Medicaid has become the primary payer of public mental health services at the state level, and will likely pay for two-thirds of state mental health services in the next 10 to 20 years. 

But cost increases in Medicaid, lack of Medicaid data, new policies that may weaken Medicaid coverage, and a failure to fully use Medicaid to invest in community-based mental health care jeopardize the ability of the program to meet the needs of Americans with disabilities and low-incomes.

Advocates should encourage states to use available federal options to bring more Medicaid resources to community mental health services.

Medicaid’s Potential for Community-Based Mental Health Care

Medicaid has the potential to be a more effective means of funding community-based mental health services, but states have not fully utilized Medicaid options to make this possible.  Listed below are some of the ways states can fund these services through Medicaid.

State Advocacy Homepage

Community-Based Mental Health Works

Health Insurance Flexibility and Accountability (HIFA) Demonstration Initiative

NMHA Letter to Secretary Thompson

• Enforce Medicaid Mandates
  Medicaid requires all states to conduct Early and Periodic Screening, Diagnosis and Treatment (EPSDT) for all individuals under age 21.  This preventive screening should ensure children access to an array of comprehensive services, including all necessary mental health services.  Unfortunately, many states are not in compliance with this mandate, and could be held liable for leaving children and their families vulnerable (GAO Report).
  
  
• Create a Comprehensive Medicaid Plan
  Medicaid plans should provide a comprehensive array of services that enable community living, including: day treatment, family respite, individualized care, independent living skills training, intensive home-based services, school-based services, targeted case management, supported employment, housing services, therapeutic foster care and preschools, and therapeutic recreational services.  Ways that states can use Medicaid to create an individualized plan include:
  • Community residential programs with fewer than 16 beds, which are not considered “Institutions for Mental Diseases [IMD] under federal law, can provide needed housing options for people with mental illnesses.
    
    
  • Targeted case management is an extremely flexible Medicaid option that is explicitly applicable to people who are “chronically mentally ill.”
    
    
  • The psychiatric rehabilitation option for “other diagnostic, screening, preventive, and rehabilitation services” allows states to cover a wide array of individual community services.  While most states do provide this option, many states do not make services available throughout the state or limit the services that are available.
    
    
  • “Open” Medicaid formularies that do not restrict access to new medications are a crucial part of treatment for people with mental illnesses.  In 1998, the Health Care Financing Administration (HCFA), now called the Centers for Medicare and Medicaid Services (CMS), sent a letter to Medicaid Directors that advocated for the use of newer medications and the necessity for a quick response for requests for these medications. 
    
    
  • Medicaid Home and Community-Based Care Waivers allow states to provide a range of home and community-based services for people who would otherwise be in Medicaid covered institutions (children under the age of 22 or adults over the age of 64).
    
    
• Protect Vulnerable Populations
• The Medically Needy Option allows individuals with incomes slightly higher than Medicaid requirements, but who do not have health insurance, to use medical expenses to offset their income and meet eligibility requirements.  Unfortunately, through the new Health Insurance Flexibility and Accountability Demonstration Initiative (HIFA), states may be able to reduce the benefits for this and other vulnerable groups of people.
  

Stakeholders Need to Lead Medicaid through Key Choices
Many states have chosen not to invest state dollars in mental health services or accept federal options that bring Medicaid mental health resources to the communities.  Medicaid offices, mental health authorities, and stakeholders should work together to:

• Fully Invest in Mental Health.  Without adequate investment in mental health services, consumers and their families will suffer, and there will be an increased need for expensive crisis care.
  
  
• Speed Transition to Community-based Services.  Research demonstrates that people with mental health disorders can be treated in the community more effectively.
  
  
• Produce Medicaid Data.  Information about mental health services provided through Medicaid is rarely available, but is essential for appropriate planning and policy development.  In order to develop quality community-based services and protect Medicaid from cuts in the state legislature, we must know how funds are being used and their impact on consumers, families and communities.
  
  
• Include Consumers and Advocates in Planning and Oversight.  Mental Health consumers and advocates need to have a voice in planning and reviewing new Medicaid options for states. 

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