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Updated October 5, 2023
Medicaid’s Institution for Mental Diseases (IMD) Exclusion
Medicaid is a joint federal-state program that finances the
Legislative History
delivery of primary and acute medical services, as well as
The IMD exclusion was part of the Medicaid program as
long-term services and supports, for a diverse low-income
enacted in 1965 as part of the Social Security Amendments
population, including children, pregnant women, adults,
(P.L. 89-97). The exclusion was designed to assure that
individuals with disabilities, and people aged 65 and older.
states rather than the federal government maintained
primary responsibility for funding inpatient psychiatric
Medicaid’s IMD exclusion limits the circumstances under
services. However, federal Medicaid law as originally
which federal Medicaid funding to states is available for
enacted included an exception to the IMD exclusion for
inpatient behavioral health care (i.e., mental health or
individuals aged 65 and older, consistent with the federal
substance use disorder [SUD]). In recent years, many
government’s new role in financing the care of older adults.
policymakers have expressed concerns about the way the
In 2018, 42 states provided this optional coverage for
IMD exclusion is affecting access to behavioral health care.
individuals aged 65 and older.
Recent federal guidance from the Centers for Medicare &
Medicaid Services (CMS) and the Substance Use-Disorder
The Social Security Amendments of 1972 (P.L. 92-603)
Prevention That Promotes Opioid Recovery and Treatment
provided another exception to the IMD exclusion for
for Patients and Communities Act (SUPPORT Act; P.L.
children under the age of 21 (or in certain circumstances
115-271) have amended the IMD exclusion.
under the age of 22), commonly referred to as the “Psych
Under 21” benefit. This optional benefit allows states to
What Is the IMD Exclusion?
provide coverage for inpatient psychiatric services to
The IMD exclusion is a long-standing policy under
children in certain types of facilities. However, these
Medicaid that prohibits the federal government from
services are mandatory for states to cover if an early and
providing federal Medicaid funds to states for services
periodic screening, diagnosis, and treatment (EPSDT)
rendered to certain Medicaid-eligible individuals who are
screen of a child determines inpatient psychiatric services
patients in IMDs (§1905(a)(30)(B) of the Social Security
are medically necessary. As a result, all states provide
Act [SSA]). When a Medicaid-eligible individual is a
Medicaid coverage of inpatient psychiatric services for
patient in an IMD, he or she cannot receive Medicaid
individuals under the age of 21.
coverage for services provided inside or outside the IMD.
Due to the exceptions explained in the “Legislative
History” section, the IMD exclusion applies to individuals
aged 21 through 64.
“The term ‘institution for mental diseases’ means a
hospital, nursing facility, or other institution of more
than 16 beds, that is primarily engaged in providing
diagnosis, treatment, or care of persons with mental
diseases, including medical attention, nursing care, and
The Medicare Catastrophic Coverage Act of 1988 (P.L.
related services.” (SSA §1905(i).)
100-360) created the statutory definition of an IMD, which
followed the regulatory definition with one addition: the
Determination of whether a facility is an IMD depends on
exception for facilities with 16 beds or fewer. Thus, small
whether its overall character is that of a facility established
facilities can receive Medicaid funding, which indicates
and maintained primarily to care for and treat individuals
Congress supported the use of smaller facilities rather than
with mental diseases. Examples include a facility that is
larger institutions.
licensed or accredited as a psychiatric facility or one in
which mental disease is the current reason for
Inpatient Mental Health Services for
institutionalization for more than 50% of the patients.
Persons Aged 21 Through 64
Taking into consideration all the statutory exceptions, the
For the definition of IMDs, the term mental disease
IMD exclusion prevents the federal government from
includes diseases listed as mental disorders in the
providing federal Medicaid funds to states for any service
International Classification of Diseases, with a few
delivered to individuals aged 21 through 64 in an IMD.
exceptions. (See CMS State Medicaid Manual, Part 4,
However, even with the IMD exclusion, states can receive
§4390.) Under this definition, SUDs are included as mental
federal Medicaid funding for inpatient behavioral health
diseases. If the substance abuse treatment follows a
services for individuals aged 21 through 64 outside of an
psychiatric model and is performed by medical personnel, it
IMD. States can provide Medicaid coverage for services
is considered medical treatment of a mental disease.
rendered in facilities that do not meet the definition of an
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Medicaid’s Institution for Mental Diseases (IMD) Exclusion
IMD, such as facilities with 16 or fewer beds and facilities
SUPPORT Act State Plan Option for SUD Services
that are not primarily engaged in providing care to
Section 5052 of the SUPPORT Act added a new state plan
individuals with mental diseases.
