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The Economy of Therapy

By R. R. Hixson, MBA, PhD, LPC, LMFT, DAPA

The study of economics is the study of how to optimize the allocation of resources among users. Therapists are a resource for a community, but often therapists feel less a resource than a ping-pong ball, a function of the marketplace and governmental agencies fighting to slam back costs and score points with the public. Conflicting interests and needs that exist in the marketplace are hitting therapists in different directions, often at the same time.

Heath care and insurance costs continue to rise across the United States. HMOs are raising their rates at an average of 14 percent, citing the high number of claims they pay as the reason for the rate hikes. However, North Texas HMOs are reportedly announcing a first quarter profit for this year. ?The 10 health maintenance organizations that serve the region posted combined profits of $32.1 million during the first quarter of 2021? (Perotin, June 18, 2021). Meanwhile, employers across the nation are claiming that they are paying too much for health care. Small businesses, which comprise a major portion of the business marketplace, may be facing even higher rates. As a result, entire populations of people are underinsured or have no insurance at all. ?Nearly 82 million U.S. residents under the age 65 were uninsured at some point in 2021 and 2021, an increase of seven million over the rate of 74.7 million in 2021-2201? (Kaiser Daily Health Policy Report, June 18, 2021). ?Texas has the highest rate of uninsured working adults at 27 percent,? (Robert Wood Johnson Foundation, May 12, 2021). In 2021, ?4.9 million Texans under 65 (26 percent) were without health insurance? (?Who Gets Health Care From Medicaid and CHIP in Texas?? February, 2021). ?A popular government health insurance program has shed nearly 100,000 low-income children since state lawmakers approved budget cuts in May (2021), and its rolls are shrinking faster than some advocates of the poor had expected? (Garrett, January 14, 2021). This is an extremely costly problem. ?The cost of providing health care for U.S. citizens who have no insurance will total $125 billion with taxpayers and private entities footing most of the bill? (Gralla, May 14, 2021).

Rising costs, among other factors, have contributed to programs and services being cut or significantly reduced to balance state budgets. Cutting $5 million from a state budget may mean effectively taking psychotherapy and other services off the table. Our political leaders send the message of ?no new taxes? because if they raise taxes, the public will complain. Yet when services are cut, jobs are lost and many businesses close. Service providers must look for ways to cut costs in order to handle the additional costs of lost contracts or patients. Additionally, employees or those on Medicaid lose money in that they must now pay more for health care.

When services are limited and underinsured or uninsured individuals get ill, they tend to go to the nearest emergency room. Emergency rooms are filled almost constantly, and hospital officials are complaining they don?t have the staff or resources to care for this population. ?We?re spending our resources on crisis care rather than preventative care,? reported Dr. Stephen Larson, chairman of the department of emergency medicine at SSM DePaul Health Center in Bridgeton, Mo. (Smith, May 14, 2021). The uninsured or underinsured public may also travel across the border for less expensive medicine and medical services, and/or they may decide to choose alternative medicine or herbs. When they are in major pain or discomfort, most people find some form of medication (including alcohol and drugs) and/or medical attention. This is how the marketplace reacts to influences and signals.

Political leaders contend that it is their priority to cut taxes and make the marketplace friendlier to the business world, and that it is not the government?s job to be a charitable organization. Adam Smith was a great supporter of the philosophy that a marketplace should be left alone (laissez faire), believing there are factors and resources in the marketplace that will balance shortages and provide an abundance of resources over a period of time. Governments run by dictators operate from the opposite side of the spectrum, supporting governmental intervention to determine price, supply, vendors, etc. An economy that uses both market and non-market signals to influence the allocation of goods and resources is referred to as a mixed economy.

In our mixed economy, governmental influence places additional requirements and boundaries on the practice of health care by cutting away part of the playing field. Instead of offering incentives, bonuses, or higher reimbursement rates, government policymakers remind therapists that if they want to stay in the game, they have to play by the government?s rules. We are witnessing government central planning committees and agencies interfering more and more in the marketplace. These new policies may help the overall economy, but fail to aid a significant population. If this policy fails the social needs of society, it may take decades to return to a marketplace-dominant philosophy, or the government may assume all areas of the marketplace. As we wait, we may lose many of the best players and team members of the health care spectrum.

