Medicaid Policy Proposals May Disrupt Behavioral Healthcare Access
Background
Behavioral health conditions such as major depressive disorder, schizophrenia, and opioid use disorder are highly prevalent among Medicaid beneficiaries; in 2020, almost 40% of nonelderly adult beneficiaries had a mental or substance use disorder.[1] These individuals depend on the wide range of behavioral health benefits in Medicaid programs, including clinical services across the continuum of care, prescription drugs, and recovery support services. Medicaid is also the single largest payer for behavioral healthcare services in the United States and is an essential revenue source for behavioral healthcare organizations such as outpatient clinics, inpatient and residential facilities, and Opioid Treatment Programs (OTPs).[2]
Several policy proposals have been made to lower federal financial participation (FFP) in Medicaid, such as changing the current formula for Federal Medical Assistance Percentages, instituting caps to FFP at the state- or enrollee-levels (such as by transitioning Medicaid to a block grant), or limiting the existing safe harbor preventing a portion of state taxes on providers’ net patient revenue from being considered when calculating FFP.[3] Additionally, proposals have been made to institute work requirements for Medicaid beneficiaries.[4]
Medicaid Financing Proposals Could Exacerbate Existing Challenges
Reductions in FFP could prompt states to make harmful changes to their Medicaid programs to offset reduced revenue, such as:
- Decreasing provider payments.
- Restricting benefits, particularly optional benefits such as prescription drugs and home- and community-based services.
- Limiting eligibility, such as for the Medicaid expansion population.
These changes could make it much more difficult for people with behavioral health conditions to access needed care. Despite Medicaid being the nation’s largest payer of behavioral healthcare services, there is still significant unmet need for care[5]; each year, millions of people with behavioral health conditions do not receive any treatment.[6] This gap in treatment is largely attributable to a pervasive misalignment between payment for and coverage of behavioral healthcare services, and the positive impact these services have on people and communities.
Existing insurance payment rates for behavioral healthcare services are inadequate, and reductions would worsen this problem. Substantial disparities exist between behavioral healthcare providers and the rest of the healthcare system: an analysis found that, compared with psychiatrists and psychologists, benchmarked commercial insurance reimbursement for office visits with specialist medical/surgical physicians was 25% and 29% higher, respectively.[7]
Meanwhile, Medicaid payment is typically much lower than other insurance programs, with average Medicaid reimbursement for physician office visits being 38% less than employer-sponsored insurance and 26% less than Medicare.[8] Another study found that psychiatrists were reimbursed by Medicaid fee-for-service 19% less on average than by Medicare.[9] Further, Medicaid rates do not necessarily cover provider costs; in 2018, Medicaid payments for community hospital services amounted to only 89% of the cost to deliver those services.[10]
Therefore, reduced payment may further disincentivize behavioral healthcare providers’ participation in Medicaid, exacerbating current issues with inadequate insurance networks of behavioral healthcare providers. For example, a secret shopper survey in New York found that only 14% of calls made to mental healthcare providers listed as in-network by health plans led to an appointment being offered.[11] Another analysis found that over half of mental healthcare providers in Oregon Medicaid managed care plan directories did not see Medicaid beneficiaries in 2018.[12] This reflects the current state of low in-network use of behavioral healthcare services. In 2021, commercially insured patients had out-of-network office visits with psychiatrists 8.9 times more and with psychologists 10.6 times more than with medical/surgical specialists.7
Restricting benefits may also lead to greater out-of-network use, as many important behavioral healthcare services are not mandatory benefits in Medicaid, including residential and inpatient behavioral healthcare, most psychiatric medications, targeted case management, and various other clinical services.[13]
Accordingly, each of the Medicaid policy changes could result in individuals incurring greater out-of-pocket expenses, which, according to the Congressional Budget Office (CBO), could “possibly [lead] to a significant increase in medical debt and bankruptcies.”[14] Otherwise, more individuals could delay or forgo care due to unaffordability, which could result in worsened symptoms that necessitate more intensive care than if treated earlier.
These risks are magnified for Medicaid beneficiaries who lose coverage, as a portion of them may be unable to enroll in other plans (e.g., employer-sponsored, Marketplace). If FFP caps are implemented, CBO and Joint Committee on Taxation staff estimate that about 65% of people who lose Medicaid coverage would become uninsured.[15]
Work Requirements Must Include Behavioral Health Exceptions
Beyond financing, other proposals have been made to implement work requirements for Medicaid beneficiaries (also called “community engagement requirements”), whereby adults’ Medicaid eligibility is conditioned on continued participation in work or other qualifying activities (e.g., educational activities, volunteer programs).4 If pursued, work requirements must incorporate sufficient exceptions to ensure that individuals whose mental or substance use disorders prevent them from satisfying the requirements remain eligible for Medicaid enrollment and are not terminated.
