Rural Behavioral Health: The Policy Shifts Needed Now
The mental health crisis in rural America is urgent. As of August 2024, more than one-third of the U.S. population—122 million people—lives in a Mental Health Professional Shortage Area, with rural counties far more likely than urban counties to lack behavioral health providers.
Telehealth has shattered geographic barriers, creating access for people who could never drive an hour to a specialist. But screens don't solve the core crisis: lack of licensed providers willing to accept Medicaid's low reimbursement rates. On average, Medicaid pays psychiatrists at 81% of Medicare rates, with most states paying less than 76%. Telehealth makes existing capacity reachable, but it doesn't create it.
New federal transformation funds may help. But the real challenge is whether state Medicaid leaders will use their most powerful existing tools—or wait for federal solutions that may never come.
The Federal Constraint That Changes Everything
Recent federal policy shifts have fundamentally altered the risk calculus for states. In March 2025, CMS rescinded Health-Related Social Needs guidance. In April 2025, they announced phasing out Designated State Health Programs funding ($4B in state resources). In July 2025, they ended continuous enrollment waivers in 17 states.
The political reality: states submitting new State Plan Amendments risk triggering comprehensive federal reviews that could scrutinize—and potentially terminate—existing approved programs unrelated to the new request. For states with existing HRSN waivers or DSHP funding, submitting new SPAs isn't just administratively complex—it's politically dangerous.
This constraint doesn't eliminate options. It demands strategic use of lower-risk policy levers.
Three Strategic Pathways Forward
1. Stabilize Independent Providers Through Rates (Where Risk is Acceptable)
In vast stretches of rural America, the independent behavioral health provider is the only licensed capacity available. More than half of U.S. counties had no practicing psychiatrist in 2018. Counties outside metropolitan areas had one-third the psychiatrists and half the psychologists compared to urban areas. 90% of rural health systems reported labor shortages in 2024.
For states willing to accept federal review risk, State Plan Amendments to increase Medicaid rates in Behavioral Health Professional Shortage Areas remain the most direct capacity-building tool. Multiple states have deployed this successfully: North Carolina appropriated $220 million in recurring funds to increase rates to 120% of Medicare for psychiatric diagnostics and 100% for other services. Virginia increased rates 10% for crisis services and doubled partial hospitalization reimbursement from $250.62 to $500 per diem.
For risk-averse states, managed care contract modifications can require MCOs to enhance payments in shortage areas without federal rate approval. State-only funded rate increases avoid federal match and federal review entirely.
2. Deploy the Unlicensed Workforce You've Already Approved
Policy advocates spent years urging states to create Medicaid reimbursement for Community Health Workers and Peer Support Specialists. That battle is largely won: 37 states reimburse peer specialists, and as of January 2024, over half of state Medicaid programs cover CHW services through SPAs, managed care, or waivers.
The problem is no longer policy authority—it's implementation infrastructure.
The most recent billing data (2016-2020) showed only 731 CHWs billing Medicaid across 9 states. Nationally, 57,180 CHWs existed, yet only 18,204 were registered as providers. Since 2020, policy adoption accelerated dramatically (15 states now have CHW SPAs versus just 1 in 2021), but we lack data showing whether billing caught up.
States are addressing this: California is enrolling community-based organizations as Medicaid providers. South Dakota raised reimbursement to $64.86/hour after slow uptake. Maine created a paid CHW consultant group to advise on implementation.
States don't need new waivers—they need:
Provider enrollment processes for community-based organizations
Training on proper billing codes for CHWs and employers
MCO contract requirements mandating CHW/peer specialist deployment
Technical assistance for rural providers
The ROI is proven: randomized trials show CHWs save $2,500 per enrollee annually through prevented hospitalizations. Medicare pays CHWs almost $80/hour—a CHW seeing six patients daily can bill over $100,000 annually.
Critical for burnout reduction: 68% of behavioral health workers say administrative tasks take time away from direct client support. CHWs and peer specialists can handle care coordination, SDOH navigation, and follow-up—freeing licensed providers to focus on clinical work. This isn't just about access—it's about making the licensed workforce sustainable.
