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Policy Brief: Substance Abuse Treatment Benefits and Costs

The economic costs of drug and alcohol abuse in the United States are estimated to exceed $275 billion a year, including lost productivity, medical expenses, crime, and other costs (Stein, 2001). About 3 million individuals entered addiction treatment services last year but more than 23 million adults and adolescents are in need of addiction treatment leaving more than 20 million needing but not receiving treatment (SAMHSA, 2008).

In 2003, the United States spent an estimated $21 billion (U.S. dollars) on treatment for alcohol and drug disorders, a total of 1.3 percent of all health care expenditures (Mark et al., 2007, 2008). Public payers now account for 77% of all spending to address drug and alcohol disorders. Consequently, policymakers want to learn more about the costs and benefits of treatment to justify the use of billions of public monies used yearly for this purpose. During the last five years, with support from SAPRP and other sources both public and private, new studies have begun to examine and evaluate the benefits and cost-effectiveness of investing in treatment.

Policy Implications:
As policymakers debate the merits of funding substance abuse treatment services, they face a dilemma: should state and federal tax dollars be used, and to what extent should these benefits be covered? More fundamentally, what is the return on such an investment?

Extensive research shows there are substantial benefits to treating alcohol and drug disorders. Treatment can lead to reductions in overall health care costs and utilization of health care services; in one study, for example, a health maintenance organization reported a 30% reduction in medical care costs among Medicaid patients who had been treated for substance abuse. The greatest economic gains seem to arise from reductions in the costs of criminality (victimization, losses due to crime, and costs of incarceration). Economic analyses suggest that policies that link criminal offenders with substance abuse treatment programs - in and out of prison - reduce recidivism as well as costs associated with arrest, prosecution, and imprisonment. A study of 13 California counties noted a considerable decrease in crime-related costs following treatment. Researchers calculated a benefit-to-cost ratio of 7:1 that included a reduction in the use of emergency medical care, as well as increased employment income among individuals treated for addiction.

Addiction experts suggest that alcohol and drug disorders should be treated as chronic medical conditions, and note that such a model of care may improve cost-effectiveness and provide greater benefits.

Conversely, strategies that reduce or eliminate benefits for treatment of alcohol and drug disorders can impose other social costs. A shift to managed behavioral health care carve-outs, for example, has led to a reduction in the use of inpatient and overnight services. Higher insurance co-payments have reduced the use of outpatient and inpatient services and contributed to elevated rates of re-treatment.

In Oregon, the elimination of Medicaid coverage for outpatient mental health and substance abuse treatment benefits, including methadone treatment, led to a 60% decline in admissions to methadone, and an increase in drug use, as well as legal, medical, psychiatric, and employment problems.

Many states are now debating mandates to require parity in health plan benefits for treatment of mental illness and alcohol and drug disorders, but there is concern about cost. An analysis of seven managed behavioral health care programs serving federal employees reported that the parity requirements had little impact on total expenditures. In fact, current economic analyses would support policymakers who decide to fund a wide range of substance abuse treatment benefits. Treatment improves the lives of women and men who struggle with alcohol and drug disorders, and recent research suggests that it can be done in a cost-effective manner. These analyses supported 2008 Federal legislation requiring that group health plans for 50 or more employees provide similar benefits for mental health, substance abuse, and physical health if they cover these disorders (Wellstone-Domenici Mental Health Parity Act of 2008).


  • The economic benefits of treatment exceed the costs of treatment, and the cost-benefit ratio shows that every dollar spent on care results in $7 dollars in benefits (Ettner et al., 2006; Gerstein et al., 1994; Roebuck et al., 2003; McCollister and French, 2003). Read more

  • Treatment benefits include increases in employment income and decreases in avoided costs of criminal activities, incarceration, and hospitalization (Ettner et al., 2006). Read more

  • Treatment in correctional settings plus aftercare in the community when offenders are released leads to substantial reductions in the rates of re-incarceration and the associated costs of arrest, prosecution, and incarceration (McCollister et al., 2003a, 2003b, 2004). Read more

  • Treatment for alcohol and drug disorders can lead to reductions in the utilization and cost of medical care (Walter et al., 2005). Read more

  • Medicaid patients with histories of alcohol and drug disorders have elevated hospital and psychiatric admissions, and addiction substantially increases total health care costs (Clark et al., 2009). Read more

  • Managed behavioral health care carve-outs appear to reduce the costs of care and support the introduction of parity (Stein et al., 1999; Steenrod et al., 2001). Read more

  • Higher insurance co-payments reduce the use of outpatient and inpatient treatment for alcohol and drug disorders (Lo Sasso and Lyons, 2002, 2004; Stein et al., 2000). Read more

  • The loss of insurance benefits is associated with restricted access to care, decrements in beneficiary functioning, and closure of drug abuse treatment centers (Fuller et al., 2006; Deck et al., 2006). Read more

  • Insurance regulations that deny payment for alcohol-involved trauma care inhibit efforts to identify alcohol problems among patients in emergency settings (Schermer et al., 2003). Read more

  • An evaluation of the introduction of parity for mental health and substance use disorders for federal employees concluded that parity had little impact on total costs (Goldman et al., 2006). Read more

  • Cost-benefit analyses are better than cost-effective analyses in judging economic benefits of substance abuse treatment (Sindelar et al., 2004). Read more

  • A cost-effectiveness analysis of four treatment interventions for adolescents with drug and alcohol problems determined that group therapy was least expensive and most cost-effective but qualified the conclusion because of short follow-up periods and complexities in the comparison of the studies (French et al, 2008). Read more




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