Federal Mental Health Spending Grew Faster Than State and Local Spending, and the Role of Medicaid and Medicare Increased

In 1997, the nation spent about $73 billion for the treatment of all mental illness, up from $37 billion in 1987.Mental health spending grew at about the same rate as overall health spending during this period. The continued development of psychotropic medications that both are more effective and produce fewer side effects has facilitated the ability to care for more people with SMI in the community. Furthermore, treatment approaches such as ACT, supported employment, and supportive housing can provide the multiple forms of ongoing assistance that adults with SMI often need to function. Many people with SMI need a range of services to help them function in the community. HCFA Is Supportive of New Community- Based Services and Is Developing Safeguards for the Use of Managed Care

HCFA has disseminated information to states about the more effective medications and treatments for adults with SMI and has supported states’ use of Medicaid managed mental health care to provide a wider array of services not covered by traditional fee-for-service Medicaid. HCFA has also encouraged the use of newer medications. The draft indicates that HCFA intends to develop plans to implement its recommended safeguards, such as through legislative or regulatory action or changes in Medicaid administrative policies. The agency has indicated that it will devise a set of actions to implement these recommended safeguards.
What GAO Found

Between 1987 and 1997, the growth in mental health spending in the United States roughly paralleled the growth in overall health care spending. However, federal mental health spending grew at more than twice the rate of state and local spending. This led to the federal government's share surpassing that of state and local governments, while the share attributable to private sources declined slightly. The ability to care for more people in the community has been facilitated by the continued development of new medications that have fewer side effects and are more effective in helping people manage their illness. Furthermore, treatment approaches, such as assertive community treatment, supported employment, and supportive housing, provide the ongoing assistance that adults with serious mental illness (SMI) often need to function in the community. The Health Care Financing Administration (HCFA) has encouraged the use of community-based services for Medicaid beneficiaries with SMI by disseminating information on the use of new medications and treatment models, which can help people function better in the community. HCFA also supports states' use of Medicaid managed health care services. However, incentives associated with capitated payment can lead to reduced service utilization. HCFA is developing a set of safeguards for people with special health care needs enrolled in Medicaid managed health care and has indicated that it will devise a plan to implement these safeguards, such as through legislative or regulatory action or making changes in Medicaid administrative policies.