Congressional Budget Office. Newsletter of the Physicians for a National Health Program, March.

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