The marketplace uses supply and demand to determine usage and price. When the supply is greater than the demand, the price is lower; when the demand is greater than the supply, prices rise. Each state has counties without adequate physical and mental health care. Conversely, each state has metropolitan areas that may have more than enough health care providers, and there is very likely an increased gap for mental health practitioners than for medical providers. When there is an overabundance of therapists, psychologists, and social workers in a community, the price of services will tend to be less. HMOs use these numbers to set reimbursement rates. Central political and governmental budget planners do the same, which assists in understanding why Medicare and Medicaid reimbursement rates are so low. There has been an overabundance of mental health care providers for at least six years in metropolitan communities. Mental illnesses are ?common and under-treated? in many countries, with the highest rate found in the United States (Tanner, June 1, 2021).

Lobbyists, campaign contributors, and vocal constituents influence how funds are distributed across state programs. Therapists have not effectively added their voices to the influence. Many consider it unprofessional, others may view it as useless, and still others may decide that by writing a few letters they have done all they can do. The American Medical Association (AMA), the National Association of Social Work (NASW), and the American Psychological Association (APA) have had lobbyists for some time, and now a growing number of other associations are beginning to hire lobbyists to try to make advances in the case for mental health issues to lawmakers. But none of the health care lobbyists compare to those representing the education, oil, auto manufacturing, and insurance industries.

Because we are the economy, we are part of the production and consumption of goods and services. ?The challenge that makes economics theory and policy is to keep doing better. Creating more jobs. Providing better public services. Reducing the incidence of poverty. Giving people better health care and higher quality education. Designing and producing more of the goods and services that people desire? (Schiller, 1994).

The economy of therapy is the study of the sum of all of our individual production and consumption activities in the field of therapy. How we manage our private or group practice is based, in part, on the factors that are used in the production of other goods and services (land, labor, capital, and entrepreneurship). When therapists discuss current hard economic times, we need to blame ourselves, in part, for the low numbers. We are the sum total of what we have created.

We have the option of accepting contracts or not. Many fear losing more patients and being knocked off panels if they refuse to accept a low reimbursement rate. Besides, we reason, another therapist will sign the contract and accept the lower fees. We have the option of cutting our practice hours in order to teach a course in an academic institution, or to write books, or to consult with local corporations. We have the option of becoming much more active with professional associations and supporting efforts to educate political leaders in the value of our services. We have the option to offer more community education and prevention presentations in order to educate the public on the value of our services.

These are called opportunity costs because every time we use our resources in a certain way, we don?t use them in another way. The true economic cost is not necessarily measured in dollars and cents. It is measured in terms of some alternative activity. It is the flip side of scarcity. These costs are more relevant to individual decision making than they are to the state or national economy. It means taking resources from one location and placing them in another. If we don?t like the French government?s policies we don?t buy their products. If we don?t want to accept low reimbursement rates, we don?t sign those contracts or attempt to negotiate an increase. If we don?t like being treated like a ping-pong ball, we can put our paddles down and walk away from the table, choosing other games to play and other ways to use our time and talents.


Center for Public Policy Priorities. (2021, February). Who gets health care from Medicaid and CHIP in Texas? A Medicaid and CHIP Background Paper.

Garrett, R.T. (2021, January 14). 100,000 kids lose health coverage. The Dallas Morning News.

Gralia, J. (2021, May 14). U.S. uninsured health care cost put at $125 billion. Reuters.

Kaiser Daily Health Policy Report (2021, June 15). Federal judge rules Texas cannot use ?personal responsibility? rules to terminate Medicaid benefits. Austin-Statesman.

Perotin, M.M. (2021, June 18). Area?s HMOs report profits. Star-Telegram.

Robert Wood Johnson Foundation (2021, May 12). More than one in four working Texans are uninsured. Houston Business Journal.

Schiller, B.R. (1994). The macros economy today (6th Ed.). New York: McGraw-Hill.

Smith, B. (2021, June 15). Many ER patients have no insurance, survey finds. St. Louis Post-Dispatch.

Tanner (2021, June 1). United States has highest rate of untreated mental illnesses among 14 countries, study says.

About the Author

Dr. R.R. Hixson is a Diplomate of the American Psychotherapy Association and has been a therapist for more than 25 years.

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