3. Expand CCBHCs and Mandate Primary Care Integration
The most expensive behavioral health interventions happen in Emergency Departments. Transformation requires moving upstream.
Certified Community Behavioral Health Clinics provide 24/7 crisis response and integrated primary care with enhanced Medicaid rates. National data shows CCBHCs achieve 72% reduction in hospitalization, 40.7% reduction in homelessness, and 60.3% reduction in jail time. They serve 25% more patients on average and create 27 new staff positions per clinic. They work because prospective payment replaces fee-for-service volume incentives, funding upstream prevention.
The Strategic Funding Tradeoff: CCBHCs are a critical model, but states must recognize the shifting federal risk profile:
SAMHSA Grants: SAMHSA provides direct grants for CCBHC planning and certification, which traditionally bypass the full Medicaid waiver review process. This makes them administratively quicker.
The Caution: However, these competitive grants are now facing significant federal budget cuts and program consolidation risks. Relying on them for long-term operational stability is dangerous.
States should use SAMHSA grants to plan and seed the CCBHC model, but they must use Medicaid policy (SPAs or 1115 Waivers) to codify the enhanced PPS reimbursement for long-term sustainability. The ultimate risk to states is not applying for the grants, but failing to secure the permanent Medicaid financing that continues the service once the temporary grant funding ends.
For rural primary care integration, states can implement enhanced payments reimbursing independent behavioral health providers for consultation time with rural PCPs—e-consults, phone calls, medication management advice. When both sides get paid for coordination that keeps patients stable, capacity extends without requiring specialist presence in every community.
The Strategic Choice
What policy hurdle do you see as the single greatest blocker to behavioral health capacity in rural communities?
The tools exist:
SPAs for rate increases: High impact, but federal review risk for states with existing Biden-era waivers
MCO contract modifications: No federal approval needed, immediate implementation
CHW/peer specialist implementation: Authority exists in most states, barrier is infrastructure
CCBHC expansion: SAMHSA grants bypass Medicaid review process (if they remain a viable option)
Administrative simplifications: Credentialing reforms don't require SPAs
States must decide: use available tools strategically despite constraints, or use federal policy shifts as justification for inaction while rural communities hemorrhage behavioral health capacity.
In 2023, 46% of adults with mental illness received no treatment. In rural America, that gap is wider. Closing it requires more than waiting for federal solutions. It requires state Medicaid agencies that understand which levers carry acceptable risk—and pull them.
The transformation moment is now. The question is whether states will navigate constraints strategically or simply wait.
References
Health Resources and Services Administration. "State of the Behavioral Health Workforce." November 2024.
Rural Health Information Hub. "Rural Mental Health Overview." 2024.
Commonwealth Fund. "Understanding the U.S. Behavioral Health Workforce Shortage." May 2023.
Health Affairs. "Medicaid Reimbursement For Psychiatric Services: Comparisons Across States And With Medicare." April 2023.
North Carolina Medicaid. "NC Medicaid Behavioral Health Services Rate Increases." November 2023.
Virginia Department of Medical Assistance Services. "Behavioral Health Service Rate Updates Effective January 1, 2024."
National Council for Mental Wellbeing. "Certified Community Behavioral Health Clinic Model Improving Outcomes and Expanding Access." October 2021.
Mississippi Department of Mental Health. "2022 CCBHC Impact Report."
Council of State Governments. "Mental Health Matters: Addressing Behavioral Health Workforce Shortages." October 2024.
Kaiser Family Foundation. "State Policies for Expanding Medicaid Coverage of Community Health Worker Services." August 2023.
NASHP. "Behavioral Health Workforce Innovations: How Massachusetts and New York Engage Community Health Workers and Peers." April 2023.
Kaiser Family Foundation. "Medicaid Waiver Tracker: Approved and Pending Section 1115 Waivers by State." October 2025.