DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
Center for Medicaid and CHIP Services 
 
CMCS Informational Bulletin 
 
 
DATE:  December 3, 2012 
 
FROM:  Cindy Mann, Director 
    Center for Medicaid and CHIP Services (CMCS) 
 
SUBJECT:  Coverage and Service Design Opportunities for Individuals with Mental Illness and 
Substance Use Disorders 
 
The purpose of this CMCS Informational Bulletin is to provide information regarding services and 
good practices for individuals with a behavioral health disorder1.  The Centers for Medicare & 
Medicaid Services (CMS) is encouraged with the increased interest by states to develop effective 
strategies for developing benefit designs for this population2.  Many states have included behavioral 
health services for these individuals in the state plans and various Medicaid managed care waivers.  
More recently, states are considering or have taken advantages of new opportunities offered through 
the health Home program, Money Follows the Person program, Balancing Incentive Program and the 
revised section 1915(i) Home and Community Based Services state plan option.  Looking forward, 
states will have more opportunities to develop good benefit design as a result of the Mental Health 
Parity and Addictions Equity Act (MHPAEA) and benchmark plan for individuals in the Medicaid 
expansion population.  Given this interest, we are releasing a series of Informational Bulletins that 
will provide additional information regarding services and supports to meet the health, behavioral 
health and long term services and support needs of individuals with mental health or substance use 
disorders.  
 
Background 
 
There are several major drivers that are influencing CMSs decision to develop this guidance 
regarding individuals with behavioral health disorders.  These drivers will impact state decisions to 
review and revise their benefit design. 
 
  Medicaid is the largest payer for mental health services in the United States, comprising 27 
percent of all expenditures for mental health services. As a result, Medicaid coverage policy 
can have a significant impact on the health of this population as well as the quality and costs 
of both health and behavioral health services.   
 
  Individuals with mental health disorders represent comprise almost 11 percent of the 
individuals enrolled in Medicaid and represent almost 30 percent of all Medicaid 
expenditures.  It is anticipated that 14 percent of the individuals who are uninsured and have 
incomes below 133 percent of the Federal Poverty Line may have a substance use disorder3.    
 
                                                 
1 For the purposes of this series a behavioral health disorder is defined by Substance Abuse and Mental Health Services Administration 
(SAMHSA) as mental and substance use disorder. 
2 For the purposes of this series of bulletins benefit design is defined as the amount, scope and duration of services as well as other 
important characteristics of delivering a specific service(s).  
3 : http://www.samhsa.gov/enrollment/states.aspx#estimates  CMCS Informational Bulletin  Page 2 
 
  Individuals with a behavioral health disorder utilize significant health care services.  Nearly 
12 million visits made to U.S. hospital emergency departments in 2007 involved individuals 
with a mental disorder, substance abuse problem, or both, according to News and Numbers4, 
Agency for Healthcare Research and Quality.  These visits account for one in eight of the 95 
million visits to emergency departments by adults that year.  Almost a quarter of hospital 
admissions are associated with a mental or substance use disorder.   
 
  Access to Medicaid coverage can help beneficiaries get access to the care and services they 
need for their substance use disorder, reduce ER visits and hospital visits and better manage 
their condition.  Providing effective substance abuse treatment to Medicaid recipients have 
been shown to offset their medical costs by 20 percent5. 
 
  Early identification and intervention of mental health and substance use disorders are critical 
for children, youth and adults.  Almost eight percent of youth 12-17 in the Medicaid/CHIP 
program had a major depressive disorder in 20096.  This number is significantly higher for 
youth in child welfare (18.1 percent).  American Indian/Alaska Native youth have almost 
three times the rate of suicide than the general population.    
 
  Newly developed CMS policies and programs support states efforts to rebalance and reform 
their service delivery system, especially for individuals with behavioral health issues.  In 
addition, new policies regarding home and community based settings will positively impact 
the housing options for individuals with behavioral health conditions.  These policies and 
programs are in part a response to the United States Department of Justice (DOJ) efforts under 
the American with Disabilities Act to ensure meaningful community integration for people 
with disabilities, and state compliance with the Supreme Court decision in Olmstead vs. LC. 
 
