Moody's: Why focusing on behavioral health could give insurers a leg up on the competition

Mental and behavioral health conditions account for a growing segment of healthcare costs, and insurers have a significant opportunity to address these expenses and drive costs down overall, according to a new report.

Mental health conditions accounted for just 5.2% of healthcare spending in 2019, but the number of people with these conditions is expanding, particularly in the pandemic environment, according to a report from analysts at Moody's Investors Service.

A recent study suggests that healthcare costs for people with behavioral health conditions are 3.5 times higher than for those without such conditions, according to the report. Annual healthcare costs for patients with behavioral health needs are $12,272, with just 7.9% of that specifically for the behavioral conditions.

Given the significant potential for cost reductions at play, insurers that move more quickly to integrate behavioral health offerings into more traditional physical health programs have an opportunity for a competitive advantage in the long term, the analysts said.

“US health insurers' responses to date include acquiring behavioral health providers, expanding telehealth, and increasing integration of mental health services into the value-based care framework,” Moody’s Vice President Dean Ungar, one of the report's authors, said in a statement. “Companies that can better treat mental and behavioral issues will have an advantage over those that fail to improve in this area, leading to greater long-term growth.”

For example, several insurers have made acquisitions to bolster their positions in the market. Anthem acquired Beacon Health Options in 2020, and UnitedHealth Group purchased virtual behavioral health company AbleTo that same year.

Earlier this year, Centene closed its acquisition of Magellan Health in a $2.2 billion deal that created one of the country's largest behavioral health providers.

Outside of big-ticket deals, however, getting better at identifying behavioral health needs is a key priority for many health plans, according to the report. Other strategies involve enhancing virtual care options and including behavioral health conditions in value-based care models.

With the interest in addressing these costs, it's hard to say right now who's ahead—leaving the door open for a company to be a true industry leader on mental health, the analysts said.

"It is too early to say at this stage whether any one company has a clear edge over its competition," they wrote. "But over time, companies that best integrate behavioral and medical health will have a competitive advantage."

The report notes that Medicaid currently bears the brunt of emergency department visits across the five most costly behavioral health conditions, accounting for 33.3%. However, private insurance is close behind at 27.7%.

Medicare accounts for 18.7% of ER visits for the top five conditions, according to the report.

"The steady rise in behavioral health diagnoses, and the corresponding increase in medical costs, underscores US health insurers' need to augment and improve the integration of behavioral health services within the full range of their offerings," the analysts said. "Those companies that are successfully able to manage behavioral health, and contain medical costs, can also reduce the likelihood that the industry will face political solutions to address this problem.