Medicaid is a joint federal-state health insurance program for people with low income.

States administer the program pursuant to certain federal rules and regulations, and the federal government makes matching payments to the states to cover a share of the costs. Under a policy known as the institutions for mental diseases (IMD) exclusion, the federal government does not make matching payments to states for expenditures for services provided to Medicaid enrollees ages 21 to 64 who are in certain types of inpatient facilities. Federal reimbursement is available, however, under several exceptions to the IMD exclusion.

States make extensive use of those exceptions.

In this report, the Congressional Budget Office estimates the budgetary effects of two options, each with three variants, for expanding federal Medicaid payments for those excluded services.

• Under current law, states may amend their Medicaid plan and receive federal matching funds through September 30, 2023, for care for Medicaid enrollees ages 21 to 64 with at least one substance use disorder (SUD) in eligible IMDs if several criteria are met.1 Permanently extending that option (referred to as the “state plan option” throughout this report) would increase federal Medicaid expenditures by $155 million to $560 million, on net, over the 2024–2033 period; the range reflects three alternative specifications of the option that CBO examined.

• Eliminating the IMD exclusion would increase federal Medicaid expenditures by larger amounts.

Eliminating the exclusion for stays for SUDs would increase those expenditures by $7.7 billion, on net, over the 2024–2033 period; eliminating the exclusion for stays for mental health disorders would increase those expenditures by $33.5 billion, on net; and eliminating it for both types of stays would increase those expenditures by $38.4 billion, on net.