National Alliance on Mental Illness
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Medicaid Funding of Mental Illness

Medicaid has increasingly become the dominant source of funding for treatment and support services for both children and adults living with severe mental illness – currently, Medicaid comprises 50% of overall public mental health spending, a figure that is expected to rise to 60% by 2010. More importantly, Medicaid is a safety net program that is intended to protect the most disabled and vulnerable children and adults struggling with severe mental illness.

Many state Medicaid programs are continuing to face a severe budget crises in 2004. This crisis would be considerably worse had Congress not intervened in 2003 to provide the state Medicaid programs with $10 billion in enhanced matching funds through the end of FY 2004 (a 2.95% increase in each state’s matching rate). The current strain on state Medicaid programs will also be eased in 2006 when the new Medicare prescription drug law goes into effect and beneficiaries dually eligible for Medicare and Medicaid will begin receiving drug benefits through Medicare (saving states an estimated net savings of $17.2 billion by 2013). NAMI is pleased that Congress has been responsive to the fiscal stress on state Medicaid programs in recent years. Additional oversight of state Medicaid agencies is now needed to ensure that enhanced federal spending is used to prevent further cuts in 2004 and beyond.

NAMI urges Congress and the Bush Administration to remember that:

  • Medicaid has become the dominant source of funding for public sector mental illness treatment and supportive services.
  • States should not be allowed to eliminate eligibility for current beneficiaries with severe mental illnesses, especially children and adults eligible for Medicaid as a result of their status as Supplemental Security Income (SSI) recipients.
  • States should not be allowed to restrict optional community-based mental illness treatment and supportive services for mandatory beneficiaries with severe mental illnesses (including coverage of prescription drugs and intensive case management).
  • States need enhanced flexibility to reform their Medicaid programs to replicate evidence-based service models for mental illness treatment and supports.
  • The Medicaid Institutions for Mental Disease (IMD) exclusion discriminates against non-elderly adults with severe mental illnesses and states should be given greater flexibility to waive this outdated inflexible rule to promote access to acute care services and fund waiver programs that transition individuals from institutional settings into the community.

In addition, NAMI urges Congress and the Bush Administration to integrate into any Medicaid reform legislation the following:

  • A new consolidated state option for intensive community-based mental illness services, including the Programs of Assertive Community Treatment (PACT) – such legislation was proposed in the 107th Congress, HR 2364/S 2072.
  • A new option permitting states to loosen eligibility restrictions for families of children and adolescents with severe disabilities in order to prevent such families from having to relinquish custody in order to access treatment and supportive services (the Family Opportunity Act, S 622/HR 1811).
  • Enhanced authority for states to waive the discriminatory IMD exclusion to allow federal matching funds for community-based acute care services.
  • Encouragement for the states to ensure full access to the newer more effective psychiatric medications in Medicaid pharmacy programs.
  • New authority for the states to expedite and ensure quick eligibility for individuals with severe mental illnesses who are either homeless, or reintegrating into the community from institutional settings or the criminal justice system.

IMD Exclusion Perpetuates Discrimination

Current federal Medicaid policy bars from coverage all services provided to adults ages 22 to 64 in IMDs that include psychiatric hospitals and many community-based residential facilities. This policy isolates individuals with mental illnesses from all other Medicaid-eligible populations, contradicting the principles of equal treatment and insurance parity for treatment of mental illnesses, and undermining the ability of states to develop comprehensive systems of care. The result is that individuals with mental illnesses who receive services in IMDs are singled out for inferior Medicaid coverage. NAMI urges Congress to repeal the IMD exclusion and to support universal, non-discriminatory coverage under Medicaid for appropriate, effective treatment and services for individuals with mental illnesses.

The FOA Offers Hope to Families of Children with Severe Mental Illnesses

NAMI strongly supports the Family Opportunity Act (S 622/HR 1811), legislation designed to end the financial devastation that families too often encounter in attempting to access quality treatment for their children with severe mental illnesses and other disabilities. This legislation would allow states to offer Medicaid coverage to children with severe disabilities living in middle income families through a buy-in program. Currently, families must stay impoverished, place their children in an out of home placement or simply give up custody in order to secure the health care services their children need under Medicaid.

Federal Medicaid Reform Could Dramatically Reduce Mental Illness Services

While the Bush Administration and the bipartisan National Governors Association (NGA) were unable to agree on a Medicaid reform plan in 2003, it is possible that the issue of long-term reforms to the program will come up again in 2004. Previous proposals in recent years have included replacing the current entitlement program with one or more block grants to states, giving states greater flexibility to reduce the benefit package for some or all eligible individuals, and allowing states to create separate programs within Medicaid (i.e., with lower benefits, higher co-payments and fewer protections for individuals who fall within optional eligible populations). NAMI remains concerned that a major restructuring of the Medicaid program could result in:

  • Swelling the number of people with mental illnesses who are homeless
  • Diagnosing a child’s mental disorder and then denying early treatment
  • Increasing the number of adults and juveniles with serious mental illnesses who languish in jails, juvenile detention centers and prisons for lack of access to community mental health care

Block grants and other drastic policy changes to eligibility and coverage are likely to not only harm people with mental illnesses, but also threaten the viability of the fragile public mental health care system.

January 2004