option, beginning October 1, 2019, and ending September
30, 2023, to provide Medicaid coverage of Medicaid
Medicaid DSH Payments
enrollees aged 21 through 64 with at least one SUD who are
States also can provide Medicaid disproportionate share
patients in an eligible IMD for no more than a period of 30
hospital (DSH) payments to IMDs, but these are lump-sum
days (whether or not consecutive) during a 12-month
payments provided to the facilities rather than payments for
period.
services rendered. (See CRS Report R42865, Medicaid
Disproportionate Share Hospital Payments.) Most states
An eligible IMD is defined as an IMD that (1) follows
focus their Medicaid DSH funding on hospitals, but some
reliable, evidence-based practices and (2) offers at least two
states use this funding for IMDs. In FY2022, 30 states
forms of medication-assisted treatment for SUDs on site.
provided Medicaid DSH payments to IMDs, and 2 of these
states spent all of their Medicaid DSH funding on IMDs.
As a condition of the state plan option, states would have to
maintain the annual level of state expenditures for items
Section 1115 Waivers
and services furnished to Medicaid enrollees aged 21
States may request a Section 1115 waiver to receive federal
through 64 with at least one SUD in (1) eligible IMDs and
Medicaid funds for services provided to individuals who are
(2) outpatient and community-based settings.
patients in IMDs. Between 1993 and 2009, nine states had
approved Section 1115 waivers allowing these states to
Also, as a condition of the state plan option, states are
receive federal Medicaid funds for behavioral health
required to ensure that a continuum of services is available
services in IMDs. All except one of these waivers were
by (1) notifying the Secretary of Health and Human
phased out.
Services of how individuals receive evidence-based clinical
screening before receiving services in an eligible IMD;
Then, in July 2015, CMS issued guidance notifying states
(2) providing coverage of certain outpatient, inpatient, and
that certain Section 1115 waivers would be approved for
residential services; and (3) ensuring appropriate transition
short-term stays in IMDs for individuals receiving SUD
from an eligible IMD to receiving care at a lower level of
treatment. The CMS guidance for these waivers was
clinical intensity.
amended in November 2017.
Under the state option, individuals receiving IMD SUD
In November 2018, CMS issued guidance, as mandated by
services also must receive Medicaid coverage of services
Section 12003 of the 21st Century Cures Act (P.L. 114-
provided outside the IMD. Before the state option expired,
255), about opportunities to design innovative systems for
two states were participating.
adults with serious mental illness (SMI) and children with
serious emotional disturbance (SED). This guidance allows
Recent Developments
states to provide Medicaid coverage through Section 1115
In recent years, the IMD exclusion has been a topic of
waivers for short-term stays in IMDs for individuals with
debate in Congress as focus has grown on the effect this
SMI and SED.
policy has on access to behavioral health services. There is
some interest in eliminating the IMD exclusion, which
According to the Kaiser Family Foundation, as of
leads to questions about Medicaid’s role in providing
September 26, 2023, 35 states had approved Section 1115
institutional care for behavioral health. Thus far, most of
waivers allowing states to receive federal Medicaid funds
the exceptions to the IMD exclusion are for Medicaid
for SUD services in IMDs and 11 states had an approved
coverage of short-term stays in an IMD.
waiver for mental health services. At that time, 6 states had
pending waivers for SUD services, and 7 states had a
In the past two Congresses, three bills have been introduced
pending waiver for mental health services.
that would fully repeal the IMD exclusion and at least seven
additional bills have been introduced that would amend it in
Medicaid Managed Care
some way. In April 2023, the Congressional Budget Office
Under Medicaid managed care coverage, states may make
(CBO) released a report that estimated the budgetary effects
monthly payments to managed care organizations for
of repealing the IMD exclusion or permanently extending
enrollees aged 21 through 64 who are patients in an IMD.
the SUPPORT Act state plan option. For each of these
In May 2016, CMS added this policy to regulations, and
policy options, CBO discussed a few different ways to
Section 1013 of the SUPPORT Act codified the regulations.
implement the policy. CBO estimates these policy options
It specified that states may make payments to managed care
would increase federal Medicaid outlays from $155 million
organizations for enrollees aged 21 through 64 who are
to $38.4 billion over a 10-year period.
patients in an IMD as long as the length of stay in the IMD
is no more than 15 days during the month of the payment.
Megan B. Houston, Analyst in Health Care Financing
According to the Kaiser Family Foundation, 31 states
reported providing this IMD coverage through their
IF10222
managed care programs in state fiscal year 2020.
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Medicaid’s Institution for Mental Diseases (IMD) Exclusion
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