Medicaid is the single largest payer for mental health services in the United States – providing services and supports for 58 million adults and children. In 2006, the Medicaid as a whole (including physical as well as mental health expenditures) provided more than a quarter trillion dollars of health care funding ($241B), or about one sixth of the Nation's health care spending and nearly half of spending on long-term care.

Working in partnership, Federal and State governments, along with advocates, have developed an evolving array of mental health services and supports configured to reflect the uniqueness of each state and locality. Medicaid has been, and continues to be, the linchpin of all these program designs. Each State formulates and administers a State plan (subject to Federal regulations and guidelines) outlining the nature and scope of the services to be provided in that State under Medicaid.

In 2001, President George W. Bush launched the "New Freedom Initiative" designed to promote full access to community life for people with disabilities. Under that initiative, a transformation of mental health care in America is well underway. This comprehensive transformation, among other things, builds on the 1990 Americans with Disabilities Act (ADA) and the Supreme Court's landmark 1999 decision in Olmstead v. L.C., which emphasizes the requirement that services be provided to the maximum practicable extent within the community rather than in institutional settings.