Medicaid Cuts Will Heighten the US Mental Health and Substance Use Crisis

The One Big Beautiful Bill Act (OBBBA)’s cuts to Medicaid will heighten the nation’s behavioral health crisis. Nationally, each year an estimated 20 to 25% of children and adults have a mental illness¹ and 17% of adults and 9% of adolescents have a substance use disorder. Medicaid is the single largest payer of mental health and substance use services in the United States, and the burden of behavioral health conditions is higher among Medicaid enrollees. Among the 17% of US adults ages 19-64 covered by Medicaid, 35% have a mental illness and 24% have a substance use disorder. Medicaid also covers 40% of children, 30% of whom have a behavioral health condition. In 2020, the drug overdose rate among Medicaid beneficiaries of all ages was 54.6 per 100,000 people, more than twice the national average.²

Medicaid coverage loss due to OBBBA will decrease access to mental health and substance treatment among US adults and children; reduce Medicaid mental health and substance use benefits for those who remain covered; and worsen behavioral health workforce shortages. While OBBBA’s Medicaid provisions primarily target adults, the Act will spill over to negatively impact children: when parents gain or lose Medicaid coverage, their children often do the same.^3,4 In addition, the Act’s federal funding cuts will require states to save money by cutting optional eligibility and benefit categories, many of which pertain to children. 

OBBBA’s work and redetermination requirements for adults covered by the Affordable Care Act (ACA) expansion of Medicaid will cause coverage loss, often due to paperwork red-tape reasons as opposed to actual ineligibility. OBBBA requires adults to work at least 80 hours per month and mandates that eligibility be re-determined every 6 months, double the frequency of the current standard of 12 months. Most Medicaid-covered adults are employed, and the large majority of those not employed have an illness, disability, or caregiving responsibilities that render them exempt from Medicaid work requirements. However, paperwork barriers to repeatedly verifying employment or exempt status lead eligible adults to fall off the rolls. Arkansas’ 2018-2019 Medicaid work requirements led to significant coverage loss without increasing employment.^5,6 OBBBA attempts to mitigate paperwork barriers by requiring states to verify eligibility using existing administrative data sources—potentially utilizing artificial intelligence techniques—but major impediments will likely persist due to limited available data and inadequate health information technology. Variation in data infrastructure across states will create disparities in the volume of paperwork-related disenrollments across states, as occurred during the post COVID-19 Medicaid unwinding. In addition to causing coverage loss via work and eligibility redetermination requirements, OBBBA renders many lawful immigrants who were previously eligible for Medicaid ineligible, including refugees, asylum recipients, people on humanitarian parole, and those on visas related to human trafficking or violent victimization.

As noted above, parent and child Medicaid coverage are linked. In the first wave of states expanding Medicaid coverage to low-income adults via the ACA Medicaid expansion in 2014, over 700,000 eligible but previously unenrolled children gained Medicaid coverage due to parents’ increased awareness of and familiarity with the program.³ OBBBA’s cuts to parental coverage due to the work and redetermination requirements will reverse this “welcome mat” effect. Over 10 million adults and children are estimated to lose Medicaid coverage by 2034.

Another major OBBBA Medicaid provision prohibits new provider taxes, which states have historically used to fund their share of Medicaid spending, and requires some states that expanded Medicaid through the ACA to reduce current provider tax rates. These limits will force difficult state decisions about which optional eligibility categories, optional benefits, or provider payments to curtail in the face of smaller state Medicaid budgets. Regardless of the choices made, negative impacts for people with mental illness or substance use disorder are probable. Optional eligibility categories not required by federal law include “medically needy” children with high health care needs and costs and children with disabilities; nearly 60% of the children in these groups have behavioral health needs. Optional benefits include a range of behavioral health services covered through waivers, including Section 1115 waivers for substance use disorder care used by 36 states and the District of Columbia to cover medications for opioid use disorder, intensive outpatient services, residential care, and recovery support services, among others. Section 1915c home- and community-based services (HCBS) waivers that allow people who would otherwise need institutional care to live in the community and receive home care, transportation, and skills training, are also likely targets for cuts. Nine percent of children and 31% of adults who use HCBS have mental illness.

The OBBBA Medicaid provision will also substantially worsen the behavioral health workforce deficit. As of 2022, only one mental health care provider was available per 350 people in the United States, with more than 152 million people living in a “mental health workforce shortage area.” Behavioral health workforce deficits limit access to care for Medicaid beneficiaries and others with mental illness or substance use disorder. Behavioral health providers are among the lowest paid clinician specialties, an issue exacerbated by the fact that Medicaid, which reimburses providers at lower rates than Medicare or commercial insurance, is the largest payer of mental health and substance use disorder services.⁷ These issues disincentivize clinicians from choosing behavioral health as a specialty and, among those who do enter the field, limit the number of Medicaid patients they treat.⁸ OBBBA will likely worsen these issues, as newly limited state budgets may preclude increases—or even prompt decreases—in behavioral health provider payments. In addition, OBBBA limits the amount that state Medicaid managed care contracts can direct plans to pay providers—a mechanism called “state directed payments”—to Medicare (rather than higher commercial) levels.  Behavioral health providers have been a common target of state directed payments, with some states, prior to OBBBA, directing that some types of behavioral health clinicians be paid on par with commercial rates.²³ This provision will disappear under OBBBA, contributing to lower Medicaid payments to behavioral health providers.

The nation faces an ongoing behavioral health crisis. Undertreatment of mental illness and substance use disorder has far-reaching negative impacts, not only on health and well-being but also on educational attainment, employment, and military readiness, among others.^9-11 Yet, substantial evidence indicates that increasing Medicaid coverage is an effective tool to increase access to behavioral health treatment services and save lives. The ACA Medicaid expansion has been associated with increased mental illness treatment rates and fewer poor mental health days;¹² increased use of medications for opioid use disorder;^13,14 and reduced opioid-related hospital use¹⁵ and drug overdose.^16,17 Evidence also supports positive spillovers of the ACA Medicaid expansion to children, including improved mental health¹⁸ and reduced child maltreatment,^19,20 credited to the improvements in parents’ behavioral health outcomes and financial circumstances conferred by their new Medicaid coverage.²¹

By substantially reducing Medicaid eligibility, Medicaid coverage of health services, and the behavioral health workforce, we expect OBBBA’s Medicaid cuts to exacerbate challenges and reverse hard-won improvements in treatment access and health outcomes driven by the ACA Medicaid expansion. For the first time in more than 20 years, overdose deaths began to meaningfully decline in 2023. A recent analysis projects that OBBBA will cause 156,000 people to lose access to medication for opioid use disorder, resulting in over 1,000 excess fatal overdoses each year.

In the short-term, states should prioritize value-based and cost-effective strategies to manage behavioral health needs among Medicaid enrollees within the constraints of the OBBBA. Cityblock’s Advanced Behavioral Health Program, where specialized community health workers help people access highly effective treatments, is one promising model.²² Policy often swings on a pendulum, and the future will present opportunities to strengthen Medicaid, which the large majority of Americans view positively. In the meantime, it is imperative to develop evidence-driven coverage, benefit, and payment designs that go beyond overturning OBBBA’s cuts to optimize Medicaid to address the nation’s behavioral health.

Editor’s Note: Drs. McGinty and Cerdá are coeditors of an upcoming Quarterly special issue on Mental Health and Substance Use Challenges Facing the United States: What Can State Policymakers Do?

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