How can Medicaid improve behavioral health?

Medicaid stands as the cornerstone of behavioral health care financing and coverage in the United States, covering essential mental health and substance use disorder services for millions of individuals in all 50 states. As the nation’s largest payer for these services,¹ Medicaid not only supports people in getting the care they need but also underpins the economic stability of clinics and providers serving many communities.

What is Medicaid and who does it serve? Medicaid provides health coverage to eligible low-income adults, children, pregnant women, older adults, and people with disabilities across the country in urban and rural areas. Medicaid is administered by states, according to federal requirements and is jointly funded by state and the federal governments.

Reductions in federal Medicaid funding threaten to undermine access to care, destabilize community health infrastructure, and exacerbate preventable differences in behavioral and physical health outcomes.²

Medicaid plays an indispensable role in supporting behavioral health services. This coverage is particularly crucial given that nearly 1 in 3 adults (35%) enrolled in Medicaid experience mental illness,³ including 8% with a serious mental illness.⁴ These rates significantly exceed those seen in adults with private insurance or no coverage, highlighting Medicaid’s essential role in ensuring care to those who often face barriers.⁵

Medicaid has demonstrably improved access to behavioral health care. Research shows that providing coverage to low-income adults is associated with increased access to care and medication for depression, particularly in areas with shortages of mental health professionals. Further, adults with mental illness enrolled in Medicaid are nearly 4 times more likely to receive inpatient treatment and 6 times more likely to receive outpatient treatment compared to individuals with other or no insurance.⁶

Medicaid tackles critical health challenges

Medicaid plays a significant role in addressing critical health challenges, such as combating the opioid crisis and supporting youth and maternal health. Medicaid’s role in addressing the opioid epidemic cannot be overstated. The program covers nearly 40% of adults with opioid use disorder,⁷ providing access to medication assisted treatment that yields significant lifetime cost savings ranging from $15,000 to $90,000 per individual.⁸ This investment in treatment not only saves lives but generates substantial economic returns for states and the broader health system.

Early intervention is critical in addressing behavioral health challenges, particularly given that 74% of individuals with substance use disorders began using drugs before age 18.⁹ Medicaid’s role in funding school-based health services is therefore essential to prevention efforts.¹⁰ School districts currently depend on Medicaid funding to provide mental health care, early intervention, and crisis support for students, helping to prevent more severe conditions and academic disruption.¹¹

The importance of this coverage extends beyond substance use prevention. In 2021, 30% of children enrolled in Medicaid had a mental, emotional, developmental, or behavioral issue, underscoring Medicaid’s importance as a comprehensive safety net for young people during critical developmental years.¹²

Medicaid’s coverage of maternal mental health services represents another critical area of impact. One in 5 pregnant or new mothers experience mental health conditions, which are the leading cause of death for women in the first year postpartum.¹³ Given that Medicaid covers over 40% of births nationwide, including nearly half of all rural births, the program’s role in supporting maternal mental health is vital to both individual and community wellbeing.¹⁴

Consequences of federal funding reductions for Medicaid

In 2025, Congress passed and the President signed H.R. 1 into law. The new law calls for reductions in federal Medicaid funding, including limiting state provider taxes. This change in funding will cause over 10 million people to lose health insurance by 2034 ¹⁵ and force states to make difficult choices. To offset reduced  federal funds, states will either increase taxes significantly or reduce spending on other essential services.

Further, H.R. 1 will require more frequent redeterminations, requiring low-income Medicaid enrollees to demonstrate eligibility every 6 months instead of annually. The new law also imposes additional work requirements for some individuals. These stricter eligibility rules will cause Medicaid enrollment reductions and a decrease in access to mental health services provided through this program. States are unlikely to be able to fully compensate for lost federal dollars and may cut Medicaid programs directly, creating negative impacts on providers and individuals served through Medicaid.

Funding reductions may also lead to service disruptions, particularly for those providers who are already financially vulnerable. Many providers estimate that they could not continue services for more than 30 days following a significant funding reduction.¹⁶ Funding reductions would most severely affect individuals with mental health and substance use disorders who rely on Medicaid for affordable, accessible care. This vulnerable group, while largely exempt from work requirements, may have difficulty navigating the new requirements for Medicaid redetermination. As a result, they may lose coverage and face significant barriers to accessing care through other systems.

The federal government provides billions of dollars in Medicaid funds to schools annually to increase access to quality physical, mental, and behavioral health services for eligible students.¹⁷ Nationally, nearly 50% of all school-aged children and youth are covered by Medicaid.¹⁸ School districts that currently depend on Medicaid funding for behavioral health services would be forced to eliminate these crucial supports, leaving vulnerable youth without essential interventions during critical developmental periods. This reduction in early intervention services could lead to more severe behavioral health challenges and academic disruption in the long term.

Pregnant women, new mothers, and children would experience reduced access to mental health care, compounding risks for long-term health challenges and potentially increasing maternal mortality rates, which are already concerning in many parts of the United States.

