True Parity Means Eliminating Medicaid's IMD Exclusion

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True Parity Means Eliminating Medicaid's IMD Exclusion

by Bruce Rheinstein, J.D., Policy Analyst

Copyright 1999, The Treatment Advocacy Center
Originally appeared in Catalyst Vol. 2, No. 2, March/April 2000.

If you get sick today with a disease in your heart, liver, or any other organ but are unable to pay for appropriate treatment, federal Medicaid funds will help pay for your care. But if you are between the ages of 21 and 65, have a severe mental illness and require hospitalization in a psychiatric hospital, the federal Institutions for Mental Disease (IMD) Exclusion bars the use of Medicaid funds for your treatment.¹ If, on the other hand, you are hospitalized in the psychiatric ward of a general hospital or in a nursing home -- where you likely will receive a lower quality of care for your illness - Medicaid pays.

The Surgeon General’s recent report on mental health views the crisis through rose -colored glasses. For example, the Surgeon General criticizes private insurance companies for failing to provide "parity" in their coverage of mental illnesses, but is totally silent on the failure to provide parity in Medicaid, the federal government's insurance program. For the most severely mentally ill, private insurance is essentially meaningless. Many are indigent because of their illnesses and private insurance is a luxury they cannot afford and are not in a position to obtain through employment.

While the federal government is a relatively new player in the mental illness treatment arena -- getting involved in 1965 with the advent of Medicaid and Medicare -- it plays a major role in funding care for those with the severest of psychiatric disorders. In 1962, for example, federal dollars comprised just two percent of the total funds in the mental illness treatment system, with state and local government contributing the remaining 98 percent. By 1994, however, the federal share had increased to 62 percent of the total money spent.²

The IMD exclusion precludes states from using those federal funds for most of the care provided in state psychiatric hospitals, making the IMD exclusion a gigantic economic carrot feeding the process of deinstitutionalization. States started locking the front door and opening the back, in an effort to get patients out of state funded hospitals and into settings where the federal government would help pay the tab. As a result, it has become increasingly difficult for the most severely ill to get inpatient treatment. Hospitals are discharging patients sicker and quicker in a mad long dash to make them Medicaid eligible by ending their inpatient residency. The primary question that drives the system today is not "what does the patient need?" but rather "what will federal programs pay for?"

The consequences of Medicaid’s discriminatory nature are staggering for the severely mentally ill, their families and the communities in which they live. The United States has lost effectively 93% of its state psychiatric hospital beds since deinstitutionalization began in 1955³, resulting in increased rates of incarceration, homelessness, victimization and violence.⁴ The race for Medicaid dollars has, in fact, reduced the total number of state psychiatric hospital patients to less than 60,000 today, compared to 500,000 in 1965 when Medicaid was enacted.

For many people with severe mental illness, deinstitutionalization has meant nothing more than transinstitutionalization from a hospital ward to a prison cell. A grim reality indeed.

A recent study by Steven Raphael at the Goldman School of Public Policy at Berkeley established a causal connection between deinstitutionalization of the severely mentally ill from state psychiatric hospitals and increases in rates of incarceration in jails and prisons.

According to the Department of Justice's (DOJ) statistics, 275,900 persons (16% of all prisoners) in state jails and prisons are mentally ill. With some 3,500 and 2,800 mentally ill inmates respectively, the Los Angeles County Jail and New York's Riker's Island are currently the two largest psychiatric inpatient treatment facilities in the country.⁵

With many states still closing hospitals, the trend to criminalize the mentally ill continues. More hospitals closed between 1990 and 1997 than in the previous two decades combined.⁶ While New York has instituted a one-year moratorium on further hospital closures, closings continue in other states. For example, Virginia proposes to close Eastern State Hospital and plans on closing most of the remaining state psychiatric hospitals, Hawaii is closing its only state psychiatric hospital and Vermont is converting much of its state hospital into a prison.

You can help end Medicaid discrimination against persons with severe mental illnesses by contacting your representatives in Congress and telling them to support repeal of the IMD Exclusion. Information on the IMD Exclusion and how to contact Congress is available on our website at under "Hospital Closures" or you can use the sample letter below. For more information, please call the Treatment Advocacy Center at 703-294-6001, or send an email to [email protected].

^{1 42 USC 1396r-4

2 E. Fuller Torrey, Out of the
Shadows: Confronting America’s Mental Illness Crisis, 99 (1997)
3 In 1955 the U.S.
had a population according to the Census Bureau of some 164 million. By 1996 the
population had increased to 265 million. Meanwhile the number of patients in state and
county mental hospitals dropped from 558,239 to 61,722. U.S. Dept. of Health Education and
Welfare, Pub. Health Service Publication No. 574. Patients in Public Hospitals for the
Mentally Ill. (1956) Substance Abuse and Mental Health Services Admin., Ann. Survey of St.
& County Mental Inpatient Services, U.S., 1996 (1998)

4 Ten to 13
percent of individuals with schizophrenia and 15 to 17 percent of those with
manic-depressive disorder will die from suicide. The rate for the general population is
about one percent.While they constitute only about 0.5 percent of the general
population, persons with untreated severe brain disorders account for 4.3 percent of all
homicides. They commit 12.3 percent of spousal murders, 15.9 percent of murders of
children by a parent, 25.1 percent of murders of a parent by a child and 17.3 percent of
murders of a sibling by a sibling. An estimated one-quarter to one-third of the Homeless
population suffer from severe mental illness. See Treatment Advocacy Center,
Briefing Paper: Repeal of the Institution for Mental Diseases Exclusion (1999)

^{5 Fox Butterfield,
Prisons Replace Hospitals for the Nation’s Mentally Ill, NY Times, March 5, 1998
at A1

6 According
to information provided by the NASMHPD (National Association of State Mental Health Policy
Directors) Research Institute, some 40 state psychiatric hospitals closed their doors
between 1990 and 1997.

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