For the nation's employers, it's a depressing thought: Mental health and substance abuse treatment costs are rising almost three times as fast as the cost of other medical expenses.

The cure, they have decided, is to put stricter limits on how much employees spend on treatment for psychological, behavioral and substance abuse problems.

With costs increasing 25 percent to 30 percent annually for mental health treatment, employers are doing everything from capping the amount that can be spent over a lifetime to steering employees toward "preferred providers" who meet the employers' standards for cost and quality. Only a decade ago, such costs were increasing by 3 percent a year.

Much of the increase in mental health costs is the result of inpatient treatment at hospitals and institutions, where some 70 percent of benefit dollars are spent. Costs at inpatient facilities range from $8,000 to $40,000 for a four-week stay.

"It's a troublesome area for us," said Roxanne Horning, director of employee benefits for the Gannett Co. in Rosslyn. "We have had big increases in the last two years."

The company recently put a cap of 60 days on the amount of time it will cover inpatient care. The company's health plan formerly had no limits on inpatient psychiatric stays.

"This helped control costs somewhat, but they are still out of sight," Horning said, adding that prescription drugs, psychiatric care and substance abuse treatment account for 20 percent of health benefit costs.

Employee health benefit experts say inpatient treatment has become more popular for several reasons. There are many empty general care hospital beds that are now being used for psychiatric treatment, and psychiatrists who are affiliated with hospitals increasingly are recommending extended stays for their patients who otherwise might simply come in for outpatient visits.

"It's been destigmitized," said James M. Oher, a psychologist in New York who is a consultant for Towers Perrin Co., a benefits consulting firm.

Also adding to the growth in claims is the treatment of adolescents for "conduct disorders" and other problems. Horning said Gannett has seen an "alarming increase" in the use of psychiatric facilities for dependents or the children of employees. "It makes us wonder if employees have the resources to identify appropriate levels of care," she said.

Part of the increased spending on mental health costs stems from the employers themselves, many of whom have initiated employee assistance programs that help identify workers with substance abuse and other problems. Courses of treatment, such as residential treatment programs, then may be suggested.

Now employers like Gannett have begun to clamp down. A recent nationwide survey by the benefits consulting firm A. Foster Higgins & Co. in New York found that 87 percent of employers in 1989 limited benefits for inpatient treatment of mental disorders and substance abuse, up from 75 percent in 1988. More than half were limiting the amount that could be spent on inpatient care over a lifetime -- a $50,000 cap is the most common. Others are limiting the number of days of inpatient treatment that will be paid for in any given year -- often 30 days, which takes in the average stay for most acute mental illnesses or the most common substance abuse treatment programs. Smaller firms are even less comprehensive in their coverage, the survey found, many setting dollar limits of $10,000 a year.

John Erb, a managing consultant in Foster Higgins's New York office, said some employers are setting up networks of mental health care providers that employees are encouraged to use. Providers, who are encouraged to recommend outpatient treatment, are paid a set amount under the terms of a contract with the company. Limiting the number of providers employees can use is supposed to reduce the cost of mental health care benefits.

Gannett is encouraging its employees to seek help under its own employee assistance programs first. It also has a case management program where employees can volunteer to have their physicians work with the company's insurance carrier to find the best course of treatment.

The benefit to the employee is lower co-payment insurance costs if inpatient treatment can be avoided.

Limiting benefits does lower costs, the survey showed. Companies that had no special limitations on inpatient costs spent an average of $282 per employee on mental health and substance abuse claims, or 23 percent more than those that had limits.

Oher said employers are paying increased attention to the cost of inpatient treatment because the fees charged by providers are unregulated and before now there was little drive to contain costs.

Faulty diagnosis and treatment also can play a role in increasing costs. "There is some need for inpatient care, but it's not needed in many cases," Oher said.