  Recent legislation (the Childrens Health Insurance Reauthorization Act and section 2701 of 
the Affordable Care Act) requires the Secretary to identify core quality measures to be used 
for children and adults that participate in the CHIP and Medicaid program.  Initial measures 
include screening for depression and follow up after hospitalization for mental illness.  In 
addition, four key quality measurement projects are currently underway in Home and 
Community Based Services (HCBS) programs.  The projects test a variety of measurement 
sets that address quality of life, health, satisfaction, impact of program design, and system 
balancing.     
Principles and Goals for Coverage of Individuals with Mental and Substance Use Disorders 
 
There is a generally accepted set of principles regarding behavioral health that may guide the 
development of new and existing services.  We believe that these general principles can apply to 
provision of behavioral health services and cross the lifespan of individuals who need and use these 
services.  At a minimum, these principles recognize that: 
 
  Identifying and treating mental illness and substance use disorders is essential to improving 
overall health. 
                                                 
4 Owens P.L., Mutter R., Stocks C. Mental Health and Substance Abuse-Related Emergency Department Visits among Adults, 2007. 
HCUP Statistical Brief #92. July 2010.  Agency for Healthcare Research and Quality, Rockville, MD.  http://www.hcup-
us.ahrq.gov/reports/statbriefs/sb92.pdf 
5 State of Colorado, Department of Health Care Policy and Financing, Medicaid Outpatient Substance Abuse Treatment 
Benefit,Performance Audit, November 2010, p.2 
6 Mental Health, United States, 2010, US Department of Health and Human Services, Substance Abuse and Mental Health Services 
Administration, p.105  CMCS Informational Bulletin  Page 3 
 
 
  Services and programs should be person-centered and support health, recovery and resilience 
for individuals and their families who experience mental or substance use disorders. 
    
  Individuals and families should have choice and control over all aspects of their life, including 
their mental health and substance use disorder services. 
 
  Benefit designs should be cost effective and seek to reduce costs across the health care system 
for unnecessary services. 
 
  Services should be of high quality and consistent with clinical guidelines, evidence-based 
practices or consensus from the clinical and consumer communities.    
 
  Services should maximize community integration. 
 
To effectively implement these principles, CMS has developed some initial goals that will direct our 
internal work to support effective benefit design for individuals with behavioral health disorders.  
These goals include:  
    
  Effective use of screening for mental and substance use disorders, including strategies to refer 
and effectively treat individuals with these conditions.   
 
  Increased access to behavioral health services for persons with serious and/or chronic 
disorders. 
 
  Improved integration of primary care and behavioral health, and in some instances, long term 
services and support to obtain better health outcomes for individuals with mental and 
substance use disorders.   
 
  Better availability of Evidenced Based Practices to enhance recovery and resiliency and 
reduce barriers to social inclusion. 
 
  Strategic development, implementation and testing of new benefit design and service delivery 
with models that are taken to scale.  
Resources for States 
 
CMS has identified existing and, in cooperation with our federal partners, is developing new 
resources for states seeking to enhance their efforts to address the service need of individuals with 
mental and substance use disorders.  These resources seek to support states in their efforts to improve 
benefit design, comply with MHPAEA, develop community integration strategies and coordinate 
behavioral health care with primary care and other services.  
 
Supporting an Effective Benefit Design 
 
CMS is working closely with other federal partners including the Administration on Children, Youth 
and Families (ACYF) and the Substance Abuse and Mental Health Services Administration 
(SAMHSA) to identify effective practices for individuals with behavioral health conditions.  Over the 
past several years, these agencies have developed guidance regarding these practices.  In November 
of 2011, ACYF, SAMHSA and CMS disseminated a letter on the appropriate use of anti-psychotic  CMCS Informational Bulletin  Page 4 
 
medication among children in foster care.  This guidance offered expanded opportunities to States to 
strengthen their systems for prescribing and monitoring psychotropic medication use among children 
in foster care.  This guidance can be found at http://www.medicaid.gov/Federal-Policy-
Guidance/downloads/SMD-11-23-11.pdf 
 
These three agencies coordinated a technical expert panel on effective services and supports for 
children and youth in treatment foster care settings.  The recommendations from this panel will be 
available in 2013. 
 
In 2010 SAMHSA released a brief describing a good and modern mental health and substance 
abuse system.  This document sought to provide clarity to federal agencies (including CMS) that 
regulate or purchase services for individuals with mental and substance use disorders and offer 
guidance to agencies that are presently making decisions about expanding services to these 
populations.  This may be helpful in rethinking or constructing a benefit design that includes good 
practices.  This guidance can be found at 
http://www.samhsa.gov/healthReform/docs/good_and_modern_4_18_2011_508.pdf.  
 
Mental Health Parity and Addiction Equity Act  
 
CMS has released guidance to States regarding the Mental Health Parity and Addiction Equity Act 
(MHPAEA).  This State Health Official letter can be found at 
http://downloads.cms.gov/cmsgov/archived-downloads/SMDL/downloads/SHO110409.pdf.   
 
Over the past several years the Departments of Labor, Treasury and Health and Human Services have 
developed additional guidance regarding MHPAEA.  While focused on commercial group plans, it 
provides some useful background information and additional guidance to clarify the 2010 MHPAEA 
regulations.  The Department of Labors Website also provides up to the date information including a 
series of frequently asked questions that provides additional guidance regarding parity: 
http://www.dol.gov/ebsa/consumer_info_health.html. 
 