Policy considerations

Medicaid is an economic, health, and social safety net that benefits entire communities. Maintaining stable funding is essential to preserving the provider networks and community infrastructure that millions of Americans depend upon. Policymakers can support behavioral health for Medicaid beneficiaries in their states:

• Sustain essential Medicaid services – Offset federal cuts by increasing state appropriations, redirecting other funds, and advocating for enhanced funding through special waivers or administrative flexibility.
• Minimize administrative barriers for enrollees – streamline the eligibility process to prevent coverage gaps, leverage technology for renewals, increase community outreach, and pursue available waivers for certain services.
• Support exemptions to new work requirements and cost-sharing – increase beneficiary outreach and support efforts to those individuals likely to qualify for a work requirement or cost-sharing exemption.

Medicaid’s foundational role in behavioral health care is significant. Funding reductions can compromise access to life saving care, destabilize provider networks, and threaten the well-being of millions of Americans, especially those with mental health and substance use disorders.

Policymakers must recognize the program’s centrality in promoting public health, sustaining community infrastructure, and delivering cost-effective, evidence-based care. Maintaining robust Medicaid funding is not merely a health care issue but an economic and social imperative essential to protecting the nation’s behavioral health now and into the future.

References

1.Behavioral Health Services, Medicaid.gov. Accessed at https://www.medicaid.gov/medicaid/benefits/behavioral-health-services
2. Miller, J. Impact of Federal Medicaid Cuts on Health Coverage and State Mental Health and Aging Agencies (March 2025) National Coalition on Mental Health and Aging. Accessed at https://www.ncmha.org/impact-of-federal-medicaid-cuts-on-health-coverage-and-state-mental-health-and-aging-agencies/.
3. Chatterjee, R., Mental Health Care is Hard to Find, especially for people with Medicare or Medicaid (April 2024) NPR, accessed at https://www.npr.org/sections/health-shots/2024/04/03/1242383051/mental-health-care-shortage-medicare-medicaid-hhs-inspector-general
4. 2023 Medicaid and CHIP Beneficiaries at a Glance: Adult Behavioral Health (Oct. 2023) Medicaid.gov, Accessed at https://www.medicaid.gov/medicaid/quality-of-care/downloads/adult-behavioral-health-infographic.pdf.
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6. MACPAC, Access to Mental Health Services for Adults Covered by Medicaid (June 2021). Accessed at https://www.macpac.gov/wp-content/uploads/2021/06/Chapter-2-Access-to-Mental-Health-Services-for-Adults-Covered-by-Medicaid.pdf.
7, Swartz, J., Mental Health and substance use disorder comorbidities among Medicaid beneficiaries: Associations with opioid use disorder and prescription opioid misuse (Aug. 2023), AIMS Public Health, Accessed at https://pmc.ncbi.nlm.nih.gov/articles/PMC10567978/.
8. Fairley, M, Cost-effectiveness of Treatments for Opioid Use Disorder (Mar. 2021), JAMA Psychiatry, Accessed at https://pmc.ncbi.nlm.nih.gov/articles/PMC8014209/.
9. Poudel, A., Age of onset of substance use and psychological problems among individuals with substance use disorders (Jan. 2017), BMC Psychiatry, Accessed at https://pmc.ncbi.nlm.nih.gov/articles/PMC5225546/#:~:text=Recent%20estimates%20indicate%20that%20the,11%20or%20younger%20%5B1%5D..
10. Healthy Schools Campaign, How Medicaid Cuts will Harm Students and Schools (March 2025), Accessed at https://healthyschoolscampaign.org/dev/wp-content/uploads/2025/03/How-Medicaid-Cuts-Will-Harm-Students-Schools.pdf.
11. Id.
12. 2023 Medicaid and CHIP Beneficiary Profile: Enrollment, Expenditures, Characteristics, Health Status, and Experience (April 2023) CMS. Accessed at https://www.medicaid.gov/medicaid/quality-of-care/downloads/beneficiary-profile-2023.pdf
13. Maternal Mental Health Leadership Alliance, Key Facts: Maternal Mental Health (MMH) Conditions (Nov. 2023), Accessed at https://static1.squarespace.com/static/637b72cb2e3c555fa412eaf0/t/66cdafb417396938445082a0/1724755892680/Maternal+Mental+Health+Overview+Fact+Sheet+-+MMHLA+-+Nov+2023.pdf.
14. American Hospital Association, Fact Sheet: Medicaid (Feb. 2025), Accessed at https://www.aha.org/system/files/media/file/2025/02/Fact-Sheet-Medicaid-20250204.pdf.
15. Estimated Effects on the Number of Uninsured People in 2034 Resulting From Policies Incorporated Within CBO’s Baseline Projections and H.R. 1, the One Big Beautiful Bill Act, Congressional Budget Office (June 4, 2025), Accessed at https://www.cbo.gov/system/files/2025-06/Wyden-Pallone-Neal_Letter_6-4-25.pdf
16. Id.