Medicare, Medicaid Continue to Shape Mental Health Care 50 Years Later

Medicare has just turned 50, and the birthday was celebrated not only by the elderly but also by many Americans with serious mental illnesses.

Medicare provides health insurance to people aged 65 and over, while Medicaid serves a low-income population including one-third of all children in the United States. Today, Medicare covers 55 million people and Medicaid 66 million; 9.6 million of the overall total receive benefits from both systems.

A significant number of these individuals have a mental illness. About 31 percent of Medicare beneficiaries and 35 percent of Medicaid’s have a cognitive or mental impairment. Passage of Medicare in the Johnson administration not only altered payment models but also helped shift the locus of care for people with mental illness.

“At the start, there were still hundreds of thousands of people in institutions,” said former APA President Steven Sharfstein, M.D., president and CEO of Sheppard Pratt. “The Medicare Act stimulated the move to treating people in the community.”

Today, Medicare covers a number of mental health and substance use services, including care in psychiatric hospitals (with some time limits) or in general hospitals. Outpatient diagnostic and treatment services by psychiatrists, other physicians, psychologists, social workers, and psychiatric nurses are also covered, as are services and medications for the treatment of alcoholism and substance use.

Back in 1965, the dominant source of funding for mental health services—mostly hospital based—was still the states. Over the years since, Medicaid has become the largest payer of mental health and substance abuse treatment, covering more than one-fourth of all expenditures, either through community- or home-based care.

“Medicaid plays a large role in financing behavioral health care because its eligibility rules reach many individuals with significant needs; it covers a broad range of benefits; and its financing structure allows states to expand services with federal financial assistance,” according to a paper from the Kaiser Commission on Medicaid and the Uninsured. However, in a sense, there isn’t just one Medicaid program.

The federal government pays 50 percent to 74 percent of the costs, with a state’s share varying with state per capita income. States also can apply for waivers to craft their own programs (within certain parameters), said Irvin Muszynski, J.D., director of APA’s Office of Healthcare Systems and Financing.

“So you could have 50 variations, with different technical, contracting, reporting, and accounting requirements,” said Muszynski. “It’s a very technical game now for all concerned.”

That complexity can work in favor of innovation. For instance, the original legislation prohibited paying for care in “institutions for mental disease,” to prevent states from simply replacing state financing for mental hospitals with federal funds. Eventually, exceptions were carved out that permitted care in facilities with up to 16 psychiatric beds.

More recently, an eight-state demonstration project tested whether institutions for mental disease (IMDs) might divert patients from emergency rooms. The pilot was deemed successful and has led to a proposed rule permitting short-term stays in IMDs, said Muszynski. “A policy perceived as a barrier was modified to improve access.”

One lingering problem is that Medicaid reimbursement rates vary by state and are frequently so low that physicians feel forced to drop out of the program.

“Particular areas of concern for low participation include psychiatrists and substance abuse treatment professionals because of the high prevalence of behavioral health conditions among Medicaid beneficiaries,” wrote Drew Altman, Ph.D., and William Frist, M.D., of the Kaiser Family Foundation in Menlo Park, Calif., in the July 28 issue of JAMA.

Nevertheless, over half a century, Medicare and Medicaid, together with Social Security Disability Insurance, formed a basic safety net for the care of people with mental illness and substance use, said Sharfstein. “Without them, we would be back in the 19th century.” ■