Restoring Inpatient Mental Health Access Act: Removing 50-Year-Old Medicaid Funding Ban on Mental Health Facilities

If you’ve ever tried to help a family member find inpatient mental health care through Medicaid, you probably ran into the brick wall known as the IMD Exclusion. For decades, this federal policy has prevented Medicaid from paying for services for most adults aged 21–65 in psychiatric hospitals or residential treatment centers with more than 16 beds—formally known as Institutions for Mental Diseases (IMDs).

The Restoring Inpatient Mental Health Access Act of 2025 is a straight-shot attempt to tear down that wall. The bill directly amends the Social Security Act, specifically Section 1905(a), by striking the language that enforces the IMD Exclusion. Essentially, it removes the statutory prohibition that stops federal Medicaid dollars from flowing to these facilities for adult care, a change that applies to medical assistance furnished starting on or after January 1, 2027.

The Real-World Impact of Removing the Exclusion

For the average person, this isn't some abstract policy debate; it’s about access to care when life hits its hardest. The IMD exclusion has long been criticized for creating a massive gap in mental health coverage. Imagine a young adult, maybe 28, who is experiencing a severe mental health crisis. If they needed more than a few days of stabilization and their only coverage was Medicaid, the facility they needed—a dedicated psychiatric hospital or long-term residential center—couldn't bill Medicaid for their stay simply because of the bed count.

This forced states and providers to get creative, often relying on patchwork funding, short-term stays, or steering patients toward emergency rooms, which are the most expensive and least effective places for long-term mental health treatment. By removing the exclusion, this bill opens the door for federal financial participation (FFP) in these services. This means states can now use federal Medicaid matching funds to pay for inpatient and residential treatment, which should dramatically increase the availability of beds and services for Medicaid recipients.

A Temporary Bridge to 2027

While the core change is permanent, the bill includes a specific section that references services furnished before January 1, 2027. This detail is a bit technical, but it suggests a careful transition or an acknowledgment of existing temporary waivers or state programs that were already attempting to work around the exclusion. The full, permanent removal of the IMD language kicks in on January 1, 2027, which is when providers and states will truly feel the shift in funding availability.

For states, this is huge. Currently, many states use state-only funds to pay for IMD services, or they rely on limited waivers. This bill shifts a significant portion of that financial burden back to the federal government, freeing up state budgets and theoretically allowing for greater investment in mental health infrastructure. For the millions of Americans who rely on Medicaid, this bill means that when a severe crisis hits, the necessary inpatient care might finally be covered without navigating a bureaucratic maze designed to deny payment. It’s a move toward treating mental health with the same financial parity as physical health under the nation's largest public insurance program.