For many individuals and organizations, uncertainty has been the prevalent feeling as the effects of the recent economic downturn are felt across the country. These effects will certainly be discussed for many months (and years) to come; including how the recession will affect mental health and substance use (M/SU) financing. Although it’s difficult to tell for certain, the impacts will likely resonate through the M/SU and healthcare communities for years to come through increased case loads, reduced funding, and difficult state and local fiscal conditions.

With increased economic anxiety about jobs, portfolios, and mortgages comes increased stress on individuals and their families. There is evidence that concerns related to employment have a negative impact on mental and physical health. [1] Based on the downturns in the 1990s and early 2000s,  health and human services agencies and organizations in many states are likely to experience an increased case load, resulting in higher Medicaid and other human service program expenditures.

Unfortunately, while there may be an increased need for behavioral health services, there may not be enough funding to support the increase, which may spur eligibility changes or programming reductions. In Fall 2008, the National Association of State Budget Officers (NASBO) reported that state spending was projected to decrease by 0.1 percent in Fiscal Year 2009 compared with the historical average growth rate of 6.7 percent per year. [2] In the time since the State Budget Officers’ report, states have dramatically altered their projections.  It is anticipated that spending for FY09 will be lower than NASBO originally reported and state budgets will likely contract.  According to recent figures published by the National Governors Association, at least 30 states are currently facing budget shortfalls for FY09, totaling $30 billion. [3]

While the last economic turndown lasted just eight months, ending in November 2001, its effects on state budgets were felt well into fiscal 2004 [4]. During that time, states were able to mitigate the effects of the downturn by drawing on tobacco settlements funds, raising tobacco excise and fuel taxes, and drawing down accumulated reserves. In 2002, NASBO reported that it typically took 12 to 18 months following a recession for states to experience revenue growth. Today it is anticipated that the current economic downturn will be longer and deeper than the 2001 recession and states will have a more difficult time accommodating declines in tax revenues that fund M/SU programs. 25 states are already reporting shortfalls in FY10 of $60 billion. [5]

Non-governmental M/SU funding is also at risk. Many foundations and non-governmental organizations rely on investment income from trusts or endowments to fund projects and services. While some have committed to maintaining funding for programs and services, many others are likely to trim back programs to adjust to current financial conditions. [6]

The good news is that economic downturns are not permanent and this downturn will ultimately come to an end. States are currently lobbying for a stimulus package to ease Medicaid funding through an increase in the “federal match,” fund social programs to prevent budget cuts, and increase infrastructure funding to create new jobs. However, given the long budget cycle in most states and the federal government we should not overlook the need to also deal with longer term planning since renewed funding appropriations will become available after the downturn has subsided and caseloads are back to normal levels.

Although the outlook is not yet known, this downturn may present the M/SU community with an opportunity to discover new and diverse financing approaches for M/SU services, create new partnerships, and consider new possibilities for its mission. Now, more than ever, we will have to collaborate and share ideas across organizations as the fallout from the current economic situation is sorted out.

[1] M W Linn, R Sandifer and S Stein, American Journal of Public Health, Vol. 75, Issue 5 502-6

[2] “The Fiscal Survey of States: Spring 2003,” National Governors Association and National Association of State Budget Officers

[3] “State Economic Review, December 2008,” National Governors Association

[4] “The Fiscal Survey of States: Spring 2003,” National Governors Association and National Association of State Budget Officers

[5] “State Economic Review, December 2008,” National Governors Association

[6] Statement from A Message from Risa Lavizzo-Mourey on the Effects of the Global Financial Crisis on the Robert Wood Johnson Foundation, Oct 31, 2008

State Mental Health Agencies (SMHAs) are the state government agencies charged with organizing, delivering, and financing services to persons with severe mental illnesses in every state. Collectively, SMHAs are responsible for the delivery of mental health services to over 6 million persons each year and control over $30 billion in expenditures for this care. The persons served by SMHAs are frequently minorities (31%), unemployed (22% were employed), lack private health insurance (54% receive Medicaid), and often have serious mental illnesses or emotional disturbances (66%).

Because mental health services in America are largely organized at the state level, and every state organizes its mental health system differently, SMHAs’ experiences in financing mental health services provide both a learning opportunity and challenge to the mental health field.

SMHAs report that on average, 54% of mental health consumers have Medicaid paying for at least part of their mental health treatment. However, SMHAs vary widely in the proportion of the persons served who use Medicaid, from a high of 100% of persons served by the Maine SMHA and 88% of persons served in Maryland to 19% of persons served in North Dakota and 23% of persons served in Nebraska.

State general revenue funds remain the largest single source of funding (63%) for SMHAs, but Medicaid has been the fastest growing source of funds for the last 20 years and now accounts for 42% ($12.5 billion). SMHAs vary widely regarding how much they rely on Medicaid for the SMHA-controlled expenditures (from a high of 86% in Washington and 84% in Rhode Island to a low of 2% in Hawaii and 4% in Connecticut.

States vary in how much they use Medicaid Managed Care Waivers to organize the delivery of mental health services.  While some states use Medicaid MC Waivers for almost all Medicaid financed services, other states have no waivers and have not implemented managed care.

The NASMHPD Research Institute, Inc. (NRI) is working with SAMHSA and the SMHAs to identify and track the different financing methods used by states. Working with the new NASMHPD Financing and Medicaid Division, the NRI is updating its state MH Agency Profiles system to better track and identify new financial approaches, the use of Medicaid, and the impact of state and federal parity laws on the public mental health system.  Results from this new compilation will be available in early 2009.

As the discussion above indicates, SMHAs vary widely in how they organize and finance their mental health systems. As a result of this variation, changes in rules for financing mental health services through Medicaid or Medicare, private insurance parity, and redirection of state general fund dollars will have a different impact on each state. However, these variations may also allow SAMHSA and the new Financing Center of Excellence to identify numerous natural experiments in financing of mental health services among the states.