As we’ve discussed previously, mental health parity is a law that sounds good in theory, but in reality providers run into obstacles at every turn. Lack of access, enforcement, and reimbursement disparities are well-documented issues within mental health. But in at least one case, the problem lies with the language of the law itself.
Mental health conditions and physical health conditions are to be treated equally under plans covered by the parity law and that would include Medicaid Managed Care Plans (MCOs). So then why are psychiatric hospitals and other residential treatment facilities with more than 16 beds prohibited from using Medicaid to pay for care? In short, because it’s the law.
Even though MCOs are supposed to provide the same coverage for mental and physical health under parity laws, Medicaid itself never allowed for that coverage: yet another loophole in the complicated maze of mental health parity.
When Medicaid was enacted in 1965, that specific exclusion (known as “the IMD exclusion”) was written into the Medicaid law itself. The thinking was that institutions for mental disease (IMDs) would soon be obsolete given “advancements in new antipsychotic medications that allowed some people with serious mental illness to live safely in the community for the first time“ and this exclusion would disincentivize treatment in large institutions.
Given the state of inpatient facilities today, it would seem this exclusion not only succeeded in its goal of disincentivizing treatment in large institutions; it indeed helped bring about a crisis in mental health care in the US.
Is this exclusion really that big of a deal? For starters, it certainly violates the spirit of parity laws, and for that reason alone it must be eliminated.
Beyond that, we can clearly see how this exclusion has contributed to the crisis we see in our communities today due to lack of mental health services including:
- ER staff having nowhere to send someone in crisis due to the lack of inpatient psychiatric beds.
- ERs often having no choice but to release people who are in crisis to deal with their illnesses on their own. 
- Lack of mental health support, which has led to an increase in violent behavior in our communities.
- Individuals in need of mental health support often ending up in jail or homeless. 
Given that about one in eight visits to emergency rooms involves a mental health or substance use disorder,  we need to be doing more to support our health care providers on the front lines.
They no more want to turn away people in need of inpatient mental health services than they do someone having a heart attack.
Eliminating the IMD
exclusion is certainly no magic wand, but it is an arbitrary, discriminatory
aspect of the Medicaid law that is part of the problem and is most definitely
out of sync with current mental health parity laws.