Medicaid recipients struggle to find mental health care. Looming cuts could make it harder

By Shalina Chatlani, Stateline.org

Charmeka Newton, a psychologist who has her own practice in Lansing, Michigan, is passionate about serving Black and Hispanic patients. They’re often looking for therapists who will understand how their race, ethnicity and culture may affect them, she said, and she helps provide that care.

Medicaid is a major source of health care for people of color. But Newton can only afford to see a small number of Medicaid patients, because the program pays her so much less than commercial insurance.

Republicans in Congress are aiming to make extensive cuts to Medicaid, the joint federal-state health insurance program that covers a total of 72 million low-income people and people with disabilities, or 1 in 5 U.S. residents. If that happens, Newton and many other mental health providers worry that already-low Medicaid reimbursement rates will stagnate or even decline.

That would make it difficult for her to keep seeing Medicaid patients.

“Medicaid is probably one of the most challenging insurances to work with,” Newton told Stateline. “My biggest fear if cuts happen is that individuals won’t have access to providers that are able to help them.”

Already, there is a shortage of mental health care providers. About 122 million people, or about 35% of the U.S. population, are living in an area with a mental health care professional shortage, according to data from the federal Health Resources and Services Administration. If Medicaid reimbursement rates go down and more providers refuse to see those patients, the shortage would get worse.

Nationwide, Medicaid covers nearly 1 in 3 working-age adults who live with mental illness, or about 15 million adults, according to health policy research organization KFF.

The U.S. House Energy and Commerce Committee, which oversees Medicaid, is looking for at least $880 billion in budget savings over the next decade, largely to pay for extensive tax cuts. A March 5 letter from the Congressional Budget Office, the nonpartisan research arm of Congress, confirmed that a cut of that size would have to come from either Medicaid or Medicare, the insurance program for older adults.

President Donald Trump has said that Medicare is off the table, so that leaves Medicaid.

Lawmakers are considering numerous options, including shrinking the federal government’s share of the cost of covering people who became newly eligible for Medicaid under the Affordable Care Act. If that happens, states that opted to expand to cover those residents — adults with incomes up to 138% of the federal poverty level — would have to either increase their own spending or find savings elsewhere.

That could mean removing some people from Medicaid rolls, eliminating coverage for certain services or reducing reimbursement rates — any one of which could reduce Medicaid recipients’ access to mental health care, said Stephen Gillaspy, director of health policy and health care financing at the American Psychological Association.

“Those [actions] would have a huge negative impact for behavioral health care,” Gillaspy told Stateline. “Everyone’s on pins and needles about the potential cuts right now.”

Variations across states, different challenges

In at least 15 states, more than 40% of people on Medicaid reported experiencing a mental illness, according to a KFF analysis of 2021-2022 survey data from the federal Substance Abuse and Mental Health Services Administration.

Republicans in Congress are still hammering out whether or how they might cut Medicaid. Chris Pope, a senior fellow at the conservative-leaning policy group the Manhattan Institute, told Stateline he doubts mental health services or reimbursement rates would be affected, because the largest sources of spending are acute and long-term care.

“From a fiscal point of view, mental health is basically a drop in the bucket. It’s not where the big savings are going to need to come from,” Pope said.

Medicaid reimbursement rates for mental health services vary dramatically from state to state. Reimbursement for an hourlong individual psychotherapy session ranged from $95 to $135 in 2022, according to a 2023 study published in the journal Health Affairs.

States generally have flexibility in setting their physician reimbursement rates. So “if states have money to increase reimbursement rates,” they can do that, Pope noted. And many states have done that. According to a January 2023 KFF report, nearly two-thirds of the 44 states that responded to a survey said they increased behavioral health reimbursement rates for some Medicaid enrollees in 2022 or planned to in 2023.

Oregon passed a bill during its 2022 session to raise the state’s Medicaid behavioral health reimbursement rates by an average of 30% for providers who mostly see Medicaid patients, in an effort to address mental health care workforce challenges. In 2022, the state had the fourth-highest rate for unmet need in mental health treatment across the nation. Now, the state has one of the highest reimbursement rates.

“In Oregon, they actually have always really committed to paying providers well and giving cost-of-living updates so that it makes it much more attractive to providers providing Medicaid services,” Jen Yerty, a licensed counselor in Portland, Oregon, told Stateline. But Yerty said the higher reimbursement rate is the bare minimum to keep providers interested. She said she helps her clients with case management, including assisting them with accessing social services and rental aid.

“It would be great if they would actually reimburse us more for all the case management things that we do. It would be great if they offer a lot more resources,” Yerty said.

But behavioral health services, such as a psychological test to assess mental health function, are not one of the federally required Medicaid services, like a primary care doctor visit.

Gillaspy, of the American Psychological Association, noted the level of services offered across states also varies. And case management and psychological testing are exactly the types of services that may be on the chopping block as states consider cuts, he said.

What states can and have done

Researchers at KFF point out four main ways states have been trying to address mental health workforce shortages for state Medicaid programs. They include increasing reimbursement rates, reducing administrative burden on providers, creating licensure compacts to allow providers to work across state lines or reducing licensure requirements, and incentivizing participation by, for example, reimbursing providers quickly.

Megan Cole, an associate professor of health policy at Boston University, told Stateline there are other options states could pursue, such as raising taxes to offset the federal cuts and keeping reimbursement rates high. She also said Medicaid can ask primary care providers to start integrating preventive mental health screenings and services before care becomes acute and requires an emergency room visit.

“There are models of care that work well in this space, and not every state is currently implementing them. So I think there is a lot of opportunity for expansion of some of these integrated care models,” Cole said.

Another option she recommends is for states to invest in community health centers, where a lot of patients on Medicaid see mental health providers.

Investment in public health facilities is also what Michigan Republican state Rep. Phil Green had sought when he cosponsored a bill with Democratic lawmakers in 2023 to increase reimbursement rates to community behavioral health clinics. But the bill died last year, likely because other issues took priority, he said.

Green told Stateline that mental health issues are a bipartisan issue. Green says lawmakers in his caucus, including some veterans, are well aware that mental health issues are a big concern within the population. “Republicans and conservatives alike realize that this is a growing issue and a growing need.”

He thinks that if the feds cut their contributions to Medicaid, state Republican lawmakers will still be interested in finding some solutions to the shortage of mental health care workers.

In California, the state in 2023 implemented changes to improve reimbursement for providers of Medicaid mental health and substance use disorder services through county behavioral health departments. The goal of the effort was to remove some of the common problems providers faced, including long delays in reimbursements and lengthy auditing processes.

David Hindman, a past president of the California Psychological Association, said the most important effect was to increase the rates of reimbursement to help meet the increased costs of providing care for Medicaid recipients. Hindman works for the Los Angeles County Department of Public Health, but said he is not authorized to speak on behalf of the department.

“We’ve actually expanded services significantly,” Hindman said. “It’s completely incentivized provider agencies to see low-income patients because it gives them better reimbursement rates. It covers more things.”

Still, Hindman said, clinicians not working through county health departments who see a lot of Medicaid patients still struggle with making ends meet. And he says states will still have to explore solutions to the workforce shortage in the face of major federal funding cuts.

Stateline reporter Shalina Chatlani can be reached at schatlani@stateline.org.

©2025 States Newsroom. Visit at stateline.org. Distributed by Tribune Content Agency, LLC.