Manatt on Health: Medicaid Edition

Manatt on Medicaid: Coverage and Delivery of Adult Substance Abuse Services in Medicaid Managed Care

Authors: Patricia Boozang, Managing Director, Manatt Health Solutions | Deborah Bachrach, Partner, Manatt, Phelps & Phillips, LLP

Editor’s Note: Medicaid’s role in purchasing and delivering substance abuse services is changing dramatically. In a new technical assistance brief, summarized below, Manatt Health explores state strategies for purchasing substance abuse services, with a focus on states that use managed care for the purchase and delivery of health services. The brief reviews the current landscape of substance abuse coverage in Medicaid managed care states, as well as the paradigm shift that the Affordable Care Act (ACA) Medicaid expansion created in terms of substance abuse eligibility, benefits and provider capacity. It discusses current and planned approaches to substance abuse benefit delivery for adults in six states using managed care delivery systems: Arizona, Maryland, Massachusetts, New Mexico, New York and Washington State.

The brief is a product of the Medicaid Managed Care Information Resource Center, a project sponsored by the Centers for Medicare & Medicaid Services, Center for Medicaid and CHIP Services, Division of Integrated Health Systems.

Prior to the implementation of the ACA, most state Medicaid programs did not cover childless adults and covered only a limited number of parents. Moreover, coverage of substance abuse services traditionally had been an optional Medicaid benefit. As a result, many states provided only limited substance abuse service coverage.

Twenty-seven states plus Washington, DC, are expanding Medicaid in 2014 and will collectively cover as many as 5 million adults with incomes up to 133 percent of the federal poverty level (FPL).1 Benefits extended to these newly covered adults must include mental health and substance abuse services that meet the requirements of the Mental Health Parity and Addiction Equity Act (MHPAEA). Taken together, these changes are a major catalyst for transforming substance abuse service coverage and delivery in Medicaid.

Delivering a Wider Range of Mental Health and Substance Abuse Services to the Expansion Population  

States are preparing to deliver a broader range of mental health and substance abuse services to the expansion population. Newly eligible Medicaid beneficiaries must receive an Alternative Benefit Plan (ABP) covering 10 categories of essential health benefits (EHBs), including mental health and substance abuse services.2 In contrast, only certain substance abuse service types fall into mandatory coverage categories for non-ABP State Plans, such as physician services, inpatient services (including medically necessary inpatient detoxification) and Early and Periodic Screening, Diagnostic and Treatment (EPSDT) services for children and adolescents who are 21 or younger. Coverage of most substance abuse services is optional.

Federal rules also extend the statutory parity requirements of MHPAEA to ABPs, meaning that states must apply similar strategies for covering and managing substance abuse services as they do for medical/surgical benefits.3 Cost-sharing requirements, quantitative treatment limitations (e.g., visit limits) and nonquantitative treatment limitations (e.g., prior authorization procedures) must be no more restrictive for substance abuse services than for medical/surgical benefits.4

With Medicaid expanding to include single and childless adults, many states will cover, for the first time, a significant number of individuals released from jail or prison, many of whom have substance use disorders (SUDs). One source estimates that 20 to 30 percent of new Medicaid enrollees in 2014 are likely to be people reentering the community from jails.5 Sixty-eight percent of jail inmates have substance dependence or abuse issues.6 Coordinating with the criminal justice system and ensuring continuity of coverage will present state Medicaid programs and their managed care contractors with unique challenges.

Transitioning to New Models of Delivery and Payment

Substance abuse providers also will face challenges in transitioning to new models of delivery and payment, particularly related to participating in Medicaid and contracting with insurance companies. Historically, many substance abuse providers have relied on grant funding and have had only limited interaction with Medicaid and health insurance systems. As of 2008, about 40 percent of nonprofit substance abuse facilities did not accept private insurance or Medicaid, and about half had no contracts with managed care plans.7  

The expansion of Medicaid coverage to new adults, a significant portion of whom have SUDs, coupled with substance abuse benefit and parity requirements, will impose new pressures on the substance abuse treatment delivery system at the state, managed care plan and provider levels. As Medicaid’s role in covering and delivering substance abuse services expands, states, plans and providers are considering how best to position themselves to take on their increasing responsibilities.

