Research Update
Medicaid Financing for Behavioral Health Services: The Use of Flexibilities and Authorities
Project Background
Adequate financing is crucial to address the need and demand for behavioral health (BH) services among Medicaid populations. With Medicaid as the dominant payer for BH services, states optimize statutory authorities and other mechanisms to deliver necessary and appropriate care.

As such, Medicaid program financing facilitates access to BH resources, such as psychiatric care, counseling, prescription medications, inpatient treatment, case management, and supportive housing. Institutional or facility-based BH treatment has undergone major changes in treatment approaches as a result of clinical advances, socio-political changes, and an expanding research evidence base. In the last century, deinstitutionalization has shifted financing for inpatient and residential care to states, commercial insurance, or private payers.
Medicaid is a dominant payer for BH services and plays a crucial role in the lives and health of Medicaid beneficiaries. As state budgets decrease and unmet need for BH services increases, state Medicaid programs attempt to optimize legal and regulatory authorities that provide federal matching Medicaid funding for initiatives that further program goals.

The study identified 30 currently approved Section 1115 waivers that explicitly address BH through support for integration of BH services, expansion of benefits, and expansion of eligibility.
  • Waivers for BH integration permit federal matching funds for experimental, innovative, or pilot programs for novel service delivery models and payment reforms.
  • Section 1115 demonstration waivers allow states to expand BH benefits for services and receive reimbursement using federal matching funds for certain inpatient and residential services for mental disorders and SUD.
  • Section 1115 IMD-Mental Health and IMD-SUD waivers authorize states to use federal funds for Medicaid beneficiaries in IMDs for services delivered inside and, in some cases, outside the IMD. 
Kyle L. Grazier, MS, MPH, DrPH

Amanda Mauri, MPH

Cory Page, MPH, MPP
This publication was supported by the Health Resources and Services Administration (HRSA) of the U.S. Department of Health and Human Services (HHS) as part of an award totaling $900,000. The contents are those of the author and do not necessarily represent the official views of, nor an endorsement, by HRSA, HHS, or the U.S. Government. For more information, please visit
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