These exceptions should reflect the enormous challenges that people with behavioral health conditions face, many of whom need treatment but cannot access it. Therefore, exceptions should not be limited to people actively enrolled in treatment. Additionally, while some people with behavioral health conditions may qualify for a disability exception, these determinations are often complex and do not capture everyone with significant impairment, so relying on disability exceptions alone risks people who cannot work because of their condition losing coverage. Further, some people with behavioral health conditions experience diminished mental capacity that interferes with their ability to complete administrative processes such as verifying exception eligibility or work requirement compliance, so processes must be designed to accommodate these circumstances. Finally, some people who are not working due to their behavioral health condition may be able to obtain employment if they receive appropriate treatment and recovery supports, so continued Medicaid coverage could actually help facilitate people getting employed.
Importance of Medicaid for the Behavioral Healthcare System
With Medicaid beneficiaries having a disproportionately high prevalence of behavioral health conditions,[16] Medicaid is critical to the delivery of services that people with mental and substance use disorders rely upon to treat their conditions. Therefore, the proposed Medicaid policy changes pose significant risks to behavioral healthcare organizations, which already are stretched thin by low reimbursement and uncompensated care amounting to billions of dollars per year.[17] These changes could necessitate cuts to service availability, leading to decreased access for patients amidst unprecedented need for services.
For OTPs, Medicaid funding enables them to be at the front line of the national response to the overdose crisis. OTPs deliver evidence-based treatment that promotes long-term recovery from opioid use disorder and prevents overdose deaths, and their efforts have transformed the lives of countless Medicaid beneficiaries, especially considering that Medicaid beneficiaries have an overdose death rate that is twice as high as the overall rate in the United States.[18] With 86% percent of OTPs accepting Medicaid in 2023[19] – more than any other insurance type – less funding from Medicaid could threaten the sustainability of OTPs and undermine the recent progress made to reduce overdose deaths.
Beyond the essential care that behavioral healthcare organizations provide, these facilities also have tremendous positive impacts on the economy. For example, one study found that the national economic impact of inpatient psychiatric facilities is nearly three times higher than expenditures, and these facilities alone create almost half a million jobs.[20] If Medicaid expenditures are reduced, we could expect even greater decreases in economic output attributable to behavioral healthcare facilities.
Recommended Actions
The 119th Congress and Trump administration have several major opportunities to reduce burden on behavioral healthcare organizations and better support them as they work to combat the nation’s behavioral health crisis. With respect to Medicaid, NABH recommends the following immediate actions to expand access to treatment:
- Eliminate the Institution for Mental Diseases exclusion, which blocks access to treatment for millions of Americans with severe mental and substance use disorders.
- Align mental health parity requirements for Medicaid managed care plans with the recent final rule for commercial markets, which was a major step forward in expanding access to care.
- Promote adequate Medicaid reimbursement of behavioral healthcare services to match the cost of delivering those services and the value they provide to patients.
Conclusion
For too long, payment and coverage inadequacy has inhibited the availability of behavioral healthcare services. Proposed changes to Medicaid financing and eligibility could have devastating impacts on Medicaid beneficiaries’ access to behavioral healthcare and the organizations that deliver these services. Congress and the Trump administration should undertake policy efforts that promote access to care for the millions of Americans with mental and substance use disorders.
References
[1] Guth M, Saunders H, Corallo B, Moreno S. Medicaid coverage of behavioral health services in 2022: findings from a survey of state Medicaid programs [Internet]. Kaiser Family Foundation; 2023 Mar 17 [cited 2025 Jan 17]. Available from: https://www.kff.org/mental-health/issue-brief/medicaid-coverage-of-behavioral-health-services-in-2022-findings-from-a-survey-of-state-medicaid-programs
[2] Medicaid and CHIP Payment and Access Commission. Behavioral health [Internet]. Medicaid and CHIP Payment and Access Commission; [cited 2025 Jan 17]. Available from: https://www.macpac.gov/topic/behavioral-health
[3] Congressional Budget Office. Options for reducing the deficit: 2025 to 2034 [Internet]. Congressional Budget Office; 2024 Dec [cited 2025 Jan 17]. Available from: https://www.cbo.gov/system/files/2024-12/60557-budget-options.pdf