Reviewing Key Takeaways for Substance Abuse Benefit Administration from Six States

To understand states’ experiences with delivering substance abuse services—and their perspectives on current and planned approaches to addressing emerging challenges—we reviewed managed care programs in six expansion states: Arizona, Maryland, Massachusetts, New Mexico, New York and Washington State. While these states share the same goal—purchasing cost-effective, quality, integrated care for a vulnerable population—they are pursuing different pathways to reach it. As other states examine redesigning their Medicaid substance abuse systems, they can learn from the key takeaways observed in these six states:

1. State managed care models for substance abuse delivery continue to evolve. Even states that already cover adults at expanded income levels and provide more generous mental health and substance abuse benefits are significantly modifying or replacing previously implemented models for substance abuse benefit management. In most cases, they are moving substance abuse benefits into integrated managed care models with physical health benefits, mental health benefits or both. States see these arrangements, with a single financing stream and contracting entity for multiple provider types, as supporting better care integration, including primary care in behavioral health settings, behavioral health services in primary care settings, care tailored to co-occurring SUDs and mental illness, and service coordination across settings.

2. States are investing in substance abuse provider capacity and giving technical assistance to substance abuse providers. States are expanding substance abuse service provider capacity, particularly diversionary and step-down programs that offer less costly alternatives to inpatient care. In addition, as they expand their benefit packages and provider networks, states are developing outreach and training resources for substance abuse providers that for the most part have little experience with Medicaid or health insurance.

3. States are beginning to develop strategies to integrate social services for beneficiaries with SUDs. While state Medicaid agencies and MCOs generally have limited experience interacting with social services organizations, they are starting to develop initiatives to address social determinants of health by coordinating and facilitating access to social services and housing supports for Medicaid beneficiaries with SUDs.

4. States, plans and other stakeholders are beginning to focus on the expansion’s implications for individuals coming out of jail or prison, most of whom will be eligible for Medicaid for the first time. A significant number of individuals in the Medicaid expansion group with SUDs have connections to the criminal justice system. Some states are beginning to bridge Medicaid and corrections through:

  • Improving cooperation among MCOs, social services organizations and correctional facilities;
  • Fostering relationships among local substance abuse agencies, police and jails; and
  • Developing protocols addressing crisis services, jail diversion and safety.


The expansion of Medicaid under the ACA represents a sea change for states with respect to the coverage of substance abuse services. As they prepare to cover a broader scope of substance abuse services for a population with a greater prevalence of SUDs than current Medicaid enrollees, states are facing—and will continue to face—important questions about their delivery system models for substance abuse services. These questions range from how to achieve better coordination among primary care and substance abuse providers to how to ensure substance abuse treatment providers are prepared to meet Medicaid requirements.

There is no magic bullet. The approaches states choose to address these issues will depend on their unique culture, politics, infrastructure and capacity. The experiences of the six states examined in this brief, however, provide useful insights for other states reexamining their strategies for covering managed care enrollees with SUDs.

Medicaid expansion presents states with a long list of challenges and opportunities. Improving the coverage and delivery of substance abuse services is among the greatest of each.



1 November 6, 2013. 24 States Are Refusing to Expand Medicaid. Here’s What That Means for Their Residents. Washington, DC: Administration of President Barack Obama.

2 Medicaid and Children’s Health Insurance Programs: Essential Health Benefits in Alternative Benefit Plans, Eligibility Notices, Fair Hearing and Appeal Processes, and Premiums and Cost Sharing; Exchanges; Eligibility and Enrollment; Final Rule, 78 Fed. Reg. 42160 (July 15, 2013).

3 Mann, C. January 26, 2013. SHO # 13-001/ACA #24. Application of the Mental Health Parity and Addiction Equity Act to Medicaid MCOs, CHIP, and Alternative Benefit (Benchmark) Plans.

4 Ibid.

5 Regenstein, M. June 18, 2013. Jail Populations: Characteristics and Coverage. Rockville: SAMHSA-HRSA Center for Integrated Health Solutions.

6 James, DJ and LE Glaze. September 2006. Mental Health Problems of Prison and Jail Inmates. Washington, DC: Bureau of National Statistics.

7 Substance Abuse and Mental Health Services Administration. December 2009. National Survey of Substance Abuse Treatment Services (N-SSATS): 2008. Data on Substance Abuse Treatment Facilities. Rockville: Substance Abuse and Mental Health Services Administration.



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