mechanisms; public health insurance consists primarily of the Medicaid and Medicare programs. For substance-use treatment, a larger majority (68 percent) of spending is on direct government grants and contracts with providers. The implication is that payments for substance-use services are most frequently allocated outside of markets. When private spending is also considered, approximately 56 percent of all payments for mental health care are made through insurance mechanisms, as opposed to out-of-pocket payments, grants, donations, and other sources of private financing. In contrast, only 27 percent of private payments for substance-use treatment flows through insurance arrangements. Again, this suggests a somewhat lesser impact of insurance market failure on substance-use care.
The implication of these figures is that choices about the level and composition of spending on M/SU health care are affected by a mix of market and political forces and that these forces differ for health care for mental and substance-use conditions. The willingness to pay for treatment for M/SU problems and illnesses is expressed through private markets for health insurance; political decisions about the design of public insurance; and the categorical program budgets of federal, state, and local agencies charged with providing such treatment.
Insurance for M/SU health care is governed by a distinctive set of arrangements. Although the proportion has been declining in recent years, most Americans (64 percent in 2002) under the age of 65 continue to receive health care through insurance provided by either their own employer or that of a family member (Fronstin, 2003). The terms under which individuals choose insurance and under which health plans compete to provide it are defined by organizations that purchase the insurance in the marketplace. Employers, state governments as administrators of Medicaid programs, and the federal government through the Medicare program all define the rules under which markets for health insurance operate.
Larger employers allow employees and their dependents to choose among a number of insurers and products (e.g., preferred provider organization, health maintenance organization) in competitive insurance markets. Smaller employers frequently offer only a single insurance plan to their employees. Some large employers focus special attention on M/SU coverage and spending. In these cases, employers separate the insurance risk for M/SU treatment from that for other health insurance, and create what have become known as managed behavioral health care organization (MBHO) carve-out contracts (Frank and McGuire, 2000). Under such circumstances, an employee has no choice of coverage for M/SU health care since the