ABSTRACT
State governments act as both third-party payers and as direct providers of mental health services, and in this dual role are doubly susceptible to the dislocations caused by changing federal roles. This chapter focuses on a framework for studying the states’ role in the mental health component of the health care financing system. It focuses on the approach to regard the state as a strategic player in a sequential game composed of the federal government, state and local governments, and participants in private markets. Changes in the division of responsibility among levels of government have been the driving force of mental health policy. The largest item in the public mental health budget is the cost of state psychiatric hospitals. When the federal government created the Medicaid program in the 1960s, it did not wish to assume the costs of state psychiatric hospitals, and federal regulations prohibit Medicaid payments to institutions for mental disease for 22–64 years aged persons.