SAMHSAs Resource Guide: http://www.samhsa.gov/healthReform/parity also provides information 
that may be helpful to understand MHPAEA.    
 
Community Integration 
 
CMS has taken several important steps to enhance efforts to integrate individuals with disabilities, 
including individuals with a mental or substance use disorders into home and community settings.  In 
addition, we are working closely with DOJ, and other HHS agencies to recommend effective 
strategies for addressing issues related to the Supreme Courts Olmstead ruling.  This includes 
participation in SAMHSAs Olmstead Policy meeting and offering technical assistance in 
cooperation with the Department of Housing and Urban Development to states specific to community 
integration.  This technical assistance includes supporting states to develop strategies to assure home 
and community-based services are offered in settings that comport with the characteristics described 
in the 1915(i) and Community First Choice (CFC) program.  A description of these characteristics 
can be found on page 105 of the Notice of Proposed Rule Making for the CFC and 1915(i) program 
https://s3.amazonaws.com/public-inspection.federalregister.gov/2012-10294.pdf.   In addition, the 
DOJ provides an overview of the Olmstead ruling and questions and answers regarding DOJs 
integration enforcement efforts at http://www.ada.gov/olmstead/q&a_olmstead.pdf. 
 
    CMCS Informational Bulletin  Page 5 
 
Integration of Physical and Behavioral Health 
 
Strategies to integrate primary care and behavioral health services are paramount to improving the 
lives of individuals who suffer from depression, addiction and other chronic diseases.  In addition, 
better coordination between hospitals, primary care and behavioral health providers can address the 
increasing trend of individuals at risk of suicide.  There are many resources available that can 
improve the coordination between primary and behavioral health care.  For instance, the Center for 
Health Care Strategies is the federal contractor providing information and technical assistance to 
states in their development of health homes and strategies for coordinating care for Medicare and 
Medicaid beneficiaries.  Additional information can be found at 
http://www.integratedcareresourcecenter.com.    
 
Applicability for CMS Programs 
 
There are a variety of current and new coverage options that States may use to cover behavioral 
health services.  Traditionally States have amended their Medicaid State Plans to make changes to 
their benefit design.  However, over the past several years, CMS has new authorities that can also 
address the physical, behavioral and long term services and supports needs for individuals living with 
a mental health and/or substance use disorder.  A brief description of options to cover these 
individuals is presented available at http://www.medicaid.gov/Medicaid-CHIP-Program-
Information/By-Topics/Benefits/Mental-Health-Services-.html.             
 
Sequencing of Subsequent Bulletins 
 
Over the next year, CMS will distribute a series of informational bulletins that will provide further 
information regarding service coverage for individuals with mental illness and/or substance use 
disorder.  The series will address: 
 
  Prevention and early intervention of mental health conditions for children, youth and adults.  
This will include information regarding screens that can be used to identify the early onset of 
mental illness (including conditions related to trauma and suicide) or substance use, including 
strategies for enhancing states efforts to comply with EPSDT requirements.  This bulletin 
will also discuss strategies for screening, brief intervention and referral to treatment as well as 
other preventive services recommended by the United States Prevention Services Task Force 
regarding recommended screening to identify possible behavioral health issues.   
 
  Adolescents and adults who use alcohol and illicit drugs.  This bulletin will provide 
information on services that have been recommended by SAMHSA and other federal agencies 
to address individuals who need short term treatment as well as individuals who have an 
addictive disorder that need more long term services and supports.   
  
  Benefit design for children and adolescents with significant mental health issues, including 
serious emotional disturbances.  Information in this bulletin will describe effective benefit 
design for individuals who have acute mental health issues including exposure to trauma.  The 
bulletin will also include long term services and supports that have been used in the 1915(c) 
HCBS, 1915(b) waiver programs and various CMS demonstration including the Psychiatric 
Residential Treatment Facilities Demonstration and Money Follows the Person.  Another 
bulletin will address the structure coverage and payment for the benefit category of inpatient 
psychiatric hospital or facility services for individuals under age 21 to ensure that children 
receiving this benefit obtain all services necessary to meet their medical, psychological, 
social, behavioral and developmental needs, as identified in a plan of care.  CMCS Informational Bulletin  Page 6 
 
 
  Service coverage for adults with a significant mental health condition.  This will include 
individuals who have a serious and persistent mental illness, especially those individuals that 
have significant health and mental health co-morbidities.   
We hope this information will be helpful.  CMS is available to provide technical assistance to States 
regarding the Medicaid program for individuals with a behavioral health condition.  Questions 
regarding this guidance can be directed to John OBrien at (410) 786-5529.  We look forward to 
continuing our work together.