Last July, after the President's New Freedom Commission on Mental Health
issued its report calling for a "fundamental transformation" in
the mental health system, then APA President Marcia Goin, M.D., pointed out
the need for adequate funding to support any major structural
At APA's 2004 annual meeting last month, Michael Hogan, Ph.D., who was
chair of the commission, offered an overview of the "Troubling Fiscal
Dynamics of Mental Health Care."
"It's almost all bad news," he said. Hogan described four major
problems that limit the pace of reform in mental health.
First, Hogan said, is a "two-tiered system of care" that
relegates treatment for serious mental illness to a separate system managed by
the government that is "outside of the mainstream of health
He told Psychiatric News that among the reasons for this separate
system of care is that the country's de facto insurance system is employer
based. Serious mental illness most frequently occurs when a person is at the
age to lose coverage from parents and renders him or her unable to work and
gain coverage independently.
In fact, Hogan told the audience, the employer-based insurance system is a"
much more fundamental" reason than lack of parity for the need
for a public safety net for those with serious mental illness.
Although he believes that care offered by public psychiatric institutions
can be "far superior" to that offered by the private sector, Hogan
explained later to Psychiatric News that "in a market-oriented
and tax-resistant economy, public care—irrespective of quality— is
viewed as worse and thus perpetuates stigma."
One source for this problem, Hogan argued, is that the country has
successfully "implemented the reforms we were supposed to
In the 1970s, he said, the view of reform was that the country needed a
network of community mental health centers with a wide array of services
coordinated by case managers.
Many of the services needed, however, have not yet been funded through the
In 1980 a commission headed by former surgeon general Julius Richmond,
M.D., issued the National Plan for the Chronically Mentally Ill with
recommendations that ultimately led to funding for mental health services
through Medicare and Medicaid and a "proliferation of responsibility in
lots of federal agencies," as the view broadened about the kinds of
supportive services needed.
Congress changed Medicaid and Medicare and other programs, such as Social
Security, providing more resources for mental health care, but also creating
Federal fragmentation of funding streams translated into fragmentation at
the state and community levels.
The result, said Hogan, is that people with serious mental illness and
their family members often must navigate a complicated system on their own at
a time when their emotional resources are severely taxed by illness.
Erosion in funding for mental health services in both the private and
public sectors further complicates reform efforts.
Hogan reminded the audience that when the Carter Commission issued its
report in 1978, 12 percent of the money spent on health care went to mental
health services. By 1997, the last year for which data are available, the
figure had shrunk to 7 percent.
He offered examples of changes in funding patterns for mental health in
Ohio, where he has directed the Department of Mental Health since 1991.
The state undertook a shift of resources from hospital to community care
beginning in 1992. During that period, inflation-adjusted state general
reserve funds (GRF) spent on mental health services remained almost constant
at approximately $310 million, as measured in 1992 dollars.
The amount spent on community care, however, showed a steady increase, with
relatively proportionate reductions in expenditures on inpatient care.
Beginning in 1998, GRF funds spent on mental health services began to erode
in relation to inflation and are projected at about $215 million for Fiscal
2005 (see chart on page
"This is not about budget cuts," said Hogan. Mental health has
fared "far better than most agencies in terms of budget cuts." It
reflects "long-term budget inattention," which is "much
scarier than budget cuts."
The final factor is what Hogan called the "Medicaidization" of
mental health funding. "Medicaid might have both saved our bacon and
burned it," he said.
The program provides "essential resources" for community care,
medications, and elements of inpatient care for people with mental illness and
also funds general health care services for them.
But its eligibility standards are a "poor fit with need" for
persons with mental illness, according to Hogan.
Medicaid's two major funding mechanisms, managed care and fee for service,
have exhibited problems in implementation.
Some states have "success stories" in implementation of managed
care, but most stories do not show success. Successful implementation of
managed care through capitation requires sufficient funding at the outset.
Otherwise, said Hogan, it becomes "decapitation."
Ohio maintains a fee-for-service model that operates through county boards
to CMHCs. With decreased GRF funding, those centers increasingly offer only
services that Medicaid will reimburse and serve only Medicaid-eligible
Hogan concluded with observations and questions about the difficulty of
resolving each of these problems.
He said that the problem of two-tiered care would require comprehensive
health care reform and cannot be fixed within the mental health system
Ameliorating the problem of fragmentation legislatively would require
changes in Medicaid, Medicare, ERISA, and Social Security, "just for
"That is why the commission proposed transforming care," said
Hogan. "A big-bang theory of changing mental health focused just on the
federal government is likely to fail."
When times are tight, it is a "hugely complex" problem to stem
or reverse the erosion of funding, he added.
Hogan then asked a final question, "Who do we see about
He noted that the program's major funding role makes state Medicaid
agencies at least as significant for mental health care as state mental health
Hogan said that the commission had recommended a voluntary, collaborative
approach to expanded state leadership for improving mental health care.
"The president's 2005 budget proposes a $44 million initiative to
support expanded state mental health plans. Better coordination with Medicaid
should be a key aspect of those plans," he said.
"Troubling Fiscal Dynamics of Mental Health Care" was a
presentation at the session "Wither the States?," sponsored by the
American Association of Community Psychiatrists and the National Association
of State Mental Health Program Directors and supported financially by the
Substance Abuse and Mental Health Services Administration. ▪