Progress and Challenges in Medicaid-Financed Care of Substance Use Disorder

Due to the passage of the 2010 Affordable Care Act and other legislative changes, Medicaid now expends roughly $12 billion annually on SUD services. Among the 40 states that have expanded Medicaid, this represents an important rebalancing of SUD financing from a grant-based system under the Substance Abuse and Mental Health Services Administration’s Substance Use Prevention, Treatment, and Recovery Block Grant, to a larger and more mainstream insurance-based payment source. Medicaid is a federal entitlement program that provides insurance benefits for a wide range of evidence-based treatment for SUDs. Its augmented role in financing SUD care holds great promise to improve SUD care sustainability, integration, and quality.

Multiple forces have increased Medicaid’s role in SUD care. The Affordable Care Act expanded Medicaid enrollment dramatically while simultaneously incorporating SUD care as an essential health care benefit (4). The Obama administration also overturned the exclusion of individuals residing in halfway houses from receiving Medicaid in 2016 (5). Other changes were fueled by state and federal legislation such as the 2018 SUPPORT Act, which mandated coverage for evidence-based treatment components like medications and concurrent psychosocial services for SUD. Between 2017 and 2021, every U.S. state improved Medicaid’s coverage of individual and group outpatient SUD treatment (6). By 2021, every state covered buprenorphine, oral naltrexone, and injectable naltrexone, and 85% covered methadone maintenance. Use of quantity limits, prior authorizations, and other utilization management methods also declined from 2017 to 2021 (6). The number of states covering more expensive SUD services like residential care has more than doubled since 2014, and the vast majority now do so. This is in part due to states being granted in 2015 the ability to waive restriction on payments for specialty residential behavioral health organizations (also known as “the IMD exclusion”) (7).

Medicaid coverage is now being extended into the high-risk period when individuals are leaving prisons and jails. Historically, Medicaid would not cover services within correctional facilities, meaning that many individuals would leave without insurance coverage for health care services at a time when their mortality rate (most prominently from overdose and suicide) is over 12 times that of the general population (8). California recently became the first state to receive a waiver from the federal Centers for Medicare and Medicaid Services to allow reactivation of Medicaid coverage for selected benefits prior to release for individuals deemed high risk for post-release harms. The Biden administration then encouraged other states to apply for similar waivers. As of this writing, Washington state has been granted the second waiver and 15 more states have applied for one (9).

A major impediment to SUD care is the refusal of 10 states to expand Medicaid despite generous federal matching rates on their spending (10). Refusing states include several with extremely high overdose rates (e.g., Tennessee, South Carolina, Florida). This not only limits access to treatment for people with SUDs but also their access to care for prevalent mental and medical comorbidities (10, 11). States that have not expanded Medicaid also forego an opportunity to expand SUD prevention efforts. Medicaid expansion covers some of the SUD treatment otherwise covered by the Block Grant, freeing up funds for prevention. From 2010 to 2020, the proportion of Block Grant funds allocated for primary prevention increased by 15% in states which had expanded Medicaid and declined by 10% in non-expansion states.

The unwinding of COVID-related emergency provisions represents another challenge. Almost 12 million individuals were disenrolled from Medicaid by the end of 2023 (12). The precise number who have SUD is unknown but is surely not small.

Further, though fee-for-service Medicaid program benefits for SUD care have improved, many state Medicaid programs do not cover the full continuum of SUD care services recommended by organizations such as the American Society of Addiction Medicine (13). The Mental Health Parity and Addiction Equity Act of 2008 and the Affordable Care Act provided mechanisms to require insurers of all sorts (i.e., public, private, and private contracted by the public) to expand benefits for SUD care. The Biden administration as well as a few states have improved enforcement of such “parity” provisions, which prohibit Medicaid managed care plans from imposing restrictions on SUD care coverage that is more stringent than that imposed for care of other medical disorders.

That said, coverage has become more complex because most states contract out management of their Medicaid benefit to private parties (typically commercial insurance plans). Today about 75% of Medicaid beneficiaries are enrolled in such managed care arrangements (1). Overall use of utilization management policies within Medicaid fee-for-service programs has declined in recent years, but such policies remain widespread in Medicaid managed care plans. Use of prior authorization, which is particularly common, has been linked to decreased provider willingness to prescribe SUD medications like buprenorphine, as well as limited patient access to SUD care more generally. Rates of denial of prior authorization requests across all medical conditions reach as high as 40% in some Medicaid managed care plans; the rate of denial specific to SUD care is unknown (14). These data prompt a need to investigate whether management of SUD services is consistent with parity provisions.

Medicaid fee-for-service payments across all providers are on average well below those offered by other payers and SUD care-specific payment rates in many states are below those paid by Medicare and private insurers (15). Low reimbursement rates constrain the ability of the health care system to serve the expanding number of low-income people who have gained Medicaid coverage.

Individual mental health professionals, their professional associations, as well as patient and family groups have a shared interest in Medicaid being an accessible and high-quality health insurance program. The needs of patients and a commitment to paying fairly for what works should serve as “true north” for advocacy efforts. The impact of advocacy will be increased if it is coordinated and well-targeted.

Specifically, although some of Medicaid’s challenges can be addressed at the federal level, in many if not most cases, the power lies in states. This includes state legislators and governors as well as state Medicaid commissioners and single state agency leads. The most important states to target are those that have limited benefits sharply or have not expanded Medicaid at all (6, 10). State-level advocacy can be supplemented with pressure at the federal level to include Medicaid in efforts to strengthen and enforce parity provisions and Medicaid waiver agreements that balance relaxing restriction on institutional coverage of specialty SUD care with promoting new investments in community-based SUD treatment capacity.

Advocates should also demand greater transparency from Medicaid managed care plans. The federal government should both require that Medicaid managed care plans systematically report coverage and utilization restrictions, and should also create a nationwide source of information regarding the benefits plans provide. Medicaid managed care plans should also be required to release information regarding reimbursement rates to providers.

Raising the floor for the accessibility and quality of covered SUD services across the country (which in some cases may require raising reimbursement rates) is also essential to ensure that Medicaid enrollees receive effective, humane care. Broader policies designed to support and incentivize more health professionals to treat SUD patients (e.g., student loan relief, curriculum enhancements) (16) would also increase the impact of Medicaid as well as that of health care system more generally.