Medicaid Coverage of Inpatient Mental Health Care: State Policy Options

Today, states are facing a large and growing demand for mental health services. While Medicaid is an important source of coverage for mental health services, federal law limits funding for certain inpatient services provided by “institutions for mental disease” or IMDs. In recent years, however, the federal government has provided new options, including waivers, to allow states to finance IMD services through Medicaid in certain situations such as for treatment of substance use disorders.

In a report copublished today by the Milbank Memorial Fund and the Kaiser Family Foundation, Kaiser researchers MaryBeth Musumeci, Priya Chidambaram, and Kendal Orgera explain what behavioral health services Medicaid covers and offer new data on Medicaid enrollees’ use of inpatient and outpatient substance use disorder and mental health treatment services.

The authors review the four options states have for accessing federal Medicaid funds for enrollees receiving IMD services and analyze current IMD waiver activity, drawing on interviews with three policymakers from two states and one county. Early waiver evaluation results in these areas show more Medicaid enrollees using substance abuse disorder services and increased provider participation since allowing IMD payment.

The Milbank Memorial Fund’s Reforming States Group recommended that Milbank support this report.