National Alliance on Mental Illness
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Medicaid Funding of Mental Illness Treatment

January 2005

Medicaid is now 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 chronic illness and severe disabilities such as mental illness.

State Medicaid programs continue to face a severe budget crisis in 2005. NAMI is extremely concerned that the President’s budget proposal for FY 2006 – due to be released on February 7 – will include a renewed effort to either severely restrict, or perhaps even cap, future federal Medicaid matching funds to the states. Such a proposal would have disastrous consequences for individuals and families that depend on Medicaid. In addition, the FY 2006 budget resolution that Congress will take up this spring is likely to include "reconciliation" instructions that call for deep cuts in federal Medicaid matching funds for the states. Finally, NAMI remains extremely concerned about efforts by the Bush Administration to encourage (and in some cases even compel) states to accept fixed future Medicaid payments from the federal government in exchange for greater state flexibility.

Federal Medicaid Reform Could Dramatically Reduce Mental Illness Services

Previous proposals to limit federal Medicaid funding have included efforts to replace the current entitlement program with capped payments to the states or a block grant. While these proposals would grant states greater flexibility, NAMI remains concerned that they would also encourage states to reduce the benefits for both mandatory and optional populations. These proposals – which are expected to come up again in 2006 – would also allow states to states to create separate programs within Medicaid (i.e., with lower benefits, higher co-payments and fewer protections for optional populations). In NAMI’s view, capped federal payments and block grants in Medicaid would result in cuts in eligibility and coverage for both mandatory and optional populations and would be extremely harmful to children and adults living with mental illnesses. These proposals would inevitably threaten the viability of the already fractured public mental health care system.

NAMI remains concerned that capped federal Medicaid payments to the states or major cuts in federal Medicaid matching funds will result in:

Swelling the number of people with mental illnesses who are homeless,

Diagnosing a child’s mental disorder and then denying early treatment, and

Increasing the number of adults and juveniles with mental illnesses who languish in jails, juvenile detention centers and prisons for lack of access to treatment.

Medicaid is a Critical Resource for Mental Illness Treatment Services

NAMI urges Congress and the Bush Administration to remember that:

  • Medicaid is the largest source of funding for public sector mental illness treatment and supportive services.
  • States should not be allowed to eliminate eligibility for current mandatory and optional beneficiaries with severe mental illnesses.
  • States should be prevented from restricting 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).
  • 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.

Improving Medicaid for Vulnerable Beneficiaries With Mental Illness

In addition, NAMI urges Congress and the Bush Administration to support the following:

  • A new consolidated state option for intensive community-based mental illness services, including the Programs of Assertive Community Treatment (PACT).
  • A new option permitting states to loosen eligibility restrictions for families of children 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 in the 108th Congress).
  • Enhanced authority for states to waive the discriminatory IMD exclusion to allow federal matching funds for acute psychiatric services.
  • Encouragement for the states to ensure full access to the newer, more effective psychiatric medications in Medicaid pharmacy programs.
  • Legislation to address the crisis with respect to access to acute inpatient psychiatric services – including the Medicaid Psychiatric Hospital Fairness Act (S 1771/HR 3363 in the 108th Congress) to address inconsistencies between the IMD Exclusion and EMTALA.
  • 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 (Institutions for Mental Disease) that include psychiatric hospitals and many community-based residential facilities. This policy isolates adults 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 in the 108th Congress), 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.

For more information please contact: Andrew Sperling, Director of Legislative Advocacy at 703-516-7222 or