[4] Limit, Save, Grow Act of 2023, H.R. 2811, 118th Cong., 1st Sess. (2023). Available from: https://www.congress.gov/bill/118th-congress/house-bill/2811
[5] Meiselbach MK, Ettman CK, Shen K, Castrucci BC, Galea S. Unmet need for mental health care is common across insurance market segments in the United States. Health Aff Sch. 2024 Mar 8;2(3):qxae032. doi: 10.1093/haschl/qxae032. PMID: 38756925; PMCID: PMC10986235. Available from: https://pmc.ncbi.nlm.nih.gov/articles/PMC10986235
[6] Substance Abuse and Mental Health Services Administration. 2023 NSDUH Detailed Tables [Internet]. Substance Abuse and Mental Health Services Administration; 2024 Jul 30 [cited 2025 Jan 17]. Available from: https://www.samhsa.gov/data/report/2023-nsduh-detailed-tables
[7] Mark TL, Parrish W. Behavioral health parity – pervasive disparities in access to in-network care continue [Internet]. RTI International; 2024 Apr 17 [cited 2025 Jan 17]. Available from: https://dpjh8al9zd3a4.cloudfront.net/publication/behavioral-health-parity-pervasive-disparities-access-network-care-continue/fulltext.pdf
[8] Biener AI, Selden TM. Public and private payments for physician office visits. Health Aff. 2017 Dec;36(12):2160-2164. doi: 10.1377/hlthaff.2017.0749. PMID: 29200346. Available from: https://www.healthaffairs.org/doi/10.1377/hlthaff.2017.0749
[9] Zhu JM, Renfro S, Watson K, Deshmukh A, McConnell KJ. Medicaid reimbursement for psychiatric services: comparisons across states and with Medicare. Health Aff. 2023 Apr;42(4):556-565. doi: 10.1377/hlthaff.2022.00805. PMID: 37011308; PMCID: PMC10125036. Available from: https://pmc.ncbi.nlm.nih.gov/articles/PMC10125036
[10] Appendix 1: supplementary data tables. Trends in the overall health care market [Internet]. American Hospital Association; [cited 2025 Jan 17]. Available from: https://www.aha.org/system/files/media/file/2020/10/TrendwatchChartbook-2020-Appendix.pdf
[11] Office of the New York State Attorney General. Inaccurate and inadequate: health plans’ mental health provider network directories [Internet]. Office of the New York State Attorney General; 2023 Dec 7 [cited 2025 Jan 17]. Available from: https://ag.ny.gov/sites/default/files/reports/mental-health-report_0.pdf
[12] Zhu JM, Charlesworth CJ, Polsky D, McConnell KJ. Phantom networks: discrepancies between reported and realized mental health care access in Oregon Medicaid. Health Aff. 2022 Jul;41(7):1013-1022. doi: 10.1377/hlthaff.2022.00052. PMID: 35787079; PMCID: PMC9876384. Available from: https://www.healthaffairs.org/doi/10.1377/hlthaff.2022.00052
[13] Medicaid and CHIP Payment and Access Commission. Behavioral health services covered under state plan authority [Internet]. Medicaid and CHIP Payment and Access Commission; 2021 Jan 11 [cited 2025 Jan 17]. Available from: https://www.macpac.gov/subtopic/behavioral-health-services-covered-under-state-plan-authority
[14] Congressional Budget Office. Options for reducing the deficit: 2023 to 2032 [Internet]. Congressional Budget Office; 2022 Dec [cited 2025 Jan 17]. Available from: https://www.cbo.gov/system/files/2022-12/58164-budget-options-large-effects.pdf
[15] Congressional Budget Office. Establish caps on federal spending for Medicaid [Internet]. Congressional Budget Office; 2022 Dec 7 [cited 2025 Jan 17]. Available from: https://www.cbo.gov/budget-options/58622
[16] Saunders S, Rudowitz R. Demographics and health insurance coverage of nonelderly adults with mental illness and substance use disorders in 2020 [Internet]. Kaiser Family Foundation; 2022 Jun 6 [cited 2025 Jan 17]. Available from: https://www.kff.org/mental-health/issue-brief/demographics-and-health-insurance-coverage-of-nonelderly-adults-with-mental-illness-and-substance-use-disorders-in-2020
[17] Government Accountability Office. States’ use and distribution of supplemental payments to hospitals [Internet]. Government Accountability Office; 2019 Jul [cited 2025 Jan 17]. Available from: https://www.gao.gov/assets/gao-19-603.pdf
[18] Mark TL, Huber BD. Drug Overdose Deaths Among Medicaid Beneficiaries. JAMA Health Forum. 2024 Dec 6;5(12):e244365. doi: 10.1001/jamahealthforum.2024.4365. PMID: 39641942; PMCID: PMC11624576. Available from: https://pmc.ncbi.nlm.nih.gov/articles/PMC11624576/
[19] Center for Behavioral Health Statistics and Quality, Substance Abuse and Mental Health Services Administration. National Substance Use and Mental Health Services Survey (N-SUMHSS), 2023: annual detailed tables [Internet]. Substance Abuse and Mental Health Services Administration; 2024 [cited 2025 Jan 17]. Available from: https://www.samhsa.gov/data/sites/default/files/reports/rpt53013/NSUMHSS-Annual-Detailed-Tables-23.pdf
[20] Dobson A, DaVanzo JE, Heath S, Berger G, El-Gamil A. The economic impact of inpatient psychiatric facilities: a national and state-level analysis. National Association for Behavioral Healthcare; 2010 Feb 19 [cited 2025 Jan 17]. Available from: https://www.nabh.org/wp-content/uploads/2018/06/NAPHS-Final-Report-2-19-10.2.pdf