RD4 - Medicaid Coverage for Substance Abuse Treatment: A Process for Evaluating Cost Benefits and Cost Offsets


Executive Summary:
The 2000 Session of the Virginia General Assembly appropriated $5,056,251 in General Funds to support expansion of Medicaid coverage for substance abuse treatment, effective July 1, 2001. This appropriation was made after receiving information from a feasibility report jointly conducted by the Department of Mental Health, Mental Retardation and Substance Abuse Services (DMHMRSAS) and the Department of Medical Assistance Services (DMAS). The mechanism of federal fund participation available from Medicaid effectively doubles this amount. In addition, the two departments were directed to develop regulations to support the expansion and to develop a plan to study the cost benefits and cost offsets of using Medicaid to fund substance abuse treatment.

Fairly extensive studies have been conducted about the cost benefits and cost offsets of providing substance abuse treatment. Most studies have used information from health maintenance organizations that cover the employed, middle class population. These studies consistently found that health care utilization costs were lowered after treatment, but strongly indicate that these costs are only apparent several years after the treatment episode.

Recently some studies have been conducted using the population that relies on publicly funded substance abuse treatment. These studies have also found savings in the area of health care utilization, as well as reduced costs associated with the criminal justice system. The Medicaid population, however, is different from other publicly supported populations, in that it consists mostly of children, pregnant women, women with dependent children, and the elderly, aged, blind and disabled. Members of these groups are less likely to interact with the criminal justice system than the general population seeking publicly funded substance abuse treatment services.

The proposed plan includes two studies. The first would review health care utilization of persons who had received Medicaid funded substance abuse treatment for the four years prior to treatment and the four years after the first treatment episode. This report would examine these data every four years so that the information could be available for the Governor's use in constructing his budget. This study would cost approximately $110,000 to conduct.

The second study reviews the impact the use of Medicaid revenue has had on public treatment capacity. Since persons eligible for Medicaid are currently treated with support from state, general and local funds, use of Medicaid resources to support this population allows the current resources to support non-Medicaid populations or services not covered by Medicaid. This study would also track the cost of the Medicaid substance abuse benefit.